It was announced earlier this week that Virginia based brewery, Devil’s Backbone Brewing Co., was bought by Anheuser-Busch for an undisclosed amount. This is hardly a surprising move for the beer giant, as it just follows their recent model of expanding their craft beer portfolio by buying up already successful craft breweries.
While unsurprising, the sale once again shines a spotlight on how Big Beer is dealing with the stagnant sales of beer overall when compared with the enormous growth in the craft beer sector. They have decided that they can’t beat craft beer, so they might as well join the movement. This might be good for the individual breweries who are swallowed up by these global corporations in terms of their opportunity for larger distribution and brewery expansions, but how does it impact to the craft beer industry as a whole?
In all of the press for this recent sale, the owner of Devil’s Backbone is quoted as saying,
“The existing management team plans to stay on board for many years, while continuing to innovate and bring locally crafted Virginia beer to the nation.”
This statement is meant to put craft drinkers’ minds at ease about the quality of the beer unchanging once a big company buys them out. However, this should not be people’s main concern. All of the craft breweries bought out by bigger beer companies fiercely defend the quality of their beer after the buy-outs. Soothing people’s “worries” that the craft beer they love will still be the same delicious high-quality brew is a straw man argument in many ways. We aren’t that worried about whether Devil’s Backbone, Ballast Point or any other breweries that sold recently will go down in quality. There is always a change in the beer when the brewing is moved from one system to another (say smaller to bigger), but we have faith in the good brewers of these brands that they will be able to adjust their recipes and continue making great beer.
The real issue is that AB InBev owns more than 17 U.S. distributors in all of the top craft beer sectors (CO, CA, OR, NY) and is aligned with 500 other independent distributors. This is what people should be worried about. It’s small potatoes to worry about whether Devil’s Backbone will continue to brew their beer to their high standards when if the current trajectory of AB InBev’s distribution model continues, they will likely own or be affiliated with a majority of U.S. distributors, therefore having a high degree of control over the output of beer onto the market.
When a beer buyer (bar, store etc) tells AB InBev that they want to offer craft beers, AB InBev can now say, “No problem. We have all these different local, craft beers for you to choose from.” Whether or not AB InBev engages in the illegal but rampant, pay-to-play schemes that infect the beer industry is moot because they have figured out their own, legal, way to offer pay-to play benefits to distributors they work with. That’s right, Budweiser offers what is called an incentive program to the network of distributors it works with. According to the Wall Street Journal,
“Distributors whose sales volumes are 95% made up of AB InBev brands would be eligible to have the brewer cover as much as half of their contractual marketing support for those brands, which includes retail promotion and display costs.”
Furthermore, if their sales volume is 98% AB InBev brands, they are eligible for up to $1.5 million and the company estimates that most distributors who participate in the program will receive annual benefits of approximately $200,000.
This is a lot of money to many of these smaller distributors and it makes it very hard for independent craft beer breweries to play on an even playing field with Big Beer. Furthermore, this is talking about the 500 beer distributors they don’t own. The ones they do own will only be carrying their own “craft” beers and after buying up five distributors last year alone, it can be deduced that we will continue to see that number grow in the future.
Therefore, the big issue isn’t whether or not the beer will change after a brewery is bought-out by AB InBev, it’s that the brewery has now become part of a company that is actively working to cut off channels of distribution for other independent breweries. Here in CA we are lucky that breweries are allowed to self distribute, but as the brewery grows to a size where that self-distribution becomes unmanageable, we are met with the challenge of finding an independent distributor who will not bend to the economic will/benefits of AB InBev. For other states who aren’t allowed to self-distribute, this issue is even more important.
AB InBev isn’t going to stop buying up craft beer breweries and they aren’t going to stop buying up distributors. So where does that leave us when they have merged with SABMiller? They will control nearly 30% of the world’s beer from that merger alone, all the while continuing on their buying spree.
People need to look at the craft beer industry long term and seek ways to protect independent breweries from being muscled out by big beer. It’s happening now, as evidenced by the recent DOJ investigation into AB InBev’s distribution practices and whether or not they pressured their newly acquired distributors to drop non-AB InBev brands. What’s it going to look like 10 years from now if AB InBev continues on this trajectory?
This is why the argument over whether or not Devil’s Backbone Brewing Co. is still going to make great beer feels like a straw man argument. It’s taking attention off the real issue at stake. If AB InBev continues on this path, except for the ultra- independent craft beer bars and stores, people won’t get a chance to drink anything besides Big Beer owned craft brews. The stable of craft breweries that they bought up in the last few years and continue to buy are simply their ammunition in this fight.
Furthermore, with the lack of transparency in the industry right now, most people won’t even know that their choices have been cut down to big beer craft breweries when they go to have a beer at their local watering hole. This lack of diversity will hurt the craft beer industry as a whole, making it harder to start and run independent breweries which are the backbone of this community and ultimately will bring less new and interesting craft beer to the market.
Ultimately, the problem isn’t with Devil’s Backbone wanting to expand their brand and grow their business. The problem is that they chose AB InBev to do that with, and it will ultimately hurt the craft beer community, the very community that these “no longer craft” breweries want to still be a part of.
Breweries who are looking for capitol must decide whether or not their own payoff is worth hurting the rest of the craft breweries that they are leaving behind. There are many ways to get investments in a company with some being easier than others. In the same way that so many of companies are looking at ways to produce their beer sustainably for environmental benefits, breweries need to also look at ways to grow their business sustainably in order to keep the craft beer community thriving and growing as a whole. We need to work together to not only keep this community alive but also to continue offering the wide variety of craft beers that are so readily available now to consumers.