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

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

First, a few caveats. I’ve never met Dick Yuengling. (I interviewed him at length by phone for the book.) I have no connection to his company. Heck, I can’t even drink his beer because it’s not sold here in Iowa (which is part of his genius....)

But I know generally what he’s been doing for the past twenty-odd years, and I can make some educated guesses about why it’s worked.

Since the early 1980s, he’s built a solid regional market for his beer. The emphasis here is on the word “regional": Yuengling is only available in a handful of eastern states. The combination of limited sales, narrow territory, and genuine affection have bestowed on the brand a priceless cachet and mystique. (The same was true, by the way, of Coors in the 1960s and 1970s.)

Dick Yuengling is no dummy. Indeed, he may be the smartest guy in American brewing today. I’m certain that he knows that the value of his brand stems from that intangible mystique. I suspect that’s why he’s not veered from his game plan. He’s not trying to transform regional mystique and cachet into a national market. As far as I know, he’s not planning a run for glory that would, most likely, destroy the company. (Again, the classic example unfolded in the 1970s when Coors tried to turn its regional mystique into national sales. But there are dozens of other examples. Olympia, anyone?)

BUT: If ever there was a moment when Dick could make a run for the top, this is it. A-B’s distributors are restless. My guess is that some of them are begging him to expand his sales territory. I’m also guessing that the current stratospheric prices for barley and hops will force some beermakers out of business or into merger. In the next few years, he might be able to snap up a few cheap brewvats. (That happened all the time between 1950 and 1980.)

The question is: Will he do it? Or will he stay low on the radar, but safe -- and healthy -- in his account books? Will the nation’s craft brewers emulate his current game plan? Will some of them eye the industry’s current anxiety and the InBev/A-B upheaval into their own run for the Big Time, knowing that it might spark a series of price wars, failures, mergers, and the like. Or are craft brewers truly different and are they in the process of rewriting the rules of American brewing?

I don’t know. Time will tell. But it’s worth pondering. Over a beer, of course.

And you thought all of this was going to lead to some great, grand conclusion . . . .

Odds and Ends a la Busch

A few last-minute odds and ends as this week gallops to a close.

First, reader Tracy Mehan sent me a link to a short piece he wrote for the American Spectator. I suspect many people share his memories. (And in the spirit of Jeff Alworth at Beervana, we're keepin' politics out of it!) (See his blog entry of July 10 titled "Beer Is Not Political.)

Second, another reader posted a comment to Part Five of my (probably too long) series about the future of brewing. He asked a GREAT question, one that I'd not even thought of. (See? This is why I'm not in charge....)

He asked: assuming the Busch family sells the company, what do they do next?

Great question. (Wish I'd thought of it.) And the answer is -- you tell me! What do you all think August IV will or should do next? He's only in his forties, and he's got plenty of dough.The floor is open!

Finally, my sincere thanks to everyone who responded this week to the op-ed piece in the Washington Post, to my blog entries about the future of brewing, and to the online discussion at the Post's website. (*1) (That, by the way, was a total blast. As exhilarating as any live talk I've ever given.)

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*1:  You can read the discussion transcript here. You have to scroll down a bit to find the start of the discussion.

Busch Family Tree

A number of people have emailed me to ask about the Busch family tree. (Eg: "Who ARE all those people?" "How does an Adolphus end up being an uncle to an August, and why isn't Adolphus running the show?" "Where are you coming up with six generations?" Etc.) I know the answers, but a graphic is much easier to understand. The St. Louis Post-Dispatch to the rescue. The newspaper has published an e-family tree. It's a bit tricky to navigate, but if you click the little gizmo in the lower left corner, you can zoom in and out. Right-click your mouse to move the entire tree.

Looking Back At the Future of Brewing. Part 4 of 5

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

Prior to 1980, American beermakers, whether Big Guys or Little Guys, sold essentially the same kind of beer: American-style lagers brewed with barley plus an adjunct like corn or rice. That's not a criticism, by the way; just a statement of fact. (Yes, many of the small brewers, including Fritz Maytag, made an all-malt brew, but their markets were minuscule.)

So when brewers squared off against each other in, say, 1960 or 1970, they were all selling more or less the same beer and competing for the same audience of drinkers.

But in the 1980s, in a weird coincidence, two unrelated factors collided.

First, most of the remaining small mainstream brewers players fell by the wayside (thanks to a devastating battle between Miller and Anheuser-Busch).

Second, a new wing of brewing emerged. The "craft" beermakers (or micro-brewers, as they were called then) were small and they wanted to make different kinds of beer, like ale, porter, stout. Even their lagers were different: the micro-brewers used malt only; no adjuncts.

Put another way, the new guys aimed at a different audience of beer drinkers, and beer was no longer interchangeable. The industry structure didn't change, nor has it since then. It still consists of a tiny number of giant brewers and a giant number of tiny brewers. A-B still sells most of the beer in the US and most beer sold is still made with adjuncts.

But that single difference between now and then -- varied beer styles -- makes it hard to predict how the InBev acquisition will affect American brewing. Yes, space is available on some distributors' trucks. Yes, some craft brewers will seize the moment and try to parlay that space into bigger markets, higher sales, bigger brewvats. But when they do, they'll butt heads with other craft brewers making the same move. And things could get, well, ugly.

"Nah," you say. "Won't happen. Those craft brewers are nice guys. They share recipes and hang out together. Craft brewing is one big love fest."

Maybe. Maybe not. But it's worth noting that back in the '60s and '70s, that's what "small brewers" used to say about themselves. And then came Merger Mania and some of those Little Guys became Big Guys and, hey, all of a sudden the Little Guys were mourning the loss of the good ol' days when beermakers were one happy family and whatever happened to industry collegiality and isn't it a shame?

So back to where I started: Is the craft brewing fundamentally different from its historical predecessors? Has the "craft" industry altered brewing's dynamics? Are old historical patterns irrelevant? I don't know. But here's a thought: Dick Yuengling might be the smartest guy in brewing, and it's possible that his success can tell us about where the industry is going.

More next time.

George Will and I Agree

I've been saying this for YEARS. Not the gene-argument, but that alcohol has functioned as a necessity. Not, of course, sigh, that anyone listens to me. But surely they'll listen to George Will.

Thanks and a tip o' the mug to my buddy Tom Strodtbeck of the NBIA for alerting me to Will's piece.

Looking Back At the Future of Brewing. Part 3 of 5

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

The scenario I described in my previous entry played out repeatedly between 1950 and 1980.

In theory, that scenario ought to repeat itself now, especially because, as I noted way back at the beginning, A-B’s distributors are restless. And prices for barley and hops are at record high levels. Many brewers are struggling. That means there’s uncertainty in the industry.

The InBev deal adds to that uncertainty, but it also presents opportunities. If InBev succeeds, the value of A-B will likely plunge. After all, InBev will remove the Busch family, and its valuable presence. (I gather that economists can place monetary value on things like family stability.) Also, the A-B distribution system, which is rock solid and even more valuable, may tumble into disarray under InBev.

All of that adds up to opportunities for other beermakers. Miller/Coors may have a chance to grab a larger share of markets. But so will the smaller, more aggressive craft brewers.

Put simply, the weaker position of A-B will translate into opportunity and turmoil among other beermakers.

But what if the InBev takeover attempt fails? What if A-B retains its independence? That, too, will translate into upheaval. A-B will return as a leaner and, dare I say it?, meaner machine. It will work hard to repair bad relations with its distributors. It will do whatever it takes to elevate its stock price. How will it do that? By becoming even more aggressive in the craft brewing segment. It will roll out its own “craft" beers (which it’s been working on for some time).

BUT: It will become more aggressive within the craft segment. Right now, A-B owns shares in four craft breweries (Old Dominion, Goose Island, Widmer, and Redhook). (Unless I’ve lost count and missed one.) It will go after others, and likely buy some outright.

Remember: it’s a good time to do so. Many small brewers are struggling to manage their costs at at time when prices for materials and fuel are in the stratosphere. Not all of them will survive. A weak beermaker represents opportunity. That’s what history tells us OUGHT to happen. Both those scenarios played out repeatedly from about 1960 to 1980.

But this time, history may not repeat itself. Here’s why: the beer itself has changed.

More next time. (No, I’m not trying to drive readers batty by making them return the next day for the next segment. I’m just being sensitive to how busy all of us are. We’ve got ten minutes and then we gotta move on to the next item on the list.)