Struggling with the new realities: The Brewers Association Independence Seal

There’s been so much ado about the new Brewers Association (BA) Independence Craft Brewers Seal released last week. The BA is encouraging it’s member breweries to affix the seal to their labels to distinguish independent brewers, as defined by the BA from breweries that are owned by large brewing conglomerates like AB InBev, MillerCoors and Heineken. The idea is to allow consumers to make an informed choice based on the brewery ownership, as mega-corporations are buying up small breweries to compete in the beer market, as high volume lagers are losing marketshare to more flavorful beer styles brewed by smaller breweries.

Plenty of people like Jeff Alworth, Bryan RothAlan McLeod, and Chris Barnes weighed in on the topic and there’s been plenty of internet chatter over the issue.  I have a somewhat different take on things, so in the spirit of “better late than never”, here are my thoughts.

The concept of identifying independent breweries to differentiate from corporate-owned breweries sounds good, until you start reading the Brewer’s Association somewhat contrived definition of an independent craft brewer.  (That the BA is shifting the semantic debate from craft brewer to independent brewer is telling.)  If you’re wondering why Boston Beer Company, a publicly owned company with a market capitalization of well over a billion dollars pumping out mostly lagers and alco-pops is an independent brewery in the mind of the Brewer’s Association, you’d hardly be alone. Plenty of fine breweries, like Kansas City’s Boulevard, are considered non-dependent due to corporate ownership. And sneer all you want you want at the breweries like 10 Barrel,  Goose Island, Lagunitas, Ballast Point that were recently acquired by mega-corporations as sell outs, they all still brew some mighty fine beer.  So a big problem with the independence seal is that “independent brewer” no longers says a whole lot about the beer, good or bad, inside the package.

The other problem is that consumers of most products really don’t care too much about company ownership, or at least as not as much as beer geeks and brewing industry wonks care about brewery ownership.  Oh sure, people say they love that wonderful locally owned Italian bistro on the corner, but The Olive Garden still does pretty good business. Starbucks has put many an independent coffee shop out of business and most people barely shrug.

Now the BA cites a Neilsen/Brewbound study claiming independence matters most to consumers when making their purchasing decisions.  But as beer writer Bryan Roth has pointed out, Brewbound’s Justin Kendall cautions about taking this finding too far.  “Even though consumers say they understand the terms “independent” and “independently owned,”, Kendall writes, “there remains the question of whether they actually know about ownership changes and if those would actually affect their purchasing decisions.”

So what we’re left with is an Independence Seal for breweries which are deemed independent by the BA for reasons most people wouldn’t understand, and even if they did, might not cause them to purchase differently. The independence seal is basically the old craft vs. crafty argument four and half years later.

I’ve had a few beers these days from independent breweries which may have been brewed with honesty, integrity, and a passion for brewing, but basically sucked. The brewing industry has become too complicated for neat definitions and the BA seems to have little answer to these new realities other than to recycle old arguments which are increasingly less relevant over time. Resorting to a marketing logo to combat some pretty powerful economic and business forces is not very likely to work, and has failed in the past.

Surprisingly, AB InBev felt the need to respond, releasing an odd video in response to the Independent Seal, with six brewers of AB InBev’s High End Craft Beer Portfolio speaking to the camera in talking points, making a bunch of disingenuous arguments against the seal, and calling for breweries to unite together against wine and spirits competition. Needless to say, after hearing the calls for unity from a corporation that’s engaged in all sorts of aggressive, anti-competitive business practices against small breweries for decades.  Watching the video, I  almosted expect one of the brewers to turn to the camera and say “Did you know the word “gullible” isn’t in the dictionary?” .

As laughable as this video is, it highlights a major rift in the brewing industry that doesn’t plague other industries. Plenty of trade organizations in various industries are filled with warring tribes, yet find a way to speak with one voice for the good of the industry without major rifts. In fact, wine and spirits has experienced corporate ownership of small, high end firms for decades and as a result, there’s a lot less business distractions due to these different types of ownerships.  The AB InBev propaganda video contains a nugget of truth and a warning the BA should heed.

 

Does the SF Bay Area Economy Encourage the Use of Artisanal Malt?

I spent the early morning of Memorial Day on an hour long listening to an interesting Beervana podcast on Mecca Grade Estate Malt, an artisanal malt house in Central Oregon. What really got my attention was towards the end of the podcast, beer writer Jeff Alworth and Oregon State Economics Professor Patrick Emerson noted that much of the malt created in Oregon wasn’t being used by local breweries, but was shipped down to Southern California where beer prices are generally higher. Mecca Grade’s malt was more expensive than mass produced malt, adding about 15 more cents per pint to the ingredients cost of brewing a pint of beer. Both Emerson and Alworth noted beer prices per pint on draft in Oregon is typically around $5.50 a pint, where in Southern California, a pint of beer usually costs more than than that. Apparently, the higher beer prices in Southern California support the use of more expensive malt.

This got me thinking about Admiral Malting’s, a malt house scheduled to begin production this summer. Will the local Bay Area brewing economy support the effort? Or all that malt also go to Southern California or elsewhere?

It’s a good bet there will be local demand for the malt. Around here, pints of beer on tap typically go for $7-$8 per pint which ought to be conducive for local brewers to use more expensive malts . I’m not an economist, so I can’t really go into a deep economic analysis of the cost of brewing beer and how the Bay Area economy affects beer pricing. However, doing some simple back-of-the-envelope calculations, we can make some reasonable estimates of the cost of malts in brewing beer and what affects the price of a pint of beer. Then, we can make some reasonable assumptions to see if it’s reasonable to expect people to pay more for beer made with artisanal malt from Admiral Malting, or any other supplier.

First, let’s look at the cost. A recent Huffington post article suggests the typical local independent brewer pays a little less than 1 cent for the malt to brew an ounce of beer. This probably varies a lot by style, but let’s go with a 1 cent per ounce figure, which means a 16 ounce pint requires 16 cents of malt to brew.  It’s not too far-fetched to expect artisanal malt from a floor house malting facility to cost twice as much as malt produced in a modern high-volume malt house, so the extra cost 15 cents per pint when brewed with artisanal malt seems valid.

The next question is, why does beer cost so much in the San Francisco Bay Area and could that change? There are lots of factors that go into the cost of beer pricing, such as taxes, competition between breweries, labor costs. But the high cost of Bay Area real estate is a big factor, arguably the biggest and that’s unlikely to change anytime soon. When you buy a beer at a restaurant or bar, you really aren’t paying much for the ingredients used to brew it. You’re paying a significant amount for the establishment to pay for the space you’re sitting in and have someone serve you a beer.  High Bay Area real estate prices, and the labor costs associated with the high cost of living in the Bay Area inflate beer prices. Fifteen extra cents per pint is pretty small in the context of the $7-$8 pints, and if fifteen extra cents of artisanal malt adds an extra dollar in value to a pint of beer that legions of beer aficionados will pay for, using artisanal malt for specialty beers is easily justified.

Most likely you’ll see beers brewed with specialty malt in places specializing in craft beer full of patrons willing to spend more for local malt, rather than at your local Safeway or liquor store, which rely on a high volume/low margin business that more expensive artisanal malt will disrupt. Since the ingredient cost of hops is roughly the same as malt, we’ve already seen exotic hops, which can often costs 2-3 times more than conventional hops, in plenty of tap rooms and speciality beer establishments, but rarely elsewhere. We can expect about the same with artisanal malt, especially since the increased cost per pint is similar.

You might be asking yourself, if the Bay Area is so conducive to artisanal malt, why is Mecca Grade selling malt into Southern California instead of the Bay Area, which is closer? I dunno, maybe a brewery in Southern California caught wind of Mecca Grade, while Bay Area breweries are waiting for Admiral Maltings to go online.  And trust me, plenty of brewers are looking forward to Admiral Maltings to go online.

Expensive Bay Area beer has a silver lining, as long as there’s plenty of people willing to pay high end pricing for beers brewed with novel ingredients.

 

 

Anheuser-Busch is making a mistake by hiding its role behind The High End brands

While Anheuser-Busch (AB) made a lot of headlines acquiring small independent breweries into its High End portfolio, it has very conspicuously avoided any association with those brands. A recent 10 Barrel 10th Anniversary celebration made no mention of AB’s ownership of 10 Barrel, which it acquired in late 2014. A controversial plan for AB’s Golden Road Brewing to open a brewpub in Oakland led to the jaw-dropping whopper from Golden Road’s Meg Gill, as reported in East Bay Express, who told “…a group of  (Oakland) residents on Wednesday that “non-factual opinion columns” are trying to paint Golden Road as part of Anheuser-Busch, and that such reports are — her words — “fake news”

Whether or not you think this is all an evil corporate cover-up by AB to masquerade as a local brewery, I think this is a bad idea from the standpoint of pure capitalism. That’s right, even from a perspective driven by naked greed, I think AB would be more successful with their High End if they disclosed their ownership in their craft beer brands like 10 Barrel and Golden Road. Sure, people care a lot more about where their beer is made than they do their toothpaste, so I understand the logic behind it. I just think it’s the wrong approach.

I write this as someone who spent the last 20 years selling technical equipment to companies for measuring things like the power of a laser beam. You may think selling equipment like that is a lot different than selling beer, and you’d be right. But there is a common ground in sales, whatever is being sold, which applies to both power meters and beer. I certainly realize AB InBev has plenty of smart, experienced sales and marketing folks, but there’s plenty of cases where smart, experienced marketing folks made bad decisions. I think this is one of them. Besides, lacking relevant experience on a subject has rarely stopped any blogger from spouting off their opinions on something and it’s not going to stop me either. So allow me to explain why it’s in AB’s best interest to disclose their ownership in their High End brands with consumers.

Point 1: It’s a lot harder to hide the truth in the information age

It’s rather futile for AB to hid their ownership of breweries in The High End portfolio when a simple Google search of terms like “Golden Road Brewing”, “10 Barrel Brewing”, “Elysian Brewing”  generates links to news stories of these breweries acquisition by AB on the first page of results. You don’t have to be a brewery obsessed beer wonk to learn those Golden Road brews you liked at your friends party are in fact, from the same company that produces Budweiser and Bud Light. A big problem with AB’s approach in hiding the ownership of their High End brands is that people are going to very find out the truth very easily sooner or later.

Point 2: “The High End” should become the AB InBev “Seal of Approval” in an Era of more suspect beer.

Say what you want about about craft beer sell-outs, breweries like Golden Road, 10 Barrel, Goose Island, and Elysian brew mighty tasty beer. I’ve had a fair share of beer from  independent breweries that may have been brewed with honesty and integrity, but basically sucked. Small independents brew lots of great beer, but I’ve found the quality can be very uneven at times, especially from new breweries. AB brands don’t have these issues. I’m fine to give my local brewery a mulligan on a lackluster brew full of off-flavors, but the typical beer drinker isn’t that way. Identifying beer as an AB High End brand is a great signal to consumers the beer is going to be good.

Final point: AB has a lot more to gain from loyal Bud drinkers and others ambivalent about “purity of craft beer” than beer geeks that probably wouldn’t drink their beer no matter what

More or less, beer drinkers can be lumped into three categories:

a) Those that drink mass market lagers and might occasionally drink a beer of a different style like a Pale Ale, Saison or IPA.

b) Those that drink a mix of mass market lagers and Pale Ales, Saisons or IPA.

c) Those that drink almost exclusively a wide variety of beer styles, often exclusively from independent breweries.

There’s certainly debate about the size of these groups, but a) and b) put together easily dwarf group c).  Even though c) is certainly getting bigger and a) is getting smaller, group c) consists of maybe 10-20% of the beer drinking population with a) and b) comprising the rest. Those in group a) aren’t going to care all that much that 10 Barrel’s Cucumber Crush comes from the same folks that bring you Budweiser. In fact, they may prefer it comes from a company they are comfortable with than a suspect brewery they never heard of.  Those in group b) also won’t care that much about who owns the brewery either as long as they can be confident in their purchasing decision.  Of course, group c) is full of of beer geeks, many of whom would refuse to drink anything from AB and they’re such information driven consumers, you’ll never fool them into drinking AB.

So when AB goes to great lengths to hide their involvement in their high end brands, they are pursuing a strategy that matters the most to the smallest group of beer drinkers less likely to drink their beer, while failing to leverage and enhance their brand to a much larger group of beer drinkers that would. Not only is it dishonest and raises questions about what AB is trying to hide, it really seems like a lost opportunity for AB to claim a position of superior brewing quality with their brand.

So far, AB is doing fine with their High End portfolio without my advice, but I expect at some point they’ll be more forthcoming. That’s because it’s to their advantage to do so, and even an evil corporation will figure out it’s the right thing to do.

 

 

Elysian to be Brewed at AB InBev’s Fairfield, CA Brewery

Ten years ago, the thought of a huge corporate brewery pumping out IPA’s was some people’s idea of utopia. For others, it was the apocalypse.

Whatever you might have thought about that, it’s happening now. In a recent press release, AB Inbev announced a two billion dollar capital investment program that includes “$15 million to begin innovative cross brewing capabilities at the Fairfield brewery through Elysian partnership, including significant updates to brewery infrastructure.”  Elysian Brewing, as you may recall, was acquired by AB InBev in January of 2015 and roughly a year later, six packs, bomber bottles, and tap handles of Elysian IPA’s like Spacedust and DayGlo started showing up all over the Bay Area

It’s not a surprise that AB InBev will migrate some production of Elysian to their Fairfield, CA facility as they continue to expand distribution of their recent acquisitions. In fact, according to a Tweet from Monterey beer writer Leslie Patino, the Fairfield, CA facility was already brewing beer from another AB InBev acquisition, Golden Road Brewing.

It’s worth pointing out that AB InBev’s plans also include “$58 million to improve and increase sustainability at our facilities”. Say what you want about AB InBev’s diabolical plans to grow their business, crush the spirit of craft beer, dupe the masses, ect. they are one of the more environmentally sustainable businesses out there and continues to invest in lowering their environmental footprint.

But let’s get back with the news about the Fairfield brewery.  You’re going to see more AB InBev “craft” brands in the San Francisco Bay Area as they leverage their existing manufacturing facilities to earn better returns on the investments of their brewery acquisitions. Retooling corporate breweries to produce less light lagers and more IPA’s sounds like the march of progress. Economists calmly explain that this is how everyone benefits: AB InBev sells more beer and consumers, who increasingly prefer more flavorful beers like IPA’s over light lager, have better opportunities to buy beers they want.

Most craft beer fanatics would claim this is simply more of AB InBev’s evil corporate plans to crush small breweries, and despite the fanaticism, they have a valid point. Whether or not most consumers care if their beer comes from a local independent brewery or from a major conglomerate, AB InBev is clearly hiding involvement in their craft brands and has long engaged in various anti-competitive practices against smaller breweries. And if you’re a small or mid-size brewer depending on retail sales for a significant portion of your revenue, life is only going to get harder when Elysian comes online at Fairfield.