Brookston Beer Bulletin

Jay R. Brooks on Beer

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Ninkasi Drops Big One, Signs With Smaller Distributors

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Here’s an interesting little item that speaks to the image that a brewery can, and often strives, to create. While small in and of itself, given the changes we’re seeing in brewery ownership and other business dealings, an important one. This is especially true in the wake of another prominent up and coming Oregon brewery that witnessed a pretty severe backlash for selling an interest in the company to Anheuser-Busch InBev (ABI) last year. And witness how the tribe reacted to the lawsuit that Lagunitas initiated for trademark infringement against Sierra Nevada, despite it being a perfectly reasonable and understandable business decision. What those recent incidents have taught us, if anything, is that perception often matters more in the eyes of customers than following traditional business practices. Apparently, this really isn’t your father’s brewing company, and woe be to any brewery that doesn’t at least follow its own heart, if not the perceived heart of its fanbase.

Ninkasi Brewing, of Eugene, Oregon, announced that they were ending their relationship with their large beer distributor, owned by ABI, and signing with two smaller, locally owned distributors to cover the same territory — “Eugene-based Bigfoot Beverage Distributors and Bellevue, Washington-based Odom Corp.” Apparently, the only reason Nnkasi was with ABI distributors in the first place was because of a buyout a few years ago of the beer distributors that originally sold their beer to the larger ABI-owned one.

According to a story in the Register-Guard, CEO and co-founder Nikos Ridge remarked that this “arrangement did not fit well with Ninkasi’s world view” and added. “We are committed to being an independent and locally owned craft brewery, and feel we will be better aligned long term with independent and locally owned wholesalers.”

It’s interesting that Ninkasi wants to stay true to their roots, even as they expand into other markets, preferring local distributors over potentially more efficient and possibly more effective ones. Even at the expense of their business, they chose what they perceive to be the better fit with their company ethos. That’s a lesson many other brewers will have to learn as they navigate the landscape of the modern age of beer. These things matter to a lot of people, even if they rarely even understand how to run a business, what are the intricacies of trademark law, or what’s involved in signing with a distributor. Perception is your street cred in this day and age, and that’s likely to only intensify as a growing number of breweries are vying for your attention, your loyalty and most importantly, your business.

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The Ninkasi brewery during a quick visit to Eugene last summer.

Economic Impact Of Beer Distributors

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We know beer contributes quite a lot to America’s economy, from the brewers who make it, the retailers who sell it, and the bartenders who serve it. The Beer Institute‘s Beer Serves America gives a great overview of the economic impact of the beer industry as a whole, with breakdowns of direct and indirect impacts, and also by related industries that support the beer industry.

But recently the National Beer Wholesalers Association (NBWA) published online their own map of how beer distributors are “Fueling Jobs, Generating Economic Growth & Delivering Value to Local Communities.” Not surprisingly, it’s a lot, too, with 130,000 jobs and $54 billion for the entire United States. But you can also break it down by state. So, for example, California’s impact is 11,725 direct jobs, that is people working for beer distributors in some capacity, and $5.3 billion in dollars added to the economy.

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By clicking on a button, you can also download additional state economic data, such as a more detailed tally of the beer distributors contribution to the state economy.

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And also how different related industries are contributing to the overall economy, as well.

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Be sure to check out your own state’s positive contribution to the economy through beer here, and also take a look at the detail for the entire United States, too.

Wisconsin Legislature Attacks Craft Brewers

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With craft beer being the only segment of the brewing industry showing strong growth, you’d think that state governments trying to fix our current economic woes would be doing everything they can to help one of the few bright spots in American business. But never underestimate the power of lobbying by interests with more money than the craft brewers, namely beer distributors and Milwaukee-based powerhouse Miller Brewing, operating in the U.S. as MillerCoors, but also part of the international conglomerate SABMiller. (And thanks to a number of people who sent me different links to this emerging story.)

Right now in Wisconsin, there’s a battle brewing and it looks like the state’s many craft brewers will be hit the hardest by a proposed new wholesale bill that was recently approved by the state Legislature’s Joint Finance Committee. The bill is backed and supported by the Wisconsin Beer Distributors Association, the Tavern League of Wisconsin, the Wisconsin Grocers Association, the Wisconsin Petroleum Marketers & Convenience Stores Association, the Wisconsin Wine & Spirits Institute and MillerCoors. In other words, all the big players, with money, who do most of their business with the big, corporate beer companies.

They claim that the new bill is designed “to stop St. Louis-based Budweiser and Bud Light brewer Anheuser-Busch from buying wholesale distributors in Wisconsin.” And that might be understandable and even believable, except for one little detail. Not only was the Wisconsin Brewers Guild (which represents over 35 independent, small craft brewers) not consulted on the bill, several of the provisions of the bill actively harm the small brewers, and those same provisions have nothing whatsoever to do with Anheuser-Busch InBev in the least. Obviously, someone is lying.

Here’s how several local news outlets in Wisconsin are reporting on the story. First, here’s the Isthmus Daily Page:

Current state law severely restricts the options brewers have to distribute their beer. Only breweries that produce less than 50,000 barrels of beer per year are allowed to sell their beer directly to retailers. All others must contract with wholesalers for distribution.

Worried that perhaps microbrewers were operating in too free a market, legislative Republicans have proposed even more restrictions on the beer distribution business. The legislation that passed JFC gets rid of any exemptions that allow some microbreweries to distribute their own beer, as well as forbids breweries from selling beer on their own property, either as a bar or a retailer.

And what would Walker-era legislation be if it didn’t offer more power to state government? The legislation also takes the power of licensing of wholesalers away from municipalities and puts them under the control of the state Department of Revenue.

But what will most likely happen in reality is that small brewers will have a much harder time bringing their beer to market. Whether the bill actually targets small brewers, or it’s an unintended consequence, is unclear but I can’t help but think that legislators — elected officials, after all — have a duty to look out for all of their constituencies, and should understand how their actions effect everyone. I know that’s overly idealistic, but that’s how it’s supposed to work and I’ll always continue to hope for at least that much. The fact that the big players all had a say but the small brewers did not speaks volumes about how this is working in reality, and it’s a pretty ugly picture, if not of outright corruption, then at least of unseemly favoritism.

Here’s what Sprecher Brewing president Jeff Hamilton had to say about the bill, as quoted in The Milwaukee Business Journal:

“This is limiting our business model,” said Hamilton, who also serves as president of the Wisconsin Brewers Guild. “The current system is working just fine.”

MillerCoors and the state’s distributors “went out on their own” in promoting and developing the legislation, Hamilton said.

“We didn’t have a say and it is devastating to our business,” he said.

Hamilton believes the target of the legislation isn’t Anheuser-Busch but rather craft brewers that have been rapidly growing as major brewers have struggled.

“It’s hedging against future competition,” he said.

Consolidation among the state’s distributors has made it more challenging for smaller brewers to sell their products, given the number of brands distributors carry, Hamilton said. The legislation also would thwart plans by some craft brewers to start their own distributorship.

A spokesman for MillerCoors, Nehl Horton, even acknowledges it would limit craft brewers’ options, but insists that it wasn’t their intention. To which I can only say, so what? They had to have known how this would affect craft brewers, but MillerCoors obviously didn’t care. Why should they? But the fourteen Wisconsin legislators, they should have cared about how this would effect viable Wisconsin businesses.

Obnoxiously, Horton added that “the fundamental issue is whether small craft brewers want to be brewers or want to be brewers, wholesalers and retailers.” Given the way small brewers have been treated by distributors and retailers over the years, as they struggled against some pretty big, entrenched institutions to change how people thought about beer, that’s an awfully insulting thing to say. Craft brewers have had to find creative ways to gain access to market out of necessity, including doing their own selling and distributing, precisely because of all the roadblocks put in their way by distributors, retailers and big brewers, the very people who are trying once more to harm their business with this new legislation. So to hear MillerCoors suggest that small brewers should behave more like them, after making it impossible for them to do so for decades, is a pretty offensive thing to say.

And now even the bars and restaurants, many of whom undoubtedly serve craft beer, are also out to get the brewers, too, as the new bill also takes away their ability to sell their own beer, even on their own property. As the Daily Page notes:

But why forbid brewers from operating pubs and restaurants — at least one on their property? It seems a rather blatant attempt to appease the Tavern League, which supported the legislation, and hopes that brewpubs don’t threaten their businesses.

Again, Wisconsin legislators had to know what they were doing, but did it anyway. June 15th, the provisions of the new wholesaler bill comes up for a full vote. Hopefully, an action alert from Support Your Local Brewery will be forthcoming.

And finally, here’s a television report from Channel 9 WAOW, in central Wisconsin:

Boycott Under Way On Beer Stocked By Alabama A-B Distributors

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Free the Hops, the organization in Alabama that successfully won the fight over hard opposition to allow beer over 6% abv in the state, is calling for a boycott of both Anheuser-Busch products along with those beers distributed by A-B Houses in Alabama. The boycott is a result of A-B distributor lobbyists “blocking the Legislature’s passing [of] the Brewery Modernization Act,” which Free the Hops helped pass “in the Alabama Senate earlier this month.” The Birmingham News has a full account of the story in an article entitled Free the Hops calls for boycott of beers stocked by Anheuser-Busch distributors in Alabama. Free the Hops also has a boycott statement on their website along with a list of the distributors involved. Essentially the law would simply allow brewpubs to no longer be subject to antiquated laws, such as having to be located in “a historic building” or be located in “a county that had a brewery prior to 1918.” Ridiculous stuff. It would be hard to argue that the law as it stands makes any sense or is a fair under any definition. But apparently the A-B beer distributors in Alabama see it as competition that cannot be allowed, despite the fact that in most of the other 49 states, brewpubs and beer distributors happily co-exist with one another.

I was originally in favor of the boycott, as it seems like there isn’t much choice insofar as what the Bud houses are doing. But as several people have pointed out, it will also harm a great number of craft brewery’s business in the state as well. Free the Hops obviously recognizes that fact and their concern is buying craft beer from one of the A-B distributors is still “channeling profits to wholesalers.” So in a way, it’s a bit like chemotherapy. Honestly, I’m conflicted. As Lew Bryson said in an exchange we had on Facebook. “This is odd territory for most beer drinkers: asking them to boycott a DISTRIBUTOR rather than a brand is confusing enough, but asking them to boycott craft beers to help craft beer…? Not going to work. If I were in Alabama, I would directly encourage people not to support a boycott of any craft brands for this reason. This is not the way to do it.” So I think we all agree that boycotting the ABI products is the way to go, but as for the craft brands … that seems like a much trickier, thornier issue. I can see both sides of the argument, and am left unsatisfied by either one. In the end, I think it’s going to be up to everyone’s individual conscience on what to boycott.

Tragedy At Connecticut Beer Distributor

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Tragedy struck earlier this morning at Hartford Distributors in Manchester, Connecticut. Apparently, an employee about to be let go opened fire, killing at least three and wounding four more before turning the gun on himself. Later reports are saying that perhaps as many as nine have been killed. Local Eyewitness News 3 has the full story. Additional accounts are at MSNBC and CBS.

Losing Their Share of Mind

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Anheuser-Busch’s “100% share of mind” program is legendary. It started ten years ago, when A-B began offering incentives to their distributors so they’d care only about A-B products. Though I assume they never said so — wink, wink — they encouraged distributors to drop non-A-B brands and concentrate on only the important brands. And at that time, such was A-B’s market strength that many distributors did in fact tow the line. But lately as domestic sales have been static or slipping, distributors are adding non-Bud brands to their portfolios to stay at the same level of profitability. The Associated Press had an article last week about this recent phenomenon called Beer Distributors Want More Than One Best Bud.

As the article points out:

For consumers, it means greater choice at their local bars and liquor stores. Wall Street analysts say the movement signals a weakening of the St. Louis brewer’s clout in the marketplace, as small-batch “craft” beers and imports, as well as wine and spirits, wrest market share from mass-market brews like Budweiser.

Many of the 560 nationwide A-B distributors realized that as craft beer is increasingly in demand, that their competitors were having the last laugh, because they were free to pick up whatever brands they wanted and believed they could be successful selling.

While IRI general manager Bump Williams described the program as a “great business model,” not everybody was convinced that it was fair. The DOJ launched an investigation into anti-trust violations, but later abandoned it. Naturally, A-B continues to push the program with such statements as “[w]e want their efforts and focus aligned with ours.” Well, who wouldn’t? But that isn’t how the world works nor is it how it should work. It’s schemes like this one that gave A-B its reputation as a bully. And it appears that they still have that mindset. Again, from the AP article.

Still, Anheuser wasn’t happy with the way it learned of the Tennessee distributors’ decision. “We found out later (in their decision-making process) than we would have liked,” says Mr. Peacock. “When we don’t get early communication, it rubs us wrong.”

Now why would one business be rubbed the wrong way if another, supposedly separate and independent company, didn’t consult with them before making a business decision? The best illustration of this mindset comes from more than a decade ago, with the former head of A-B, August Busch III, sitting around a conference table at their Hawaiian distributor petulantly throwing bottles of craft beer against the wall, smashing them to bits, to show his displeasure with a separate business having the unmitigated gall to sell something he can’t profit from. It’s that arrogance, borne of being the market leader for such a long time, that leads a company to believe that whatever is in their best interest is in everyone else’s best interests, too.

But as the market changes, that’s becoming less and less tenable. Distributors are realizing that to remain successful, they have to stock brands that their customers want, regardless of who makes them. That only makes good business sense. Some industry analysts, like my friend Harry Schuhmacher who runs Beer Business Daily, are surprised that it has taken so long for this to begin happening. As he puts it. “It really hasn’t been a widespread national jailbreak.” But that’s the hold that A-B has traditionally had over its distributors. Now that it’s finally beginning to erode, it will be interesting to see what percentage share of mind Bud is left with.