Change We Can Believe In

January 1, 2012 By Harry Schuhmacher

As I write these words, my oldest son is upstairs packing up his clothes to head off to college tomorrow.  It’s hard to believe that I have a son going to college. I’m only 42.  And not only that, he’s going to the same college I attended exactly 24 years ago today, the University of Texas at Austin. I recognize in his face the same combination of excitement, anticipation, fear, and constipation that I had. He will be staying within a block of where I stayed my freshman year. He will be going to the same parties, studying in the same library (hopefully), and eating at the same tired pizzerias and sandwich shops on the same “drag.”

But there are some considerable differences. UT is a huge campus, and we crawled about campus constantly consulting paper maps trying to find our classes during that first week.  My boy has a UT app on his iPhone, which maps out where each class is relative to his current position using GPS. I had to run around campus signing up for the classes I wanted to take. He merely sat as his laptop and registered. I wrote my class notes on notebook paper, and typed my papers on an actual typewriter. He will take his laptop to class and print his papers out on a color printer the size of a shoebox. Damn kids these days. They have it easy.

To add insult to injury, the choice of beers in the local grocery store and the choice of taps available in Sixth Street bars will be much better for him. My son (when he turns 21, of course), will have so many diverse beers available to him that, yes, I admit it makes me jealous. Back in 1987, the choices were Bud, Miller Lite, Coors Light, Corona, and Heineken. Today there is of course a rainbow of craft beers—both local and from afar.   Young adults today see it as a given, and perhaps are unaware how far we’ve come, as an industry, from that point to this.  To say the least, it was not an easy or quick transition for an industry that’s been doing things pretty much the same way since the repeal of Prohibition (may the gods bless it).

One could make the legitimate case that the rapid growth and availability of craft beers is driven by consumers. Efficient marketplaces, we are told in economics, must always adapt themselves to the Vox Publica. The people’s desires will be served. But what may not surprise you is that the strongest players in any industry dominated by a few well-capitalized companies can strongly affect the public’s desires—in our case through a saturation of the airwaves, controlling of distribution, shelf space and taps, and through a systematic domination of sports, that all-important doorway to the average young man’s heart and soul.

And I’m sure you’re shocked, shocked to learn that even some borderline dirty tricks were employed. On Oct. 13, 1996, Anheuser-Busch’s vice president of communications took Jim Koch and Sam Adams Boston Lager to task on “Dateline NBC” for being brewed under contract in Pittsburgh. A-B also filed a complaint with the BATF during that time against Pete’s Wicked Ale, citing language on the label describing the beer as being brewed “one batch at a time,” even though each batch was 400 barrels.   And then in March 1996, A-B announced to its distributors that they would now be giving A-B its “total commitment” in the form of exclusivity—in other words, it informed their distributors that they would only carry A-B products, with penalties for noncompliance. At the time Brandweek said that A-B was trying to  “legally squash competitors.”

And it wasn’t just A-B:  Miller Brewing Co., Coors Brewing Co., and Heineken USA (called Van Munching & Co. at the time), while not demanding that their distributors jettison craft brands, “strongly encouraged” their distributors not to take on competing brands.

And then you had the cultural differences. If distributorship owners were from Mars, craft brewers were from Venus. Distributors tended to be old-fashioned, buttoned-down, wearing ties, Republican. Craft brewers wore sandals, ironic T-shirts, and were Communists. Exceptions are to be seen on both sides, of course, but stereotypes help bring order to our understanding of the world.

Add it all up, and it’s any wonder Sam Adams and Sierra Nevada ever got to market.

My how times have changed. As the big brands’ growth has stalled out and craft and imports have grown, distributors have been obliged to open their doors and seek out new brands to carry, big brewers be damned. Almost overnight, craft brewers went from begging for meetings with distributors to being actively courted by distributors. In addition, there’s been a generational change at distributorships as Gen X and Millennials are taking over the management and ownership. And while they may not wear ironic T-shirts, at least they get the jokes.

First, Miller and Coors distributors started adding craft brands like gangbusters, seeing that they were not only growing and increasing in popularity, but they also brought larger margins to their coffers. As for A-B distributors, a few eschewed exclusivity. But then in the fall of 2007, A-B’s largest distributor, Ben E. Keith in Texas, decided to forgo exclusivity to take on craft brands. After that, A-B distributors broke out of jail in droves. And there was an added benefit: Distributors were starting to talk about the beer again, instead of just “boxes.”

The dynamic had changed forever. The industry was now more aligned with satisfying demand. Craft brewers have arrived.

But the narrative that craft brewers were held down by large brewers is an old and well-worn story (see the movie “Beer Wars”). But, as with most narratives, it’s more complicated than a simple David and Goliath story. In fact, the big breweries did craft brewers a very important favor when they not only did not oppose, but also actively supported the small brewer federal excise tax break. This tax break was and is crucial in giving craft brewers a start. So even while big brewers did much to attempt to thwart small brewers, they also did them a good turn early on. And today, the relations between large and small brewers are much improved from in the 1990s. While small brewers still view big brewers, and their brands that appear to be craft brands, as tremendous threats, all brewers big and small are working closely together for common goals.

But make no mistake: Even as craft brewers have broken the glass ceiling of acceptance among distributors and retailers, it’s still a tough road to market. Distributors today carry so many beer brands that it’s sometimes difficult for small brewers to get the focus they want on their brands. Consider this: A wholesaler may carry brands from 15 craft brewers. When a salesman from that distributor goes into a bar with six taps, of which he gets only three, which beers does he put on tap?  That’s a harder question that you would think. And the answer often depends on which brewer has built the best relationship with the distributor, or has provided the most selling materials, or has already established a relationship with the bar owner, or a myriad other factors. That’s why they say it’s much easier to sell your beer locally, because at least you have the home-field advantage and probably have local relationships.

So when my son comes of age in Austin in a few years, he will enjoy a wide selection of quality craft beers. It’s been a long hard road to get to this point, and the industry still has challenges ahead. But I look forward to that day when I can take my son to the Saucer, order a nice Imperial Stout, and tell him the story of how craft beer changed an industry.