Brookston Beer Bulletin

Jay R. Brooks on Beer

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Anheuser-Busch Picks Up Another Import

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Anheuser-Busch announced today that they would be extending their portfolio of imports to include Singapore’s Tiger Beer, a product of Asia Pacific Breweries. This is the scond such announcement in less than a month, when in late February A-B also announced distribution of the Dutch beer Grolsch.

From the press release:

Anheuser-Busch will become the U.S. importer of Tiger Beer, a leading premium brew from Singapore, expanding the American brewer’s portfolio in the growing U.S. import category, the two brewers jointly announced today.

The agreement gives Tiger Beer access to Anheuser-Busch’s broad marketing and sales expertise and to its wide-reaching U.S. distribution network, which is considered the best in the industry. The deal follows the recent announcement of a similar partnership with the Dutch brewer, Grolsch, continuing an aggressive push by Anheuser-Busch into the high-end beer category.

“Tiger Beer is recognized as one of Asia’s finest beer exports,” said August A. Busch IV, president of Anheuser-Busch Inc. “Tiger Beer is a high-quality, premium brand that is a perfect complement to our growing portfolio of import beers.”

….

Imported beers represent approximately 12.4 percent of the total U.S. beer market, selling 25.6 million barrels in 2005.* The segment grew about 7.2 percent in 2005* and has experienced an average growth rate of 5 percent over the past five years, making it one of the fastest-growing segments of the U.S. beer market.

* Department of Commerce Data provided by the Beer Institute [who we already know cannot be trusted — editor’s note. See my previous rant about the Beer Institute’s being in thrall to A-B via the Here’s to Beer ad campaign.]

The agreement will be effective May 1, 2006. Terms were not disclosed. The imported Tiger Beer will continue to be brewed at Asia Pacific Breweries’ Singapore brewery for export to the United States.

Anheuser-Busch is focused on expanding its participation in the import and high-end beer categories as a key growth strategy for its U.S. business. Anheuser-Busch brews and sells two of Japanese brewer Kirin Brewery’s beer brands in the United States – Kirin Ichiban and Kirin Light. In some areas of the country, Anheuser-Busch wholesalers carry Corona and the other beer brands of Mexican brewer Grupo Modelo.

So if you’ve been following along, this is just the latest by an increasingly desperate looking Anheuser-Busch. It’s not that Tiger Beer is bad — it really isn’t — but taken together with all the mischief the King of (Flavorless) Beers has been up to lately to get revenue and the share price back up after a truly disastrous 4th quarter last year, it’s just becoming more and more painful to watch. In my fantasies I’d like to believe this is their death rattle, but I know better. They’re not only not going away any time soon, they’ll be around long after I shake off my mortal boil. But that doesn’t change the true enjoyment out of watching them squirm and struggle, even if it’s only a very little bit.

Gambrinus Company Loses Corona

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Grupo Modelo, the brewery that makes Corona beer won an arbitration against its longtime importer for the Eastern United States, the Gambrinus Company of San Antonio, Texas. When Modelo announced last year that they would not be renewing Gambrinus’ contract, the importer took the dispute to the Paris-based International Chamber of Commerce for arbitration. The contract is set to expire in 2007.

Gambrinus also owns or imports several other brands, including Moosehead, Shiner, Pete’s Wicked, Trumer and BridgePort. Anheuser-Busch also owns 50% of Grupo Modelo.

Beer: “Official Drink of Knuckleheads”

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At the annual Nightclub & Bar Show held — where else — in Las Vegas, Miller Brewing CEO Norman Adami made some surprising admissions in a speech he gave last night. Perhaps they weren’t that remarkable when you consider that he was speaking to a group that consisted primarily of bar owners and it was reported by MarketWatch, a trade magazine that is read almost exclusively by the same people. If you want to know what’s really going on, a good place to start is to read what business people are saying to one another in the business press. There they generally speak with a great deal more candor because their audience is almost exclusively the business community. Since there’s less need to spin the news for the general populace of consumers, you can therefore often find some excellent nuggets of uncommon honesty.

Adami followed the line of reasoning Anheuser-Busch has recently taken that beer drinkers are switching to wine and spirits as they are “significantly outpacing the growth of beer.” He did, at least, acknowledge that craft beer and imported beers “continue to grow at a good clip.” A reasonable person at this point might look to the taste and more flavorful character of craft beers and many imports and conclude that perhaps it was time to stop making bland, flavorless mockeries of beer. Silly you. It’s the fault of marketing. It can’t be the product, it must be the way it’s presented. Adami said that in the mid-1990s, “brewers fell into a pattern of sameness in message, sameness in look and sameness in our products.” Oh, that must be it. He continued. “We were promoting sameness and increasingly going lowbrow. It is as if we were promoting beer as the official beverage of the knuckleheads.” He claimed the consumer “was looking for more diversity and style.” Diversity and style, huh? That sure sounds like a cry for flavor to me. Since the bland American-style pilsners that the big breweries continue to churn out like a bad science project gone awry are the very opposite of diversity and literally have no real style, wouldn’t the logical conclusion be to take a look at the products you’re offering?

Nobody says the big breweries can’t make a decent beer, which is why it’s all the sadder that they no longer do. There’s almost no one left alive who can remember what big brewery beer tasted like before World War Two. That’s when the slide toward mediocrity really began. The U.S. government asked the breweries to make watered-down versions of their beer because they didn’t want soldiers to be drunk while bullets were whizzing all around them, which is quite sensible. Of course, not drinking at all might have also made sense but those were different times and attidtudes were also different, to be sure. But the unfortunate result was that when the soldiers returned many of them also brought back a preference for the blander beers they had in the war. And every brewery was happy to oblige them since a watered-down beer is also a cheaper beer to make, which means more profits. So what began innocently, continued for decades of slowly making beer more and more bland until it reached its zenith in the early 1980s with the popularity of light beers. It’s hard not to see the ensuing microbrewery revolution of that same time period as a backlash to the bland beers of the day.

But as if you needed more proof that profit is king, Miller will not be improving the taste of its beer by the reintroduction of flavor to fight this crisis. Instead they will be “overhauling the packaging and marketing of its big domestic brands, including Lite, Genuine Draft and High Life, while heavily promoting imports including Pilsner Urquell and Peroni.” Well that ought to do it. Whew, dodged a bullet there. That should keep the shareholders happy.

He concluded by commenting that there are signs of “a reawakening in the American beer business. I believe the industry is going to get its marketing mojo back.” Well, what a bold prediction. That’s just what the American beer business needs: better commercials, better billboards, better sports sponsorships, better methods of selling but decidedly NOT better beer. If there was ever a better opportunity for craft beer to step in and fill the public demand for “diversity and style,” this is it.

Amazing A-B Turnaround! Wow, That Was Fast!

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Wow, these guys are good. Just a few weeks ago A-B was talking about their earnings dip like the sky was falling, running around doing anything they could think of. “Pick up more imports” (Grolsch), try to buy up some microbreweries, “create an ad campaign to celebrate beer” (Here’s to Beer), and “introduce new products” (Michelob Ultra Amber). Well I guess it was all worth it because yesterday it was anounced that Anheuser-Busch was “restoring sales and earnings momentum.” Whew, I’m glad that’s over and we can all relax.

Of course, I can’t help but wonder what “Restoring Sales And Earnings Momentum” actually means. Just on a purely semantic basis, how can you restore momentum? Merriam-Webster defines momentum as “strength or force gained by motion or through the development of events.” Is it even possible to “restore” so quickly something that by definition takes time. Momemtum must be gained slowly, it’s not like a race car weaving through the business landscape. But that’s propaganda for you. Frame something in a positive light and the facts or common sense hardly matter.

Frankly, if I were a shareholder I’d be concerned about these wide swings. First we’re up, then we’re down, now we’re up again all in the space of a few months. You’d think people would be more concerned with fixing any problems (not that any have been admitted, it’s always someone else’s fault) on a long term basis so they wouldn’t resurface. But shareholders are apparently a finicky bunch afflicted with a economic form of ADD. They want growth and earnings and they want it now dammit, or they’re selling. It’s the adult equivilent of play-my-way-or-I’m-taking-my-ball-and-going-home. They’re not in it for the long haul. So it’s not terribly surprising to see A-B float some small positive numbers and then spin it so they’re magically back on the road to recovery. Nothing will really change, but the share price goes up and everybody’s happy.

From the press release:

Through a number of new sales initiatives, the company restored its domestic beer volume and market share growth in the second half of 2005. Anheuser-Busch’s wholesalers’ sales-to-retailers increased 0.8 percent in the second half and grew 2.7 percent in the fourth quarter (both on a comparable selling day adjusted basis). Anheuser-Busch brands gained six-tenths of a share point at the consumer level in both the third and fourth quarters, according to IRI supermarket data. The company’s sales momentum has carried over into 2006, with wholesalers’ sales-to-retailers up 2.9 percent through mid-February.

Watch out any time you hear the euphemistic “new sales initiatives” which most likely means lowering prices. Most beer companies already do this a bit more in January and February, because they are traditionally the slowest months for beer sales. But lowering prices also has the curious effect of raising volume but lowering profit, and wasn’t that A-B’s problem in the first place?

And check out these numbers they’re crowing about. People tend to read headlines and maybe the first paragraph, studies have shown. So it’s no surprise the actual numbers that indicate restoring of momentum are in paragraph two, where it’s finally revealed that “wholesalers’ sales-to-retailers increased 0.8%” and “grew 2.7 percent in the fourth quarter (both on a comparable selling day adjusted basis).” Woo hoo. Now I know in terms of dollar amounts, because A-B so large, that even small percentage gains probably equal millions, it’s still not exactly the sort of numbers you expect people to start sending out press releases about. But also look at the paranthetical information. “Comparable selling day adjusted” is basically a trick to compare periods of time that have different numbers of days in them, that is it’s another way to potentially lie with statistics or at least show things in the most favorable light possible.

More from the press release:

Restoring cost stability is expected to take longer than restoring volume and pricing. Over the last three years, the domestic beer company has experienced substantial increases in commodity costs, most recently from aluminum, glass and energy. Commodity cost pressures continue in 2006. Commodity costs tend to be cyclical over the long-term and the company is actively working on a number of productivity initiatives to improve the cost outlook.

Just as an aside, I love the language that corporations use. Craft brewers use ingredients, supplies, etc. A-B uses “commodities.” Small brewers pay higher electric bills, big corporations experience substantial increases in commodity energy. That just cracks me up.

Normally, when supply costs go up you’d expect that prices to consumers would also rise. And while there have been modest increases, A-B and to some extent the other big breweries (because they’ve had to align their pricing with A-B to stay competitive) have minimized these as much as possible due to perceived consumer resistence to paying more for beer. Over the years this has kept big beer prices relatively low, especially compared with craft beer (which is generally much more expensive to produce). So their complaints about costs seems more like whining to me. They could raise prices to a percentage of actual supply costs anytime they wanted, but over the years they’ve trained their customers to expect low prices and now this strategy is starting to backfire. Plus, of course, profits would also suffer further indignities.

The other effect of keeping their prices artificially low is that the gap between a six-pack of Bud and a six-pack of something with flavor is necessarily higher. This has been a bone of contention of mine for quite some time. If A-B’s pricing reflected the same markup as craft brewers then the difference between their beer and something worth drinking would be substantially lower, making it much more possible for craft brewers to persuade consumers to trade up to their beers. But any consumer that is driven by price alone needs a lot more education about what he’s buying before he’ll be willing to change his buying patterns.

But the general meaning of this latest missive from Anheuser-Busch is, I think, yet another attempt to change their recent fortunes. When I wrote earlier that big companies will do anything to get the share price up, this is one of those “anythings.” I think we’ll see a lot more of these smiley face upbeat press releases over the next few months. We just have to remember to take them for what they really are: propaganda.

Anderson Valley Goes Solar

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Anderson Valley Brewing Co. of Boonville, California announced today the completion of an almost one million dollar project to generate their own solar power to brew beer. A final inspection was successfully completed today by PG&E and their new state-of-the-art photovoltaic system went on-line immediately thereafter.

“We‚ve got solar powered beer going on here,” said Peter Suddeth, longtime brewery employee (and press release author). “You can drink it and feel good that you’re helping to preserve the environment.”

From the press release:

The $860,000 project includes two arrays; a 175 ft. by 53 ft. array on the south facing roof of the brewery’s cellar and packaging facility, and a separate 120 ft. by 24 ft. ground-based freestanding array. The 125 kWh system is the largest privately owned PV system north of the San Francisco Bay Area, and among the largest in the western hemisphere. The brewers hope that the system will produce as much as 40% of their annual electrical needs.

The project underscores the brewery’s longstanding commitment to keeping its environmental impact as low as possible. “We feel an obligation, specifically to this pristine valley in which we’re located, but to the rest of the world as well, to be responsible with resources. We recycle as much of our waste as we can; paper, plastic, glass, cardboard. We have our own waste water reclamation system, and now we can greatly reduce our reliance on outside electricity,” said brewery president, Kenneth Allen “Solar is the future. We’re proud to be getting a jump on it,” Allen continued, citing statistics showing that almost 75% of the electricity used in California is generated with nonrenewable resources such as coal, natural gas, and uranium. Solar energy is currently California’s most abundant source of electricity, and yet, at under three tenths of a percent, it is the most under utilized. (Source: 2004 Net System Power Calculation Report, Energy Commission Publication # 300-04-001R)

The installation of the first 391 solar panels of the large array (592 panels; 175 ft. by 53 ft.) on the roof of the brewery’s cellar and packaging facility back in June of 2005. [photo by Peter Suddeth, AVBC]

From left: Pete Gregson, of Advance Solar in Calpella, California, and Rod DeWitt, Director of Plant Engineering & Process Control at Anderson Valley Brewing, discuss the completed smaller array (176 panels, 120 ft. by 24 ft.). The Roof of the Brewhouse, and about half of the large array can be seen behind. [photo by Peter Suddeth, AVBC]

Carlsberg’s Historical Copenhagen Brewery to Close

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Carlsbery Brewery of Denmark announced today that it will be closing it historical Valby Plant at the end of 2008. Brewery operations will be moving 125 miles away to their Fredericia facility in western Denmark, which will be getting a new brewhouse to increase capacity. They will continue to brew speciality beers at the Jacobsen brewhouse in Valby, but everything else will be moving. Bloomberg News reported on the business aspects of the decision.

Happily, the historical brewery, which has brewing there since 1847, will be developed by Carlsberg though exact plans have not yet been decided. But at least, as reported by Food Ingedients First, “the famous brewery horses and the historical buildings such as the Elephant Gate, the brewery, the museum, Carl’s Villa, the Carlsberg Academy and approximately 20 other buildings that Danes consider to be of major culturo-historical merit, will not be affected by the plans to close production in Valby.”
 
 

The famous Elephant Gate.
 

The gate from a distance with the modern Carlsberg highrise in the background.

The brewery in Copenhagen.

The Dipylongate at night.

Grolsch to Be Distributed Nationally by Anheuser-Busch

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Anheuser-Busch announced today that beginning in 2007 they would begin exclusively distributing Grolsch in the United States. The Netherlands beer is most famous for its unique green bottle and ceramic flip-top crown. The AP Story by Christopher Leonard ran in today’s LA Times, as well as other papers throughout the country and abroad. From the press release:

Anheuser-Busch will become the U.S. importer of the upscale Grolsch traditional European beer brands, giving the American brewer a well-established and popular entry in the growing U.S. import category, the two brewers jointly announced today.

The agreement gives the Dutch brands access to the Anheuser-Busch broad marketing and sales expertise and to its wide reaching U.S. distribution network. The deal is part of an aggressive push by Anheuser-Busch into high-end beer categories.

….

The agreement will be effective January 2007. Terms of the agreement were not disclosed. The imported Grolsch beer will continue to be brewed at the Grolsch brewery in Enschede, Netherlands, for export to the United States.

Grolsch is currently distributed by United States Beverage (USB) of Stamford, Connecticut. Calls to USB for comment were not immediately returned. I will update this story once they have responded. USB was founded by Joseph J. Fisch, Jr., formerly of Seagram’s. Grolsch was arguably the most popular beer in their portfolio. Once rumored to be in line to pick up Bass Ale, they currently also distribute SLO Brewing and Mariner of Holland, along with several alcopops and coolers.

Washington State Contemplating Beer Commission

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Elysian Brewing co-owner Dick Cantwell was featured in an AP story which ran today in the Seattle Times. It appears that the state legislature is “poised” (their word) to create a state beer commission to promote Washington-made beers.

From the article:

The crusade to establish Washington-made as a premium microbrew brand is in line for some help from the state Legislature, which appears willing to create a new industry promotional arm called the Washington Beer Commission.

If lawmakers give their blessing, the commission would be officially empowered to levy a modest tax on its producers, put on fundraising festivals, and — perhaps most importantly — give away free beer.

“I drink milk, personally,” said state Sen. Marilyn Rasmussen, D-Eatonville, a dairy farmer who is a sponsor of the Beer Commission bill. “But as long as they use Washington hops and Washington barley, I approve.”

The beer makers’ model is the Washington Wine Commission, seen as instrumental in promoting the state’s most well-known adult beverage during its rise to national prominence in the past 20 years.

Dick Cantwell, brewer and co-owner of Elysian Brewing.

 Sounds good to me. Washington certainly makes some wonderful beers and they should shout about them. In addition to being home to the first brewpub in modern times — Grant’s in 1982 — Washington state won the sixth highest number of medals at last year’s Great American Beer Festival. There are 54 active members of the Washington Brewers Guild and include many world class breweries.
 
 

And congratulations to Dick on the good press.

Local Farmer to Re-Open Bert Grant’s Pub

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Bert Grant opened the country’s first brewpub in 1982 in Yakima, Washington and had been a fixture in the industry until his death in late July of 2001. Due to various financial troubles after his death, the original brewpub finally shuttered its doors in December of last year. But as reported last week in an AP story that was printed throughout local papers in the Pacific Northwest, Aaron Gamache, a 31-year-old beer lover and hop farmer in Toppenish, is planning on re-opening the pub under the name “Bert’s Pub” as an homage to Bert Grant, a move that has been endorsed by Grant’s family. Sounds like a nice legacy and one which I wholeheartedly — or would that be wholehoppedly — support.
 
 

Bert Grant and me at the Oregon Brewers Festival some time in the mid-1990s.

Craft Beer Up 9%, Leads All Adult Beverages for 2nd Consecutive Year

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We’d been hearing the rumors for a couple of weeks now but today the Brewers Association made it official. They announced today that the craft beer industry is showing excellent growth for the second consecutive year. This on the heels of Anheuser-Busch’s announcement of 4th quarter revenue having fallen 54.7% (before taxes) on February 1. Unnamed sources had previously told me the 9% figure was primarily in regional players and there was uncertainty how the smaller local brewers had fared. It appears now that these brewpubs and local brewers had another good year, as well, at least based on these numbers. This is excellent news for the industry and further signs that it has truly become a mature, stable industry.

From the press release:

Boulder, CO — February 16, 2005 – America’s craft brewers sold 9.0 percent more barrels of beer in 2005 versus 2004 making craft beer the fastest growing segment of the US beverage alcohol industry for the second consecutive year, according to the Brewers Association, the Boulder, CO-based trade association for US craft brewers.

“Craft beer volume growth far exceeded that of large brewers, wine and spirits in 2005,” said Paul Gatza, Director of the Brewers Association. “And even though imported beer grew nicely in 2005, craft beer grew at a faster rate.”

The Brewers Association estimates 2005 sales by craft brewers at 7,112,886 31-gallon barrels up from an adjusted total of 6,526,809 barrels in 2004, an increase of 586,077 barrels or 8.1 million case-equivalents.

Compared to craft beer volume growth of 9.0 percent, spirits volume increased at 3.3 percent in 2005 and wine volume was up 2.9 percent. The import segment of the beer industry rose 7.2 percent in 2005 while non-craft domestic beer volume declined slightly for the year. This establishes craft beer as the fastest growing segment of the US beverage alcohol business for the second year in a row.

“Consumer enjoyment of the flavor and diversity of craft beer continues to fuel healthy, steady growth in this segment,” said Ray Daniels, Director of Craft Beer Marketing for the Brewers Association. “Small brewers lead the entire industry by offering flavorful, interesting beers.”

The craft beer segment includes more than 1300 small, traditional and independent breweries which produce primarily all-malt beers. It includes both brewpubs which sell beer primarily at their own pub or restaurant and packaging breweries that distribute beer in kegs, cans and bottles to a wide range of retail outlets. The Brewers Association has tabulated industry growth data for these breweries annually since 1985.

One year ago, the Brewers Association reported craft segment growth of 7.2 percent for 2004, a year in which wine (2.7%), spirits (3.1%), imported beer (1.4%) and non-craft domestic beer (0.5%) all reported substantially smaller growth rates.

“The strong growth by craft beer in 2005 is especially impressive because it comes on top of strong performance in 2004,” said Gatza. For each of the last two years, craft beer growth has been stronger than in any year since 1996. He also noted that 2005 is the third year craft beer growth rates were stronger than those for imports. “Craft beer clearly leads the beer industry in consumer appeal.”

Not to rain on the parade just as the marching band strikes up the first tune (Roll Out the Barrel, no doubt), but I do feel compelled to point out that while this is great news and worth celebrating, by the numbers the craft beer industry is still just a drop in the kettle compared to overall domestic beer production.

I mention this simply to remind myself — and everyone else — that while we may have won a nice victory, the war still rages on. Anheuser-Busch has already been showing concern about the craft beer industry, despite our small overall numbers. Big corporations cannot accept any erosion of their market share or profits, so even our small gains they consider a taking from them. And believe me, this is not just about their pathetic “Here’s to Beer” campaign. There have been recent persistent rumors that A-B is approaching (or in some cases having their distributors approach) a large number of regional and local breweries about acquiring them. Let that sink in. Bud is looking to buy up a bunch of breweries, and is starting perhaps with the biggest and most influential. That would be a catastrophic event for the fledgling craft beer industry. (I know I just suggested it was mature and stable, but not as compared to the giant 100-plus-year old corporations.) If they are successful in waving carrots in front of enough beleaguered, overworked brewery owners then the jig could well and truly be up. And A-B has bigger, deeper carrots than all of the craft beer industry combined (I confess I made that last statistic up, but intuitively it feels right).

I’m reminded at this point of New Belgium Brewing co-founder Kim Jordan’s impassioned keynote speech at the New Orleans Craft Brewers Convention several years ago where she argued for solidarity among the industry to reach the lofty goal of 10% of the market. And while I may have concerns about New Belgium’s own business practices in this regard, I think her words resonate just as strongly today. This is exactly what we need to do. We need to close ranks right now. For those of you who are fans of American football, think about all of the post-victory locker room speeches. It doesn’t matter what team, the coach makes the exact same speech. Enjoy this moment, your win, but don’t rest on your laurels. Take tomorrow off, but then it’s back to work the next. This is just one victory, there’s another battle next week. And that’s true here, too. Let’s enjoy this moment. I for one will open a special beer tonight. But let’s also remember the war is hardly over and there is much to do. But for now, congratulations to all the brewers and breweries.