Brookston Beer Bulletin

Jay R. Brooks on Beer

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Costco Decision Stayed

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U.S. District Judge Marsha Pechman placed another stay on her earlier ruling in the closely-watched Coscto decision she handed down in April. Her earlier ruling essentially dismantled Washington State’s three-tier system without regard to the consequences, including many of the protections that ensure a level playing field for businesses of varying sizes. Costco originally brought the suit because, if successful, they would reap enormous benefit, as would other big box retailers. The losers would include small retailers, small brewers and ultimately consumers once the landscape of the state’s alcohol business has been greatly altered after the changes are implemented. Costco and the business press have continued to spin the story by claiming it will lower prices of beer to the consumer, but that’s simply propaganda as I’ve pointed out before and again in response to a thoughtful comment.

The recent stay gives state lawmakers until May 1, 2007 to change Washington’s beer and wine laws through new legislation. Since her initial ruling effectively makes the current laws invalid, an entirely new system to control the relationships between manufacuters, distributors (if any) and retailers must be created. Whether that can be accomplished in under eight months in a way that’s fair to all concerned, including consumers, remains to be seen. But it seems a Herculean task and fated to fail, at least in my opinion. There are just too many competeing interests for almost any legislature to come up with a workable solution. It seems more likely that if any legislation is passed, it will favor the big box stores and big breweries but will at least appear to balance critics’ concerns, while not actually doing so. That’s been the general pattern of legislation in our business-dominated times. Big business contributes to political campaigns and politicians enact legeslation favorable to their benefactors. And as usual, you and I wll be left holding the empty non-returnable bottle.

Latrobe Deal Not Done Yet

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Once the news was out that City Brewery of La Crosse, Wisconsin was negotiating to buy the Latrobe Brewery, many people, myself included, stopped paying close attention to this story. You’ll recall that brewing giant InBev sold the brand name Rolling Rock to Anheuser-Busch on May 19 of this year. But the Latrobe Brewery where Rolling Rock had been brewed since 1939 was not part of the deal. It had been scheduled to close July 31 if a buyer could not be found and a mad scramble ensued involving local and state politicians, the media, imaginative rumors, InBev and all manner of possible buyers. Finally on June 21, it was announced that City Brewery was in negotiations. Everyone breathed a collective sigh of relief, and moved on to the next story.

But it’s been almost three months now and a deal to buy the brewery has still not been finalized. While negotiations are ongoing, the brewery closed July 31 and has been dormant since then. City Brewery met yesterday with officials from local and state agencies to work out issues surrounding how anticipated production increases will effect the capacity of water treatment facilities. Currently the brewery’s capacity is 1.3 million barrels and City Brewery wants to brew two million. Let’s hope the deal will be done soon and the now unemployed brewery employees can back to work.

EU to Increase Beer Tax

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Beer taxes have rarely been doled out fairly. They’ve been used to support war efforts such as the very first beer tax in America, which was leveled to help pay for our Civil War in the 1860s. And while most brewers didn’t mind supporting their country, the fact that other industries were not asked to similarly help out was what led to the first U.S. trade association among brewers. Then there’s the so-called “sin tax” on many luxury goods deemed to be either bad for you or having some moral questionability — at least to the more pious elements of society.

So in a way it comes as no suprise that the European Union announced a 31% increase on the duty for beer and spirits. Proponents say it will add only about one Euro cent to the price of a beer (half-litre size). Critics say it will hurt small breweries. If passed by the 25 member states (it needs to be unanimous) it likely wouldn’t go into effect until 2008 or even 2010, with grace periods.

Some interesting facts about Europe’s beer industry from a Reuter’s report:

Europe’s brewing industry employs 2.6 million people directly or indirectly in 3,000 breweries. Over a third of the breweries are in Germany, where they already face a 3 percent rise in value-added sales tax (VAT) from next year.

But here’s the kicker. There’s no duty whatsoever on wine, because the industry has such enormous political influence. Yeah, that seems fair, doesn’t it?

Homelessness, Malt Liquor and Social Policy

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Well they’ve gone ahead and done it, legislated away malt liquor for several neighborhoods in Seattle, Washington, effective November 1. The state liquor board yesterday banned “29 drink brands” including, of course, malt liquor. Now I’m not a fan of malt liquor (except perhaps for Dogfish Head’s wacky craft malt liquor, but even that I wouldn’t drink under very many circumstances) but the idea that restricting the sale of certain inexpensive, but high alcohol drinks will in any way cure homelessness is ludicrous.

Apparently, the same or similar items were previously banned in the Pioneer Square area of Seattle. The new ban radiates out from Pioneer Square adding the neighborhoods of Belltown, Lower Queen Anne, Capitol Hill, the Central Area, the University District and the International District. This essentially widens the ban area considerably and adds a new ban area adjacent to the University of Washington. But that simply suggests that the previous ban didn’t work and what many residents fear actually happened before, customers for these cheap, high-alcohol drinks — who are primarily, let’s face it, homeless or low-income — simply bought them elsewhere. So now the areas where they took there business will see a ban, as well. It doesn’t take a genius to figure out what will happen next. Attendance at AA meetings will not sharply increase and homelessness will not disappear. Oh, it might be quieter in specific places where drunk homeless people would congregate and buy their vice of choice, but they won’t stop drinking. Heroin is illegal yet thousands and thousands manage to find it.

This will certainly make it easier for authorities to round up and further persecute the homeless. And it may keep them out of “your back yard,” a place nobody seems to want uncomfortable truths to stray into, but without treating the root causes of homelessness, alcoholism and other societal miseries nothing whatsoever will change. Naturally, city officials claim this is “only one step in an overall initiative to curtail homelessness.” When mayoral aide Jordan Royer says “[p]eople think we’re just pushing drunks around,” it shows he knows that’s exactly what he is doing. He goes on to say that the “city will monitor the effect of the new rules to ensure that they don’t simply displace the problems around fortified beer and wines favored by chronic inebriates.” Uh-huh, that’s believable.

The three-member Liquor Control Board defended its actions with such lofty principles as the ban was “needed for the greater good” and “[t]his was a community effort.” Board member Roger Hoen then had this priceless gem. “The fact is it’s a democracy and (the board) kind of went by votes and the majority of the testimony, the majority of the evidence and the majority of the information that came before the board was to support going forward with it.” I’m sure that’s true, but how many homeless people were allowed to speak, I wonder. Without addresses, they rarely vote so I don’t imagine their point of view was much sought after. But if they had, I imagine the more coherent and sane among them would have asked for shelter and perhaps a job. I don’t believe they chose homelessness or alcoholism as a lifestyle. And while this measure may do wonders for the residents who don’t like looking out of their windows and seeing the great unwashed littering “their” streets, it will do absolutely nothing to combat the issue of the homeless themselves, despite the local government’s hollow assurances.

Board member Roger Hoen “acknowledged some businesses would lose money because of the rules. But, in life, there’s a number of restrictions and inconveniences that we have to live with.” Actually, Roger, you won’t be inconvenienced one little bit so by “we,” you actually mean “they.” You should say what you mean or at least know what you’re saying. I think the “restrictions and inconveniences” you speak of will be borne, as usual, by the people with the least voice in our society, the invisible people without homes or a say in their lives.

But that’s depressing. Luckily, Merritt Long, chairman of the board, ends things on an “upbeat note.” “Besides,” he says, “customers can still choose from more than 4,000 other beer products allowed in Washington” Good point, Merritt, albeit cluelessly condescending, I’m sure we’ll see the homeless choosing a nice bottle of Westmalle Triple or a local barleywine. Way to show your compassion.

Bomonti Beer Factory

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There’s not a lot of beer coming from Turkey. Efes is probably the one most known to us westerners. The first brewery in Turkey was started in 1890 by two brothers from Switzerland, the Bomonti brothers. In 1902 they built a new facility in the southern part of Istanbul which still stands there today. It is situated in the Bomonti district, which of course takes it name from the factory. Beginning in 1938, it was known as the Istanbul Tekel Beer Factory. It was abandoned in 1991, and locals returned to calling it the Bomonti Beer Factory. It’s a beautiful seven-story building.

Earlier this week, Global Investment Holding along with Çelebi Holding announced their intention to turn the building in Turkey’s biggest hotel by 2009, to be operated by Marriott International and known as the Marriott Bomonti Hotel Convention Center.

Today, Turkey’s Culture and Tourism Ministry disclosed they will reject and cancel the offer regarding the 49-year operating lease for the Bomonti Beer Factory because the price was too low. So the factory is once again available. Hopefully, someone will put it too good use. It’s a terrific looking building with great possibilities, not to mention a piece of brewing history.

Anhesuer-Busch Takes Over Marketing & Sales of Kirin

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Anheuser-Busch and Japan’s Kirin Brewery annnounced today that their alliance will be enlarged to include marketing and sales of Kirin beers in the United States. Currently, A-B contract brews all Kirin beers for the domestic market at its Los Angeles brewery. That relationship began ten years ago and included distribution, as well, through A-B’s network of 600 wholesalers. Since 1993, Kirin has been contract brewing Budweiser in Japan for the Japanese market.

August A. Busch IV, president of Anheuser-Busch, was quoted as saying. “American consumers have a great interest in high-end Asian cuisine and culture, including Asian beer.”

Now that’s high-end, klassy with a “k.” Anybody want to venture a guess as to how she’s holding that glass? It looks like it’s glued to her hand or was done with Photoshop.
 

Busch continued. “We are aggressively expanding our range of high-end beers to meet the diverse needs of our consumers. The Kirin beers are of the highest quality and have enormous potential, as the Asian influence is rapidly growing. This new agreement enhances a truly global relationship between our two companies. Now, we also share a deeper commitment to each other’s success.”

But the big three Japanese breweries — Asahi, Kirin and Sapporo — are experiencing the same loss of market share the big U.S. brewers are, and for much the same reasons. Japan’s consumers, mirroring their American counterparts, are demanding more flavorful beers. But at the same time, economic difficulties have led to price wars with so many customers shopping on price alone.

This in turn has led to the rise of cheaper beers made with grains other than barley. Because of oppressive taxes on beer in which over a third of a beer’s cost goes to the government, brewers have been making alternative brews using less than 67% malt by using rice, corn or even soybeans as substitutes. These beers can be sold for half of the all-malt beers. But as for taste, most say you get what you pay for. Long term, this is potentially very damaging to the industry.

As for Kirin’s story, American businessman William Copeland and German brewmaster Herman Heckard founded the Spring Valley Brewery outside Tokyo in 1870. For luck they put a “Kirin” on the label. A “Kirin” (Qilin in Chinese) is a mythical beast that is generally considered a sign of good luck. Though it was not necessarily lucky for the Spring Valley Brewery, which closed in 1884 and became the Japan Brewery Co. a year later under new owners from Yokohama. In 1907, the Mitsubishi family bought the brewery, renaming it the Kirin Brewery. Kirin is currently the best selling beer in Japan.

Grupo Modelo to Distribute Tsingtao in Mexico

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Grupo Modelo, the Mexican brewer who is most famous for making Corona, announced late last week that by the end of the year they will distribute the Chinese beer Tsingtao exclusively throughout Mexico.

Curiously, Anheuser-Busch, who owns half of Modelo (though I understand it’s non-voting stock) also has a 27% stake in the Tsingtao Brewery. With a 13% share of the Chinese beer market, they are the largest brewery there among something like 400 breweries. Yanjing Beer is second and CRE Beer is number three. Less than a decade ago there were over 800 Chinese companies brewing beer, but increasing consolidation has led to the top ten breweries now accounting for 53% of the market vs. 22% in 1996.

The modern beer industry in China began in the 1950s when new facilities were built in most major cities throughout the country. But it wasn’t until the 1970s that true growth started and — due at least in part to its vast population — by 2002 China became the world’s largest beer producer, displacing us at the top spot. The beer industry itself is similar to our own 50-to-100 years ago, with most being regional or local, with few national brands. Partly that’s due to China’s size and partly to its economic system at the time. With changes to the Chinese economy, more nationally recognizable brands are having a greater impact today much in the same way things progressed in the U.S. after World War II, though things are definitely moving more quickly.

Part of that growth is fueled by the the influx of large western beer companies, who began investing in China’s beer market beginning in the 1980s. After several missteps, a second wave of investors started in the early part of this decade and so far has been more successful. Instead of importing unfamiliar brands into China, western breweries are instead buying minority shares in existing local and regional breweries already established there. In the last few years breweries such as Anheuser-Busch, Carlsberg, Heineken, InBev and SABMiller have all made investments in Chinese beer.

Previously the market had been price-driven but a growing economy is leading to greater demand for premium brands, much like what the U.S. is experiencing right now, as well.

Tsingtao was founded in 1903 by German settlers in Qingdao and first began importing its beer to the United States in 1972. In 1996 there were four Tsingtao breweries, but today they operate 48 in China. Tsingtao beer is now sold in more than 50 countries worldwide.

Grupo Modelo, whose headquarters are in Mexico City, exports brands including Corona products, Estrella, Leon Negra, Modelo Especial, Pacifico, Negra Modelo and other beer brands to 150 countries. It is also the exclusive importer and distributor of Anheuser-Busch’s products in Mexico.

The Budweiser Film Studio?

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According to Advertising Age — and they should know — Anhesuer-Busch is creating a new film and TV production division within the company to create original content. Initially at least the new programs will be primarily “humorous shorts and sitcom-type programs to be broadcast over the Internet and to cellphones, according to four people familiar with the matter, and could branch into full-length films.”

They’re also reporting that this venture will draw from A-B’s $1.56 billion marketing budget and will be to date its “most ambitious by far.” Several years ago A-B tried “Bud TV” but nothing much came of its single effort. A-B did its first product placement deal in Wedding Crashers last year and it was apparently a big success, leading to other Hollywood alliances. That experience was undoubtedly the impetus to take things even further but also to keep creative control.

Critics hope the venture will distract them from their core business but that doesn’t seem likely. A-B is too big with too many resources for that to be a reasonably probable outcome. I can’t help but wonder what the upcoming film Beerfest would look like if it was a Budweiser film?

Craft Beer Up 11% for First Half of 2006!

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It’s been exactly ten years since the craft beer industry has seen double-digit growth. Back in the heady days of 1996 it seemed like a new brewery was opening every week. But that came to a screeching halt and things calmed down, the media turned its attention to the next big thing, and brewers got on with the job of making great beer.

Then a curious thing happened several years ago. Slowly but surely the craft beer numbers began to rise. Slowly at first, but more importantly it was happening consistently year after year. Now more great news today. So far in the first half of this year, craft beer sold looks to be 11% over the same period last year.

Said Paul Gatza, Director of the Brewers Association professional division, in a press release today. “The rate of growth in the craft beer segment appears to be accelerating. This is the third straight year we’ve seen an increase in the craft beer growth rate.”

Also from the press release:

The current surge in growth comes on top of strong performance by the nation‚s small, independent and traditional brewers over the last two years. In 2004, the volume of craft beer sold increased by 7 percent and in 2005 it rose by 9 percent.

“This growth represents strong performance by established craft brewers over several years,” said Ray Daniels, Director of Craft Beer Marketing for the Brewers Association. “Unlike the early days of our industry, newly founded breweries do not add significantly to industry-wide production.”

“The current trend in craft beer sales increases demonstrates a growing consumer preference for the diverse and flavorful beers made by craft brewers,” said Gatza.

Now that puts a smile on my face.