Looking Back At the Future of Brewing. Part 2 of 5

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Part One --- Part Two --- Part Three --- Part Four --- Part Five

In my previous entry, I posed two questions about the future of brewing. In order to think about them, we need a little historical background.

Let’s pretend it’s, oh, 1960. Bob Beermaker, owner of Acme General Brewing, sells beer in ten states. He’s doing okay, but he wants more. Bob learns that a fellow beermaker in an adjacent region of the country is going belly up. Bob doesn’t sell beer in that market, but he wants to do so. He persuades the other guy’s distributor to carry his beer. Bob now enjoys access to a new retail market.

Of course this means that he must square off against a new set of competitors. Among them is Harry Hops. Harry’s operation isn’t as big or as financially stable as Bob’s. Bob strikes first. He dumps much of his entire advertising budget into the new market. He slashes his prices for a month. (But does so carefully. He knows that pricing practices are governed by state and federal laws.) Customers grab the cheaper beer. They decide they like it (or maybe they like Bob’s advertising). They stick with Bob’s brand, even when the price goes back up.

Harry Hops is in trouble. He can’t afford to lower his prices, and he can’t afford more advertising. His sales drop. The local distributor eyes the situation, calculates his profit -- and makes a decision: He’s going to start carrying even more of Bob’s beer. But if he carries more of Bob’s beer, he’ll have to stop carrying someone else’s.

“Sorry, Harry," the distributor says. “I’m going to drop your beer." Harry can’t recover. He puts the brewery up for sale. Maybe Bob Beermaker buys it because it’s a cheap way to gain more brewing capacity.

Now Bob is selling beer in fifteen states. His sales increase; he earns more profit, which he plows back into the company. “Hmmm," he thinks. “Now I can afford to make a run at a bigger market." Bob uses his clout to cut deals with distributors in eight more states. He marches into battle in the new territory, but this time he collides with Marvin Malt, a much larger, stronger beermaker with an even bigger advertising budget.

This time the tables are turned. Marvin trounces Bob. Bob’s sales slide. His distributors lose interest. Bob limps into a sunset of hostile merger or even bankruptcy.

But even as he limps away, other small brewers smell opportunity. They decide it’s time to make their own run for The Big Time. They figure they’re smarter than Bob and they won’t make the same mistakes he made. They’re not worried about the threat posed by Marvin Malt. The process starts over again. Will that history repeat itself in the next few years? And what’s this got to do with craft brewing?

More next time.

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

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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.

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*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.

Patriots, Man Your Barstools!

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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!

Brief Detour From Beer

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This is the kind of thing that makes me long for a nervous breakdown (because then I could retire to a darkened room with a cool cloth over my eyes and forehead):

According to this piece in the current issue of The Futurist, 70% of literary agents recommend that authors spend five hours a week blogging.

Okay. Sure. I’ll get right on it. I’ll squeeze that in between the speaking gigs, interviews, op-ed pieces, TV news contributions, and the rest of the activity related to my work as an observer of the business of making and drinking beer; and in between the job that consumes most of my time, namely the research and writing for my next book (a history of meat in America from 1870 to the present); and after I’ve finished buying groceries, fixing dinner, doing the laundry, and spending time with my family in, ya know, my three-dimensional life.

Oh, and after I get some sleep. (I’m not Buckminster Fuller or Thomas Edison; I NEED SLEEP.) And after I expend mental energy worrying about the fact that the kind of book I write requires years of research and writing and according to the experts on the digital future of publishing, that makes me a dinosaur. (If anyone’s interested, the beer book took five years and four months of my life).

And after I contemplate the idea of the book not as a printed object, but as a digitized entity consisting of text, interactive images, and hyperlinks, but hey, first I’ve got to wait for my publisher to decide that, in fact, the printed book is dead, and then someone needs to come up with a functional device for reading the new, groovy, sexy, interactive version of my books and then I’ll have to re-think the notion of “publishing" and what it means to be a “writer." (*1) Yes. I’ll get right on the five-hours-a-week-devoted-to-blogging thing.

Enough ranting. Seriously.

Anyway. I gotta go. Gotta write my next blog entry on my usual topic, beer. Five hours a week? FIVE HOURS?

Later addition to this entry: check out this New York Times article about a new e-reader with a "flexible" screen.  (*2) I rarely blog about the process of writing or the business of publishing. That’s the equivalent of Click and Clack devoting their radio program (or blog) to discussions about setting up the microphones and adjusting sound levels before each program, or to providing the minutes from the last meeting of the National Auto Mechanics Association. That’s NOT why we listen to them. (*3)

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*1. I ponder publishing’s (digital) future and my role as both reader and writer on a regular basis. I don’t have much choice. Publishing is changing. I have to change with it. The piece in The Futurist is worth reading.

*2:  I’m all over the idea of an e-reader. The pleasure I derive from reading is based on the content, not on the smell of the ink, paper, and glue. I want an e-reader and I want one now. (Mr. Jobs, are you listening???) The Kindle is a step that direction, but I gather it’s deeply flawed and that’s one reason that publishers are resisting a whole-hearted embrace of e-publishing.

*3:  To be fair, blogging has been good to me. Thanks to blogging, I’ve been contacted newspaper editors and television producers, and people who’ve hired me for speaking engagements, and of course, most important, readers. Still, it’s a challenge. Every day, I scramble to come up with a substantive but brief, comment on (usually) beer. (Because I know rule number one about blogging: the blog needs to be focused and topic-specific. Yeah, I keep breaking that rule because, you know?, life is interesting! Rants happen!)