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.”

Next Round: Craft beer continues its rise

 USA TODAY6:53 p.m. EDT August 2, 2015

The odds that your next round will be a craft beer continues to increase.

That's because craft breweries across the U.S. produced 16% more beer during the first six months of 2015, according to data released last week by the Brewers Association, the trade group that represents small, independent brewers.

About 12.2 million barrels were produced and sold from January-June 2015, up 15% from 10.6 million barrels during the first half of 2014, the association said.

A Brewers Association graphic showing craft beer production mid-year 2011-2015. (Photo: Brewers Association)

Some of that gain comes from D.G. Yuengling & Son's addition to the craft beer ranks after the association dropped its prohibition of corn as a beer ingredient, which the brewery uses. But it is the continued expansion of small and regional breweries that is the biggest factor, says Eric Schmidt of food industry tracking and consulting firm Technomic.

"Overall, the number of new breweries has advanced markedly and they are the ones responsible for the lion’s share of the growth," he said. "The older craft beers have ceded volume although they continue to grow albeit at slower growth rates. Overall the bright spots of the industry continue to be imports, specifically Mexico and craft category. The larger domestic categories continue to decline which is leading the industry towards a year in the red for ’15."

Consumer spending on beer is expected to increase as much as 2% to about $97 billion, Technomic estimates, but total beer volume sold will likely drop about 0.4%.

While craft beer production increased 11% in the second quarter of 2015, the firm says that production of domestic mainstream beer (such as Budweiser and Coors) fell 2.5% and that of domestic light (Lite, Bud Light) dropped 3.5%.

As big beer sales drop, their international parent companies may look to snatch up more craft breweries. "I think with a lot of the growth coming from craft, big brewers will continue to look at craft brewers to help bolster their portfolios," Schmidt said.

In recent years, Budweiser parent company AB InBev acquired Goose Island Beer Co. of Chicago (2011) and Blue Point Brewing of Patchogue,, N.Y. (2014) and Elysian Brewing Co. of Seattle (2015).

Still, new small breweries and brewpubs continue to open. At the end of June, there were 3,739 breweries in the U.S., the Brewers Association said. That's 699 more than at the same time last year and there are 1,755 additional breweries in planning.

At that rate, the number of U.S. breweries could hit a record high in the coming months, topping the 4,131 breweries open back in 1873.

“More and more Americans are discovering the joys of enjoying fresh beer produced by their neighborhood brewery," said Bart Watson, chief economist at the Brewers Association, in a statement accompanying the report. "By supporting local, small and independent craft breweries, beer lovers are gradually returning the United States to the system of localized beer production that existed for much of our nation’s history."

A Brewers Association graphic showing the number of craft breweries in operation 2011-2015. (Photo: Brewers Association)

Next Round will take a regular look at new and recently released craft beers. And if there's one on your radar, or if you have suggestions or questions, contact Mike Snider via e-mail at msnider@usatoday.com. And follow Snider on Twitter: @MikeSnider.