This week the topic is alcohol! (Historically speaking, that is.)

Thanks and a tip o' the mug to the always-on-top-of-things Jay Brooks!

(And thank god Harry Schuhmacher has taken the lead and endorsed the use of "ABIB." I've been driving myself batty trying to decide what shorthand to use for the new company. Thank you, Harry!!)

As part of their battle with each other, MillerCoors and A-B IB will go after some of the more attractive craft brewers. They’ll either offer a “stake” or they will acquire the craft brewer outright.

Sales of stakes and outright purchases have happened before: Redhook. Widmer. Goose Island. Leinenkugel (an acquisition that surely ranks as THE all-time best deal ever for the smaller guy.)

But in the year or two (or three), we will also see what amount to lateral mergers: A craft brewer will look scan his competition, eye a particularly attractive operation, and think “Hey. I’d be better off with that person/company as a partner.” He or she will make an offer. The two will merge. Nor will these necessarily be "hostile" events.

There's plenty of historical precedent. In the 1880s and 1890s, for example, a number of small beermakers formed mutually agreeable “associations” (in effect, mergers of stock and/or property and/or brands) as a way to insulate themselves from Pabst, Schlitz, A-B, Ehret, Ruppert, and other giants.

So, too, the merger mania of the 1950s, 1960s, 1970s, when middling-sized brewers acquired and otherwise merged with brewers of the same or smaller size. Those were defensive moves.

Indeed, you might say the ball is already rolling. Consider this merger of the afore-mentioned Redhook and Widmer, to create an entity called Craft Brewers Alliance, Inc. (I love that name. It's exactly the kind of no-name name that those "associations came up with back in the 1890s.)

But of course this is craft brewing, not old-style mainstream brewing, and there’s one thing we know for certain: Craft brewers have reinvented not jut the beer, but the industry, too. So we’re already seeing some creative defensive moves.

Example-of-the-Month: The joint “adventure” between Elysian Brewing and New Belgium Brewing. You can read about it here. (But not, interestingly enough, at their respective websites. One of which gets my vote as the single most annoying website on the internet.)

When times get tough, a good defense can be the best offense. Creative or otherwise!

*1: For an overall view, see my earlier five-part blog series "Looking Back At the Future of Brewing."
Hmmmm.... Five parts? God, I'm a windbag....

But you knew that, right? After all, no one creates a major brewing company out of thin air by being stupid. And no one even thinks about doing so unless he/she is ambitious with a capital A.

Craft brewing is full of exceptionally talented people who have created VERY attractive properties. And I don’t mean the brewhouses and other real estate. I’m talking about brands and beer. I’m talking about companies.

I’m even talking about people: If I were a large to medium-sized beermaker, there are several people in brewing that I’d be trying to buy right this minute; those people are that smart, that talented.

So I doubt anyone in craft brewing will roll over and play dead while MillerCoors and A-BIB rip each other’s heads off.

BUT: some of them are gonna get caught in the crossfire. And as I’ve said before, historically speaking, when the giants get restless, the small fry get caught in the crossfire. It’s happened over and over again, particularly when the industry is already facing tough times. (Eg, during the 1950s and the 1970s, when the entire brewing industry struggled to maintain its footing, although for somewhat different reasons than it is now.)

Some of them may even welcome that midnight knock on the door when a Big Boy shows up waving a wad of cash. After all, every beermaker, regardless of size, is getting hammered by high prices for barley and malt. And glass, paper (those labels and six-pack carriers aren’t free....). Fuel and water. Not every beermaker is going to survive the current economy.

On the other hand, the current brewing industry marks a sharp departure from the past in that craft brewers aren’t a one-for-one match with the small brewers of yesteryear.

Still . . . . Craft brewers need to be wary. Anyone who thinks that somehow Inbev has nothing to do with them is in for a rude, perhaps even nasty, awakening. If nothing else, Carlos Brito will flood the American market with imports. And in this country, imported beer still carries clout with consumers.

Back in the 1970s, imports made a serious impact on American drinking habits. (*1) In the 1980s, craft beers were able to take advantage of the groundwork laid by import beers.

Even today, if craft brewers have any direct competition with their “niche,” it’s with imports: Many of the same consumers who will drop Big Bucks for a craft brew regard "imports" and "craft" beers as an interchangeable beverages. (More's the pity, eh?)

So craft brewers ought to be thinking hard about how Mr. Brito will affect their lives. Ought to be thinking about how to position their products -- and, more important, their industry -- against this soon-to-be-tsunami of imports.

More next time.

*1: Import mania, which began in the 1950s and strengthened dramatically in the 1960s and especially the 1970s, was due mainly to “push” factors in Europe: Beer consumption there dropped somewhat because of changes in demographics and the economy. No surprise, European brewers turned to the US market to boost their sales. But of course, as imports took off in the U.S., this country became an even more attractive market, and imports grew and the niche became more viable, etc.

But the key point here is that the strength of that niche in the 1970s provided a boost for the microbrewing movement that emerged in the 1980s.

Every beermaker, regardless of size, has paid a price for that decision, although it's been especially problematic for the mainstream brewers: The strategy works if the core demographic is large, as it was while the baby boomers were young. If that core shrinks in size, as it has since about 1990, brewers are in trouble.

There’s also another problem with targeting beer as the young-guy-beverage -- well, there are two problems, now that I think about it.

First, mainstream brewers have, whether inadvertently or not, infantalized beer and beer drinking. Think about popular beer commercials over the past thirty years: they’re nearly all humorous, but the humor has a . . . locker-room, boys-in-the-schoolyard quality to them.

I mean, we all laughed about the farting Clydesdales and the guy with the beer-fridge-hidden-behind-a-revolving-wall commercials. But they were guy-gags. (Not mind you, that I have anything against guys. I’m married to one.)

The result was that brewers endowed beer with a silly, it’s-for-kids reputation. The vast majority of Americans treat beer as a trivial, almost frivolous beverage.

Yes, I know that the beer geeks who support craft brewing take beer seriously, but those people are in a decided minority. Most Americans, a majority of Americans, haven’t heard of craft beer and don’t drink craft beer, and all they know about beer is that, well, it’s a kid’s drink. (*1)

Second, the more beer is infantalized (and frankly, Americans infantalize not just beer but drinking in general), the less seriously it’s taken, and the more impact the mainstream brewers’ target message has, and the more Americans are inclined to dismiss beer as a serious beverage, and the narrower the audience for beer and the more inclined mainstream brewers are to target their core audience of young men, and -- you get my drift. The result is a vicious cycle.

So, you ask, what’s all this got to do with A-BInB or history? Good question.

The core demographic for beer -- young men -- is still relatively small. Over the next five years, it will grow as the Echo Boom
hits age 21. BUT: The Two Big Guys need to do something NOW. Their moment for attack is NOW.

MillerCoors has the advantage because The Other Guy is in disarray (more disarray than MC, which, you remember, also just merged. But MC has had time to get its act together.) The Other Guy knows MC will strike and wants to do something now to fend off an attack on its market share.

What will they do? As I noted earlier, they’ll spend more money on ads and probably engage in some price cutting.

But they’ll both turn their attention to the one beer segment that is healthy, fat, and thriving: the craft beer segment.

Remember: since c. 1990, American beer sales overall have been flat. But during that period, CRAFT beer sales have risen every year, and often by double digits.

Why? Because the craft brewing industry avoided the “let’s target young men” trap. They’ve always promoted beer as an “adult” beverage. They’ve focused on the beer itself, rather than a narrow audience.

As a reulst, their "target" audience cuts across a broad swath of the American consumer audience. Yes, the market for craft brewing is minuscule, but the market is broad rather than narrow.

So craft brewers haven’t been hurt as badly by the shrinking of the young-man-demographic. Moreover, young people who adopted craft beer as a “hip” beer back in the 1990s are now well into adulthood and typically have more money to spend and they’re still buying craft beer. So the aging of the consumer market has not hit craft brewers as hard as it does mainstream brewers.

Result: even as overall beer consumption and sales slump, craft brewers are doing pretty well and craft beer sales are rising.

And that means they’re perfect targets for the Two Big Guys.

A-BInB and MillerCoors will begin making aggressive moves in the craft segment. There are two routes they can take. One, they can introduce their own beers (more on that later), or two, they can start buying shares of craft brewers, or, what is more likely, they can start making offers to buy companies outright.

You’re shuddering at the idea. Never, you say. The pure-and-noble craft brewers will NEVER sell out to the Nasty Big Boys.

Oh? Don’t be too sure.

More next time.

(Really, I’m trying to make these pieces short so that you can read an installment and move on to the next item on your endless list of Things to Do Before the Day Ends. I’m assuming your list is endless. Mine sure as hell is.)

*1: Notice I said “majority.” I didn’t say “all” Americans. Beer geeks, the very people most likely to read this blog and other beer blogs, take beer seriously. But those people -- you -- are in a distinct minority. The craft brewers and the beer geeks spend a lot of time preaching to the converted, to highly receptive audiences, so they -- you -- get fooled into thinking “everyone” drinks craft beer and “everyone” takes beer seriously.
Every time a beer geek says to me “Oh, no one drinks Bud anymore. Everyone drinks craft beer,” I can’t decide whether to escort them to a hospital until the delusions go away, or whether to shake them silly and then show them the numbers. Because “everyone” most decidedly does NOT drink craft beer. Alas.

The university received the collection in 2000, just as I started working on my book, but the papers were not processed until 2006. Translation: I was not able to use them (which was, sigh, the story of my life when I was working on the book.)

The vast majority of the records are financial in nature (ledger books, stock records, receipts), but there's also a large scrapbook related to Captain Pabst and the company itself. There are also some "private ledgers," and as I learned from the few scattered ones I found at other libraries, those can yield a great deal of information!

You can see the finding aid here. I hope someone makes use of the collection! Grad students, heed my call!

But my focus here is on the deal’s implications for the American market.

In Part Two, I predicted that the InBev merger will spark a new beer war, similar to one of the 1970s, with the two parties at war being A-B InBev and MillerCoors.

In the 1970s, A-B and Miller attacked each other in a cutthroat, last-man-standing battle for dominance of American brewing. Their weapons were new products, billions spent on advertising, and price-slashing designed to undercut each other and every other beermaker. (*1)

I suspect we’ll see much of the same in the months ahead -- although I doubt price-cutting will be as effective as it was in the 1970s, when the two giants could slice price to the bone and get away with it. The current (global) shortages of barley and hops have already pushed every beermaker into a corner. There’s not as much leeway on price as there was back in, say, 1979 (even given the horrific inflation of that decade).

InBev -- er, sorry -- A-B InBev will also become more aggressive in the so-called “import” segment of the American market. That’s a no-brainer: InBev owns a lot of global brands and it will want to move some of them into this market.

But this upcoming beer battle will differ from the one of the 1970s because this time, A-B IB and MillerCoors will strike deep into the “craft beer” segment. They don’t have much choice, and here’s why:

For the past fifteen or so years, beer consumption in the U.S. has been flat and some years has even declined. That’s due largely to demographics and to the way the mainstream brewers have sold beer for decades.

From the mid-1930s to about 1960, brewers tried pitching to women, to older, more affluent adults; tried pitching beer as a substitute for coffee and milk at meals. (I might add that the 1950s in particular was a BAD decade for brewers; in my book I called it the near-fatal fifties.)

They didn’t have much luck with those approaches. And then came salvation: Starting about 1960, the first of the baby boomers hit legal drinking age (which was then 18).

Brewers finally found their audience: young people in general, and young men in particular. Beer consumption soared, and so did brewers’ sales. (*3)

Since then, mainstream brewers have opted for the path of least resistance (and who could blame them?) They dumped all their eggs into the young men basket. (Note that I said “mainstream” brewers. I’m not including craft brewers in this asssessment. You’ll see why soon.)

That was great as long as the particular demographic remained large in size. And it did until the 1980s, when, you guessed it, the bulk of the boomers had turned 30. Beer sales slumped.

Problem was, the next demographic to come along, so-called Gen X, was only half the size of the boomer generation. Beermakers weren’t able to replace their core drinking audience of young men.(*2)

This demographic issue has come back to haunt the mainstream brewers (all three of them: A-B, MillerCoors, and Pabst). And it’s why the craft beer segment presents enormous potential for beermakers and why I predict the upcoming beer war between A-B InBev and MillerCoors will have play out amongst the craft brewers.

You guessed it: more next time!

*1: for those who want to know more, there’s a fascinating account of the effects of that battle in the testimony at a 1978 Congressional hearing. You can read it online if you have access to Lexus Nexus Congressional. Use keywords: 95th Congress; Committee on the Judiciary; merger; industrial concentration. Interesting stuff.

*2: Quick numbers:
Baby Boom (c. 1945-1964): 83 million
Generation X (c. 1965-1978): 37 million
Echo Boom (aka Gen Y) (c. 1977-1994): 72 million (Some demographers run this cohort all the way to 2001, which makes this group even larger)

*3: There was no better evidence of that than the CNBC program on Budweiser the other night. Much of the program focused on A-B's advertising over the past thirty years. Didja notice how those ads aimed straight at the guy-humor thing? A-B doesn't market its products at old ladies like me! Those were guy ads filled guys doing guy-things. The women in them functioned as, you guessed it, eye-candy for (young) men.

So -- go hug a brewer!

Personally, I think it's the one human question whose answer is absolutely relative: A "good" beer is one that you like. My "favorite" beer, for example, is whatever I think will taste best with whatever I'm about to eat (I usually have beer with food.)

And I know my tastebuds are mine and that they "lead" my palate and "good beer" brain in a particular direction. (And so I hereby bequeath my share of the world's IPA's to anyone who wants them, but I retain all rights to my share of the world's malty brown beers.)

Anyway, Charlie Papazian has been pondering the whole "good" beer quandry over at his blog and it's definitely worth taking a look. It's a multi-part series, and I think the most current entry is part six or seven. To find the beginning of his series, follow this link to the blog, and then look at the left side of the screen for links to the whole series. Enjoy!

The most notable example is that of Philip Morris, which acquired Miller Brewing in 1969 and 1970. PM was a global conglomerate that manufactured/distributed/marketed many products (including cigarettes). It was not a “brewing company.” As far as PM was concerned, the beer was just another commodity, and Miller was just another appendage with which to make profit. (*1)

But there are other examples: Rheingold. Ruppert. Schaefer. (You can find more details in my book, especially in chapter six and seven.) (*2)

Historically, such deals have not had happy endings. The acquired company regarded beer as beer and as something special. To the acquiring company, beer was just a thing, something to be bought and sold; interchangeable with widgets, shoes, or cattle.

But, you say, Miller is the second largest beer company in the U.S. (*3) Surely things worked out just fine!

Not exactly. The full story is too long to recount here, but the short version is that PM spent billions to expanding and streamlining Miller’s operations. (It also slashed costs by altering the recipe of Miller High Life). It spent huge sums on marketing. It introduced Miller Lite. And then set out on its stated objective: to destroy Anheuser-Busch.

In that task, the company failed miserably. Since the 1980s, Miller has existed in what I call the dead man’s land of American brewing: a distant second to the giant. (Quick numbers: A-B makes about 100 million barrels of beer a year. Miller makes --- about forty.) As Gus Busch, who ran A-B from the late 1940s to the mid-1970s, once said, “Being second isn’t worth anything.”(*4)

What made the difference -- what took the zip out of Miller (and Rheingold and Ruppert and Schaefer, etc.) -- was the removal of the family presence. Because the family members regarded themselves as BEERMAKERS. The new corporate owners did not.

So as a historian, I don’t see any happy ending to this InBev/A-B story. Over the next few years, the loss of the Busch patina -- the Busch edge -- will result in a gradual erosion of A-B’s power and clout. Sure, InBev is huge and can spend zillions on advertising. Sure, it will try to grab a larger share of the US “import” market by bringing in more of its global brands. (I predict that Stella Artois will be the new Starbucks: there’ll be a bottle on every corner....)

But A-B itself, as I noted in my earlier five-part series, will experience disarray. The InBev slash-the-costs culture will collide with the A-B “spend money to make money” culture. Distributors, already uneasy and discontent, may become more so. Turmoil, in short, lies in the company’s future.

A-B will lose its otherwise (giant-sized) sure footing. It will stumble. And as it does, its only remaining “mainstream” rival, MillerCoors, will finally enjoy something like a level playing field. The people at MillerCoors will grab that opportunity. The result? A beer war of the sort that has not ocurred since the 1970s.

More next time!

*1: Miller’s current parent company is SABMiller, based in London. A few months ago, SABMiller and MolsonCoors (a Candian company) merged their North American operations into a new venture, MillerCoors.

*2: And you’re gonna buy NEW copies of the book, right??? Because, ya know, authors make ZERO dollars on the sale of used books...

*3: “Large” is relative. A-B makes around 100 million barrels of beer a year. Miller makes about 40 million; Coors about 20 million.

*4: Quoted in Ambitious Brew, p. 234.

Yes, I recently posted a five part series of blog entries about the future of American brewing, and those posts were inspired by the InBev/A-B deal. But I realize now (thanks to David) that I’ve not addressed the deal itself directly, at least not here at the blog.

Which is pretty funny because for the past four weeks, I’ve done nothing BUT talk about the deal to what feels like fifty bazillion reporters (okay, it’s more like two dozen; but it feels like fifty bazillion...). (Indeed, as my husband will attest, InBev and A-B temporarily took over my life and his....)

Anyway, this is the first of what will likely be two, maybe three, blog entries about this deal from a historical perspective, and what history can tell us about its potential impact on American brewing in general and craft brewing in particular. **

First a bit of background: A-B is a publicly held company and has been for decades. The Busch family does not own controlling shares and has not for decades. That’s largely due to the enormous size of the family itself; various chunks of stock were passed on by inheritance and often sold as part of estates; there was no way to keep control of those shares.

Nonetheless, the Busch family has remained the company’s guiding force. Anheuser-Busch is saturated with this one family’s presence, personality, and ambition. In that sense, it has always functioned as a “family” business. (That, by the way, is a remarkable feat by any standards.)

More to the point, the family regarded its business as making beer. They knew beer. They understood beer. They understood the peculiar demands that the brewing process imposes on a manufacturer-beermaker.***

What about InBev? We can trace its creation to the 2004 merger of two companies: Ambev and Interbrew.

Ambev dates back to 2000, the result of a merger between two South American brewing companies, Brahma and Paulista. Interbev is a bit older, dating to 1988 and the merger of two Belgian companies, Artois (you’ve heard that word before) and Piedboeuf-Interbrew (which was itself the result of earlier mergers.)

Confused yet??
Interbev = Artois + Piedboeuf-Interbrew (1988)
Ambev = Brahma + Paulista (2000)
InBev = Interbev + Ambev (2004)

InBev is a Big Deal. It owns breweries and sells beer on six continents, etc. (And I urge readers to visit the InBev site just to get a sense of the company’s scope.)

But I’m not sure it’s a “brewing” company. Yeah, Carlos Brito keeps talking about how InBev has made beer since 1336 or whenever. (One of the Piedboeuf-Interbrew breweries dates back that far.) But -- well, that’s a lot of marketing hooey (or, as my wise pal Jim Koch would say, a lot of marketing smoke and mirrors.)

Stripped to its basics, InBev is a huge corporation cobbled together in a series of mergers and acquisitions. It earns profit by acquiring and operating companies that make beer. Period. It could just as easily consist of shoe factories or widget makers or cattle ranches. Carlos Brito isn’t a beermaker. Indeed, I bet we’d have a tough time finding a single InBev exec that has, ya know, ever made any beer or knows HOW it’s made. (Of course, I could be wrong about that....)

Anyway, InBev isn’t a brewing company in the way that A-B is a brewing company. The people at A-B understand beer. The Busch family understands beer. But to the suits and ties at InBev, beer is just a commodity. The InBev/A-B deal consists of a marketing corporation that specializes in beer acquiring yet another brewing company.

So, what’s this got to do with the history of American brewing? Plenty. More next time!

** And again I remind everyone: I’m not a number-cruncher or economist. I’m also not a “beer person”; I don’t now and never have worked in any capacity in the brewing industry. I’m a historian. I’m an outsider; it’s my job to stand back and survey the Big Picture from the Long View.

*** Yes, I understand that many people loath Budweiser or any other A-B product. To them, it’s not “real” beer. That’s an opinion. My opinion is that A-B makes BEER, and makes a particular KIND of beer, and does so with great skill and talent. They also make a consistent product, day in, day out, year after year. Any beermaker, craft or otherwise, will tell you that it’s incredibly hard to do that. You may not like A-B’s beer, but the company deserves credit for the skill with which it makes the kind of beer it makes. And yes, you’re absolutely entitled to disagree.

But here's one thing I know: craft brewers aren't getting their message out. (If they were, they'd have at least 20% of the market by now.)

How do I know that? Well, see above: they own just a tiny share of the overall market. Yes, it's growing, but the craft brewing is now thirty years old, its share of the consumer market has barely budged since the late 1980s, early 1990s.**

Second, I do a lot of speaking to various groups. The events typically include a beer tasting. I ALWAYS pick local beers made by craft brewers. I try to choose beers made within the state where the event is held, and, if possible, beers made within twenty miles.

And it never fails: almost no one -- sometimes not a single person -- has ever heard of the beers. These are gatherings of smart, educated (and affluent) people. And they've never heard of the beers at the tasting.

But here's more immediate evidence that craft brewers aren't getting their message (or their beers) across. Check out this piece in today's Salon. Or, more specifically, check out the comments that readers have posted about the article.

Read those comments, and you'd never know that there are 1400+ craft breweries in the U.S. You'd never know that the U.S. has the most dynamic, creative brewing culture in the world.

Craft brewers are NOT getting their message across. (More on this over the next few days.)

** (Yes, I am aware that the Brewers Association has a small budget, but.... )

Today's Wall Street Journal includes the latest in its "Cheapskate" series. This time, the reporter explains that he saves money by checking books out from the library.

Great! I LOVE libraries. I've had a library card for fifty years. Libraries are a fundamental component of civilization.

But then he goes on to say that in the few cases where he plunks down actual MONEY for book, he buys a used copy. Because, ya know, used copies are cheap and can be had for pennies and so why pay for a new copy?

AUGGGGHHHH. Augh.......... sob. snurfle. whimper. (Picture me banging my head on my desk and wailing.)

At no time does Mr. Cheapskate (aka Neal Templin, whom I'm SURE is a lovely man, a loving husband, and perfect father, son, and brother) mention the obvious and relevant point:

Writers make zero dollars from the sale of used books. That's right: when you buy a used book, the person who WROTE the book, the man or woman who created its content, gets nothing.

As in: Zip. Nada. Zero.

Yes, I know. Times are tough. Money is tight. Still -- writing is a cornerstone of human existence. It matters.

And that purchase is doable. Cut two Starbucks lattes each week from your budget (you could carry your coffe from home in a thermos). Take leftovers to work for lunch once a week, thereby eliminating a trip to a restaurant. Voila! You've "found" enough money to pay for a new book.

So, to cut this rant short because I could rant from now till midnight and then start again tomorrow: If you value the content of books, if you enjoy reading, if you like what your favorite authors produce, PLEASE, I beg you, BUY NEW BOOKS.

Because if no one buys new books, writers will earn nothing, and after awhile there won't be any books left to buy.

Thanks.

Thanks and a tip o' the mug to pb_rick at The Confrontation Board, the forum at The Beer Report.