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.