Are big brewers buying craft brands to benefit big beer? - Comment

Amid all the furore each time another craft brewer joins the other side, beer commentator Stephen Beaumont explores the strategy behind the larger players' forays in the segment.

The start of May was a busy time in the US craft beer sector, even more so for the denizens of the craft community who spend their time posting on social media sites. Within the span of two days, the five-year-old North Carolina cult brewery Wicked Weed Brewing announced that it was selling up to Anheuser-Busch InBev - a sale that remains subject to regulatory approval - and Tony Magee, founder & head of California's Lagunitas Brewing Co, confirmed that he's selling his half of the company to Heineken, giving the Dutch brewer full control.

Reaction was swift, vocal and venomous.

In this regard, the fallout matched the format established by AB InBev's purchase of Goose Island in 2011, and has echoed in the aftermath of every craft brewery purchase – or 'sell out', in the eyes of the craft beer faithful – that has occurred since. As should likely be expected when an operation that has marketed itself as small brewery David up against multi-national Goliaths is sold to one of those self-same giants, emotions run high.

Lost among the outrage, however, was this question: Why are big breweries even bothering to buy such smaller operations? After all, in a sea of over 5,000 operating US craft breweries, what difference can one - or even nine; the number of previously-independent US-based breweries currently owned by AB InBev – brewery purchase make?

In the eyes of Chris Herron, formerly of both Miller and Diageo and more recently co-founder of Creature Comforts Brewing in Georgia, it's all about brand value and the future of the legacy brands of the multinational brewers. In an essay published at the online beer news site, Good Beer Hunting, Herron speculates that AB InBev's brewery purchases are in fact designed to maintain the image of brands like Budweiser and Bud Light by lowering the price of craft brands like Goose Island IPA and 312 Urban Wheat to the point that they more closely resemble those of the company's core brands, thus grouping all of them under the same 'premium' umbrella.

If the company does this successfully, Herron further speculates, it will force large-scale craft breweries like Sierra Nevada and Boston Beer to likewise lower their prices, thereby squeezing the margins of AB InBev's competitors and clustering even more beers at the newly-established 'premium' price point.

Which, to a degree, makes sense. The question that remains, though, is whether this might be enough to reverse the failing fortunes of Budweiser and Bud Light in the US market.

While global volumes of Budweiser have grown considerably since 2009, according to a recent Financial Times interview with 3G Capital executive Alex Behring, things have not been so rosy for the brand or its Light stable mate in the US, with steady sales losses occurring over the same period and "mid-single digit" declines for Bud Light through to 2016. Considering the importance of the US market for brand Budweiser, it raises the question of whether it is even possible to resuscitate a legacy brand in today's craft-focused marketplace.

If Herron's thesis is correct, better price-positioning could very well help staunch the steady loss of sales, but is today's beer consumer as easily influenced by advertising and brand positioning as the consumer of yesteryear?

There are many indicators that suggest they are not.

Take another legacy brand, Pabst Blue Ribbon, as a case in point. While the media has made much over the last few years about the brand's 'hipster' appeal and popularity on such counter-culture circuits as skateboarding and surfing, these stories have largely ignored the factor that most likely jump-started this status. It wasn't directed marketing – the 'hipsters' seem to have found PBR on their own and the company responded to, rather than instigated, this positioning – but instead a cheap price.

In addition to being cool and hip, followers of skateboarding, BMX biking, so-called 'extreme sports' and similar circuits tend also to be less than free-spenders, at least where consumables are concerned. As such, discounted pricing on PBR tall cans went a long way towards cementing the beer's status among those groups. That's fine for a brand that hasn't positioned itself as premium for many a year, but it won't work as well for a beer like Budweiser, which is looking to restore sales while maintaining its premium lustre.

Furthering Bud's dilemma is the fact that taste is increasingly identified by beer drinkers as a major factor in their purchase decisions. Whatever else might be said about Bud, it doesn't belong in the same flavour camp as the surging IPA segment of the craft beer market, regardless of how either are priced.

In the end, if beer sales in the US remain stagnant but import and craft sales continue to rise as they have been doing for numerous years now, decreasing sales for all popular legacy beer brands may become a simple fact of life in the country. Which might ultimately lead the multinationals to the conclusion that slowing the decline of their legacy brands is a more reasonable goal than reversing the course or even just stopping the decay.

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