How Big Beer Will Crush Craft Beer...If We Let Them

It's been a while since I last published an article. And in that time, a lot has happened in the world of beer. There is a proposed purchase of SABMiller by AB-InBev, which could result in a single company creating nearly 30-percent of the beer brewed on planet earth (that's over 400 beer brands, including 8 of the top 10 selling brands in the US). Also, there have been a lot of small breweries bought out by the mega corporations. AB-InBev went on a Christmas shopping spree and bought 3 breweries over a 5-day period last week. Since publishing last, all of the following breweries are now part of the mega AB-InBev family: Golden Road, High Peaks, Breckenridge, and London's Camden Town Brewery.

So, what does this mean? How does it impact the end consumer? Is your beer buying and drinking experience likely to change because of these changes? While I don't claim to have the answer, I do know that if we all ignore these monumental shifts in the industry and continue blindly purchasing whatever is put on the shelf in front of us, big beer could squeeze real craft brewers out of the marketplace.

My last post was about how Anheuser-Bush InBev would survive the craft beer resurgence, but if we continue to stand idly by while they make these types of moves, they will not only survive, but could mount a significant fight against true craft breweries.

You may think this sounds silly and that maybe I'm overreacting and trying to scare you into buying craft beer. But I don't think that is the case. Here's why...

When a mega brewer, such as AB-InBev, purchases a small craft brewery, history has shown us that they are doing a few things with that brewery in a fairly predictable fashion. They are allowing the brewery to continue to operate under some of their existing management, continuing to produce some of the more experimental beers, so that they can still look like a craft brewery. These beers are brewed and distributed within a small footprint. However, the big brewery is then taking 1-3 of the core, most popular brands that brewery makes and mass-producing them at it's factories across the country, where it then dramatically increases the distribution of those brands, and begins selling them at much lower prices.

But wait, this all sounds good, right? The craft brewery continues to operate and be crafty, and we, the consumer, get to access their beer and save some money. Perfect!

Wrong.

By doing this repeatedly, what the big breweries are doing is training consumers on what craft beer "should" cost, and thus pricing true craft brewers out of the market. The big breweries are cutting corners, using cheaper ingredients and bullying their suppliers into lower costs due to their large size. They're changing the recipes of these beers to cut their costs wherever possible, even if it impacts the flavor of the beer (BrewDog wrote a great article siting instances where this has happened). By doing this, they are able to produce "crafty" beers at a lower cost than a small independent locally-owned brewer.

Additionally, the mega breweries are selling these beers at a much lower profit margin because of their huge volume. Craft breweries have to sell at a higher margin to pay their employees a decent wage, cover the cost of their equipment, etc.

So, while the short-term result of these acquisitions is that you'll see more formerly-craft beers on the shelves at a lower price point, the possible long-term effect is the decline in the availability of locally-owned independent craft beer.

But again, maybe that's not so bad. So what if all of these craft brands are owned by mega corporations? They still taste good, and they're less expensive. Win-win, right?

Wrong again.

Once the big breweries have effectively forced the craft breweries off the shelf and out of the market, then they no longer need to create as many craft brands, so they can begin consolidating, further limiting the options of beer that is available.

Add this to the faux craft brands that the mega breweries are creating (Blue Moon, Shock Top, etc.), and you begin to see how these mega breweries don't want to just survive the craft beer resurgence, they want to dominate it.

And if that weren't enough, there are now stories coming out that are outlining AB-InBev's distributor incentives, where they are basically bribing their distributors (whom they own in some states). For instance, The Wall Street Journal reports that the incentive program, aimed at reversing a decline in sales, could provide as much as $1.5 million in reimbursements to independent distributors if 98% of the beers they sell come from AB InBev. It's programs like this that is prompting distributors to drop the local independent craft brands in favor of carrying the "crafty" brands owned by the mega breweries.

While this may seem very "doom and gloom," I think this is a very preventable future. It just means that we, as knowledgable beer consumers, need to think critically about what brands we're purchasing and who we are supporting, and choose to buy local craft beer. Luckily that's not hard to do in NC these days. With around 150 breweries in the state, many of whom have taken home prestigious national awards, there is a ton of great beer to choose from.

Let's think about it from an economists point of view. If you're buying a faux craft brand that is owned by one of the mega breweries and you're buying it from a national grocery store chain, only a very tiny percentage of your money stays in the local economy. If you are buying a craft beer made by a local brewery from an independent bottle shop, then you will generate roughly four times as much wealth for the local economy (This is know as the local multiplier effect).

The future of craft beer is up to us. How we spend our money will determine who will win and what the craft beer landscape will look like in the future. While we can't blame the owners of breweries such as Ballast Point for selling their operation for $1 Billion, we can make sure the mega breweries don't ever realize a return on that investment. If the big breweries knew that craft beer consumers wouldn't purchase beer from breweries owned by them, then they would stop paying so much money to buy breweries out left and right. Instead of throwing blame and calling these former craft brewers "sell outs," let's make it so that the big breweries are not interested in purchasing more craft breweries.

And, if we're spending our money to support local craft breweries, even the incentives Anheuser-Busch is offering won't be enough to convince distributors to drop profitable craft beer brands. It will make more economical sense to sell local craft brands than to sell these "crafty" brands, if the consumers aren't willing to purchase them for you. No incentive program can counteract that.

In closing, let's hope that 2016 starts to turn the ship on this trend. While I don't foresee much of an immediate slow-down in buy-outs of craft beer brands on the horizon, the more informed the consumers are, the more variety we'll continue to find on the shelves, and the more money we'll have staying in our local economies.