Anheuser-Busch

Counterpoint: Craft Beer Isn’t Dying

Jim Koch, the founder of Boston Beer Company, warned last month that industry consolidation had put craft beer on the endangered list.

John Hall, the founder of Goose Island Brewery, begs to differ. He predicts a bright future for craft as a whole because it is so diverse, innovative, and in-sync with customers. Hall cites self-distribution (which is legal in many states), and state laws allowing breweries to serve pints, as two factors that change the equation for small breweries.

Hall also explains why Goose Island agreed to be taken over by Anheuser-Busch. One alternative was contract brewing, as Boston Beer has done for many years. Another was to take the company public; however, he didn’t like the idea of having to report every quarter to Wall Street. That left A-B.

Of the A-B deal, Hall said, “Like all big business decisions, it was risky being one of the first craft brewers to partner with a big brewer. But we preferred to partner with brewers who understood the beer business. Through our partnership with Anheuser-Busch, Goose Island was able to do what Boston Beer did, reach consumers nationwide while retaining the quality and integrity of our beer, and our brand.”

The Friday Mash (Old School Edition)

On this day in 1364, Jagiellonian University was established in Krakow, Poland; and on this day in 1551, the National University of San Marcos, the oldest in the Americas, was established in Lima, Peru.

And now…The Mash!

We begin in Rochester, New York, where Genesee Brewing Company, which is undergoing a $49 million expansion, plans to transport 12 fermentation tanks via the Erie Canal. The tanks are too big to transport by highway or by rail.

It’s baseball season, and CraftBeer.com would like to introduce you to seven beers brewed especially for minor-league teams. Enjoy them with your peanuts and Cracker Jack.

Think you can’t sing? Organizers of the Twin Cities Beer Choir want to convince you otherwise. You buy the beer, and the Choir provide you with sheet music and plenty of friends.

An Indiana gas station owner found a clever loophole to the state’s ban on selling cold beer at convenience stores. He instal

Why Is A-B Buying Craft Breweries?

hris Herron, the CEO of Creature Comforts Brewing Company, has an explanation for why Anheuser-Busch is acquiring craft breweries.

Herron, who worked in finance in the beverage industry, starts by explaining that goodwill—the value of a brand above its physical assets—makes up more than 50 percent of A-B’s assets, $136.5 billion to be exact. However, if A-B’s flagship brands, Budweiser and Bud Light, continue to lose market share, A-B will have to take an “impairment charge” to reflect the brands’ loss of value. That charge would amount to tens of billions of dollars, which would clobber the company’s stock price.

Impairment charges are looming because A-B positioned Bud and Bud Light as “premium” brands, which commanded a higher price and were perceived as superior to competing brands. However, with the growth of the craft beer sector, Bud and Bud Light are no longer considered “premium”. Nor can A-B restore those brands to premium status by raising prices, because doing so would cause them to lose even more market share, this time to Miller and Coors.

Back to the craft brewery acquisitions. Herron believes that A-B bought them for two reasons. The first is to capture some of craft beer’s growth and, at the same time, slow it down. The acquisitions help capture growth; meanwhile, A-B’s sheer size allows gives it an advantage over independent craft breweries. It can use its buying power to secure raw materials, push its craft brands through its distribution network, and spend heavily to market those brands. A-B’s second objective is to regain the goodwill associated with the Bud and Bud Light brands. Aggressive competition by A-B’s craft breweries will force independent craft brewers to cut prices; that, in turn, would narrow the price gap between craft and A-B’s brands, and diminish the perception that those brands are no longer premium.

Herron sums up A-B’s strategy:

The impairment charges AB InBev could face are worth billions more than any craft brand they have purchased, and those purchases would be a small price to pay to save a legacy brand. These craft brands, whether they realize it or not, may just be pawns in the AB InBev game of chess. AB InBev is not a collaborator, they are a competitor, and a damn smart one. If one of these craft brands they buy is a successful long-term brand, great, but more important to AB InBev, is the vital role they play in the short-term of ensuring that their premium brands retain long-term value.

The Friday Mash (Mutiny on the Bounty Edition)

On this day in 1789, crewmen led by Fletcher Christian seized control of the HMS Bounty from its captain, William Bligh; and set Bligh and 18 loyalists adrift. Bligh survived, and then began the process of bringing the mutineers to justice.

And now…The Mash!

We begin at the 2017 Craft Beer Conference, where Virginia governor Terry McAuliffe rolled out the red carpet for breweries. The governor said he personally recruited Stone, Deschutes, Ballast Point, and Green Flash to come to the state.

In Birmingham, England, Anheuser-Busch came under heavy criticism from city officials after the company’s guerrilla marketers were caught handing out free beers to homeless people.

Tony Gwynn, Jr., is working at AleSmith Brewing Company, which released a pale ale to salute his father’s .394 batting average in 1994. The younger Gwynn is concentrating on a session IPA.

Draft magazine correspondent Brian Yeagar visited a couple of the world’s most-remote breweries. One is in Ushuaia, Argentina; and the other is on Easter Island, some 2,300 miles west of South America.

Fair warning: If you use swear words inside a Samuel Smith pubs, the landlord has the power to cut you off—or even ban you—under the brewery’s zero-tolerance policy for cursing in its establishments.

In Myrtle Beach, South Carolina, golfer John Daly showed he hasn’t changed. Daly entertained fans by teeing off with a beer can instead of a golf ball, then finishing off the can’s contents afterward.

Finally, the Brewers Association is cracking down on sexist beer names. Under the BA’s terms of service, brewers of offending beers will no longer be allowed to advertise that those beers have won a medal at the World Beer Cup or the Great American Beer Festival.

Jim Koch Sounds the Alarm

Boston Beer Company jump-started America’s craft beer movement and made its founder, Jim Koch, a billionaire. But in a recent op-ed in the New York Times, Koch warns craft’s run might be coming to an end.

Koch calls industry consolidation the number-one culprit. In 2008, federal antitrust regulators not only approved the MillerCoors joint venture, but they also gave the green light to InBev’s acquisition of Anheuser-Busch. That left two brewing giants in control of 90 percent of America’s domestic beer protection. Making matters worse, the federal government allowed the big brewers to buy craft breweries—and then fail to disclose that they were the new owners.

Those mega-mergers resulted in higher beer prices and pink slips for American workers, as well as consolidation among distributors. Today, in most markets, more than 90 percent of all beer is controlled by distributors who depend on either A-B InBev or MillerCoors for most of their volume. Those distributors have considerable power regarding promotion, shelf space, and marketing support for the brands they handle—and they have an incentive to give preferential treatment to craft brands the big brewers now own.

According to Koch, the key to saving American craft beer is stricter antitrust enforcement. He names China and South Africa as countries whose regulators imposed strict conditions on big brewery mergers to protect their domestic economies.

The Friday Mash (End of Apartheid Edition)

Twenty-five years ago today, South Africans voted overwhelmingly to end the practice of racial segregation called apartheid. The vote followed President F.W. de Klerk’s lifting of the ban on opposition parties and his release of Nelson Mandela after 27 years’ imprisonment.

And now….The Mash!

We begin near Dublin, where, if you have $29.5 million, you can be the new owner of the Guinness Beer Castle. The castle, aka Luggala, has 27 bedrooms and 18 full baths and sits on 5,000 acres of green rolling hills.

Two California drinkers have sued the maker of Kona Brewing Company’s beers. They allege that Kona falsely represented that the beers are brewed in Hawaii, when in fact they’re brewed on the mainland.

If you’re a golfer, this product is for you. “Big Beertha” looks like a driver, but functions as “the original golf beer bong”. It holds 12 ounces of liquid whose consumption can be viewed by onlookers through its clear acrylic shaft.

The Kansas City Royals have named Boulevard Brewing Company the first-ever craft beer partner of a major-league baseball team. Boulevard has been sold at Royals’ games for more than 20 years.

Last weekend at SXSW, Anheuser-Busch announced its “Bud on Mars” project. Challenges on the Red Planet include low gravity, lack of water, not enough sunlight to grow hops, and humans’ diminished sense of taste.

Shares in Japan’s big breweries could get a boost if the government follows through on revising the beer excise tax, which is based malt content. The result has been a flood of beers heavy with adjuncts like peas and soybeans.

Finally, Belgian scientists recently discovered the Trappist-1 system of possibly-habitable Earth-size planets some 40 light-years from Earth. They named the planets after monastic Trappist beers such as Rochefort, Orval, and Westvleteren.

Beer…By the Numbers

  • U.S. brewery count at the end of 2016: 5,005.
  • Percent of U.S. breweries that produce less than 7,500 barrels per year: 92.
  • Percent of that produce less than 1,000 barrels per year: 75.
  • New York State’s brewery count: 326 (4th in the nation).
  • Its brewery count in 2003: 38.
  • Annual visitor count at American craft breweries: 10 million.
  • On-premises sales’ share of American craft beer production: 7 percent.
  • Number of session IPAs sold in American supermarkets in 2013: 21.
  • Number of session IPAs sold in American supermarkets in 2016: 106.
  • Craft beer segment’s growth rate in 2016: 8 percent.
  • Anheuser-Busch’s High End craft breweries’ growth rate in 2016: 32 percent.
  • Average wait by a brewery to obtain a federal brewer’s notice in September 2016: 166 days.
  • Average wait to obtain a brewer’s notice in September 2015: 129 days.
  • UK’s excise tax on a pint of beer: 52.2 pence (65 U.S. cents).
  • Germany’s excise tax on a pint of beer: 5 pence (6.4 U.S. cents).
  • Pabst’s Unusual Business Model

    Pabst Brewing Company has 2 percent of the American beer market, which puts it in a class with Boston Beer Company and D.G. Yuengling & Son. But under Eugene Kashper, Pabst’s busimess model is much different than that of Boston Beer and Yuengling.

    Jason Notte of Forbes magazine, who recently interviewed Kashper, writes that Pabst’s CEO is “also digging into corners of the beer industry where the competition hadn’t tread and using its strengths in marketing, production and scale to take on the big brewers on a much smaller budget”.

    Kashper told Notte that his portfolio was “kind of in a sweet spot between big beer and craft” because his legacy brands not only have a following, but also own a library of recipes for craft-like beers that he can sell for less than the going price of craft. Kashper’s success stories include Stroh’s Bohemian, Old Style Oktoberfest, and Rainier Mountain Ale, all of which have strong regional ties.

    In addition, Pabst has entered into partnerships with craft and import brewers to enable it to penetrate those segments of the market. Those partnerships emphasize the strength of Pabst’s distribution and grassroots marketing, which Kashper hopes will give it a fighting chance against brewing giants Anheuser-Busch and MillerCoors.

    The Friday Mash (Hail Fredonia Edition)

    One hundred and ninety years ago today, Benjamin W. Edwards rode into Mexican-controlled Texas and declared himself ruler of the Republic of Fredonia. Edwards is not to be confused with Rufus T. Firefly.

    And now….The Mash!

    We begin in Germany, where the Bayern Munich football team treated Ingolstat’s players to sausages and beer. Ingolstat upset Leipzig, enabling Bayern to move into first place in the Bundesliga.

    A former NASA biologist has developed a genetically engineered strain of yeast that makes beer glow under a black light. His “fluorescent yeast kit” contains genes from a jellyfish.

    MobCraft Beer, a Milwaukee brewery that lets the public vote on new products, was was heavily criticized after “Date Grape” was one of the finalists. The brewery has apologized for the sexual assault reference.

    Writer Jay Brooks tells the fascinating story of the Americas’ first Western-style brewery. It opened near Mexico City in 1544, with a team of brewers imported from Flanders.

    Country music artist Sunny Sweeney’s song “One More Christmas Beer” celebrates family dysfunction. Sweeney says that the lyrics are inspired by actual events.

    Next month, Chicago’s Field Museum will start serving PseudoSue, a pale ale brewed by the Toppling Goliath Brewing Company. The ale celebrates “Sue”, the museum’s beloved T-Rex skeleton.

    Finally, Colorado’s craft brewers are engaged in soul-searching. This year, they’ve had to contend with Anheuser-Busch’s takeover of Breckenridge Brewing Company and a legislative battle over selling full-strength beer in grocery stores.

    Wood and Barrel-Aged Beer Fest: A Review

    Josh Noel of the Chicago Tribune attended the Festival of Wood and Barrel-Aged Beer, which recently took place in Chicago. His takes on the 14th edition of this event:

    • The beer is good, and getting better. He rates 20 percent of the beers “genius”, and another 60 percent “good to very good”. The “undrinkable” beers likely sat in the barrel too long.
    • John Laffer, the co-founder of Off Color Brewing in Chicago, has emerged as a star. He’s an alumnus of Goose Island Brewing Company’s barrel-aging program.
    • Festival-goers didn’t shun Goose Island on account of it having been taken over by Anheuser-Busch. If the beer is good, they want it.
    • It’s possible to brew bad sour beer. The style “requires layers and nuance.”
    • The best thing about the festival is discovering new beers. One, in particular, was Peach Climacteric from Colorado-based WeldWerks Brewing. Co-founder Neil Fisher was amazed that attendees knew so much about his new brewery. fisher said, “You guys have a very connected beer culture here.”
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