Why the Anheuser Busch InBev – Goose Island Deal Is Good For Craft Beer…

Now I have in the not-so-recent past been accused of being a Goose Island-apologist and even a touch sycophantic when it comes to my hometown brewer. And I have made clear my respect for Goose Island and its founding family, including John and Greg Hall. To their credit, the Hall’s have made no bones about their decision to enter into an equity agreement with the Widmer Brothers Brewery and to their participation in the Anheuser-Busch distribution channels.

Despite all of Goose Island’s successes, [Chicago’s] s notoriously competitive distribution challenges in part led to the brewery’s decision in 2006 to enter into an equity agreement with the Widmer Brothers Brewery and the Craft Brewers Alliance, which has ties with Anheuser-Busch InBev. With their decision quickly came harsh words from self-appointed craft beer purists. Greg Hall quickly dismisses the criticism by noting that the big guys give them better access to market but “zero direction whatsoever” as to the beer. For others he jokes, “Can’t you taste the beechwood in there? Don’t you think it makes it taste better?” Simply put, “the beer is coming on a different truck now, but it’s the same beer from the same brewery and people.”

I’ve visited the Fulton Street brewery twice in the past two years and have been continually impressed by Goose Island’s dedication to pushing the brewing envelope and to developing some very interesting beers. If you expected Goose Island to go on autopilot after the 2006 Widmer deal or to fall prey to some flavor-killing influence of Anheuser-Busch, you’ll have to take you beer geek insecurities elsewhere. Goose Island has done nothing but improve its operations, both in terms of efficiency and creativity, since the inking of those big deals. The brewery has also enjoyed unprecedented access to a notoriously rough market in Chicago.

For the doubters, you need only consider what Goose Island has done since 2006 and then ask whether your local, “independent” brewery has fared as well. GI has introduced Sofie, Fleur, Juliet, Madame Rose, Pepe Nero and Nightstalker, as well as a number of variations on Bourbon County Stout. It has instituted a sustainability project meshed with a session beer offering through Green Line. Matilda is now widely available throughout the city on draft and the brewery is fast becoming known for anything other than its flagship Honker’s Ale (which remains excellent).

Despite industry criticism and snarky beer geek attacks, Goose Island has proven its dedication to producing world-class beer and to being inventive. And despite the departure of longtime brewmaster Greg Hall, I expect the brewery will continue to innovate. The future will tell on how a full AB-InBev owned and Greg Hall-less venture proceeds.

After getting beyond the initial surprise of the deal, I’m left with the thought that the A-B deal is actually good for craft beer (and certainly for Goose Island). As I noted in last month’s BeerAdvocate Magazine, it is time for the big brewers to signal their intentions towards craft beer. To date, Anheuser Busch’s entries have largely come across as a series of half-hearted, faux-craft brands that have tried to co-opt craft’s cool while simultaneously portraying the trend as cartoonish. While a few of the offered A-B brands have been respectable in terms of flavor (such as the Michelob Porter or the brewery’s dunkelweizen), the rest have been busts.

The Goose Island deal looks like a more focused approach for AB-InBev. According to the Wall Street Journal, the brewing behemoth intends to focus on a few core brands (as it does elsewhere around the world), including the Blue Moon-killer Shock Top (a cartoon brand in my opinion) while purchasing a handful of successful craft brewers. This latter approach, more in line with the InBev model, allows the company to bet on already successful brands instead of undertaking a throwing things at the wall approach that long seemed to dominate the A-B releases.

The Goose Island sale to AB-InBev in one sense must be seen as a victory for craft brewers. Instead of simply trying to knock-off or belittle their efforts, the world’s largest brewery clearly appreciates some of the nuances of the American marketplace. And it is certainly vindication for the hard work and efforts of the Goose Island family.

I also expect that this will signal the end of the half-hearted, Budweiser American Ale stabs at flavorful beer that we have seen in the past. Better to have the behemoth support, promote, and deliver flavorful craft beer than to crowd tap handles with flavorless and embarrassing knock-off brands (beyond the handful that will remain, such as Shock Top).

The deal also gives us hope that AB-InBev will finally take baby steps towards getting serious about supporting better beer. I expect Goose Island will receive a helpful infusion of cash and greater access to more markets as the division grows. As the industry continues to gray, it’s inevitable that many other craft brewers will find a buyer in AB-InBev, which will in turn lead to craft brewers comprising a greater percentage (however negligible globally) of the AB-InBev brewery portfolio. Assuming craft beer drinkers do not abandon their favorite but now-sold craft brewers, AB-InBev will experience pressures to continue to brew brands and keep local breweries in operation that they have not before faced in places around the world, including in Belgium.

To the extent that craft brewers can maintain an ownership, controlling, or operational interest in their breweries, using AB-InBev’s capital resources to expand their breweries will also lead to a greater availability of craft beer in markets across the nation. We have all seen our favorite breweries quickly expand their footprints across the country, only to have to pull back to a few or even a single state due to the inability to meet demand. This will continue to be a challenge for breweries for many years to come.

There are of course dozens of questions remaining to be answered in determining what effect AB-InBev’s growing involvement in the craft beer sector will have. We have no idea whether AB-InBev will be content to take a hands-off approach, as it has so far with Goose Island, and just see fit to help great craft brewers grow and showcase their brands or whether the large brewer’s shark-like corporate culture will cannibalize brands and move to shutter breweries and centralize brewing operations.

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The Graying Of The Craft Beer Industry…

I was hoping for a slow day at the office but that foolish idea was dashed with the news that Anheuser-Busch InBev planned to purchase a full ownership interest in Chicago-based brewer Goose Island. The news certainly sent shock waves through the industry and even started trending worldwide on Twitter. I was even surprised at the turn of events. But in hindsight, I shouldn’t have been.

The time for reckoning with the future of craft beer in America is now. I am among many writers who have opined on the graying of craft brewers and the effects such demographics could have on the craft beer industry. As I have often written about in the past, including as long as two and a half years ago, many craft beer pioneers are now elder industry statesmen. Fritz Maytag bought Anchor Brewing 45 years ago; Ken Grossman started Sierra Nevada 30 years ago; Jim Koch toted his briefcase from bar to bar 26 years ago. Beyond these well-known figures, many founders of regional breweries have been in the business for 20 years or more now. And as with any other small business, many are owned by one person or a small group of aging entrepreneurs who’ve long been toiling in the brewhouse, glad-handing distributors, and hawking product every weekend at beer festivals. For these hard working individuals, vacations are few and downtime almost non-existent.

And as with any other hard driving profession, it eventually wears you down. With high debt levels and decades dedicated to building up their companies and employees, these brewery owners can’t just walk away. Not to the mention the disappointment felt by their loyal customers who they’ve worked so hard to gain. Craft beer fans will have to adjust to an uncertain future where the only certainty will be corporate shakeups and where change will be a constant.

As I wrote in 2008:

Craft breweries are run by people not corporations and these folks can’t continue in this tough business forever. Shareholders eventually want their initial investments back, owners want to retire, and if they don’t have kids ready to take over the business, end game options remain limited. Consolidation, either with other craft breweries or with larger brewing concerns, will be the norm not the exception. And while we can all appreciate how far craft beer has come since its early days, it’s time to contemplate the business realities that lie ahead.

Fast forward to last month and I wrote:

“[w]ith craft beer continuing to grow in dollar and market share, the big guys can’t be expected to sit back and watch their brands get ridiculed and become culturally irrelevant…

A watershed moment in the history of craft brewing, it’s time for the macro brewers to acknowledge the new role flavorful beer plays in this nation, the strength of its future prospects, and help raise the bar for beer in America. Instead of trying to demean, ignore, or dismiss characterful beer, A-B InBev and MillerCoors should endeavor to help usher in the next era of great American beer. Because one thing remains clear for the big guys in the midst of all this uncertainty: those meddling craft brewers aren’t going anywhere.

Craft beer is a young man’s (or woman) game. In this watershed moment, where America now plays host to more than 1,600 craft brewers, the future of craft beer is unfolding before us. For many of craft beer’s pioneers, a crossroads stands before them. Do they double (or quadruple down) and take on very substantial debt loads in order to load up with the stainless necessary to face the onslaught of future growth prospects? Or do they stay put, cap their growth, and enjoy their regional or local success? Or do they seek an exit strategy? The traditional exit options for these often closely-held corporations include 1) selling to other inside investors, 2) handing the reins to younger family members, 3) sell to another brewery (be it macro or micro), or 4) sell some or all of the shares to a private equity group. To date, many craft brewers have not yet had to contemplate such decisions but expect that they will be coming fast and furious in the next five years.

When craft beer was only growing a few percentage points per year, or even losing growth, craft brewers could feel secure in their decisions to take things slowly. With sustained, year-after-year double-digit growth, even in horrible economic times, craft brewers largely no longer have that luxury. Many feel that standing still is no longer an option. Yet the prospect of undertaking what is necessary to meet even a fraction of their growth prospects understandably scares the shit out of them. It’s a great problem to have in theory until the interest payments on the capital investments come due every month. When you we’re just getting used to brewing five or ten thousand barrels of beer per year, expanding capacity to 250 or 400,000 barrels has to, on some level, seem insane.

Some craft brewers have jumped headfirst into this situation, such as Bell’s Brewery $52 million expansion announcement. Many others are trying to figure out what to do.

With all the available options for craft brewers, one thing remains clear: a lot of your favorite breweries are probably going to be owned by someone else in the next ten years. It’s time that we reconcile ourselves to this prospect.

So where does that leave us? I can only speak for myself by saying that I look forward to my next pint of Goose Island Honker’s Ale when I visit Chicago this summer.

I look forward to hearing your thoughts on these issues and more.

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What Will The Big Brewers Do About Craft Beer?

America’s largest commercial breweries have long had a love-hate relationship with craft beer. Often run by families with long brewing pedigrees, the macro brewers took serious offense at suggestions that their beers-pictures of consistency and efficiency-were somehow inferior to those produced by the bands of ragtag, scraggly haired, tattooed wannabes. The big brewers didn’t view the newcomers so much as competitors, but curious interlopers riding a brief fad.

In response to the early rise of craft brewers, Anheuser-Busch developed and released a series of half-hearted, faux-craft brands that tried to co-opt craft’s cool while simultaneously portraying the trend as cartoonish. Over at SABMiller, CEO Graham Mackay flippantly gave Fortune Magazine as late as 2007 his thoughts on craft beer. “I think it’s going to fade. It’s inevitable.”

With the explosive and long-sustained success of craft beer over the past decade, even through the terrible economy of the last two years, Mackay’s comical statements likely signify the last time a big brewery CEO doubted craft beer’s staying power. The only question remains, where do the nation’s biggest breweries go from here?

Having purchased substantial stakes in several craft breweries, from Redhook to Old Dominion, A-B InBev’s future in the better beer segment remains an open question. With the company’s primary focus on developing its core brands and its massive outstanding debt, it seems unlikely that future purchases and partnerships will occur. Add in the company’s dedication to premium brand building, and not to cultivating smaller craft brands, and the situation leaves a decided air of uncertainty hovering over companies such as Goose Island and Widmer. Within its own portfolio, A-B’s more flavorful beers also appear to be on the outside compared to Stella and its bland brethren.

With craft beer continuing to grow in dollar and market share, the big guys can’t be expected to sit back and watch their brands get ridiculed and become culturally irrelevant. After nearly two decades of flat out denying that consumers would switch from interchangeable beer widgets to characterful ales and lagers, macro brewers face some very difficult choices. Do they focus on foreign markets and continue to follow the old playbook in the United States? With the slow growth of craft beer from Scandinavia to Italy and Brazil, this seems like a poor response. Buying a stake in or taking over aging craft brewers also hasn’t panned out for the big guys as savvy beer consumers tend to hold such alliances against them. And when not taken seriously, their own organic products have tended to be resounding failures.

For its part, Coors appears to be the only big brewer to have not taken the upstart flavorful beer segment for granted, having developed and supported the now category leading Blue Moon brand despite some uncertainty along the way. And while some beer geeks may slam down their pints in anger when Blue Moon advertises on the Discovery Channel’s Brew Masters show, the new MillerCoors has doubled down on the better beer segment with its recent formation of the Tenth and Blake brewing outfit. The division’s new president, Tom Cardella, recently admitted to a Milwaukee newspaper that “[y]ou are seeing a tremendous amount of consumers gravitating to craft beer. Consumers are being more discerning about beer.”

A watershed moment in the history of craft brewing, it’s time for the macro brewers to acknowledge the new role flavorful beer plays in this nation, the strength of its future prospects, and help raise the bar for beer in America. Instead of trying to demean, ignore, or dismiss characterful beer, A-B InBev and MillerCoors should endeavor to help usher in the next era of great American beer. Because one thing remains clear for the big guys in the midst of all this uncertainty: those meddling craft brewers aren’t going anywhere.

–Article appeared in Issue 48 of BeerAdvocate Magazine.

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A Silver Lining In The Obama, Gates, Crowley Beer Debacle…

With all of the punditry out there, I didn’t think it at all necessary to weigh in on the controversy brewing over the President’s decision to have beers with the participants in Gatesgate, as it’s being called here in the People’s Republic. Craft brewers from Harpoon to Sierra Nevada have been angling since the beery announcement was made to have their beers served at the unusual meeting. And while I think the obvious choices, after maligning (rightly or wrongly so) Our Fair City, would have been to give something from Cambridge a shot, say a John Harvard’s beer or better yet Benevolence from Cambridge Brewing, I’ll leave other eager pundits-in-training to debate that topic.

Despite Bud Lights, Red Stripes, and Blue Moons all around, I think there may be at least one unintended silver lining in all of this import/foreign owned beer drinking: transparency. Craft brewers often complain about how the corporate origins of faux-craft beers such as Blue Moon float beneath the brand radars of beer consumers. With the rash of public complaints and news articles appearing in the last few days, anyone not previously paying attention will now know that Blue Moon is not a little imported brand but is instead produced by mega-conglomerate MillerCoors and that Bud is owned by a foreign company. American crafts may not have made it into the White House this time, but in the battle over “who makes your beer,” this may very well be some priceless PR time…

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Anheuser-Busch, InBev, and the Changing Face of American Beer…

The King is dead, long live the king. After more than a year of rumors, analyst whispers, and convenient press leaks, corporate brewing giant InBev finally made its move on America’s largest brewery. Founded as a small St. Louis brewing operation in 1860 by a German immigrant, the Anheuser-Busch Brewing Company would in less than a century grow to become the country’s dominant brewing business and one of its most iconic brands.

In the days following InBev’s offer for A-B, even otherwise detached Joe Sixpacks tipped their recliners forward and took notice of history being made before their damp eyes. The unthinkable had occurred; the American eagle had fallen prey to a foreign hunter. Once laying claim to half of the American beer market, A-B has long served as a national monolith, imposing its 100-percent share of mind campaign from the Atlantic to the Pacific. The brewery’s television ads dominated the airwaves, its brands omnipresent on the taps of every neighborhood bar and in the cooler at the corner gas station.

A-B’s executives, including the recently installed August Busch IV, tried to put a brave face on a fight they knew they would lose. Wielding xenophobic appeals and feeble court actions, the tough, “not on my watch? rhetoric quickly crumbled in the face of a stagnant stock price, a failure to embrace international expansion, and a tumbling dollar that made the giant brewing company affordable.

What happens after this anti-climactic, first round knockout is anyone’s guess. While InBev has publicly stated that it will not immediately sink its cost-cutting teeth into A-B’s bloat, including its twelve American breweries, this pledge rings hollow for the long term. Ironically, America’s loss may very well turn out to be the world’s gain as Budweiser is now set to become the combined brewery’s international flagship brand. Dethroned as America’s king of beer sales by sibling Bud Light and then later demoted by Miller Lite, Bud will enjoy a renewed focus in a bevy of new markets around the globe. Cousin Stella Artois will inevitably take a backseat to an international icon known even in the world’s smallest villages.

The bigger and lesser understood concern is how the deal, which will create the world’s largest brewery, will affect smaller outfits. We know that Pabst and the Boston Beer Company are left to fight over which brewery is now the country’s largest American owned brewery, but the toll on craft breweries is difficult to determine. While Anheuser-Busch InBev will undoubtedly continue to wield considerable distribution power, better beer fans can rejoice that this deal happened in 2008 and not 1998. A decade ago, craft brewers fought fruitless daily battles for the attention of wholesaler and beer buyers. Today, many craft brewers can’t find the time to field calls from people lined up to bring their flavorful and well-priced beers to new markets.

While hard core beer geeks would argue to the contrary, the loss of Anheuser-Busch should also be seen as a setback to the cause of better beer. Driven by the success of craft brewers, A-B has been a high profile advocate of flavorful beer in recent years. Through its highs and lows, A-B’s attempt to elevate and enhance beer’s public image with its “Here’s to Beer? campaign was a welcomed addition to the good beer praising craft chorus. And while this campaign was scheduled to end within the next year, it’s difficult to picture InBev replicating the promotion in the future. We can also expect the company to reconsider the future prospects of the newly formed Michelob Brewing Company and its line of flavorful beers.

One final consequence of the deal, assuming it survives regulatory review, is that breweries such as Old Dominion, Widmer Brothers, Redhook, and Goose Island will become distant members of the global InBev family. In InBev’s drive to focus on its core brands, these historic craft brands may find a cool reception in the boardrooms of Leuven, Belgium.

–Article appeared in Volume II, Issue VIII of BeerAdvocate Magazine.

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