Friday, January 23, 2015

Why AB is Buying Up Craft Breweries...and Why You Shouldn't Be Too Concerned.

News today that Anheuser-Busch InBev NV has agreed to buy Seattle's Elysian Brewing Company has, once again, rattled the craft brewing community as it follwos closely on the heels of the acquisition of 10 Barrel and, a couple of years ago, Goose Island.

This has arisen me from my stupor and prompted me to do an actual blog post which, ironically, follows my remembrance of Jack Joyce with whom I once had an extremely interesting conversation about the big breweries and craft beer.  The crux of the conversation was this: macro brewers could, if they wanted, brew outstanding craft beer: they have ultra-modern brewhouses, amazing brewing talent, access to the very best ingredients, fantastic distribution networks and the resources to invest in craft beer.  So why don't they?

Jack's answer was that their corporate structure, all centered around mass sales was not conducive to growing a new beer or brand.  The corporate culture insists on clear sales goals and to displace Bud Light on shelves and tap handles any new beer had better taking off flying.  There is no patience for slowly establishing a beer or brand.  Not to say their efforts have not been somewhat successful - Blue Moon and Shock Top are two moderate success stories but ones that have not really broken into the craft market.

So what does acquisition do that in-house cultivation doesn't?  First and foremost it solves the impatience problem.  By buying an established and respected brand you already have a proven winner to show the bean-counters and share holders. 

Which is why I am not worried about this that much.  They have learned that they cannot replicate craft brewing within the macro brewing corporate structure.  This has been a lesson that has taken some time to learn but I think has sunk in.  I think the attitude is, therefore, not to try and bring these craft brewing companies into the corporate fold, but to let the operate independently - to continue to do what they do and help them grow with capital infusions and improved distribution.  If you can't beat them, join them (or have them join you).

I don't know how long the corporate restraint will last, but it is quite possible that it will continue to last for a long time if the Goose Island experience is any guide.

Time will tell, but for now, I personally have no qualms reaching for a 10 Barrel or Elysian beer.

P.S. My apologies for the lack of blogging - it has been a combination of: becoming chair of the econ department, writing an economics textbook and a major family health event that has caused a lot of adjustment and changes (all is well - no worries). 

3 comments:

Jonathan Aichele said...

Great analysis, as always. Thanks for sharing your thought and, more importantly, best wishes for the future health of you and yours.

ithinkaboutbeer.com said...

I have big problems reaching for Elysian and 10 Barrel. I don't want my money going towards ABInBev's continued lobbying efforts to stifle competition and rig the game in their favor. This is my biggest concern, not that there will be quality problems at the craft breweries. Sure it's great economically for the acquired and acquisition, but it's not good for the sector as a whole.

Patrick Emerson said...

ithinkaboutbeer:

Good point: the long-range strategy (or end-game) might be to shoe-horn into the market and start pushing others out.

I think the main concern here is the economies of scale - if they can leverage those to create a price advantage that pushes others out...

But the fact that they are buying small-ish local and regional brands suggests that the macro-ization of craft is a recognized loser of a strategy.

Still, it is worth keeping and eye on developments.

And I'd never advocate for folks to buy these brands, just that I have no qualms at the moment.