For Anheuser-Busch, One Good Deed is About it

Our frenemies at Anheuser-Busch are in the news. Seems they delayed beer production this week so they could can water for hurricane victims in Houston. Good PR. Too bad that's not the only coverage they're getting. Because, like always, they've been up to no good.

Earlier this month, Henri Reuchlin, Chairman of the European Beer Consumers Union, which represents consumer groups in Europe and monitors the activities of big beer, sent a letter to ABI CEO Carlos Brito requesting assurances regarding the beer giant's global intentions.

Reuchlin's letter rakes ABI over the coals nicely, describing a litany of abuses and underhanded practices. "All of these examples suggest the policies currently being adopted by your company tend mostly to work to the disadvantage of consumers, or at best to pay the consumer little regard," he concludes.

Not exactly news, eh? If you follow along here, you probably know about Anheuser-Busch's illegal and anti-competitive practices in this country. They're getting pinched by regulators on a regular basis, forcing them to come up with creative defenses. And pay fines.

A little over a year ago, the good folks at AB were caught violating Washington state pay-to-play rules at a couple of concert venues in Seattle. What they did was pay exclusive promotional fees in order to secure placement for their own products, while blocking competitors.

The result was a relative slap on the wrist in the form of a $150,000 fine. A spokesperson for the company subsequently said they didn't agree with the allegations and were working with the State Liquor Control Board to figure it all out. Right.

A few months later, in September, the US Securities and Exchange Commission hit AB with a $6 million fine for bribery. The SEC found the company made illegal payments to officials in India to boost sales and production. The company also tampered with a whistleblowing employee, entering into an agreement prohibiting the person from communicating with the SEC about violations.

In fact, despite employee complaints and SEC directives, Anheuser-Busch failed to establish internal controls to detect and prevent improper payments. Instead, transactions involving promoters simply weren't monitored or recorded properly. Hmmm. Why do you suppose they would do that?

There's more. This past March, AB reached a $400,000 settlement with regulators in California after an investigation revealed AB-owned wholesalers had been illegally providing refrigerators, television sets and draft systems to Southern California retailers. They knew the law and simply failed to abide by it. Business as usual.

More recently, regulators in Massachusetts charged Anheuser-Busch with illegally giving away nearly $1 million worth of equipment in the form of branded refrigerators, draft towers and coolers to hundreds of retailers in 2014 and 2015. The charges came as a result of a 14-month investigation into pay-to-play practices in the state.

The best part of this story is AB isn't even denying the charges, It says it did provide the equipment to retailers and believes it did so legally. Say what? Yep. The company is challenging the state's definition of illegal gifts.

It turns out Massachusetts bans brewers and wholesalers from providing retailers with anything of “substantial value” as a means of gaining influence. The problem is, “substantial value” isn’t defined, leaving open a door through which AB is driving a semi. Imagine the hubris.

Anheuser-Busch contends it had no idea that the coolers and other merchandise exceeded the "substantial value" threshold. Keep in mind we're talking about items valued at from hundreds to several thousand dollars each. Who knew these things were of "substantial value?"

These are the people we're dealing with. They want to dominate the industry and aren't especially concerned with how they do it. If there's a law blocking their objective, they're apt to work around it and worry about the consequences later. It's who they are.

And if you're buying any of their products, you're helping finance this kind of behavior. There's a simple solution: Don't buy any of their shit. End of story.

Reinventing the CBA's Redheaded Stepchild

For a number of  years, many beer-centric folks wondered what the Craft Brew Alliance would to with Redhook, it's redheaded stepchild. Redhook was thrashed like a rented mule and abandoned in a dusty ditch long ago. What now? Well, they actually have a plan to resurrect it.

Founded in 1981, Redhook is the oldest existing craft brewery in the Northwest. I use the term "craft" loosely because Redhook is part of the CBA, roughly a third owned by Anheuser-Busch. Along with Widmer and Kona, Redhook doesn't meet the Brewers Association craft standard.

In fact, Redhook was the first Northwest brand to fashion a partnership with big beer. That happened in 1994, when it sold a 25 percent interest to AB. Under the terms of the deal, Redhook maintained control of its marketing and advertising, but gained access to the AB distribution network.

The results were stellar. Redhook built a large brewery in Woodinville and another in Portsmouth, N.H. in the wake of the deal. Boosted production and access to the AB network helped Redhook increase sales from 93.7 million to 226 million cases between 1994 and 2002. Serious stuff.

Redhook's experience was not lost on Kurt and Rob Widmer, who had solid beers, but no access to wide distribution or cash that could be used to enhance their brand. Around the time they figured out how to package their iconic Hefeweizen in bottles, the Widmers sold a 31 percent interest to Anheuser-Busch. That was 1997. Within five years, Widmer sales increased 20 percent.

The rest of the story is well-known. Widmer and Redhook, already paramours of Anheuser-Busch, merged in 2008, forming the Craft Brewers Alliance. Two years later, the CBA, which had been brewing Kona beer on contract for at least several years, acquired Kona. A few years later, the name was shortened to Craft Brew Alliance (BREW on the NYSE).

There are differences of opinion over what happened to Redhook. Mine is that, once it became part of the CBA, Redhook was overshadowed by Widmer and, soon enough, Kona. With sloppy, inattentive brand management, Redhook drifted into sub-craft status, relegated to sharing shelf space with the likes of Pyramid, Portland Brewing and other derelict brands.

While there may be different explanations for the decline, the numbers cannot be disputed. Redhook sales have been tanking for years, a drag on the entire CBA portfolio. In recent times, Widmer has also gone flat. Kona is the only darling in the group, still chugging along nicely, a big fat target for AB acquisition.

After the CBA's Portland facility was updated and upgraded, most of Woodinville's production gradually moved here. To its credit, the CBA hoped to sell the Woodinville brewery to Pabst. That deal fell through when Pabst saw its revenues take a dump. Today, the old brewery is shuttered, awaiting a suitor, (apparently) overvalued on the CBA balance sheet.

But all may not be lost. The CBA is hoping to refurbish the Redhook brand. Talk about big projects. The plan revolves around a fancy new brewpub in Seattle's swanky Capitol Hill neighborhood. It serves up specialty beers brewed on a small system, alongside what appears to be an upscale pub menu.

This isn't a terrible idea. Going small has possibilities. Brewlab, the name of the new pub, will feature two banks of 16 taps. Beers will be produced on an in-house 8 bbl system, with a focus on small batch, experimental brews. That sounds pretty good.

There will be several special edition packaged beers in six-packs and draft form. Distribution will be limited to the Northwest. They also plan to release variety packs of selected special edition beers to a broader audience. Care to guess where these beers will be brewed? Not in Seattle. But never mind.

This plan lines up with what's happening in craft beer, as long as Redhook doesn't attempt to conquer distant markets. Between taprooms and new breweries, the winning focus at the moment is hyper local. It's gotten extremely difficult to build strong regional and national brands because small local breweries are gulping up market share from larger brands.

Whether the CBA can succeed with the Redhook plan is an open question. With the exception of Kona, which rides a strong connection to place, the CBA has not proven itself to be particularly adept at brand building, similar to its inept part owner, Anheuser-Busch.

But we shall see. You never know. It might work out for them if their goal is limited. If there's any kind of overreach, it'll likely be a disaster.

What's Beer Got to Do With it?

I met Laura 25 years ago. She was a not quite halfway through her career in healthcare at the time. She reached thousands of people by way of her work in various hospitals, as an educator at OHSU and, more recently, as a Nurse Practitioner in the Legacy System. Today she retired, after 42 years of service.

At OBF 2017

Our paths crossed and eventually merged thanks largely to a common obsession with racquetball. This is not a made up story. We were addicted to the sport. During most of our first 10 years together, regular weekly play and tournaments dominated our annual schedules. It was quite insane.

What we came to regard as our "need for speed" also coaxed us into other risky activities. A shared interest in snow skiing led to annual outings on Mt. Bachelor and Mt. Hood. During a trip to Kauai in 1996, we developed a boogie boarding fetish that lasted many years.

Outings were not without peril and occasional anguish. Both of us were "spin-cycled"into the sand on the beaches of Poipu numerous times while boogie boarding. But the worst occurred on Mt Bachelor in March 2008. While skiing in chopped up powder after a stressful night searching for a marauding black dog, Laura caught an edge on a snowboard rut and mangled her knee. She was unable to stand. The Ski Patrol was summoned.

She had suffered a torn ACL and meniscus damage. The trip back to Portland was painful. Soon enough, the damage was surgically repaired. She eventually returned to the slopes wearing a rigid brace. It was tough to have such limited mobility and she was tentative. I don't think she ever recovered emotionally. Getting injured like that was something she'd never experienced, didn't expect. It knocked her for a loop.

With puppy Biscuit in 2009

That 2008 incident foreshadowed the end of our "calm years." In early 2009, Laura's father passed away, more or less unexpectedly. Returning from his memorial, I was laid off, an event that had lasting consequences. Shortly thereafter, the second of our first pair of Labs passed away. Soon enough, I learned my own father had cancer. He passed away in November. It's fair to say 2009 was not a very good year.

From that point on, Laura carried the load in our household. With my career in disarray, she kept us afloat by paying the bulk of the bills while at the same time planning for her impending retirement and contributing to the college funds of her two grandchildren. Somehow, some way, she succeeded. The house was paid off a year ago. The college funds grew. We survived.

Unlike my uneven career in marketing communications and writing, Laura's career in healthcare featured a gradual, upward trajectory. During the Clinton years, she opted to get her NP certification because she believed primary care would be the wave of the future. If memory serves, we both thought primary care would become somewhat universal and well-funded.

At Waimea Brewing, 2009

Things clearly didn't work out the way we figured. Laura rolled with the punches for 22 years in several scenarios. She's seen a lot of change. Technology now plays a far greater role than it once did. But the end result is that providing care has gotten more difficult, not easier. That's largely due to the way the insurance industry works, but never mind.

These last few months of work have been bittersweet. As she gradually approached her final day in the office, Laura exchanged hugs and tears with patients, some of whom she had been seeing for a number of years. She'll undoubtedly be missed by those patients, and also by the colleagues she worked with so closely during this final chapter at Legacy. She'll miss those interactions more than she knows, but it may take some time for that to sink in.

Even though she's retiring, Laura's efforts in the healthcare area won't end. She'll maintain her license for a while, maybe do volunteer work somewhere. She doesn't plan to consider work as a healthcare provider similar to what she's done for more than two decades. "That's a mission impossible scenario," she says. "Too messy."

Retirement dinner at Oxpdx

As with all things, there is irony. One of Laura's specialties over the years has been diabetes care. That experience will come in handy because we recently learned our youngest Lab, Biscuit, born on Valentine's Day 2009, is diabetic. So even though Laura is retiring from the office, she'll still be providing care. The irony is not lost on either of us.

What's beer got to do with it? Very little. Laura prefers wine and does not share my geeky interest in beer. But she encouraged it by giving me homebrewing equipment for my birthday in 1995. I brewed for years and we shared a lot of that beer. We also frequented the Oregon Brewers Festival as drinkers and volunteers for more than a decade. Today, only I chase beer.

Honestly, I don't know what her retirement holds. She has far too much energy to sit around and do nothing. Gardening, reading and sudoku won't be enough. This I know. I worry that she'll drive me nuts as I attempt to work in my basement office. She worries that I'll run off with one of my millennial beer friends. The reality is, we'll work things out. We always have.

So congratulations on your retirement, my dear. It's certainly well-deserved. Time to start enjoying everything you worked so hard to attain for all these years.

Now, how about let's grab a beer? 🍻

Postscript: A quick shoutout to the folks at Ox Restaurant, Laura's chosen dinner venue. After a great dinner that included a bottle of wine and several entrees, as well as the ice cream shown above, we were told our dinner check had been taken care of. Our server had learned of Laura's retirement during the course of our meal. Needless to say, we left a large tip.

The Fall and Rise of Anchor Brewing

Last week's announcement that Japanese brewer Sapporo will acquire San Francisco's Anchor Brewing was met with frowns around the industry. It's not easy to see an ironic brewery sold to outside interests. But Anchor's future is likely brighter than it was. Trust me.

Many saw the $85 million purchase price, made public by Sapporo, as being on the low end compared to other deals that have gone down in recent years. It's true that Anchor is an iconic brand with a lengthy history and heritage. But all things are not equal.

The reality is, things have not gone especially well for Anchor in recent times. Over the course of the last two years, sales have tanked... down to 1.75 million cases, according to industry sources. That's 100,000 bbls less than experts thought they were selling. Numbers like that tend to make a brand less attractive to potential buyers.

That's just the tip of the iceberg, really. Anchor is a brand that's become less and less relevant over the years. While upstart breweries entered the market with progressive new approaches and marketing ploys, Anchor was largely content with the status quo, making no significant effort to roll with industry changes.

Still, the hollowing out of the brand was not all Anchor's fault. Growth in the number of breweries has put a lot of established brands in a bind. As discussed here last week. many legacy brands have tanked as small new local breweries opened in areas previously not served or drastically underserved. Anchor was and is certainly a victim of that scenario.

There's more, of course. Recall that Keith Greggor and Tony Foglio, who purchased Anchor from Fritz Magtag in 2010, came from the spirits world (Skyy vodka). They had a grandiose vision of what Anchor might become in those heady days. Craft's growth swell in recent years may have sucked them into thinking they could pull it off. But craft numbers started to slide.

One of their nutty ideas was an ambitious expansion project on Pier 48, a collaboration with the San Francisco Giants baseball club. That project died on the vine when it became apparent that impossibly expensive seismic upgrades would be required. Greggor and Foglio looked at their faltering beer revenue stream and balked.

As Anchor Brewing slowed, the spirits business flourished. Makes sense, since the guys running the show get spirits. Today, the distillery is about 30 percent larger by revenue than the brewery, Greggor told Brewbound. They wisely decided not to compromise the growing spirits business by continuing to invest in Anchor, a losing proposition. Needless to say, Anchor Distilling is not part of the sale to Sapporo and will eventually relocate once the deal is finalized.

Everyone wonders what will happen to Anchor. The brewery is evidently antiquated and operating at just 55-60 percent of capacity, according to various reports. There's no urgent need to expand production, though the facility certainly needs an update. And the integrity of the brand could use some investment and attention, for sure.

In Sapporo, Anchor may have lucked into an owner with an understanding of beer, an appreciation of heritage and the deep pockets required to revitalize the brand. Sapporo will invest in the existing brewery and expects to open a new taproom across the street. In fact, Sapporo may be the perfect steward of the iconic brand it apparently coveted for some time.

As with many stories, there is irony in this one. You have go back to immediately after Fritz Magtag recklessly bought a majority interest in Anchor. Dark days. The brewery was dilapidated and the beer was poor. Although some credit Anchor with being our first craft brewery, that part of its history was yet to come.

Hitting the streets to hawk his beer, Maytag encountered angry publicans and restaurant owners who gave him an earful. Many had personally experienced Anchor's sour, defective product. Most assumed the brewery had ceased to exist years earlier, so horrible its beer was.

Unlike those who came along a little later, Maytag did not have a homebrewing background. He educated himself on better brewing practices in an effort to save his floundering company. But his realization that local restaurant patrons were purchasing a lot of expensive imports is what drove his motivation to make better beer and what it should be. Others would eventually follow.

So Anchor has essentially come full circle. Its craft history is indelibly inked to imports, for better or worse. And now it is owned by an import brand that appears committed to maintaining its heritage and refurbishing its tarnished brand.

We don't yet know how this is going to work out. But Anchor may be in better hands now than it has been in recent memory. The news could be a lot worse. Trust me. 🍻

When Your Legacy Brand Tanks

One of my industry friends just sent me a spreadsheet comparing OLCC taxable barrels reports for May 2017 and May 2016. I don't have a lot of confidence in these numbers. Why? Because the amount of missing information from month to month is often difficult to figure.

Here's an example, before I move on. Due to some kind of accounting or data collection issue, numbers for the Craft Brew Alliance (Widmer, Kona, Redhook, etc) have almost completely vanished from the monthly reports. That's a giant hole. Thus, my lack of confidence.

Anyway, the comparative numbers in this spreadsheet are shocking. We know craft growth is slowing. That's been a beer news item for the last year or so. What the numbers essentially show is that many older breweries are losing big while a few newcomers show solid growth.

I'll forgo the specifics in favor of generalizations. Deschutes and Full Sail were both down, Deschutes significantly. Locally, Portland Brewing and Bridgeport continue to drift into obscurity. Breweries showing notable growth include Breakside, Silver Moon, Crux, Block 15 and pFriem. No surprise.

More to the point of this piece, several of Portland's smaller legacy brands show scary declines. Lompoc Fifth Quadrant was down 14 percent. Alameda Brewing was down 18 percent. Lucky Labrador was down nearly 12 percent. Not good.

What's happening to the larger breweries we understand. As new, local breweries open in previously underserved areas, they siphon share from national and regional breweries. There's not much the big guys can do about that dynamic. Consumers seem to like local beer. Hard to blame them.

Established local brands are also losing share to upstarts, remote and local, that offer shiny new beer options and approaches. Essentially, many older local breweries are having a hard time competing for market share in markets they once dominated.

The reasons aren't as simple as you might think. It's easy to assign blame. I hear some failing local breweries blame their distributors. With so many craft brands entering the market, established breweries feel like they've been abandoned in favor of what's new and shiny.

Distributors are convenient whipping boys. It's true that they've taken on lots of new craft brands. Craft is where the action is. But they've also invested in the people and infrastructure needed to float everyone's boat. They really don't want anyone to fail. Blaming them is a slippery slope.

In fact, many established brands simply haven't worked to stay relevant. They were slow to adopt creative brewing approaches and higher quality standards. They refused to refresh tired, woefully outdated brand identities. And they failed to support brand health via focused social media campaigns and boots on the ground.

When you look at the most successful brands in this market, you see much of what the declining local breweries lack. You see beer that is typically solid across a wide spectrum. You see thoughtful branding and coordinated social media efforts. And, yeah, many of them have reps who work to keep brands fresh in the minds of consumers.

The reality is, the ground has shifted. There was a time when a brewery or brewpub could get by with decent beer. They didn't have to put much effort into chasing eclectic beer styles or enhanced quality because there wasn't much competition and beer palates weren't very sophisticated. Simpler times.

Those days are gone. Modern beer consumers demand more. Owners of older local breweries that are losing market share might do well to look in the mirror and evaluate what they're doing to stay relevant in a market that's getting more competitive by the day. It ain't easy.