Will Craft Beer’s Bubble Burst?

March 2, 2015 – The growth of the craft beer industry is one of those stories that fuel our proclivity to root for the little guy.  We enjoy the idea of David taking on a Goliath like Anheuser-Busch and even better, winning.  In 2013, the latest year for data, craft beers in total shipped 16.1 million barrels to Anheuser-Busch’s 16 million.  A-B took note.  Just a decade ago, Bud was shipping 30 million barrels.

Despite their sarcastic mockery of craft beer drinkers in the much discussed Super Bowl ad, Anheuser-Busch has bought several craft breweries dating back to 2011 when they bought Goose Island in Chicago.  As we’ve reported, since then they’ve purchased or own a percentage of Blue Point (Long Island, NY) and 10 Barrel (Bend, OR), Widmer Brothers Brewing (Portland, OR), and the Elysian Brewing. (WA) and there are reports they are looking at breweries in Florida.  They also have their own “craft” brands like Shock Top and Grass Valley Brewing (Fairfield, CA).  Since their own data show that 44 percent of people between the ages of 21 and 27 have never even tried Budweiser, who can blame them?
Selling to a conglomerate has its advantages.  With financial backing and expertise, expansion is possible way beyond the dreams of an entrepreneur.  Goose Island, for example, now sells 30 different beers, up from 19 four years ago, and its sales will be more than three times what they were in 2011 when they sold to Anheuser-Busch.  Plus they are now sold in all 50 states.

Anheuser-Busch is a huge company that provides jobs for a lot of people and has stockholders to satisfy.  Where it gets sticky is when it comes to distribution.  At the end of Prohibition in 1933, a three-tier system was set up to limit the political power of the alcohol industry and keep it honest.  The brewer/winery/distiller had to sell to an independent distributor or wholesaler who in turn supplied the retailer.  And never the twain should meet.  However, the big breweries have been buying distributorships in some states meaning they can control which brands get into distribution.  Since craft breweries are obliged by law to work through a distributor, this is unfair.
As A-B expands its craft beer ownership, their distributors, even if completely independent, will be less inclined to take on other craft beers.  The distributor argument will be how many craft beers do they need in their portfolio.  Plus they will not want to offend the major brands that are their livelihood – Bud and MillerCoors – even if the consumer prefers something better.  Distributorships have been consolidating for years and choice is becoming less and less available to craft brewers, small wineries and boutique distillers.

Some craft brewers also express concern about the sheer volume of new breweries that are opening up.  There are now more than 3,000 craft brewers and an average of 1.5 new breweries opening every day.  For some the motivation is money more than idealism.  Brewers who are unprofessional could end up hurting the industry’s image.

Will the little guy survive?  Microbreweries producing 6,000 barrels are year are probably of less interest to the major players who deal in volume.  Large craft breweries fit in better with their huge distribution networks, volume discounts, massive promotional spending and so on.  Tastes have changed and today’s drinker is looking for something different and aspirational whether it be beer, spirits or wine.  The battle for distribution, and sales, will intensify as in the case of Florida where we reported on January 19 that retailer and distributor groups are trying to stop craft breweries in the state from selling draft beer and packaged beer in their tasting rooms.  The microbreweries need the revenue to survive.

Craft brewing is here to stay and it will continue to prosper. Many consumers voice their determination to support the local business and their pleasure in sticking it to the conglomerate. The fast changing, consumer driven marketplace will eventually lead to change in alcohol beverage laws bit-by-bit, state-by-state. A good example is the wine industry where the 15-year battle for direct shipping from wineries to consumers is now allowed in 43 states.  If you want to be able to enjoy the beer of your choice, then get involved, understand the issues and make change happen.  In the meantime……Cheers!