Michelob Co-opts Craft’s Cool…

While watching my hometown Chicago Bears drop a heart breaker to the New York Giants, I had my first chance to watch Anheuser-Busch’s newest attempt to fight back against the gains of the better beer segment. The television ad, part of A-B’s $30 million campaign to rejuvenate the ailing Michelob brand, was a low key, T&A free promotion of the flavor and heritage of the Michelob brand. The ad shows an interview with a brewer who talks about Michelob’s tradition and its high quality ingredients. Then, somewhat surprisingly, the focus shifted from the standard Michelob lager to the less familiar ‘family’ of Michelob brands. The ad featured the Michelob Porter, Pale Ale, and Hefeweizen and heralded their quality. The ad ends with the campaign’s new tagline, “crafting a better beer.”

My first response was, ‘wow, did that just happen?’ Beyond the fact that the ads seem to unapologetically steal from Boston Beer’s successful line of television ads (focus on quality ingredients and the passion of the brewers), the brewing giant’s co-option of the name of craft beer is both brazen and a sign of acceptance. The campaign goes far beyond merely releasing new beers and hoping one sticks, it is a celebration of flavor, quality, and better beer. Think about that, better beer. ‘Better than what’ a savvy, regular beer drinker might ask after watching the ad. The only answers a viewer can be left with are Budweiser and Bud Light.

One member of the Michelob brand family that does not appear in the ad is Michelob Ultra, the company’s former low carb, sales golden boy. One A-B executive told Advertising Age that the disassociation was a conscious decision. “You’re going to see us reduce the reliance on the name Michelob with Ultra, maybe even to the point of taking it off the packaging down the road,” the executive said.

Regardless of whether the campaign, which again finds A-B trying to promote Michelob as a connoisseur’s brand, actually increases Michelob’s sales, the overall message is clear. Craft brewers have changed the nature of the game.

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The Ironic Timing of Fresh Hop Beers and the Great Hop Crunch of 2007

The last few weeks have seen the release of the 2007 ‘fresh hop’ beers. Brewed in connection to the annual hop harvest, the beers are usually made with hops fresh from the field (hopefully within a few hours of picking). The resulting beers tend to have some greatly expressive hop aromas and often flavors. What started with only a handful of examples (with Sierra Nevada’s Harvest Ale being the earliest version I tried) has now grown to dozens of examples.

The fresh hop phenomenon has grown so popular that it even has its own festival. The 5th annual Fresh Hop Ale Festival will be held on Saturday October 6 in the heart of hop heaven in Yakima, Washington (a region that produces more than 75-percent of the American hops used in brewing). The following breweries are scheduled to pour beers and compete in the festival’s competition.

O’Brien’s Pub in San Diego will also sponsor the Wet Hop Beer Festival, where owner Tom Nickel plans to serve 35 beers this year, double the number at the inaugural event two years ago.

The fresh hop craze isn’t limited to the Pacific Northwest. The Boston-based Harpoon Brewery recently released Harpoon Glacier Harvest Wet Hop beer as the 20th installment of its Harpoon 100 Barrel Series. Of the beer, Harpoon’s media team reports:

Wet hop beers are brewed using fresh, wet (hops contain about 60% moisture when they are first picked) hops instead of traditional dried hops. Typically, when hops are picked they are quickly dried and refrigerated to make them more suitable and consistent for brewing. This process allows brewers to use hops that were harvested in the fall throughout the following year. Alternatively, wet hops need to be used within hours of their being harvested or they will begin to rapidly degrade. Wet hops retain some of their natural oils and volatile flavors that dissipate when dried. This yields an immersed, intense hop flavor in the beer.Harpoon brewer Ray Dobens, creator of the beer, harvested the Glacier hops in Seneca New York the morning of August 13th and immediately drove them back to Boston that very afternoon in a refrigerated truck. Ray added the newly harvested hops to the brew within hours after the harvest. The fresh hops were added to a malty, copper-colored ale. The combination is a pleasing blend of fresh hop flavor and sweet malt.

Hell, even Anheuser-Busch is jumping on the bandwagon with its Front Range Fresh Harvest Hop Ale.

All of this exciting innovation comes at a time when hop growers and traders are becoming increasingly concerned about the sorry state of the world’s hop supply. Despite the recent increases in American demand for hops, worldwide hop production is down significantly. The remaining stocks are subject to poor weather, fires, and other catastrophes. While larger breweries, which buy options on ingredients years in advance, and long-term customers will likely continue to receive their hop supplies, the smaller market players may find their access to specific hop varieties very limited.

Man, I hope this doesn’t mean we’ll have to suffer through a resurgence in gruit beers.

In addition to the hop problem, brewers are already starting to get hit with price increases for malt as well. The price of several varieties of base malt has increase 5 to 10 cents a pound. Expect to see the cost of doing business reflected in your pints and six-packs soon.

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A 2007 GABF Preview…

GABF 2007

The beer industry is gearing up once again for the overwhelming experience that is the Great American Beer Festival (GABF). Held annually in Denver, the GABF (now in its 26th year) is one of those things every beer lover should experience at least once. It is at once an incomparable tasting event and an unmatched opportunity to rub shoulders and clink glasses with brewers, distributors, bar owners, writers, and beer enthusiasts from nearly every state and dozens of countries.

The GABF is an event I have long-enjoyed and although I am a relative youngster in this industry, this will be my twelfth consecutive year in attendance. My first visit to the GABF was a watershed event for me. I was just beginning to acknowledge and appreciate that there was a difference in American beers. I had just spent a semester in London, where Guinness taught me to taste and feel again. Upon my return, a brewpub opened up in my college town and I stopped by on its opening night to find a stout wholly different from Guinness (the cream stout!). So it was that I happened to be visiting a friend in Denver at the same time the festival was taking place. My friend bought us tickets and upon entering the beautiful environs of Currigan Hall (long since replaced with the cold, soulless Colorado Convention Center) , I actually shed a tear or two at the splendor of American beer.

While the event remains a must attend, today’s GABF is no longer the simple, cozy event of years past. The GABF is a slickly produced show, tightly coordinated, and business first. It is also a place where lazy journalists can coast on information provided to them by the Brewers Association. To get the fluff out of the way, 1408 breweries will be present on the festival floor (24 more than 2006), serving 1884 beers (230+ more than 2006), 474 breweries will participate in the judging event (24 more than 2006), which will involve 2832 beers (442 more than 2006) in 75 categories (a ridiculous increase of 6 from 2006). For a look at the GABF’s judging process, review the article on the value of a beer medal.

I could bore you more data, such as the average number of competition beers in each category (37) , but what would I have left to report?

For those who have never experienced the carnival that is the GABF, BeerScribe.com offers you its annual review of the past five festivals as part of our eco-friendly article recycling policy. Enjoy.

GABF At 25 – The 2006 GABF.

A look at the 2005 GABF.

Revisit the 2004 GABF.

The 2003 GABF.

The GABF Turns 21 – The 2002 GABF.

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Craft Beer Continues Its Tear…

The Brewers Association has just released its mid-year numbers and craft beer has continued its impressive growth streak. The highlights of the release, which is quoted below, include the following feats:

• Craft beer growth continues to break records with a volume increase of 11% and dollar increase of 14% in the first half of 2007 compared to the same period in 2006.

• For the first time ever craft beer has exceeded more than a 5% dollar share of total beer sales.

• In the first half of 2007 the beer category sold one million more barrels with 400,000 of these new barrels produced by craft brewers.

• Craft beer sales, in barrels, for the first half of 2007 was 3.768 million compared to 3.368 million barrels sold in the first half of 2006

The numbers for the craft beer segment continue to impress, especially the growth in
dollar share of beer sales (a crucial indicator too often cast aside for the focus of volume).

Dollar Share

On a final note, Julia Herz, the Brewers Association’s new director of craft beer marketing, has done a solid job of improving the way the trade association promotes the craft beer industry. This mid-year release, with pretty graphs and all, is a product of her continuing efforts to better promote craft beer.

Boulder , CO – August 15, 2007 – The Brewers Association, the trade association that tabulates industry data for craft brewers, reports craft beer sales and growth continue to break records. The volume of craft beer sold in the first half of 2007 rose 11% compared to this same period in 2006 and dollar growth increased 14%. For the first time ever craft beer has exceeded more than a 5% dollar share of total beer sales.

Overall, the U.S. beer industry sold one million more barrels in the first half of 2007 compared to 2006, with 400,000 of these new barrels produced by craft breweries. This equates to 3.768 million barrels of craft beer sold in the first two quarters of 2007 compared to 3.368 million barrels sold in the first half of 2006.

Scan data from Information Resources, Inc. provide additional data points that confirm strength for the segment. Craft beer sales in the supermarket channel through July 15th, 2007 showed a 17.4% increase in dollar sales compared to the same period in 2006. This growth in sales was higher than any other alcohol beverage category.

“The 1,400 small, independent and traditional craft brewers in the U.S. have hit their stride,? said Paul Gatza, Director of the Brewers Association.“United States craft brewers are making many of the world’s best beers, and the marketplace is responding.?

Coupled with the growth statistics has been a tidal wave of media coverage in the first half of 2007 including NBC’s Today Show on July 3 stating, “Beer is the new wine and can go with just about any food.? Additionally, Gallup, in its latest poll on alcohol beverages, announced for the second straight year that “Beer Again Edges Out Wine as Americans’ Drink of Choice.?

Julia Herz, Director of Craft Beer Marketing for the Brewers Association concluded, “Craft beer market share is steadily and consistently growing. A grassroots movement is responsible for this success as appreciators continue to trade up.?

# # #

The definition of craft beer as stated by the Brewers Association: An American craft brewer is small, independent and traditional. Small = annual production of beer less than 2 million barrels. Beer production is attributed to a brewer according to the rules of alternating proprietorships. Flavored malt beverages are not considered beer for purposes of this definition. Independent = Less than 25% of the craft brewery is owned or controlled (or equivalent economic interest) by an alcoholic beverage industry member who is not themselves a craft brewer. Traditional = A brewer who has either an all malt flagship (the beer which represents the greatest volume among that brewers brands) or has at least 50% of its volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor.

Based in Boulder, Colo., U.S.A., the Brewers Association (BA) is the not-for-profit trade and education association for American craft brewers and the community of beer enthusiasts. Visit the website: www.beertown.org to learn more. The association’s activities include events and publishing: World Beer Cup®; Great American Beer Festival sm ; Craft Brewers Conference and BrewExpo America®; National Homebrewers Conference; National Homebrew Competition; American Craft Beer Week (May); Zymurgy magazine; The New Brewer magazine; and books on beer and brewing. The Brewers Association has an additional membership division of 12,000+ homebrewers: American Homebrewers Association.

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Anheuser-Busch and Craft Beer…

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,? 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.?

“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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