A Merger Won't Solve Big Beer's Craft Problem


    October 7, 2015 — 6:00 PM CDT

  • Craft brews added 3 percentage points of market share in 2014

  • Brewers group head says deal would make craft `more authentic'


For all of its potential advantages, Anheuser-Busch InBev NV’s proposed acquisition of SABMiller Plc may not solve one of the megabrewers’ biggest problems: craft beer.

While SABMiller has so far snubbed offers from its larger rival, a proposed union of the world’s two biggest beermakers could create a behemoth with significant operations on every continent, allowing it to ride out slowing sales in any one market. Yet the company would remain vulnerable to competition from the tiny brewers that are winning over drinkers and contributing to that slowdown, at least in the U.S.

Craft brewers, known for serving up flavorful offerings like hoppy IPAs and barrel-aged stouts, held about 19 percent of retail consumer beer sales in 2014, according to data from the Brewers Association. That’s up from about 16 percent in 2013. By contrast, overall beer volume fell 1 percent in 2014, and the loss came mostly from macrobrewers, heavily reliant on milder, light lagers. An AB InBev-SABMiller tie-up doesn’t offer a path to reverse that trend and may make it even worse, said Paul Gatza, director of the Brewers Association, a trade group for independent, craft brewers.

“There’s a perception that larger standard lagers are just part of the global finance game and craft brewers are the ones who actually have a connection to customers,” he said. “This deal makes us look more authentic. The larger breweries may have more muscle with retail and ad dollars, but consumers are still switching to craft.”

Declining Volume

AB InBev and SABMiller have felt the pinch of that switch. MillerCoors, the U.S. joint venture between SABMiller and Molson Coors Brewing Co., says its volume has declined by almost 10 million barrels since its inception seven years ago. The company said last month that it’s closing its brewery in Eden, North Carolina, partly because of the volume lost due to “economic challenges, an explosion of choice and fragmentation within the beer business, and a dramatic change in the way consumers engage with brands."

AB InBev said in July that second-quarter sales to retailers fell 2.2 percent. The company’s U.S. market share also declined as Bud and Bud Light sales fell by low single digits.

“We can still do something that Anheuser-Busch can’t: double in size,” said Gary Fish, president and owner of Deschutes Brewery in Bend, Oregon. “Craft can still grow.”

Craft Acquisitions

Craft brewers’ rapid gains have led the big producers to snap up some of their smaller rivals. Since 2011, AB InBev has purchased Goose Island Brewing in Chicago; Blue Point Brewing in Patchogue, New York; 10 Barrel Brewing in Bend, Oregon; Elysian Brewing in Seattle; and most recently Virtue Cider in Fennville, Michigan. Just last month, MillerCoors agreed to buy San Diego’s Saint Archer Brewing Co., Heineken NV purchased a 50 percent stake in Lagunitas Brewing Co., and AB InBev said it would buy Los Angeles-based Golden Road Brewing.

“This is the strategy of the big breweries: If they just confuse things enough, then people might just turn away from craft entirely and say it’s too confusing,” said Dan Kenary, co-founder and chief executive officer of Harpoon Brewery in Boston.

So far, Big Beer’s attempts at developing its own craft products, such as AB InBev’s Shock Top Belgian White and MillerCoors’ Blue Moon, have mostly failed to win over hardcore craft-beer drinkers. About 61 percent of consumers said independent brewing is at least somewhat important when choosing a craft beer, according to a Brewers Association-commissioned Nielsen Omnibus Panel in 2014.

Seeking ‘Authenticity’

“There certainly is a wonderful subset of consumers that really do care -- they care about authenticity, they care about where their beer is brewed, who’s brewing it, what the ethics are of the company,” said Kenary, whose company is in its 30th year of operation and recently became employee-owned.

Many craft brewers shun the corporate image, and some have even poked fun at the potential beer megamerger.

Chicago’s Metropolitan Brewery responded to news that AB InBev and SABMiller were discussing a deal last month by tweeting “AB InBev looking at SABMiller now, hmm?” and linking to a video of the Imperial March from Star Wars.

Greg Hall, who was brewmaster at Goose Island for more than two decades before founding Virtue Cider, had more sympathy for the big brewers. Goose Island and Virtue both are now owned by AB InBev.

“There are a lot of my peers in the craft-beer world who may not be the biggest fans of their beers, but you’ve got to admire them as businesspeople,” Hall said. “They make what most drinkers still drink, and the drinkers who don’t drink their stuff, well, they’re trying to make beer for them too.”