Beware the Coming High End Tsunami

Nikita Khrushchev infamously said, "We will bury you." That was 1956. While there is some question as to the accuracy of the translation, Khrushchev clearly intended it as a shot across the bow of the capitalist world. The Soviet Union was putting the world on record.

Our friends at Anheuser-Busch are more subtle than the blustery Khrushchev, who had a knack for making outrageous comments. AB is quietly implementing a plan designed to bury independent craft brewers. And they might just pull it off.

The so-called High End is leading the charge. As you know, Anheuser-Busch has been busy collecting craft brands over the last several years. There are 10 breweries in the High End collective at this point, with a few more likely to be assimilated.

You might not know it, but the High End kicked ass in 2016, a pretty lousy year for craft beer. The High End's growth rate hit 32 percent, easily trumping the craft segment's single digit growth. Bigly. Every High End brand grew and they're all showing continued growth into 2017.

Don't give the AB charlatans too much credit. Brand building isn't their specialty. But they've learned a thing or two about the craft world, probably by osmosis, as a result of acquisitions. And they have the supply chain, the production efficiencies and the distribution network to leverage their brands.

They aren't standing still for 2017. Instead, they plan to triple their current volume. That's a gigantic goal and probably not remotely attainable. But they aren't just pipe dreaming. They have a plan:

• Goose Island, the only High End brand family with a national presence, grew 27 percent last year. They expect continued fast growth. Goose IPA, up nearly 80 percent. became the #3 IPA in the land. Much of that success came via aggressive keg discounting in on-premise accounts. AB wants Goose IPA to be #1, which likely means heavy discounting in grocery, where the brand does less well. Expect them to follow-through on that.
• Seattle-based Elysian will be the High End's next national brand. Despite damage done by the buyout, Elysian has been a big winner in its home market. The flagship, Space Dust IPA, was up over 300 percent last year and will be taken national in March. AB believes Space Dust can be a strong player nationally. Quite possibly.
• Other High End brands will expand into new markets. Golden Road's Wolf Pup Session IPA, a fast mover, will tap 30 new markets. 10 Barrel, our Oregon-based friends, will launch Joe IPA in 28 new markets.
• To support growth and expansion, AB is putting field reps in all High End markets and boosting investment in the home markets of their craft breweries. Each brewery will have a regional sales manager to support expansion. Why? Because AB can afford it and they've figured out that these investments are crucial to supporting growth.
• AB is still trying to figure out what to do with some High End brands. Four Peaks will apparently venture outside Arizona and Devil's Backbone will take baby steps outside Virginia. There's nothing much happening with Blue Point, though it will get a significant brewery expansion. Karbach is so new that marketing plans are pending.

A few years ago, I figured Anheuser-Busch's effort to invade and co-opt the craft beer industry was doomed. They just didn't seem to get it. No more. With small breweries continuing to open at breakneck pace in a largely saturated and flattening market, competition is getting intense. In that scenario, the High End looks well-positioned to assume a strong, perhaps dominant position.

There's a simple, but quintessential piece of intel driving this: Anheuser-Busch has come to realize that, as craft beer has moved into the mainstream, consumers have, too. Simply put, the beer geek consumer who is fixated on high quality, local beer is increasingly in the minority.

What we appear to have today is an emerging pool of consumers who care little about where a beer is made or who makes it. That has opened the door for good beer and good value, particularly in the grocery channel. Through that door Anheuser-Busch is driving a fleet of High End semis.

There's a tsunami coming. And it's not good news for independent craft brewers.