Why big brewery acquisitions are good for craft

 

Despite the constant battles on social media about craft breweries being sellouts, big brewery acquisitions are actually good for craft beer and good for the hop industry. Does anybody believe the brands acquired by big brewers are making worse beer today than they were before their acquisition? If you buy a new car, or even if you buy a used car, you don’t pour sugar in the gas tank just because you wished your old car was still the only car you had. That would be ridiculous! Markets change over time. Naturally, the big brewers want to maximize their profitability and retain their leading roles in the industry. They are adapting to the changes they see around them. Of course, you would take good care of your new car. The same goes with new brewery acquisitions.

Let’s set aside any hatred for globalization for a moment. Let’s curb any jealousy of or envy toward a multinational company that has more money than you or I can ever dream of having. Those companies were once somebody’s hobby too. Their owners worked hard for decades to build them into bigger companies and they evolved into the empires they are today. They chose their paths wisely along the way. They survived crises and challenges and emerged financially successful. Unless we’re all of a sudden switching to communism, there’s nothing wrong. Being successful and making lots of money is the goal of capitalism … isn’t it? It may not be the best system, but that’s a debate for another time.

When I was young, people didn’t demonize rich people or big companies as much as they do today. Don’t get me wrong. I’m not saying big brewers are angels. If you’re an American driving a locally-made Tesla, eat fresh vegetables from your own garden and don’t buy anything made anywhere but in the U.S., then you have earned your hippie merit badge and have every right to criticize big brewers. Otherwise, you’re being hypocritical by demonizing big brewers for their success. Their size alone does not make everything they touch evil. If you feel that way, stop using Google, or that fancy phone in your pocket. Bigger is not always better, but it’s not always worse either. I’ll step down off that soapbox now. That’s definitely enough politics to get everybody reading this far riled up.

What is craft beer anyway? The Brewers Association in the U.S. defines a craft brewery as follows:

Source: http://www.brewersassociation.org/brewers-association/craft-brewer-definition/

 

The Brewers Association revised their definition of what craft beer is so that it could include craft breweries that were growing beyond the limits they previously thought possible. Why did they do that? Revenue. They adapted to the changing times, a reasonable thing to do. If you were running the organization, you probably wouldn’t want to lose the revenue or the representation of some of your largest, most successful and longest-standing members. So, the people who get all fired up about big brewery acquisitions of craft breweries let an arbitrary definition of craft beer define their preferences. Somebody could make a good argument that a “craft” brewery is one that does not distribute farther than 100 miles from the point of production. A craft beer fanatic could argue that a real “craft” brewery only self distributes its own product. If the Brewers Association adopted one of those alternative definitions as their definition tomorrow, would loyal craft drinkers and social media warriors then begin to hate every brewer that fell outside that definition? Presumably, the quality of the beer wouldn’t change just because the definition of craft brewer changes. That reminds me of the book 1984 by George Orwell. There is a constant state of war and Big Brother defines the enemy. Is Oceania at war with Eastasia or Eurasia? Think about this … Why do we need a war in the first place? We are all on the same side.

Let’s look at big brewers from a hop merchant’s perspective for a moment. It’s definitely a love-hate relationship. Big brewers have deep pockets. They buy huge volumes of hops … so you need them, right?* Before jumping in what seems to be a bed of roses, you need to first look for the thorns. Big brewers often demand long payment terms of 90-120 days, if not longer, to pay for their hops. Some big “craft” brewers today, however, can take up to a year or more to pay their bills, if they pay them at all. Unfortunately, some craft brewers today decide it’s cheaper to ignore their contracts and buy on the spot market instead. They assume they will not be sued. You won’t see a big brewer doing that. A big brewer might play games to delay their payments. They may tell you that the invoice got lost on the way to accounting. A big brewery might demand new higher quality standards or procedures that suppliers must follow or the product will be rejected. When asked if they will pay more for those changes to be implemented, they inevitably reply, “Oh no … from now on that’s a prerequisite for the right to do business with us”. That leads to the next fun fact about dealing with big brewers … Some use their size to demand lower prices than their competitors or they will take their business elsewhere. Everything I listed above we have seen from big craft breweries. Some big craft breweries are reading from the same playbook. They’re doing all the things I just mentioned. I could give more examples, but you get the idea. At the end of the day, it doesn’t seem there’s actually much difference between a “craft” brewer people idolize and a multinational brewer everybody demonizes after all … except maybe the Super Bowl commercials.

Good doggie! Jump through the hoop and you’ll get a treat. The hoops never stop coming. Just last week, we just received an environmental survey from a brewery that doesn’t buy from us directly. It wasn’t that long ago that we heard a little criticism from the same company about pricing and how prices need to decrease to be more competitive. Irony! Naturally, the brewery wants to work with “partners” who are being environmentally friendly … the inference being that they won’t work with you if you aren’t. 

Don’t get me wrong … we’re all about loving the environment. It’s the only environment we’ve got so we all should care about environmental issues. We have implemented environmentally friendly practices. We’ve also implemented food and employee safety measures. Let me tell you … All those things cost money. High standards and low prices don’t mix. It’s more than a little naïve to think the hop industry can continue to go the extra mile to be environmentally friendly when brewers are constantly seeking prices so low that they don’t provide the margin to pay for those practices. That’s not sustainable … ha ha … there’s another word everybody likes to throw around.

Of course, we’re all good capitalists when it comes down to it. That’s a nice way to say we’re all greedy bastards at our core. Money drives a lot of our decisions in general, but definitely in business. It’s ridiculous to think that successful craft brewers with an offer from a big brewery would not consider, or even take the offer. In fact, a big brewery offering to buy a craft brewer could be the best thing that can happen to that craft brewery. Big breweries receive consistent supply, high quality, low prices and good customer service and their subsidiaries will too. Big breweries also enable craft brewers to pay their bills. Sales seem to increase after a brewery is acquired by one of the big guys. From a business perspective, it seems there are no drawbacks to the craft brewery.

From a hop merchant perspective, the financial stability, business acumen and order that big brewers possess would be a welcome addition to the craft brewing industry. Some craft brewers are definitely more creative types than businesspeople. Unfortunately, sometimes that translates into brewers getting mad when market prices fluctuate against their contracted position. Some crafty brewers justify ways to walk away from their contracts (in their own minds) in favor of cheaper spot hops even though their businesses are thriving just so they can make an extra buck.

Sure, there are plenty of social media warriors claiming they’ll never drink that beer again because they sold out. If to look at the sales, however, it seem their protests don’t matter. Could it be that the social warriors just want to feel cool on their page and aren’t actually following through with their threats? Maybe. I suspect there are a lot of converts to craft brands precisely because big breweries acquire them. It’s no secret that big brewers wield a disproportionate amount of control over distribution in the U.S. Acquisitions result in more shelf space and access to more stores for craft breweries. That means more exposure to potential customers who might not have considered craft beer before. If people are truly leaving in protest, then those people’s purchases aren’t crucial for the growth of the company. Ouch. That’s a blow to the social media warrior’s ego.

Let’s think about it this way … if the goal is to encourage the consumption of craft beer, shouldn’t we encourage big brewers to buy more craft breweries so even more people can try it? Wouldn’t that increase the preference for craft beer overall? If you’re reading this, you probably have tried craft beer. Imagine when more people get exposed to the amazing flavors and varieties of beer available. They won’t go back. If old-school beer drinkers shift to craft beer, regardless of how they get there, aren’t we all winners in the long run?

 

*Full disclosure … We do not sell any hops to big multinational brewers. I am not writing this article because I have fat contracts with big brewers to protect. Just like any other merchant though, we would happily sell them hops, because at the end of the day business is about money and making a profit. Unfortunately, the big brewers with whom we spoke would not agree to our terms and conditions. J