A Seasoned Beer Expert’s Epiphany: Beer is Heavy

May 1, 2011 By Harry Schuhmacher

I’m a middle-aged beer industry writer. It’s better than being an old beer writer, because old beer writers are always uncomfortably close to their final beer column. And it’s better than being a young beer writer, because I got here first and got the best things. A middle-aged beer industry writer is the best kind of beer writer because he knows what he knows and he knows what he doesn’t know. An old beer writer thinks he knows what he knows, but really he can’t remember much of anything. It’s a brain cell-depletion thing. A young beer writer knows what he knows but what he doesn’t know, which is considerable, he suspects doesn’t exist. I’m in the beer writer sweet spot, even though I’m old enough that my joints are squeaky and my feet are gouty. But enough gloating.

I edit and publish an industry trade newsletter called Beer Business Daily. It comes out daily. Don’t laugh, you’d be surprised how many people, after hearing the name of the publication, ask how often it’s published. BBD, as it’s called in the trade, has grown from one subscriber in 1999―the first brave subscriber was a kind quiet gentleman named Mike Hopkins who still is an Anheuser-Busch distributor in Brenham, TX (we call him Subscriber No. 1A)―to over 20,000 daily readers who, for the most part, are anything but quiet. They have opinions and aren’t afraid to share them, more’s the pity. I am blessed each day with hundreds of emails, often hostile, in response to whatever was written in BBD that morning. My theory is that if you aren’t pissing off at least 25 percent of your readers at any given time, then you aren’t doing your job. So I get quite a daily cacophony of beer industry noise each day. And from this white noise, the middle-aged beer writer can tease out themes, connect dots, and discover hidden truths like a rarely situated gem―a diamond in a goat’s ass, say.

And one diamond in a goat’s rectum that recently presented itself to me in my daily email proctology exam is that―wait for it, because it’s good―beer is heavy. Let’s take a moment to digest this truth. Tick-tock. What, not so brilliant, you say? Read on.

Well, before we get into that splendid fact and its implications for the industry, let me clarify that we at BBDrarely write about actual beer. This great magazine and other venues do an excellent job of writing about the beer, a virtuous and worthy topic deserving of much ink. No, we write about the more mercenary topic of the money behind the beer: to whom it’s flowing and from whom it’s flowing. If you leave with one takeaway from this article―and it appears so far you are likely to come away with precious few―is that in the beer business, beer is slow and money is fast. Or to put more succinctly, beer is heavy, particularly in relation to its price.This one simple fact drives nearly everything else in the beer industry: how it’s sold, where it’s sold, at what price it’s sold, its ownership structure, etc. And the relation between beer’s weight and its price is presently changing, and that will, in turn, change how beer is sold, where it’s sold, at what price, and its ownership structure.

Let me explain―after I pour myself another glass of Infinium, a Christmas gift from the Boston Beer Co. It does kind of taste like champagne, like they promised―very refreshing and delicious. But it begs the question: Should beer out-champagne champagne? Should beer attempt to out-[insert alcohol beverage of choice] anything except beer? Or should good beer should just be a good balanced representation of what it’s supposed to be?

There. In that paragraph I’ve written more about actual beer than I have in my entire life. And you, lucky reader, are here to witness it. I feel all verklempt. Let’s take another moment to reflect. (Incidentally, upon reflection, in this paragraph I’ve quite possibly also infuriated an influential and powerful friend in the beer industry, Jim Koch. Sorry, Jim.  As you know, I’m the least qualified person on earth to pass intelligent judgment on a beer. I’ll give you this: It certainly has inspired some fascinating prose so far).

Let’s get back to our thesis, after that shameless attempt at an interesting filler of verbiage: beer is heavy, heavier than money and heavy relative to its price. The fact that beer is heavier than money has implications on both the global and the local beer industries, for similar reasons. On the global stage, a clever group of bankers disguised as brewery owners have figured out that beer’s weight makes it prohibitively expensive to ship economically, particularly across mountain ranges and oceans. Therefore, rather than take a brand like Brazil’s Brahma and ship it far and wide, it makes much more financial sense to move the money internationally, which is weightless, and buy other breweries. Hence the rapid global consolidation of mega-breweries we’ve witnessed for the past 20 years: SAB and Miller, Molson and Coors, InBev and Anheuser-Busch, Heineken and Femsa, to name just a few.

You can apparently use the profits from what you make on Brahma to finance buying a brewery in Belgium, and once you’ve paid down your debt from the purchase, walla! Now you’ve increased the size of your company and make more money. Not only that, when you own Brahma in Brazil and buy a brewery in Belgium, the brewery in Belgium can brew Brahma there, saving the shipping costs. Easy-peasy, Japanese-y. The Belgians who wish to drink Brahma either don’t know or care where the Brazilian beer is made, it appears. In fact, only in the United States do beer drinkers care where their beer is actually brewed. That’s why Heineken is brewed all over the world for local markets, except in the U.S., where the Heineken you drink is brewed in Amsterdam at the mother ship brewery. Beer is heavy, don’t forget, relative to its price. Another sip of Infinium. It’s growing on me.

Now, you know what other alcoholic beverage isn’t heavy relative to its price, in the high-end at least? Wine. High-end wine is expensive, and yet it weighs nearly the same as beer. And terrior matters. So when you drink Chateau Lafitte Rothschild, you know it comes from France. In spirits, you wouldn’t drink single malt scotch from Mexico just as you wouldn’t drink an agave tequila from Scotland. And that’s OK for those companies because the prices are such that the shipping is nearly negligible. Another sip―liquid ambrosia.

And even within the U.S., there’s a thriving Internet business with domestic high-end wines, because the price is high enough relative to its weight that you can buy a case and not worry too much about the shipping costs because it’s a minor add-on. That’s why so much wine and spirits are shipped long distances. Thirty percent of wine and spirits sold is high-end, so it’s a big part of that industry. I should note here that this Infinium is a piece of heaven on earth.

Not so much in beer. Craft beer is only five percent of the total U.S. beer business, albeit growing. Not much beer is sold online. The vast majority of beer, which is domestic mainstream beer, is sold the same way it has been for decades: through wholesale distributors to retailers. Because the prices are low relative to its weight, it has to be sold through distributors who aggregate many brands together so it’s economically feasible to sell to your local convenience or liquor store. Beer is perishable too, and it sells at a much higher velocity than wine or spirits. So deliveries must be made much more frequently, further setting in stone how it’s sold. And of course you have state regulations that help to maintain the status quo. I can make the case with you individually, in a bar, as to how this regulation actually helps craft brewers ultimately, but won’t get into it in these pages until I have more space and the effect of this Infinium wears off. Damn good beer, by the way.

So, what is changing? Well, higher-priced craft brews are growing in sales relative to mainstream beers like Bud Light, and more are being sold in larger 750 ml wine bottles. As craft beer grows, the average price of beer grows. Since craft beer weighs the same as regular old Bud Light, the ratio of the weight of beer to its average price is going down. This changes the game a bit, in that it makes shipping smaller loads more feasible. That may increase pressure to sell more over the Internet to individual drinkers. But besides that, even in the current system, it may also keep indie craft brewers independent for a longer period of time, because there is less financial pressure to consolidate and share brewing capacity. Are you following me? If not, put down your beer, you’ve had enough.

On the other hand, even craft beer is cheaper than fine wines and high-priced spirits (and they all weigh the same). So this unavoidable truth―I think, but am not sure―could lead to some consolidation amongst U.S. craft brewers (we have mountain ranges, remember) and more collaborative sharing of brewing capacity between and amongst craft brewers. I smell consolidation. I smell strategic alliances. I smell joint ventures.

No? You don’t believe me? Are Bend, OR-based Deschutes’ fermenters that much different than Boston-based Harpoon’s that they couldn’t reproduce each others’ beers, with their master brewers in attendance? I am confident they can do it. It’s the wrong question, actually. The right question is: Would the West Coast beer drinker balk at drinking Harpoon that was made at Deschutes? And that’s the trump card that comes descending down on us like a goat farting diamonds: The Consumer. American beer drinkers, as illustrated by imported beers, tend to care more than their foreign brothers about authenticity of brewing origin. And if they care enough, they’ll pay more. At that point, the weight of beer becomes less significant.

So, ultimately, it comes down to how much the drinker cares. Do you care? I’ll have one more glass of Infinium while you ponder.