A-B InBev, History, and American Brewing, Part 3 of 6

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 Quick side note: I'm focusing my on-going discussion of the A-B/InBev merger on American brewing. Yes, I am aware that InBev deal was driven in large part by the demands of the global beer market. Any corporation these days thinks and acts globally (as, indeed, every person ought to do). 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 many brands around the world 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 assessment. 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.

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*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.

A-B InBev, History, and American Brewing, Part 2 of 6

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 The past fifty years of American brewing is littered with the remains of other, similar deals in which a large corporation with no particular interest in beermaking acquired a family-owned/operated brewing company.

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 chapters 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.

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*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.

A-B InBev, History, and American Brewing, Part 1

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 My buddy David Fahey at the Alcohol and Drugs History Society posed an indirect question the other day at the Society’s blog: namely, what’s my take as a historian on InBev’s acquisition of Anheuser-Busch?

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. (*1)

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. (*2)

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!

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*1: 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.

*2: 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.

Patriots, Man Your Barstools!

Today's Washington Post contains an op-ed piece I wrote. You can read it here. Tomorrow (Monday, July 7), I'll be "live" at washingtonpost.com answering readers' questions. And every day this week, I'll be blogging about the impact of the InBev/Anheuser-Busch deal on the craft brewing industry. Thanks for reading!

InBev/AB Deal = Brewing Industry Tipping Point?

InBev will likely succeed in buying Anheuser-Busch. (*1) So -- what's next?

As always, I view that question from my perspective as a historian, which is to say I take the Long View of the Big Picture. In the short run (say, the next year or so), the takeover won't make much difference: Sales of A-B's products will slide as the distributors scramble to find a more secure bet in what will feel, to them, like an uncertain market. Miller/Coors may benefit temporarily as well. (By the way, over the past year or so, many A-B distributors have engaged in various acts of rebellion. The sale to InBev will accelerate that trend.)

But the greatest impact will unfold over the long haul and will likely have the greatest impact on the craft brewing segment of the industry. (*2) Why? Two reasons.

First, much of the hoo-ha unfolding over the sale of A-B comes from people who resent the "loss" of an "American icon." (*3) Let's call this the "we don't need no stinkin' foreigners" element of this drama. (The idea, by the way, is, um, a bit unrealistic. We live in a global economy. We all need to accept that fact.)

How will "no stinkin' foreigners" play out? Beer drinkers may start asking questions about the origins of the beer they drink. Something along the lines of: "Damn it! I'm not gonna drink Bud if it's owned by a foreign company. So what should I drink? What beers are American?" If craft brewers are smart, they'll seize that sentiment and use it to launch an industry campaign promoting craft brewing as an "American" industry, and craft beer as "American." That kind of campaign requires big bucks, of course, and I'm not sure how the craft brewers could pay for it.

The second reason stems from the first: The InBev deal coincides with what appears to be a tipping point in American consumer habits. People who never thought about that box of Cheerios before are now thinking about organic alternatives or are trying to "eat local." (*4)

The tipping point isn't solid yet; not quite mainstream -- not everyone hangs on every word of the Bobos (see David Brooks' book Bobos in Paradise) or the New York Times. But in the past year, I've been surprised at how many people I know are talking about what they eat and where they buy it. Lots of other factors play into this, of course: E-coli scares. Deadly tomatoes. Slaughterhouse horror stories. Concern about global warming. And of course, the real biggie: gas prices that are forcing millions to think about how they move from Point A to Point B on a daily basis.

Those concerns may prompt many beer drinkers to deposit "beer" into the mental same category as other food items, like meat, milk, and bread. (Beer isn't in that category now.)

Put briefly, because I'm likely testing your patience and attention span (I HATE reading stuff on a computer screen) (thank you for reading this far): The InBev deal may push craft brewing to the place that has otherwise eluded it for the past thirty years: the mainstream, where it can command more like forty percent of the market instead of the seven or eight percent it has now. I also think that over the long run, the InBev deal will (inadvertently) foster and enourage another positive and historically significant trend: what I call the "Dick Yuengling model of brewing."

But that's for another blog entry. You've put up with enough for today!

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*1: More accurately, InBev will get Budweiser. That's what it yearns for. Not the buildings in St. Louis. Not the tradition, the history, the blah blah blah. It wants Budweiser.

*2: American brewing consists of two "arms": A relatively few but gigantic mainstream brewers like Anheuser-Busch, Miller/Coors, and Pabst who account for something like 93% of American beer sales; and the "craft brewers," whose numbers are larger but who brew smaller quantities of beer for a (mostly) local market. (For more information, visit the website of the Brewers Association.)

*3: I'm sad about this sale, but not because of the "stinkin' foreigners" factor. A-B and Bud have been global entities for decades. I'm bereft over the demise of Busch family stewardship. Love the Busch family or hate it, you gotta admire the way they've stuck to their legacy.

*4: Well, it's not exactly a coincidence: American properties like A-B are bargain basement opportunities for foreign investors. That's in part because Americans and the US government have gone deeply in debt to support our car-based, petrochemically dependent economy and lifestyle.

History Repeats Itself: Higher Prices, Smaller Glasses

Earlier this month, the Wall Street Journal ran this article about rising beer prices and the "smaller pint" (translation: instead of raising prices, many bar owners are pouring shorter glasses.)

Jeff Alworth initially raised the issue at his blog, where he has also launched the "Honest Pint Project." (He has a post about this today. Then use his index for the original post. The HPP links are on the right side of his page.)

Anyway, today while working, which in my case means reading newspapers written a century ago, I ran across an article that appeared in the New York Times in October 1907. The short piece informed readers that because of rising prices for barley and hops, St. Louis brewers would raise the price of a barrel of beer from six dollars to seven. In response, retailers (which, back then, mostly meant saloon owners) announced that they would "reduce the size of the glass without raising the price 'per glass.'" (*1) Translation: less beer for the same money.

So: ain't nuthin' new under the sun.

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*1: Source: "Beer Takes A Jump," New York Times, October 10, 1907, p. 14.