.Craft Beer Keeps Growing, And Corporate Beer Keeps Swallowing Up Independent Breweries

Billboards that shill beer usually don’t have much to communicate beyond “Get drunk and party.” But there’s one advertisement perched above Interstate 880 as it weaves through downtown Oakland that offers something more: a peek at the future of beer in America.

It’s a promotion for a brew called Wolf Pup, by Golden Road Brewing, which is based in Los Angeles. The pink and blue can design and the style of beer — IPA, of course — target twenty-something drinkers, who tend to prefer a craft beer in hand instead of a corporate lager such as Budweiser.

The catch, however, is that Golden Road is not an independent craft brewery. It’s owned by Budweiser.

In the past 12 months, Anheuser-Busch InBev — the overlord of dozens of popular brands, from Bud to Corona to Stella Artois — has doubled its portfolio of smaller craft and independent breweries by acquiring new companies such as Golden Road, which was founded in 2011.

Why? Sales of traditional corporate beer are trending downward, while sales of beer of craft origin are surging into double digits, up nearly 13 percent in 2015, according to the national Brewers Association.

Craft beer now makes up more than 20 percent of the $106 billion in annual national beer sales — and this booming market is gnawing at the bottom line of so-called “Big Beer.”

AB InBev isn’t the only one snatching up independent breweries. In the past year alone, MillerCoors paid an estimated $35 million to acquire St. Archer, a San Diego-based craft outfit; The Heineken Company bought half of nearby Lagunitas Brewing Co., for $500 million; and Constellation Brands, which brews Modelo, acquired Ballast Point Brewing Co. for a cool $1 billion.

To top it all off, AB InBev will fork over more than $100 billion to gobble up a chief competitor, SABMiller — which owns Miller and Fosters and even bottles Coca-Cola — in an acquisition that the Department of Justice antitrust officials finally (perhaps inconceivably) approved this summer. Now, AB InBev controls more than 30 percent of the global beer market.

Big Beer is a veritable monopoly monster — complete with foaming at the mouth and wild, sloshed eyes.

Perhaps it’s no surprise that the craft-beer industry is wary of this mutating corporate-beer beast. Or, at the very least, the sentiment is as Alex Tweet — brewmaster and co-owner of Berkeley’s Fieldwork Brewing Co. — told the Express recently: “I think it’s a little silly to pretend that big beer has our best interests at heart.”

Tom McCormick more than agrees. The executive director of the California Craft Brewers Association, which represents statewide indie breweries, hosted the largest beer-industry event of the year this past weekend in Sacramento. Inside a sprawling exhibit hall, legendary brewers and their beer-guzzling faithful rubbed elbows with everyone from artists that design labels to craft-beer attorneys.

The only beer people who weren’t part of this industry shindig? Bud, Coors, and Miller.

McCormick, a player in the beer world since the early Eighties, was frank about the Big Beer menace. He’s worried about more mergers and acquisitions, and how these will squeeze out indie brewers. And he’s also anxious of this new AB InBev animal’s infinite coffers, and possible future spending on legislative campaigns to damage smaller craft producers.

“If you were to ask me the greatest threat to our industry now, that is far and away it,” he said of macro beer. “And it is clear now what their strategy is:

“If you can’t beat them, buy them.”

The Modern Beer Boom

Craft beer’s popularity seems to increase with the tapping of each new keg. But even the most ferocious “beer bro” probably doesn’t fully grasp the industry’s unprecedented and historic growth.

Bart Watson is the chief economist for the Brewers Association, a national trade group with nearly 2,000 beer-producing members. He also earned his PhD at UC Berkeley, so he knows a thing or two about East Bay brew. This past Friday morning, Watson held court in front of a standing-room-only crowd of several hundred inside the Sacramento Convention Center, part of last weekend’s summit. To his right was a giant projector screen, and on it a PowerPoint slide that documented the stunning upswing in the number of American craft breweries.

As an example, Watson zeroed in on 2011, when there were just 1,813 breweries. Then, he pointed to what he called the “current explosion” — a line between 2011 and 2015 shooting toward the ceiling — and the number of breweries as of last year:

4,269.

You have to go as far back in time as 1873 for a moment in history when there were as many U.S. companies brewing beer as today.

The interim 150-ish years, however, weren’t so hot for beer. Breweries shuttered and consolidated. And there was Prohibition, so for a while they completely disappeared. What’s interesting, though, is that brew in post-Prohibition America never really emerged from the ashes. Even as recently as 1987, there were just 150 breweries in the entire country.

At this time, the industry was dominated by Budweiser, Coors, and Miller, what with their steady rotation of TV ads featuring majestic Clydesdales, bull terriers in sunglasses, and women in the latest swimwear. Generations grew up thinking that watered down, mass-consumption faux-lager ales were not only the only beers out there, but that they also equaled getting laid.

But Watson explained that, at a grassroots level, beer culture was quietly evolving during the tail end of last century. Federal laws permitting home-brewing nurtured a new guard of industry leaders. Here in Northern California, Fritz Maytag purchased and revitalized Anchor Brewing in 1965 and staved off closure. And Ken Grossman founded Sierra Nevada Brewing Co. in 1979. People started caring about the flavor and character of beer. Craft beer trade guilds were formed. And by 2000, some 1,566 breweries had opened nationwide. It was a modest resurgence.

But nothing compared to the eruption over the past few of years.

This national expansion is reflected in California, where approximately 16 percent of the nation’s breweries operate, according to statistics from CCBA. In 1990, there were just 67 breweries in the Golden State. Today, there are more than 720.

Here in the East Bay, brewery growth has been modest — at least compared to boom markets such as San Diego and Sacramento — but the number of craft draft handles at beer bars and restaurants is definitely increasing.

A vast majority of these new breweries are neighborhood, or “nano,” most of which produce fewer than 1,000 barrels annually. That’s not a lot. By comparison, the four largest breweries in the state — two AB InBev facilities, one Miller Coors location and Sierra Nevada Brewing Co. in Chico — each put out more than 1 million barrels a year.

But while these new craft breweries may be minor in volume, their influence is mighty. This is in part because they serve people where they live, in the community via tasting rooms, and not at the supermarket. Today, some 78 percent of Californians live within five miles of a brewery, and 21 percent live within a mile, Watson explained. “Where there are people, there are breweries. That’s the future going forward,” he told the audience.

Some 95 percent of the beer produced by these smaller craft businesses is sold in-state, and much of it at beer bars or tap houses. Adair Paterno, who sits on the CCBA board of directors and co-owns popular brewery Sante Adairius Rustic Ales in Capitola, just south of Santa Cruz, says that she and her partner earn a living off of brewing just 1,500 barrels annually.

“Selling pints over the bar, it’s a healthy business,” Watson summed up.

GPS and smartphone technology have also accelerated this rapid expansion of off-the-beaten-path breweries and tasting rooms in warehouse districts, explained John Martin, owner of Drake’s Brewing Co., which produces between 30,000 to 40,000 barrels a year out of nearby San Leandro. Today, consumers can more readily locate beer destinations, and brewers take advantage of cheaper rents in these increasingly popular neighborhoods.

At the same time, craft beer is making significant inroads at grocery stores, where consumers are gradually opting for new brew discoveries over traditional macro beer. As of last year, for instance, some 36 percent of the beer sold at Oakland and San Francisco supermarkets was craft, which is up 1.1 percent over the prior year, according to IRI data provided by the Brewers Association.

And out-of-state breweries trying to compete here are “generally getting their butts kicked by California breweries,” Watson said.

To get even more granular: Most of this new growth is being driven by one style in particular, IPA. Consider these somewhat shocking statistics: In recent years, 36 percent of total national volume growth of craft beer was IPA. That’s pretty dominant. But then along came last year: that same number was 95 percent. (Not a misprint.)

In San Diego, IRI data suggests that, next year, one out of every two beers sold at grocery stores will be IPA.

The CCBA’s McCormick admitted that his contemporaries would have ever expected this kind of industry advancement some thirty years ago. Which of course begs the question: Is this a “Peak Beer” moment in California?

“Not really,” was his succinct response. “Maybe if you had four [breweries] on [a] street corner. Maybe. But a community can support a number of these” smaller beer producers.

Other major California beer experts echoed his confidence.

David Walker is co-founder of Firestone Walker Brewing, one of the largest craft producers in the state, which puts out more than 300,000 barrels of beer annually all over the country. At the summit, he forecasted even more accelerated and extraordinary growth. “There will be 10,000 breweries in this country” in the near future, he predicted — which means the industry boom isn’t even at the halfway point. Ten-thousand breweries would put craft beer on par with the wine industry.

And that’s why Big Beer is brewing up all sorts of new strategies to serve craft, despite some major growing pains.

Budweiser Strikes Back

In 2011, AB InBev purchased Chicago-based Goose Island Brewing Co., an independent brewing operation known for its popular barrel-aged stout. Today, Goose Island is AB InBev’s go-to “craft” offering at sports stadiums, bars — and, apparently, even on airplanes.

Vinnie Cilurzo is the founder of Santa Rosa-based Russian River Brewing Co., famous for its coveted and cult Pliny the Elder double IPA. At the beer summit this past weekend, he shared that he regularly flies on United Airlines and, on a recent trip, he noticed that “Bud Light got knocked off” the in-flight menu for a craft offering, a Goose Island pilsner ale.

His point was that craft beer is experiencing tipping points unforeseen, such as a macro brew losing proverbial shelf space to micro offerings — albeit in this case a craft-beer impostor. (Cilurzo kidded after this story that he “drank a gin and tonic” instead on the flight.)

But Big Beer as a danger to the independent-brewing industry is, as McCormick warned, no joke.

AB InBev in particular is accustomed to $40 billion-plus annual revenues, and surely its shareholders want to preserve that income despite insurgent craft-brew competition.

What, then, is Big Beer’s end game? To take over all aspects of the beer industry, from production to distribution to retail — and either buy up or pinch out the independent-brewing rivals?

Here in Oakland, for instance, AB InBev purchased Horizon Beverage Company last summer, just one acquisition in a spree of distributor takeovers in 2015. McCormick said these business moves by the beer giant amount to the company’s newest efforts to whittle away what are called “tied-house laws”: federal and state rules that curb alcoholic-beverage suppliers from influencing or outright controlling the retail sector.

Tweet, the head brewer at Fieldwork, said macro beer’s intrusion on distribution should also be a concern for the industry. “Where can ‘Big Beer’ threaten us?” he asked. His answer is distro. And his solution? “We self-distribute.”

But breweries in only 35 states can self-distribute, and many face restrictions — constraints that Big Beer constantly is working to tighten.

McCormick claims that corporate beer is targeting distribution and retail rules because craft is competing more aggressively in “their space,” a.k.a. supermarket shelves or draft handles at restaurant and bars. “‘Big Alcohol’ wants to chip away at tied house laws,” he said. “So, going forward, our legislative political frontier is preserving [these rules].”

An encouraging development for the craft industry was that the Department of Justice put a limit on self-distribution capacity of AB InBev after its acquisition of SABMiller. Yet the beer lobby remains surgical and, well, crafty when it comes to its tied-house dissolution strategy.

During the latest California legislative session, for example, corporate beer attempted to pass a bill that would have allowed chefs or bartenders to be paid to act as pitch-people for products at restaurants or grocery stores. The proposed law seemed innocuous. Yet, in the eyes of the craft-beer producer, it was a foot in the door, a way for macro beer to buy a relationship with a retailer — and hopefully ensure that more Budweiser ends up on shelves or menus. McCormick came out hard against the bill, and it never made it through the Legislature.

It was a different story in Missouri, where that state’s governor actually signed a law that allows AB InBev and other major distributors to lease refrigerators, complete with branded advertising, to stores — and with it the implicit agreement that the fridges be packed with cold, corporate beer.

This is a small-ball approach to chipping away at tied-house restrictions. But it’s working.

Other lobbying efforts are more flagrant, such as Big Beer’s battle in Florida to keep 64-ounce growlers banned. The Sunshine State had disallowed growlers, which are popular for filling up beer at craft breweries, until the law was changed in 2014.

And of course, there’s AB InBev and Co’s more shameful efforts to cut off craft beer from farmers. Since macro brewers deal in huge volume, they can exert pressure on major grain and malt cultivators — and try to prevent them from providing to smaller breweries.

And now, after the SABMiller acquisition, the craft industry fears that Big Beer will further leverage growers and work to increase production costs for the little guys.

“We remain concerned about how past, pending, and future acquisitions may shift the dynamics of the current beer market,” Brewers Association CEO Bob Pease said in a statement this summer.

Meanwhile, the acquisitions keep on coming. Last week, AB InBev swooped up Belgian craft powerhouse Bosteels Brewery — producer of Tripel Karmeliet and Kwak — for a reported $225 million.

Natalie Cilurzo, who sits on the CCBA board and also co-owns Russian River with her husband, Vinnie, said at the summit that she expects “a lot more mergers and acquisitions and partnerships” in the coming years. This is in part because the corporate beer powers are throwing a lot of coin around. But it’s also because many veteran brewers are in the twilight of their careers and, as she put it, might be looking for an exit strategy.

But she also articulated that the newfound attention from the big beer forces could also be an opportunity. “I think that it’s a sign of maturity for our industry,” she explained.

With age, will the industry find wisdom to persevere?

The Future of Brew

Two rows of more than a hundred white tents stretched for multiple city blocks. The state Capitol’s snowy rotunda dome beamed in the distance. Underneath each tent was a California brewer, shaded from the toasty Sacramento sun on a Saturday afternoon, armed with some of the most sought after beer in the country. At 3 p.m., thousands of ardent fans speed-walked to some of the more popular tents: wild ales at The Rare Barrel of Berkeley, double IPAs and farmhouse beers at Monkish Brewing Co. of Los Angeles. After a few hours, hundreds of men and women were sufficiently buzzed and busy tossing cornhole bags or line dancing on the Capitol Mall grass. It was a party — a celebration — and, again, no Spuds Mackenzie or corporate brew overlords invited.

McCormick, in fact, believes that mainstream beers such as Bud and Coors Light might someday disappear completely. “I think industrial lagers will eventually go away, because it’s a really uninteresting product,” he wagered.

He said it makes zero sense that the future of beer be dominated by one singular style, let alone a flavorless quasi-lager, and that not even boundless corporate advertising can unhook the appeal of craft brew among the under-forty crowd.

That said, there is evidence that the proverbial craft-brew boom is subsiding. Nationally, the percent of growth by volume of craft is at 8 percent this year, down from 13 percent in the year prior, and 18 percent in both 2013 and 2014.

“We’re a big industry now, and it’s just hard to grow at 18 percent when you’re a big industry,” was economist Watson’s reasoning.

Tomme Arthur, the founder of San Diego’s The Lost Abbey brewery, thinks it is humorous how some in the industry are calling this a speed bump. “It’s almost funny to think that we are apologizing for 8 to 9 percent growth,” he joked at the summit.

Arthur has been in beer for more than twenty years, and he said he’d never seen anything like the preceding five. He likened the industry to cars on a freeway. “I don’t suspect that there’s a bubble coming, but there are going to be lots of collisions,” he explained.

Tweet is also from San Diego, where he helped open Modern Times Beer before heading up north to Berkeley to open Fieldwork. He says he and his business partners recognized an oversaturated market in the southernmost part of the state, and a need for beer in the East Bay. So, they opened shop in the 510.

“One of the threats is over-crowding,” Tweet told the Express. He said too many breweries are taking up trendy neighborhoods, but the problem is that the number of places to serve their beer has been stagnant. “You have more and more breweries fighting over the same tap handles — and more breweries keep entering” the market and competing, he observed.

“It’s like these breweries are on a small safety raft, but instead of finding their own drift wood to hold onto, brewers keep piling inside the same boat,” he wrote in an email discussion after the summit. “And eventually it’s going to sink.”

Fieldwork seems poised to not just float, but sail. Its business model is unique. Every drop of beer produced is served within a 75-mile radius of their Sixth Street location in Berkeley. This aligns with Tweet’s mantra to serve the freshest brew possible. And the beer sells fast: a hundred-barrel batch of IPA disappears in three days.

“We sold more beer last month than we made,” the brewer said.

Fresh beer has led to quick and remarkable growth for the year-and-a-half old Fieldwork. Their capacity is currently at 6,000 barrels, but will be at 10,000 by the year’s end. And they’ve opened two satellite tasting rooms, one in Napa and another in Sacramento. Plus, there are plans to open two more, in early 2017.

They’ve become a regional powerhouse without putting a single can or bottle in the supermarket.

Fellow locals Drake’s Brewing is expanding similarly, what with the Drake’s Dealership location in Uptown Oakland, and another location planned for West Sacramento next spring.

McCormick called these brick-and-mortar overtures into other markets “kind of a new thing.” But it’s also popular in new beer communities: Mitch Steele is leaving Stone Brewing Co., for instance, and plans to open a new spot in the underserved market of Atlanta.

Will these advances into other craft brewer’s turf spoil the industry’s notable camaraderie?

Tweet said he doesn’t think the kumbaya days are over. “I have phenomenal relationships with tons and tons of breweries, and it still is like a brotherhood,” he said.

McCormick said he thinks the craft community will stay tight knit, continue to succeed, and not fall victim to Big Beer. He likes to come back to the story: The industry was kick-started by artists-scientists, people who founded breweries upon a culture of helping. “They don’t get in it to make money. They don’t get in it because their parents expect them to be brewers like a doctor or dentist.

“They get in it for the love of brewing.”