Acquisitions cause for concern in craft beer industry

Anheuser-Busch InBev, the largest brewer in the world, has been on a buying spree, acquiring eight craft breweries in the past several years including Breckenridge Brewing and Goose Island Brewing. These acquisitions, and the influx of investment interest in craft beer, were presented this morning in a State of the Industry session at the 33rd annual Craft Brewers Conference as some of the key causes for concern in the craft beer industry.

“When a craft brewer sells to a larger brewer, it’s really hard to know what to think and feel,” said Paul Gatza, Director of the Brewers Association, the trade organization for the industry and presenting organization for the conference. “Craft authenticity is somewhat affected when customers feel duped, and I’m worried [these acquisitions] may affect the amount of craft beer customers want to drink overall when they don’t know what’s craft and what’s not craft.”

Despite that, the official Brewers Association stance supports breweries making the decision to sell.

“We respect the right of any brewer to do what they want with their business, they’ve built it from the ground up with sweat equity,” said Bob Pease, President and CEO of the Brewers Association.

However, the actual act of selling out means they are out – of the Brewers Association.

“When a brewer sells to a large brewer, they are no longer craft,” Gatza said, citing the Brewers Association definition of a craft brewery, which mandates a level of independent ownership, among other factors.

Part of the reason these acquisitions are such a threat is their impact on access to raw ingredients and distribution networks. As the largest brewer in the world, ABI can buy ingredients in much larger quantities (for much cheaper prices) causing availability issues for small craft brewers. In addition, ABI owns a significant portion of the American distribution network, outright owning distributors in 10 states and having significant influence over their distributor network nationwide.

“What is needed is a truly independent beer distribution system” said Pease. “Anheuser-Busch InBev has rolled out an incentive program… that basically aligns their distributors not to sell brands that are over 15,000 barrels in their house. We have no problem with Anheuser-Busch InBev incentivizing their distributors to sell more of their own product, but for them to incentivize distributors not to sell other products is something we want to see remedied.”

Anheuser-Busch InBev is also notably attempting a merger with SABMiller. While the deal technically doesn’t involve the U.S. market, which the U.S. Justice Department would likely block, Pease says it most certainly will impact the U.S. beer market.

“The U.S. represents the most profitable beer market in the world, so we think this deal has a whole lot to do with the U.S.,” said Pease. “Anheuser-Busch InBev increased influence at the distributor tier will potentially negatively impact small and independent breweries.”

In addition to the threats posted by Anheuser-Busch InBev acquisitions and mergers, investment firms are also capitalizing on the popularity of craft beer, presenting a different cause of concern for the industry.

“[After large investment] the brand does seem more susceptible to resale… private equity companies aren’t in it for the passion, they’re in it for the money”, said Gatza.

However, up to 25% outside ownership, the brewery can still be considered “craft,” in large part because the influx of outside capital doesn’t come with the same material acquisition and retail network power that a buy-out buy a larger brewery does.

“We see fundamental differences between the purchase of a small and independent brewery by private investment [and that of a large brewery acquisition], those being primarily access to materials and access to distribution,” said Gatza.