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Jay R. Brooks on Beer

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SF Chronicle Weighs in on Organic Bud

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Today’s San Francisco Chronicle, in the Thursday Wine Section, features an article entitled Brewing Behemoth Sneaks into Organics by staff writer Carol Ness. She begins by musing. “Organic Budweiser. What’s next, the hybrid Hummer?” Overall the article is pretty fair, although is does lean slightly on the side of the organic community. There’s a great quote in it by Ted Vivatson, co-owner of Eel River Brewing in Fortuna, where Ted doesn’t mince words.

In addition to the article, the Chronicle convened a tasting panel which tasted Wild Hop Lager blind against five other beers, three of which were also organic. Wild Hop Lager came in last. I had previously reported hearing rumors of authorization of Wild Hop Lager in Whole Foods, among others, but one of the people on the Chronicle’s tasting panel was Cyrus Kayvan, beer buyer for Whole Foods. After the tasting, Kayvan commented about Wild Hop’s future by saying. “Not in my store.“

Organic Beer and Organic Farming

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Regular readers here know I’ve been following the story of Green Valley Brewing Company’s Wild Hop Lager and its true ownership by Anheuser-Busch. One aspect of this emerging story that hasn’t been touched on yet is the beer’s organic pedigree. A-B went the extra mile to have the beer properly certified organic and an insider told me that the label initially met with some problems, but they were ultimately ironed out. Since only a small percentage of beers are certified organic, it bears consideration as to what was the reason for that decision? The answer, I think, revealed itself by Wild Hop Lager’s presence at the Natural Food Expo West last weekend. It now appears likely that the target market for Wild Hop Lager is the craft beer market in general and the organic beer market in specific. Given the relatively small shelf space devoted to beer in the majority of grocery chains and Anheuser-Busch and their distributors’ strong presence on those shelves already, it seems to me the likeliest outcome is that Wild Hop Lager will begin to replace smaller, more local and regional organic beers. I have heard rumors that placement has already been authorized, at least here in California, for Safeway, Trader Joe’s, Whole Foods and Wild Oats.

So I thought the most logical place to look next was at the Organic Farming Research Foundation, the charity that Anheuser-Busch mentions on the Wild Hop Lager website. In fact, it’s worth looking at the exact language of the website again. Here is what it says:

[w]ith every purchase of Wild Hop Lager, a donation will be made to the Organic Farming Research Foundation to improve and educate people on organic farming practices. Together we can set a better example for future generations.

So I called the Organic Farming Research Foundation (OFRF), which is headquartered in Santa Cruz, California. In their own words, the OFRF is a “non-profit whose mission is to sponsor research related to organic farming practices, to disseminate research results to organic farmers and to growers interested in adopting organic production systems, and to educate the public and decision-makers about organic farming issues.” To a man, every person in the organic community I spoke with thinks very highly of the organization and nothing has shaken that impression in my communications with them or from the information gleaned from their website. They appear to be very much what they claim, a friend to the small organic farmer with a focus on the family farmer.

I left a message for Bob Scowcroft, Executive Director of the OFRF, as he is also listed as the media contact for the organization. Happily, he called me back in a few hours. On the phone, he was a very affable man and gave straightforward, thoughtful answers to all of my questions. I asked Scowcroft if he was aware that Anheuser-Busch was the organization behind Green Valley Brewing and Wild Hop Lager. He was aware of that fact. I then asked whether there was any concern about accepting money from A-B, given that the product they were selling did not disclose that it was owned by them. He explained that the origin of gifts to the organization has been the “source of much discussion over the years” and that the board has ultimately decided that the mission of the group is paramount and therefore all gifts are gratefully received. Scowcroft further explained that 75% of their gifts come from about 50 donors. They receive an average of 1,000 donations each year, with about 40-45% from family foundations, about 20-25% from corporations — large and small — about 20% from individuals, and 5-10% from a special grant-making arrangement with the EPA. Frankly, after talking to him — and a few others — I’m convinced we should all be supporting their efforts. Seriously, think about a donation to the OFRF.

I then asked Scowcroft what he could tell me about the nature of Anheuser-Busch’s donation. What he told me was quite interesting. He explained that it was for a fixed amount, not percentage based, and stated it was a “modest, one-time of gift of less than five figures.” So let’s go back to the wording on the website, which reads, “with every purchase of Wild Hop Lager, a donation will be made to the Organic Farming Research Foundation.” That seems contradictory, but in all fairness it’s possible that A-B is intending to make further donations based on actual sales of Wild Hop Lager. Bob Scowcroft was not aware of any arrangement whereby they’d be receiving a percentage of sales in the future, but believes that the door is certainly open for future gifts.

It’s also worth considering what Anheuser-Busch got for their donation. It seems to me they got a lot for a little. They got to align themselves with a very reputable organic charity. They got the illusion of credibility and the immediate perception of being part of that community. When you consider the millions and millions of dollars spent on NASCAR sponsorships, Super Bowl ads, baseball stadium banners, sports of every stripe, festivals, events, and on and on and on, then under ten grand is pretty much, as an old friend of mine used to say, “chump change.” It’s a pretty paltry sum in the grand scheme of things.

Many consumers will see their claims of being organic and the charity promise as further proof, along with the farmer-friendly graphics on the packaging, that their product is worthy of purchase based upon shared values and the emotional response that produces. I certainly know from personal experience that when faced with a decision to purchase two almost identical looking items, if one of them is supporting a charity I like, that information will often be sufficient to make me choose the product that appears more altruistic. But knowing a little bit more now about how that works will in the future make me question other claims of charity support on product labels. So does that damage the organic movement as a whole? It seems like it might. One analogy I can draw is giving money to the homeless. I often used to give my spare change to a beggar on the street. But once I discovered that some of them were con artists or scammers, it gave me pause and I found myself giving less often as a result. So in that case, legitimate homeless persons in perhaps great need did not get the help they might otherwise have received, as a direct result of the unethical actions of others.

Food based on organic farming is currently “2% of the food economy,” Scowcroft told me. I know my family does our part, and we buy organic produce and other goods whenever we can, at the local farmers’ market and grocery stores we frequent. There are a lot of similarities between the organic food movement and the craft beer movement, I think, not least of which is that craft beer accounts for only around 3.5% of the total beer market. Certainly a lot of craft beer drinkers enjoy organic foods, too, and vice versa, no doubt. But I wonder how many organic food consumers would be pleased to know that the organic beer they unsuspectingly bought was produced by the world’s largest brewer in a plant the size of several football fields and not by a small craft brewer, as is the likeliest inference one can draw from the label and graphics on the package.

I thought at this point I’d like to hear the opinion of someone who already makes organic beer. So I spoke to Morgan Wolaver, whose Wolaver’s Organic Ales have been around since 1997, making them the oldest brewer of organic ales in America. Personally, I think he ought to trademark that before Yuengling has a chance to complain. The two of us tried to remember who was older, but we could only come up with breweries no longer in business. I remembered Humes and he came up with Perry’s Organic but that was about it. Anyway, as it turned out he was not only familiar with the OFRF but has been donating to them for many, many years. And over the years, he and his brother have donated at least more than five figures to them. He explained that he continued to do so because of their good work and simply because “it’s the right thing to do.”

Wolaver also echoed my concern that Wild Hop Lager is a “stealth micro” (a term coined by Celebrator publisher Tom Dalldorf to describe a usually contracted beer that effectively hides its true ownership from the general consumer. A prime example would be Oregon Brewing Co., which was owned by Boston Beer Co. and won few friends in the state of Oregon since, despite the name, was not made there.) And that, I think, really is the crux of the issue.

Wolaver explained that in his view the organic market can be roughly divided into two groups of customers, what he calls core consumers and target consumers. Core consumers he defines as essentially hardcore organic product buyers, people who have been buying organic products for years or even decades. They read labels, front and back, and take their buying choices very seriously. Target consumers are more casual about their buying habits, but for various reasons — perhaps philosophical or because it makes them feel better — will make organic purchases whenever practical, convenient or less expensive. So while the average target consumer may or may not be swayed by who owns the product they’re considering for purchase, the core consumer definitely will be. But neither, I think, will be particularly happy if they discover that the organic beer they bought was a stealth micro and the real manufacturer is a giant corporation. I feel quite confident that the core consumer would be outraged but I also think the taget consumer would at least feel conned or deceived. And it is this very fact, I think, that explains A-B’s decision not to label and market this product as one of their own.

In general, the organic and health food market has already been co-opted by large corporations. Tom’s of Maine was recently bought by Colgate-Palmolive, Odwalla is owned by Coke, Kashi and Morningstar Farms is owned by Kellogg, and on and on. But for every one of these acquisitions, another small entrepreneur enters the fray with idealistic vision. So apparently there’s still hope, at least for those us who like to support small and local businesses. Of course, keeping up with the changes in the marketplace is undoubtedly exhausting and probably explains why there are so few core consumers. So it’s into that climate that Wild Hop Lager is being introduced. Will it ultimately be successful? Probably. As H.L. Mencken put it. “No one ever went broke underestimating the taste of the American public.“

Green Valley Brewing at the Natural Foods Expo

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I got an interesting e-mail this morning from a brewer I know who also makes organic beers. He’s just returned from the Natural Products Expo West, which was held this weekend in Anaheim, California. A quick search of the expo’s website reveals that Green Valley Brewing Co., Anheuser-Busch’s dba for Wild Hop Lager, was indeed there at booth #4580. This is the blurb about the company listed there:

Wild Hop lager is a proud supporter of the Organic Farming Research Foundation. The certified organic co-ops our ingredients are harvested from use holistic farming practices and follow strict guidelines to harvest pure, flavorful barley.

Again, there was nothing to indicate that this is an Anheuser-Busch product. More curious, though, is my friend’s e-mail mentioned that there was another beer booth, this one located outisde the beverage tent, with an organic pale ale from a brewery by the name of Crooked River Brewing Co. of New Hampshire. The beer is named Stone Mill Pale Ale, which evokes a natural, almost folksy, mental picture. Unfortunately, it’s also made in Fairfield, California. And while I have even less information about this brewery, it is definitely another Anheuser-Busch product masquerading as a small brewery from the Granite state.

The only information I have is from the Natural Foods Expo, which is as follows:

Stone Mill Pale Ale is brewed from certified USDA organic barley malt, hops, yeast and water. Our ingredients are hand selected from the lush, organic co-ops of Canada and the Pacific Northwest.

So it appears that they really are attempting to pass both products off as eco-friendly, which in fact they may be. I can’t honestly say they’re not; the USDA did certify the beer, after all. But I can say that the average consumer of organic products, depending on their own personal reasons for buying organic, might want to know that the organic beer they’re buying, which looks like it’s from a small, concerned, organic brewery, is actually the product of the largest brewery in the world, a huge multi-national corporation. And I personally believe that is information they ought to have so they can make an informed decision about what beer to drink.

The Fight For & Against Cheap Beer

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An editorial in today’s Seattle Times discusses what they refer to as the “outdated economics of beer and wine sales.” This is in the context of local lawsuit that was originally filed in early 2004 involving Costco and the Washington State Liquor Board (WSLCB). Costco is seeking to dismantle the three-tier system in place there because to do so would give them — and other large retailers like Wal-Mart and their ilk — an enormous advantage that would effectively let them damage or destroy countless small businesses. The argument against that line of reasoning is, of course, that diversity would not suffer. In an earlier article about the case, “Dave Burman, a partner with the firm Perkins Coie LLP, which is representing Costco in the suit, said, ‘Costco believes that consumers are better off when there is vigorous competition. People who don’t want to compete always say that competition is unfair, but we want the kind of competitive environment where people are rewarded for being smart, not where the state says who should make how much money.'”

The other side replies “that if the regulations were lifted, it would lead to less choice for the consumer. This whole system affords the public a great amount of choice in product. If Costco prevails, they and Wal-Mart will dominate the retail sale of beer and wine, and there won’t be the selection that is currently available.”

“Burman disagrees, stating, ‘It certainly wouldn’t wipe out local businesses. There are plenty if [sic] distributors and small wine shops in California, where this kind of legislation does not exist.'” I mention all this background because I feel compelled to point out what went unquestioned by the Seattle Times, that “this kind of legislation does not exist” in California. California does have a very similar three-tier system, however, and Burman’s statement is about as blatant a falsehood as I’ve seen unquestioned in print.

Of course, it’s not hard to figure out the newspaper’s agenda. No author is listed for the editorial, so I infer that it’s the official position taken by the paper. I don’t have a copy of today’s paper in hand, but I’m willing to bet finding an ad by Costco will be a whole lot easier than finding one by the WSLCB or a local beer distributor. They’re undoubtedly pro-business, like most daily newspapers, because they rely on advertising revenue, which is funded almost exclusively by the business sector.

The editorial accuses the state of “saying it wants to keep wine and beer expensive so that the people will drink less of it. To that end, in the wholesale market the state bans volume discounts, sales at negotiated prices, sales on credit and delivery to a customer’s warehouse.” But of course, that’s not the only reason. The more commonly understood reason is that it levels the playing field for retailers and does not give an advantage to large retailers like Costco. And large retailers generally enjoy a huge advantage in most other types of products since there are few restrictions in other classes of goods that prohibit volume discounts. And that undoubtedly pisses them off, because they naturally want to dominate everything they can. In an earlier editorial piece, I stated that I don’t always agree with the NBWA. Well this is one of the times that I do agree with them. Not allowing large box retailers to bully lower prices for volume buys may indeed lead to incrimentally higher beer prices, but the difference is worth it. Because the real benefit it that small retailers theoretically pay the same wholesale price as the big guys do. That allows at least a consistent price and reduces lowballing and squeezing competition out of the market. I say theoretically, because at least in California I know of several ways in which the big retailers get around these restrictions.

Costco’s paltry beer selection generally favors the big three and a few giant imports like Heineken and Corona. Larger Costco’s in certain places also often carry a couple of regional players like Sierra Nevada or Anchor and maybe one or two local breweries that are chosen on a market by market basis. We’re talking about a dozen or so skus. To give that some perspective, when I was the beer buyer at BevMo, at its peak, I had over 1400 beer skus. So Costco wants to change state law — and is willing to spend legal fees by the keg — over a pretty miniscule percentage of the available packages in the state. Changing this law the way they want to, may have the effect of lowering the price of a few beers, but that will undoubtedly widen the gap between craft beer and large brewery products. And that makes it harder for brewers to induce consumers to trade up for better beer.

I know I may be in the minority on this one, but I think beer should be more expensive. Good brewers make great beer, work very hard and should be rewarded for their efforts. But the drive by large brewers to keep volume up also keeps prices artificially lower than they should be. As I’ve said before, this also has the effect of keeping the gap between craft beer and mass-produced unnaturally wide, and this causes craft beer sales to suffer, in my opinion. But until we can persuade the average consumer that it’s very much worth their while to support good beer by being willing to spend a little more for it, this will continue to be a Sisyphus-like struggle.

I don’t know where the Washington State Brewers Guild, a trade organization of small brewers within the state, comes down in this debate, but in my opinion they should be supporting the three-tier system, at least for now. There are definitely reforms that are needed to the present system, but the changes this suit is seeking will benefit only a small number of businesses, and the state’s craft brewers won’t be among them.

The editorial continues:

The effect of these bans is to keep prices high. Maybe that encourages a few of the penurious to stay sober, though we don’t think the state’s attorneys who make this argument really believe it.

Certainly it is not the motive of the distributors who have lobbied the Liquor Board for years. The Liquor Board does them a favor by forbidding them to cut prices, forcing them to mark up their bottles by at least 10 percent and forbidding them to sell below cost.

These are not health restrictions to benefit the people. They are economic restrictions to benefit the beer and wine distributors at the expense of the people.

…

There will remain a high-end market, though small producers, distributors and retailers may have to scramble. That is business. The extent of changes will depend on how many customers are motivated by price — and that should be up to them.

A fallacious component of their argument is that when they refer to customers with varying motivations by price, they’re talking about the same customer — they’re clearly not. Not all consumers of beer and wine are after the same thing, of course. Some may be looking for the cheapest possible package of lawnmower beer, some for a decent craft beer to pair with a home-cooked meal, while still others may be looking for the experience of enjoying a limited vintage barleywine. While the first may only care about price, the second may have some concerns about it within a certain range and the latter is more interested in acquiring a fine beer, with little regard to the price (within reason, of course). Removing the price controls as Costco envisions will clearly effect the first group, may have some limited effect on the second, but almost no effect on the last group. But the only change we can pretty much guarantee is that cheap beer will get cheaper and good beer will remain largely unchanged, thus widening the gap. And that’s bad news, I think, for the small craft breweries.

The argument that these “economic restrictions … benefit the beer and wine distributors at the expense of the people” certainly sounds like a lofty principle is at stake. But a closer inspection of the way the beer business works reveals that really only the big box retailers like Costco and Wal-Mart will benefit. Things may not be perfect the way they are — and they certainly aren’t — but Costco envisions a world in which they make more money and everybody else loses. And that’s certainly not good for “the people.”

My Visits From A-B

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After my post yesterday afternoon about Wild Hop Lager, Anheuser-Busch’s new foray into craft beer, I felt pretty good about being able to let the cat out of the bag, so to speak. But I also admit I wondered if they would be any reaction from Goliath. After all, another beer blog, Thom’s Beer Blog, was visited by A-B less than two weeks ago, so I knew they were at least monitoring the blogosphere.

This morning I got my answer. I was visited four times in less than an hour beginning around 8:40. The first visit was at least nineteen minutes but one visit lasted at least forty-five minutes. I say at least, because the way my site meter figures how long a visitor stayed at a site has to do with the space in between the arrival and clicking the first link. They can’t tell how long a visit takes place if they only visit one page and then leave. But the total of their four visits is at least longer than an hour. No comment was left, but it will be interesting to see if I get any further contact or more direct contact from them. I have not had many flattering things to say about them lately, but I also can’t imagine the rantings of one insignificant beer writer would cause them any discomfort. Of course, I like that old journalist’s maxim that the media’s job is “to comfort the afflicted and afflict the comfortable.” It should be interesting to see if anything happens next.

Here’s the screen capture of the long visit. Notice the name of their browser is a “brew browser.” I like that.

UPDATE (Mar. 24; 11:53): I got my fifth visit just before noon, but I think this is unrelated to the morning visits because they found me by searching Google’s Blogsearch. Because this is so new, my post is actually the only hit you get when you search for “wild hop lager.” I guess that would be the definition of a scoop. Cool.

UPDATE (Mar. 24; 13:32): Visit number six turned personal, with someone from the company reading my biography and my goals for the blog. So either I’m being paranoid, or A-B is trying to learn more about me for … well, that’s the troubling bit, isn’t it?

UPDATE (Mar. 27; 13:25): Visit number seven was a short one and, so far, the only one after the weekend.

UPDATE (Mar. 28): Visit numbers eight and nine were both short, and as far as I can tell at least one of them was unrelated.

UPDATE (Mar. 29): Visit numbers ten through fourteen were throughout the day.

UPDATE (Mar. 30): Six more vists today, fifteen through twenty, inlcluding one for half an hour.

UPDATE (Mar. 31): Three more vists this morning, numbers twenty-one, twenty-two and twenty-three.

UPDATE (Apr. 3): Visit number twenty-four looked at 19 pages in 8 minutes.

UPDATE (Apr. 4): Visit number twenty-five was the only one today.

UPDATE (Apr. 5): Visit number twenty-six was this morning and twenty-seven this afternoon.

Wild Hop Lager: A Wolf in Sheep’s Clothing

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I’m walking through my local independent grocery store this afternoon, trying to get everything on my list when I realize I’m in the beer aisle. Old habits die hard, so I survey what’s there and notice a beer I’ve not heard of before: Wild Hop Lager. I pick up the six-pack carrier and pull out a bottle. Green Valley Brewing Company? Ever heard of them? Me neither. Now I’m only human but it’s not often that I’m stumped. I don’t usually run into completely new breweries I’ve never heard of. So I take a closer look at the packaging and read everything on the label. It’s supposedly organic certified by the UDSA? But in the back of my head I’m thinking it was a different organization that certified organic status. Didn’t I read that somewhere in connection with Wolaver’s a few years ago? The packaging looks good, almost too good. It’s slick and well done and even uses printed crowns, unusual for a start-up brewery. I’m becoming suspicious, I can’t even say why at this point. There’s a web address on the carrier, but there’s no brewery information on the label. No address, apart from Fairfield, California. Uh-oh. I pull a bottle out of the carrier again and examine it more closely. Only one more clue, but it’s a compelling one. There at the bottom of the bottom, on the left hand side, is a freshness date. That’s also a curious thing for a new brewery to have on their label. I feel like Sherlock Holmes and things aren’t adding up. But I’ve got a hunch, and it’s a pretty good one, too, I think, as I head home to check it out.

When I get home, I type in the website URL and wait for it to load, which doesn’t take too long. It has an age verification check, and it’s feeding my hunch, too. How many small breweries have those? The webpage itself is only one page, with no clickable links anywhere, just a message “Check back soon for more on Wild Hop Lager.”

The entire website consists of a picture of the bottle and the following text:

Let the Good Times Grow

Wild Hop Lager is made with 100% organic barley malt, giving this certified USDA Organic brew a hearty taste that is rich and flavorful. Plus, with every purchase of Wild Hop Lager, a donation will be made to the Organic Farming Research Foundation to improve and educate people on organic farming practices. Together we can set a better example for future generations.

Organic … and they donate to charity. This is getting better and better. So I do a whois search to find out who is the owner of the domain name and — I’m almost giddy when I see it — I’m right. It belongs to Anheuser-Busch of St. Louis, Missouri. I dig a little further and discover the Maltlog on the website for the Missouri Division of Alcohol and Tobacco Control. On February 6, 2006, A-B applied to register “Wild Hop Lager” and “Harbin Lager” and both were granted on February 10. Ohio similarly approved the name on February 14 of this year.

Now this isn’t the first time Anheuser-Busch has tried to make a microbrew. Anybody remember Pacific Ridge Pale Ale? As far as I know, they’re still making kegs of it at the Fairfield plant and selling it to restaurants and bars as their own private label craft beer. But there’s one distinct difference between Wild Hop Lager and Pacific Ridge. On all the Pacific Ridge packaging, it was clearly disclosed that it was an Anheuser-Busch package. With Wild Hop Lager, no such disclosure is made. In fact, it appears downright designed to appear to be a real craft brewed beer, not that that’s new either. There never was a Plank Road Brewery (it was Miller) or a Blue Moon Brewery (that one was Coors), either.

This is just the latest attempt to regain flagging sales. With good growth in the craft beer segment, it’s hardly surprising that they’d try to make their own craft beer-like product. It’s their modus operandi, after all, to infiltrate any segement of the market they can and either dominate it or shut it down. That this was so clandestine is a little surprising and most consumers, I fear, won’t realize they’re being duped. I’m perfectly okay with Anheuser-Busch making a better beer, but I’d be a lot more comfortable with it if they didn’t go about it in such a way that seems so underhanded and deceitful.

Anheuser-Busch’s new macro-micro on the shelves of my local grocer.

UPDATE: Several people on various forums have commented that they would have liked to see tasting notes for the beer here. While I was unwilling to part with the $8 necessary to provide tasting notes, the San Francisco Chronicle did a blind tasting of the beer as a part of their coverage of this story on March 30.

Miller Beer: Follow the Leader

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Miller Brewing Co., now officially SABMiller since being acquired by South African Breweries, is used to living in the shadows. They’ve been the number two brewery in the U.S. for as long as most of us can remember. Today a Business Day story reports they’ve acquired their second overseas brewery in recent weeks. Slovakian brewery Topvar is the latest one. The other was Peruvian brewery Backus, most famous for Cristal Beer. Including the Miller beers, SABMiller currently owns approximately 150 beer brands worldwide. These include Carling Black Label, Castle Lager, Henry Weinhard, Leinenkugel, Peroni and Pilsner Urquell though most are line extensions or very small breweries.

But as is typical for the Avis of the brewing world, they’re taking the same steps as Anheuser-Busch and shoring up their import portfolio. Though with the notable exception of Pilsner Urquell, their brands are somewhat second-rate. I don’t wish to denegrate the quality of some of the beers in their portfolio, although that could be done easily in a few cases, but rather to suggest a lack of market leaders or brands that not are well-known, especially to Americans.

It wouldn’t surprise me a bit if we hear Molson Coors has gobbled up another imported beer shortly. They big three seem to act with one brain much of the time, especially when it comes to business decisions. You get the sense they all look to A-B to see what they’re doing and then react accordingly: either by doing the same or, every once in a blue moon, choosing a different path. It seems strange, but you watch this long enough and you get the sense it’s one elaborate game of follow the leader. Unfortunately, the game also appears rigged.

Underage Drinking: The Albatross of the Industry

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I got a press release today that got me thinking from the National Beer Wholesalers Association (NBWA), a trade group that sometimes represents the same interests as the brewers and sometimes not. The NBWA, of course, represents the interests of the middle man, the beer distributor. A great distributor can do wonderful things for better beer if they care about what they’re selling. There are many instances where this has happened and many regions of the country with a vibrant beer culture owe much to the work of the beer distributors.

On the other hand, there are equally many, if not more, who care only about making a buck or selling only their major brand. Several years ago Anheuser-Busch — why is it always these guys? — instituted a program they called “share of mind” to get their beer distributors to sell only A-B beer and little or nothing else. This was good for them but terrible news for the hundreds of small breweries who also depend on distributors for the distribution of the beer. In many states, the distributor model is institutionalized in ways which leave the brewer no choice but a third-party beer distributor to sell their beers. Most of these laws were set up after prohibition and in many cases the laws themselves were written by big brewery lawyers. So it’s no surprise that most of the alcohol laws in this country favor them: they were after all designed that way. The idea was that it would do away with the violence and fighting that marked the prohibition period and also it would somehow benefit the consumer. How giving territorial monopolies to a business would benefit consumers is a bit of logic that has always been lost to me but that was the rationale, believe it or not. Here in California, for example, one of the ways it was supposed to level the playing field was by forcing the same pricing on all retailers so that larger retailers could not benefit from buying in bulk. Many devious ways have been created to get around these, of course, many of them even almost legal, but I’ll leave that for the moment. Suffice it to say that not all beer distributors are good for the beer community.

Today’s press release concerns a letter from the NBWA to the Surgeon General in response to a request from him regarding the issue of preventing underage drinking. Now the first, and to me most obvious, problem with that is that I don’t understand how underage drinking is a health problem? It’s not like smoking and getting lung cancer. There aren’t teens dying of liver failure, are there? (I know hazing has had its share of drinking related fatalaties but blaming the beer in those cases is like blaming the knife in a stabbing death). My point is that the age of consent for drinking is a policy decision. It was an arbitrary decision to determine at what age a person could legally drink. And the fact that a person can enter the military and die for his or her country but not have a beer is a travesty of the first order. We should at a minimum be willing to give all the rights and privileges of adulthood to anyone willing to lay down his life for us. That we don’t says something profound about our society’s priorities, which in my opinion are screwed up beyond redemption. I remember my three years of military service. We had a soda machine in our day room that dispensed canned beer. But the second we walked off the base, we were treated as children once more, and it was more than a little infuriating.

But I’m at a loss to think of what actual health problems are associated with drinking alcohol at twenty-one versus eighteen years of age. All the usual problems discussed concerning underage drinking are about rebellion, breaking laws and the like. They’re not health issues. So the fact that the Surgeon General is asking the NBWA for advice on underage drinking strikes me as very odd. If the NRA received a similar letter asking their advice about the problem of school shootings, the 2nd Amendment lobby would be up in arms — no pun intended — in protest. But in our puritanical society, fun always takes it on the chin. Anything people are enjoying must be curbed, and usually that’s done through some manufactured concern for the children. There are actually plenty of good arguments why the drinking age should be lowered, but I won’t go into them here. If you want to read more about that debate, here are some good links. [ NYRA / Alcohol Solutions / ASFAR / Both Sides ]

But okay, let’s set aside the ridiculousness of the request and take a look at the NBWA’s response. Here’s the bulk of their letter to the Surgeon General:

On behalf of the 1,800 members of the National Beer Wholesalers Association, I am heartened by the Surgeon General’s request for comments on the very serious issue of underage alcohol consumption.

Beer distributors, as family-owned local businesses, work diligently in their communities to promote moderate consumption and prevent underage drinking. Through, among other things, sponsoring public service announcements, working with law enforcement and school officials, distributing materials to help parents talk to their kids about alcohol consumption and providing retailers with training, signage and age-verification materials, beer distributors devote significant resources to the fight against underage drinking.

While these are worthwhile efforts that have helped to reduce and control the problem of underage drinking, the states’ ability to effectively restrict the sale and distribution of alcohol is the key to keeping beverage alcohol out of the hands of our youth.

Effective state regulation is under increasing attack as various economic interests attempt to deregulate alcohol and otherwise weaken the states’ abilities to strictly control alcohol sales. As a result, some states have been forced to open their borders to Internet sales of all alcohol beverages. Such anonymous access presents a major challenge to the states’ fight against underage drinking, as consumers receive deliveries from out-of-state sellers who can not be effectively regulated by the state.

Indeed, in a study released last year, the National Academy of Sciences estimated that 10 percent of all minors have actually obtained alcohol over the Internet. In addition, numerous states have conducted “stings” to determine if kids are able to acquire alcohol online without being required to show photo identification or provide a signature. Time and again those stings unveiled the frightening ease with which a child of any age can easily obtain alcohol – most often, the brown, nondescript packages were simply left at the front door.

The 21st Amendment gives states the explicit authority to regulate alcohol within their borders. This amendment was designed to ensure states have the flexibility to regulate socially sensitive products accordingly to local norms and standards in order to promote responsible and moderate consumption and discourage abuse.

Special interests’ attempts to circumvent state requirements of regulated transactions occurring in licensed retail outlets are eroding a critical system of alcohol beverage control and putting state regulations at risk.

Beer distributors understand that the products they provide, while enjoyed by 90 million American adults, can cause devastating consequences if abused – especially by those under the legal drinking age. We are concerned that economic interests are slowly chipping away at state alcohol controls and the states’ ability to effectively regulate. This could result in long-term damage to the fight against underage drinking and abuse.

For these reasons, we respectfully request that unregulated alcohol sales and attempts to weaken state alcohol control be a central focus of the Surgeon General’s Call to Action regarding underage drinking issues. The states’ authority to regulate alcohol beverages must be reinforced.

In their response, they begin by going through the litany of various things they currently do to stop underage drinking. These typically involve signs, PSAa and talking to schools and educators. Yawn. If any of those really worked, this would have gone away by now. Anyway, most of what they give to retailers and schools were created by the breweries, not by them. I’m pretty sure the beer distributors have to take those steps either by law or for PR purposes. I don’t believe they’d do them if they weren’t required to in some way.

To be fair to them, I don’t even see why it’s their job at all. They sell beer to retailers who in turn sell it to the public. Wouldn’t it make more sense for the burden to be shifted to the retailer, who is actually the one selling it to minors? I know many retailers are also bound to follow strict selling guidelines to insure only adults buy certain products but it’s still usually the big breweries who produce the ad campaigns for them. That it’s the beer industry that preaches responsible drinking when it clearly runs contrary to the pursuit of profit has always seemed strange to me. But it’s largely because of the neo-prohibitionists who want to criminalize anything enjoyable that might be abused. Breweries can’t be seen as encouraging their customers to have more and more of their products because that would somehow mean encouraging abuse and would in turn give too much ammunition to an ever-vigilant minority who doesn’t want me to be able to have a beer after a long, hard day. These people bear watching, they’re dangerous. I see the whole responsible drinking public service campaigns as being the albatross of the industry, holding it down so it’s unable to fly. We should be able to celebrate wonderful beer and the joys of drinking openly without having to worry that if someone goes too far it can ruin things for everybody.

But then the letter turns interesting. The NBWA goes after interstate internet sales of alcohol as the real bogeyman. This is just hilarious. Forget for a second that telling the Surgeon General this is like telling your dentist about the pain in your foot, and look at their agenda. Internet sales are bad because they give kids access to alcohol. It couldn’t possibly be that what they call being “under increasing attack as various economic interests attempt to deregulate alcohol and otherwise weaken the states’ abilities to strictly control alcohol sales” is actually an economic threat to them? Of course it is. They’re pissed off about losing their own monopolies so they decided to make it an issue of underage drinking. This is so reprehensible that I’m almost speechless. Almost. I’ve had disagreements with the NBWA before and I’m sure I will again. Their ultimate interests are different than mine and that’s okay. But this one is just too out there and somebody has to call “bullshit” on them.

Opening up the states to internet shipping of alcohol made it possible for people to get beer from places where it wasn’t practical for it to be sold through regular channels. In many cases, the local beer distributors (NBWA members no doubt) refused to carry products they deemed would not be popular enough to justify the warehouse space for them. This is great news for consumers and for small breweries with niche market demand. It cut out the middle man — the beer distributors — and made it possible for brewers and the people who wanted their beer to get together one on one. You can see why that’s bad for the middle man. He’s left pretty much nowhere with a refrigerated warehouse full of Bud Dry nobody wants to drink. So let’s play the “it’s about the kids” card, but I’m not buying it and neither should you.

They claim that an NSA study showed “10 percent of all minors have actually obtained alcohol over the Internet.” So let’s look at those numbers. According to the 2000 Census data, there were 281,421,906 people in the total population and 196,899,193 who were 21 years of age or older (which is 70%). That leaves a minor population of 84,522,713. Ten percent of that is 8,452,271 minors who have bought alcohol over the internet. Does that figure seem reasonable to anyone? Then let’s also review what’s involved in “obtaining” alcohol over the internet. You’d need internet access, a credit card and a mailing address that matched the credit card (although I suppose you could claim it was a gift and were shipping it elsewhere). So you figure you’ve got to cut out all kids under a certain age, say nine and under, which is just under 4 million kids. Does every household have internet access. Not yet. Then there’s stealing (borrowing) a credit card or perhaps you may actually have your own if you’re college age or have rich parents. Then there’s where to have it shipped, not to mention the amount to be added to cover shipping (and even light beer is heavy when it comes to shipping). You’d have to choose a house where parents wouldn’t be home during delivery times and shipping alcohol requires an adult to sign for it, too, so you’ve got to figure a way around that problem, as well. So yes, a resourceful, motivated teenager could get it done, but it wouldn’t be all that easy and I find it very hard to believe eight and a half million kids pulled it off. Especially when the time-honored tradition of asking an older brother or uncle to buy beer for you is still the bet bet going, and is so much faster and cheaper and less risky that the idea of using the internet in this way becomes laughable.

In the end, using states’ rights to fight even an imagined health problem — it’s not a health problem but that is still implicit from its source — is prima facie ridiculous. In fact, the entire chain of logic in this whole debate seems surreal to me. First, the Surgeon General of the United States, the top “doc” in the country, asks for advice about what is not even a health problem but a societal one to an organization with no ties to health or, in fact, the problem. After all, beer distributors are middle men: they don’t make the beer and they don’t sell it to the public. Then these middle men respond by saying the way to protect our kids from the evils of underage drinking is to return states’ rights to them and allow them to keep their monopolies and not allow you and me to buy Rodenbach Grand Cru from New York State (since I can’t get it in California — there’s no distributor here) because there’s a small chance the kid who lives down the block might try to order beer over the internet for his next party. I confess I’m really quite tired of giving up my rights as an adult so that children will be protected. Not only does it not ever work, but we should not be willing to create a society that’s fit only for kids on the off chance that a child will have access to something we’ve decided he shouldn’t see, or hear or taste. There’s already a mechanism in place to combat those problems and it’s worked pretty well for millennia — it’s called parenting. I’m an adult. I want to live in an adult world. I don’t want anybody telling me or my child what’s good and what’s bad for him. That’s my job. And now what I really want is a bottle of Rodenbach Grand Cru. Please, for the love everything good, somebody send me a bottle before it’s too late.

Propaganda Works: A-B Stocks Upgraded

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In an AP Story today, at least two market analysts upgraded the stock of Anheuser-Busch (BUD) from “Hold” to “Buy.” One analyst citied as his reason that “[e]arly 2006 volume momentum is encouraging and price increases are holding.” The other was “encouraged by recent brand acquisitions and positive volume trends,” specifically stating that A-B’s “sustained push into the U.S. high-end with Grolsch, Harbin and Tiger are small but positive steps.”

I’d laugh if it weren’t so damned sad and predictable. Both of these analysts seized upon information that Anheuser-Busch itself released as part of its thinly veiled propaganda campaign to get the share price up, none of which do anything to really address the trends that people are drinking less of their beer.

From the AP Story:

Shares of Anheuser-Busch Cos. inched up Tuesday after a long slump as two analysts upgraded America’s biggest brewer, one calling the sentiment on the company too negative.

“After 18 months of share price decline, industry volume slump, and price warfare, the sentiment on BUD now appears overly pessimistic relative to a moderated growth outlook,” wrote Deutsche Bank analyst Marc Greenberg in a client note, upgrading the company to “Buy” from “Hold.”

The analyst added he sees a better tone in the market than a year ago this time.

“Early 2006 volume momentum is encouraging and price increases are holding,” he wrote. “Investor sentiment, however, remains fairly cynical, both qualitatively and quantitatively.”

Bear Stearns analyst Carlos Laboy also upgraded the St. Louis, Mo., brewer, saying in a client note he was “encouraged by recent brand acquisitions and positive volume trends.”

The U.S. beer category, which has seen lackluster sales as of late, is rallying, he said, adding “we believe this industry rally will benefit A-B directly.”

Laboy, who upgraded the company to “Peer Perform” from “Underperform,” said the brewer’s move into Russia and its “sustained push into the U.S. high-end with Grolsch, Harbin and Tiger are small but positive steps.”

The second analyst also claims that the “U.S. beer category” (by which he undoubtedly means only the big three players) is “rallying.” Of course, he offers no evidence of any rally, just that he believes it. Now I know our markets are only as strong as our belief in them and that if everybody lost faith in our monetary system or our economic system as a whole then it would, in fact, collapse. But this is just such a blatant case of wishful thinking trying to become a self-fulfilling prophecy that all I can do is shake my head wistfully. First there’s a rally that doesn’t exist and that rally is the basis of optimism that will turn around a huge coporation’s business woes. It’s hard to believe people really do have any faith in this system yet this was reported without any tongues near a cheek (not counting mine).

The more I follow this, the more and more desperate it all appears. With each new step taken, the Emperor’s clothes are looking increasingly threadbare. I really hope the craft brew industry can seize upon what is looking like a marvelous opportunity to build some momentum that actually has a chance of reaching that magical tipping point. Every small brewery whose business is posting terrific gains should be hounding their local press to have their story told. All the local newspapers and television news shows should be actively looking for positive business stories to persuade their audience that the economy is doing fine, despite all evidence to the contrary. Let’s give it to them. If you’re a craft brewer who’s doing well, start crowing.

Boston Beer to Build Brewery?

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Boston Beer Co., the makers of Samuel Adams beer, bought a brewery about ten years ago. It was a somewhat well-known one, the Hudepohl-Schoenling Brewery in Cincinnati, Ohio. They were a large regional player probably most famous for their Little Kings brand and the Christian Moerlein line. Like many breweries in the past two or so decades they also kept themselves afloat by doing contract work, most notably for Whitbread and Sam Adams. Then in 1997 Jim Koch, perhaps having grown tired of constantly being criticized for being a “just a contract” brewer and not owning a one, purchased it. After recently investing heavily in upgrades, the company expects to brew roughly two-thirds of Sam Adams beer there. ProBrewer reported today that they’re now considering building yet another brewery, this time from scratch with the ultimate goal of brewing all their own beer themselves.

From the ProBrewer report:

Boston Beer said in the report that it’s evaluating its long-term production strategy and could decide to make all of its own beer. Until it bought the Hudepohl-Schoenling brewery 10 years ago, almost all of its beer had been made under contract since the company’s founding in 1984.

Back then, there was idle brewing capacity in the industry from smaller regional breweries. In recent years, many of those regional breweries that had excess capacity have seen increased sales due to the popularity of the craft beer segment, and there’s less capacity available for contract brewing.

If Boston Beer decides to make all of its own beer and build a new brewery, it would likely require an investment of $70 million to $90 million and yield improved operating and freight costs, it said. Company officials told analysts during a conference call this week that the evaluation of its production strategy was ongoing and that they hadn’t developed full economic estimates yet.

CEO Martin Roper said freight costs, beer freshness, and quality control as some of the factors that they’re looking at.