Portland's Plot to Steal the Old Town Stag

The ongoing battle between Old Town Brewing and the city of Portland continues. Officially, the city says it's working to resolve the dispute amicably. Behind the scenes, it's scheming to bully Old Town into eventually giving up the fight to preserve its legally granted trademark,

As pissed off as folks in and around the brewing community are, everyone needs to understand that this is mostly a matter of negligence and stupidity on the part of the city. Yeah, there's a hefty bit of greed mixed in, but this is mostly about stupidity and negligence.

Let your mind wander back to 2010, when the city of Portland bumbled into acquiring the White Stag sign in Old Town. Had it not acquired the sign and agreed to pay for annual maintenance and such, the old sign would have apparently wound up at the dump.

Once the city gained ownership, it took a rather sloppy approach to protecting what it had. Instead of registering the sign and the stag with the U.S. Patent and Trademark Office, the city obtained rights to use the image on a variety of products, including clothing and footwear, but not beer products, from the state. That was in 2011.

A year later, in 2012, Old Town Brewing registered the stag image with the U.S. Patent Office, securing the sole right to use the logo on beer-related products. That mark became "incontestable" recently, having been active for five years. Keep in mind that a U.S. trademark carries significantly more weight than state protection.

The city eventually did get around to registering the stag image with the U.S. Patent Office in 2015, allowing use on clothing, tote bags, cycling jerseys, etc.. However, it failed to obtain a trademark that would allow it to use the stag on beer products, or to license the image to beer companies.

Perhaps recognizing its negligence, the city made three attempts (2015, 2016, 2017) to acquire a federal trademark that would allow it to use or license the image for beer. The Patent Office refused the city's application each time. Actually, the city's request was initially approved in 2016, then revoked after Old Town filed a letter of protest.

Today, city officials whine that the stag is part of the city's identity. "It's our Space Needle, our Golden Gate Bridge, an iconic representation of Portland," so they say. They argue the city owns the sign and, as such, must have the right to use or license it any way it wishes.

Strange, though. If the stag and the sign were such an important part of Portlandia culture, you wonder why the city wasn't more proactive in 2010 or 2011. That's when it could have filed for and surely secured a federal trademark allowing it to use the stag as it pleased. Bunch of bunglers.

Having failed to make a broad trademark application in a timely fashion, the city is now attempting to bully Old Town into surrendering its trademark by forcing it to spend thousands of dollars on attorney fees and related legal expenses.

Make no mistake. This is all about squeezing a local business that has limited resources. Were this Nike or Intel, the city would be treading lightly, knowing full well those companies have fleets of attorneys and ample budgets to defend trademark infringement. Not so with Old Town.

You may wonder why the city would do such a thing. Old Town is, after all, a local business in good standing. Officially, the city wishes Old Town well...all the while sneaking around in the background and plotting to undermine it.

The answer is that the city plans to license the stag image to our old friends Anheuser-Busch for a king's ransom. It hardly matters who they have to run over in the process. City officials want the money and know AB will pay plenty for the right to connect its shoddy products to Portland.

You almost feel bad for the stooges at city hall. Almost. Had they not been negligent in protecting the iconic stag, their greed wouldn't be out in the open. The city would have a federal trademark and be free to do as it pleases. But officials blundered and the mistake is now obvious.

Maybe city officials should get a grip on reality. They blew it. Time to move on.

The Art of Subtle Subjugation

Anheuser-Busch's recent acquisition of Wicked Weed Brewing led to a deluge of blog posts and articles on the dangers of craft brewery buyouts. What started out as a slow stream of acquisitions some years ago has now accelerated. The subtle subjugation of craft is underway.

The big fellas only grudgingly decided to start buying up craft breweries. Why? For years, they assumed craft was a fad that would go away. They figured it would never put much of a dent in their market share and they assumed that dent would be temporary.

They changed their tune only when forced to. Craft brewers put them in a bind. The suits at AB watched their sales volumes take a beating at the hands of independent brewers who had the audacity to make beer with flavor and character. Imagine the nerve of these people.

As the numbers started to skew against them, the big guys developed a strategy to save their own skins. It was a multi-level plan and included the creation of the fake craft brand Shock Top, as well as what has been a carefully imagined acquisition strategy.

Shock Top flopped with serious craft fans. It's had some success as a gateway craft brand with uneducated drinkers, though MillerCoors' fake craft brand, Blue Moon, has been far more successful in creating an actual niche between premium macro and authentic craft.

The acquisition strategy was slow to materialize. You can see the vision by looking at the acquisition map. The geographic symmetry is obvious. They have breweries in Oregon, Washington, California, North Carolina, Virginia, Illinois, New York, Colorado, Arizona and Texas. That's no accident.

There's still plenty of dirt where they don't yet have craft ownership. They'll likely address that slowly going forward. For now, they own craft breweries in some of the most high profile craft beer states. The geography positions those breweries to compete with independent craft on a local, regional and, yes, national basis.

Of course, we've been concerned about AB's acquisitions for years. The Wicked Week deal may have broken the proverbial camel's back with industry observers. A lot of the chatter involves speculation about how AB will behave in the marketplace in the days ahead.

It's almost comical. Many wonder if AB is serious about squashing independent brewers. Will they use their massive distribution network to cut shelf access? Will they flood the market with High End product and start a price war? Will they limit access to affordable raw materials? Will they use brewpubs to build local brand identities and confuse what craft is and isn't?

Please. This is a giant corporation that has no scruples whatsoever. They're constantly in court over some bullying tactic. The big boys have not enjoyed watching their numbers dive as craft thrives. They will use any tool at their disposal to protect and improve their position in the industry and put craft brewers in their place

That "place" is on the fringe of the industry, removed from the most lucrative profit channels. The effort to squeeze retail distribution and undercut craft on price is already well-underway. That's just the start. They have other anti-competitive measures in the hopper or on the drawing board.

AB isn't necessarily in a big hurry. With craft breweries in their pocket, they're content to ride the wave for now, assuring industry watchers and gullible beer fans that all is well and nothing will change. It's a brilliant sleight of hand, part of the art of subtle subjugation.🍻

Hot Summer in the City at Anheuser-Busch

Memorial Day traditionally marks the beginning of the lurch toward the coming dog days of summer. Official summer won't arrive for a few weeks, but a few days of warm weather will give us a taste of what's on the horizon. For better or worse.

Now seems like a good time to check in again with our good friends at Anheuser-Busch. Summer is a busy time for them and, anyway, their efforts to maintain market share using unscrupulous strategies and initiatives are drawing scrutiny and bad press.

Summer Discounting
AB launched aggressive discounting programs in supermarket chains over the Memorial Day weekend and beyond. In one scenario, customers buy an 18-pack of Bud/Bud Light and get a second at 50% off. In another, you buy two 12-packs and get a third for a penny.

Convenience stores in many areas are seeing similar deals targeting the holiday weekends of summer. You'll see 12-packs of Bud/Bud Light selling for $9.99 coinciding with Memorial Day (through June 6), Fourth of July and Labor Day weekends. 12-packs will sell for $10.99 the rest of the time, according to reports.

The discounting extends to AB craft/crafty product, brands like Goose IPA and Shock Top, in some markets. Buy two six-packs of these brands and get a third for free. These offers may or may not be linked to the various holiday weekends.

Naturally, AB says there's no summer price war. They're just trying to attain an appropriate "price mix." Sure thing. In fact, this kind of price cutting is pretty cutthroat and something only Anheuser-Busch could pull off thanks to production and distribution efficiencies.

How much will the discounting gambit help or hurt? Hard to say. The big idea is to hang onto Bud/Bud Light drinkers while at the same continuing to build the market penetration of their craft and crafty brands. The only brand in the AB premium family showing growth is Michelob Ultra, perhaps a sign that Millennials will go for light beer when they get fat.

By the way, it's worth noting that AB's craft acquisitions are up 40 percent for the year in IRI, outperforming the craft segment as a whole. Goose Island is a big part of that and a nice example of what you can do with a flaccid brand when you have a massive, nationwide distribution network. Elysian, Golden Road, Blue Point and Four Peaks and Breckenridge are all up.

Branch Distributors
As many who stop by here know, the AB distribution network is a topic of interest for the Department of Justice as it reviews the pending acquisition of SABMiller. Beyond the issue of wholly-owned branch distributors is an incentive program that appears to violate anti-trust laws.

You know how it works, right? AB-affiliated distributors, owned and independent, are financially incentivized to advertise and sell AB brands. Distributors that tow the company line by moving 98 percent of their sales in AB brands receive the bulk of their advertising budget back.

This practice, contrary to the stated position of AB suits, is almost certainly a violation of fair trade regulations because it is designed to thwart promotion of smaller craft brands. The DOJ is evidently talking to craft brewers and distributors to develop a full understanding of how AB's incentive program restricts market access and hurts small brewers.

Just as branch distributors should be considered illegal, so should anti-competitive incentive programs. We can only hope DOJ approval of the ABI/SABMiller merger is contingent on the resulting behemoth agreeing to meaningful rules on distributor ownership and incentive programs. Otherwise, this merger/acquisition is big trouble for craft brewers.

Seattle Slip
You are surely aware of the recent situation in Seattle, where the Washington State Liquor and Cannabis Board (WSLCB) is charging AB with exercising exclusivity arrangements at several concert venues. The violation carries a fine of $150,000 and a three-day suspension. The fine is pocket change to the behemoth. The suspension will never happen.

Investigators discovered two venues that sold only beer available through Anheuser-Busch distributors. That alone is not illegal and would not have triggered any action. Except a manager at one venue told investigators that the venue did, indeed, have an agreement to sell only products provided by an AB distributor. In Washington, as in most states, that arrangement is illegal.

In fact, anyone who has attended a concert or sporting event has probably been subjected to this kind of subterfuge. You know the fix is in when you walk around a stadium or concert hall searching for a decent beer and find nothing but swill. Only in recent times have we started to see a shift toward better beers in these situations and now only because consumers demand it.

We don't know how the Seattle case will turn out. Consistent with past behavior, AB denies that it did anything wrong and has the resources to make sure the case drags on for years, if necessary. My guess is they will eventually pay all or some portion of the fine without admitting guilt. And the cycle of forcing them to comply with legitimate laws will start anew.

It's going to be a long, hot summer.

Last Refuge of a Scoundrel

When I was in high school and college, I had friends who drank Budweiser because they liked the red, white and blue logo. Forget about the beer. They drank Bud because they liked the colors on the packaging. Don't ask me if it was a patriotic thing. I think not.

Now comes word that Budweiser, a subsidiary of foreign-owned InBev, will replace "Budweiser" with "America" on its 12 oz cans and bottles for summer. It's all part of the company's plan to sell shitty beer by wrapping itself in patriotism.

The irony is hard to miss, right? Budweiser isn't an American company. But the suits in Belgium or Brazil figure the patriotic strategy will work in America, home of the brave and apparently also some of the dumbest, most ill-informed and gullible consumers in the world.

New packaging will hit shelves in late May and hang on through the fall elections. You'll be seeing billboards, murals, digital ads and retail displays throughout the summer. They're calling it the "America is in Your Hands" campaign. No kidding.

Honestly, if America truly is in the hands of citizens who buy into this shameful bit of chicanery, the country is in a lot more trouble than many think.

It's worth mentioning that Anheuser-Busch is also expanding the deep discounting it started a while ago. Reports say 18 packs of several AB brands will be buy one, get a second at 40% off in some areas. Such discounting is easy for AB to pull off due to its scale and extremely low cost per barrel. Other brewers can't afford to offer similar pricing.

When a foreign company uses fake patriotism (as well as cutthroat discounting) to sell bad beer, we've entered a scandalous new dimension. As Samuel Johnson said back when people were evidently a lot smarter than they are today, "Patriotism is the last refuge of a scoundrel."

Update: Here's a link to the approved TTB label application. America

10 Barrel Launches Beer with a View

Make no mistake, 10 Barrel's new rooftop patio will be a gigantic hit when the weather eventually decides to cooperate. In peak season, seats on the patio, which sits atop the Pearl District brewpub, will be one of the toughest tickets in town. Trust me.

The 10 Barrel folks invited an eclectic bunch of media folks up to see the new space Monday evening. As fate would have it, the weather sucked badly. It was raining and quite chilly, which put a bit of a damper on the event, despite the complementary food and beer.

Views of the Pearl and West Hills from the rooftop perch are exemplary. That's going to be a nice selling point. One of the hosts reminded us that patios are in 10 Barrel's DNA, as the places in Bend and Boise both have the amenity.

They spared no expense here in Portland. It wasn't mentioned Monday evening, but I seem to recall that putting the patio on top of the pub required costly structural enhancements that delayed the entire project and pushed back the pub's opening.

In fact, it was during the construction delay that 10 Barrel was gobbled up by Anheuser-Busch. That was likely a convenient turn of events because it allowed them to move forward with the project without serious regard for cost. Great problem to have, right?

There are 80 table seats and 8 bar seats on the patio, which comprises a little less than 1,600 square feet. The bar will feature 20 taps pouring essentially the same beers that are being poured downstairs. It's plain to see that they paid attention to fine details with the beer and with the pub, generally. Hey, they could afford to.

As for the beer, you aren't going to find a better beer list in town. Head brewer Whitney Burnside, wooed away from Pelican prior to the AB buyout, is one of the most accomplished brewers in the city. There may be naysayers due to the ownership situation, but that's a crock. The variety of well-made beers here is similar to Breakside, regarded by many geeks as best in the city.

Of course, the elephant in the pub (and on the patio) is Anheuser-Busch. As anyone who stops by here knows, I am not a fan of AB and it's anti-competitive, evil practices. They're buying up craft breweries so they can brew a few key brands in factory breweries and flood the market, the idea being to hurt independent craft brewers in the grocery and convenience store channel.

Their strategy with the pubs is different. With 10 Barrel, a generic name unconnected to place, they will open pubs in key cities. They already have pubs in Bend, Portland and Boise. There's one opening soon in Denver and they hope to open one in San Diego, if opposition doesn't stop them. I think Seattle and the Bay Area will get pubs at some point, and other cities will follow. The big idea is to build brand identity for AB-owned craft brands regionally and nationally. That brand capital will then be used to squeeze craft brewers in stores and on-premise (bars, restaurants, etc.) settings.

The Budweiser folks, despite their money and experience, do not get brewpubs. They bought 10 Barrel, Elysian and others to show them the way. If 10 Barrel Portland is a good example, it appears the pubs will have some level of autonomy. Sure, I've heard stories of micromanaged beer recipes, but the proof is in the (beer) pudding, and Whitney Burnside's pudding is good as gold.

I turned down invitations to 10 Barrel events prior to Monday evening. I did so on principle, Why should I attend an event when I know I can't recommend an AB-owned pub? Some of my peers, evidently oblivious to the concept of principle, claimed I was making assumptions without knowledge. Not at all. My view of 10 Barrel is based strictly on ownership. Nothing more.

I chose to attend Monday evening because I thought it was perhaps time for me to see the sights. A trendy, new rooftop patio seemed like a good reason for a visit. But my opinion of 10 Barrel and Anheuser-Busch wasn't going to change. Zero chance of that.

Along those lines, it's interesting to note a disingenuous statement in the event press release: "10 Barrel Brewing Co. is a Bend, Oregon-based brewery with a simple mindset..." You see the problem, right? 10 Barrel was originally based in Oregon. Today, it's based in St Louis or Belgium or Brazil. Take your pick. But they'd rather obscure that detail. Not the best.

Of course, plenty of people don't care about the ownership situation. They like 10 Barrel and aren't worried that Anheuser-Busch is a threat to independent craft brewers. That's fine. If that's your mindset, by all means jump on the 10 Barrel bandwagon. Enjoy the rooftop patio while you're at it..if you can get a seat up there. It won't be easy once better weather arrives.

But I won't be supporting 10 Barrel. And it isn't personal. As I told a writer friend, I refuse to beat up the pub or disparage the folks who work there, regardless of their position. These people are doing good work. The beer. the food, the space and the service are top notch.

It's the corporate parent I have a problem with. I don't want to give them any of my money, which hardly matters since 10 Barrel is busy enough that they don't and won't need it.

The (Rita) Kids Are Not Alright

Our friends at Anheuser-Busch continue to face serious challenges, despite their ongoing efforts to co-opt craft beer by buying up breweries and distributors. It turns out the Rita family of brands, expected to be a big hit with young drinkers when initially launched in 2012, is a lemon.

Not that anyone in the craft beer crowd would drink this snot, but it does provide an interesting, entertaining look at how lousy products are handled in the board rooms of big beer.

Lima-A-Rita was the first of the Rita brands and the most popular of the bunch. It did okay out of the gate, then nosedived to less than half of its peak sales numbers by 2015.

Reports say the Rita family, which includes several flavor variations released after Lime-A-Rita, declined by 25 percent last year. That downward momentum continued into January 2016, according to IRI data. We're talking about a fairly dysfunctional family.

Of course, the folks at AB are sure the Rita family is fine...doesn't even need counseling. All it needs is a restart, supported by a well-funded advertising campaign. It's already underway, with an ad that aired during the Grammy's. There's much more to come. AB is going to drop some serious coin on the campaign because, quite frankly, it can.

They will also release a flurry of new variants in 2016. Sensing the (8%) ABV may have been a little steep in the first wave, the new "Splash" Rita's will be in the 4% range. Lime-A-Rita and Straw-Ber-Rita are coming in March, and Water-Melon-Rita will drop during the summer. Some markets will evidently get additional flavors during the year. That's a promise, not a threat.

You might think the Rita family is competing with craft beer. But fruit flavored drinks like this largely transcend craft beer. Products in this segment tend to briefly appeal to consumers based on newness, then flame out quickly. That seems to be what's happening with the Ritas. Increased competition from a barrage of hard sodas will make things worse.

Sometimes you've got to know your limits, realize you're stuck with a losing hand in a competitive game. Sometimes you need to let go. But the folks at Anheuser-Busch don't live by those rules. Why? Because they've got wads of cash to spend on crackpot marketing schemes designed to prop up failing brands that have limited, declining appeal.

It must be nice.

The 2016 Plan: No Quitters at Anheuser-Busch

Like 'em or hate 'em, you have to give the folks at Anheuser-Busch credit. They've been called anti-competitive sociopaths and delusional sycophants. But one thing you never hear them called is quitters. They don't know the meaning of the word.

I've been reading various reports on the AB strategy for the coming year and it is mesmerizing. The guys evidently believe there's no such thing as a dead end brand that can't be returned to viability via truckloads of cash and retread marketing schemes. Never mind the actual product.

The big idea, as usual, is gaining market share, something AB hasn't done since 2008. There's a pile of PR schlock behind that goal. Some of the themes include "investing in the future" and "strengthening relationships." Just the kinds of things you expect to hear from talking heads in a woebegone organization.

Of course, growth is tough when you've got a bunch of brands in freefall. AB has been losing share in the premium segment for years, and the decline is redlining with young drinkers who are uninterested in the products and largely unreachable via traditional advertising channels. It's a serious problem.

That reality is driving investment in the so-called High End, which expanded with the acquisition of several craft breweries in 2015. Expect a continuation of that theme in 2016, as spending will reach a new, unspecified high. The High End segment likely represents the best chance they have to offset declines through the rest of their portfolio.

Their goal with the High End segment is aggressive. They hope to double whatever the growth rate is in craft beer. If craft hits 20 percent growth this year, AB wants the High End to reach 40 percent. It's probably unrealistic, but that's what happens when you're desperate to grow your numbers and your new product pipeline is vacant.

They do have winners in the High End. Goose Island IPA, now brewed in factories everywhere, had a big year in 2015. AB wants it to be the #1 IPA in the land this year. Its other craft minions, including 10 Barrel, Elysian and Blue Point, also did well. Then there's Stella Artois, which was up 20 percent and will receive additional investment in an effort to double volume within a few years.

Along the lines of refusing to quit on flat-lining brands, the suits are determined to revive the fortunes of Shock Top, their very own fake craft brand. They are upping the ante considerably, spending more out of the gate than they did all of last year. Among other things, that money will buy Shock Top a Super Bowl spot. You won't want to miss it. Trust me.

The best I've saved for last. Bud Light, which has been in steady decline in recent years, will get the biggest investment ever. The guys simply refuse to quit on their pet brand. Instead, they'll leverage their connection with the NFL, including several Super Bowl ads and team cans. Some cities will even get NBA cans, apparently. Because everyone knows the road to improved brand identity and credibility is paved with fancy new packaging.

Some people say the guys at AB don't have a sense of humor. But that can't be true. When you stubbornly hang onto flagging brands and your only winning strategy is buying up your competition because you don't have any new ideas of your own, you better have a sense of humor.

CBA Shows True Colors with Pabst Deal

Back in November, I reported that Laurelwood was shifting its contract brewing from the CBA's Woodinville, Wash. facility to Full Sail in Hood River. Laurelwood will be just fine brewing large scale packaged product at Full Sail. But it wasn't their choice to make the change.

The way it apparently came down is the Craft Brew Alliance told Laurelwood it wanted out of the contract. It was a little puzzling. This had been a good arrangement for both parties. Why end it? Well, sometimes you need to see the full picture. And it was revealed this week.

On Monday, the CBA announced it has entered into an agreement by which Pabst will begin brewing a subsidiary brand, Rainier Mountain Ale, at the Woodinville brewery this spring. Further, Pabst has the option of purchasing the brewery outright at any time in the next three years.

For its part, Pabst is pleased as punch that they will be brewing a Rainier brand in its home state. It makes for a nice story, if nothing else. They will apparently revive several archived Rainier brands. Mountain Ale, to be packaged in iconic 16 oz bottles, will be first. Pabst's portfolio is loaded with crap brands, most of which are brewed by MillerCoors. That isn't going to change. Even standard Rainier won't be brewed in Woodinville. Pity.

Pabst was able to negotiate a deal for the Woodinville brewery because the CBA no longer needs it. Expansion and modernization at the Portland brewery, which will be capable of producing 750,000 barrels annually, means (as one source put it) the CBA will soon have a very efficient brewery in Portland and a very inefficient one in Woodinville.

Rumors had been circulating that the Woodinville facility was for sale. The CBA brass surely preferred sale to closure, and the arrangement with Pabst is a step in that direction. Moreover, it buys time for the CBA to fully shift production to Portland while Pabst gets comfortable in Woodinville. Sale of the brewery seems imminent within the three year timeline.

In case you're wondering, the Woodinville facility, better known as Redhook Brewery, was built in 1994. It has a capacity of around 200,000 barrels a year and has brewed Widmer and Redhook beers, as well as contract brands, like Laurelwood. This is where Widmer brewed all of its hoppier brands, a result of the fact that the Portland brewery was unable to handle those beers. But never mind.

The CBA is striving to consolidate production and increase efficiencies wherever possible. Shifting Northwest production to Portland is part of that. They're also leveraging a partnership with Blues City in Memphis, which brews Kona brands for the eastern market and allows them to contract brew non-owned brands at their Portsmouth, N.H. brewery. Efficiency, efficiency, efficiency.

CEO Andy Thomas says the CBA has never worked more closely or been more closely aligned with the interests of its mentor and part-owner, Anheuser-Busch. Right. The comment makes a ton of sense when you look at what they're up to. And there's more.

Recall that CBA beers are distributed by AB around the country, an arrangement dating back nearly two decades. Now comes news that they are pushing Kona brands into Brazil via ABI subsidiary Ambev, which dominates the beer market there. In the US, the CBA is a party to AB's anti-competitive incentive program, whereby distributors receive giant bonuses for selling AB products while dumping or ignoring independent craft brands. Great stuff.

Of course, none of this matters all that much to Laurelwood, which is where I started. They've been asked to let the CBA know they'll be done in Woodinville, another way of asking when they'll be ready to go in Hood River. Time is money and the bean counters are clock watching.

No word on when the CBA will become a fully-owned subsidiary of Anheuser-Busch. Sometime in the not-too-distant future, I suppose.

No Safety in Numbers: Understanding the Buyouts

The recent announcement that Golden Road Brewing is being acquired by Anheuser-Busch raised some eyebrows, but didn't produce the flood of negative responses that we saw with 10 Barrel and Elysian buyouts. Like mass shootings, we're getting used to these things.

There were a number of comments made by Golden Road co-founder, Meg Gill, who got a fairly soft grilling by the media. Reading through the quotes, I began to gain a new perspective on why these buyouts are happening...and why they will continue to happen.

This isn't a situation where Gill is cashing out. Even though Golden Road was built to sell, as one article suggested, she isn't going anywhere. It also wasn't a scenario where they needed an infusion of capital to expand production. Golden Road has access to private equity capital.

It's quite clear that she was looking for security. She sees big advantages in being part of the AB family, which she describes as the "winning team in craft beer." There are decent reasons for this. Being on the team gives Golden Road access to a supply chain that will reduce production and packaging costs. The extensive AB distribution network factors in, as well. Gill described AB craft CEO Andy Goeler as a "brilliant marketer." Seriously.

Not to get too far afield, but I'm not sure I would describe anyone at AB as brilliant when it comes to craft beer marketing. Building craft brands isn't and hasn't been their claim to fame. They're mostly good at cutting costs through economies of scale and leveraging advantages built since the end of Prohibition. But never mind. Be my guest if you think these guys are brand builders.

In fact, it appears Gill decision to partner with AB may have been driven by the escalating craft brewery count. She sees an increasingly crowded marketplace where competition is getting brutal. She came to doubt Golden Road's ability to stay relevant in that environment on its own. So she phoned Anheuser-Busch, the only entity she deemed capable of providing the needed help.

Many assumed AB would target a California brewery this year. The surprise with Golden Road is its size...projected around 45,000 barrels this year. Most thought AB would go bigger. There's also the price. Experts believe they paid $100 million ($2,000 per barrel), significantly more than they are thought to have paid for 10 Barrel or Elysian.

But there's a method to AB's madness. They wanted a presence in the LA market. With this buy, they will own breweries in the nation's three largest metro areas...New York (Blue Point), Chicago (Goose Island) and LA (Golden Road). Add the top two craft beer cities to that list with Portland (10 Barrel) and Seattle (Elysian) and you've got a nice little collection. With more to come.

It may not have been on Gill's mind, but AB is leveraging its position in ways that go well beyond standard marketing. As discussed here in the past, the company is actively working to enable vertical integration of markets similar to what existed prior to Prohibition. Demolition of the three-tier system is part of that effort.

For now, this is happening primarily in states where the laws are flimsy. The Golden Road deal, once finalized, means Anheuser-Busch will operate in all three tiers (owning brewers, distributors and retailers) in California, Oregon and Washington. Only California, via the DOJ and state attorney general, is looking into AB's activities. Oregon and Washington are, so far, mum.

You really can't fault Meg Gill for selling Golden Road. I've seen a number of reports suggesting Golden Road's beers aren't that great. If you want to improve a mediocre product and push it out to an increasingly competitive market, maybe leaning on AB's distribution network and supply chain efficiencies is exactly the right move.

Given the state of craft beer, where new breweries continue to open virtually by the day, I expect to see more established breweries looking for ways to insulate themselves from the brutality of the marketplace. Selling to AB is one way to do that so there's no telling how many of these folks will wind up in the hands of big beer. To be continued...

Pushing and Pulling with the Clydesdales

Our old friends Anheuser-Busch have been in the news lately. Many have been wondering when the next big buyouts will happen. A lot of industry experts expect the big fellas to buy another craft brewery before the year is out. Perish the thought.

Most assume the next acquisition will happen outside the Northwest, where the buyouts of 10 Barrel and Elysian jolted craft beer fans in the area like a subduction zone quake. Those acquisitions happened for a very good reason, which is that AB brands struggle in the Northwest. Bringing (previously) popular craft brands into the AB fold was/is an effort to stop the bleeding.

California appears to be the next logical target. The Clydesdales once owned a 50 share of the lucrative Cali market. That number slipped to just over 36 percent last year, according to a recent CNBC story, and AB is desperate to reverse the negative momentum. They're probably flashing bundles of cash to prospective sellouts as we speak.

Arguably the more interesting part of the AB saga is initiatives underway with its distributors. What they want to do, as I've mentioned in past posts, is force distributors to align more fully with AB brands. They do not want these folks selling brands that aren't in the family.

Indeed, part of the reason they've brought craft brands into the mix is they want to be able to go into accounts with a book that has something for everyone. "Yellow beer not your thing? Well, we've got some decent craft brands you might like."

By the way, the suits in St. Louis are particularly aggravated by the situation in California. Why? Because more than a few AB distributors in the Golden State sell Constellation brands. That infuriates the brass, which regards Constellation as a mortal enemy. They want changes.

The way this situation translates in day-to-day life is that AB is making it clear to distributors, even anchor distributors in big markets, that their ongoing relationship will require them to divest brands that aren't part of the AB family. The suits want distributors focused on AB products. Period.

Here in Portland, AB-independent, Maletis, owns one of the best craft books in the country. If AB's alignment strategy were firmly applied, Maletis would have to sell profitable brands and replace them with brands that are, quite frankly, flat-liners here. That isn't happening. But never mind.

What's wrong with the Clydesdales? Well, the horses are fine. Trust me. But the suits in St. Louis have become paranoid. They look at eroding market share and see distributors who are failing to push their products because they're distracted and mesmerized by non-AB craft brands. The brass wants these turncoats brought into line. It's an 18th century thing.

The problem, confirmed by industry experts in various places, is that AB does not have a push problem. What they have is a pull problem. In plain terms, AB's brands have little pull with consumers, which makes them a lot harder to sell regardless of how hard you push them.

How will they work through this confusion? Stay tuned.

Business as Usual at Anheuser-Busch: The Beck's Case

There's been a bit of chatter this week regarding Anheuser-Busch's proposed settlement in a class action suit involving Becks Beer. It's best to not get too bogged down in the details, because there's not much skin in the deal for the plaintiffs or class. Lawyers are the big winners.

The important thing is to look at what the cynical charlatans at AB have been doing since they acquired Beck's a few year ago. And what they've been doing is selling Beck's without making it clear to consumers that the beer is made in the US, not imported.

Let's be perfectly clear on one thing: The people who sued AB didn't do so on grounds that the beer sucked. Nope. They sued because they felt they were duped into paying more for beer that appeared to be imported. They could have just bought a crappy domestic brand on the cheap.

For their part, AB says they follow the German recipe for Beck's and that the quality of the beer remains excellent. Oh sure, they subbed in some US-sourced ingredients that were cheaper and easier to get. But the beer is the same. Right.

It turns out the Beck's case isn't even AB's first class action run-in of the year. Back in January, they settled a lawsuit involving Kirin Ichiban, That was a case where AB, this time as part of a joint venture with Kirin, was producing Ichiban in the US...while continuing to market and sell it as an import. Duped consumers objected and won.

The fact is, AB's special expertise lies in manufacturing efficiencies and cost-cutting. They gobble up brands, often shutting down plants, and move production to giant factory breweries. That's why a lot of people worry about them buying craft brands. They don't mind cheaping things out and misrepresenting a product if there's a buck in it for them.

In the case of Beck's and Kirin Ichiban, labeling and packaging identifying the beer as being a "Product of the USA" were either extremely small and hard to read or obscured more or less completely. The more obvious labeling suggested the beers were imported. Go figure.

I have a hard time understanding how such shoddy labeling could have made it through regulatory scrutiny. But, then, this is probably just another example of a dysfunctional regulatory system that forces consumers to seek legal remedy when they get ripped off by giant corporations.

Regardless, the real bully in the China shop is Anheuser-Busch, which knowingly duped consumers into thinking something that wasn't true. And don't assume for a second that a settlement or two will change anything. These schmucks are good at this kind of thing. They have a lot of experience.

The Great Train Wreck Revisited

Last week's piece on the dysfunctional situation with Anheuser-Busch, Maletis Distributing and 10 Barrel drew a firestorm of traffic here. I suppose a lot of people enjoy seeing big beer flounder. The post was shared on a few sites and attracted some comments, some of them fairly naive.

It turns out some people out in the national audience don't understand the situation on the ground here in Portland. They also don't understand the concept of branch distributors and why Anheuser-Busch wants all of its brands to run through those wholesalers.

Maletis, Craft and Portland 
One of the more interesting comments came from someone who thought I was drastically underestimating the value of the AB portfolio to Maletis. The implication, of course, is that Maletis would be DOA without all those great AB products.

I actually explored this issue a while ago. After looking at IRI data (tracks beer sales in grocery chains) and talking to some industry folks about draft sales (not part of IRI), I concluded craft's share of the Portland market is greater than 60 percent.

Actual IRI data puts Portland's craft share at around 45 percent. But IRA does not track sales at specialty stores like New Seasons and Whole Foods, or at bottleshops like Belmont Station, Tin Bucket and Beermongers. When you extrapolate for what's missing, you quickly realize craft's share is in the 60 percent range, at least.

Draft is a harder nut to crack. But Portland is a huge draft city. The national average for draft consumption is around 30 percent. Industry sources told me it's 50-60 percent by volume in Portland, greater than 60 percent in dollars..and growing. That's fairly shocking.

Something to keep in mind is the overall numbers look a bit different outside Portland's core. Yellow beer retains a greater following in suburban and rural areas, and Maletis does distribute there. They surely have greater success with their AB book out there. I admit it.

Nonetheless, the dollar volume within Portland's core suggests the Maletis craft portfolio is worth more than the AB book. Could they survive if they lost their AB portfolio? Tough question. Perhaps more importantly, could they survive without their craft portfolio? I bet not.

Branch Distributors vs Maletis
Another of the more interesting comments concerned the issue of why Anheuser-Busch would want to move 10 Barrel to a branch distributor, in this case Western (formerly Morgan). I mean, Maletis already distributes AB products. Why not just let them hang onto 10 Barrel?

That viewpoint completely misses the point of owning distributors and buying up craft brands. Anheuser-Busch has a history of leveraging every possible advantage. In fact, an AB sales exec recently said he wants all of their owned brands handled by branch distributors. Any other arrangement, he said, is unacceptable.

You need to read some of my earlier posts if you don't understand why AB wants it this way. It isn't strictly about the small percentage they're losing when an independent like Maletis sells a brand like 10 Barrel. It's much more about control and leverage.

Buying distributors and craft brands is part of a vertical integration strategy that AB naturally denies it's pursuing. But we know how it works because we've seen it in action here in Oregon and in other places around the country.

After acquiring Goose Island, AB pushed distributors to heavily discount kegs of Goose as a means of undercutting craft brands and winning tap handles. A lot of independent distributors balked. There's very little skin in it for them. But branch distributors have no choice. They have to tow the company line. This is why the AB brass wants their brands handled by branch distributors.

The fact that Maletis is holding onto 10 Barrel and distributing it within Western's territory is comical. The big shots in St Louis must have steam rolling from their ears and noses. They could fix the problem by paying Maletis for the rights to 10 Barrel. But they refuse to do so. Why? Because they already paid for that goddamn brand!

Such a marvelous little train wreck.

The Impending Train Wreck Over 10 Barrel

As train wrecks go, some are more entertaining than others. That's especially true when there's a trainload of bullies on one side of the track and some more or less regular folks on the other. When you see the bully train jump the track and crash, it's a good feeling. Admit it.

Well, there's a nice little train wreck brewing right here in Portland. It involves our old friends, Anheuser-Busch, along with Maletis Distributing and 10 Barrel Brewing. Not a love triangle, exactly. The dispute is over who will distribute 10 Barrel in the Portland area.

You may recall that 10 Barrel was purchased by AB last year. The intended outcome of that purchase was that 10 Barrel brands would be distributed by AB-owned Western Distributing in this area. The problem is, Maletis owns the franchise rights to 10 Barrel here.

Keep in mind that Maletis is what's known as an independent AB distributor. That means they distribute the normal line of AB products within their territory. They own franchise rights within that area, just like they own the rights to 10 Barrel there, purchased long ago.

Another thing you need to know is that franchise laws are on the stiff side in Oregon. That essentially means a large national company can't simply come in and unilaterally revoke contracted rights to sell their products. They would have to show cause for that action..or buy the rights back.

There's more. If franchise rights are stripped without cause or compensation, the injured party can sue and receive triple damages. So doing something stupid or flippant can be costly in these situations. Not that anyone involved in this case is stupid or flippant.

This is a nice reminder that brewery acquisitions can be messy. Aligning distribution rights can be a challenge. When AB bought 10 Barrel, it surely assumed acquiring the rights from Maletis would be a slam dunk. That might have been done by swapping brands. But Anheuser-Busch has nothing to swap that Maletis wants or needs. They'd prefer cash.

Apparently, the folks who brew "The Hard Way" have not made Maletis an acceptable offer. So Maletis continues to distribute 10 Barrel brands in the area where it has the rights to do so...an area that extends into Western's territory. Needless to say, the brass at AB are incensed. They want their brand. And they want it now!

There's a bit of a back story here, which is that Anheuser-Busch has been unhappy with Maletis for a while. They don't like the fact that Maletis has built a broad craft portfolio. That kind of thing detracts from the corporate montra, which is to move red, white and blue product. Maletis is rumored to have been told its days as an AB distributor are numbered.

The plain reality is that Maletis just doesn't get along with its cranky Uncle Bud. They've put up with him for convenience sake for a long time. But they aren't compelled by law to hand over the rights to 10 Barrel or any other brand unless they feel the price is right. And so far the price has not been right.

Anheuser-Busch's response? Because they've been unable to hammer out a financial deal, AB plans to withhold two new brands they're rolling out. Maletis won't receive them. Who knows what other punitive measures might be in play. Always use the stick if you're stingy with carrots.

This seems a dubious move. These new brands aren't going to have significant traction here. Maletis will simply hang on to 10 Barrel until it gets the price it wants. If it's true that Anheuser-Busch wants to end Maletis' run as an AB distributor, those rights will also have to be bought back.

What we have is an escalating conflict caused to a large extent by the growing power of craft beer. AB is trying to expand its craft portfolio because its own brands are in freefall. Maletis has a nice craft portfolio and doesn't feel inclined to be a subservient partner with its cranky uncle.

This train wreck is gonna be a hoot.

After the Buyout: Getting a Grip on the Elysian Deal

In the aftermath of last week's news regarding Elysian Brewing and Anheuser-Busch, the uproar has subsided. Maybe the distraction of the Super Bowl in the Northwest had something to do with that. But there have also been some thoughtful, insightful articles that have helped put the sale into perspective.

Probably the most well-reasoned article appeared on Brewbound, which conducted a candid interview with Elysian co-founders, Dick Cantwell, Joe Bisacca and David Buhler. Good stuff. And there's been some interesting stuff in the various industry newsletters, which I sometimes read via the pirate channel.

Some of the more juicy tidbits:

Red Zone
Now that they own Elysian, AB will push to integrate it at AB-owned, "red" branches wherever possible. That can be a messy business. Elysian is currently in 11 states outside Washington, distributed in many places by MillerCoors and indie craft outfits. Getting Elysian into red branches will be an interesting process to watch. Here in Portland, Elysian is distributed by Columbia. It will surely wind up at AB-owned Western (formerly Morgan) fairly soon. There will likely be a brand swap or cash payout involved in that. Should be fun to watch this play out.

Damages
Elysian had been a counter-culture icon in the Seattle market for 20 years. No one knows what will happen to the brand's rep in the city going forward. Seattle is the second-ranked craft market in the country. People are serious about their beer and fiercely independent in the Emerald City. Some retail outlets are dumping their Elysian inventory. Will the discord last? Will the damage be long-lasting? Stay tuned.

Money For Nothing
One of the things that came out in the Brewbound article is that Elysian's co-founders had some options as they looked to expand and solidify their business. They are anticipating 50 percent growth in 2015 and that was going to require a significant investment within a year or two. They could have chosen a private equity partner. But there was concern that private investors would be looking for a quick profit. In the end, they (Cantwell dissented) decided Anheuser-Busch provided more of what they wanted and needed, though other offers were (they say) higher.

Shelter from the Storm
Beyond the need to partner with someone who would be in the game for the long haul, Elysian wanted to insulate itself from what Bisacca describes in the Brewbound piece as, the coming "bloodbath" in craft beer. He thinks grocery and related stores have expanded their beer sets about as far as they can and that there will soon be a price war for shelf space. The idea of a shakeout is seldom discussed publicly in the industry, though it ought to be. Anyway, Elysian eventually decided that partnering with Anheuser-Busch is the best way to shield itself from the prospect of a coming storm. And maybe they're right.

Big Business
Calvin Coolidge famously said, "The business of America is business." Along those lines, there will be more buyouts like the one that just happened. Anheuser-Busch hopes to acquire a collection of craft brands which it will use to bolster its slipping position. It will do this in many areas by operating in two of the three regulatory tiers. That approach is only marginally legal and it isn't going to benefit craft beer as a whole. Only AB and the acquired breweries are likely beneficiaries.

I honestly wonder how many buyouts it will take for people to start thinking about craft brewers in the same way we think about other entrepreneurs. The goal of any business is to build a following and attain financial stability and success. It isn't a crime. In craft beer, the values used to build brands include small, locally owned, independent, artisan, etc. And craft breweries aggressively embrace those values...right up until the day they sell to Anheuser-Busch.

There are certainly brewers who are more committed to craft's spoken values than others. But the reality is that craft beer is a business, increasingly a mainstream, big business.  Maybe it's time for everyone to come to grips with that and move on.

Elysian is (Space) Dust in the Wind

Friday morning I was working on a piece based on the fact that recent industry newsletters seem to be crammed with stories involving litigation and legislation. That suggests craft beer is a maturing industry. Otherwise there wouldn't be a pool of money large enough to attract money grubbing attorneys and politicians. Then came news of the Elysian sale to Anheuser-Busch. Speak of the money-grubbing devil.

There's been a nice uproar. The buyout of 10 Barrel Brewing a while back and now Elysian underlines the point that craft beer has gone mainstream. Big beer isn't going to stand still while its market share plummets. They are going to throw money at the problem in the form of more acquisitions.

Of course, Anheuser-Busch could have decided to make decent beer a long time ago. But that's not what they're about. These people are ruthless cost cutters whose expertise lies mainly in vertical integration and bullying competitors with fancy marketing schemes and predatory pricing. Anyone who thinks the Elysian acquisition is part of some sort of goodwill effort to help the brewery meet its goals is delusional.

You have to take a step back to see what's going on. Anheuser-Busch has now acquired a controlling interest in several craft breweries...Goose Island, Blue Point, 10 Barrel, Elysian. They have a non-controlling interest in the Craft Brew Alliance, brewers of Widmer, Kona and Redhook. Although the most recent sellouts are in the Northwest, where craft is eating big beer's lunch, I think we'll see California and Colorado breweries in the AB mix soon.

The brewery buyouts are only part of the story. Anheuser-Busch is also buying up distributors wherever the law allows it. They bought Portland's Morgan Distributing a year ago, which then became affiliated with AB-owned Western of Eugene. They also own a distributor in Seattle, two in Kentucky and likely own or will soon own some in other states.

Owning breweries and distributors is an effort to vertically integrate the business. It is a clear violation of the three-tier laws implemented after Prohibition, but never mind. The loophole in the law that has allowed these predators to own brewers and distributors is self-distribution, which many states set up as a means of helping small breweries grow. How ironic.

We've already gotten a glimpse of how AB intends to use their ownership of craft breweries and distributors. They will offer respected brands at huge discounts to get tap handles and shelf space. We've already seen this in Oregon with Goose Island and AB's crafty Shock Top brand. The other day I heard they recently launched a similar program in Massachusetts.

The good news, if there is any, is there are legal and legislative efforts underway to stop these thugs. In Idaho, they passed a law allowing a brewery to hold a retail, wholesale or brewpub license only if it brews less than 30,000 barrels annually. This was March 2014. The intent of the bill was to prevent Anheuser-Busch from acquiring distributorships in the state. A court will soon decide if that law has any teeth.

Something similar is happening in Kentucky, where a proposed bill would close a loophole in the law that allows large brewers to operate distributors. As in Idaho, the intent of the bill is to prevent Anheuser-Busch from owning additional distributors in the state...it has operated one in Louisville for a number of years and recently acquired another in Owensboro.

Passage of the Kentucky bill is in jeopardy. Why? Because Teamsters believe AB provides better paying jobs than independents. It's difficult to comment on the merits of that claim without knowing all the facts. However, Teamsters in Kentucky and elsewhere ought to be wary of building any alliance with Anheuser-Busch, a cutthroat organization if ever there was one.

I'm hearing there's a movement afoot in Oregon to do something like what they did in Idaho and are attempting to do in Kentucky. What they will apparently attempt to do here is add a production cap to the qualification for a brewery license. There is no production cap under the current law, which has allowed Anheuser-Busch to buy and operate distributors here.

It's hard to know how these efforts will turn out. You can be sure Anheuser-Busch has hired an army of well-funded operatives to challenge any bill or court case that might stand in their way. But the acquisition of Elysian and the certainty of acquisitions to come underline the importance of doing something to slow these sharks down.

10 Barrel and the New Reality in Craft Beer

Wednesday's announcement that Anheuser-Busch is acquiring 10 Barrel Brewing of Bend drew a firestorm of commentary in social media and blog land, most of it negative. The reasons are related to how craft brands are perceived and what people think they should and shouldn't be. And who should and shouldn't own them.

Provincialism
When I was researching my book on Portland Beer, I asked a number of people why craft beer had taken off here. The theme that popped up routinely in responses was provincialism. In Portland and Oregon we have a history of preferring products that are produced locally by local businesses.

These attitudes originated during pioneer times and grew into a strong do-it-yourself culture through the 20th century. I think a good argument can be made that provincialism is on the wane here. You look around and see all these nationally-owned big box stores infesting the area and you realize there's nothing provincial about them.

However, provincial attitudes are entrenched when it comes to craft beer. That's probably because craft beer came along at a time, starting in the mid-1980s, when our provincial facade was beginning to crack. We've experienced massive growth since that time and a lot of things have changed. Yet we stubbornly hang on to craft beer as something small, local and artisan.

There truly is a sort of mythology driving that. Some of our breweries (Deschutes, Widmer, etc.) are huge by craft standards. And there's serious money being invested in hoards of beer-centric operations like taprooms, restaurants, growler fill stations and more. Craft beer is big business. Yet many beer fans continue to think of it differently.

There have been prior deals with big beer here. Bridgeport was sold to Gambrinus in 1995. Portland Brewing has been bought and sold several times. Widmer partnered with Anheuser-Busch in 1997, a deal in which AB gained a non-controlling interest in the company. None of these arrangements was greeted with enthusiasm when announced.

The Empire
It's hard to say what will happen with 10 Barrel. The founders got a chunk of cash, for sure, and you can't fault them for that. In the short run, I suspect they will continue to function much as they have. The beers brewed in 10 Barrel breweries will remain solid. Their specialty beer program may actually expand, as it has at Goose Island since the AB buyout a couple of years back.

Of course, AB did not enter into this deal out of the kindness of its heart...or strictly to help 10 Barrel build its brand in Oregon.They need to fill a deepening revenue hole caused by the collapse of Bud, Bud Light and other standards. Distributing craft brands around the country is part of that plan, and it means 10 Barrel beers will eventually be brewed in factory breweries, as happened with Goose Island. The quality of those beers will likely suffer.

Acquisitions are just one part of AB's effort to maintain its position in the industry. There will be more buyouts. Even so, AB cannot buy craft breweries fast enough to make up for the volume they're losing with their mainstream brands. Another piece of the action plan involves buying up distributors in some states, including Oregon, so they can use discounting and other tactics to leverage their position. There's also an effort to slow the growth of craft beer by lobbying for restrictive laws, new and existing, in some states. A rather shameful resume.

Given Anheuser-Busch's body of work, they and 10 Barrel should have expected the uproar that materialized this week. Social media, which didn't exist when the prior deals happened, magnified the beatdown that descended on them. I understand comments were deleted and people were banned from social media pages. The banter reached such a crescendo that AB and 10 Barrel reached out to "sympathetic" media outlets (sorry, no names) in hopes of creating some positive spin. Ingenious.

Perspective
Honestly, I completely get the emotionally charged response to this deal due to Anheuser-Busch's unlikable corporate persona. At the same time, I think a lot of people are holding onto some fairly outdated notions about craft beer. It is no longer particularly small or particularly local or necessarily driven by idealistic values. Craft beer is big business, and getting bigger by the minute.

The buyout of 10 Barrel isn't the end or even the beginning of the end for craft beer. Not even close. However, this deal and the one for Goose Island suggest an end to roughly three decades in which craft brewers flew mostly under big beer's radar. Those days are gone forever. And the line that previously divided craft beer and big beer is blurring.

Soulless Thugs at Work in Natty Greene's Patent Case

The upcoming Fourth of July celebration, otherwise known as national war zone weekend, is going to be great for the beer industry. A whole lot of beer is going to be bought and guzzled this weekend. And we all know massive beer consumption and fireworks go perfectly well together. Boom!

Just in time for the holiday, I came across news that our old friend, Anheuser-Busch, is continuing its ongoing attack on the craft beer industry. This time out, the St. Louis thugs are attempting to block a trademark application filed by Natty Greene's Brewing of Greensboro, N.C.

Natty Greene's, founded in 2004, has been growing steadily and now produces about 17,000 barrels of beer annually. Owners filed the application to patent the phrase "Natty Greene's" because they recently expanded distribution outside the state of North Carolina. Now seemed a good time to protect the name.

In case you're wondering, and you should wonder, Natty Greene's is named after Nathaniel Greene, a general during the American Revolutionary War (no, kids, that's not the one that started when the Germans bombed Pearl Harbor). A number of American cities, including Greensboro, are also named after Greene, the general.

Anheuser-Busch, which owns dubious trademarks on Natty Light, Fatty Natty and Fatty Daddy in connection with its Natural Light brand, claims that granting Natty Greene's application would damage or dilute the value of the Natty family.

Let's take a look at that claim. How do you damage a brand like Natural Light? The beer has been part of the Anheuser-Busch line since 1977, when it was rushed to market in response to the wild popularity of Miller Lite. AB had to do something. Bud Light, you may recall, came later.

Natural Light or Natty Light or whatever you want to call it is a sub-premium brand, typically sold at discount prices where you can find it. It has a good following on some college campuses because it's cheap and frat boys can drink a lot of it before they puke or pass out. It's also popular in poverty-stricken urban ghettos for similar reasons. But never mind.

The thing is, if someone is going to be damaged by way of name association, it will almost certainly be Natty Greene's. Some people outside North Carolina might see the name and immediately connect it with Natty Light or one of the other Nattys. Natty Greene's is a respectable craft brand. They are the ones risking damage or dilution of value.

Natty Greene's co-founder Kayne Fisher characterizes AB's opposition as a nuisance filing. He has a hard time seeing how anyone is going to confuse Natty Greene's with any of the Natty-related trademarks. He has a point. He brews a good product. Natty Light is another animal.

We'll have to wait and see what happens in court. Fisher expects to move ahead with the patent application. Anheuser-Busch, with the deepest pockets in the industry, is not going to drop its opposition and can easily afford to extend the proceedings. Soulless thugs never quit.

AB's Pricing Counteroffensive: The Sequel

Monday's post on Anheuser-Busch's latest effort to undermine the craft beer movement struck a chord with many readers, and also a few nerves. The story was shared on reddit.com and wound up getting hammered to the tune of more than 20K page views. Uncharted waters.

Since Monday, the Beer Business Daily has released some updated information on the rational behind the pricing strategy, as well as what's actually happening and what some industry people think about it.

The Angle
Anheuser-Busch has really nothing to lose with the $56 keg pricing in Washington and Oregon. Both are low share states for AB products. Plus, most of the volume sold as part of this promo is going through AB-owned distributors, which means they can spread the costs broadly. Very few independents are involved, as predicted.

With respect to brand equity damage, it may not happen. Many retailers will simply keep prices where they are and pocket the extra profit. If there's no discounting at the tap, consumers who don't read blogs like this one won't know what's going on and the brands involved (Shock Top and Goose Island) won't suffer any equity damage at all...beyond their affiliation with Anheuser-Busch.

As expected, the strategy is getting very little traction in craft-centric bars and pubs. These places aren't interested in offering marked down, marginal craft brands. Their customers would balk and walk. So most of the action is in mainstream accounts, which can make a few extra bucks selling stuff they already sell.

Risk for Craft
There are those in the industry, some quoted in BBD, who believe AB is testing the discounting strategy to see how many tap handles can be acquired. If successful, the strategy may be expanded. The way it becomes a problem for craft brewers is if AB is able to undercut pricing to the extent that retailers start demanding similar pricing from craft brewers.

Anheuser-Busch, if it wanted to, could broaden the effort by producing quality beer, which it could do at a fraction of what it costs craft brewers. That seems unlikely. Keep in mind that AB is not particularly good at brand building. Most of their strategic edge is wrapped up in efficiency. They are ruthless cost-cutters, not brand builders.

What they would likely do to expand the discounting campaign is acquire more craft brands. Once they have a controlling interest, they would dump that beer on the market at discounted prices as a means of pushing prices downward and sucking some of the profit out of craft beer. That's what they're doing with Goose Island and the strategy could be repeated.

In the end, any effort to undercut price will require time and coordination. Winning a few tap handles with cheap beer isn't going to do much, except maybe produce some local or regional price wars. For the strategy to work, AB will have to make a concerted longterm effort to undermine the profitability of craft beer. That's the risk for craft brewers, but you have to wonder if AB is up to it.

Goose Island
Some readers didn't like me lumping Goose Island with Shock Top. Oh well. The problem for Goose Island is that it is a wholly owned subsidiary of Anheuser-Busch. The once respected, independent brand is now nothing more than a pawn in AB's efforts to address declining market share. Right alongside the dreadful Shock Top.

Honestly, I've never had a Goose Island beer that was above average. The bulk of the Goose Island beer we see in Oregon is surely mass produced by AB. The highly sought-after Bourbon County Stout is rare and I haven't had it. However, I had their Illinois Imperial IPA last night a Belmont Station. This is not a standard issue Goose Island beer. It was okay, nothing more.

Happy Friday!

Anheuser-Busch's Latest Counteroffensive: Pricing

As craft beer continues to see growth, it's hardly a secret where the increased market share is coming from. Big beer's so-called premium brands continue to take a beating. As documented here and elsewhere, they aren't taking this situation laying down by any means. They want your money.

Indeed, big beer is working against the growth of craft beer in all kinds of creative and not-so-creative ways. They've gone in and manipulated laws in some states...or they've used loopholes in laws to their advantage. They're fighting against growlers in some states. In others, like Oregon, they're buying up distributors.

Then there's brand confusion, where big beer creates fake craft brands, which they then promote as the real thing via spendy marketing campaigns. The beers don't fool knowledgeable craft beer fans, but they do create enough brand confusion to reel in some new drinkers.

Now there's news that Anheuser-Busch, big beer's biggest bully, is launching a new counteroffensive based on price. The story was first reported in the Beer Business Daily the other day. I don't subscribe...too expensive. But I've received several messages from industry sources filling me in on what's happening.

It seems AB distributors in parts of Oregon and Washington (the reach of the campaign is uncertain) have issued updated price lists containing massive price drops on the Shock Top and Goose Island brands. Kegs that were previously selling to retailers for about $110 per half barrel will now be priced at $56. That's not a misprint. No word on pricing for packaged versions of those beers.

Inquiring minds may ask what AB is up to. Well, it appears they will attempt to use loss leader pricing to gain control of tap handles wherever possible. The low hanging fruit likely includes meat markets where the clientele often likes to drink a lot on the cheap. Buffalo Wild Wings and Blitz come instantly to mind, but they aren't alone. These joints could offer $3 pints of Shock Top or Goose Island around the clock and still make money.

What we clearly won't see is Shock Top or Goose Island taking over any handles at aficionado spots like Belmont Station, Saraveza or BeerMongers. Fat chance. The buyers in those bars would rather have their blood drained by vampires than serve charlatan craft brands to customers. It's not gonna happen...though I do like the juxtaposition of vampires and Anheuser-Busch.

Then there's the distributor angle. How could a distributor offer pricing like this? Even with backdoor subsidies in the form of reduced prices, discounts on shipping or increased advertising support, this kind of pricing would put independent distributors in a bind. Of course, many, possibly most of the distributors offering this pricing are wholly owned by Anheuser-Busch. They have to sell this sludge no matter what. So much for the three-tier system.

There is definitely some consternation on the part of MillerCoors distributors, who are independently owned and generally more interested in growing craft brands than in collapsing them, like AB. They wonder what predatory pricing on Shock Top and Goose Island will do to gateway brands like Blue Moon and Third Shift. They don't want a price war. But maybe that's what they have for now.

Look, the obvious goal of AB's initiative is to gobble up as many tap handles in as many places as possible. It's a rear guard action. These handles are apt to be in joints frequented by a lot of gateway drinkers. Hardcore craft bars aren't good targets. Once they have the business, prices of Shock Top and Goose Island will gradually increase.

It's a cynical strategy. What did you expect? It's your money they're after. That's what they've always been after. All that's changed is they've lost control of the narrative.