With rumors swirling and speculation rife, BeerScribe.com has confirmed that an additional two craft breweries have been approached by Anheuser-Busch (A-B) or its distributors about possible equity share agreements or strategic distribution partnerships. This article details A-B's recent efforts and the facts surrounding its forays into the craft beer market.

2005 was a rough year for Anheuser-Busch, with profits down considerably in many markets. "We've had a challenging year in the domestic beer business and our 2005 sales and earnings per share were disappointing," said Patrick Stokes, president and chief executive officer of the company in releasing the company's annual financial report. In the domestic market, A-B's production fell 1.8-percent to 101.1 million barrels, earnings per share dropped 11-percent, and market share (excluding exports) retracted to 48.7-percent from 49.6-percent in 2004.

Throughout the year, A-B has been on the offensive, letting analysts and shareholders know that it did not intend to sit idle while the company lost traction. In a release to the media, Stokes recently stated his vision for the brewery's future. "The company has a number of initiatives in place to enhance beer volume growth, including introduction of new products, led by Budweiser Select, increased investments in domestic marketing, stepped up on premise sales initiatives, new packaging and tactical price promotions."

While Stokes publicly outlined his vision for A-B's in-house approach to stabilizing sales, the company was quietly considering a new set of options. Faced with back-to-back years of solid 7-percent plus growth, A-B began to court a handful of craft brewers. Through a fog, wild rumors began spreading, including speculation that craft breweries would either be purchased outright, broker equity share purchase agreements, or form strategic distribution partnerships.

Though it is too early to tell whether A-B's recent specialty releases will gain any traction against craft beers, Anheuser-Busch's outside business efforts are what should most draw the attention of the craft beer industry. Many are familiar with A-B's strategic business alliances with and ownership interests in Widmer Brothers Brewing, the Kona Brewing Company, and the Redhook Ale Brewery. The relationships have meant different things for each brewery, but for the smallest among them (Kona), the distribution agreement has been very beneficial. In the four years following its agreement with A-B, the little brewery's sales have tripled and new distribution channels have opened across western California.

As has been widely reported elsewhere, the earliest leaks of possible deals included the Old Dominion Brewing Company in Ashburn, Virginia and the Goose Island Brewing Company in Chicago, Illinois. On an industry list of brewers in 2004, Old Dominion was the nation's 45th largest brewery and produced 26,700 barrels. According to general manager Terry Fife on BeerAdvocate.com, A-B engaged the craft brewer in mid-2005 in a dialogue regarding a possible equity ownership and distribution agreement. Fife confirmed this was not the first time A-B had approached the brewery and that the company was making similar overtures to at least a half-dozen other craft breweries. The discussion included the possibility of adding these regional craft beer powerhouses to A-B's distribution network.

A few weeks later, word from Chicago added the Goose Island Brewing Company to the list of possible craft beer partners. In late December 2005, Goose Island president and founder John Hall confirmed to the Chicago Tribune that his company was in talks with Anheuser-Busch regarding a possible distribution agreement. The craft brewer, which produces around 50,000 barrels annually, is one of the biggest craft players in the Midwest. Hall refused to provide the Tribune with any additional details regarding the negotiations. A local Anheuser-Busch wholesaler recently took over distribution of the Goose Island brands in Chicago.

With rumors confirmed for two breweries, industry insiders have widely speculated as to the identities of the other targeted craft brewers. Anheuser-Busch would likely seek craft breweries with proven regional traction, well-identified and respected brands, strong growth potential, and the demonstrated ability to appeal to cross-over drinkers. On February 10, Jack Curtin, writing at The Beeryard.com confirmed in a conversation with Sam Calagione, president of the Dogfish Head Craft Brewery, that several A-B distributors had approached his company about a possible business relationship. Calagione stated that his company was approached by individual A-B distributors and by a broker working on behalf of A-B distributors.

After politely declining the offers of A-B distributors, Calagione had strong words against such agreements. "I'm not against Anheuser-Busch. I'm against totalitarianism," said Calagione speaking with me in Boston last week. In discussing the danger of becoming aligned with the A-B distribution network, Calagione counseled caution for other craft breweries. "I think the craft beer consumer is a lot better educated now and they really appreciate the independence of the breweries they support" said Calagione. "I'm kind of betting my life, my home, everything that I'm mortgaging against this brewery expansion that whether Anheuser-Busch owns one-percent of your company, that it's like being a little bit pregnant. I think it'll be very difficult for a brewery to sell some kind of equity share and not have it be viewed as a scarlet letter on their chest as they try to sell their own beer through A-B's distribution network."

Attempts to confirm or dispel the rumors have proven difficult. On the record, the following breweries have denied having any conversations with A-B about distribution or other agreements: Abita Brewing Company, Alaskan Brewing Company, Allagash Brewing Company, Boston Beer Company, Brooklyn Brewery, Harpoon Brewery, New Belgium Brewing Company, and the Victory Brewing Company.

As an exclusive report, BeerScribe.com now adds two new names to the list of breweries contacted by A-B. When initially contacted about possible discussions with A-B, the Magic Hat Brewing Company of Burlington, Vermont initially refused to comment for this story. Subsequent inquiries have turned up information that Magic Hat has been the subject of an approach similar to that experienced by Dogfish Head. A source with the company confirmed that Magic Hat has been approached by A-B distributors, but denies that the company has been courted directly by A-B representatives. While the company officially refuses comment, the source informed me that he believes all offers have been declined and that he does not expect Magic Hat to align itself with A-B.

Digging for additional craft breweries that have been targeted reveals at least one new name: the Boulevard Brewing Company of Kansas City, Missouri. Flying under the radar of most craft beer lovers, this Midwestern craft brewery is one of the largest in the country, quietly producing 104,000 barrels in 2005 on 17-percent growth. Opened in 1989 by founder John McDonald, Boulevard is in the middle of a massive expansion, adding a new 150-barrel brewhouse with a capacity of nearly 750,000 barrels. The brewery's success is made more remarkable by its limited geographic distribution, namely 11 mainly Midwestern markets.

In a conversation on February 10, Bob Sullivan, Vice-President of Sales and Marketing for Boulevard, confirmed that he and other members of the brewery's management team recently met with two representatives from Anheuser-Busch. "We had a first meeting with them and politely told them, 'Thank you, but no thank you', said Sullivan. "They called us and sent two of their executives up and we had a very friendly discussion. We're obviously flattered that they think it would be worthwhile to partner with us, but we are pretty committed to our existing wholesaler network. It would be very difficult for us to ask our wholesalers to consider giving our brands up to a competitor. We never even got to any types of specifics with them of what they would propose or offer. That would have been the second meeting. [Boulevard's owner] John McDonald just called them and very politely told them that that this was not the direction we were going in."

As to where the story will lead next, Sullivan expects that some craft breweries may be amenable to a partnership with A-B. "I think it could be a good match for somebody," said Sullivan. "They have a phenomenal distribution network and if it's the right brand and it makes sense, either on the regional or national level. We looked at whether it made sense for us. We don't have any distribution or access to market challenges and we really never have. So the biggest thing they could offer us, besides some financial benefits, is to offset some debt service. "

While some breweries are keeping mum about contact with A-B, Sullivan believes it is important to give Boulevard's wholesalers the peace of mind of knowing the facts. "Instead of rumors existing, they know that yes, officially we talked to them. And officially, we declined any interest in pursuing the conversation. It should make them feel a lot more secure in their commitment to our brands."

BeerScribe.com will continue to contact craft breweries in an effort to further flush out this important story. Stay tuned for future updates.

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