Deschutes Brewery, Inc.

901 S.W. Simpson
Bend, Oregon 97702
U.S.A.
Telephone: (541) 385-8606
Fax: (541) 383-4505
Web site: http://www.deschutesbrewery.com

Private Company
Incorporated: 1988
Employees: 55
Sales: $29.2 million (2001)
NAIC: 312120 Breweries; 722110 Full-Service Restaurants

Deschutes Brewery, Inc. has been in the business of making handcrafted, traditional style beers since 1988. Unusual for its focus on marketing the Deschutes brand name rather than its individual brews, and for featuring a porter as its flagship product, the company distributes its Black Butte Porter, Mirror Lake Pale Ale, Cascade Ale, and Obsidian Stout in nearly a dozen western states.

An Old-Style Tradition Starting Anew in 1988

The Deschutes Brewery was founded in 1988 as a “brewpub” by Gary Fish, a newcomer both to Oregon and to brewing. Fish named his business for the county in which it is located and the river that flows through it. The first brewery to open in Bend, Oregon, it met at first with an uncertain reception. “People didn’t know how to take us,” Fish recalled in a Bend Bulletin article published in 1992. “A lot of people insisted we would never last.”

The new brewpub hit a low spot in December of its first year, when ten straight batches of beer went bad due to a flaw in the brewery’s design and had to be dumped. The grain mill was located directly over the mash tun, and airborne bacteria on the grain dust kept infecting the beer. Once the problem was solved, Deschutes beer began selling in Portland and Fish’s dark, flavorful beer caught on. The brewery sold 310 barrels of beer its first year, far exceeding Fish’s expectations of a few kegs of excess capacity to nearby central Oregon resorts.

Three years later, in 1992, Deschutes sold 3,954 barrels of its traditional style ales and lagers, two-thirds of which were distributed outside the company’s restaurant in downtown Bend. According to company literature, Deschutes grew because of its emphasis upon “quality first. . . [u]sing the highest quality ingredients available, and taking more time and more care in the brewing process…” and because it emphasized restoring a sense of community through locally produced and distinctive ales and lagers. “We want people to feel like this is, in a lot of ways, theirs,” Fish told Bend Bulletin in November 1992.

Deschutes beers were distinguished from the start by their full flavor, distinctive feel, and hop character. Brewmaster John Harris used only four ingredients: water, whole hops, malt, and yeast—all selected to be fresh and pure. The brewery’s beers were either unfiltered or filtered and kraeusened (a traditional process that occurs when beer is blended with working wort [rapidly fermented beer] before bottling). It results in a complex, full-bodied flavor with natural carbonation, replacing flavor that is inevitably lost during filtration.

Deschutes drew on the European tradition of beer manufacturing lost during the growth of the large American breweries and rediscovered in the mid-1970s in California with the development of microbreweries. Despite the recession in the United States in the late 1980s and early 1990s, the domestic hand-crafted beer industry began expanding at a rate of about 40 percent a year, having grown in momentum and popularity as it headed north. In 1980 there were fewer than ten microbreweries nationally; by 1990, there were 178. Yet microbreweries still accounted for only 1 percent of the national beer market by 1990 as opposed to Anheuser-Busch’s 43 percent. In Oregon—which became home to the largest number of microbreweries nationally—sales of all handcrafted beers combined accounted for only 4 percent of total beer sales in the state in 1993.

The philosophy and practice of the microbrewery stood in opposition to that of the U.S. food and beverage industry which favored national marketing, franchising, uniformity, and advertising. Yet this opposition seemed to be the very reason for the popularity of the trend. Microbreweries encouraged local distinction and nostalgia—a return to the time before Prohibition when locally operated breweries were as common as hardware stores and bakeries in the United States. The renaissance of the microbrewery occurred at the same time that domestic big brewers and premium importers were experiencing a decline in sales. In 1989 the national sale of imported beers had dropped off 8 percent.

Growth Despite an Industry Decline in the Early 1990s

By 1992 the Deschutes Brewery & Public House could not make enough beer to keep up with demand, although the company did not do any marketing. Ready to grow from a boutique brewery to a regional brewery, the company broke ground on a new 16,000-square-foot production brewery that, when completed in 1993, dwarfed its original Bond Street home. The new brewhouse was able to produce beer in 50-barrel or 1,575-gallon batches, an increase in capacity five times that of its original facility. Newer brewery equipment and technology made for more efficient brewing.

The new building was designed to be a landmark befitting the largest brewery in central Oregon, with a glass-front, three-story brew tower. Barley grain started at the top of the tower and flowed down through the mill and into the mixer, the mash tun, and brew kettle, before being pumped into the primary fermenter. The facility also included a bottling line, allowing Deschutes to enter into package sales for the first time. The new brewery took over much of the burden of production from the company’s original facility, although the brewpub continued to produce beer for on-premises customers and to be the testing ground for new products. Scaled back in size, the original pub facilities were remodeled to include a restaurant and kitchen. The move to a production brewery represented a large step forward—from a small, craft-oriented pub to a manufacturing operation. Fish was optimistic when questioned about his company’s growth in the November 1992 Bend Bulletin. “There’s still a lot of market out there we have yet to begin serving . . . [and] I think that demand is going to continue to grow. The industry as a whole is in the toddler stage now.”

The new facilities began production in 1993 under the direction of the new Deschutes brewmaster, former scientist Dr. Bill Pengelly. For the next several years, Bend’s first brewery continued to grow, producing beers ranging in color from amber to deep red or smoky dark brown with flavors from creamy rich to fruity or tangy. Regular Deschutes brews were complemented by seasonal or holiday ales and lagers. Interviewed in the Oregonian in 1996 about the state of Oregon’s microbrewery industry, Fish, as president of the Oregon Brewers Guild, commented, “This industry is changing so much, growing so fast, and it’s still so young. … Our challenge is going to be keeping the industry craft-oriented, and we do that by focusing on our common issues instead of our differences.”

Continued Growth in the Late 1990s

By the late 1990s the microbrewery industry was “finally coming of age,” according to Fish in an April 1998 Bend Bulletin article. Microbreweries had about 3 percent of the national beer market and 8 percent of the market in the Northwest. As a result, carving out additional market share became more difficult. “It’s going to slow down,” Fish said. “We’re going to see the top of the curve.” The growth rate for the craft-brewing industry had peaked in 1994 and 1995, according to David Edgar of the Institute for Brewing Studies in an April 1999 Oregonian article, with a growth rate of 50 percent for each of the two years. By 1997 and 1998, growth had stalled.

But as the microbrewery craze lost steam nationwide and publicly owned breweries declined in share value, Deschutes Brewery was still going strong. In 1996 Deschutes produced 45,000 barrels of beer, up from 31,000 in 1995. Among craft brewers in Oregon it was second only to Widmer Brothers Brewing Company. Although most of the company’s growth came from its existing markets in Oregon and Washington, in early 1997 it began selling beer in Hawaii and planned to enter the California market in the spring.

As Deschutes tapped into the West Coast market, it made plans to expand its new facilities, doubling the size, and installing automated equipment which required more skilled, higher-wage workers. However, despite increased capacity, the company remained focused on marketing only on the West Coast. “One of the mistakes that people in this industry made, I think, was that they tried to create national brands,” Fish opined in a December 1997 Oregonian article.

Deschutes saw its annual sales grow 18 percent from 63,500 barrels in 1997 to 76,100 barrels in 1998, with distribution in close to ten western states. Its restaurant in downtown Bend still did good business, but contributed only 15 percent of the company’s revenues. The fourth largest craft brewer in the Northwest in terms of volume continued to invest very little in advertising, choosing instead to put its efforts into developing a strong network of 75 distributors.

Although there were still more than 420 small brewers in the United States (up from 200 in 1994), more microbreweries closed than opened in the United States in 1999. Deschutes, its expansion completed, had the capacity to produce 120,000 barrels a day. In 2000 it replaced Widmer as the top selling brewery in Oregon and Washington. Black Butte Porter, the brewery’s flagship brew, had captured a 90 percent share of the market for porters in the Northwest.

Company Perspectives

Deschutes Brewery is committed to excellence in hospitality and in brewing, marketing and selling the finest handcrafted products while upholding the utmost respect for our customers, community and each other.

Key Dates

1988:

Gary Fish founds Deschutes Brewery.

1993:

Deschutes begins production in its new facilities.

1999:

Deschutes expands its warehouse, production, and administrative space.

Deschutes brewed 102,000 gallons of beer and won two medals at the prestigious Brewery International Awards in 2001 —gold for its Mirror Pond Pale Ale and silver for its Black Butte Porter. A clear leader in the field of microbreweries and remarkable for its ongoing success, Deschutes continued in its strategy—unusual for its industry—of regional sales and branding focused on the Deschutes name rather than its individual beers.

Principal Competitors

Widmer Brothers Brewing; BridgePort Brewing; Full Sail Brewing Company; Oregon Brewing Company.

Further Reading

Bolt, Greg, “Beer-Maker Brews Up Expansion,” Bend Bulletin, November 1992, p. C1.

Foyston, John, “Brewin’ in the Background,” Oregonian, October 11, 1996, p. 4.

_____, “Deschutes Brewing: Good Beers Come to Those Who Wait,” Oregonian, June 25, 1999, p. 8.

Francis, Mike, “Craft Brewing Loses Its Buzz,” Oregonian, December 30, 1997, p. C1.

Freeman, Mike, “Newcomer Steps Up to Community Plate,” Bend Bulletin, April 5, 1998, p. 61.

Giegerich, Andy, “Deschutes Brewery Barreling in Now As Northwest’s No. 1,” Business Journal-Portland, October 20, 2000, p. 3.

Hill, Jim, “Brewers Fight for Their Lives,” Oregonian, April 20, 1999, p. C1.

Khermouch, Gerry, “Micro Marketing,” Brandweek, December 11, 2000, p. 18.

—Carrie Rothburd