Who's Afraid of BMC?: Garrett Oliver (of Brooklyn Brewery) speaks out.

Preamble: I haven't posted on a beer-related topic in weeks, so I'm getting back into the water by combining my love of economics and my (more satisfying) love of beer.


I'm sure those of us with enough time to do so took at least a passing interest in the proposed merger of some of the Dark Lords. (Miller and Coors). Garrett Oliver, of Brooklyn Brewery, wrote this editorial in the NY Times:

Don't Fear Big Beer

Essentially, he's saying don't worry about the merger, b/c the "craft brewers" - he's trying to get away from the handle of "micro-brewers - are gaining market share and generally kicking ass.

He also adds a warning to his fellow crafties: Learn from BMC. Don't become like them, purveyors of bland, mass-market beers. Don't - as Google once put it Pollyannishly - Be Evil.

I think that's great. I also think they can afford to think like that while their market share is growing. That may (will) change, though, when the market is once again re-saturated by hordes of devoted, eccentric braumeisters, who are suddenly competing for a scarce pool of beer afficionados. Then, they start again with the mergers, and the acquisitions, and the adding rice to drinks other than sake, and the general ****tiness... ^

So here's my question: How long can they sustain this model? Would it be possible, when the inevitable mergers start, to maintain the quality of the beer? Or will they fall victim to the same thing that corrupted BMC in the first place: the realization that by diluting their product, they could literally wipe their asses with $100 bills.

^ It occurs to me that after this merger happens, BMC will get shortened to BM. Now we can snicker when we say "I really don't want to drink a BM." ^^

^^ And now, I've just reminded myself of that scene in the second Austin Powers movie. Brb guys, gonna go hork up my last 3 beers.

"The mergers" you speak of may and probably will happen. However, ther will always be the small guys providing incredible beer. Some of the original micros like Sam Adams, and Deschutes have already lost their souls (and their flavor), but there are a hundred new guys with incredible beer to take their place. No, great craft brew, as well as great small winerys are here to stay. It will probably be pretty tough to stay on top for long though.



BTW, I've been wonderig, what exactly does the acronim BMC stand for anyway?

Bud - Miller - Coors = BMC

The axis of evil.

So, since I occaisionally drink a pabst, I'm ok?

If the (B)MC merger actually happens we will no longer be able to use the acronym of our forefathers but shall have to resort to the cold hearted truth that we shall only have B(owel) M(ovements) in our future .

Okay first off, Miller and Coors are NOT merging. They are forming a joint venture to obtain greater production efficiency, not forming a new company. Secondly, Oliver is dead on the money; Bud's market share has remained constant for the past several years while the market has gotten bigger and bigger. This tells me they are not bringing in new beer drinkers outside their core market. At the same time more and more craft brewers are popping up and gaining market share. BMC isn't any more of a threat to craft brewers than Walmart is to William Sonoma.

Mergers will happen, beers will be blanded to 'broaden' the appeal, costs will be cut, repeat. New brewers will take over the high-end. Any industry where the entry cost is low goes through the same cycles, over and over.

There are exceptions. Widmer Brothers have avoided the cycle, possibly because they have retained control and they keep in touch with the homebrewing community.

TheJadedDog said:

BMC isn't any more of a threat to craft brewers than Walmart is to William Sonoma.

Click to expand...

I would not agree with this analogy. BMC has been buying up craft breweries and putting them into their distribution chain. They are then able to use these brands to take up shelf space in your neighborhood grocery chain and stifle competition. Good examples of this are Redhook and Widemer. They try to have products in all the price categories to maximize this effect. Why should the local grocery store start carrying Avery products from a third or fourth distributor, when they can fill the same slot with a product from BMC that is already in their stores. One less vendor and more marketing clout to move the product. Not too mention the effect the BMC's have on supplies and how they can use their size to apply price pressure to smaller breweries. I have a feeling that the craft market may look much different in 4 or 5 years than it does now, just because of the rising prices in core ingredients. Many small breweries are going to either disappear or become acquisitions.

The above analogy may hold true if you are looking at Walmart versus your local independent beer store, but does not hold up in the larger market place.

jdoiv said:

I have a feeling that the craft market may look much different in 4 or 5 years than it does now, just because of the rising prices in core ingredients.

Click to expand...

I disagree.

I think you will find that the people drinking the craft beers do not mind the extra cost of the beer. The same was brought up earlier with regards to cheese and coffee. There is a huge culture of "foodies" right now that appreciate quality products and will continue to go to the Brew Pubs that have great food and serve even better beer. I mean, look at what people pay for a bottle of wine, 10 to 20 for a modest bottle. A moderately high end bottle of beer(boomer size) will cost you 12 bucks. I see corking fees for beer in the near future.

Some said that Sam Adams has lost its soul. Again, i have to disagree with that. You will notice SA beers may differ from batch to batch, this is due to the hand crafting. Their process may be highly mechanized due to demand of their product but there is alot of human involvement in their beers. What about their Brew contest? Promoting homebrewing! I think that is pretty cool. I know, I know, they do it to sell the winning beer. But they are doing it, they are spreading knowledge of home brewing.

Have you had a BMC that tasted different from the last one ever? other than the time you hide the 12 pack in the garage cuz you were underage and it was 20 degrees out and it frooze?

I think that there is a lot to fear from BMC but I really don't think it has happened. BMC could crush the competition and I have read articles where it seems like they want to or have tried to intimidate the seller but when I go beer shopping I see more beer on the shelf than I can believe. No the 7/11 only carries BMC but the supermarket carries beer from all over the world. And local markets are represented as well its not just a few larger craft beers. In fact the local Nugget (high end grocery store but a local chain) has its own beer. There is Nugget Market Beer I have not tried it. Beer is huge right now. Sure BMC can offer a huge brick of beer at a price that no local craft company could match but quality beer is still thriving. Infact Nugget got in a new beer I have not tried and I cannot wait to get my hands on it the Haufbrauhause beer from Munich.

In the last 15 years this market has blossomed. BMC may not make it easy but it seems to show the signs of a very positive market.

jdoiv said:

I would not agree with this analogy. BMC has been buying up craft breweries and putting them into their distribution chain. They are then able to use these brands to take up shelf space in your neighborhood grocery chain and stifle competition. Good examples of this are Redhook and Widemer. They try to have products in all the price categories to maximize this effect. Why should the local grocery store start carrying Avery products from a third or fourth distributor, when they can fill the same slot with a product from BMC that is already in their stores. One less vendor and more marketing clout to move the product. Not too mention the effect the BMC's have on supplies and how they can use their size to apply price pressure to smaller breweries. I have a feeling that the craft market may look much different in 4 or 5 years than it does now, just because of the rising prices in core ingredients. Many small breweries are going to either disappear or become acquisitions.

The above analogy may hold true if you are looking at Walmart versus your local independent beer store, but does not hold up in the larger market place.

Click to expand...

Everything you posted here is 100% dead on, IMHO.

It is inevitable the smaller breweries just aren't going to be able to survive. Fuel costs, ingredients, etc., they have a longer row to how to be/stay successful, where BMC'ers can cheat by using cheaper ingredients. Most BMC breweries dont even do cereal mashes anymore--they partial mash and supplement with rice and corn syrups.

I agree we'll now begin to see a downward trend of craft breweries. And that sucks.

I am not sure I see the connection. I will pay a dollar more for better beer. Beer might be more expensive but I will still buy beer. I don't really consider BMC beer its not something I buy so I its not an option.

BMC's are running a bit scared. A good friends brother is Director of Brand Management for Budweiser at AB and they recongnize that more and more people are looking up and down the left side of the beer aisle for their beer get togethers than the right (BMC) side.

To site a couple of recent changes in BMC practice that illustrate their concern:

Changing Michelob to an "all malt" beverage and touting it as such.
Recent Budweiser ads focus on "The Great American Lager" (as in Lagers are better than Ales Maybe?)

And if you've been to Sam's recently...you may have seen this:



For AB to put out a Porter, a Bavarian Hefe, a Pale Ale and a Marzen out there...means someone is making a dent.

I think Ray McNeill said it best (and I'm paraphrasing) that craft breweries success is not competing with BMC or with each other, but instead it should be competing with eurpean lagers such as Heineken and Stella.

These are beers that marketed to people that believe that want (or feel they deserve) something better than BMC, but really aren't getting very much in return. These are your craft beer converts. This segment represents something like a 20% marketshare.

That said, what jdoiv and Dude have said about the distribution machine is going to be very daunting for craft beer. The retail market has a finite amount of shelf space, bars have a finite amount of taps/bottle space. I was in a bar the other day when the Bud distributer (Crown) talked the bar manager into replacing a local micro with a Bud seasonal (I forget which) by offering a bunch of signage, etc. BMC is more than happy to eat up a tapper at bar with one of their own than cede it to an outside distributer/brewery. Sometimes it's the carrot and other times it's the stick.

The analogy is in the greeting card market. 75% of the cards you see are Hallmark or (tiny divisions of Hallmark). They provide the shelving, have thier own stores, etc. The same goes for soda/pop. Who do you think pays for end cap displays and coolers? In order to add a new greeting card line or soda, you'd have to find a place to put it in your store. Pepsi/Hallmark would never allow the store to use thier cooler or display for another brand.

Fish said:

I am not sure I see the connection. I will pay a dollar more for better beer. Beer might be more expensive but I will still buy beer. I don't really consider BMC beer its not something I buy so I its not an option.

Click to expand...

I'll attempt to connect the dots.

Would you rather buy a 4 pack of DFH 90 for 10 bucks, or a sixxer of Stone IPA for 8?

DFH is only one brewery pricing itself out of the market. Soon you'll see this happen to more craft breweries. Most people just aren't going to pay to the extreme for a top of the line brew. You'll see people compromising some flavor for a cheaper price. Soon that comparison will come down to the faux craft brews that BMC is doing now. They can do it cheaper-and they know they can still compete for the market share.

Dude said:

I'll attempt to connect the dots.

Would you rather buy a 4 pack of DFH 90 for 10 bucks, or a sixxer of Stone IPA for 8?

DFH is only one brewery pricing itself out of the market. Soon you'll see this happen to more craft breweries. Most people just aren't going to pay to the extreme for a top of the line brew. You'll see people compromising some flavor for a cheaper price. Soon that comparison will come down to the faux craft brews that BMC is doing now. They can do it cheaper-and they know they can still compete for the market share.

Click to expand...

If companies price themselves out of the market well thats their loss. And I think thats their choice and many companies in all fields do price themselves out of the market, it is reality but I don't see how one company overpricing constitutes a trend that signals the downfall of craft beers.
No I don't buy the most expensive beers on the self but my selection of premium beers in the middle bracket is huge. I rarely buy anything that is in the most expensive category. It doesn't mean I am going to start buying a 32 pack of Coors for $11. I just don't want it. My neighbor does - he goes through 2-3 bricks of bud a weekend. And we have the variety that we need so we both get our needs met. Will I pay 9 instead of 8 for a 6? Yes I will - if beer prices rise I will follow. If wine prices go up I will still buy wine and I won't be buying the Almaden gallons in a cardboard box.

I think its a huge leap to say that prices are rising and soon all we will be left with are the 3 big breweries. If this was all market economics I am sure no one would pay more for a 6.But people like the craft beers and we are willing to pay more for beer we like otherwise this whole micro-brew trend would never have started. Financially it makes no sense but it comes down to personal preferences not financial preferences.

Fish said:

If companies price themselves out of the market well thats their loss. And I think thats their choice and many companies in all fields do price themselves out of the market, it is reality but I don't see how one company overpricing constitutes a trend that signals the downfall of craft beers.
No I don't buy the most expensive beers on the self but my selection of premium beers in the middle bracket is huge. I rarely buy anything that is in the most expensive category. It doesn't mean I am going to start buying a 32 pack of Coors for $11. I just don't want it. My neighbor does - he goes through 2-3 bricks of bud a weekend. And we have the variety that we need so we both get our needs met. Will I pay 9 instead of 8 for a 6? Yes I will - if beer prices rise I will follow. If wine prices go up I will still buy wine and I won't be buying the Almaden gallons in a cardboard box.

I think its a huge leap to say that prices are rising and soon all we will be left with are the 3 big breweries. If this was all market economics I am sure no one would pay more for a 6.But people like the craft beers and we are willing to pay more for beer we like otherwise this whole micro-brew trend would never have started. Financially it makes no sense but it comes down to personal preferences not financial preferences.

Click to expand...

I don't think it will be the breweries pricing themselves out of the market as much as the market pricing them out. The higher costs of ingredients, manufacturing, storing, distributing and marketing of the product is going to do it for them. Not all of them are going to get hurt. Some may thrive and survive. But some are definitely going to get hurt. I do think companies like DFH will be the ones that are stifled. And maybe that's ok. Not everyone is going to buy a super hoppy beer. Those that do, may just find it a little harder to find at the local store. BMC is a marketing machine and realizes it is losing market share. Price increases on ingredients is going to help it put the squeeze on the market. Some will survive, some may just have to retreat and some will fold. But I do think the next 3 to 4 years will be harder on the craft brew business than the last 3 to 4.

I have a very good friend that is in the business and I used to be in the business, and as someone pointed out, the warfare is in the local bars and markets. When BMC can come into a small grocer/bar and give them lots of incentives to carry a product/put a tap handle on, etc, that is a cheaper cost but can sell at the same price as a craft beer, they are going to add it.

I don't think it is the end for craft breweries, but I think you are going to see things recede a little and many breweries are going to go back to being more regional.

jdoiv said:

I have a very good friend that is in the business and I used to be in the business, and as someone pointed out, the warfare is in the local bars and markets. When BMC can come into a small grocer/bar and give them lots of incentives to carry a product/put a tap handle on, etc, that is a cheaper cost but can sell at the same price as a craft beer, they are going to add it.

Click to expand...

See that makes sense but I just don't see it. I cannot remember the last time I went into a bar and all they had was BMC. Even the local tiny corner store here carries about a dozen beers. And yes BMC dominates but its not the only choice, the only places I have been that only carry BMC are the 7/11's. It could change but it seems to me there is too much interest in good beer. The only time I remember ordering a Bud was 3 years ago at Sea World. Thats all they had and then it was only because it was the new novelty energy beer they tried to market. I just don't like getting drunk I like drinking. I like beer but I won't drink it if I don't like it.

Sea said:

So, since I occaisionally drink a pabst, I'm ok?

Click to expand...

Sorry dude, I am a Pabst drinker myself sometimes, but not even we are safe:

Pabst Brewing Company is an American company founded in 1844 by Jacob Best. Best known for Pabst Blue Ribbon beer, it is historically associated with Milwaukee, Wisconsin, where it was founded, although its corporate headquarters are currently in Woodridge, Illinois. Pabst retains a datacenter in San Antonio, Texas, the previous location of its headquarters. In 1999, the Pabst Brewing Company began transferring its production to Miller Brewing Company on a contract basis. In 2001, it closed its last brewery in Allentown, Pennsylvania.

Click to expand...

And check out the top of This Page "Pabst Blue Ribbon, Brewed by SABMiller"

Sorry to rain on the parade.

As for Craft beer after the merger of Coors and Millers US operations, I think that they will still survive and prosper, the demand for craft beer is on the rise and that is evident in BM's post, just look how the big guys are trying to catch up, and gain a foothold in the craft beer industry.

I think its good, it is getting people who will only drink beer made by BMC to try something diferent, which in turn may open their eyes to the micros on the shelf next to them, and they will be like "Hey that BMC wheat beer was alright i wonder how this local one is?" Boom, they just converted one of their customers to a Craft Beer customer.

Fish said:

See that makes sense but I just don't see it. I cannot remember the last time I went into a bar and all they had was BMC. Even the local tiny corner store here carries about a dozen beers. And yes BMC dominates but its not the only choice, the only places I have been that only carry BMC are the 7/11's. It could change but it seems to me there is too much interest in good beer. The only time I remember ordering a Bud was 3 years ago at Sea World. Thats all they had and then it was only because it was the new novelty energy beer they tried to market. I just don't like getting drunk I like drinking. I like beer but I won't drink it if I don't like it.

Click to expand...

Oh, I think there will always be other things to choose from, but I think that choice will be limited. Just go into your local store and count the number of items on the shelf. Then count how many of them are from BMC. Next look at the brands that aren't noticeably BMC. Find out who makes them (SABMiller for PBR as an example or look at Pete's). I bet you'll find that less than 20% of the product on the shelf is from a real craft brewery. Now, in order to get more choice in the market, something on those shelves is going to have to go. Do you think it will be a BMC product or one of the smaller craft beers?

jdoiv said:

I bet you'll find that less than 20% of the product on the shelf is from a real craft brewery. Now, in order to get more choice in the market, something on those shelves is going to have to go. Do you think it will be a BMC product or one of the smaller craft beers?

Click to expand...

You are right I bet that the short term solution will favor BMC - but I bet the long term solution will be that the market gets a bigger shelf.

This is craft beer stuff is still pretty new and it has done incredibly well. This summer we went up to the San Juan islands where we have land and I don't think that there is a single store there that doesn't carry at least 3 craft beers. This is on an island where everything is hard to get. Yes all major beers are represented as well. 10-15 years ago this was a different story.

Here are Bud's brands. I have Bolded the ones that IMO are designed to provide bars and stores with a Bud alternative to any craft beer.

Budweiser
Bud Light
Budweiser Select
Bud Dry
Bud Ice
Bud Ice Light
Michelob Family
Michelob
Michelob Light
Michelob ULTRA
Michelob ULTRA Amber
Michelob Honey Lager
Michelob AmberBock
Michelob Golden Draft
Michelob Golden Draft Light
Imports
Kirin Light
Kirin Ichiban
Grolsch Light Lager
Grolsch Blonde Lager
Grolsch Amber Ale
Grolsch
Harbin Lager
Tiger Beer

Specialty Beers

Redbridge
Ascent 54
Mule Kick Oatmeal Stout
Demon’s Hop Yard IPA
Burnin’ Helles
Tarpon Spoon
Ray Hill’s American Pilsner
Rolling Rock
Bud Extra
Bare Knuckle Stout
ZiegenBock
ZiegenBock Amber

Spirits
Jekyll & Hyde

Nonalcohol Brews
O'Doul's
Busch NA

Busch Family
Busch
Busch Light
Busch Ice

Natural Family
Natural Light
Natural Ice

Malt Liquors

Hurricane High Gravity
Hurricane Malt Liquor
Hurricane Ice
King Cobra

Seasonal Beers
Michelob ULTRA Fruit Infused
Beach Bum Blonde Ale
Michelob Bavarian-Style Wheat

Specialty Malt Beverages
BACARDI SILVER Mojito
BACARDI SILVER Peach
BACARDI SILVER Watermelon
BACARDI SILVER Raz
BACARDI SILVER O3
BACARDI SILVER Big Apple
BACARDI SILVER Strawberry
BACARDI SILVER
PEELS
Tequiza
TILT

Specialty Organic Beers

Stone Mill Pale Ale
Wild Hop Lager

Alliance Partner Products
Redhook Ale
As part of an equity investment in the Redhook Ale Brewery in Seattle, Anheuser-Busch wholesalers have distributed Redhook's superior microbrewery products since 1994 in select U.S. markets. Brands include Redhook Extra Special Bitter (ESB) Ale, Ballard Bitter Ale, Blackhook Porter and Wheathook Ale, among others.
Widmer Brothers
Anheuser-Busch expanded its participation

More fro the Bud site:


Ascent 54
Ascent 54 is an unfiltered beer with a complex taste and surprisingly light finish that complements its blend of specialty malts and unique spicy aromas. Brewed at Anheuser-Busch’s Fort Collins, Colo. brewery, Ascent 54 is available to beer lovers in Colorado.


Hmmm I wonder what Ft Collins brewery is being targeted here?

If BMC becomes all you can buy I will just have to brew enough that I never have to buy beer.

Boy that pi**ed me off when I found out Bud had bough Kirin...

Sitting at a Sushi bar waiting on my food... look down and notice the beer is made in SF by Bud.

Sorry. Double post...

There are also issues of even gaining distribution in certain states because of the liquor laws. This is especially relevent in the Northeast were there are some very large and upscale markets.

Yeah, Massachussetts...

Fish said:

You are right I bet that the short term solution will favor BMC - but I bet the long term solution will be that the market gets a bigger shelf.

This is craft beer stuff is still pretty new and it has done incredibly well. This summer we went up to the San Juan islands where we have land and I don't think that there is a single store there that doesn't carry at least 3 craft beers. This is on an island where everything is hard to get. Yes all major beers are represented as well. 10-15 years ago this was a different story.

Click to expand...

fish--

thanks for making this point. the rest of this discussion has treated beer markets as though it's a zero-sum game. the recent flourishing of craft and microbreweries has resulted in a reopening of a market that was becoming stifled due to uninformed consumers. now that most beer consumers are aware of the variety of product that exists, discriminating individuals will move toward certain products because they are willing to pay more for a premium product. that elasticity includes any increases in price resulting from overhead costs at the brewery. the notion that BMC will be outcompeting for taps assumes that there is a finite limit to the number of bars that can exist in the world. i'm sure that someone (probably many on this forum) would be more than happy to fill a void and offer more accessible craft brews in a bar atmosphere. as long as the market is open and free to expand, it will, and as long as consumers are informed of the available products they will facilitate access to those products, even if it means entering the market on the production end. there won't be a return to the days of bud-only bars--not even in MO.

I like that you've brought that aspect (the expanding market) into this, and I think in fact we're seeing now something that happened in the wine market - only in reverse.

I believe wine consumption in the US had been mostly flat until a) associated health benefits were reported, and b) winemakers created a lower-price, less snooty market.

Having read this article I'm reminded of a similar spirit in another industry: software.

I've been beginning to notice similarities between the hombrewing community and the Free Software community which I am also a part of. Essentially, it comes down to sticking up for what you value, and consider "good" rather than making a product that is popular.

Not only has Free Software grown, some could argue that it's thrived. Budweiser is pouring millions of dollars into advertising... Craftbrewers don't spend much, but their product is coveted.

It's a damn proud moment when you can sit back and say to yourself "I make a product so good I don't have to advertise it and I gain market share."

It also means there are smart people out there who love things because they're more than "popular".

Viva Libre!

Cap'n Jewbeard said:

I like that you've brought that aspect (the expanding market) into this, and I think in fact we're seeing now something that happened in the wine market - only in reverse.

I believe wine consumption in the US had been mostly flat until a) associated health benefits were reported, and b) winemakers created a lower-price, less snooty market.

Click to expand...

Well I don't think that the market will expand all that much in the sense that people will drink more beer, but I think that it will expand in the sense of people willing to pay more money for the same amount of beer. Part of this will be beer drinkers realizing there's beer that tastes good, part will be the crappier and more expensive imports being squeezed out of the market, hopefully a bit will be American craft beers getting exported more than they have been, maybe a bit of it will be people realizing that they can get awesome beer for the price of very mediocre wine and some of it will be the modest growth in the previously pretty much non-existant market for very expensive beer (high alcohol aged beers, I know I'd pay a lot for some aged very tasty Imperial Stout if there were any place to buy it in Korea, I'd sure as hell would rather have that than champagne for a special occasion).

Oh and question for people in the know: I know that barley prices are going up but aren't corn prices going up even faster? Won't that hurt the big breweries that use a lot of corn syrup in their beers?

Bosh said:

Oh and question for people in the know: I know that barley prices are going up but aren't corn prices going up even faster? Won't that hurt the big breweries that use a lot of corn syrup in their beers?

Click to expand...

Then they'll use rice. They will always find a way.