<Back to News & Events

Step Three: Profit! Thoughts on Craft and Independence in Beer

Over the last few years, the widely-accepted definition of what constitutes “craft beer” has changed dramatically. Part of this is because the Brewers Association (BA), a trade association that uses the term “craft brewer,” altered its definition. First, the BA increased the number of barrels a brewery can produce annually and still be considered “craft,” which allowed the Boston Beer Company, maker of Sam Adams, to maintain its trade association membership. Second, the BA allowed historic American-owned and -operated breweries like Yuengling & Son and August Schell to join, even though the flagship beers of those companies are brewed with adjunct ingredients such as corn.

Another factor is the acquisition of former BA member breweries by multinational brewing conglomerates. Macro-brewer ABI/InBev now owns Goose Island, Blue Point, and Devils Backbone, among other former BA member breweries. MillerCoors has Saint Archer, Revolver, and others. Constellation has Ballast Point. Heineken has Lagunitas. San Miguel owns thirty-percent of Founders and Avery. You get the idea.

There are other options for BA member breweries. Brooklyn Brewery cleverly sold 24.5 percent of itself to Kirin, a Japanese beer maker, and in doing so was able to stay in the BA at half a percent under the association’s threshold for outside ownership by a brewing conglomerate. Oskar Blues, and now Cigar City, Perrin, and Wasatch, are controlled by Fireman Capital Partners, a private equity firm.

Breweries buying breweries makes a lot of sense. ABI/InBev was never going to compete in the craft and specialty market developing their own beers that mimic those of the BA (even as your favorite craft brewery tries to make a Mexican lager). Perhaps only MillerCoors’ Blue Moon comes close here. By selling to brewing conglomerates, former BA breweries get access to capital, distribution channels, raw ingredients, and a chance to see if their business can scale, all shepherded by people who, at least on some level, understand a beer business, if not the beer business.

Private equity acquisitions, however, present a different problem for the BA because they are mostly about capital and maximizing profits. Firms see the craft and specialty beer sector growing, and they want in. There is nothing “independent” about a brewery that has a majority stake controlled by a private equity firm. That brewery is subject to the whims of the market, and it can be sold tomorrow, perhaps even to a macro competitor. On this, the BA is noticeably silent.

But enough about the business of brewing, which has left a lot of us confused as to what constitutes “craft.” One beer I drank in 2017 may present us with a way forward. It wasn't the best tasting beer I had this year, but it might be the most important.

In 2016, Colorado’s Left Hand Brewing was the 44th largest BA member in terms of barrels produced. They brought Saison Aux Baies Ameres, a saison brewed with chokecherries, to SAVOR. In order to make this beer, Left Hand had to source over 600 pounds of chokecherries, no small feat. They scoured every farmers’ market they could in two time zones, between Colorado and the Pacific Ocean to obtain these, all for a one-time, limited release that, as 2017 does, was packaged in four-packs of tallboys as well as kegs. All of this after multiple batches on a pilot system.

As for the beer, it’s rose-colored, floral on the nose, and both slightly vegetal and astringent from the berries. Effervescent on the tongue, it finishes very dry, a result of chokecherries and the yeast management. It’s a well-executed beer, but to me it’s more important because Left Hand isn’t trying to maximize profits by making it. Meanwhile, ABI/InBev has taken to brewing Goose Island flagships in upstate New York, freeing up space for Goose Island’s Chicago operations to focus on mixed fermentation and barrel-aged beers.

Both Left Hand and Goose are turning a profit on beer, but neither, regardless of ownership, is netting as much as they could otherwise had they forgone the respective chokecherries and a massive barrel-aging operation in a major metropolitan area. They have that in common. For now. Fireman Capital’s Oskar Blues is putting barrel-aged imperial stout in 19.2 ounce cans. For now. Profit maximization be damned. To me, that’s craft.

But which is more likely to happen: the Goose overlords brewing the more profitable flagships like 312 Wheat and IPA at ABI/InBev plants around the world while ending barrel-aging operations or a private equity firm cashing out on Dale’s Pale Ale? It’s not a rhetorical question--none of us knows the answer--but a discussion that should be had within the BA. It’s quite possible Left Hand has more in common with Goose Island, owned by a macro, than it does with Oskar Blues. As of now I have no evidence that such a discussion is taking place. Maybe in 2018 that can start.

 

Neighborhood: 
News Categories: