E-Malt.com News article: USA: Big Brewers get increased interest in craft beer market

Big, global breweries have taken notice of the craft beer movement - mostly because that's where actual growth exists in the otherwise stagnant beer industry, cnn.com reported on November, 15.

In 2011, craft brewing saw growth of 13% by volume while overall U.S. beer sales were down an estimated 1.3% by volume. And even though craft beer still accounts for less than 6% of all beer sales, anyone remotely connected to the business knows it will play a big part in the industry's future. Craft beer delivers higher profit margins, it attracts consumer spending, sought-after clientele for bars and restaurants, and many people are passionate about craft beer, similar to the same way people are passionate about wine.

Everybody wants in. And so the macro-breweries have launched beers that approximate the craft taste profile (the popular Coors brand, Blue Moon), purchased stakes in some craft breweries (southeastern Terrapin Beer Company by MillerCoors), and snatched up others entirely (such as the recent acquisition of Goose Island Brewing by Anheuser-Busch).

These brands are purposely distanced from their Big Beer parents. The Coors name does not appear on a bottle of Blue Moon. Rather, it is the name Blue Moon Brewing Company that appears. The same goes for a bottle of Anheuser-Busch's Shock Top. To distance their craft products from their billion-dollar household brands, the big brewers have gone so far as to create separate divisions to house their specialty brands: MillerCoors has created Tenth & Blake Beer Company while Anheuser Busch (BUD) has the Green Valley Brewery.

"The large brewers have been using a variety of tactics to basically try to capitalize on some of the mystique and success in the marketplace that craft brewers are having," argues Paul Gatza, director of the Brewer's Association. "That these labels don't proudly say Anheuser-Busch or MillerCoors on them is to some degree a chancy proposition. To some beer drinkers out there, they won't care. To others, they will care and probably won't feel so good if they feel like they were duped by the large brewers."

Consumers in general have grown increasingly concerned with who makes the products they buy and how products are made.

"There are two types of consumers," says Anat Baron, the director of the documentary Beer Wars, which explores the battle between micro- and macro-breweries. "Consumers who shop by price and just don't care who makes the stuff that they buy, and other consumers, which are a minority, but I think a growing minority, that actually care about who makes what they buy."

Obfuscating the parent company behind a beer denies a drinker the right to exercise that choice. However, Tom Cardella, the CEO of Tenth and Blake, doesn't see the issue this way. In addition to the Blue Moon brand, Tenth and Blake houses Jacob Leinenkugel Brewing Company, Crispin Cider, as well as imports such as Peroni and Pilsner Urquell. "There's a lot of chatter about it within the industry but, at the end of the day, I really don't think it's a big issue. These businesses are marketed differently, they're targeted differently against consumer segments within the marketplace."

Though you can't taste a beer company's size or ownership structure, some see these qualities as essential distinctions. "I think there is a big difference between the beer that comes from a craft brewery and the beer that comes from a large brewery but is marketed to appear to be craft," says Sam Calagione, founder and president of Dogfish Head Craft Brewery, in Milton, Del. "The challenges that true independent, small, emerging craft breweries face to make their beer and get it to the consumer are so different from the challenges that international conglomerate brewers face, particularly when it comes to access to market and access to ingredients."

The largest craft brewery is The Boston Beer Company, maker of Samuel Adams, which shipped 2.5 mln barrels in 2011. That accounts for slightly less than 1% of the U.S. beer market. By comparison, the big breweries are, in fact, very big: in 2011, Anheuser-Busch shipped 98.8 mln barrels, a market share of 47.7%. Meanwhile, MillerCoors had a share of 28.4%. Meanwhile, in 2011 the average craft brewery shipped 5,911 barrels while the median barrel count was just 550 barrels.

In particular, the acquisition of Goose Island in 2011 by Anheuser-Busch seemed to ruffle a lot of feathers, especially since Chicago's noted hometown brew will increasingly be brewed outside the Windy City.

Yet Anheuser-Busch sees it as a win-win for the brewery and the drinker. "We were very impressed over the years with the amazing reputation of the Goose Island brand," says Paul Chibe, Anheuser-Busch's vice president of marketing. "And that brand was built upon extraordinary beer with amazing innovation. And what we've been is an enabler. So as Goose Island has needed capacity, we've given them the capacity. The thing that people can be confident in is that the Goose Island brewers are still the ones leading the brewery."

Craft and Big Beer don't exactly have a cozy history with each other. Big breweries, especially Anheuser-Busch, exert a huge amount of control over the distribution system, well beyond quaint concepts of good-spirited competition.

Most states operate on a three-tier system of brewer, distributor, and retailer. This system was created after prohibition to prevent an imbalance of power, specifically from allowing the bigger breweries of the time from manhandling small mom-and-pop bars.

But the middle tier - the wholesalers - are not nearly as independent as intended and are often in the pocket of the big brewers. Getting access to the market is tightly controlled by the powerful players. The big brewers will "ask" their wholesalers to focus more on their portfolio of products. This pressure takes many forms, but as an in-depth investigation by Crain's Chicago Business found in 2010, it is sometimes in the form of illegal pay-to-play practices. And even though some wholesalers may see opportunity to grow their business by pushing more craft brands, they also know better than to bite the hand that feeds them.

"Anheuser Busch can snap their fingers and the distribution network will get it on shelves and get it on tap handles and knock off other brewers who have been on those tap handles," says the Brewer's Association's Gatza. "In an ideal world, those decisions would be made by the beer drinker..."

Through a combination of acquisitions of craft breweries, craft distribution partnerships, and specialty brands, the big brewers hope to get just enough craft brands in their portfolio to fill taps and shelf-space at the expense of newcomers.

In other cases, distribution laws serve the interest of preserving the current power structure and limiting newcomers. Take for example, the beer franchise laws. Again, it varies from state to state, but in many cases, once a small brewer signs a distribution agreement in its initial stages of growth, it's shackled to that wholesaler. "The ways the laws are written, once you have a franchise agreement, you can't really get out of it," says Tom Kehoe, co-founder of Yards Brewing Company in Philadelphia. "When a small brewer wants to move to a bigger wholesaler, it's up to the wholesaler, who can sell those distribution rights for that brand or even trade brands with another wholesaler."


Craft brewers and craft beer enthusiasts have good reason to be skeptical of viewing big brewers as worthy stewards of the craft industry. From the end of prohibition through the 1980s, the beer industry has seen constant consolidation. Regional brewers either went out of business or were bought up. As a result, the beer drinker of the late seventies had pitifully few choices.

On tap at the local pub were the usual suspects: Bud, Miller, Coors, and maybe an import like Heineken. In 1979, there were 44 brewing companies in the U.S. Today, there are 2,126. For the most part, there was one kind of beer available: what is derided in craft circles as "fizzy yellow beer" - also known as "adjunct" or "corn" lagers. Adjunct refers to the addition of cheap ingredients (corn, rice) to lighten a beer's taste or lower production costs.

Federal restrictions on home brewing were lifted in 1978, leading to increased amateur experimentation. Meanwhile, a handful of pioneering breweries demonstrated the viability of craft beer as a regional business. In 1984, Jim Koch founded The Boston Beer Company and started brewing Samuel Adams Boston Lager, the beer that arguably kicked off the craft beer renaissance of the 1990s. "You gotta remember, this was a totally different world," says Koch. "In 1984, if you were an American beer drinker, you could not get a great glass of beer. You could get mass-produced beers, which are fine for what they are, but they're not trying to be great."

But craft brewers' are gaining increased recognition and more states have adopted craft-friendly legislation over the years.

Very much the optimist, Dogfish's Sam Calagione has faith in his customers. "I think the consumer understands what it takes for a little 7,000-square-foot brewery that is owned by people who live in their hometown to brew on a small scale. Consciously or subconsciously, when they think of craft-brewed beer, they think a small company made that beer and that's why that beer costs a little bit more, that's why that beer is more flavorful."


23 November, 2012