‘Craft’ Beer Businesses Questioned

Experts in both law and brewing have a lot to say about the true meaning of “craft” beer. For tax purposes and brand identity, a craft beer comes …

Experts in both law and brewing have a lot to say about the true meaning of “craft” beer. For tax purposes and brand identity, a craft beer comes from a brewery that brews small batches of beer to an exceedingly high standard as set by the nation’s brewing associations. Recent lobbying efforts and a paring down of what can be called craft beer has put some brewers at odds and the fallout could mean the end of craft beer as consumers know it. As the first generation of the craft revival begins to retire and standards start to change, some are wondering what the future holds for well-made beer. For more on this continue reading the following article from TheStreet.

If the term "craft beer" wasn’t wheezing its way into irrelevance before 2013, it collapsed into oblivion at some point during this year.

Boosters at the Brewers Association craft beer industry group argue that craft beer added $34 billion to the U.S. economy this year. Meanwhile, the 2,480 craft breweries operating among the 2,540 U.S. breweries that existed as of June far outpaces the 2,011 breweries that existed in total during U.S. brewing’s peak in 1887.

But that’s not making a happy little community of beer artisans dedicated to experimenting with existing styles and improving their beers. Instead, it’s exposed a swelling undercurrent of animosity that’s eroding any intangible definition of the term "craft" and is replacing it with a production number and dollar amount. We saw the first evidence of this in January, when the Brewers Association felt it would be a good idea to lay down the law and determine which beers were "craft" and which were just "crafty."

It surprised no one by putting Anheuser-Busch InBev’s  (BUD) recently bought Goose Island brand and MolsonCoors (TAP) and SABMiller joint venture MillerCoors‘ Blue Moon and Leinenkugel’s on the list, but it managed to draw some ire by lumping pre-recession brewers including Pennsylvania-based D.L. Yuengling and Minnesota’s August Schell into its grouping of bad guys. It also includes the Craft Brew Alliance and its Redhook and Widmer Brothers brands on its blacklist, which puts its figures for craft beer sales and production at odds with industry observers including Beer Marketers’ Insights — which includes Redhook, Widmer and those brewers’ roughly 30 years of history in their publication’s craft numbers.

Yet it is something that Boston Beer (SAM) founder and Samuel Adams Boston Lager creator Jim Koch said to Tom Cardella, head of MillerCoors’ Tenth & Blake craft division, at a Beer Marketers’ Insights conference in spring that gave a better idea of how brewers — or at least larger craft brewers — define "craft":

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We craft brewers have created a category that is able to command a price premium based on our points of difference from the mass domestic brewers. And that has created a lot of profitability in the category and a lot of growth.

In that breath, Koch offered a wise, reasoned definition of craft beer that no one could provide until that point. He also, perhaps unwittingly, made it about numbers rather than quality. That argument hasn’t killed "craft beer," but it left the term mortally wounded.

Nowhere did that become more clear than in the halls of Congress, where the emergence of legislation that would provide tax breaks for brewers fractured the craft ranks. Forget about the sequester and the government shutdown that left breweries’ approvals for new beers in jeopardy for a brief span in September: It was a visit to Washington in May that shook things up a bit. Brooklyn Brewery joined Bend, Ore.-based Deschutes Brewing, Utica, N.Y.-based Saranac brewer Matt Brewing and Kalamazoo, Mich.-base Bell’s Brewery in D.C. to ask Congress to support reducing the excise tax on the nation’s brewers. Those brewers offered varying levels of support for the Brewers Excise and Economic Relief Act of 2013 (or BEER Act) that would reduce the federal excise tax on beer for all brewers and beer importers. The act, introduced by U.S. Reps. Tom Latham (R-Iowa) and Ron Kind (D-Wis.) with 33 original co-sponsors, would help reduce the overhead on Brooklyn and the others and would, ideally, make it easier for new breweries to break into the business. That, in turn, might actually soften craft beer prices a bit for consumers.

The BEER Act, though, is also supported by Anheuser-Busch InBev, MillerCoors, Heineken USA, Constellation Brands(STZ) Corona distributor Crown Imports and Magic Hat and Pyramid brewer North American Breweries. That makes it a bit of a sore point for craft beer lobbying group The Brewers Association, of which Brooklyn, Bell’s, Matt and Deschutes are full members. That group has been working on its own legislation — the Small Brewer Reinvestment and Expanding Workforce Act (or Small BREW Act) with members of Congress including Sens. Ben Cardin (D-Md.) and Susan Collins (R-Maine).

Under the Small BREW Act, law that allows brewers making fewer than 2 million barrels of beer annually to pay $7 per barrel on the first 60,000 barrels they produce and $18 per barrel on every barrel thereafter would be amended. Instead, the smallest brewers and brewpubs would pay $3.50 on the first 60,000 barrels. Once brewers grow to between 60,001 and 2 million barrels, the rate would hit $16 per barrel. Any brewer that exceeds 2 million barrels (about 1% of the U.S. beer market) would begin paying the full $18 rate. Washington-based lobbying group The Beer Institute, which is supporting the competing BEER Act, saw common ground between the two bills and made clear that any help the beer industry can get would be appreciated.

Overall U.S. beer sales had been in free fall since the recession. A 1.2% uptick in 2012 stopped losses dating back to 2007, but A-B sales increased only 0.7% while SABMiller/MolsonCoors joint venture MillerCoors watched sales slip 1.1% despite help from Blue Moon, Leinenkugel and other "craft" brands. Though craft beer’s share of the industry has grown to nearly 7% of its volume and 11% of its overall sales, it’s largely because drinkers are turning away from the big brewers’ blander light lagers and either switching to craft beer or turning away from beer altogether.

Basically, "craft" and all it entails aren’t making the beer industry grow, they’re just helping it survive. Craft beer’s buyer base is still overwhelmingly white and male, while just about every other demographic is shifting toward hard alcohol, malt beverages or ciders.

Craft beer has recognized this and is starting to widen its gaze beyond beer. Boston Beer’s Alchemy & Science branch in Burlington, Vt., is acquiring other brands while its Angry Orchard cider line, which has become the top-selling cider in the U.S., has boosted the company’s bottom line. Not to be outdone, Craft Brew Alliance (BREW) teamed with a cider maker in Eastern Oregon to launch its Square Mile line of ciders this year. Even this piece’s beer-focused author gave home cidering a try this year.

This all made folks around the industry started to mutter about the "craft beer bubble." Can craft beer really sustain its growth? Will there still be enough demand? New Belgium Chief Executive Kim Jordan and Oskar Blues founder Dale Katechis thought so, with each speaking to us at length about expanding their Colorado operations to North Carolina. Even in beer-saturated Oregon, brewers including Pfriem Family Brewing’s Josh Pfriem and Ecliptic Brewing’s John Harris saw niches waiting to be filled. From Austin to the nation’s capital, brewers have been finding ways to not only keep craft beer’s momentum going, but to do so in creative fashion. They partner with corporate sponsors, they collaborate with other breweries and they’re overall optimistic about the days ahead.

But there’s a menacing shadow lingering over all of those good times. As Boston Beer surpasses 2.5 million barrels of production and Sierra Nevada in Chico, Calif., flirts with the 1 million barrel mark, their owners who have overseen that growth for 30 years or more are starting to consider succession. People ask if the craft beer bubble is going to burst not just because they know some cynical yokel out there is trying to build a garage nanobrewery to sell to the highest bidder, but because craft beer’s pioneers are starting to consider retirement. While it was nice to see Kansas City, Mo.-based Boulevard Brewing get the big-brewer treatment at the Royals’ ballpark this year, the brewery’s sale to Belgian brewer Duvel Moortgat in October was a reminder that the first wave of microbrewers may not stick around much longer.

Right now, there is no question that there is a thirst for what continues to be called "craft" beer. The amount of people reading our coverage of it year after year and the evolving laws in states including Texas and Alabama — the latter of which became the last state in the U.S. to allow home brewing after revising its laws this year — suggest there’s room for expansion. If quality remains high, access continues to open and all aspects of brewing and consumption become more familiar to the U.S. drinker, small brewers have room to open and thrive.

If brewers get too caught up in the numbers, pioneers sell to the highest bidder and new breweries concern themselves more with being acquired than brewing a batch people will love, then you’ll see that term "craft" go flat in 2014.  

This article was republished with permission from TheStreet.


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