Economic Depression and War

In my previous post, I noted the role of Franklin Roosevelt's New Deal in forging a path out of the horrific economic depression of the 1930s.

But, as every historian knows, the onset of World War in the late '30s, and American entry into that war in the early 1940s, significantly accelerated the end of the Great Depression. Wars require uniforms, guns, weapons. Wars also spur research in science and technology. Put another way, war creates jobs, and jobs need workers, and those workers earn paychecks.

That's useful to remember that now, in 2008. We Americans can hasten our road to economic, emotional, and moral recovery by waging a war of our own: Let's declare war on the global climate crisis.

As Tom Friedman notes in his new book, Hot, Flat, and Crowded, the crisis is upon us. It's here, both environmentally and politically. And if the foul air doesn't kill us, our enslavement to petropolitics will. (*1) The United States lags other nations in reconfiguring daily life to minimize human impact on the environment; we're way behind in shifting from "dirty" energy to "clean" energy. Making that shift will require a massive investment in science, technology, ideas, and manufacturing.

In short, making that shift will be good for the economy. It will provide jobs -- high-tech, low-tech, and everything in between. So --- let's declare war on environmental degradation. It'll be good for the planet and good for the economy.

Now -- all we need is . . . a few courageous, creative leaders. Senator Obama? Senator McCain? You ready?

___________________________________________

*1: Well, okay, it's already killing us and other human beings every day in Afghanistan and Iraq. The tragic irony, of course, is the chain of money involved. We Americans haven't got the money needed to fight this "war" on terrorism. So we borrow it -- mostly from the Chinese and from oil-rich Arab states. The oil-rich Arabs, of course, are also funding the terrorists. So -- we're borrowing money to wage a war being funded by the people we're borrowing from. Sounds like an Abbott and Costello routine -- or a Kafka novel.

Moments of Crisis and The Historian's Curse

Times like these remind me that being a historian is both a curse and a blessing.

A blessing because I love my work. A curse because in any situation, my historian's brain automatically takes the Long View of the Big Picture: Where are the roots of this current moment? How will historians fifty years from now assess this moment? All of which, I'm here to tell you, only exacerbates my gloom and anxiety.

Anyway, history is much on my mind -- The New Deal of the 1930s, of course. American refusal to acknowledge the emergence of Islamic fundamentalism in the 1970s. The way in which Viet Nam and Watergate eroded Americans' trust in government, so that 30, 40 years later, most Americans refer to elected leaders as "them," forgetting, apparently that WE are our government.

So that now, at a moment when Americans need leadership, they are least likely to turn to elected officials to provide it.

And of course, I've been thinking about Franklin Roosevelt. When FDR took office in the midst of a economic disaster, he committed himself and his administration to two major courses of action.

First, he and his team of advisors tossed out the rules and used their imaginations to develop plans for extricating the nation from its crisis. They faced an unprecedented global and national crisis. The old rules/methods simply didn't apply. Not everything FDR's team tried worked. But they understood that what mattered most was doing something, anything.

Second, FDR understood that nothing would work unless Americans were willing to share in the gamble, and they would only follow his lead if they understood what was happening, and why he was doing what he did. It's easy to look back on his fireside chats as some quaint relic of a by-gone radio era, but they had an enormous emotional and psychological impact.

FDR made sure that Americans knew that people in Washington were working hard to create solutions to huge problems. That fostered trust, and trust, in turn, translated into a willingness to cooperate with FDR's projects and plans. (*1)

Put another way, FDR provided leadership. That word gets thrown around a lot these days, usually covered in mud. So much so that most of us have stopped listening. But leaders are good things, especially in times of crisis. Leaders step to the front and take the first step into the unknown. Great leaders create an atmosphere in which people will follow, trust, and believe. (*2) People WILL rise to the occasion -- if they trust the leader, and if they have hope.

I don't know how the rest of the country feels, but I'm worried, more so than I've ever been in my life. But I'm also ready to do what needs to be done.

So: any leaders out there?

_________________________

*1: Yes, I understand that many Americans hated FDR, among them my grandmother who railed against him until the day she died in 1979.

*2: Yes, leaders can be evil. Adolph Hitler provided extraordinary leadership, rising to power at a moment when Germans were desperate and wanted someone to take the first step.

The Anheuser-Busch Archives and Library

There are few brewery archives left in the United States. Miller Brewing still has one (or so I am told; I was not allowed to use it when I was researching my book.) Time, mergers, and takeovers have taken their toll.

For example, when Paul Kalmanovitz acquired Pabst Brewing in the mid-1980s, most of the Pabst archive was tossed. (Some of it survived and a few years ago the Kalmanovitz Charitable Trust, the entity that owns Pabst, donated it to the University of Wisconsin-Milwaukee. But the bulk of the the earliest documents -- letters written by and from Philip Best, for example -- have been destroyed.)

So when I heard the news earlier this summer about the InBev offer for A-B, I was concerned. I’m a historian; it’s my job to fret about things like this.

When I was researching my beer book, I was given permission to use of the collection of books, journals, and other documents at the Anheuser-Busch corporate library. The bulk of the A-B library is devoted to technical and scientific journals, but over the years, the company’s librarians have acquired other materials related to beer, brewing, and the brewing industry.

Many of those items are rare; indeed, some of them are the only copies still in existence. For example, the library holds a complete run of Western Brewer, the most important nineteenth-century brewing industry newspaper. Without it, I would have had a hard time writing the chapters two and three of my book. (As far as I know, only one other run of the publication has survived.)

I was not allowed to use the company’s archive, but an employee told me that it contains a massive collection of letters written by Adolphus Busch. Presumably it also includes letters written by other family members and employees as well as other materials documenting the company’s early history. (Again, I don’t know for certain what’s in it; no one let me anywhere near it. Sad to say.)

The fate of the archive and library is probably low on the list of issues A-B’s executives are tackling these days. And A-B employs an able corporate historian; I am confident that she will do her best to safeguard the collections.

But I figured it wouldn’t hurt to throw in my two cents. On July 15, just after Anheuser-Busch announced the sale of the company to InBev, I wrote to August A. Busch IV expressing my hope that he would protect this piece of his family’s (and American brewing's) history. I also mailed copies of the letter to several other A-B executives (the more the merrier, right?)

I’ve now received a reply from one of the people who read the letter. His message was about what one might expect: polite but noncommittal. Frankly, I doubt anyone knows yet what will happen to the archive and library; after all, the lawyers have only just begun to draw up the terms of the sale and disposal of property. And even if someone has made a decision, he/she is certainly not obliged to tell me.

BUT: at least I know that my letter was read and noted. And I am grateful that the person who replied took time to do so. He’s got bigger worries on his mind, not least of which is the specter of unemployment.

Anyway -- I’ve done what I can. I thank the people at A-B for reading my letter. And I hope with all my historian’s heart that these two collections find a safe home.

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

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 Above all, and directly or indirectly, the InBev/A-B deal will provoke a a shakeup among craft brewers. The gone-to-hell economy alone would have sparked that ripple; the presence of InBev will simply speed up the process. (*1)

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 take 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 next 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 the 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 just 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.) (*2)

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 series Looking Back At the Future of Brewing". Hmmmm.... Five parts? God, I'm a windbag....

*2: I originally read about the Elysian/New Belgium venture at Charlie's blog -- so thanks, Charlie!

A-B InBev, History, and American Brewing, Part 5 of 6

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 Craft brewers are smart, ambitious people. I learned that when I was writing my book and interviewed a number of them. I’m telling you: they’re smart. 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.

A-B InBev, History, and American Brewing. Part 4

Part 1 --- Part 2 --- Part 3 --- Part 4 --- Part 5 --- Part 6 As I noted last time, for decades American mainstream brewers have targeted their beers/marketing/advertising at a narrow slice of the consumer market: young men.

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 kids' 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-B InBev 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 result, 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" 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.