Month: April 2007

Luxury Beer: The BeerScribe Interview With Matthias Neidhart…

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A luxury item is something that adds pleasure or comfort to one’s life but is not absolutely necessary to thrive or survive. Though many satisfied drinkers might joke to the contrary, all beer is rendered luxury by this definition. We don’t need it, but it certainly enriches our lives when used in moderation. Be it a can of Budweiser while out fishing with the guys or the reward of a well-aged barleywine to cap a family celebration, beer lets us know that we are not simply automatons seeking the barest wares of survival.

But the issue is far more complicated than casting all beer as mere indulgence. The buzz of business consultants in recent years has been the concept of ‘trading-up.’ On its surface, the idea that increased personal wealth leads to people choosing to purchase better quality goods seems entirely sensible. When applied to the beer industry, however, the issue comes into greater focus as we have seen greater than normal growth in the higher end product segments. Two years ago, a twenty-dollar bottle of beer seemed crazy; today that bottle is fighting for top-shelf space with other similarly priced items. In many markets, including Massachusetts, the price of a six-pack has quickly risen. The ten-dollar six-pack was once an aberration. Now, it’s a twelve-dollar six-pack whose presence is threatened by similarly priced, up-and-coming brands.

And the luxury phenomenon has not been limited to crafts and imports. Citing pressure from wholesalers seeking entry to this expanding luxury market and higher margin pool, larger brewers have released a slew of new products priced beyond the traditional rates of Anheuser-Busch, SABMiller, and Molson-Coors. Beyond the Michelob series of faux-craft offerings, A-B has released magnum-sized beers brewed with chocolate and vanilla, Miller has produced a chocolate lager, and Coors has expanded its popular Blue Moon line with the release of a Winter Ale.

While the concept of trading up is far too complicated for a single article, this month I spoke with an importer whose business focuses on high-quality products, full in flavor, and who charges accordingly. Matthias Neidhart started B. United International in 1994 and focused on importing specialty beers to fill an unmet niche market. B. United’s portfolio includes some of the world’s classic beers, including offerings from George Gale, J.W. Lee’s, Brasserie d’Achouffe, and Brauerei Heller Trum. Aside from offering classic beers from Malta, Italy, Belgium, and beyond, B. United also imports a range of meads, ciders, and sakes. I recently spoke with B. United’s founder about premium, specialty beers, price ceilings for beer, and why he hates the phrase ‘luxury beer.’

Andy Crouch: Thank you for taking the time to speak with me today. I’m writing my next article for the next issue on the concept of ‘luxury beers.’ What is your initial reaction to the phrase ‘luxury beer’?.

Matthias Neidhart: I think the term is absolutely awful because it implies that this segment is targeted at the rich and famous, which is plainly not the case. That’s not what we are trying to achieve with our higher end products.

AC: Is the term ‘luxury beer’ an oxymoron when it comes to beer, something that cuts against the very character of beer?

MN: Obviously I hate the term luxury beers because I think it’s inappropriate. Beer is unlike any other beverage as it is absolutely not driven by any image factor. For us, it’s about the complexity of flavor. If it was about the image factor then I would say absolutely, this is a luxury product. But this has nothing to do with that. It’s about the liquid itself.

AC: Who are the individuals who are buying these products at the higher price points?

MN: That is a great question and it’s one that we are hearing all the time. We haven’t commissioned any kind of study to answer it but we do have anecdotal evidence about this target segment. In terms of who buys these products, I don’t think you can pin down the buyers. To me, it’s very much people who are interested in tasting complex things and who are interested in experimenting and trying something new. Those people are our customers.

AC: B.United has an extensive and wide-ranging portfolio of different beers. How do you go about selecting those to include?

MN: That’s the way we have built our company and the way we have built our portfolio. We want to bring in outstanding examples of as many different styles from around the world. We want those that offer the highest complexity. That usually doesn’t mean the market or segment leader in terms of quantity of sales. Always, we want to have the most complex beer available. There are people out there who are so interested in learning about these things.

AC: When you started B. United International in 1994, what was your approach to importing beers?

MN: Out approach hasn’t changed. We’ve always tried to bring the best examples of as many different classic beer styles as we possibly could. At that time our company was focused on beer. Years later we expanded to include sakes and ciders and classic meads. That’s our concept. We didn’t want to bring in a product because everyone just said it was the best thing. We wanted to have some expertise so we basically talked with various beer writers, including Michael Jackson and Roger Protz and others from Europe and later on from the United States, and others who in our opinion are basically unbiased. In some cases we take on brands because they meet our criteria. In others, we might think it is a great brand but still won’t bring it in.

AC: In recent years, B. United has been active in working with foreign breweries to produce a variety of new products for export to the United States. Many of these products are not even available in their home markets, be it Belgium or Germany. How did you get started with this approach?

MN: We are a very sensitive company and one of the thing we don’t like is when someone says, “Oh you guys are just another importing company.” From the beginning, we’ve tried to be as creative and innovative as we possibly could. Obviously, you need to build a relationship with these brewers so you can’t start off that way. Eventually, we asked brewers whether they could do something that we either read about-maybe a classic style that was discontinued-or just a brand new recipe that might create something unusual and exciting. Now we have fifteen brands like that we created or helped to innovate. And the breweries, thanks to their infinite complexities, executed them and their results have been tremendous.

AC: One product innovation in particular that has been very popular is the Houblon Chouffe Dobbelen IPA Tripel produced by the Brasserie d’Achouffe in Belgium. Can you tell me a little about how that product came in to existence?

chouffe.jpgMN: Obviously, Belgium is very famous for brewing and one of the classic styles is the tripel. And in America, one of the great innovative styles to develop is the double IPA or imperial IPA or as some call it, the San Diego IPA. It’s an intense version of the traditional English IPA. We figured that maybe somebody should combine them as I like the character of the Belgian tripel and the dryness of the American double IPA. We thought this might a great way to combine two styles, one classic and one that is brand new. And we felt that d’Achouffe might be the right brewery to do it. When we approached them, we didn’t expect them to say yes because they have been in the past four or five years very strict about focusing on La Chouffe and on N’Ice Chouffe. But surprisingly they said yes as long as we guaranteed them a minimum run and did all the work on label design.

AC: Is this higher price point market sustainable, be it called luxury beer or not?

MN: I really think the luxury segment is the opposite of what we do. Budweiser doing magnum bottles of beer to celebrate New Year’s Eve is what I associate with the luxury segment but that’s not what we’re doing. When you look at what has happened in the United States in the last twenty to twenty-five years, people have shown they are very open-minded and very innovative and you can’t really find anything like that back in Europe. People have had some bas experiences in the past but they have hung in there and the beer has become so much better. People here keep trying, keep experimenting, and learning about it. When people try something like a Schneider Weisse or a La Chouffe, how can they ever go back to those one-dimensional beers? It just indicates to me that there is a market for people who are trading up and I don’t see the end of it to be honest.

But there is one trap that you have to avoid and that is you cannot mislead the customer. The customer is incredibly smart and sophisticated and people find out very quickly when you overcharge for something that doesn’t have the flavor. You have got to be absolutely honest with people and offer them something very complex. If you do this, I don’t see an end to this market.

AC: You bring up a point about people suffering through bad beer in the past and this is an issue I wanted to address with you. Many brewers do not date their bottles for freshness. Talk about the challenge of freshness in the face of charging such a premium price for more flavorful beers.

MN: It’s a very good question. About fifty to sixty percent of our beers are very strong and some when we receive them at our office are actually too young to be released. These need extended time to age, mature, and become ready. Other beers fall into the category that they should be consumed earlier. Due to the three-tier system, we try to bring in smaller shipments. This is very opposite to what many other importers do. As the specialty beers do not sell as much volume, a lot of beers will sit in warehouses before it gets to stores. So the brand will not be fresh when it gets to the store shelves. I hate that, absolutely hate that. When shipping from Europe or Japan, we will put together beers from many breweries before shipping it back instead of sending a full pallet of one brewery’s beers.

AC: We’ve seen a substantial increase in the price ceiling for beers in recent years. We are seeing some bottles of Belgian beers, which sell for five euros in their home market, selling for more than thirty-dollars here. What are your thoughts on the price differential we are seeing?

MN: It’s a obviously free market system here in the United States and it’s not like the former Russia with government agencies setting the price. I doubt we would like that. My basic argument is that it is a free market system. If you don’t like the price point, don’t buy it. That is the free market idea of supply and demand and I think it works very well. You can’t forget that here in the United States we are subject to the three-tier system. Wholesalers work on margins of thirty to thirty-five percent, retailers work on margins of thirty to thirty-five percent, and if it goes into an on-premise restaurant you’re looking at seventy percent. These are enormous margins that you don’t see in Europe because there is no three-tier system. A brewery can sell directly to a consumer. A brewery can sell directly to a retailer if he wants to do it. Obviously, the three-tier system adds a lot of price to the amount. But there certainly are players out there who seem to be over-priced. But again, that is the free market system. If the company makes the decision on the pricing and it sells, then the price is fair.

AC: What advice do you have for retailers who want to better cultivate or attract consumers who are willing to spend the extra dollar or ten for a bottle of beer?

MN: It’s incredibly easy but very few people do it. It all comes down to knowledge, training, and educating. You need to make sure your staff is incredibly knowledgeable and trained and educated. If you have this kind of staff, they will help develop the kind of informed clientele who will push you to bring in other things. We have people who will help you develop a menu of specialty beers that will help generate money for your account. But you have to have the commitment to getting the training and giving knowledge and not many people do that. In many places, if you go into a store and ask for help, you’re really not getting the type of assistance you need.

AC: Do you believe there will come a time when we consumers finally will be unwilling to pay the prices?

MN: It all depends on the quality of what is being brought in, but it seems like every beer made in Germany and Belgium is available here in the United States. I believe that it is possible that somewhere along the way the customer may say, ‘enough is enough’ and if you mislead customers they will switch to another brand that is not quite as expensive but is equal in flavor. I don’t really see that the price, however, is too high right now. If you put our most eccentric beers up against some of the best wines and whiskeys in the world, they are still very cheap. Even if I’m paying twenty dollars for a beer, if it’s exactly what I expected it to be in terms of complexity, I still think it is very very cheap.

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The Gluten Free Beer Revolution Continues…

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I’m happy to see that the gluten-free beer niche continues to grow. A recent trip to Minnesota revealed a friend who had long given up beer due to Celiac Disease, an autoimmune disorder whereby ingestion of certain proteins causes a painful and dangerous reaction in the body, which cannot absorb them properly.

While perusing beers at the excellent Blue Max Liquors in Burnsville, MN, I came across a number of gluten-free offerings. Upon seeing our purchase, the clerk offered that he had seen grown men in tears when purchasing the products, having so long been denied the opportunity to enjoy a beer.

redbridge.jpgThe niche within a niche of beers brewed without grain or wheat continues to gain positive press coverage and interest is growing among brewers. In order to help celiac sufferers, breweries continue to step up to the plate, including Anheuser-Busch.

In December 2006, A-B trumped smaller craft brewers by releasing the first nationally available sorghum-based beer. Called Redbridge and sold in stores and restaurants carrying organic products, the beer uses Hallertau and Cascade hops to balance the sorghum. A-B worked closely with the National Foundation for Celiac Awareness (NFCA) to get a full understanding of the needs of celiac consumers. “We’ve made Redbridge nationally available to make sure adults who experience wheat allergies or who choose a gluten-free or wheat-free diet can enjoy the kind of beer that fits their lifestyle,” said product manager Angie Minges in a press release.

Redbridge pours with a light auburn color and has a slightly astringent if unremarkable aroma. Very different from the funky aromas often found in sorghum based beers. The flavor is more like regular beers than those I’ve sampled made from sorghum and buckwheat, which is a real plus for celiac sufferers. The flavor occasionally turns oddly cotton candy sweet at times, but quickly comes back into balance. The overall flavor is perhaps a little thin compared to malt-based beers, which seems to be common among all sorghum beers. While hard to compare against regular craft beers, it is certainly a great advance forward for beer lovers who cannot otherwise imbibe contemporary wheat and malt-based beers.

Before the release of Redbridge, the Bard’s Tale Beer Company produced the most popular gluten-free beer in America. Selling 6,000 barrels of beer a year, the Bard’s Tale Dragon Gold weighs in at 4.7-percent alcohol by volume. Two new people have recently taken over the operation of the beer marketing company. Brian Kovalchuk, the new CEO, and Brian Bizer, the new CFO, both have experience in marketing and distribution as part of the team that helped boost Pabst Blue Ribbon out of its recent bout with obscurity. The pair plan to move central operations to Minnesota, while Gordon Biersch contract brews the beer in Palo Alto, California. Their forecast for the brand is certainly optimistic, with announced plans to expand distribution from 19 states to 50 and targeted sales of 70,000 barrels by 2012. Similar to how Pabst achieved success, the pair hopes to build a word-of-mouth and ‘buzz’ marketing campaign to support the gluten-free offering.

Very few craft brewers have entered the gluten-free market to this point, and fewer still may want to compete now that Anheuser-Busch is in the game. With an estimated three million celiac sufferers in the United States, however, some daring craft brewers may see an untapped market for gluten-free beers and decide to tough it out. A glimmer of hope could be found at the First International Gluten-Free Beer Festival. Held in February 2006 in the United Kingdom, the festival featured 20 gluten-free and low-gluten beers from around the world. My favorite name: the Against the Grain Ale.

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Anheuser-Busch’s Very Busy Year…

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Though it’s nearly 25,000 miles around, the world can feel like an awfully small place sometimes.  For the beer drinker, global walls continue their constrictive shifts as breweries band together in a dizzying array of mergers and acquisitions.  Despite extraordinary growth on the part of American craft brewers, global breweries continue to lose market share as drinkers turn their attention to spirits and other beverages.  Based upon recent transactions and industry buzz, 2007 appears poised to be another year where brewing conglomerates and industry titans will further divide and sub-divide the brewing pie in search of elusive profits and market share.
 
The New Face Of Anheuser-Busch

While industry analysts have long predicted that market leader Anheuser-Busch would have to respond to the hurried globalization pace set by other members of the brewing industry, few could have plotted the strategy the company pursued in 2006.  In the lead up to the retirement of A-B’s first non-Busch leader, Patrick Stokes, the brewery single-mindedly pursued strategic distribution agreements and targeted acquisitions of brands and breweries.  Deemed by some as the ‘funnel strategy,’ A-B’s efforts were an obvious attempt to placate the well-covered grumblings of distributors who have been clamoring for higher margin brands. 

In February, A-B announced it would become the exclusive American importer of the Grolsch beer brands, effective April 2006.  Anheuser-Busch quickly followed up the announcement in March with news that it would also take over importation of Tiger Beer, effective May 2006.  The agreements allowed the foreign breweries access to A-B’s network of nearly 600 wholesalers. 

In a well-publicized deal in May, A-B purchased the Rolling Rock brands from InBev USA for $82 million.  A-B managed to keep out of the fracas regarding the future of the historic Latrobe brewery that followed transfer of the brands, which A-B now brews at its facility in New Jersey.  In August, Anheuser-Busch announced an extension of its 10-year alliance with Japanese brewer Kirin.  In addition to brewing, importing, and distributing the Kirin Inchiban and Kirin Light brands in the American marketplace, A-B also assumed marketing and selling responsibility for the brands.  According to the terms of the agreement, Anheuser-Busch assumed full oversight of the Kirin brands in the United States, while Kirin retains trademark rights for the brands.

After completing these deals, the company announced that the next Busch generation would resume control of day-to-day operations in the A-B boardroom.  On November 30, August Busch IV succeeded Patrick Stokes as A-B’s president and CEO.  While it is far too soon to pass judgment on the success of the Fourth’s reign, his leadership has clearly directed the company to reinvent parts of its marketing and distribution lineups.  In the face of continued market pressures applied by the globalization of the beer industry and continued conglomeration, A-B’s new approach appears novel by comparison.  A-B is clearly focusing on distribution and importation agreements, while other big players, including InBev, SABMiller, and Heineken have instead focused on purchasing minority or majority stakes in global breweries.

In early 2007, Busch IV was eager to pronounce A-B’s 2006 distribution efforts a success.  The company recently released early numbers for 2006 that put overall shipments to wholesalers at 102 million barrels, up 1.2 million barrels over 2005.  Wholesaler sales to retailers grew at 1.1 percent in 2006, with the newly acquired and alliance brands contributing half a point of growth to both shipments and wholesaler sales to retailers.  “Anheuser-Busch achieved increased shipments in 2006 due to the success of its initiatives to grow core brands, led by Bud Light, and by expanding its portfolio of products including the addition of the Rolling Rock brands, and imports Grolsch and Tiger,” said August Busch IV in a press release announcing the results.

Despite the flurry of deals, A-B does not appear ready to rest yet.  In late November, A-B announced it would enter into an agreement with InBev to become the exclusive U.S. importer of several premium European import brands, including Stella Artois and Beck’s.  The teaming up of these two brewing powerhouses followed longstanding rumors of merger talks between them.  Instead, A-B will take over importation, sales, and distribution of the brands, excluding the Labatt’s products, starting in February 2007. 

“We are pleased with our sales and marketing initiatives, including the recently announced agreement to become the exclusive U.S. importer of select InBev European brands, and believe these efforts will position Anheuser-Busch for growth in volume and earnings in 2007,” concluded Busch in a press release.  The deal also allows InBev to continue its divestiture of focus of direct oversight of and responsibility for brands in the American marketplace.

Without taking a breath, A-B quickly followed up this blockbuster news by announcing a new production, distribution, and sale agreement with its longtime partner, Grupo Modelo.  The companies announced that A-B would serve as the sole importer of Modelo’s line of beers, including Corona, in China starting in January 2007. “We are very pleased with this association, which offers excellent long-term growth opportunities for Grupo Modelo’s brand portfolio in China, a very important market for our company,” said Carlos Fernández, chairman of the board of directors and CEO of Grupo Modelo in a press release.

Perhaps the most shocking deal was left for last.  In January 2007, A-B and Czech brewer Budejovicky Budvar announced a detente in hostilities between the companies in the form of another exclusive importation agreement.  The terms of the deal give Anheuser-Busch the right to import Budvar’s flagship beer, renamed Czechvar in the United States marketplace.  In return, Budvar gains access to A-B’s distribution network, with the possibility of expanding distribution beyond its present 30-state range.

The deal signals an incredible groundshift from the combative days of August Busch III, who fiercely fought Budvar in courtrooms in more than 40 countries around the world.  While the agreement specifically does not impact existing litigation or trademark disputes between the two brewers in other countries, the partnership clearly represents a changing of the old guard.  “After years of differences, this is a meaningful step for two great brewers to form a relationship that is good for both of our businesses,” said August A. Busch IV in a press release.  “[T]he agreement represents a historical turning point between our companies,” said Budvar’s CEO Jirí Bocek.  “We have managed to move away from discussions between lawyers and towards a practical dialogue, which is going to be beneficial to both sides.”

Where Things Stand

Beer industry experts remain divided over what effects these deals will have on Anheuser-Busch’s overall financial outlook and the American marketplace.  Observers will closely watch A-B to determine whether its new list of brands turns out to be an arsenal or just a confused jumble.  There is clearly some market overlap between the brands, notably between Tiger Beer and Kirin and Grolsch and Stella Artois.  But with the agreements in place, it’s hard not to be impressed with the range of the portfolio A-B can offer wholesalers and in turn the drinking public.  In addition to the brands mentioned above, A-B now either controls or has a financial interest in the following beers:  Corona Extra, Corona Light, Beck’s, Beck’s Light, Bass Pale Ale, Harbin Lager, Hoegaarden, and Leffe.

August Busch IV is right to be impressed with his newly assembled portfolio and the diversity of approaches the newly added beers will support.  In his statement following the InBev announcement, Busch said that “[w]e live in a world with diverse cultures and lifestyles, and this provides additional variety for our consumers. These well-known import brands complement our company’s leading portfolio of American premium beers and enable our company to better compete.  This is consistent with our stated strategy of enhancing our participation in the U.S. high-end beer segment.”

Anecdotally speaking, a recent vacation confirmed for me the power of the A-B portfolio.  While in Florida, I visited several local accounts, ranging from regular taverns to upscale restaurants.  A-B has long maintained a strong presence, if not control, over the flow of beer in the state, but this experience was different.  At several spots, A-B’s local wholesalers were taking full advantage of the portfolio.  In addition to the standard A-B offerings of Bud Light and Budweiser, consumers could try the brewery’s own better beer products, including Michelob AmberBock, choose its craft beer partners, including RedHook IPA or Widmer Hefeweizen, or sample an import beer, such as Kirin or Grolsch. 

It’s easy to see how devastating this approach can be, especially in places where craft beer has yet to gain a true foothold.  Local restaurants can simply rely upon A-B’s handful of products to cleanly cover all the major category angles.  In terms of building a platform for running the American marketplace, A-B has achieved impressive strides in 2006 and early 2007.

–article first appeared in March 2007 issue of Beverage Magazine.

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A Skunkadelic Freakout: A plea for freshness dating on beer.

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I once served a five-year-old bottle of craft beer to a college buddy, just for laughs. As he popped the top, I waited in anticipation for his first sip, which he promptly spit all over my coffee table. I deserved it. Without the benefit of freshness dating, he was helpless against the twin evils of stale beer and a bastard friend.

Craft brewers have long debated whether and how to date beer bottles. Providing freshness dating is one of those things that most craft breweries have avoided so far, even though it would be hugely useful to consumers struggling with two age-old questions: “How old is my beer? And, more importantly, is there a chance I might wind up spitting it all over myself?”

The overwhelming majority of beer, by its nature a foodstuff, is generally meant for consumption promptly after its creation. If you miss a certain window of time, your beer won’t grow mold or make you sick, but it will change for the worse. Even chest-thumping Double IPAs can fall prey to beer’s two biggest enemies: oxygen and light. Overexposure to these elements can leave you drinking either a cardboard cocktail or a stink bomb.

So while it’s cool that I can sit in Boston and drink beers from Seattle, Singapore and Sydney, the brews in hand usually no longer taste as the brewer intended, or as I may have hoped. But this isn’t an argument against shipping beer around the world. Even local beer can pose a grave freshness threat. A liquor store near where I live in Boston used to leave the Harpoon Brewery’s beers on the shelves year-round, regardless of whether they were seasonals. While at first I thought it was odd that the brewery released its Winter Warmer in mid-August, the brewery representative later confided that the store’s owner had just left it there from the previous year (or earlier). I pity the poor, unwitting fool who wasted eight bucks on that particular six-pack.

The repercussions of a stale beer experience can be serious. After getting burned by, say, a three-year-old Winter Warmer, many consumers will just head back to their staple brands, opt to drink only tap beer, or start futilely scouring labels for often-illegible freshness dates. Yet too many people in the beer industry either refuse to acknowledge the problem, or act as apologists for it. In reality, many brewers, importers and retailers simply don’t want you to know when your beer was made. Why? Because they know most of us don’t want to drink beer that tastes like cardboard, and therefore we won’t buy old beer. And that would leave brewers with a lot of unsold beer and unrecoverable losses.

This criticism of the beer industry’s lackadaisical attitude towards freshness, however, should not be read as an indictment of all parties. To be sure, many breweries have stepped up. Unsurprisingly, the Boston Beer Company, brewer of Sam Adams, pioneered freshness dating in the mid-’80s by adding a “best by” date to its labels. Ten years later, Anheuser-Busch trotted out its famous “Born On” date. While widely viewed as a marketing tool for A-B (you’re not likely to ever have a stale Budweiser anyway), the controversial freshness dating system was certainly a positive first step.

Many smaller fish have acknowledged the importance of freshness dating as well, utilizing a range of approaches. Victory Brewing Company employs an expensive laser coder that inscribes either a “best by” or “bottled on” date, depending on whether the beer is bottle-conditioned. Clipper City Brewery uses a cheaper method: Workers fire up a buzz saw to cut notches in stacks of labels before bottling. On the other end of the spectrum, the Dogfish Head Craft Brewery vintage dates its higher alcohol offerings to promote the cellaring of its beers.

The rest of the beer industry needs to follow this lead, should stop equivocating and help empower consumers. If they expect curious drinkers to spend nine bucks on a six-pack, why not take an easy step to protect their lips from stale sips? Consumers new and old shouldn’t have to worry about being turned off by a bottle past its prime. Otherwise, beer lovers will remain unprotected from unscrupulous store owners and diabolical friends alike.

And there’s no telling what that’ll mean for the nation’s coffee tables.

–article first appeared in December 2006 issue of Beer Advocate Magazine

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