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EDITORIALS & LETTERS 2017 » BACK TO EDITORIALS & LETTERS INDEX
 
JUNE/JULY 2017
The Future of Craft Beer (According to Anheuser-Busch InBev)

 
Anheuser-Busch InBev, the multinational behemoth with 70 percent of the American beer market (after its buyout of SABMiller) and over a third of the world’s beer production (sales were over $14 billon in just the last quarter), has acquired nearly a dozen respected “craft” breweries and the nation’s largest homebrew supply operation. What’s the strategy?

AB InBev’s roots go back to the 1980s, when three Brazilian entrepreneurs bought Brahma, a struggling regional brewer. They merged with family-owned Belgian powerhouse Interbrew in 2004 to create InBev. That company launched a hostile takeover of America’s largest brewer, Anheuser-Busch, in 2008 for $52 billion. “Over my dead body,” said the apparently deceased August Busch IV. The company then acquired rival SABMiller for a head-spinning $103 billion.

Domestically, A-B has been losing market share for its core products for the last 15 years. The number of “craft” breweries in the U.S. just topped 5,300 — an astounding number, considering the growth in the same 15-year period. Naturally, A-B would like a part of this lucrative and growing segment of the beer business. It now owns 10 prestigious (formerly “craft”) breweries: Goose Island Beer, Blue Point Brewing, 10 Barrel Brewing, Elysian, Golden Road, Four Peaks, Breckenridge Brewery, Devils Backbone, Karbach Brewing and newly acquired Wicked Weed.

Profits from these recently acquired breweries won’t offset the loss in revenue with declining lager sales, but it helps. Mainly, A-B can now offer a diverse array of “crafty” brands for its beleaguered distributor network, which is reluctant to bring in craft brands not approved or owned by A-B. This also allows for the appearance of variety at multitap retailers while A-B still “owns” the entire tap lineup. AB InBev recently introduced an incentive to its distributors in which the company would refund 75 percent of a distributor’s required marketing spent on AB InBev brands if AB InBev beers made up 98 percent of that distributor’s sales. That’s slightly short of August Busch III’s infamous “100 percent share of mind” demand in the pre-InBev days.

A trendy bar offering Goose Island, Elysian, Golden Road and now Wicked Weed taps along with the usual Bud, Bud Light and Stella Artois looks like amazing variety, but all these beers now come from company-owned breweries. And many of the top-selling beers, like Goose Island 312 and IPA and Elysian Space Dust IPA, are being made at several of A-B’s 12 production breweries around the country. Ricardo Melo, the company’s vice president of sales strategy, told The Wall Street Journal the plan will improve AB InBev’s offerings for consumers and better equip wholesalers to compete. A consequence of this is the greatly reduced opportunity for non–A-B craft breweries to gain access to market through the A-B distribution network.

Another consequence of this crafty consolidation is enforcement of liquor control rules regarding a brewery cutting deals with a retailer to offer only its own beers. Daniel Person, writing in the Seattle Weekly, detailed a recent law enforcement action at a local heavy metal bar called the Showbox. The bar had a tap lineup that included Goose Island from Chicago, 10 Barrel from Bend, Elysian from down the street and, for the less adventurous, Bud and Bud Light. Undercover officers for the Washington State Liquor and Cannabis Board were looking into allegations from a small brewer that accused A-B of cutting a deal with the music venue to gain exclusive access to its bar, thus cutting off small competitors from a lucrative market. While a bar serving only one brewery’s products is not in itself illegal, the state is charging that A-B, working through a third-party distributor, entered into sponsorship contracts at three Seattle venues to achieve a monopoly position, which does run afoul of regulations. Based on its findings, the state has fined A-B $150,000.

Massachusetts regulators recently accused A-B of giving away nearly $1 million worth of beer equipment to hundreds of bars and package stores as part of an illegal inducement campaign to push sales of Budweiser and its other products while stifling those of competitors. The charges lend credence to complaints by small breweries that anticompetitive tactics are pervasive in the beer industry as large brewers and their distributors try to stop the bleeding of sales to the growing craft beer movement. A-B faces a hearing over the alleged scheme that could result in the suspension or revocation of the company’s liquor license. Serious stuff.

If A-B was slow to grasp the significance of the American craft beer revolution, it is driving the narrative internationally. And there is no bigger potential market for craft beer than in China, with its $80 billion beer thirst, the biggest in the world, expanding exponentially. AB Inbev, along with Heineken (which just bought the other half of Lagunitas) and Constellation Brands (with its brand powerhouse Ballast Point), is poised for vast expansion worldwide.

And the rules of engagement offshore are vastly different from those in the United States. Scott Cendrowski, writing in Fortune magazine, pointed out that China’s weak regulatory climate allows a well-funded player like AB InBev to muscle into the market in ways that wouldn’t pass muster in the U.S. His research points to situations where A-B leaned on distributors to keep them from carrying other craft beers. “It has given bars incentives to promote Goose Island while shoving other beers off the taps — deals that would be illegal in the States. It’s offering lavish salaries to poach local brewing talent,” said Cendrowski.

The article suggests that, since early 2016, the Belgian-Brazilian beer conglomerate has inundated Beijing and Shanghai with Goose Island, the Chicago-based brand it acquired in 2011. Goose Island brews exotic beers and has the kind of cute animal logo that can turn heads, and tastes, in China. “The campaign is central to AB InBev’s strategy of promoting pricier beer to China’s growing ranks of wealthier young hipster consumers. While competitors (including Heineken and Duvel) are importing their own craft beers, none have moved with the same gusto [as A-B],” wrote Cendrowski.

Chris Herron, an industry veteran with many years in management at Miller and Diageo, wrote a brilliant piece called “Watch the Hands, Not the Cards — The Magic of Megabrew.” He suggests that paying attention to business fundamentals will reveal a lot more about a big brewer’s concerns in today’s corporate climate. How many small brewers are concerned with factors like brand equity, goodwill and impairment charges?

AB InBev’s 2016 balance sheet, according to Herron, shows that its “goodwill” represents nearly 53 percent of its assets, approximately $136.5 billion (yes, billion). That brand value ties to consumer perception, which is why AB InBev cares so much about how you perceive its brands.

“While everyone thinks that AB InBev is truly interested in getting into craft and building these brands (which is a secondary goal at best), I submit that maybe buying craft breweries is more of a tool to devalue the craft category and increase the brand equity of their core legacy beers,” said Herron. “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.”

So, while we beer geeks discuss the fine points of Citra versus Mosaic, Big Beer is plotting our beer future…
APRIL/MAY 2017
The Craft Beverage Modernization and Tax Reform Act

 
Here’s something both Republicans and Democrats can agree on in Congress: Small brewing is good for the country and needs to be encouraged! Congresswoman Suzan DelBene (D-Wash.) is cosponsoring a bill that would cut in half the federal excise tax on a barrel of beer for small brewers.

The Craft Beverage Modernization and Tax Reform Act would lower the tax from $7.00 per barrel to $3.50. The break would also apply to small vintners, cider-makers and distillers. Some small brewers say the move would save their breweries about $8,000 per year. The tax break would help stabilize prices for beer drinkers as well.

The bill has strong bipartisan support and is currently in the House Committee on Ways and Means, where it awaits a hearing. A spokesperson for Rep. DelBene said she is hoping to get the bill rolled into a larger tax reform package.
We are a nation of beer drinkers, but the small “craft” style of beer is still well below 20 percent of all the beer brewed and consumed. Wine consumption is barely 9 percent of the beverage pie. By encouraging small brewers, we contribute to the appreciation of full-flavored craft beer — the beverage of moderation (beer has half the alcohol of wine and far less than spirits).

As we approach the 5,000 mark for craft breweries in the U.S., with over 800 in California alone, the growth of this small, entrepreneurial enterprise continues to contribute to a beer culture manifesting itself in urban renewal and rural renovation. The growing social aspects of the beer garden and community taproom bring a sense of shared interaction to otherwise disparate groups and individuals.

Let your Congressional representative know that you value and support the small brewers tax relief legislation.
LETTERS TO THE EDITOR (April/May 2017)

Editor,
Just received your new issue, and I have been in stiches for the past hour. You are too funny. With your permission, I want to get a sign made with a quote from the last line in the “Heard It Through the Hop Bine” to put up in our new brewery.

Cheers,
Bill Millar
Hollister, California

Bill,
You are too kind, sir. Sure, to make it onto someone’s sign is the height of every writer’s aspirations. — Ed.



Editor,
Reading your editorial in the latest issue, I remember all the early breweries you listed. I had discovered Lyons only a couple of years before it burned. What a bummer! I was happy when Judy [Ashworth] reopened in Dublin, and I went there many times. In fact, a buddy and I got up on stage with the band one night and sang “Rocky Raccoon.” Judy hugged us both and thanked us because that was the song that had played when she opened the new place. I also took brewing classes from Garith Helm from Stanislaus’s St. Stan’s. Like I said, I remember drinking beers from there and most of the other defunct and not-defunct breweries. Thanks for enabling my habit over the years!

Dennis Atkinson
(Via Internet)

Dennis,
Thanks for the comments on breweries in the “olden days.” Thanks also for your comments on our Hop Spots. There are now WAY too many places for us to list all of them. We’re adding places that carry the Celebrator. And yes, many breweries now have tasting rooms (where legal). I’ll see if we can’t add TR or something to denote such as we go forward. — Ed.



Editor,
I had some time today to catch up on the August/September 2016 edition of your fine publication. Having just finished the article about Vijay Mallya’s current financial woes, I was prompted to compose this. I distinctly remember reading your original account of the 1999 interview in the February/March 2000 edition. At the time, I was totally taken aback by his attitude concerning the U.S. craft beer industry. Furthermore, I stopped drinking any and all Mendocino Brewing Company products. As a fan of Red Tail, Eye of the Hawk and others, I did not find this to be an easy decision.

My relationship with the two Michaels (Lovett and Laybourn) was casual at best (I met them here in Reno when I was involved in the Great Truckee River Beer Festival years ago), but what I perceived as Mr. Mallya’s total lack of respect for them, and for the industry in general, made my decision a bit easier. If things shake out the way it appears they might, maybe someday I’ll be able to revisit some fond old bottled friends.

Cheers,
Bob Durr
Reno, Nevada

Bob,
Thanks for the comments on our article. Let’s hope someone can turn Mendo around. I remember the Great Truckee River Beer Festival years ago! Well done, sir. You now have some amazing choices for craft beer in the Reno area. Keep us posted. — Ed.
FEBRUARY/MARCH 2017
Beers and Cheers: 29 Years

 
When the Celebrator’s first issue hit the streets in January 1988, its mission was to cover and support all of the breweries then producing in California. It seems unbelievable now, but California, home to the first craft brewer (Anchor Brewing in 1965) and later home to the first purpose-built small brewery (New Albion in 1976), had only 20 breweries operating when a young beer-loving couple came down from Vancouver, British Columbia, to start America’s first “brewspaper,” a newspaper dedicated exclusively to covering the small brewing industry in the state that gave birth to what we call craft beer today.

Bret and Julie Nickels, who were given support and encouragement by legendary publican Judy Ashworth at her equally legendary Lyons Brewery Depot in Sunol, Calif., passionately covered and combed the state for any and all stories of good beer and brewing. Their reports served to connect beer lovers with the beers and beer venues they craved. It was a natural match that no doubt helped to stimulate the expansion of the early brewing industry.

The sad part of the story was that Judy’s iconic pub burned to the ground just before Christmas, so the Celebrator’s first issue (then called the California Celebrator) debuted at a fundraiser held at the Sunol Country Club to try to resurrect the lost beer mecca. Judy later reopened her pub in nearby Dublin, Calif. But the Celebrator was off and running.

Many of the breweries that were in the pages of our first issue not only have survived to this day, but some have done very well indeed. Included in our first issue and still brewing today are Anchor, Anderson Valley, Buffalo Bill’s, Calistoga Inn, Mendocino, Rubicon, Sierra Nevada, Tied House and Triple Rock.

Breweries that were covered in that first issue but are now just fond (or not-so-fond) memories for some veteran beer geeks include Devil Mountain, Golden Pacific, Hogshead, Humboldt, Local (SLO), Nevada City, Pasadena, San Francisco Brewing, Santa Cruz, Saxton, Stanislaus, Thousand Oaks, Truckee and Xcelsior. The pioneers are the ones most likely to catch all the arrows.

Our “brewspaper” continued to cover the good-beer story and expanded first to the Pacific Northwest and then eastward, trying to keep tabs on all of the brewing activity taking place around the country. The Great American Beer Festival in Denver brought the nation’s brewers and enthusiastic fans together each year to celebrate and drink the beers of the rapidly growing craft beer industry. The Craft Brewers Conference did the same for the brewing fraternity and helped enhance the camaraderie so characteristic of our contemporary small breweries.

Today, with over 700 breweries operating just in California and over 5,000 across the nation, the scope of this journal has greatly expanded as well. Our corps of veteran beer writers continues to bring the word of beer and brewing to our readers each issue. Many thanks on our 29th anniversary to them and to you, our readers, whose thirst for beer information and insight is our reason for finding that next beer story.

Beer and Travel

Stephen Beaumont, one of our earliest contributors and coauthor of The World Atlas of Beer, reviewed elsewhere in these pages, shares his motives, philosophy and experience on beer travel in his column, “Beaumont’s Journal.”

Bryan Jansing’s article on “Rome, Italy’s Beer Garden,” should get your taste buds oriented toward that Italian visit you’ve been contemplating.

Chuck Cook, no stranger to the ancient brewing traditions of Belgium (his travels and brewery visits are legendary), checks in with a timely piece on the cafes and beer venues of the lambic region of Belgium, home to the ancient art of spontaneously fermented beer. Mr. Cook also travels to three well-known American breweries that have embraced the magical arts of spontaneous fermentation in his article “Making Coolships Cool Again.”

That and so much more in this issue as we begin our 29th year. And thanks, dear reader, for your support of our efforts as we look forward to our 30th anniversary next year!
 

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