Thursday, February 28, 2013

I'll Bet You Can Guess That Consolidation Is Kind Of A Big Issue These Days

In what seems like piling on, Marketplace* is now reporting that 2012's 4th Quarter profits are down and Anheuser-Busch is being sued by multiple plaintiffs over misstatements of alcohol content.

While it's great news that profits are down at A-B [ed note: it's not actually great news, we have many jobs here in WI that are dependent on A-B] [author's note: OK, fine, Mr. Editor, it's not great news for those folks, but for those of us that believe in craft beer and the craft beer industry it is further evidence that the good guys are winning], the more interesting news is the three lawsuits over alcohol content.

If true, this means that the worst fears of the craft industry are coming true. It means that the naysayers about the InBev deal were right. For a company like A-B that, whether you like their product or not, has always had product integrity, the merger with InBev has indeed muddied those waters (so to speak).

The suits allege that A-B is watering down its beer and that A-B is not using independent testing facilities to verify alcohol content claims. A-B is stating that the content claims are accurate enough and that they use standard industry practice (basically, complex math) to derive the alcohol content based on known data and process inputs.

We (MBR) actually discussed this a couple of years ago on a piece about High Gravity brewing. High gravity brewing is relatively common, particularly amongst larger brewers. Because of process efficiencies it is cheaper and easier to brew a moderately high-alcohol-content version of a beer and then water it down to suit the appropriate alcohol content and taste profile. I know. It seemed sketchy to me at first, too. But I've been assured by people way smarter than me that if it's done correctly you (the consumer) would never know the difference.

But, if, as the suits claim, A-B is adding a little more water to the process or using the same calculations but with different (read: cheaper/less efficient) ingredients, no craft brewery will ever again stake their brand and reputation on selling out to a macro. This will make purchases of regional or small national breweries, like Goose Island, far more difficult and will make entry into craft that much harder for SAB-Miller/AB-InBev in the future. While you might cheer this result, I would argue that these business sales provide viable exit strategies for breweries and their investors and help to promote a healthy craft brewing industry. Losing these sales could stifle investment in breweries and slow the growth of the industry.

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