As craft beer flourishes, Big Beer continues to buy in and blur the lines

Russian River Brewing Company President and co-owner Natalie Cilurzo at the Russian River Brewing Company’s brewpub in Santa Rosa on Wednesday, February 6, 2013. Pliny the Elder (and Pliny the Younger) are so sought after that people lined up for hours for a chance to drink Pliny the Younger, which is available only two weeks a year.
Russian River Brewing Company President and co-owner Natalie Cilurzo at the Russian River Brewing Company’s brewpub in Santa Rosa on Wednesday, February 6, 2013. Pliny the Elder (and Pliny the Younger) are so sought after that people lined up for hours for a chance to drink Pliny the Younger, which is available only two weeks a year.

In the past five years, craft beer has become so popular in and around Sacramento that it has transformed the way many of us socialize – grab the dog, corral the kids and head to the neighborhood brewery.

Breweries that didn’t exist a few years ago have emerged as household names, and several local beers have become practically famous here: Panic IPA (Track 7 Brewing), Separation Anxiety (Berryessa Brewing), Hoptologist (Knee Deep), Integral (Device), Yojo IPA (Moonraker), Monkey Knife Fight (Rubicon), Mosaic Pale Ale (Bike Dog) and more.

But success here and throughout much of the country has not gone unnoticed by the giants of the industry and their billions of dollars. Anheuser-Busch InBev the largest beer company in the world – as well as MillerCoors, Heineken and Constellation Brands (owners of Corona) have made serious forays into craft beer.

“With craft beer and all the excitement the industry has brought … it has reignited beer,” said Felipe Szpigel, president of the High-End Business Unit at Anheuser-Busch. “Now you should expect to go into a fine dining (restaurant) and not only see a wine list but see a well-curated beer list. For us, we see no reason we shouldn’t have our own portfolio of partners and offer consumers, retailers and wholesalers what they want.”

Critics, however, see it as smash-and-grab or a Trojan horse strategy – plunk down cash for a popular craft brewery and get a toehold in this hip and thriving industry, all the while omitting any mention of who now owns the business. It has happened with Chicago’s Goose Island, brewers of the renowned series of Bourbon County barrel-aged beers; San Diego’s Ballast Point, makers of a benchmark India pale ale called Sculpin; and scores of others.

“I feel very disappointed because I don’t know the average consumer is paying attention to where the beer is made,” said Brian Palmer, owner/brewmaster at Claimstake Brewing in Rancho Cordova. “They can disguise themselves and act like craft beer. It’s like cheating.”

Some of the true craft beer heroes in California – including Ballast Point, Firestone Walker and Lagunitas – have either sold out completely or accepted a major infusion of Big Beer capital to keep growing. Perhaps the most stunning transaction was the 2015 Ballast Point sale for $1 billion to Constellation, which was looking to add prestigious brands to a beer distribution business that includes Corona and Modelo.

Sacramento got its first taste of craft/corporate confusion recently with the announcement that Golden Road Brewing out of Los Angeles was going to open a brewpub/beer garden in midtown. According to the proposal, the company will demolish the empty City Suds laundromat at 19th and L streets, and build a structure.

Even though it likely means a vastly improved landscape along a busy urban corridor, the news did not go over well with everyone once word circulated that Golden Road had been purchased a year earlier by mighty A-B InBev. Ken Hotchkiss, owner of craft beer hot spot Capitol Beer & Tap Room, vowed to stop carrying A-B InBev brands, including Bourbon County. On social media, many beer enthusiasts said they would continue to support locally owned bars and breweries, though others said the ownership issue was not a priority.

While the reaction here has been relatively tame, in craft beer capital San Diego there was an uproar last year when Oregon-based 10 Barrel Brewing, recently sold to A-B InBev, announced plans to open a San Diego location. Click on the “Who We Are” link on 10 Barrel’s cool and casual website, and you’d think the brewery was still owned by the same three dudes who founded the company. The website stresses: “Our brewery has gotten bigger, but we will always stay the same.”

More and more beer enthusiasts are expressing disdain for these kinds of mergers and acquisitions, which threaten to taint what they love about craft beer – independence, creativity, quality and a feel-good consumer experience that tends to embrace community. But moving forward, consumers are going to struggle to keep up with who owns what.

“The craft brewing industry has changed the way Americans think about beer. Beer now is much more than a single style. Now we have a choice and a wide diversity of types and styes and flavors,” said Tom McCormick, executive director of the California Craft Brewers Association. “That didn’t exist 30 years ago. It has captured the minds and hearts and tastes of many Americans.”

It has also captured more market share – 14 percent nationally and 18-22 percent in California, with craft beer strongholds such as Sacramento topping 30 percent. Big Beer, as some call it, has dabbled in buying into craft beer for years, but the push has become much more intense. With 4,000 breweries and counting, American craft beer is now a $20 billion-plus industry.

Those vast sums are not going uncontested. The major growth strategy for craft beer is to win over traditional Big Beer drinkers, often by emphasizing bigger flavors, an array of styles and a penchant for pushing boundaries. Beer these days can be bitter, sweet, sour, tart, dark, fruit-forward and infused with all kinds of goodies, from coffee to cacao nibs. If Big Beer can’t best the small craft establishments in terms of innovative beers and cozy environments, it can buy their way into the game.

“They are very, very aggressive in the marketplace. They are now at a point where they are utilizing nearly all of the tools in their toolbox to capture the craft beer market,” McCormick said. “The thing that rubs me the wrong way the most is their lack of transparency.”

Szpigel contends that ownership information can be found through a simple Google search and says Anheuser-Busch readily announces the partnerships when they are made official.

He says the company is willing to help other craft breweries with costly quality-control testing.

“As we invest in the labs of our local craft brewers, we are testing more and more of other local brewers to help them improve their quality,” he said. “Our labs are open and we collaborate with every one of the local markets that needs it.”

Charles Bamforth, professor of malting and brewing sciences at UC Davis, says it’s too simplistic for consumers to conclude that big is bad.

“I think it would be preferable if everyone is very transparent. But it also behooves people who are critics of the big guys to admit they are perfectly capable of brewing great beer,” Bamforth said. “Just because they are made by a very large company doesn’t mean they are bad beers at all. When A-B InBev buys a craft brewery, the beer there is probably more consistently brewed than it has ever been brewed before.”

In addition to the transparency issue, which tends to baffle the casual consumer, mega-breweries have reportedly tried to muscle out small competitors from shelf space at grocery stores and big-box retailers by offering distributors financial incentives to carry mostly big brands. The competition is becoming ever more ferocious.

“I take it as a compliment. They see a successful industry and they’re trying to take advantage of it,” said Andrew Mohsenzadegan, owner of Flatland Brewing in Elk Grove, which opened in January. “But it’s also scary. It’s daunting. They are a powerful company. It wouldn’t take much for them to put me out of business.”

Russian River Brewing in Santa Rosa, brewers of Pliny the Elder and other renowned beers, has taken a more conservative route to growth. In the spring, it will break ground on a $30 million, 115,000-square-foot brewery that will double production – all without taking money from Big Beer. But co-owner Natalie Cilurzo wonders how many consumers worry about who the owners are.

“Do they know and do they care?” she said. “I don’t know the answer to that question. But it’s important to me. I believe in truth in advertising and truth in labeling.”

In an industry known for its camaraderie, deep divisions have cropped up over the topic of selling out. During his keynote address at the Nov. 15 California Craft Brewers Association fall members meeting, Modern Times Brewing’s founder Jacob McKean made clear where he stood.

“One way I pledge to keep this industry awesome is by never selling my brewery to Big Beer,” McKean told the audience of industry insiders. “There will likely come a time when I’m tired of carrying the weight of so much responsibility. But when that time comes, I’m not going to screw the people who made my success possible in the first place. That would be an unethical choice I could never be proud of.”

Locally, small brewers such as Claimstake’s Palmer feel much the same way.

“My partner and I have thought about this a lot – what would we do if someone came in and offered us life-changing money? At the end of the day, our answer would be we wouldn’t take it,” said Palmer. “I’m not looking at it as a get-rich scheme at all. If I get to do this for he rest of my life, it’s a blessing to me.”

Referring to the crowds he sees at the tasting room on busy evenings, Palmer added, “I just get blown away. I pinch myself and wonder how this was all created.”

As competition intensifies and the craft/corporate lines begin to blur, small breweries will have to take stock of their strengths and weaknesses in order to survive. Big Beer has the advantage of huge marketing budgets, brand recognition and distribution power. Craft breweries have the edge when it comes to flavor, diversity and an all-encompassing good vibe that encompasses customer service, connecting with community and making consumers feel they are supporting something meaningful beyond good beer.

“You have to be strategic and you have to play it smart,” said Flatland’s Mohsenzadegan. “Having loyal consumers is key. Maybe you’ve met the owner and the owner’s dog. Every little thing counts.”

As McKean told the CCBA conference as he concluded his keynote, craft beer has changed America for the better.

“We take agricultural products and turn them into a beverage that brings people together and adds joy to their lives. We create jobs in places that other manufacturing businesses have fled, investing in our communities and giving people hope that we can make things again,” he said.

“In a world that not too long ago seemed destined to become one gigantic airport terminal, with flavorless mega-chains crowding out everything small and interesting, we have helped turn the tide towards the local and unique.”

Blair Anthony Robertson: 916-321-1099, @Blarob

High-profile brewery sales

Being a savvy craft beer consumer these days means keeping tabs on mergers and acquisitions. If you want to support small, independent operators, the landscape continues to shift. Here are some of the more high-profile sales to Big Beer and other corporate investors.

▪  Goose Island sold to Anheuser-Busch InBev, 2011

▪  10 Barrel sold to A-B InBev, 2014

▪  Saint Archer sold to MillerCoors, 2015

▪  Four Peaks, Breckenridge, Golden Road and Elysian sold to A-B InBev, 2015

▪  Ballast Point sold to Constellation (Robert Mondavi Wines, Corona, Modelo), 2015

▪  Firestone Walker partners with Belgian beer conglomerate Duvel Moorgat, 2015

▪  50 percent stake of Lagunitas sold to Heineken, 2015

▪  Oskar Blues sold to Fireman Capital Partners, a private equity firm, 2015

Editor’s note: This list has updated to correctly identify the Saint Archer buyer.

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