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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Chicago’s Craft Beer Pioneers: Goose Island’s John and Greg Hall

Despite its name, the Goose Island Beer Company’s headquarters and main production brewery is not located on the miniscule, 160 acre artificial island splitting the Chicago River. Instead, the brewery’s Near West Side industrial location acts as a fitting tribute to the bare-knuckled nature of the city’s beer trade and to the dedicated family behind it.

Founder John Hall, of the paper packaging trade, opened Goose Island’s first brewpub on Clybourn Street in 1988, where the flagship Honker’s Ale eventually led to the opening of the Fulton Street production brewery and a Wrigleyville pub. Greg Hall, then a college student studying creative writing, joined his father’s team as a lowly brewer’s assistant, doing grunt work, before attending the Siebel brewing school and eventually becoming the brewmaster.

Together, the pioneering Hall’s make a formidable pair, balancing business acumen and a love of flavorful beer. Far removed from the days of Hex Nut Brown Ale, Goose Island now produces some of the most flavor-forward craft beers available in America. The brewery also runs one of the nation’s largest barrel aging programs, which sprawls out through warehouses on both sides of Fulton Street. In these wooden vessels sleep Bourbon County Stout and other rare treats.

Beyond building a solid portfolio of core brands, including President Obama’s favored 312, the Hall’s have focused much of their recent efforts on developing an eclectic line-up of Belgian-style ales. Devoted proponents of the joys of bringing beer and food back to its rightful place at the table, Goose Island hosts frequent beer dinners, cheese tastings, and has even brewed a beer for one of celebrity chef Rick Bayless’s restaurants.

Despite all of Goose Island’s successes, the city’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.”

With such an enviable and bold line-up of top-notch beers, good luck convincing the happy patrons at the brewery’s pubs that they aren’t drinking craft beer. You’d get a better response rooting for the White Sox on the corner of Clark and Addison.

-Article appeared in Issue 49 of BeerAdvocate Magazine.

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