Filed under: anheuser-busch
In an article found in today’s Wall Street Journal, found via Miller’s Brew Blog, it would seem that Anheuser-Busch is losing its hold on American distribution. Now, don’t misread that to mean they’re anything less than massive in American beer distribution, but this is a pretty interesting development. Sure, folks who have their ear to the ground have known A-B is seeing more competition in distribution and, naturally, shelf space – experiencing a much decreased growth rate over the past few years.
What’s happening? It seems that folks no longer want to have exclusive arrangements with A-B, instead opting to provide other imports and crafts to their customers. Seems like a natural occurrence given the growth rates in these segments. According to the piece:
“The shift might help competing alcohol brands gain market share, as distributors divert some of their attention from Anheuser, which accounts for about 48% of U.S. beer sales. For consumers, it means greater choice at their local bars and liquor stores. Wall Street analysts say the movement signals a weakening of the St. Louis brewer’s clout in the marketplace, as small-batch “craft” beers and imports, as well as wine and spirits, wrest market share from mass-market brews like Budweiser.”
I suspect A-B won’t just let this continue without a fight, so I wouldn’t be surprised if they went on a shopping spree in 2008 (I believe this has been predicted by the likes of Jay Brooks?) to acquire more distribution clout. Regardless, this should be an interesting story to follow. Oh, I also don’t believe A-B is the worst thing for craft brewers – they’re really just a business, run like a good business should run (especially if you’re a share holder). If another company steps up and begins to control the market in any capacity, I’d expect they’d either be just the same, maybe even a bit worse for those who like variety. So, don’t cheer or celebrate with news like this, keep an eye on who the other guys are and what their goals are. At least A-B has been in the beer business forever and can’t shake that image from their business.
I ran across an interesting (mildly) piece in BrandWeek about A-B plans to tout their import brands in the near future. While it focused a bit on their ad campaigns, I found it interesting that the import market had such a seemingly big lag in late 2007 – growing only 1.8% versus the 2.4% growth of 2006. The article never factors craft beer’s success in the slowed growth for this segment, and perhaps there’s really more to the story (when you start talking in those volumes I feel less confident I have any idea which way is up). Personally, I can’t help but think that there are so many craft pilsners, hefeweizens and tradition styles on the market now that is has to cut in a bit on the import market selling beers with the same words on the labels.
Perhaps this is why it seems A-B will market “authenticity” this year with it’s import brands. It seems at least two brands will tug the beer heart strings a bit, Bass Ale and Amstel Light. According to BrandWeek Bass will tout themselves as the necessary ingredient for an “authentic Black and Tan”. I suppose this will be a campaign designed to pressure bar-owners to keep Bass on in fear they’ll be blacklisted for serving the fake black and tan made with a fake pale ale. Additionally, you wouldn’t want to be the douche that throws a party and makes a fake B&T now, would you? Yeah, didn’t think so.
On the other hand, Amstel seems to be playing off a different theme: “Spirit of Amsterdam”. I don’t quite have a handle on this one, the only connotations I think of have little to do with beer. Perhaps that’s what they’re hoping for? I mean, it is served in a green bottle. The “Spirit of Amsterdam” slogan sounds a bit like “The Great American Lager”, in which case I’d assume some think-tank/study group identified authenticity as a key selling point for products.
In any case, it seems the big big guys (A-B, InBev, SABMiller, etc.) will be ramping up their ads this year, perhaps making more direct affronts to beer enthusiasts who long to ‘keep it real’. I wonder now, actually, if the whole Hofbräuhaus story Stan had the other day is in line with this, as they claimed to be the only real “double bock” on the market today.
I suspect if the slowed growth really is linked the white-hot success of the craft beer industry all the ads these guys put out won’t do much to address their concerns. Of course, if they start making consumers feel like they’ve sold out by enjoying a fake representation of an old-world style who knows that that’d do. I did read recently that A-B would start playing nice with the craft brewers in their advertising, but we’ll see how long that lasts.
I read about this over at Brew Blog, although we’ve been hearing rumors about this for some time. A-B appears poised to follow Blue Moon (Coors) lead in the craft beer market with a Belgian White of their own – Shock Top. They don’t mention when this beer will be released, but just judging by the label (right) I’d guess this is a late Spring to early Summer release.
So, that’s the news portion for the morning. What follows is random musings about timing and the industry overall.
Is this the perfect time for A-B to do this? Yes. If you’re a shareholder for the company, this is great news I would think. Beer prices are rising in the craft beer market, that’s no shock. What’s more, there are a ton of new (newish) labels out there. You see this every time you walk down a beer aisle in a grocery store. I can’t help but imagine that with their strangle hold on distribution in the US, A-B is poised to put their crafts in every market. Your local bar with 4 Macros and 2 Micros… well, it isn’t a stretch to think you’ll lose one of the micro’s in place A-B’s product. Reps will push it, signage will be provided and the incentives overall to switch will speak loudly to bar owners.
I saw this a couple years ago in Northern California with Bare-Knuckle stout (another A-B craft). Bars in my area all of a sudden had this new stout nobody had heard of, posters were on the walls and glassware was provided for those willing to try this new beer. In one bar, in Auburn, the Bare Knuckle replaced a regional micro brewed stout. Who will they go after with Shock Top? I actually can’t help but think they’re going after Blue Moon, but I also can’t help but think that more than a handful of publicans will drop regionals like Great White or even national brands like Widmer.
Will it work? I think it will, to a certain degree. I don’t have the stats to back me up here, but I have a feeling that many of those buying craft beers don’t have any sort of strong loyalty to micro brewers as a whole. I was talking with a beer buyer for a great store in Souther Oregon last week and he was amazed at how many 20-somethings were buying craft beer nowadays. What was more amazing to him was that a majority (his word) would walk up and buy a 22-ounce craft-beer and with the other hand buy a 12-pack of PBR. That doesn’t mean much of anything, except that I believe such buying habits benefit A-B.
Will it hurt the Craft Beer Movement? No, I don’t think so. If anything, I suppose shelf space in chain grocers and convenient stores will opt to carry the A-B products. Beyond that (and don’t get me wrong, that’s not a small thing) I think we’ll still be able to support the movement in specialty stores and on-premise sales. This could potentially slow growth for budding brewers, but as a whole I see the industry continuing to grow in double digits this year.
So, in conclusion, here’s a summary of what I was trying to say. I think this is good for A-B because:
- A plethora of brands exists, and A-B is a trusted name for most beer buyers. When I did business consulting I used to tell companies if they had more than 5 goals, they didn’t have any goals. I think this works for choice too, with a whole lot of buyers. Overwhelmed with variety, not wanting to make the ‘wrong’ choice, it’s just easier to buy from a name you trust.
- Rising prices in craft beer (and macros, but buy smaller margins) means something for so many people out there now, worried about employment, debt and interest rates…
- A-B understands more about buying habits than most of us care to admit.
I read a whole hell of a lot every day; whether it’s online, in print or even on TV, especially about the beer industry. I hope this blog helps pass on some info we all glean so that you don’t have to read it all, as do other great beer bloggers online today. With that said, I read the Fitch Ratings for Anheuser-Busch in its entirety, something I suspect I wouldn’t just volunteer to read had I a different job and passion. In this there’s some pretty important and revealing information for those of us who enjoy our craft beer. I’ll try to keep this short.
Domestically, BUD participates in a mature beer market and is facing growing competition from craft and imported beers as well as spirits and wine. In addition, rising energy and commodity costs have pressured margins recently. Price increases instituted in the United States late in 2006 and the beginning of 2007 and less promotional activity have produced a better than expected operating performance in 2007. BUD is again raising prices going into 2008, which should help to partially offset continuing rises in commodity costs, particularly agricultural ingredients. The pending SABMiller/Molson Coors joint venture, which could close in the second quarter of 2008, is expected to eventually result in additional competitive pressure on BUD’s brands but may sustain an improved pricing environment.
Longer term, low domestic beer volume trends, limits on pricing actions, changing consumer tastes regarding craft and imported beers as well as other alcoholic beverages, and trading up to more premium products are concerns. Expected profit growth from international markets including equity investments, which accounted for 24.5% of net income in 2006 up from 14.2% in 2000, somewhat offsets potential weakness in domestic operations.
A few things I find important to note.
- “facing growing competition from craft and imported beers…” No surprise here, right? Hooray for craft beer!
- “rising energy and commodity costs have pressured margins recently.” OK, pay attention to this. If there’s ANY concern with margins and costs with energy and commodity prices for A-B, you can bet your shiny pennies that craft brewers are feeling the squeeze even more. Why? Well, it sorta says it when it talks about ‘economies of scale’ prior to this quote. A-B accounts for 48.4% of beer’s total market share in the US today, which means they get the sweetest deals in terms of raw material and indirect costs… and not just by a little bit.
- “BUD is again raising prices going into 2008…” Did that get your attention? If you missed the point of number 2, this is it folks. Price of beer is going up, and if there’s an exponential savings afforded to A-B for their buying power and sheer size, you can assume an exponential nature in price increases for your favorite craft beers. Now, there is something we’ve got going for us, the vast majority of brewers in the country are private businesses owned by a few investors. It is more likely that these people won’t demand equal compensation, like A-B’s share holders, but they’re business people too and won’t sit back and just eat all the new/rising costs of materials. Remember this. Your beer will be more expensive in 2008, but you can rest assured this increase isn’t making your favorite brewers rich. Tip well.
- “… changing consumer tastes regarding craft and imported beers… and trading up to more premium products are concerns.” Interesting, I think that’s pretty self explanatory.
The report referenced was all supporting one thing, Anheuser-Busch is still a “stable” investment, regardless of the items mentioned here. Why? Seems largely due to their impressive cash flow and manageable debt. You can read that to also say, they can absorb the flux in material pricing experienced globally right now. Can the same be said for the craft brewers of the world? I suspect, for the most part, they can. I really don’t think we’ll see a horrific year of doom and gloom – I just don’t see it happening. However, I suspect there are more than a few who don’t have the cash-flow and perhaps lack the credit to get them through these price increases.
Disclaimer: While this is not kind to a large brewery in the US, I need to say that they were the only brewery to return my email with some substantial thought. Some smaller brewers did reply with an “I’m busy now” message, which I understand and respect. I do want to say thank you to A-B for taking the time to write a thoughtful reply.
To begin, I can’t say I’m an expert on organic foods, but when possible (and feasible) my wife and I buy organic and local foods. For about a month now I’ve been following the story about the USDA allowing non-organic materials to be ‘certified’ organic. Being a beer enthusiast my focus is on Anheuser-Busch’s role in this and their goals with regards to adding hops to the list of allowable non-organic materials. Knowing a thing or two about beer I originally misunderstood the intent thinking that Anheuser-Busch were hoping to label beers “Organic” if they were made primarily with organic materials, and with this I didn’t have a big issue. Then I realized what they were trying to do, what they are in fact doing. Anheuser-Busch and Kraft (along with others) are seeking not to call their products ‘organic’, but instead are seeking to call the hops that are not organic ‘organic‘. This is flat out insanity and a gross mis-use of the organic standards the USDA is supposed to represent. At least, this is my impression as it stands right now. Again, I am not an expert here; however, I believe I have a better grasp on this than most major news outlets spewing out anything they can.
Here is the issue, essentially, as paraphrased on an organic foods website:
Nonorganically produced agricultural products may be used as ingredients in or on processed products labeled as “organic” when the product is not commercially available in organic form.
This seems somewhat reasonable, but only somewhat. When I consider A-B’s role in this and their desire to label non-organic hops as organic and I begin to feel my blood boil. Why? I live not far from Bison Brewing, have been to Ukiah Brewing and have tried other USDA certified organic beers – certified under the CURRENT rules. These small companies have worked hard to source organic materials for years, paying the premiums and working on much tighter profit margins. I know Wolavers has done this too. These guys are essentially proving that product is commercially available, but A-B is insisting otherwise. Sure, if Anheuser-Busch want to market their organic beers they’ll need exponentially more hops, and there may not be a market for that right now. But why not change that? Why not contract with the farmers and have them grow the organic hops to meet their business needs? Why not? Profit margins.
Changing what is called organic is a horrible model for the USDA to accept and it appears that there is little public input into this matter. What this will do is essentially remove the market demand for USDA organic beers that smaller companies are currently filling. Bison, for instance, is experiencing unparalleled growth with the more health and environmentally aware market. They operate on tight margins because they spend time finding the hops and grain and reformulating their recipes because the organic materials have an inconsistent yield and quality year after year. They’re working their butts off and only now seeing their product widely accepted. What has A-B done? Well, seems as though they didn’t want to do that kind of work and figured it was more cost-effective to lobby for this insane change in our governments organic certification for hops. Gee, why didn’t Bison think of that? Probably because they had their consumers interest in mind over their profit margins.
Now, according to a recent MSNBC article, small organic beer producers agree that organic hops are not currently available in the quantities A-B is most likely hoping for. This quote is from Amelia Slayton of Santa Cruz’s Seven Bridges Cooperative.
“If a large brewery were forced to use organic hops, they would have a very difficult time getting the mass quantities they were looking for right away,” Slayton said. “But Anheuser-Busch also has more resources than a small company like us. They are in a better position to start developing more sources for organic hops.”Slayton calls the USDA’s proposed rule “shortsighted” because of simple laws of supply and demand. While organic hops aren’t yet commercially available on a large scale, she said they would quickly become plentiful if demand was there.
That second paragraph sums up my concern. If Anheuser-Busch is really dedicated to producing a line of organic products for their consumers, they have the influence to make things happen. Additionally, these recipes are their own. If there are hop alternatives that are organic, or were available when they developed the recipes, they should have taken this into consideration when creating these beers.
A compromise should be available. According some organic education and promotion sites, they understand that not all varieties will always be commercially viable in organic form. So, what if Anheuser-Busch simply lobbied for these varieties? I don’t know the answer, but I do feel as though adding all hops to this USDA list is a major oversight.
I emailed Anheuser-Busch for some clarification on their part, also to let them get their side in this piece. They replied, thoughtfully, with some of the following insights.
To put this issue in perspective, Anheuser-Busch brews two certified organic beers, Stone Mill Pale Ale and Wild Hop Lager. They are the first of any brewer to be nationally available and both have been growing in popularity since they were launched in September 2006.
So, again, it appears that the concern is not that Organic Hops are not commercially available, but instead that they are not available in the quantities needed to saturate the market. I actually sympathize with this a bit. Afterall, A-B is a business, a big one at that, and they need to do whatever they can to increase their currently decreasing marketshare. This current niche market allows them to do that. Now, as previously stated, my issue here comes in that their ability to use non-organic hops to subsidize their product means their production costs will be significantly lower, while their profit margins remain apparently greater. That just doesn’t seem fair.
With proper substantiation, the USDA has allowed for certain non-organic ingredients to be approved for use in organic-labeled products if the organically grown ingredient is in limited supply, or is not available in appropriate form or quality. Our organic beers have always been in compliance with this allowance. Beginning June 6, the USDA’s National Organic Program requires a more specific review process for any exempted ingredient, and those that pass are added to its regulatory list (7 205 606). As a result, several companies, including Anheuser-Busch, petitioned to have hops added to the list as well as several other products.
Again, I have some understanding here. Apparently the USDA opened this door themselves, if I read this right. I don’t fully understand why they would do this, but if they did then it only makes business sense that A-B would do what they can to legally make a product for a market they are entering. I’d love to know more on the background here, but I suspect (as previously alluded to) that there was a fair amount of lobbying involved to have the USDA open this door to begin with.
Recently we learned that the USDA’s National Organic Program’s (NOP) National List of the proposed 38 exempted non-organic ingredients, including hops, have not been posted in the Federal Register yet. Since the deadline passed, Anheuser-Busch has not received any communications from the USDA regarding the reason for the delay and we await further clarification on future requirements on organic ingredients and labeling for our organic beers. We have now begun brewing our nationally available organic beers with 100-percent organic hops, although at this time we have a limited amount of organic hops available. We will continue to be in full compliance with USDA NOP requirements for our organic ingredients and labeling for our organic beers.
So, it seems A-B and the rest of those with stake in this have come to a standstill as the USDA considers further their next step. I read this morning that the USDA has extended the period of time before the registry updates will be made, apparently to allow for more public input. I am happy to hear this and hope that those concerned (on either side of the issue) take a moment to email or call the folks at the USDA.
I admit that I largely represent one side of this argument and that I largely don’t understand the other side. That said, I generally don’t like to bash Anheuser-Busch, they actually do a lot of good for beer in this country, but this seems completely irresponsible and short sighted. Is it their fault? I suppose not, the USDA should have consumers in mind more than corporate interests, but the gall displayed by A-B’s lobbying seems offensive for a consumer like me, and so many others who actually care what they ingest. I hope this issue will covered by more mainstream media outlets, and I hope that A-B does right in the end, but the way it looks I don’t see that happening. So, look for A-B to market their USDA certified organic beers soon, sold at a higher price with much higher profit margins than the smaller companies who genuinely care about their product’s integrity and who have been serving this niche market for years.
- Rick
What can you do? I suppose the only thing to do is to write your representatives and senators. Ask them how the government can allow this to happen and have them explain in what way it makes sense for the consumers. We know how it will benefit big-business.
Additional Info: I found this in an online petition and think it says pretty clearly what needs to be said.
3) HOPS
Hops (Humulus lupulus) should not be included on the National List in such general terms. Only specific low-supply varieties should be listed. Although organic hops is in high demand, there are over a dozen varieties of organic hops available on the market (available in both pellet and whole flower form).Hops is one of the main ingredients in beer. It is misleading to allow a beverage to be labeled as “organic” when its main ingredient was grown with pesticides and synthetic fertilizers. By including hops on the National List, consumers will not be able to distinguish truly organic beer from a beer with a main ingredient that is conventionally grown.
Also, putting hops on the National List offers unfair advantages to large-scale breweries. There are many micro-breweries now selling truly organic beers (with organic hops). These companies cannot compete with the prices of larger companies stepping into the “organic” beer business, like Budweiser, who will be allowed to use less expensive, conventionally grown hops (non-organic hops costs less than half as much as organic hops). Breweries need to put more effort into developing organic hop resources here in the USA before they try and make organic beer with inorganic hops.
We believe specific varieties of hops that are in well documented low supply on an organic level could be listed here, but including all varieties of hops on the National List is unnecessary and harmful to organic hops producers.
Petition link & additional info found here: http://www.democracyinaction.org/dia/organizationsORG/oca/campaign.jsp?campaign_KEY=11401
