Ale Street News Online

I’ve heard a lot of people are pissed off about some ads Anheuser-Busch ran that seemed to be running down craft brews.

Are these really the same people who will constantly talk smack about "macroswill" and "fizzy yellow beer" and "cheap rice and corn adjuncts"? Yeah, you know they are. The big brewers are Satan Incarnate, after all, while any brewer Sierra Nevada-size or smaller is a Nobel Peace Prize candidate.

But when you get down to the business of brewing, craft brewers and macro brewers can look a lot alike. Blending batches, canning beer, using those adjuncts (but for "flavor!"), advertising on TV and radio, sponsoring racing teams, even sucking up to beer writers: there are a lot of things the little guys do just like the big guys.

Maybe we’re going to see another one: consolidating. The big boys have been consolidating madly in recent years. That’s where we got SABMiller (South African Brewing, Miller, Pilsner Urquell) and InBev (Interbrew and AmBev…and Labatt and Hoegaarden and Leffe and a host of others), and MolsonCoors, which, of course, recently entered into a joint venture with SABMiller for the American market. Rumors continue to fly about A-B, but for now, like the cheese, it stands alone except for a 50 percent stake in Corona brewer Grupo Modelo, and that weird agreement to import InBev’s beers in America.

As above, so below; what is done at the macro level happens at the micro level. The "Magic Pyramid" combination was announced last month, in which South Burlington, VT-based Magic Hat will buy Seattle-based Pyramid Breweries. Longtime competitors Redhook and Widmer — both partially-owned by Anheuser-Busch — recently combined as well: Redmer? Widhook? The Sons of Augie?

We could play games with names for the rest of the column. For instance, what would you call a merger of Stone and Boulder…especially when they then decided to acquire Rock Art? (Seems like a natural to then go into a brewpub joint venture with Rock Bottom.) What’s the sum of adding 3 Floyds and Two Brothers?

It would be fun, but that’s not why you came here, I hope. This is Lew’s Steaming Pile, after all, a name that just reeks "serious examination"…or reeks something, anyway (or wreaks, as in havoc — ed). Let’s dig through the draff and see what’s behind this and where it’s going.

First, it’s nothing new. Pyramid’s practically a Frankenstein’s monster of mergers itself, stitched together from the original Hart Brewing and Thomas Kemper Brewing (anyone remember Thomas Kemper? Really good lagers from the Pacific Northwest?) and renamed for its major brand. The company then bought Portland Brewing, an old PNW brewer that had already digested Saxer Brewing (anyone remember Saxer? Pretty good lagers from the Pacific Northwest?) and became known largely for their MacTarnahan’s line of ales. This stuff has been going on for years.

Some of it is simply opportunistic. One brewery isn’t doing so well, but has something of value: distributor relationships, brand value, an excellent physical plant, whatever. Another brewery may look at that and see something that could be great with better management or enough capital to grow it. A deal is made. Other times a brewery simply buys another to gut a competitor; they may be upfront about it or not. That’s business.

The Magic Pyramid and Widhook deals are maybe different, maybe more complex. These are big deals, to begin with. Magic Pyramid will have a combined 2007 output over 300,000 bbls., Widhook is similar. Widhook will eliminate some costly competition between two similar producers; Magic Pyramid will open new markets for both of the breweries involved.

The deals will also concentrate market share, which is what the big boys’ mergers are about. Mergers are a quick way to get big, which fends off unwanted mergers, gives you more heft in negotiations with wholesalers, and better relations with lenders.

That made me think of an interview I did with Magic Hat owner and founder Alan Newman a few years ago. "We’ve got 300 players vying for three percent of the market…300 people vying for sustainability," he said. "For 300 of us to continue beating on each others’ heads, that’s about as stupid as you can get. We have to get our numbers down. I would look to see the industry somehow winnowing out and getting down to fewer players so we can grow our market share up into the 10 percent range, which is my sense of where we need to get to."

Sounds like maybe a plan is coming together. There’s a need for critical mass to grow big craft brewers, who are the ones that are going to put craft beer over five percent of the market. Boston Beer may have hit it, reaching a point where they can afford national television campaigns. Regional brewers are hitting it and putting together local dominance. That’s the kind of thing that gives a brewery enough stability to weather some rough times, like we may be seeing soon.

Don’t worry about the little breweries. They operated under the macro radar, they’ll be operating under the larger crafts’ as well, and there’s still that camaraderie that keeps the industry friendly…for the most part.

But as the big boys consolidate and gird for war — and that’s what the beer arena looks like, as small regional brewers continue to get snapped up — you can expect the medium-level players to do the same. It’s not really about growth, it’s about survival. The bigger company has more options, and it’s going to be quite a while before being too big is a problem.

We’ll lose some brands, but we won’t lose ground. If it means more craft beer in more places, that’s got to be a good thing.