When Aleheads was still in its infancy, we brandished our muckrakes over the news that the Terrapin Beer Company had sold off a minority stake to MillerCoors (more specifically, Tenth and Blake, the craft beer “wing” of MillerCoors). With Goose Island’s contemporaneous absorption into the AB InBev empire, the sale of a chunk of Terrapin to the “other” member of Big Beer’s duopoly* seemed a harbinger of bad things to come. There was some gnashing of teeth (mostly by yours truly) about the craft beer industry becoming the battleground between the big boys.
*While SAB Miller and MolsonCoors are two separate companies, in the US they operate as a joint venture called MillerCoors. Ostensibly, this domestic merger occurred in order for the two also-rans to combat the behemoth that is AB InBev.
Four years later, the battlefield has become fascinating. At the time of the Terrapin investment, Tenth and Blake’s CEO, Tom Cardella, had stated that buying up interests in craft breweries was a “key pillar of our strategy”. But that strategy seems to have failed. For whatever reason, Tenth and Blake has become a bit gun-shy in regards to investing in craft breweries. Cardella retired at the end of last year, but in the four years between the Terrapin investment and his retirement, Tenth and Blake more or less stood pat with their “crafty” line-up of macro beers in micro clothing (like Blue Moon and Leinenkugel).
Last year, Pete Coors, Chair of MillerCoors noted in a candid interview that “We bought a craft brewery in Georgia, Terrapin. [It] isn’t working out the best. So we are learning about that.”*
*In the interview, Pete also expresses bewilderment that “in this economy” people would pay more money for craft beer than his cheap swill. As is often the case amongst the olds, he blames “the millennials” for this inexplicable (to him) economic trend.
Ignoring Pete’s amusing Freudian slip about buying Terrapin (technically they own just under 25% of the company which allows Terrapin to remain a craft brewery under the Brewer’s Associations oft-maligned rubric for what constitutes craft), this quote was quite surprising. There’s precious little information on-line about how exactly MillerCoors has been involved with Terrapin. Other than the original sale and the follow-up stories on Aleheads, there has been zero on-line chatter about the situation in 4 years.
For whatever reason, the Terrapin “purchase” has not gone as MillerCoors hoped. Perhaps the minority stake didn’t give them the influence they had hoped? Or perhaps the company’s vaunted distribution network and marketing expertise simply didn’t matter in the more grassroots, “locavore”-centric world of craft? Whatever the case, the Terrapin investment put a scare into Tenth and Blake and they’ve remained remarkably quiet ever since.
Instead, MillerCoors has ramped up production of their “crafty” beers. Blue Moon and Leinenkugel are huge sellers and the company has added a number of new offerings under those labels. They’ve done the same with the less popular Henry Weinhard label and have also added the cleverly disguised “Batch 19” to their line-up (supposedly brewed from a pre-Prohibition era Coors lager recipe). They’ve even added cider to their roster through the Crispin label.
MillerCoors has also been MUCH friendlier to craft from a wholesale perspective. While AB InBev has often threatened their distributors for adding competitive craft beer labels to their rosters (note the keyword “often”…many Bud distributors are actually extremely craft-friendly), MillerCoors has taken the opposite tack and has, for the most part, encouraged their distributors to diversify their craft line-ups. The takeaway (to this writer, anyway) seems to be that MillerCoors knows that craft isn’t going away. Rather than try to limit their competition, MillerCoors seems to believe that if their distributors have a robust, diverse line-up of successful craft brands, it only helps them in the long run. A rich, successful MillerCoors distributor (even if they got rich and successful through selling craft brands) has more opportunity to put MillerCoors products on shelves.*
*I have anecdotally seen this play out through a cousin. He represents a distributor that sells MillerCoors products along with a HUGE line-up of craft brands. Thanks to the success of these craft labels, his company absolutely dominated AB InBev in the package stores, grocery stores and bars in his region. Miller and Coors products absolutely own the light and macro segment of his market thanks, in large part, to the success my cousin’s craft brands have had.
AB InBev has, perhaps not surprisingly, gone a different route. With far greater resources than MillerCoors, InBev has continued snapping up investment stakes in craft breweries. For years they have owned a large stake in the Craft Brew Alliance, an umbrella company made up of Redhook, Kona and Widmer Brothers. And, of course, there was the infamous sale of Chicago-area darling Goose Island a few years back. Since that warning shot was fired, AB InBev has also snapped up Blue Point Brewing out of New York, Elysian Brewing out of Washington and 10 Barrel Brewing out of Oregon. While this is just a drop in the bucket, clearly AB InBev is still VERY interested in playing the craft game.
While the company is far more invested in the “buy into” strategy…they’re still toying with the “crafty” approach of MillerCoors. AB InBev’s Shock Top has been one of the most successful new brands in recent memory. Developed to directly compete with Blue Moon, Shock Top is thoroughly impressive in its ability to be an even more watered down version of a Belgian White than the beer it’s battling. While AB InBev has a few other minor “crafty” options, Shock Top is really the only label the company has truly put marketing money into. It’s obvious from their business approach that they’d rather own “real” craft breweries than keep churning out “fake” craft labels.
Most consumers understand that the macros are refining their craft strategy because that segment is growing while the sales of their flagships have been either stagnant or declining. But there’s another crucial reason the companies are buying or inventing craft labels. Both MillerCoors and AB InBev are keenly aware that there is a ton of money to be made in so-called “crossover” drinkers. These massive, international conglomerates know that beer-snobby Aleheads (like your dickish blogger here) will eschew any beer with the taint of Big Beer on them…that battle is unwinnable. But there are far more crossover drinkers out there than obsessive, dyed-in-the-wool Aleheads. These are the drinkers who are just starting to move away from their tried-and-true Bud Light or Miller High Life. Their friends are drinking more flavorful, more varied beers and the crossover drinkers are interested in joining them, but are a little skittish. MillerCoors and AB InBev help grease the skids by flooding the market with such crafty beers as Blue Moon and Shock Top. Maybe that’s all it takes and these crossover drinkers stop there. But what if they like expanding their horizons and decide to explore even more? Then perhaps they look at the tap handle next to Blue Moon and see a brew from Blue Point or Terrapin. The labels may change, but the money is still going into the coffers of Big Beer.
And sure, that crossover drinker may eventually become a true Alehead who will someday ignore all offerings from Big Beer, but in the meantime, the macros have made a ton of money during the crossover drinker’s conversion. Craft may be growing while the sales of adjunct lagers remain stagnant or declining, but there’s a HUGE market in the difficult-to-define space in between. The macros are in the business of making money for their investors and one of the key ways they are doing this of late is by targeting crossover drinkers. MillerCoors clearly believes the best approach is to control distribution and to invest heavily in the “crafty” segment. AB InBev, with its far greater resources, is mostly just buying up stakes in popular craft breweries.
In other words, the battle we were so fascinated by four years ago IS still raging…just not quite in the way the Aleheads anticipated. MillerCoors got burned by the Terrapin deal, so they’re staying involved by making money on the wholesale side of things and continuing to push their big crafty brands like Blue Moon and Leinenkugel. AB InBev is fighting back with their Shock Top brand and their ever-expanding portfolio of former craft outfits. It’s an interesting fight and it will be both compelling and frightening to watch how it all plays out. Will AB InBev’s craft portfolio be ignored when consumers find out who is “really” brewing their beer? Will MillerCoors more magnanimous approach to sharing distribution channels with craft brands pay dividends in the long run? We will see…
Of course, it should be noted that there are FAR more than just two “big-money” players when it comes to craft beer. Obviously we harp on MillerCoors and AB InBev because of their history and dominance of the American beer industry. But in recent years, a number of craft breweries have sold large stakes of their companies to mid-range private equity investors or huge multi-national conglomerates.
Anchor Brewing, one of the granddaddies of craft beer was sold to the Griffin Group (helmed by the brain trust behind Skyy Vodka) back in 2010. Mendocino Brewing is owned by the UB Group out of India. Pyramid, Magic Hat and Portland Brewing are all part of the North American Breweries umbrella which is owned by Cerverceria Costa Rica. Aleheads fave Southern Tier sold a chunk of their company to Ulysses Management, an NYC-based investment firm and then named a former AB InBev VP as their CEO. Uinta out of Utah sold a percentage of their business to The Riverside Company, another NYC-based private equity firm. Founders Brewing…one of the best craft breweries in America, sold a large stake to Mahou San Miguel, a massive Spanish brewing corporation. Duvel Moortgat, the mega-Belgian brewery owns both Ommegang out of New York AND Boulevard out of Kansas City. Finally, SweetWater Brewing, Georgia’s “other” big brewery (even larger than Terrapin) sold a minority stake to TSG Consumer Partners…a private equity group that has also invested in Pabst, Muscle Milk and Vitamin Water. The brewery recently named a new CEO (their longtime CFO who also formerly worked at Spanx and Coca-Cola) as well as a new CFO (the erstwhile Chief Strategy Officer of Molson Coors). A few days ago, they announced that they would be seeking an IPO which would make them one of just a small handful of publicly traded craft breweries (along with the Boston Beer Company and the aforementioned Craft Brew Alliance).
That’s a lot of information to take in for an Alehead. Seemingly everywhere you look, small craft breweries are selling out to larger breweries or giving up investment stakes to equity investors. The current craft climate makes that inevitable. There will shortly be over 4,000 (!) breweries in the US and they can’t all continue growing indefinitely. Many brewers have seen the writing on the wall and rather than continue their slow growth, they’ve decided to get a quick influx of cash to jump to the next level immediately. Most of us would do the same thing. If your competition is getting millions of dollars to expand from outside firms, it must be pretty damn tempting to follow suit. Otherwise, you put yourself at the risk of falling behind as your rivals grow.
It can be hard as an Alehead to decide where your loyalties lie. If it’s just to the beer on the shelves, then it’s easy. Buy what you like. But if you’re more concerned about the organic, thoughtful growth of the industry you should be more wary. That’s not to say you can’t enjoy a Founders KBS because a Spanish brewery owns a chunk of them or that you should never consume a SweetWater IPA after their IPO. This post is more of a “public service announcement” to craft beer enthusiasts. As in any industry, consumers should be informed about the products their buying.
Maybe you despise AB InBev’s cutthroat business practices. You may want to avoid Elysian beers. Perhaps you’re deeply offended by MillerCoors’ sexist marketing. You should probably steer clear of Terrapin. Or maybe you like to buy American as much as possible. You might consider eschewing Boulevard’s beers with the knowledge that a good percentage of their sales are going to their Belgian headquarters. Finally, you might be the kind of person that likes to support your truly “local” breweries. In that case, you may consider NOT buying beers from breweries that have sold large investment stakes to “out-of-towner” private equity firms that are giving said breweries an influx of capital that other local breweries can’t compete with.
I’m not saying ANY of these approaches are better or worse than another. Every consumer has the right to decide what matters to them both ethically and economically. I’m a meat-eater and my personal philosophy towards food allows for that. Other people are vegans or vegetarians and their philosophies are quite different. I don’t love Apple products for a variety of reasons…but many, many people obviously do. The key is to be informed and try to mesh your approach as a consumer with your personal beliefs. At Aleheads, we’re just trying to keep you all up to speed.
Me? I’ll continue drinking Founders and Southern Tier. Personally, I’m OK with private equity investment in breweries. If I had access to $100 million, I would likely sink a percentage of it into a willing craft brewery myself. Hell, it’s a growth industry and it’s something I actually know a little about…it would probably be fun! But I still don’t drink Terrapin or Goose Island…and I won’t drink Elysian or 10 Barrel anymore. I don’t like AB InBev or MillerCoors. Their marketing is atrocious, their flagship beers are embarrassing, and for years they tried to curtail the growth of craft through duplicitous political and economic means. I think those two companies are “bad” for beer and I have no desire to support them. As such, I don’t drink beer from breweries aligned with them. Every time I mention this (by my count, this is the infinity-ith time I’ve brought it up), I’m called an idiot in the comments. I anticipate this will happen again.
All I ask is that you stay informed, my friends. Know your beer. Know your breweries. Know the industry. A little knowledge can go a long way and as consumers we can help keep the industry healthy by keeping abreast of this thing we all love…beer.