During Coachella in mid-April, I tasted some delicious craft beer not only in the ‘Craft Beer Barn’, but also in the ‘Rare Beer Bar,’ headed by Beer Belly’s Jimmy Han. He even stashed away some Wicked Weed Marina, a blonde sour ale aged in wine barrels with over one pound per gallon of peaches and apricots.
This brewery is now one of 20+ craft breweries that are now owned by larger, corporate brewers. The Brewers Association defines a craft brewer as small, independent and traditional – with less than 25 percent ownership by a non-craft brewer.
I spoke to Mitch Steele, former brewmaster of Stone Brewing and current co-founder, brewmaster, and COO of New Realm Brewing, as well as Julia Herz, Brewers Association craft beer program director, about why it’s important to know what you’re drinking.
I know there are a lot of feelings on both sides as far as craft breweries “selling out.” What are your thoughts in how it affects the craft beer industry?
JH: Big picture, even though it’s not happening in mass, right? 99% of the 5,300 plus breweries - and that’s our 2016 data there – but 99% of those are still independent and small. But as the purchases continue to happen… the slowing down of purchases was where we thought this was headed and Department of Justice issued a consent degree…and over the purchases in 2015 and 2016 – Devil’s Backbone [Brewing Company] being a key one, that was approved with some changes made from the DOJ. That’s the consent degree. Now, when Karbach came along, that was a separate investigation that then still got approved. So, as these are continuing to happen, not in mass, but as these are continuing to happen, independent breweries are absolutely threatened by the chance to already have access to market.
The more that the large global brewers become a one-stop shop, for brands and beer styles, to both distributors and retailers, the harder it is, number one to make the marketplace fair, number two, for beer lovers to really get the choice that many beer lovers desire.
MS: Well, I think it’s really dangerous what’s going on right now, honestly. The problem is, is that the majority of the beer drinking public don’t know or don’t care about the business practices of large brewers and how it impacts small brewers. I think that’s really where the danger is, cuz, ya know, when a brewery is buying tap space, which is technically illegal, and small breweries can’t - number one, most small breweries won’t do it because they don’t want to do something that’s against the law. And they can’t afford to play that game either. They’re not swimming in cash like some of these big brewers are, really puts the small brewers at a disadvantage. I think that the concern is that nobody really knows that except for small brewers. When somebody’s whose kind of a casual craft beer fan walks into a bar, and sees all these beers that are craft, yet they’re all brewed at Anheiser Busch Brewery, most of the time, they’re not going to register it’s not a small, independent brewer. You see this kind of thing with other kinds of businesses as well. It’s hitting where it hurts for craft. When these brewers can potentially come in and sell a keg of beer for 50-60% of what a small craft brewer can afford to sell their keg of beer at, it really is damaging the ability of the craft brewers to sell their beer.
I know Lagunitas isn’t your typical, small craft brewery, because of the size and how long they’ve been around, I would guess that this sell out would affect it even more. Correct?
JH: Yeah. And then you also add Ballast Point in the mix with Constellation purchase. So, if you look at sales data, sales data is not definitive, sales data from IRI more so reflect more popular selling styles of beer, because that’s what is going to go up in those scans at grocery store registers, not brewpubs down the street. Thousands of breweries frankly are not in the scan data. But if you look at scan data, and the trends of the top selling styles, you’re seeing less and less over time, the independent craft brewers brands at retail, in this case in off premise retail being in the top of the mix.
Where you surprised by the Wicked Weed buyout?
JH: Well, based on hearing that we’re almost done with Karbach, yes. But based on knowing that any business is going to make moves and plays to be available and it looks like the efforts to localize their beer presence is on. So, in that respect, I am not surprised. Cause they continue to make regional purchases in key beer markets of the country. Four Peaks, Arizona, Blue Point in New York, Los Angeles for Golden Road. These are very geographically, strategic made procurements and we also have to talk in terms of whatever article you publish, the deal has not gone through. It’s an announcement from AB Inbev that they are moving to make a partnership and bringing Wicked Weed into their brand portfolio, but it is not a closed or done deal. It’s still subject to review.
MS: Well, that surprised me. I’d go so far to say that it shocked me. I didn’t see that one coming. I thought they were in it for the long haul. And I know Luke and Walt pretty well and I’ve brewed with them before and we’ve hung out a lot. I didn’t see this one coming from them. Now, I don’t know their ownership very well, and the people that actually funded that brewery for the most part. I know Luke and Walt are part owners of that, but I don’t know what percentage they own. But, I know that they had some big time investors in that brewery, and they’ve been mostly their decision, but who knows. Ya’ know, nobody really knows. But, yeah, it shocked me. Disappointed me. Some of these are not a big surprise. You hear through the grapevine that some of these newer breweries that are building themselves to sell and want to sell eventually and they’re just trying to get their business to a point to where they’re attractive to a large brewer. There are other breweries that have gone down this road that you never saw it coming. There are people that have said, ‘Wicked Weed was built to sell.’ But I never looked at it that way, knowing the guys and knowing their beers. I thought they were in it for the long haul. Ya’ know, the whole thing is, somebody comes and offers you a ridiculous amount of money, who’s to say you’re wrong for taking that and setting up your family for generations? You can’t really fault it, I just wish it didn’t happen.
Right. The big difference of say Golden Road, Ballast Point and Lagunitas – from what I hear, people are more sympathetic – they don’t see the Ballast Point sell as the same as Golden Road. What are your thoughts?
JH: I don’t know. I feel like there’s been social on Ballast lately. It just depends – it’s an interesting one. The acquisition, no matter who you’re talking about, have struck different nerves at different times, but I think the reasons that you’re getting so much play this week, I think potentially reaching a tipping point to some of the beer lovers that I’m seeing. I’ve even seen one comment – ‘the straw that broke the back.’ It’s getting more than any beer lovers expected.
MS: Yeah, and people didn’t really see that one [Ballast Point] coming. The word on the street was that Ballast Point was going to do something. Stock offering, things like that. But I think the other difference with Ballast Point is the purchase number was released along with the news, and so when people see $1 billion, they’re like, ‘ok, who are we to say they shouldn’t have done that.’
Do you sympathize with any of these craft breweries after they explain on social media? “We had to do this because of distribution.” “The beer will stay the same.” What do you think of their rebuttals and explanations?
JH: Well, bottom line, any brewery, any business - let’s talk about it that way – has the right to be able to make any business moves that they want. But when 99% of the 5,300 breweries are still independent and you’ve got a 180 plus regional craft brewers that are doing it independently and you have breweries on the record saying, “we will never sell, we will always be independent,” then there are examples in the marketplace showing that you can do it without selling out to big beer…Sam Calagione of Dogfish has been very vocal about it. There was a USA Today piece on Oskar Blues.
MS: Yeah. I don’t know if you know this, but I worked with Budweiser for 14 years. This was back in the 1990s. People still looked at Budweiser as the evil empire, but I dealt with the reaction from craft brewers all the time. Negative reaction and people who say, ‘it’s lousy beer, lousy quality beer.’ I’d get on my soap box and say, ‘ya know, you may not like it, but don’t ever talk negative about the quality because the people who brew this beer are as passionate about it and you are about yours.’ But it’s a different company now. I certainly get the backlash, I can relate to it because I dealt with it for a long time myself. I came from craft, and then I went to Budweiser and was there quite a while…it’s tough if you’re a craft brewer and in that position and all of a sudden you become the enemy. I think it’s a very uncomfortable feeling for most of them because the craft brewing business is so built on community and comradery. Now all of sudden you’re not in the club anymore. That’s a hard thing to swallow, especially when you’ve got so many friends in the business…and people that don’t have ownership in the brewery that sell, and have no say in it, and they’re just kind of, there when it happens, those are the people that I feel really bad for, because they had no say.
The whole access to ingredients thing I think is a little bit overplayed. I think if you’re a growing craft brewer, there are enough suppliers out there, if you work it hard enough you can get what you need, with a few exceptions. For example, Galaxy hops. Nobody can get Galaxy hops right now. Can a big brewer go in and get Galaxy hops? I don’t know if they can. I don’t know if they’re available to them. I think that’s overplayed, just a little bit. I think really the big advantage for a small brewer joining forces with a big brewer is the access to the resources, the technical resources, so they can understand what’s happening in the brewing process - be it really complex lab equipment or whatever. And then the distribution access is huge, that’s really, the financial end of it, expansion and that kind of thing. Those are the things that really matter.
Does distribution and those laws have anything to do with this and why they are selling?
JH: Yes, as soon as you sell, you get instant access to things that those 99% of the 5,300 breweries don’t have. You get into a system in the network for better economies of scale, for purchasing raw materials and ingredients and you get instant distribution that cannot be matched and is unparalleled and frankly, is not necessarily <pauses>
JH: It’s leading towards not thinking it’s fair…the number of distributors over time continues to wane. Even though we have 5,300 plus breweries, today, there are only 1,000 plus active distributors. Five hundred plus of those are controlled by AB Inbev. Miller Coors has several hundred as well. Distributors are amazing partners to beer, but it’s a matter of priority. How do they decide what they’re going to sell? And when you’re an AB house – that’s a common term for distributors – their first priority is likely those AB brands.
MS: The whole South African hop thing I think is way overblown. That’s not what people should be getting angry about Anheuser-Busch about, because Anheuser-Busch owns hop farms in several areas and they don’t sell those to any craft brewers. I don’t think this is a move on their part to really limit the accessibility of hops to craft brewers like people are making it out. I think it’s just they have a use for those hops, and they don’t have a surplus. They don’t have a surplus anymore. That’s coming from people I know that work at AB, that I trust. I just don’t think it was politically motivated. I think it was just part of their business. There are so many other things that they’re doing. Going in and buying tap handles in bars, cleaning out all the independent brewers and filling the bars with some of these brewery’s beers that they’ve purchased. They’re opening taprooms and brewpubs all over the country with that are branded with Goose or 10 Barrel or Goldenroad, or whatever. I think those are the kind of things, and they pass those off as craft. I think that’s where the real problem is and the real danger is...be honest about what you’re brewery is and what it isn’t. If you’re passing yourself off to somebody who’s a small, independent blogger, or beer writer, or brewery, or whatever, and you’re completely backed by Anheuser-Busch, you gotta’ have fully discloser there.