Is It Last Call For Craft Beer?

[RickBeer]

Jim Koch discussing how the global behemoths may end the boom.

From NY Times OP ED on April 7th - https://www.nytimes.com/2017/04/07/opin ... .html?_r=0

When craft brewers get together, we agree that this is the greatest time in history to be a beer drinker in America. In 1981, there were only 82 breweries in the United States, and our beer, fizzy and flavorless, was the laughingstock of the beer world. Today, America is home to over 5,300 small, innovative craft breweries making unique, flavorful, creative brews.

But we also agree that the horizon isn’t so bright. After years of 15 percent growth, the craft sector is down to the single digits. Part of that is to be expected in a maturing part of any market — but it’s also a result of a pushback by a handful of gargantuan global brewers, aided by slack government antitrust oversight. I worry that yet another major shift in the beer landscape is upon us — and this time, American consumers will be the losers.

We have seen a dramatic consolidation in our industry in recent years. It started in 2008 when the Department of Justice approved the creation of a duopoly in the beer industry by greenlighting a joint venture between Molson Coors and SABMiller (creating MillerCoors) and, five months later, the merger of Anheuser Busch and InBev.

Overnight, about 90 percent of domestic beer production was in the hands of two foreign-owned brewing giants. (The consolidation continued in 2016, when regulators approved the merger of SABMiller and AB InBev; SABMiller sold back its stake in MillerCoors, creating a new duopoly between Molson Coors and AB InBev.)

The immediate result was a 6 percent increase in beer prices and the end of a decades-long decline in real beer prices. Drinkers began paying almost $2 billion a year more for their beer. At least 5,000 Americans lost their jobs, and cost cutting followed, saving the new owners an estimated $2 billion. That money goes to those two foreign conglomerates that have been able to reduce their tax bills and move much of their profits offshore.

This brewer’s duopoly has led to a second consolidation: wholesalers, the crucial intermediaries who distribute our beers to retailers. In 1980, there were 4,600 wholesalers in the country, and most markets had four or five competing wholesalers. Today, fewer than 3,000 remain, and in most local markets over 90 percent of the beer is controlled by distributors for these same two companies — one of which is dependent on AB InBev for most of its volume, and the other on Miller Coors.

These distributors are free to favor their primary suppliers over independent craft brewers when it comes to promotion, visibility, shelf space and marketing support. Laws passed in the 1970s to protect small “mom and pop” wholesalers from the big brewers are now obsolete and have the unintended consequence of creating an unfavorable balance of power — unfavorable to craft brewers and people who enjoy their beers.

The Department of Justice is allowing the damage to continue by greenlighting these two big brewers to extend their duopoly into craft beer by acquiring craft brewers. For example, in December the department approved AB InBev’s acquisition of Karbach, one of the largest craft brewers in Texas, a state where AB InBev already controls 52 percent of the beer market. Drinkers buying cute-sounding brands like Goose Island or Terrapin or Ten Barrel are often unaware that these brands, some of them once independent, are now just subsidiaries of AB InBev or Molson Coors, which are not transparent about disclosing their true ownership anywhere on the bottle.

This unwillingness to use effective antitrust enforcement to protect American economic interests is in stark contrast to how the rest of the world operates. Before approving AB InBev’s latest merger, antitrust authorities in China required it to sell its $1.6 billion stake in China’s largest brewer back to the Chinese government at a bargain-basement price. South Africa required guarantees of lifetime employment for its citizens, and the Monopolies Commission in the European Union required divestitures by SABMiller and AB InBev to keep their new, combined market share to 9 percent.

In the United States, the AB InBev/SABMiller merger was approved with largely meaningless conduct restrictions, and the two big brewers were given a free pass to continue buying craft brewers and extending the duopoly into craft beer. When it comes to protecting American companies and workers, at least in beer, our government does make bad deals.

Of course, the obvious rejoinder is, “Who cares?” Goose Island still makes beer that consumers are buying, even if it is owned by AB InBev. But that misses the larger point. The growth and the excitement in the beer business is in craft, and its potential is threatened by a beer landscape that is heavily tilted toward gigantic foreign-owned conglomerates and against the independent, innovative entrants.

It matters because independent American breweries create beers for their local regions. They invest in their communities. They employ local workers. And they pay taxes — local, state and federal. American craft brewing is American manufacturing that doesn’t outsource these well-paying American jobs.

Get some craft brewers really talking, and they’ll tell you we are headed for a time when independent breweries can’t afford to compete, can’t afford the best ingredients, can’t get wholesalers to support them, and can’t get shelf space and draft lines. The result: Beer lovers won’t have the broad range of choices they have today.

Get some craft brewers together, and they’ll tell you that if we continue down this path, we may be witnessing the beginning of the end of the American craft beer revolution.

[John Sand]

A little dramatic, I think.

[ScrewyBrewer]

Today in Monmouth County New Jersey, and in plenty other areas across America, there exist more breweries than there were craft beer options just 5 years ago. Are they competing for shelf and tap space, yes of course, but for reasons not published in that article. With so many options to choose from today's craft beer lovers are overwhelmed with choices. Local breweries continue to push the envelope of creativity by using exotic ingredients and brewing processes. The results, new and wildly varying styles of beer, interesting, delicious and definitely worth trying. But the reality of this beer explosion comes down to 'how much beer can one person drink'?

The economics of supply and demand play a large role in determining a brewers bottom line. Pushing more beer options, into a market nearing saturation, places downward pressure on profits. Short term, craft beer lovers benefit from the fierce competition, as brewers work harder to sell their beer. Unfortunately the fallout from all this will be the gradual reduction of local craft beer options as breweries are forced to close their doors. A local brewery owner, with 25 years in the business, recently predicted 'there will be a lot of 7 barrel systems for sale in the coming year or so'. As consolidation in the brewing industry plays out, keep your options open and your homebrewing gear in good working order.

[RickBeer]

At a recent gathering of brewers, he told people to avoid distribution and focus on brewpubs, saying that would be the path for the next decade.

I spoke with a microbrewery owner that has been in business for 8 years. He makes good profits on his brewpub and loses money on distribution, some due to his own mistakes, but most recently a hard fight for shelf space.

I think Koch is right on the money - the big guys are going to force the smaller guys off the shelf more and more.

[swenocha]

Was at our local micro on Friday, and they stated that they pay all of their salaries from their busy taproom, and that the distro is only a small portion of their profits. Their baseline beers give some return, but their vanity beers (sours and the like) rarely turn a profit. Their sales rep sees a lot of agreement of a brewpub in every neighborhood being not at saturation point by a long shot, but that the distro is saturating to a degree.

[alb]

I remember when "my local brewpub" was not even a phrase, and right now I have 5-6 within a 20-minute drive from my house. Some have started distribution through local groceries but not all. At some places there's a struggle for shelf space but not everywhere. Most of the places that sell local beer in cans or bottles are in stores that craft beer lovers go specifically for their wide selections. you won't find local beers at WalMart and everybody knows not to look there for it. WalMart does sell Goose Island, etc. I hate the idea of conglomerates squashing the innovation and livelihood of independent brewers. But where I live the brewpubs are thriving. With the recent availability of small, affordable canning devices, I can see "draft canned" beer, sold directly from the brewpub, becoming a thing. It would cut out the distributor entirely for those beers.

[joechianti]

As consolidation in the brewing industry plays out, keep your options open and your homebrewing gear in good working order.

There's the solution I'm going with.

[alb]

JOE!! How the heck are you, brother?

[Pudge]

I think Jim Koch is just seeing the short end of the stick these days. I like several of the offerings from the Boston Beer Co, but they also happen to be some of the pricier beers out there right now. There are simply better beers available at better prices. Throw in the sprouting of local beers as previously mentioned and, yeah, I can understand his drama.

[natural320]

I don't know about where you guys are all at, but here in Texas, there are breweries popping up all over the place. and not necessarily in a good way. IMO, the race to have the next big thing around here has lead to a LOT of mediocre, and over priced beer. it is a freaking shame. there are a handful of limited release and barrel aged beers that are outstanding...but I would say 90% of the beer around here is just "fine". AND the 10.99 or higher six pack price for this stuff is insane. as is the 6 or 7 dollar pours at the average beer bar. and I am not talking about down in the heart of the city pricing here. it is kind of funny, and sad, that (outside of my own brews) my fridge has Stone Arrogant Bastard, Founders Breakfast stout, a few singles from the Trappist breweries, and only 1 Texas beer (a limited release barley wine that my wife loves). but that is it.
but on the flip side, I am getting my wife down with going to the DFW brewery tap rooms. most often there is a $10 to $15 "tour" that comes with a free pint glass a 3 or 4 beers. there is the big win around here! under 4 bucks a pint, fresh from the source. at that point, sure I will drink your brown or amber...maybe see if they figured out IPAs (spoiler alert: they haven't)

[FedoraDave]

Considering that Koch is as close as a craft brewer can be without being a mega-brewer, I take this with quite a few grains of salt.

There should be more investigation into the acquisitory practices of the megas, and the corruption of the three-tier system. But the points made about taprooms and brewpubs are valid. Buy local. Support your local craft brewers.

[ScrewyBrewer]

Considering that Koch is as close as a craft brewer can be without being a mega-brewer, I take this with quite a few grains of salt.

I think Jim Koch's perspective of craft brewing, is about as close to a local brewer's 3 barrel system, as the moon is to Uranus. With sales topping 2.5 million barrels a year, Boston Beer has little in common with small craft brewers.

[Dawg LB Steve]

I think Jim Koch's perspective of craft brewing, is about as close to a local brewer's 3 barrel system, as the moon is to Uranus. With sales topping 2.5 million barrels a year, Boston Beer has little in common with small craft brewers.

^^^^^^^^^^^^^ Still not understanding how it is still considered Craft at that output.

[bpgreen]

I think Jim Koch's perspective of craft brewing, is about as close to a local brewer's 3 barrel system, as the moon is to Uranus. With sales topping 2.5 million barrels a year, Boston Beer has little in common with small craft brewers.

^^^^^^^^^^^^^ Still not understanding how it is still considered Craft at that output.

Here is the definition of a craft brewer (according to the brewers association).

They updated the definition in 2011 to increase the number of barrels from 2 million to 6 million. They did that because Boston Beer Co. was getting close to the 2 million limit.

They updated it again in 2014 to allow the use of adjuncts. That change allowed Yuengling to qualify as a craft brewer.

[RickBeer]

Actually, the limit of 2 million was exceeded by Boston Beer in 2010. That's why in 2011 the limit was increased as it was felt that you cannot remove Sam Adams from the Craft Industry, since they pretty clearly created it.

The three criteria are:

small - 6 million barrels or less
independent - less than 25% owned by an alcohol industry member that is not a craft brewer
traditional - a majority of its total beverage alcohol volume in beers whose flavor derives from traditional or innovative brewing ingredients and their fermentation. Flavored malt beverages (FMBs) are not considered beers.

The traditional change allowed Yuengling & Son (1829, oldest in the US), Straub Brewing (1872), August Schell Brewing (1860), and Minhas (1845 under "Blumer Brewing" and some others. THe use of corn by some of these brewers was as a result of US four-row not being up to their needs back years ago. The word "innovative" was added.

The independent qualification has meant that all those bought by AB-InBev and others. Gone are Elysian, Ballast Point, Terrapin, Breckenridge, Lagunitas, Founder, Firestone Walker, ...

Nobody fought to keep Founders when they sold 30%...