Here’s To (Respecting) Beer!

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For beer advocates who engage in daily public relations campaigns in the name of better beer, the issue of respect is paramount. These dedicated enthusiasts spread the good news about their love of beer to others one pint at a time. They sidle up to strangers in pubs to influence what they’re drinking, listen stealthily when orders are considered, and at just the right time they offer praise for their favorite local brewery or beer.

For a long time, America’s biggest brewers didn’t seem particularly interested in helping this rag-tag band of beer missionaries spread the gospel of respecting beer. The big guys had their own agenda and it often involved promoting beer through flatulent horses, talking frogs, and bikini-clad twins. And for a long time, the T&A advertising strategy worked well with the beer pong and bong crowd. But then something happened: consumers started to care what beverages other people saw them drinking. Beer’s sales and overall market share stalled and then contracted. Newspaper and magazine stories heralded the death of beer.

The big brewers freaked at the news. After years of following the same crass marketing playbook, beer suddenly had a bad image and a black eye. In a remarkable confession to the Wall Street Journal, Miller’s marketing chief Tom Long took responsibility for the problem. “People will tell you that beer is not sophisticated enough, or stylish enough, to compete with wine and spirits,â€? he told the journal. “Why do they think that? Well, I believe it’s because we told them to.â€?

America’s largest brewer was nearly scared straight by beer’s alarming decline. With 50-percent market share, Anheuser-Busch had good reason to be concerned and its executives decided against simply changing a few ads. Instead, the company launched a highly publicized effort designed to elevate public opinion and appreciation of beer.

HTBThe ‘Here’s To Beer’ campaign debuted in February 2006 with a high-profile Super Bowl ad showing beer drinkers clinking glasses and offering toasts in a multitude of locations and languages. A-B approached other brewers to seek their input and support for the campaign but with little success. Miller and Coors declined the invitation to participate and larger craft brewers remained skeptical about A-B’s dedication and ability to promote respect for beer. A few print ads followed the television spot, but soon thereafter the campaign went dormant.

Nearly a year later, and with many media types wondering aloud about the future of the campaign, A-B released the second phase of Here’s To Beer. In March, the HTB website was overhauled, with web video added as well as a useful interactive educational component called ‘The Beer Connoisseur.’ The campaign also released American Brew, an admirable and historically balanced documentary on the history of American brewing by filmmaker Roger Sherman that premiered on the History Channel in April.

While A-B’s efforts have made some significant contributions to public appreciation for beer, the HTB campaign has occasionally lost focus on its focal point: respecting beer. Of all efforts associated with the recent relaunch of HTB, one of the most advertised was a video series featuring a comedian playing several historical characters. With its rich traditions and history, the features could be mined for both laughs and respectful moments about beer.

The initial spots fail tragically on all counts. In one video, visitors are invited to enjoy a beer with, of all people, Genghis Khan. The Mongolian conqueror begins by complaining about his undeserved “bad rap.� He whines that just because “you plunder a few villages and sodomize the inhabitants� that everybody thinks you’re a bad guy. He continues his tirade by talking about buggery and invites the visitor to assault the bar “wench� when she comes by. While a beer sits next to him on the table, he never references it. The Ben Franklin spot, in which the founding father talks about go-go dancers at Studio 54 and his desire to “impregnate the barmaid tonight,� fares no better. At least Franklin actually drinks the beer in between telling you that “Poor Richard was almost called Big Richard if you know what I’m talking about.�

Now if I was watching an ad for Bud Light, I might not give a second thought to the crassness of the history spots. Even if you find Genghis’s rant hilarious, if your sole purpose is to elevate public appreciation of beer, associating it with anal rape and bar maid assaults hardly seems the best way to generate respect.

While the HTB campaign isn’t perfect, the failure of Miller or Coors to make this an industry-wide initiative is disappointing to say the least. Smaller craft brewers, including the Boston Beer Company, can only do so much to promote public appreciation of beer. In the face of gains made by spirits and wine producers, the bigger brewers need to recognize this is a time for industry unity. Beer advocates can’t achieve true public respect for their favorite beverage if the biggest players continue to publicly disrespect beer.

–A version of this article appeared in the June 2007 issue of BeerAdvocate Magazine.

PostScript: After I conducted a lengthy interview with Tom Shipley, director of Global Industry Development at Anheuser Busch, the Genghis Khan spot I discuss here disappeared from the Here’s To Beer website. It was replaced with a spot that does not contain much of the content I criticized in the column.

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Anheuser-Busch and Craft Beer…

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Heads are turning and it’s no surprise considering the remarkable success of the craft beer segment.  A year after the popular press presided over beer’s funeral, allegedly done in at the hands of spirits, craft producers and their double-digit growth rates continue to resuscitate beer’s maligned image.  “One of the things we are clearly seeing is that the American consumer is heading towards more flavorful beers,� says Paul Gatza, director of the Brewers Association (BA), a group representing the interests of American craft brewers. 

Beyond consumers, craft beer’s appeal has also piqued the interest of competitors in the beer industry.  “The large brewers pay attention to market trends and part of that response is paying attention to specialty beers,� Gatza says.  “It doesn’t surprise me that the large brewers are offering specialty beers and getting involved in distribution deals with craft brewers.�  Of the large brewers, industry volume leader Anheuser-Busch, Inc., has been especially quick to address the gains made by craft brewers. 

A History Lesson

More than a decade ago, when craft beer experienced its first meteoric rise in popularity, Anheuser-Busch (A-B) initiated a series of efforts many believed were designed to address gains made by craft brewers.  In 1994, the company created its Specialty Brewing Group to compete with the growing craft segment.  The group developed more than a dozen releases.
Ziegenbock
The first foray into the better beer market included the Elk Mountain and Red Wolf lines, followed quickly by the Michelob specialty series, including the Amber Bock, and an American Originals line.  The brewery also released the ZiegenBock Amber, to compete with rival Shiner Bock in Texas, and Pacific Ridge Pale Ale in California to compete with Sierra Nevada Pale Ale.

To support its entry into the craft beer marketplace, the normally guarded brewery also decided to court beer writers.  The brewery took a group of nearly 40 journalists on an expense paid trip to watch the hop harvest at its Elk Mountain Farm in Bonner’s Ferry, Idaho.  Anheuser-Busch pampered the gathered writers with meals and samples of its new specialty beers.  According to one report, Senior Brand Manager Bob Franceschelli told the group that A-B’s efforts were designed to provide a one-stop-shop for its wholesalers.  “We think we can satisfy all their demands between our portfolio and our alliances, if not now, then in the future,� Franceschelli said.  Of the specialty beers enjoyed that day, only the Amber Bock and ZiegenBock survived. 

Franceschelli’s comments reflected a well-timed change in the way A-B dealt with its wholesalers.  As A-B introduced its new releases, it also instituted a distribution exclusivity program called the “100-percent share of mind� campaign.  It called for A-B distributors to direct their full attention towards the sale and promotion of the brands of the brewery and its affiliates, to the exclusion of others, including many small brewers.  In a time when craft brewers fought desperately for the attention of distributors, the program effectively slammed the door in their faces. 

In the most controversial component of its defense against the encroachment of craft beer, A-B forged distribution alliances with some of the strongest players in the craft beer segment.  In 1994, A-B announced an equity partnership that gave it a 25-percent stake in the Redhook Ale Brewery in exchange for access to its nationwide distribution network.  In 1996, A-B Chairman and CEO August A. Busch himself traveled to Oregon to strike another equity partnership with the Widmer Brothers Brewing Company.  In return for a 27-percent stake, Widmer also received access to A-B’s nationwide distribution system. 

Déjà Vu All Over Again

When craft beer sales hit a wall in the late-1990s, A-B’s interest in the better beer segment also tailed off.  Fast-forward a decade to the present and A-B is dusting off its old playbook in response to craft beer’s renaissance.  In 2006, A-B revived its relatively dormant Specialty Brewing Group to develop a slew of new products to compete with craft brands.  The brewery resurrected the old Originals and Michelob specialty brand names to house the brands and initiated a seasonal draft beer program.  It held a series of competitions allowing consumers to pick a trio of flavorful new draft beers and developed products targeted at the organic and gluten-free niches.  The brewery even released a few experimental offerings, including its BrewMasters’ Private Reserve and Celebrate series.

To support the release of these beers, the brewery followed the old script and renewed its flirtations with beer writers.  In August 2006, A-B’s employees recruited more than a dozen journalists for a return trip to the brewery’s Idaho hop farm.  In between lunches by the Kootenai River and dinners at a resort, the beer writers learned all about A-B’s latest better beer offensive.

Anheuser-Busch refused requests for a live interview in connection with this article, but agreed to answer three written questions.  When asked whether the new releases were designed to compete with craft beers, Dave Peacock, Vice President of Business Operations, wrote, “Anheuser-Busch has been brewing specialty beers throughout our history.  From our Bock beer of the 1870s to today’s new releases, our commitment to creating beers that appeal to the diverse taste preferences of our consumers will continue.�

Playing With Goliath

Beyond competing with its own more flavorful beers, Anheuser-Busch has also renewed its pursuit of distribution alliances with producers of better beer.  With the ascendance of August Busch IV, Anheuser-Busch looks poised for a new era.  The 100-percent share of mind program has been recast as the “funnel strategy�, which calls for A-B to act as a conduit providing distributors with a diverse portfolio of beers.  Last year alone, A-B signed importation deals for the Tiger Beer, Grolsch, Stella Artois, Beck’s, Hoegaarden, and Leffe brands and purchased Rolling Rock.  A-B also struck a surprise peace treaty in the form of an importation deal with longtime litigation rival Budejovicky Budvar, brewer of the Czechvar and Budvar brands.

A-B also quietly contacted at least half-dozen craft brewers about distribution deals.  Many craft brewers, including the Boulevard Brewing Company, politely rejected A-B’s advances.  Two craft breweries, the Goose Island Beer Company and the Old Dominion Brewing Company, joined forces with A-B and its craft beer partners.  In June 2006, Goose Island announced an equity agreement with Widmer that allowed it access to the A-B distribution network.  Under the terms of the deal, Goose Island sold 40-percent of its business to Widmer, A-B’s alliance partner. 

Goose Island…“The involvement of Widmer worked out really well,� says Goose Island’s brewmaster Greg Hall.  “When we opened the brewery in 1995, we raised money from family and friends. It worked out perfect because we basically swapped out the family and friends portion of ownership for another brewery.� 

Shortly after the Goose Island deal made headlines, word leaked out that the Old Dominion Brewing Company of Virginia had finally found a buyer.  Long rumored to be on the selling block, Old Dominion’s production has languished in recent years despite record sales in the craft beer industry.  According to sources with knowledge of the terms of the sale, the Coastal Brewing Company, a partnership between A-B and the Delaware-based Fordham Brewing Company, purchased Old Dominion for nearly $5 million, including an assumption of debt.  Under the partnership, A-B will own 49-percent of Old Dominion, with Fordham taking a 51-percent share. 

The effect the A-B partnerships will have on the veteran craft brewers remains to be seen. Workers at Old Dominion, who have been largely kept in the dark about the sale, are apprehensive. “The only thing that I do know is that it won’t be good for those of us that have put their hearts and souls into Old Dominion for many years,â€? says one concerned employee on the condition of anonymity.  In response to a question as to the level of influence the brewery exercises over the alliance breweries, A-B’s Dave Peacock wrote simply, “We do not brew these beers and play no role in their management, marketing or operations.â€?

“We’ve had some really good growth in the short time we’ve been in their system,� says Goose Island’s Hall.  “They give us zero direction whatsoever, we’re making all of the calls.  We’re the furthest thing from a subsidiary of either Anheuser-Busch of Widmer you could dream of.�

While A-B and Widmer only need focus on whether Goose Island can produce enough beer to meet demand, the Coastal partnership will need to resurrect a wounded brand and rebuild employee morale.  In 2006, Old Dominion’s beer sales were down more than 15-percent, with only contracted brands enjoying growth.  A-B and its partners have made clear that they plan to reduce Old Dominion’s portfolio of beers from nearly 30 offerings down to three to five plus seasonal beers.  The Old Dominion pub will also now stock the A-B products, including Bud Light.

The Next Step

The irony of A-B’s sudden increase in attention is not lost on craft brewers.  “A few years back, we were discussing Anheuser-Busch and the big question was the zero-share-of-mind,� says Tomme Arthur of the Port Brewing Company.  “I think it’s inevitable that if craft beer continues to grow at this rate, the big brewers are not going to just sit back and wait.� 

In light of their recent successes, the craft industry remains sensitive about A-B’s interest in the better beer segment.  While many craft brewers profess a lack of fear over the prospect of competition from A-B’s homegrown products, the distribution side of the equation has always caused their tempers to flare.  In an October 1994 interview with Inc. Magazine, Jim Koch, of the Boston Beer Company, derisively referred to Redhook as ‘Bud Hook,’ called the Redhook/A-B alliance announcement a “declaration of war,� and pronounced that “the cozy fraternal days of the microbrewery business are over.�

While the loss of collegiality was of grave concern then, craft brewers today are responding to the recent Goose Island and Old Dominion deals with a new focus of concern.  “I think the verdict is out about how genuine their interest in our segment is,� says Sam Calagione, president of Dogfish Head Craft Brewery. “I’ll be happy to be proven wrong.  But I know that their goal is to approach a finite number of brands, whether they are craft brands, quasi-craft brands, or imports, and bring them into distribution at the expense of breweries that are not brought in.�

Calagione also challenges the notion that the funnel strategy materially differs from the 100-percent share of mind program.  “Their goal is to make sure they are the only one-stop-shop in beer distribution,� he says.  “It’s up to all of us small breweries and all the non-A-B distributors and the A-B distributors that don’t want to be told by St. Louis what to put on their trucks, to make sure that doesn’t happen.�

Goose Island’s Hall strongly disagrees.  “We haven’t seen that at all, in fact just the opposite,� he says.  “The distributors we talk to want access to more beers they can’t get.  It’s a reality that in most markets, A-B probably calls on as many or more accounts than someone else.  I can’t see where it’s a bad thing that you can get your beer into more people’s hands.�

Hall acknowledges he has encountered some critics of the brewery’s involvement with A-B, but he has a response line at the ready.  “I tell them, ‘Can’t you taste the beechwood in there?  Don’t you think it makes it taste better,’� he jokes.  “We’ve gotten some backlash but we tell them the truth, that the beer is coming is coming on a different truck now, but it’s the same beer from the same brewery and people.� 

Bridging the opinion divide, brewer Tomme Arthur believes brewers should carefully consider their options but understands the decision to join A-B’s distribution network.  “In some ways the change is good because some breweries are going to gain access to the market that they didn’t have,� he says.  “Access to market is one of the biggest concerns for most brewers.�

With the benefit of experience at their sides, craft brewers plan to carefully consider Anheuser-Busch’s renewed interest in the better beer segment.  In surveying the new landscape, Arthur suggests that all craft brewers should maintain their focus on what made them successful.  “How a brewery responds to a larger group giving them access to market, and the integrity of the product, is what matters most,� he says.  “The consumer will be left to decide whether the things being done from here on out still merit their consideration.�

–Article appeared in June 2007 issue of Beverage Magazine.

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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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The Winds of Change at Old Dominion

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My desire to comment at greater length on the recent purchase of the Old Dominion Brewing Company by Coastal Brewing, a partnership of A-B and the Fordham Brewing Company, is the real reason I started this Notebook. I’ve had a number of conversations over the last few months about Old Dominion’s future as various deals have come and gone. I’m writing about A-B’s efforts in the better beer segment and its effects on craft brewers in an upcoming issue of BeerAdvocate Magazine, where I write the Defending Beer column. But I wanted to expand on the Old Dominion matter specifically.

The situation at Old Dominion is a complicated one. Old Dominion is a ‘sick brand’ as they say in the industry. The brewery’s production has languished in recent years despite record sales in the craft beer industry. The brewery has barely grown in the last five years and in 2006, Old Dominion’s beer sales were down more than 15-percent, with only contracted brands, such as Tupper’s and New River, enjoying growth.

odb.jpg The situation would hardly be surprising if the beer was bad, but Old Dominion has long made a range of well-respected beers. One clear problem has been the omnipresent lack of leadership at the brewery. As early as 2001, Old Dominion’s principal owner, Jerry Bailey, made it known that the brewery was for sale. A number of craft industry players even received sales solicitation memos from Old Dominion. When no one matched his $15 million asking price, according to the Washington Post, Bailey removed Old Dominion from the market.

During the next few years, the brewery continued to plod along on its unsuccessful path. Despite little regional competition and a defined home market, Old Dominion failed to grow. Even in the last six months, the brewery’s beers are nearly impossible to find in places that you would expect to see them. On a recent beer trip to Charlottesville, I found only a single restaurant carrying the beer and it was in the bottle. Writing in the Washington Post in 2006, Fritz Hahn noted that Old Dominion was largely absent even from the Washington DC marketplace.

Problem is, the brewery’s distribution in Washington is often lacking. Outside of a few beer-centric bars that feature the deliciously smooth Oak Barrel Stout or high-octane Millennium Barleywine Ale, you’re lucky to find much beyond the aggressively hoppy Tuppers’ Hop Pocket Ale, the standard Dominion Ale or Dominion Lager, or maybe Victory Amber Lager. For the past decade, the easiest way to peruse the company’s offerings was to drive to Ashburn for dinner and drinks at the Old Dominion Brewpub, a sparsely decorated bar and dining room attached to the brewery.

Fast-forward to 2006. Shortly after the Goose Island deal made headlines, word leaked out that the Old Dominion Brewing Company of Virginia had finally found a buyer. What followed was two failed attempts by an employee, Terry Fife, to purchase the brewery with his partner, Kip Olson. During 2006, A-B was also poking around Old Dominion at the behest of its local distributors.

After the employee deals fell through, the Coastal Brewing partnership stepped in to negotiate a purchase with Jerry Bailey. In March 2007, the group confirmed the long-standing sale rumors. Coastal Brewing purchased Old Dominion for one-third of the original asking price, according to sources with knowledge of the terms of the sale. The A-B/Fordham partnership purchased Old Dominion for nearly $5 million, including an assumption of debt and moneys kept in escrow. Fordham, which runs the Ram’s Head pub chain, largely financed the deal, with A-B simply agreeing to cover the distribution angle. Under the partnership, A-B will own 49-percent of Old Dominion, with Fordham taking a 51-percent share.

With the deal shrouded in secrecy, workers at the brewery and its attached pub were disappointed by news of the sale, which came in the form of Coastal’s application for a brewing license in Virginia. “The staff of Old Dominion has been kept largely in the dark about what to expect after the closing,â€? says one employee who spoke on the condition of anonymity. “The only thing that I do know is that it won’t be good for those of us that have put their hearts and souls into Old Dominion for many years.â€?

So what happens now? Much of what follows remains speculation but there are two distinct areas of focus: short and long term. In the short term, things will remain largely the same minus a few notable changes. After the deal became public, the new owners fired three employees, including two brewers, Dave Hennessey and Greg Spradlin, and marketing director Terry Fife, the employee who tried unsuccessfuly to buy the brewery. The Ashburn brewery and pub will retain the Old Dominion name for now. The new owners, including Kyle Muehlhauser, held meetings last week with both the pub and brewery employees. Workers at the pub were told that the pub was closing for a two-week renovation period, effective immediately. Workers were not provided with any interim pay but were offered $10/hour to come in and help clean during the renovation period. When the pub reopens, with a full liquor license, it will also stock the full line of A-B products, including Budweiser and Bud Light. In the short-term, it is unclear whether the new owners will attempt to rebrand the Old Dominion pub as a new Ram’s Head Tavern.

The long-term outlook is very different. To resurrect the sick Old Dominion brand, the A-B/Fordham partnership has its work cut out for it. In January 2007, former owner Jerry Bailey told the Washington Post that he did not believe the new owners would change the beers. “I can’t imagine anybody buying a place like this and not keeping the only thing we got,” he said. “The brand is the most valuable thing we own.”

Privately, A-B and its partners have made clear that they plan to reduce Old Dominion’s portfolio of beers from nearly 30 offerings down to three to five beers. It remains unclear whether the brewery will continue to contract brew existing brands.

The final long-term concern remains what will happen to Old Dominion’s physical space. While Fordham is a much smaller operation, brewing around 6000 barrels per year compared to nearly 27,000 for Old Dominion, the principals have discussed moving brewing operations to Fordham’s Dover brewery. One person with knowledge of the deal expects the partners will eventually move the brewing operations to the Dover brewery and close the Asbhurn operation.

It is beyond question that Old Dominion needed new leadership in order to survive after years of inexplicably failing to grow. The issue becomes whether the A-B/Fordham partnership is the best way to right the ship without losing what Old Dominion’s remaining customers love about the place, namely its eclectic line of beers. This is the major area of concern cited by consumers who have emailed me about the deal. As one customer, Ron Kobus, told the Washington Post, “It would be a shame to see them shut down the brewery or change the recipes.â€?

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Old Dominion Purchased By A-B, Craft Partnership

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Though it has long been rumored, the sale of Old Dominion is now in its final stages.  I have a lot to report on this topic (including some coverage in the next issue of BeerAdvocate Magazine, but for now, here is the press release. 

New Joint Venture, Coastal Brewing Co., To Purchase Old Dominion

ANNAPOLIS, Md. (March 2, 2007) – Coastal Brewing Co., a new joint venture between Maryland-based Fordham Brewing Co. and minority partner Anheuser-Busch, Inc., announced today it will purchase Old Dominion Brewing Co., a Virginia-based craft brewer and brewpub operator with primary distribution in the Mid-Atlantic region of the United States.

As part of the deal, Coastal Brewing Co. will assume ownership, sales and marketing responsibilities for both the Old Dominion and Fordham brands, including Dominion Ale, Dominion Lager, Oak Barrel Stout, Fordham Copperhead, Fordham Lager, Oyster Stout and others. Coastal Brewing Co. also assumes ownership of the Old Dominion brewery and Old Dominion Brewpub, both located in Ashburn, Va.

Bill Muehlhauser, chief executive officer of Fordham Brewing Co., will serve as managing partner for Coastal Brewing Co. Coastal Brewing Co. has hired Scott Zetterstrom as a vice president of brewing operations to oversee brewing of the Old Dominion and Fordham brands. Zetterstrom previously served as head brewmaster for Old Dominion and most recently worked with Fordham as an independent brewing consultant. Coastal Brewing Co. also has hired Barry Newmiller as vice president of sales and marketing. Newmiller previously was a regional sales manager for InBev USA.

Additionally, effective April 1, 2007, Anheuser-Busch will become the master distributor for the Old Dominion and Fordham brands, giving Coastal the benefit of Anheuser-Busch’s logistical expertise in managing distribution and access to more independent and chain retail accounts in the Mid-Atlantic region.

“I’m proud to entrust the wonderful beers we have brewed at Old Dominion since 1990 to Fordham and Anheuser-Busch,� said Jerry Bailey, founder and president of Old Dominion Brewing Co. “Under Coastal’s stewardship, the quality of Old Dominion brands will be protected and there’s no limit to what they can accomplish.�

Coastal Brewing Co. will be led by Fordham Brewing Co., which holds 51 percent ownership, with Anheuser-Busch holding the minority stake of 49 percent.

“We are eager to expand the distribution of our Fordham brands through Anheuser-Busch’s wholesaler network and are looking forward to working with the company through this alliance,� Muehlhauser said. “We are excited about the opportunities Coastal Brewing Co. will provide to both the Old Dominion and Fordham brands and introducing them to even more beer lovers in the Mid-Atlantic States.�

“Old Dominion and Fordham are two of the leading craft brewers in the Mid-Atlantic region, with a strong following among craft consumers and a tremendous opportunity for growth,� said Dave Peacock, vice president of business operations for Anheuser-Busch, Inc. “Together with our partners at Coastal Brewing and our wholesaler network, we will enhance the distribution and sales support for these exceptional beers and continue to provide new, distinctive products to adult consumers.�

Based in St. Louis, Anheuser-Busch is the leading American brewer, holding 48.4 percent of U.S. beer sales. The company brews the world’s largest-selling beers, Budweiser and Bud Light. Anheuser-Busch also owns a 50 percent share in Grupo Modelo, Mexico’s leading brewer, and a 27 percent share in Tsingtao, the No. 1 brewer in China. Anheuser-Busch ranked No. 1 among beverage companies in FORTUNE Magazine’s Most Admired U.S. and Global Companies lists in 2006. Anheuser-Busch is one of the largest theme park operators in the United States, is a major manufacturer of aluminum cans and is one of the world’s largest recyclers of aluminum cans.

Based in Annapolis, Fordham Brewing Co. was originally founded by Benjamin Fordham in 1703, in what would become Maryland. In 1995, it was reborn in the heart of old Annapolis. Rapid growth resulted in the building of a new brewery in Dover, Del. in the spring of 2003. For more information, visit www.fordhambrewing.com. 

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