Monday, April 11, 2011

When Selling Out Isn't Selling Out

A shock wave went through the world of craft beer last week, when Anheuser-Busch InBev bought out family owned Chicago brewery Goose Island for $38.8 Million.
Or, at least, there should have been a shock wave, right? When an innovative craft brewery like Goose Island gets bought out by the world's largest brewer, it should be surprising.
But it really wasn't.
They were already a part of the Craft Brewer's Alliance, a distribution network partially owned by AB-Inbev (so I guess I fibbed about that "family owned" thing in the first paragraph). And this isn't the first such purchase in recent weeks, as Anchor was recently purchased by large beverage company the Griffin Group.
The reason for the purchase is supposedly simple: Goose Island's brewing capacity was maxed out, and to meet increasing demand, they needed an influx of new capital. They had already cut out some of their core brands (namely their Nut Brown Ale and Oatmeal Stout) to increase production on brands like 312 Wheat, Honker's Ale and IPA, and demand was continuing to grow. Also, founder John Hall is 68 years old, and can't be doing this forever. This purchase is seen as one of the few viable exit strategies available for a craft brewery business.
Some agree with the move and see it as a positive sign for the future of craft beer. Beer writer Andy Crouch argues that not only will the purchase help Goose Island expand their distribution, but it shows a shift in the way large breweries like AB-Inbev look at the high-end beer market. Rather than trying to win customers by pimping fancy imports and "cartoon" craft beers like Shock-Top Belgian White and Budweiser American Ale, the purchase shows that AB-Inbev feels it is better to buy up and support craft breweries then try to compete with them with their own products. This is echoed by what Dave Peacock, president of Anheuser-Busch's U.S. division, told the Wall Street Journal last Monday: “We really needed to radically change our position in the high end."
There is one question Crouch and others putting a positive spin on the sale aren't asking: does a brewery have an obligation to meet their demand? What if Goose Island didn't get an influx of cash and had to limit their distribution? Many other breweries are making that choice. Stone, Boulevard and Dogfish Head have all recently pulled out of Wisconsin. Certainly all of those breweries could sell beer in Wisconsin, but they don't have the capacity to meet all of their demand and are choosing to shift their sales to places where they feel the demand is higher or the sales will come easier (which is the same thing, I suppose). And then there are breweries like New Glarus who choose to limit their distribution specifically to stay small and avoid losing the family-run aspect of the business they built from the ground up.
That's not to say that every brewery should limit their distribution to one state as New Glarus does. I for one am glad I can buy Goose Island beer, and am sad to see breweries like Dogfish Head leave the state, but the fact remains that this was not the only choice they had.
Goose Island had a tasting at Star Liquor last Friday, and I asked the rep who was hosting what his thoughts were on the sale. He echoed the statements made to the press that it will help with capacity issues. My fear, I told him, was that AB would shift focus to their big sellers, leaving their more innovative beers (especially the very limited release beers like the excellent vintage reserve series) on the chopping block. He told me that he thought the opposite would happen, adding that AB will likely take over brewing 312 (which amounts to over half of their sales), allowing the Goose Island brewery to put more focus on their specialty beers.
I hope this is true, but there is reason to have some doubts. Longtime brewmaster Greg Hall is leaving his position April 30th, and will only have an advisory role after that. And we don't know if AB will take a hands-off approach with their new acquisition or attempt to streamline the brand.
I'm a bit torn on whether to keep supporting a brewery once it has been bought out but a behemoth like AB-Inbev. Say what you want about Goose Island selling out, they are undoubtedly one of the pioneers of the craft brewing movement and over the years have continued to be one of its greatest innovators. With Bourbon County Stout they invented the bourbon barrel-aged aged imperial stout, which has become almost ubiquitous among "serious" craft breweries. If Matilda wasn't the first beer brewed in the US with Brettanomyces in it, it was one of the first and certainly one of the best. And this innovation hasn't slowed down since their entrance into the Craft Brewers Alliance in 2006. Since then they have introduced a number of new beers, including variations on Bourbon County and the great barrel-aged sour beers of the Vintage Reserve Series. Now they're brewing a beer with kombucha cultures in it, and it actually tastes good! Supporting small local companies is undoubtedly a big part of the appeal of being a craft beer drinker, but if Goose Island continues to put out innovative and delicious beer, it will be very hard for me not to support them.

17 comments:

  1. What are the details of the nonsale of the Brewpubs? Is it just the sites and equipment that the Hall family is keeping? Or do the Hall's maintain the the right to the name and get to continue brewing Goose Recipes? I haven't seen any specifics on that part of the deal.

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  2. Anything that takes executive control out of the brewer's hands and into 'the office' is not a positive step, IMO.

    I'm OK with not getting Goose Island beer out in VT; we have plenty of local/regional folks that keep me happy. If I ever get out to the midwest, I can be treated to their local brews.

    Growth at all costs is not a winning strategy.

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  3. "Growth at all costs is not a winning strategy."
    exactly...its what's causing the failure of American retail culture. Success will be found in local involvement...not how far and wide you spread your product.
    WIth that said...retiring and selling out for $$$ isn't necessarily a bad move,esp. after a long run like GI has had. Its their choice as a business...and a sound exit strategy. But to think its positive for the beer itself is unlikely, IMO. I purchase very little GI to begin with,as I prefer my local beers...and expect this ownership change will make that even less. Buy local!

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  4. While the addition of multiple contributing editors to MBR is a great thing, is Mr. MBR himself really okay with the following words being published on his website: "an innovative craft brewery like Goose Island"?!?!?

    I happen to be a fan of SOME of Goose Island's beers, but I've heard one too many diatribes aganst Goose Island from him to expect this type of praise to be tolerated ;)

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  5. "but they don't have the capacity to meet all of their demand and are choosing to shift their sales to places where they feel the demand is higher"

    "and" should be "or"? I wouldn't think one would want to increase demand if you can't support current levels.

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  6. Sometimes demand chooses you, rather you choosing it. And one of two things is always happening to a business: it is getting bigger, or it is getting smaller. I find it goes against human nature and entrepreneurial spirit to choose getting smaller, which leaves getting bigger, with focus either on growth at all costs or managed/organic growth. Restraining growth of a business that is growing is like running alongside a freight train or trying to push a river: it seems feasible until you're trying to do it and you realize how fast the train is actually moving and how powerful the river actually is. At some point, a business' need to grow will outstrip the founder/owner's monetary speed and power, which will necessitate a new capital paradigm. The purists, provincial and nostalgic amongst us will abhor the change. The circumspect, the business-minded and/or the personally uninvested will hold it up as a success.

    Anotha day. Anotha dolla.

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  7. Brian,
    You don't think Goose Island has made some innovative beers? Say what you want about 312 (and I'll say it's boring at best), I think the examples I give in the piece speak for themselves as far as innovative beer is concerned. If you haven't tried Juliet, find some and then get back to me. Jeff (Mr. MBR) can comment as he sees fit.
    Chris,
    I disagree with your analysis somewhat. If we are talking about a publicly traded company, than what you have said is true. But privately owned companies need not be like this. To re-use and obvious example, New Glarus could easily expand into Minnesota and Illinois and sell quite a bit more beer, but they choose not to, even though the demand is there. If the demand in the state of Wisconsin levels off, they can simply stop hiring new employees, stop buying new tanks, etc. and continue making a healthy profit without reaching for constant growth the way a publicly traded company must do. It is untrue that a business must be getting bigger or smaller; a family run business can stay flat.

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  8. I hate Blogger comments. I had two rather lengthy replies deleted by some screw up by Blogger (probably a word-count issue). I think I will just post a reply on Wednesday. Sorry.

    To sum up:

    1) I think Goose Island saw this as their best way to grow the company in the way they wanted to see the brands grow.

    2) This will have long-lasting implications in the brewing community.

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  9. Hey Shane, I'm glad you found this site! This is the first intelligent opinion I've read about Goose Island's sale, but that shouldn't surprise a guy who gets most of his news from Facebook. Anyway, I'm reserving judgment until changes actually happen. For me, buying local is all about supporting a workforce and keeping money in the community - local ownership be damned (I'm from the 'burbs of Detroit, and "buy American" is a crap ideology for cars that are built in Mexico). Since Goose Island isn't one of my local brewery, I'll buy about as much of their beer as I already do if it continues to be good. Hell, I'd buy mainstream AB-IB products if they were flavorful.

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  10. I'm with Chris that business is either growing or shrinking. I don't believe that New Glarus, or any other healthy company, is "flat." And I also don't believe that being purchased should be automatically be considered a bad thing. So many times "selling out" is said with a sneer, but in other industries, this is the goal. Most start ups are for sale the day they start. This doesn't mean it's a bad company or make bad products; it just means they have an exit strategy. I expect more brewers to take advantage that. Not every brewery has to stay independent just like not all have to be sold. But I do hope some of the hard-working smaller brewers out there get a chance to "sell out" and enjoy the proceeds! Perhaps even become some wonderful serial entrepreneurs.

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  11. "Grow or shrink" is a business strategy, not a beer quality strategy. Asserting that beer companies must adhere to this supposed "iron law" is to assert that beer is a mere after thought. Far from proving the point that "selling out" is nothing to worry about because it is inevitable, from a beer lovers standpoint this is all the more reason to resist any and all moves that seek to turn a brewery into a profit making enterprise first, beer making enterprise second (and ultimately third, or maybe not at all).

    I want to drink beer made by people who make profits so they can make better beer, not people who make better beer so they can make a profit. Only one of these formulas will guarantee that beer is the priority; the other inevitably and inexorably leads to cost cutting, quality depletion, and product homogenization.

    I hope Goose Island proves me wrong. However, I think the only way this would be the case is if they resist precisely the type of theorizing I'm seeing here, that "grow or die" is the only option for a business.

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  12. Here's another way to look at things - The big three - Miller/Coors/Bud - fight the smaller beers. Buying out a big competitor is basically Buds way of getting the profits, or eliminating the competition.
    1. It's a major business strategy - if you can't beat them, buy them out. (I've had this happen with a store I worked at. Then, a few years later, the entire store chain folded because they didn't maintain the same atmosphere as the previous store chain, and lost many of their customers.)
    2. Any of you got to see the Dogfish Head series on (Discover or Travel channel - something like that)? Did you get to see every episode? No! None of us could see the entire series because Miller/Coors threatened to pull their funding to said channel - according to Anthony Bourdain - and it doesn't surprise me because it's something Miller likes to do. They've already done it at the Bradley Center and at Miller Park. They don't want craft beer to grow, so they play dirty rather than try to gain the respect of craft beer enthusiasts!
    http://www.brewbound.com/headlines/discovery-cancels-dogfish-head-series-brewmasters/
    3. I find it very interesting that Dogfish Head pulls out of WI and the other places just after the cancellation of the show. Too much of a coincidence for my liking.
    4. Goose Island isn't really my type of beer, but one thing I can say about many of the "mass produced" "microbrews" is that their beers don't taste the same made en-mass as they do in small batches. For example, I did get to try Sam Adams' Blackberry Wit beer was great when I tried it at a tasting - pre-bottling, but when I tried after it was mass-produced, I honestly felt it lost a lot of it's flavor.
    5. If the big three respected the hop, malt and craft beer in the first place, wouldn't they just make better/stronger beers on their own? Seriously, they have the money to do it, and the capacity to grow to meet needs, so you'd think they'd have made beers to compete with some of the best. Let's face it, Michelob Specialty line and Leinie's isn't all that great. Any low abv beer that gives you a headache after drinking just one no matter how much water you drink (I can drink some much stronger abv and never get a headache, whether I drink water or not) says, "I'm not as pure as I should be." These lines could have been beefed up all on their own, but they haven't been. These macro-owned "craft" breweries don't really do that. I'll give props to Leinie's for Big Eddy Russian Imp Stout, but it honestly wasn't that great as far as I'm concerned. Yeah, I know others like it, but I wasn't that impressed - Not when I've got Oskar Blues' Ten-Fidy and New Holland's Night Tripper aging in my cellar. Oh, and not to mention the six pack of Bell's Cherry Stout and Brooklyn's Black Chocolate Stout that we buy each year.
    6. You may not see a drop in quality right away, but you just might in the upcoming future - in an effort to discourage people from drinking the beer so they can eventually stop producing it. Or, you could possibly see the gradual elimination of the more creative side/more costly and tastier versions of the craft beer.
    7. Those that stay small happen to produce some great beer. They do it to maintain the integrity and quality of their beer. Make no mistake the Goose Island owners might have been bullied and threatened - sell or we'll block your distribution - that's right! For those of you who don't realize this, the big 3 control most, if not all, of the major beer distribution lines. If you want to get distributed, you must "make a deal" or essentially pay one of them to distribute your beer. Seriously, those Miller/Coors/Bud trucks don't just deliver their brands, they deliver many of the other craft beers too. Don't believe me, check out the movie Beer Wars by Anat Baron: http://beerwarsmovie.com/

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  13. Larry Bell figured out how to grow without selling out.

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  14. It's the privilege of the consumer to decide why they buy a particular beer: It's the best, it's produced locally, the owner has a kick-ass haircut, it tastes like piss but I can drink seventy of 'em while I float the river, they fly hops to Uraguay where they feed to it jungle cats and then they harvest the hop-filled poo, the beer tastes like the best BC bud I've ever not inhaled, and so on...

    It's the prerogative/imperative of the owner of a brewery to make it work financially: It's the prerogative of any business owner to make a living, to send their kids to college, to satisfy his wife's desire for him not to defer economic gratification indefinitely, to leave when the time is right. It's the imperative of a business owner to keep investors content (be that investor your Mom or AB/InBev, to plan for the expanding capital needs of a growing business, to protect your brand from hostile agendas, etc.

    Integrity and economic prerogative/imperative are not mutually exclusive. People who have no interest in profit have little reason to open a business. People who have little interest in, or passion for, the product they produce probably shouldn't.

    And a note to Matt: I feel your resistance to what I'm saying, and I wish I could live in that happy space with you. But show me a flat business of any scale, and I'll show you a business barely hangin' on, scramblin' like hell-won't-have-it not to lose money. And using NG as an example of managing growth smacks, I think, of unintended irony: they just spent $14 million on a massive brewery expansion to enable them to keep up with demand for product? NG is a growth juggernaut. The fact that they don't sell out-of-state doesn't suggest moderation of growth. It suggests they can't keep up in-state. Nice problem to have, but that's not aggressive growth management, that's aggressive market management. ;)

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  15. The growth/no-growth debate is not the real issue. The nature of the firm involved is. We rightly fear the threat of "selling out." It's not mere hippie paranoia. Not that it's an exact parallel, but we know well that a diverse and widespread market of locally produced beers got bought out and homogenized once before in this country. We don't want it to happen again.

    The contentment of investors varies drastically based on who those investors are. Treating all business concerns the same way is ignoring this fact.

    Some investors, local - family - small scale - will be far more likely to have a mission statement (explicit or implicit) that holds the quality of beer to be the end, the profit/financial stability of the firm as the means to that end. Obviously, the latter is a necessary, but not sufficient cause for the former.

    A multinational corporation doesn't give a whit whether the brewery they've acquired makes top-quality beer or ZIMA, as long as they are meeting stockholder profit demands - stockholders who have no interest in the core mission of the firm. The product is the means to the profit end.

    Treating all business as being driven by the same interests is not hard-nosed economic realism, it's obfuscation, the likes of which is rightly ignored by beer lovers who know well that the likelihood of product homogenization and reduced quality goes up when massive corporations come in.

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  16. Chris,
    Yeah, I suppose NG was a bad example as I do know that they are growing quite a lot. The example was more of a hypothetical, I suppose, that they once their growth plateaued in the state, because they are not beholden to stock holders and an ever expanding bottom line, they need not continue to grow, but could continue making modest profits and be just fine. And I know plenty of small companies that are not ever-expanding, who make more money some years and less money others but always turn a profit and are quite successful. I understand that all businesses want to grown and am not judging this negatively, I just felt the statement "a business is either growing or shrinking" doesn't apply to all businesses.
    In the piece I think I was fairly favorable to GI and understanding of the decision, I just felt that it should be acknowledged that it was not the only path they could have taken. I will continue to buy their beers occasionally as I always have, if they continue to be of the same quality.

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  17. Matt,

    Just to clarify, I actually don't mind Goose Island and think some of their newer efforts are actually quite good.

    However, if memory serves me correctly, Jeff first tried Goose Island in 1982 or something like that (for those who don't know Jeff, he would have been seven at the time), decided he didn't like the taste, and therefore boycotted GI for life. Because of the voraciousness for which he is known to boycott most things, I was surpirsed he'd be okay with the "innovative craft brewery" label.

    Mostly I was just making fun of Jeff. Sorry for any confusion.

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