Looking Back At the Future of Brewing. Part 1 of 5

Part One --- Part Two --- Part Three --- Part Four --- Part Five First, a brief recap: I oppose the InBev takeover of Anheuser-Busch. (*1) I don't want to see the company sold. I also think Carlos Brito is in for a shockeroo a few years down the road: Removing the Busch family from the A-B equation will destroy the very thing that makes the company valuable. But I also don't see how anyone can stop Brito and InBev. (Today, for example, InBev announced it's forging ahead with its plan to force a removal of A-B's entire board of directors.)

So, assuming this is a done deal, what's next? How will this affect American brewing? Can we predict brewing's future based on old historical patterns? Or has the emergence of craft brewing fundamentally altered the dynamics of the brewing industry?

Over the next few days, I'm going to examine these questions from my perspective as a historian. (Which, I remind everyone, is what I am. I'm not employed in the brewing industry and never have been.) (Yes, I know what you're thinking. History? BOHHH-ring. But I love my work!)

In an earlier blog entry, I argued that an InBev/A-B merger could mark a tipping point for craft brewing: Americans will discover the joys of local beer; craft brewing will become mainstream; we'll all walk hand-in-hand into the sunset. Sounds great.

But there's another side to that scenario: Craft brewing's stroll into the sunset could turn into a brawl.

Here's why: Brewers sell their beer through distributors who, in turn, sell it to retail outlets, like grocery stores and bars. Without distributors, brewers are screwed. They can make beer until they're blue in the face, but they can't sell that beer unless they have distribution deals that will put the beer into customers' hands.

Typically, big brewers like A-B and Miller/Coors, have solid distribution systems. Small brewers have a harder time establishing and holding onto those systems. After all, distributors have a finite amount of warehouse and truck space. They can only handle so much beer. During the 1950s and 1960s, many brewers tried to increase their sales territory in part by taking over ("merging") with weaker beermakers or by "stealing" other brewer's distributors. I detailed this process in my book.

That same scenario could unfold again over the next few years. Rising prices for barley and hops are hurting every brewer, but particularly ones that are financially shaky.

But, the nation's distributors are also experiencing turmoil because some of the distributors who carry Anheuser-Busch products have become restless. They're unhappy with A-B's sagging sales and want to distribute a wider variety of brands. You can read about it here. Rising prices for barley, fuel, etc. will continue to ripple through the brewing industry.

But an InBev takeover of A-B will cause even more anxiety among A-B's distributors. They don't know how InBev will affect the American market; don't know what impact InBev ownership will have on A-B's sales. If history is any guide, some small brewers will seize upon that anxiety and try to persuade those restless distributors to carry their beers. And that's when things may get, um, a bit ugly. Or at least even more uncertain.

Next time, I'll explain why by taking you on a (brief) trip through American brewing between 1950 and 1980.


*1: I'm on record about my opposition on this blog; on the Stewart Varney program on Fox Business Network, and, for example, here) about it. (Not, mind you, that Carlos Brito gives a rat's ass what I think.) Here's a link to FBN and Varney, but nothing I've said on air has been streamed (or whatever it's called) to the internet.