A Reporter's Take on Craft Brewing and the InBev/A-B Deal

In my previous blog entry, I contemplated the potential impact of the InBev/A-B deal on craft brewing. For another take on that angle, see this piece by Jeremiah McWilliams of the St. Louis Post-Dispatch. Jeremiah's coverage of the InBev/A-B deal has been terrific. He's one of the two best reporters covering this story.

The other is David Kesmodel at the Wall Street Journal. (Among others, his article of May 27 is one best pieces of beer journalism written in the past fifty years.) (How do I know that? I've read every significant piece of beer journalism written in the past fifty years.) (That's what we historians do.)

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.

The Human Face of the A-B/InBev Deal

Today's New York Times contains what I can only describe as a snarky piece about the A-B/InBev deal. Snarky because of the reporter's decision to travel the easy, but low, road. To judge August Busch IV now on his youthful past -- and find him wanting. You can read the piece for yourself, but it mentions two of Four's encounters with the police more than two decades ago. Hints that, as a young man, Four was a bit, um, dissolute. Wild. Prone to making stupid decisions. Etc.

Hey, whaddya know! I've got something in common with August Busch IV! I drank my way through my twenties, and when I wasn't drinking, I was ingesting every drug known to humankind. I've done every dumb thing a dumb kid can do (many of them illegal). By all rights, I shouldn't even be here, because this was the kind of stupid shit that leaves less lucky people dead.

Surprised? Most people are. Because those who know me now know me as a totally average, upright citizen who works hard, obeys the law, and, ya know, lives an ordinary (read: dull) life. Most people who know me judge me as I am, not as I was.

But back to this Times piece: According to the reporter, "it is perhaps not surprising" that A-B is "struggling" because of Four's "party-boy history."

It's hard to get past the sheer stupidity of that causal chain: There's not now and never will be a causal link between Four's youthful stupidity and the company's stagnant/slumping stock price, which stems from corporate decisions made back in the 1990s and a fifteen-year-pattern of stagnant national beer consumption (thanks to birth rates and demographics) (over which, I'm certain, Four has no control...)

But hey, it makes better newspaper copy if you can paint a CEO as a scoundrel and wastrel and a human being incapable of change.

So here's an idea: let's take a little tour through A-B history, shall we? Let's start with August Busch, Sr. (1865-1934), son of Adolphus Busch and the man who steered the company through the nightmare of Prohibition. As a young man "Gussie," as many people called him, wasn't much interested in the company business. Wanted to be a cowboy, he did. So after a wrangle with his father Adolphus, he headed west and worked on a ranch. Eventually grew tired of what was, he discovered, a very tough life, and returned to St. Louis, still less-than-interested in working for his imperious, willful father.

But then his older brother and the brewery's heir apparent, Adolphus Busch, Jr. (1867-1898), died young and unexpectedly. The only other surviving brother, Peter (1869-1905), had dedicated himself to living the life of a ne'er-do-well playboy of the first order. (Father Adolphus, Sr. disowned him).

That left Gussie as the new, but reluctant, heir apparent. And guess what? He shook off his youth and resistance and marched into the job. Grew up fast. Learned how to run one of the world's largest breweries. He saved the company during Prohibition, and in the 1920s, reinvented it so that the brewery could survive the new demands of a changed consumer market once Prohibition ended. Not bad for a playboy with cowboy ambitions.

How about his son, Gus Busch, Jr. (1899-1989)? (Also known by some as Gussie.) As a young man, Gus was a typical rich boy: Prone to play. Allergic to work. Fond of women and drink. Nominally he was the brewery manager in the '20s and '30s™, but he didnt't take the company or his job too seriously. He left the heavy lifting to his brother Adolphus III ((1891-1946).

But when brother Adolphus died unexpectedly in 1946, Gus ended up in the president's office. By his own admission, it took him several years to grow up and into the job. To gain command of the company and its many problems. (And in the 1950s, there were problems galore, not least of which was the fact that national beer sales had plunged after WWII and showed no signs of going anywhere but deeper into a rut.) He made mistakes. And apologized publicly for them to his employees and his shareholders. But by god, he turned the lemon of the fifties into highly profitable lemonade in the sixties and beyond.

So before we all get carried away with our assumptions that the August Busch IV of age forty-four is the same man as he was at twenty-one. . . . well, how about we ponder this bit of company history. And then let's all stand in front of a mirror and think about the kind of people we were twenty years ago. My guess is there'll be a whole lotta cringin' goin' on. And maybe a bit more compassion for a guy who has five generations of family legacy sitting on his shoulders. (*1)

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*1: He is the sixth generation to serve as head of the brewery; I'm including his maternal great-great-great grandfather, Eberhard Anheuser.

Family Business or Corporate Behemoth?

My buddy Jay Brooks has weighed in on the InBev/A-B deal with his usual panache and intelligence. Worth reading.

But to his comments: I would reply that the difference here is not that A-B is an American company, but that the same family has maintained stewardship, and that's a LOT different that another corporate-owned company going foreign. Eg, SAB bought Miller from a huge global conglomerate, Philip Morris. Similarly, A-B bought Latrobe from Labatt, which was itself owned by InBev.

Put another way, at the time of the sale, Latrobe had long since ceased to be an "American" brewing company. Ditto Miller. Moreover, both had long since lost "family" stewardship.

So there is a special circumstance surrounding the possible A-B sale: No, the Busch family does not hold controlling shares, but for 140+ years, with only one or two brief exceptions*, the family has maintained a hold on the leadership. That alone speaks volumes about the way in which A-B is imbued and endowed with the heart and soul of that family. Indeed, I would argue that it's the company's most valuable asset. (And of course, I would be told I'm nuts by most industry analysts....)

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* In the early 1970s, Richard Meyer served briefly as president, the first non-Busch to do so. I think that since then, there's been one other non-Busch in the office.

Dear August: Over the past 140+ Years....

... Your family's company, Anheuser-Busch, has embodied the American dream and proved a remarkable study in ambition, business savvy, and entrepreneurship. . . "

Okay. No, I won't be sending August Busch IV any such letter. And yes, that's a riff off the letter sent to him by the Carlos Brito of InBev. And yeah, okay, it's all business and I'm a sentimental sap. And you can read all about InBev's proposed offer today just about any place on the web, including here at the New York Times.

But if I could say something to Four [and his father Three], I'd say: DON'T DO IT. (And if I could say something to the family members that want the deal, it would be: "Short-term gain isn't all it's cracked up to be. Just ask the Millers and Uihleins.")

But that's not how business works. Sigh.

Anyway, for this first post-vacation blog entry, I had planned to mention that I'm back home after several weeks on the road and isn't it weird to be back and have access to a computer after being off-line for the better part of a month and I'm tired from traveling but also because I have pneumonia [the perfect vacation companion] . . . Blah, blah, blah. But the hell with it. I'm home. I'm sick (and hoping that the antibiotics kick in soon...) I'm just in time to watch The Deal Go Down.

(Family) History Repeating Itself

As I noted a few days ago, the Big Alarm Bell re. the possible InBev buyout of A-B is the family factionalism -- which is definitely no longer behind the scenes. Today's Wall Street Journal offers up more comments from pro-sale family members (including the deliciously named Adolphus A. Busch IV).

All I can think of, naturally, are the family factions that provoked the demise of Schlitz (in the 1970s) and the sad decline of Miller (in the 1950s and into the 1960s). For us anti-sale types, this ain't good news.

On a cheerier note, I describe Adolphus IV's name as "delicious" only because, ya know, Adolphus The Original still looms large in this historian's mind. The families descendant from Eberhard Anheuser and Adolphus Busch are riddled with men named August and Adolphus, many of whom carry middle names of Anheuser, Adolphus, or August. There's a reason that men like August Busch III and Gus Busch, Jr. (his father) ended up being called Two or Three. It's about the only way to keep them straight -- although doing so assumes prior knowledge of who is the son of whom. And it's all pretty confusing, even for someone like me who has a fairly good mental image of a complicated family tree. None of which has anything to do with anything.

But for those who are following the InBev/A-B story, it's worth taking a look at this piece in today's breakingviews.com about why InBev is also interested in SABMiller.

InBev choosing Miller over A-B? Given the Great Beer Battle of the 1970s (Miller's John Murphy setting out to demolish A-B, and A-B's Augie Busch (aka August IV) squashing Miller and Murphy into non-contention), wouldn't that be ironic as hell?

One more point for all you journalist types: it's FIVE generations of Busch men. Toss in Eberhard Anheuser (who is the maternal grandparent of four of those generations) and you've got six generations at the helm.

For those who are counting, they are: Eberhard Anheuser, Adolphus Busch, August Busch, Sr., August Busch, Jr., August Busch III, and August Busch IV. And if anyone cares: Adolphus's original choice for brewery heir apparent was his son Adolphus. But that Adolphus died young and unexpectedly Son Peter was a wild man whom Papa Adolphus disowned, so a reluctant August Busch Sr. ended up running the brewery as Adolphus retired. It was he who steered the company through Prohibition. His two sons, Adolphus and August, Jr., took over. Adolphus died fairly young in, if I recall, 1944, and August, Jr. ran the show until son August III more or less ran him off.

Confused yet?