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Beer Welfare Queens?

Published Thursday, April 24, 2014 12:10 am
Dennis_Maley_Image

It never ceases to amaze me how so many so-called capitalists love supposedly socialist initiatives, as long as they are the ones receiving the benefits. They cheer free markets out one side of their mouth, while asking for more subsidy, tax favoritism or rules to prohibit competition out of the other.

We've seen this sort of posturing most vividly in markets like oil and gas, utilities and defense contracting. But this year, there's another industry writing checks and asking for favors in order to maintain their monopolistic advantages – beer.

The craft beer industry is a genuine American success story. It showcases some of the qualities that have consistently helped American entrepreneurs continue to dominate the world stage – innovation, creativity, bold vision and both the willingness and ability to think outside of the box and imagine even the oldest and most established products becoming not only better, but completely revolutionized.

So why are powerful interests in Florida trying to curb the rise of this trend – a phenomenon that can be described by all of the terms they usually love like “huge financial impact” and “massive job creator?” That's a little more complicated, but as usual, it's tinted a dark shade of green.

A little history

For the better part of 200 years, American beer had largely been considered inferior to its older European counterparts. While brewing was still a highly-localized affair in the early part of the 20th century, many older local breweries failed to survive prohibition. A smaller number of breweries, aided by advances in refrigeration technology were able to capitalize on a huge increase in demand during WWII – sales were up 40 percent by 1945 – and dominate the market.

For about a half century, companies like Anheuser Busch, Miller, Pabst and Schlitz ran the bulk of the trade, while also consolidating much of the market. From its peak of 2,011 American breweries in 1887, that number fell to just 89 by 1978. While baby boomers returning from World War II increased demand for the richer and more sophisticated imports like Heineken, Becks and Guinness, the weaker, blander and easier to drink American blonde lagers and then “lite” beers, continued to dominate sales.

In 1950, the 10 largest brewers sold 38 percent of all beer. By 1980 that was already up to 93 percent. Today, the top 10 still holds over 90 percent, but number one Anheuser Busch's share is already greater than that 38 percent figure, at about 40.

As the behemoths grew, they began to rely much more on ad campaigns than product quality and many cut corners to make brewing cheaper. Beers like Budweiser and Miller (both owned by foreign companies today) and their litany of various lines, are rarely hailed as “good beer,” sort of like no one ever accuses McDonald's of selling the best-tasting or highest-quality hamburger.

Most of the surviving regional breweries like Rolling Rock, Old Milwaukee, Pabst and Old Style remain available, but are brewed by larger companies who bought or licensed the names and logos. Pottsville, PA's Yuengling, America's oldest brewery, is the notable exception, continuing to remain family owned and operated since 1829. Still, the alternative to ABL's was generally considered to be imports.

Rise of the craft beers

While the top 10 do remain above the 90 percent mark, a much larger portion is exported and while craft brewers often like to point out that some of the biggest brewers spill more beer in a day than they brew in an entire year, their combined (and growing) presence on the domestic beer market has been nothing short of amazing.

Much of that success can be credited to Jim Koch and the Boston Beer Company, who bucked the system and created a much more sophisticated (and expensive) small-scale American beer in the late '80s, at a time when such an operation seemed least likely. A 6th generation brewer, Koch (pronounced Cook) revived a family recipe and together with two fellow Harvard Business School grads, started the company with its flagship beer, Samuel Adams Boston Lager. By the late '90s, Koch and company cracked the top 10 and could be found on most supermarket shelves and in higher-end pubs, where they competed with imports for the dollars of upmarket beer drinkers.

By the turn of the century, small-batch craft brewing had become a cottage industry, and a rise in the popularity of brew pubs – where craft beer aficionados could enjoy fresh, high-quality brews right on the premises – helped fuel the craze. Many in the industry were shocked to see how far these small companies were able to push up the price point for a 6-pack of beer, which had for some time been stuck at a typical range of around $4-$7.

Almost overnight, every beer cooler seemed to have multiple offerings in the $10-12 range, betting that a small but viable market of discriminating connoisseurs would pay a few bucks more for beer of drastically-higher quality. The big brewers quickly tried to mimic the success with their own faux craft offerings, but found it a difficult market to crack. People who take their beer that seriously simply aren't going to be fooled when someone like Anheuser Busch gives them Shock-Top or Molson Coors gives them Killian's Irish Red – especially when there are so many truly great craft brews being made.

Along with the “big” established craft brewers like Samual Adams, Sierra Nevada, New Belgium (makers of Fat Tire), the Brooklyn Brewery, etc., some American innovators like Delaware’s Dogfish Head, Colorado's Breckenridge Brewery and our own Cigar City Brewing Company in Tampa have all but reinvented beer, often breaking cardinal rules of the brewing process to create uniquely-delicious versions of popular classics.

If you truly enjoy beer, the return on investment for paying $9 for Cigar City Maduro Brown Ale, as opposed to say $6 for a sixer of Bud or Miller Light is incalculable. Then you look at the great brews you can get fresh from the vats at places like Motorworks for a buck or two more a pint than a Bud would run you at any downtown watering hole, and it starts to become clear that the only competition is one of massive scales.

Interests collide

When Anheuser Busch was merged into Belgium-based corporation InBev in 2008, AB InBev became the largest beer company on Earth and now holds a once unthinkable 25 percent of the global market (by that time, Miller had already been purchased by the South American Brewing Company and Coors had merged with Canadian giant Molson, leaving Sam Adams and Yuengling tied for the largest American-owned brewers, despite each having less than 1 percent of the market).

While beating the craft breweries at their game wasn't a success, the big boys have been successful in buying some of the top craft operations, like Chicago's Goose Island Brewery, who was bought by AB InBev in 2011. AB InBev also scored big when they bought a 35 percent stake in the Craft Brew Alliance, which includes the big menu of Redhook beers, Widmer Brothers and the Kona Brewing Company.

So while the imitate, purchase or partner strategy has worked well, allowing the mega-brewers to keep their iron grip on market share, the sheer numbers and rapid increase give them something to think about. Led by the craft beer revolution movement, America's brewery count has not only recovered, but is considerably higher than ever before. As of June 30, 2013 there were 2,538 breweries in the United States, 2,483 of which were "microbreweries and brewpubs," opposed to 24 large non-craft breweries, and 31 "other non-craft breweries." Clearly, even AB InBev can't buy all of them.

Legislators to the rescue

But the current fight isn't just about the big conglomerates who make the beer; it's also about the powerful interests who distribute it. Florida has some of the most antiquated and convoluted regulations when it comes to distributing and selling beer, wine and spirits, and while they do little to help small businesses and consumers, they are quite effective at concentrating a lot of money in very few hands. Because Florida has one of the most overtly pay-for-play state legislatures in the country, maintaining the status quo hasn't been hard.

Since the repeal of prohibition, U.S. alcohol sales are done on a three-tier system of producers, distributors and retailers. Unlike many other states where wholesale beer distributors compete for the business of bars and other retail outlets (while sometimes also selling larger size products like kegs and cases directly to the public), Florida law creates a system in which distributors have “restricted exclusive sales territories.”

This means that once a company secures the distribution rights for a popular beer like Miller Lite or Budweiser, it becomes the only wholesaler that retailers in their territory can purchase it from. So while there is ostensible competition between two different distributors and their specific brands (of which they might distribute dozens), there's no competition for the brands themselves. You want Bud you go to this guy, you want Coors light you buy from that one. This translates to considerable leverage (and therefore profit) for the distributors.

The last thing these distributors want is for bars to be making their own beers and selling them on the same premises, effectively cutting them out of the process. If Floridians want a craft brew, they would have them select one of the many that their brewers have gone out and purchased, or at least one of the bigger ones that they distribute. That's where their friends in the legislature come in.

Currently, brew-pubs such as Motorworks or micro-breweries like Cigar City can sell their beers on premises in containers of a gallon or more, or a quart or less. What they can't do, is sell it by the industry standard – a 64 oz. "growler" – which is the best value and about as big as you can typically go considering that like a two-liter of soda, the beer will lose its fizz after a few openings.

However, what started out as a law to rectify the obstacle (46 states allow growlers, which are an important part of the craft brewery business model) became something very different when legislators supported by the distributors got their hands on it. The Florida Beer Wholesalers Association, which represents the distributors, pretty much controls beer distribution in the state, and the group doubled their support for Florida lawmakers this cycle.

In the version that passed an important committee stop on Monday, SB 1714 would now allow micro-breweries selling up to 2,000 kegs a year of their own brew to sell the growlers; however, if they sell more than 2,000 kegs in total (a very small amount that most exceed), they would be prohibited from selling their beers even in traditional cans or bottles directly from the pub or brewery – also an important part of their business model. Instead, they would actually have to sell and buy their own beer back from one of the beer distributorships at a mark up before selling it to consumers – even if it never leaves their grounds!

Senate President Don Gaetz (R-Destin) actually told a reporter point blank that it was intended to protect distributors.

"I'm with the beer distributors in my district," Gaetz told the AP. "That's a very important issue because one of my very best friends is an Anheuser-Busch distributor and he never talks to me about his business … but this time he's talking about growlers."

That friend is Lewis Bear, a powerful AB InBev distributor. Through himself, his company and family, Bear's contributed $260,000 to the Republican Party of Florida and $31,000 more to Governor Scott.

About 100 craft beer establishments are expected to be open in Florida by the end of the year, including two more in Bradenton. But while the business is booming everywhere – barrels of craft beer are projected to double nationally from 2009 by the end of this year – Florida's growth has lagged behind many states, largely because of the complicated laws and political barriers.

Again, here we have businesses which already compete on an uneven playing field with the enormous multinational conglomerates who dominate the industry, but have thrived by working hard to produce a better product that creates more competition in the market place, drives innovation at all levels and ultimately benefits both the consumer and the economy as a whole. Yet the Florida legislature, dominated by supposed “free market” guys like Gaetz, is falling over backward to make their success less likely.

At a time when Florida needs jobs and consumer spending more than ever, this seems not only hypocritical, but unconscionable. Perhaps now that such crony capitalism is coming after one of our society's most beloved product's – our beer – we'll wake up and make them pay at the polls.

 

Dennis Maley's column appears every Thursday and Sunday in The Bradenton Times. He can be reached at dennis.maley@thebradentontimes.com. Click here to visit his column archive. Click here to go to his bio page. You can also follow Dennis on Facebook.

 

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that's the way our political system has changed to--rule by the rich & powerful who like to brag about free market capitalism until it effects their bottom line.we can thank our so called "non partisan" supreme court for this
Posted by Wiliam E.Moore on April 24, 2014
 

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Eleanor Eason November 17, 2014
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