LINE GOES UP

Inflation? Nah. Just greed. 

I just watched a segment produced by CNBC on YouTube about the ‘decline’ for ABInBev’s ‘fortunes’ as the drinks industry continues to evolve past mass-produced American lagers – aka ‘DOMESTIC’ beer. I like doing research this way because someone else has already done a lot of the legwork of compiling earnings reports and putting together charts and coming to conclusions that I can work with. Someday (he says to himself) I’ll be in a place where I can dig into this stuff on my own, but over the last few years I’ve stopped trying to keep up with the sources. COVID definitely didn’t help a remote writer keep track of this stuff; breweries had to scramble to stay open, and a lot of reporting on these issues was confused by the ongoing disruptions and changes to the economy, and even laws relating to the ‘beverage industry’, as one of the wonks on at CNBC called it. She wasn’t wrong, overall, to see the bigger operations surrounding ABI and Moleson-Coors and the others, and call it like it is, but the problem there is that most smaller craft breweries aren’t working the whole market – they’re focused on their particular niche, in their small market, trying to maintain some presence in the face of the big corps’ efforts to CONSTANTLY RAISE PROFIT MARGINS. 

It should be pretty obvious by now that our culture lets things happen that do not benefit the bulk of us. In this case, I’m talking about a massive international corporation pointing their money vacuum at any and everything in the hopes it’ll suck some loose change out of a previously overlooked corner of the industry. AB has bought up a massive number of smaller operators and producers in order to saturate the shelves of stores across the world with their products. This is simply to bolster revenue, and as always, PROFITS for the shareholders while reducing costs any way they can across the board, in every company and niche they’ve bought into. It should disgust the average American consumer, but then they’ll bitch endlessly at the cost of craft beer, which is only as high as it is because the bigger players are squeezing everyone else as much as they can. AB-INBEV doesn’t need that extra half-percentage point of profits to remain in business, but many of the breweries that opened up in the last decade are forced to charge as much as the market will bear for the simple need to continue to exist. A fraction of a point in revenue is enough to knock the front of house staff onto part-time hours when you’ve only got a dozen employees…  

Your small local brewery doesn’t have an R&D budget to employ people to travel the world looking for new products to push in the hopes of opening new sub-markets (that they will then have a near monopoly hold on until the rest of the industry catches up). The continued procession of sour and fruit-added beers is a great example, but if you really want to see an example of this, look at the non-alcoholic sales of brands that had previously focused on boozy staples. If the numbers I saw are accurate, the segment has seen nearly 20% growth over the last few years, a rate nearly impossible to achieve if the big breweries weren’t involved. Just consider how unlikely it is that your neighborhood brewpub has extra capacity – let alone the nascent demand – for NA products. As a brewery owner, before the recent explosion, you’d have a hard time looking at your product line-up and coming to the conclusion that you needed an NA product. Only the most prescient breweries saw the market trends and started these product lines before they exploded…I can think of a few in the PNW, my favorite being Three Magnets Brewing out of Washington. But that is an operation that has always been at the bleeding edge of new beer styles and products, including seltzer and pre-mixed cocktails. Other breweries would struggle to get anything off the ground in time to hit the first wave of these new product categories’ popularity, for many reasons. These are complicated decisions to make in an industry that can change almost overnight and could be disastrous if taken too far.  

The CNBC piece (release on Nov.29.’22) focused on AB specifically, which has expanded it’s ownership stakes in companies that aren’t even related to beer, but share the same shelf space and consumer habits – kombucha, seltzers, pre-mixed cocktails, and ‘energy’ drinks that fall outside of the sports drink category, which they already dominate (Gatorade is often put on grocery store shelves by the local big beer distributor, in my area it’s Columbia Distributing). They simply WEREN’T MAKING ENOUGH PROFITS OFF THE BEER ALONE. Endless corporate profiteering and mergers demanded more and more profit off higher revenues, which is the core reason we find ourselves in this spiral of endless inflation, after decades of this kind of shit has eroded any pretense of fair competition for anyone that doesn’t have the same two-dozen corporate officers that rotate around the boardrooms of these companies. That era of the Wolf of Wall Street in the 80’s manifested itself in the very top of these ever-expanding companies, driving the LINE GOES UP mindset, which is unsustainable in any industry, and will cause harm if allowed to fester in boardrooms. 

One result is that now, Budweiser finds itself painted in a corner as a brand, since its own corporate direction has increased the options of target consumers, and the competition it faces from similar brands – some within the same corporate umbrella. While scrappy micro and regional breweries were starting to crack the market in the face of many millions of dollars in advertising spending, AB et.al were searching for the next big thing to fracture the market down even more, just to gain that percentage point of quarterly profits, year after year. In the most glaring of developments, all that ad spending has created a market for flavored hard seltzers, which has also been taken up by the smaller brewers, furthering the chaos in a market described as ‘tight’ by most. Along with that explosive N/A segment growth, it would seem that the biggest beer brands in the U.S. and most of the world are struggling to maintain interest, while they expand heavily into seltzers.  

Huh. Imagine that. 

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I remember – vaguely – watching as AB started branching out. I really didn’t pay any attention to the timing, but I remember seeing products like Mike’s Hard Lemonade start to take up shelf space right next to the larger format single containers of Bud (et.al).  The Mike’s brand is owned by one of the other big players in the brewing market, which just shows how valuable that change in mindset was among a certain type of younger drinker after two decades (ish, I’m not doing research right now) on the market. Before that, I hazily recall a range of domestic beers that were uninspiring. In the 90’s there was Zima. We banged shots of Red Dog and Mikey’s (the green grenades) because we thought it would get us drunk faster – but also because the stuff tasted terrible and the only way to drink it was quickly. Of course, by the time I was drinking beer, the industry had been pursuing those profits for decades already, with popular brands being bought out, regional breweries becoming properties of the nationals and, eventually, international corporations with little concern for their original consumer markets. 

Zima was the big one in my younger years, a full-on attempt to break into a market that was probably described internally as ‘FEMALE DRINKERS AGED 18-30′. Looking back, it would have been so much easier to find a new segment and expand it since the brewing industry was heavily geared toward male consumers, but the results were disappointing to the balance sheets, and so Zima remains a legendary flop among booze historians. But it left a mark – it openly admitted that there was a market for drinkers who weren’t 20 and male at a time when American consumers were becoming more aware of the possibilities available to them as segmented consumers. It’d be nice to say that in the 90’s, the brewing industry finally saw the ~50% of humans who are female, and subsequently formed around the idea of equality and inclusion of the sexes in both the industry and consumers, but sadly, that’d be a complete lie. Even to this day, the industry seems exclusive of women and POC in general from top to bottom, EXCEPT where they stand to be a profitable segment to cater to. Racism and sexism aren’t direct results of LINE GOES UP business mentality, but the relentless drive for profits above all else doesn’t leave much room for change in the upper ranks. The impressive success of this approach, with revenues of (does actual research and holy jesus2021) $54.3 BILLION, just justifies all of the corporate mergers and bullshit thus far, to the people who matter the most: SHAREHOLDERS. 

But now they’re staring at vastly changed market, with a dated product that hasn’t changed much – if at all – since well before current target consumers were born, with dozens of competing products not just flanking their core business but coming at it the from inside the house. The big players pushed all these new products and brands and segments to grab a few more dollars from the typical grocery-store buyer while subsidizing giant stacks of their mass-produced flagship sub-5% lager product, but now find themselves in trouble as post-covid buying habits have changed the industry in one fundamental way: Everyone has relatively easy access to canning and packaging systems now, and the consumer is burdened with choices. The big beer producers have spent decades locking down beer distribution on a state-by-state level, having spent untold millions of dollars on politicians who created laws that kept them insulated from challenges to their dominance.  

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It’s important to recognize how much companies like AB needed control of local distribution to stay profitable over the decades; the history is far too complicated to go over on a blog (several books could be written on this topic alone). In most states, a producer of booze could not legally sell or distribute their product to consumers or retailers directly and had to rely on a (hypothetically) separate distributor to get their product to market. Early 20th century business practices and the not-minor prohibition movement meant that there was a boy’s club mentality and a motivation to throttle competition wherever possible with the application of money into the legal and justice systems of the time. As post-war spending drove expansion and mergers, fewer people cared about the morality of the blatant bribery and political manipulations that would lead to MORE PROFITS, and turned their heads while the current system was built to cater to large brewers. These systems, put into place many decades ago, were still operating in the same fashion when a little pandemic came along and upended the market for their tiny (tiny) competitors. Small changes had been made in places like Oregon and Washington to allow smaller distributors to handle the breweries that weren’t big enough to get the attention of giants like Columbia (yearly revenues of ~$500million) but overall, self-distribution wasn’t possible in most states for operational, if not purely legal, reasons.  

Suddenly taprooms and brewpubs and the entire retail-draft revenue stream vanished, overnight. Breweries across the country found themselves facing an existential threat – if they could not distribute their beer to retail outlets, they had no way to survive. The cold truth is that without asses in seats, a significant number of breweries with established market share and consumer interest were strictly out of luck (SOL). Plenty of incredibly popular beers have been financed, in part, by the money made at the brewpub selling food alongside the draft. Outside of that tiny footprint, if they didn’t have cans or bottled product already in production…they were fucked. The saving grace of this small industry, though, is the fact that ‘INDEPENDENT’ brewers are still immensely proud of being small producers and wholly owned by locals and employees. These folks have an industry group now, after 20 years of struggles to gain respect in the face of constant belittlement from the corporations afraid for their shelf slots. They went to legislators around the country to lobby for fast – if temporary – changes to liquor laws at the state level in order to help them stay viable in the face of a completely imploded market.  

After some scrambling, though, many small breweries were blessed with the means to start expanding beyond the walls of their taproom onto retail shelves. Here in Oregon, one brewery in particular was renowned for being a draft-only distributor, at least to my mind. Boneyard Brewing, based in Bend, had only done a few limited-release cans before COVID, but their flagship RPM and Hop Venom IPAs could only be found on tap at better places around the state. With everything shutting down almost overnight, though, they needed a new business model, or they’d be out of business shortly. What had appeared to be a resistance to retail-level distribution from Boneyard has since changed to focus on retail distribution, so much so that they’ve embraced large-format 19oz cans that sit right alongside similar cans of BudLight in the same door, for roughly twice the cost (but at 9% for the double IPA, the value is undeniable). The temporary changes made to distro laws initially were often made permanent, so these newly canned beers could be delivered not just to retail outlets, but directly to consumers AT HOME by UPS or other freight service. Many breweries chose to self-distribute, rather than negotiate the process with companies that move a half billion dollars of Bud every year already, meaning they took control of the distribution themselves. It can be tricky, but in a state where people respect the independent craft side of the industry, if you’re a brewer with a solid beer, you’ll find willing outlets for your products. 

Industry plants will tell you that this represents a tiny percentage of overall beer sales in the US….but we’re talking about the relentless NEED FOR PROFITS here. Percentages matter to these people. Fractions of a percentage point of profits represents millions of dollars being paid out to shareholders (and executives, can’t forget about these insanely rich corporate types, can we?), and there really wasn’t a whole lot the big corporations could do to stop these changes without dropping the mask and declaring outright war on smaller producers. Those well-paid execs will trip over themselves to smile and say that any market or segment growth is good for everyone, you know…but they’ll stop short of admitting that they’d prefer to control that growth themselves with their own brands. Greed is ugly. INBEV spends millions of dollars a year on research of all kinds, as I mentioned earlier, in order to be the first to market with EXCITING NEW PRODUCTS! (shudder). The changes to distribution laws in states across the country were something they couldn’t have anticipated, and they’ll be scrambling for a few years to gain traction against these new variables because they were focused on domination instead of actual growth. Go figure.  

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I’ve been trying to straighten up some things in my personal life – if you’re interested, those posts will stay up for a while longer, probably – but this represents some thoughts I’ve had on this topic over the last few years. Much of what I’ve written here is entirely opinion, and not based on research, except where I’ve mentioned it. When I immerse myself in a topic, I go deep, and compile information on top of my working experience, which consists of visiting many of Portland’s breweries, taprooms and bottle shops while I deal with the aforementioned personal issues. I read. I talk to people. I find myself talking to brewers and marketing people and owners and bartenders and random dudes at the bar next to me that are infinitely more knowledgeable than I am on the business side of things, and it all settles into a picture that I want other people to see.  

The change to widespread canning and self-distribution seems small at first, when you look at the overall numbers being posted – but tens of billions of dollars are at play if consumers get tired of ‘domestic’ beer. The impact will grow over time, as more producers see their competitors on the shelf of the 7-11 at the busiest corner in town and join the game. Canning systems are cheaper than ever, more capable, and more people have experience running these operations and creating the contacts to distribute the final product. ABInBev is right to be worried about those billions of dollars slowly walking away to the corners of the markets they pried open in their relentless pursuit of PROFITS. They opened the door for people like me to pop in – LITERALLY next to you at the grocery store or bottle shop – and say ‘Hey, if you like that, try this!’ to consumers who would’ve previously been a BUD or MILLER man. The folks at Budweiser worked hard to create a market where you’d be a one-brand consumer, modeled after the car industry (seriously, think of your friend who is a die-hard Ford owner), and spent obsessively to get in front of the eyes of boys and men aged (teen) to 30 to establish that brand loyalty.  

Faced with the current market, though…is it even possible to think that one day, Bud Light and Miller and Coors won’t be the mega, massive pervasive brands that most people are familiar with? What does this industry look like when the biggest brands on the face of this earth are relegated to a small stack of thirty packs at the end of the isle, rather than the massive displays that start to pop up for New Years and slowly grow until that one famed sport game everyone but me watches in Feburary..? Just recently, we saw the banishment of beer from the world soccer finals (world cup? Again, I don’t watch stick-and-ball sports at all). Aside from the humanitarian issues that kept it in headlines, the other thing that caught my attention was the last-minute decree that beer sales and advertising were banished from the interior of the stadiums because the Muslim (? Not sure of the appropriate appellation here) government decided it wasn’t interested in making world headlines with drunken fans on-screen. Whatever the actual reason, the effect was the cancellation of marketing and advertising that had been planned years in advance, spending in the tens of millions of dollars simply to have brand placing in front of the cameras at these events.  

At first glance, this might not seem like such a huge deal, but again, it’s the little things that will have ripple effects for years to come. World governments used to be malleable to huge amounts of corporate cash, but we’re seeing the first signs that this power has diminished. Around the same time as the soccer games started, INBEV announced they would relinquish advertising rights for that other big game I mentioned, which is a massive shift in marketing priorities since they’ve dominated the annual ‘best commercial’ conversations for decades. Despite my concerted efforts to not ever give a shit about Budweiser, I still remember the damn frogs, which shows just how effective these ad campaigns have been over the years. Faced with a diffusing consumer base, they’ve decided to abandon one of the few vehicles left that Budweiser has piloted intently to reach the mass consciousness. Much like the Golden Arches, though, they’ve got brand recognition that will probably survive this re-positioning and prioritization of spending because it’s a functional part of popular culture now. What will they do with those tens of millions spent annually on these advertisements instead? Watch closely, it could get dirty with desperate corporations fighting for any little bit of ground they can get.  

If I manage to make this transition myself, I may follow up, eventually. There’s a lot to unpack here, and even if it’s mostly based on my opinion, I’m calling out details that maybe you’d rather not pay attention to. I often find myself at odds with the common take, but it doesn’t bother me as long as it gets people talking. And maybe writing about the things they see in their local markets might shake things up a bit – I’m sure the distribution situation in the Midwest isn’t anything like what I see and know here in Oregon/PNW.   

One Reply to “LINE GOES UP”

  1. Thanks a bunch, you’ve brought up another topic about beer that I wasn’t aware of.
    Very good points and insight, makes me wonder where the big beer corporations will end up in the next decade.

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