Craft Beer: Big Enough To Fail

American brewers are ringing the tocsin again: Big Beer is on the march! Mainstream beer has taken some heavy hits on sales in the past eight years as regional and small brewers’ share of the market climbed to over 10%. True to the expected storyline, The Empire is striking back: more consolidation at the top to increase their monopoly power and cut costs; more pressure on wholesalers to drop other brands; more brewing of beers that are not light lagers; and the outright purchase of key regional brewers.

Should Craft Beer Nation tremble in fear? Before you answer, consider this: none of this is new. These are the same tactics Big Beer has been working for almost 20 years. More of the world’s brewing capacity is concentrated in the control of fewer companies. Anheuser-Busch’s “100% Share of Mind” program from 1998 was aimed at compelling A-B wholesalers to drop non-Bud family beers by leveraging discounts and supply of those Bud products. Coors has been brewing Blue Moon since 1995, about the same time Anheuser-Busch tried a series of beers in a wide variety — porter, pale ale, IPA, stout — and Miller tried the Miller Reserve line. And purchases of regional and small brewers date back to about the same time, when Miller bought Celis and Leinenkugel outright, along with a 50% interest in Shipyard (which was later bought back), and Anheuser-Busch bought a share of Redhook, Widmer, and Kona.

Gather round, boys, it's beer!

And none of it worked. As the big brewers arrayed these strategies against what was then a much smaller threat (craft beer had a little over 3% of the market, while imported light lagers like Corona and Heineken had well over 10% and were growing steadily), none of it worked. Though the rise of smaller breweries was slowed for a bit, there were also the factors of an overeager business climate, a lack of skilled brewers and packagers to make good quality beer, a lack of capital for facilities investment, and a young industry that was easily divided against themselves, the one tactic employed by Big Beer that was, arguably, effective (several lawsuits, egged on by Big Beer, pitted small brewers against one another).

Eventually the tactics proved to be wholly ineffective in the face of the rich variety of craft beers. Sales exploded and 100% Share of Mind was forgotten as wholesalers scrambled to defy A-B and scoop up profits, and while Blue Moon joined in the growth, it was hardly a category killer. Almost every bar in American serves non-mainstream beer — to the point where “mainstream” is less useful a term to define beers — and the “pull” of consumers for these beers have brought them into markets large and small. It would seem that these alternative beers have won.

But the alarm is being sounded again, as the Mega-Merger looms: ABInBev swallowing SABMiller. ABIB threatens more wholesaler pressure, and is angling to outright buy major wholesalers, making control complete (still think you want to see the break-up of the three tier system?). Goose Island cranks out more new beers, Shock Top and Blue Moon develop more varieties. Purchase of regional brewers is accelerating: Elysian, Four Peaks, Lagunitas, Firestone-Walker, Breckenridge, Ballast Point, and we’re told by the true believers that these breweries are “craft” no longer, though the beers haven’t changed.

Now the warning is that true craft beers will be throttled, denied a chance at the market because of the coercive power of the mega-megabrewer, lost in the forest of “crafty” big brewer-made beers, denied sales of raw materials.

Is concern warranted? Surprise! In a switch of how I used to think, I now believe there is a real threat, but not because of these developments. The alternative brewers' beers are still wanted, and the market will find them, if new wholesalers have to be created to move them, or state laws changed to provide them a path. The continued mad success and technological innovation of Goose Island’s Bourbon County shows that “craft” or not, beers continue to be made well by the same breweries, so they're probably not going to dilute or pollute the craft “brand.”

What’s the issue then? Size. Small brewers are finally big enough to fail.

When these brewers were still truly “micro,” big beer couldn't figure out what to do...because the numbers were too small. There wasn't a critical mass, there wasn't a brewery big enough to buy that was willing to be bought, their own beers couldn't catch enough drinkers to ignite, there just weren't enough barrels of this new kind of beer being sold for it to be worth them making it. It's actually kind of funny that they couldn't figure that out.

But now the numbers have reached the point where the big brewers can reach out and buy established regional brewers who have a real chunk of the market. As more and more brewers hit 50,000 barrels of annual sales, they become attractive to the big brewers, who don't have to create a local brand; they can just whip out their checkbook and become the largest local brand. Because no matter how much sales of light lager have declined, they're still HUGE, and that means these guys can bring an avalanche of cash to bear.

Craft beer has become big enough to be interesting, big enough to buy, big enough that it has enough fans who don't really know who owns it, big enough that the market share justifies the cash. We're going to see more of these, and if MolsonCoors is smart, they'll get in the act, and maybe Heineken should consider more purchases.

What happens then? Maybe the mass of customers loses faith in craft beer, when they learn that many of the familiar names are no longer independent. Maybe the word gets out and people are outraged and stop buying the bought brands; but do they buy independent beers, or do they buy wine, or whiskey? Maybe brewers like Sierra Nevada, and Boston Beer, and Yuengling, and Deschutes refuse to sell; hell, maybe the Department of Justice wakes up and says “No!” to some of these mergers as monopolistic. Maybe there are enough new breweries – over 4,000 now – that choices can still be made by the informed consumer, and more consumers get informed, and everything's okay.

Maybe, maybe, maybe...but definitely this: no one knows. This is market dynamite.

What should you do? Decide what's important to you. Decide what you want your local market to look like. Decide if you'd rather have a steady, fresh supply of a few brands, or a dicey choice of small local guys who may or may not make what you want, which is going to depend on what your local guys are like. It's your call.

Me? I'm always in favor of drinking beer that tastes good. If big market beer tastes good, I'm going to buy it, and drink it. But even so, 4 times out of 5, I'm drinking something local and independent. 

That's a lesson I learned 30 years ago when I was staying at a friend's house in Utica, New York and the nightly news said the local AHL franchise had given an exclusive beer contract to A-B. In Utica. Where Matt's was still clinging to life, where guys still punched in to make local beer. Bullshit to that, much-younger-me said, and we went out to the bar around the corner and drank local all night long.

Make your choice. Just remember how we got to where we are, and what we had to go through to get there. It's just beer, but...it's beer.


*I know I said I was going to do a post on Canadian whisky, but...I put that off for a while and gave you this instead. The Canadian piece is coming, but it's going to be a while.