Big Beer Moves Into Small-batch Space

A Column written by Tim Logan for

All puns aside, craft beer is hopping.

Sales of more-flavorful, all-malt brews have surged at a double-digit clip the past few years.

So much so that fast-growing labels such as California’s Lagunitas and Colorado-based New Belgium are planning new breweries to serve national markets. Meanwhile, little brewpubs have popped up left and right — at least six have opened in St. Louis in two years — churning out small-batch servings of porters and pale ales, and building an image of a sector full of scrappy entrepreneurs.

Now, increasingly, Big Beer is getting into the act as well, buying and building craft labels, then plugging them into their huge marketing and distribution networks.

MillerCoors — which has its own craft and import division known as Tenth and Blake — owns Wisconsin-based Leinenkugel and Oregon label Henry Weinhard, and is building both into national brands. Its Blue Moon Belgian White is expected to sell 2 million barrels this year, which would make it the 10th-largest beer-seller in the nation if it were its own company. Of all the growth in the craft segment last year, one-third came from brands run by Tenth and Blake.

“There’s a revolution going on in beer,” said Lee Dolan, Tenth and Blake’s vice president for sales and marketing. “We’re glad to be a part of it.”

Anheuser-Busch isn’t far behind. It keeps adding new versions of its Shock Top line of wheat beers — on pace to sell 800,000 barrels this year — and in March 2011, it bought control of Chicago craft brewer Goose Island. Now it’s taking the brew national, with hopes of selling 1 million barrels by 2015.

On Thursday, A-B put one of its veteran executives in charge of Goose Island, while naming the brewery’s founder, John Hall, to a newly formed “Craft Advisory Board.”

It’s a smart strategy for the big guys, and a pretty simple one, said beer industry consultant Bump Williams. “They’re just trying to give beer drinkers what they want,” Williams said.

But for the booming ranks of independents, the influx of Big Beer is a mixed blessing.

On one hand, the marketing muscle that industry giants wield can help draw more beer drinkers to more adventurous, alternative brews. After all, craft beer is still a fairly niche product — all 2,100 craft brewers combined sold just one-eighth as much beer last year in the U.S. as Anheuser-Busch did.

On the other hand, some worry that the big guys could muscle smaller brewers off the shelf, so that the only craft beers consumers see are the ones brewed by the corporate behemoths.

The trick for smaller brewers, said Jim Gorczyca, owner of O’Fallon Brewery, is to make sure that consumers know who is who. “I think the craft customer is a pretty savvy beer drinker,” he said. “For them, authenticity is very important.”

Of course, Goose Island, Leinenkugel and Henry Weinhard’s have authentic roots, too. All three got their start as regional independents, and that’s how many customers still see them. They retain their own breweries — even if most Goose Island beer is now brewed at A-B’s giant plant in Baldwinsville, N.Y. — and their founders are still involved in running the brands. There’s little outward sign of change. The words “Anheuser-Busch” appear nowhere on Goose Island’s bottles or packaging.

“The multi-nationals are doing the best to blur the lines between their non-light-lager products and the ones that come from independents,” said Dan Kopman, co-founder of Schlafly parent The St. Louis Brewery.

Even more important than image are the mechanisms of distribution, of getting beer to market. The nation’s complex network of beer wholesalers evolved over decades to serve the nation’s brewing giants, and today virtually all of the 3,300 distributors in the U.S. have a perpetual contract with either Anheuser-Busch or MillerCoors.

That network, plus their massive marketing budgets, means the big guys can make almost any beer huge and crowd out competitors, said Paul Gatza, president of the craft beer trade group the Brewers Association.

“They have a lot of muscle at distribution,” he said. “When they decide they want to get a product on the shelf, they can pull some levers and make that happen.”

Craft brewers have ridden the coattails of that system. Many sell their products through A-B or MillerCoors distributors, benefiting from an infrastructure built to support Big Beer without having to build it themselves. Those wholesalers help small labels get on store shelves and in tap handles, and people all over the industry point out that beer consumers have never enjoyed a wider array of choices.

“Access to market has never been more available for any brewer than it is right now,” Dolan said. “There is a truly competitive market.”

Still, Anheuser-Busch in particular has been talking lately about consolidating its network and making sure that A-B wholesalers maintain what Chief Executive Carlos Brito recently called the appropriate “share of mind, heart and gut” for selling A-B products — and not the competition.

“We have a very competitive portfolio. Talk about craft. We have craft. Talk about imports. We have imports,” Brito told analysts last month. “The ones that go outside, we cannot tell them not to. … But that goes against what we call alignment.”

That kind of talk makes people such as Gatza nervous, especially in markets where A-B owns its own distributors, as it does in 14 cities, including New York, Los Angeles and Boston.

“Every time A-B buys a distributor, we get concerned that our brands can get kicked to the curb,” Gatza said. “The independence of wholesalers is really important to us.”

A-B has no master plan to crunch independent craft brewers off the shelves, said Paul Chibe, the brewer’s vice president of marketing. If anything, he said, big and small beer ought to work together to win back drinkers who have migrated to spirits. As for the wholesale network, the small guys benefit from being with A-B.

“When brands are in our wholesalers, they do better,” he said. “If I was on my own starting a brewery, I’d definitely want to be in the A-B system.”

Indeed, that was one of the first moves Gorczyca, a former A-B executive, made when he bought O’Fallon Brewery last year; he inked deals with the big brewer’s network of wholesalers across Missouri. It has worked. Sales are up from last year, and he’s projecting they’ll grow an additional 20 percent or more next year. He sees customers responding to the idea of local beer and has started using local ingredients, such as Bissinger’s chocolate, for an upcoming latte-styled brew.

“We think our product’s unique,” he said. “And if you can connect with customers and their likes and their community, you’re doing a better job at marketing.”

As for competition from corporate craft giants such as Goose Island, Gorczyca isn’t worried. As long as his beer can get on shelves, he thinks it will stand out just fine. The more choices consumers have in this beer boom, the better, he says.

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