March: Going Out Like A Lion In The Beer World

Don

This is going to be a long post for me, so fair warning.  It will be a little bit of a rant, and I am going to throw in some family history to boot, but this is important for me to say and I feel like the events that have unfolded this week in the beer world warrant some reflection, a chance to fall back and assess the damage as it were.

I want to start this off with a story that affected Jim and I very deeply when we were kids.  Our Dad was a corporate executive in mid-management for the majority of his career.  Dad moved around quite a bit taking promotions and climbing the corporate ladder.  It was about 1978 when he went to work for American Chain and Cable Corporation in Fairfield, Connecticut.

This was a huge move for our family because we had never lived anywhere but the midwest, i.e. Chicago and Milwaukee.  So we made the leap and dad was climbing, always climbing.  He wanted to be a Corporate Vice President, that was his dream job.  An opening came up and ultimately he was passed over.  When he asked why, they said because he never had any field experience actually running a division of a company before.  This is where things got weird…

Well that meant that dad needed take the next General Manager position that came available so he could get his experience and get his promotion.  The wheels were set in motion, and Jim and I ended up moving to Fairfield, Iowa.  That’s  right we went from Chicago to Milwaukee to the New Your Metro region to Fairfield, IA,  population 8000.  It was actually a good move for our family and it seemed that all the kids really liked a more rural lifestyle.  Things went well there, until they didn’t.  What had happened in the three years that Dad was in Fairfield, Iowa was the American Chain and Cable Corporation was bought out by a British firm.  The Brits began to systematically dismantle the entire company.  Fate came calling all the way to Iowa, and dad’s position was eliminated.  Oh, I could tell you that Dad took over an operation that was loosing money every year and built it into a $7 million profit center in just 2 years, or that the decision to consolidate operations in York, Pennsylvania was ill advised and they ended up bankrupting the whole company, but that is really neither here nor there to this story.

I tell you this story because there are parallels that can be drawn to what we have seen this week in the beer world.  My dad was a casualty of European expansion into corporate America.  And it seems like we all are feeling a bit of the bite this week with the latest movements that have happened in the beer world.

I remember when InBev took over A-B the talk was about how this could bring European know how to American Lager production, and perhaps this would be a great thing, that maybe beer in America would benefit from one of “The Bigs” being bought out by a company that owned better beers in Europe.  All the while I was hoping what has happened wouldn’t happen.

See when Anheuser Busch was an American giant, they were at least our giant, and we knew what to expect.  They played hard ball, and some would say that they were underhanded, but it was a known quantity with uniquely American corporate sensibilities.  My family’s experience with the European model is far more dastardly, and I’m afraid that there are some true colors showing.  This bull is rampaging through the china shop and mayhem is beginning to surface.  This is not new, and it should have been expected.

Big Beer with their new distinctly European sensibilities is trying to embrace the craft beer community with one hand to pull it in closer so they can strike a death blow with the other.  Ruthless and predictable in its unpredictability.  But my family’s experiences have taught us that this disarray is to be expected.  I don’t know if it is because they are poor managers or that they are simply too far away to keep a lid on things or perhaps it is simply some sort of management style that keeps people off balance and fearful of what they will do next.  Whatever the case may be this is our new reality.  It is unpredictable as to what may happen next, but predictable that it will not be good.

They are unpredictable, but I am going to make a couple of predictions:

  • If it hasn’t started already, AB InBev will begin to shed employees like yesterday’s clothes.
  • The Old A-B management will be replaced with a European Management Team.
  • Lesser producing facilities or just smaller facilities will be merged into other operations. (See Rolling Rock Brewed in Newark, NJ)
  • Quality will suffer because they don’t understand supply chain management.
  • Goose Island as we know it is gone.
  • Even Bud will get worse.

A little gloomy, but probably the truth.  Think of it.  This week we have had a lawsuit, a buy out, and a backstab.  Who says beer isn’t interesting?!

-Don

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44 Comments on “March: Going Out Like A Lion In The Beer World”

  1. March 31, 2011 at 12:06 pm #

    Interesting and unfortunately depressing read – especially from your own family’s historical reality. Very hard to disagree with those observations and resulting, reasonable conclusions/predictions (save perhaps for the last one – about the only way Bud could get worse would be for them to fill the cans with Natty Light). Wait, that could actually happen. I take it back.

    I’m firmly convinced that A-B has its sights set far beyond Goose Island and every true fan of craft beer, whether a certified beer geek like many of us, or a more casual fan of better beer is going to suffer.

    • Don
      March 31, 2011 at 12:10 pm #

      Sad to be sure. I really hope what we are seeing here is just a major beer corporation blundering around, and not part of an overall strategy to dismantle the beer industry, thus eliminating competition. Where the hell is the SEC to slap AB InBev on the wrist?

  2. Angela Arp
    March 31, 2011 at 12:33 pm #

    I have heard that AB is already shedding many employees & has been for a few months (at least), so prediction #1 is true!

    • Don
      March 31, 2011 at 3:20 pm #

      I wish I didn’t know this first hand, but I’m sorry to hear that they are following suit. I feel bad for the line employees that will get screwed in this whole deal.

  3. Geoff
    March 31, 2011 at 12:43 pm #

    Interesting thoughts. Craft beer to me seems to be largely a family or even an individual endeavour of passion.

    If that passion does not span a generational gap (citing Anchor here is a leap) then what becomes of that craft brewery- does it fade quietly into the night?

    I’m not sure the issue is so much about protecting craft breweries from “big beer” but more about preserving craft breweries over time. Will Sam Adams still be Sam Adams after Jim Koch? Will Dogfish Head be Dogfish Head if Sam Caligione retires or sells?

    The beauty of craft brewery is in the individuality and creativity. Again, its a poor analogy but the British came up with CAMRA to try to preserve some of their beer history. You have to wonder if there is an approach to be considered that would allow each craft brewery to be independent but part of a larger craft brewery organization to allow for continuity in times of distress or transition.

    Craft breweries have demonstrated some pretty amazing partnership in brewing collaboration beers (name other industries where competitors for market share work together like that- collaborative music is as close as I can come). I wonder if a “craft beer consortium” can create the benefits of being similar to a big beer corporation without becoming one.

    • Don
      March 31, 2011 at 3:25 pm #

      Interestingly enough Geoff, I had lunch today with the Sam Adams Rep for Idaho. And even more interesting I asked this exact question about having a succession plan in place. SA has worked very hard on their Succession plan and should stay largely unchanged once Jim Koch decides to hang it up. That said he is Vegitarian, and in good health, and he personally does not want to retire ever. However we all know that life has a way of changing our best laid plans, so that could change. It is good to know that at least one craft brewer has plans in place to make sure that their beers stay in the marketplace long after their founder is out of the picture.

  4. March 31, 2011 at 12:58 pm #

    I haven’t gone 100% beer geek yet, so I don’t know as much as I should about how these craft brewers are set up from a financial perspective, i.e. LLCs, publicly traded corporations, etc.. So here’s the question…

    When a craft brewer is bought out, is it InBev & company buying up stock on the exchanges or is it done the old-fashioned way like in The Godfather (“I’m gonna make him an offer he can’t refuse…” Or something along those lines.)? I remember from Beer Wars that the biggest obstacle for a craft brewer is local distribution and in-store placement because the Big Three have major influence in those arenas. The big three also have major influence in Washington, because afterall, money talks, and they deep enough pockets to get whatever legislation they need passed.

    As far as holding off the Big Three…

    From what I can tell, the craft beer movement has been largely grass roots based. I mean, I have never seen a TV on a major network or magazine ad in a major publication for Stone, Dogfish Head, Victory, Smuttynose, etc., yet a novice beer geek like me is well aware of them and has grown to love them. Twitter, Blogs, word of mouth have made this happen. 1,700+ craft breweries don’t just pop up over night afterall. All we can do is embrace our local brewers and keep drinking! Until my doctor tells me otherwise, that’s what I plan to do.

    Keep the faith Boys! And of course, keep spreading the word! TESTIFY!

    • March 31, 2011 at 1:58 pm #

      In this case, Goose Island was part of an already-publicly traded company, Craft Brewers’ Alliance (HOOK). So it was ABI buying more shares (it already had a 25% interest) from other investors.

      Usually, though, small businesses like breweries are wholly owned by one or two people, and much of the financing is debt, rather than equity. When that happens, it’s just the one party with a controlling interest deciding on the price that they’ll let it go for.

      Don, those are some dark thoughts, and I hope you’re wrong. Of course some employees are shed in a consolidation, but that’s really any industry. The beer I think is just an open question; we have no idea how ABI will treat the GI brand. I don’t necessarily think you are wrong, I just hope you are.

      • Don
        March 31, 2011 at 3:47 pm #

        An example that Jim and I are familiar with is the situation our dad found himself in. The British firm that bought them had metrics that they used to make decisions by. So an example was they decided to cut 50% of all employees. Our dad was a part of a team that looked at the question and developed a strategy whereby they eliminated 30% of all positions. The report concluded that to do any more than 30% would be extremely detrimental to the company. The Restructuring team thanked them for their work, and then implemented their reductions. After which they arbitrarily cut another 20% of all employees to get to the 50% reduction their metrics told them to do. Within 10 years the entire company folded. This is the type of decision making that can and most likely will destroy a good percentage of the craft bee market, and take down A-B in the process. Doom and gloom I know, and I agree with you that I hope it doesn’t happen like this.

      • Alex
        March 31, 2011 at 4:17 pm #

        But Don, is this a uniquely “European” trait? Your post and comments seem to indicate that this is a cultural issue, rather than just bad corporate governance. There are good European companies as well as bad ones. Same thing goes for their American equivalents.

        • Don
          March 31, 2011 at 4:25 pm #

          I think this problem manifests itself when European companies (be they good or bad) try to infiltrate the American marketplace. But it is more than just selling their product in America, they try to buy an American Company and run it with European know how. Some can make it work, but even the best example I can think of had their issues. That examle is Daimler Chrysler. When Daimler took over, they almost bankrupted Chrysler, even before the recession. They have been able to right the ship somewhat, but Chrysler is still less than half the company it was when Lee Iocca (SP) ran the show.

          Read Wims comment in this thread. I think he encapsulates the problem well. So, I’m not saying all European Companies are bad, certainly there are very successful companies from across the pond, I’m just saying when they try to run American companies in America things go south.

    • Don
      March 31, 2011 at 3:30 pm #

      Yo G-Lo, my understanding is that Goose Island was a part of the Craft Brewers Aliance, and that AB InBev purchased controlling interest in the brewery, making them the lead dog and essentially calling all the shots for that brewery. It was a simple cash and contractual transaction. That said, I assume it all depends what the individual breweries corporate structure is, as to how they may sell to other outside interests.

  5. johnking82
    March 31, 2011 at 1:03 pm #

    The sad part is, those American-Lovin Union Working boys who drive Ford and Chevy drunks don’t fully realize they are drinking a European owned company (Disclaimer: I drive a truck and would be a construction worker (not the YMCA kind) if I didn’t have an education).

    I have a feeling AB is using Goose Island as a “project” and will be buying more and more companies along the lines…do not pass GO, do not collect $200.

    • Don
      March 31, 2011 at 3:32 pm #

      I’m sure you are correct. When it will all go wrong is when they begin to consolidate the craft breweries and farm production out all over the place, etc. At least that’s what I think. 😉

      • johnking82
        March 31, 2011 at 3:51 pm #

        Hmmm, any post I’ve seen before never had a picture. Im not complaining, just thought it was different.

        • Don
          March 31, 2011 at 4:06 pm #

          It was just so opinion based (not that all our reviews aren’t) that I felt it was appropriate. Like any editorial writer might do.

  6. March 31, 2011 at 1:34 pm #

    I’d say you’re probably right on all counts. Still, playing devil’s advocate here, what do people expect? Its a business after all, and the goal of most businesses is to gain market-share and increase profit. Increased sales, lower expenses and reducing competition is the name of the game.

    I think big beer is feeling threatened so they’re acting aggressively in their OWN best interests, not the best interests of beer geeks who aren’t their customers anyway.

    More reason to support the little guys, that’s all. Don’t give them a reason to sell when big beer comes knocking.

    • Don
      March 31, 2011 at 3:41 pm #

      I think the difference I’m trying to get at Scott, is that A-B would be more predictable, and would eventually find a peaceful coexistance with craft beer. The European model will not allow that to happen, and they will through their own ineptitude and misunderstanding of the American landscape and culture will eventually drive good beers that they purchase to become bad expressions of the craft. This could be a mixed blessing as the end result might be driving Budweiser into Bankruptcy and out of the market. However I think that things would change a lot before that happened.

  7. johnking82
    March 31, 2011 at 2:12 pm #

    Why is there a picture of Don on this post?

    • Don
      March 31, 2011 at 3:48 pm #

      Because It is my editorial.

      • Alex
        March 31, 2011 at 4:14 pm #

        You can never have too many pictures of Don on this site, IMO. 😉

        • Don
          March 31, 2011 at 4:18 pm #

          Thanks Alex! BTW had a Le Terrior today with lunch. Nice crisp sour with no funkiness, just how I like them. Starting to like some New Belgian products.

      • Alex
        March 31, 2011 at 5:06 pm #

        I’ve head good things about Le Terroir, but haven’t had a chance to try it yet. Tried their Lips of Faith Dunkelweiss last weekend and thought it was pretty solid. I think they’re getting their act together, finally.

      • Don
        March 31, 2011 at 5:18 pm #

        Oooh, that reminds me I have one of their Dunkelweiss at home. I think I know what I’m drinking tonight!

  8. March 31, 2011 at 2:51 pm #

    When inbev was taken over by some Brazilian businessmen, I , as a Belgian by birth, did not like that. What could those guys possibly know about beer, about my beloved Belgian beer traditions? Nothing, as soon was evident: they relocated the Hoegaarden brewery to save costs or to consolidate, under an outcry from beer loving Belgium. It did not work out, however, quality wasn’t as good, pressure was mounting, and now they brew Hoegaarden back in Hoegaarden, where it belongs. Is that sentimental? Probably so.

    But as I am working on building my own brewery, in the heart of the Garden State, I am seeing very clearly that any good brewery (craft, big, non-craft, import, whatever) must possess 2 almost contradictory qualities. First, a good business sense. Know how to market and sell your product, streamline the process, make it accessible. But then there is the second indispensable quality: the passion for the art of brewing. That includes a love for the raw materials, the process of brewing, the final beer. And a sense of belonging in a long tradition, either as a keeper of that tradition, or standing on the shoulders of those before us while trying to find new expressions of the old brew. The first thinks in numbers and statistics, the second thinks in tradition, the aroma of hops and malt, with visions of creating. The balanced combination of both makes a great brewery: one that is able to make first class beers, and is able to let an as large as possible group of people enjoy those together.

    As soon as people who look at beer as just another ‘product’ come along, without any pride or sense of the art, things happen as Don described so gloomily. I am sure from the viewing point of some business framework all this makes sense. But for those of us who know beer, love beer, it is a destructive distortion that only limits the choices and quality of possible available beers.

    • Don
      March 31, 2011 at 3:53 pm #

      Very well said Wim! Thank you for your contribution, and welcome to our blog! At least the act of putting the production back in Hoegaarden shows that the powers that be at InBev are trainable. Perhaps there is a ray of hope after all.

    • Alex
      March 31, 2011 at 5:10 pm #

      Good luck with your brewery, Wim!

      • April 1, 2011 at 8:37 am #

        +1.

        NJ has some good locally-brewed beer, but we’re can always use more!

  9. March 31, 2011 at 6:41 pm #

    I love the fact that craft beer is audience driven. No matter how you market it if you make crappy beer and you loose your audience. Make really good beer and word seems to spread with little or no advertising. I stopped drinking Bud a long time ago due to the accompaning headaches but those are going to be mild compared to the headaches Goose Island is going to experience down the road. I’d like to give InBev the benefit of the doubt but the history of such moves makes that highly unlikely. I drank a BCS08 (unbelievable) yesterday and picked up 2 BCS09 as well. We toasted to the demise of a once great brewery. By the way for 38 mil I would of sold as well. Can always start another brewery with that kind of cash.

    • Don
      April 1, 2011 at 9:08 am #

      I’m guessing there is a non compete clause in the contract they signed for the cash, so another brewery is not going to happen anytime soon. But you are correct, if the quality suffers people will no longer buy it.

  10. Jeff W.
    March 31, 2011 at 8:42 pm #

    Hey Don & Co.

    I don’t think there is anything to worry about from a craft beer perspective. The beer from GI may go down in flames. Other small quality breweries may( and likely will) get goobled up; their contribution to the craft lost forever. BUT ( yup, a big but) As each one dies it makes room for the next. What the big guys don’t get is that they can’t buy the passion that creates the small brewery and the beer that springs from it. Nor can they chill the passion of the craft beer lover. The names and individual beers will change but craft beer has a lot of growth yet to achieve and nothing the corporate mega breweries can do will stop it.

    …PS we brewed the first pilot batch on Sunday. Samples will hit our distributor in about a month. We’re on track. I’ll save you some for your trip North – Jeff

    • Don
      April 1, 2011 at 9:12 am #

      You’re right Jeff, at least with every demise there will be a new startup to take its place. Gotta love the craft beer community.

  11. March 31, 2011 at 9:06 pm #

    Man, I’m always chiming in late here…Don, I appreciate you sharing your family’s story and can see why you have to the conclusions you have expressed here. However, I’ll have to disagree with your assessment of European companies. Europe is a pretty diverse continent. It would be difficult to pinpoint which of the business practices you described are unique to Europeans, let alone Dutch, French, Greek, Turkish, etc. It’s like when folks inaccurately describe something as African. Africa, like Europe is pretty diverse, but for some reason we often lump all the countries between Libya and South Africa as the same place.

    Even if what you say was true in regards to the practices of European business practices, one could argue that InBev is an American company. As Wim pointed out, InBev (then Interbrew) merged with a Brazilian company called AmBev. Brazil is part of the Americas. So, InBev was already rather American before they bought AB.

    What I think you’re railing against are corporate practices, not European practices. This is what corporations do. They buy the competition or purchase companies in markets in which they want to expand. They break the companies down, even downsize until the competition is gone and the bigger corp is the only game in town.

    I only say this because your post comes off as a nationalist rant. You have proven to be way more nuanced and thoughtful than that, Don. Blaming Europeans for your dad’s company going under and the ruination of craft beer is a bit simplistic. Corporations do not exist to insure diversity and to spread the wealth. Their sole purpose is to make a profit. While European corporations aren’t much better than corporations from any other continent, I’d argue at least they keep CEO salaries and benefits within reason when compared to the lowest workers on the ladder. I’m sorry, I just found this post misguided and missing the mark.

    • Don
      April 1, 2011 at 9:19 am #

      Zac, I thought a lot about what you said here (read it last night), and I have to politely and respectfully disagree. I understand that every company is different, and each case is unique, but you need to understand I am speaking from a very personal perspective. I state that I could be wrong, and frankly I hope I am, but based on our family’s experience, this is what I “feel”, and you aren’t going to take that away from me. The reason I put my picture on the top of the post was because it was my “Opinion”, never stated as fact. So while you make very good arguments, and you may be correct on every one of them, my opinion remains unchanged. I’m not being nationalist, just against bad business practices. And while US business certainly has its share of negative practices, so does every other business across the globe. Kind of like Christ said, “let he who is without sin throw the first stone.” They are all guilty of something, and my experience tells me I won’t be wrong on this one, but I could be wrong, only time will tell.

      • April 1, 2011 at 9:33 am #

        I agree, this deal could go badly, but I’m not sure how this is uniquely a failure of European business practices, though. Of course, from what you’re saying now, I think you’re not certain it’s uniquely a European failure either.

        I don’t mean to take anything away from you. Your family’s experiences are yours alone. I can’t even begin to know what that was like. Similarly, there’s no way you fathom what it was like for my dad’s factory job to be moved to Mexico. However, I don’t blame Mexico. I blame NAFTA and the corporation who decided profits mattered more than people’s livelihood.

        It’s just dangerous to lump a whole group of people as evil or corrupt. Corporations are different. Regardless of where they originate, their sole purpose is to make a profit no matter who they have to step on to do it.

        That said, I’m not totally sure where we disagree. I guess you’re sticking with the “Euorpean corporations don’t work in America” argument and I’m saying that it’s not about Europe; it’s about corporate practices. Of course, I don’t see corporations being strictly American or European or whatever. Corporations have outgrown nationality. My wife’s family in Detroit was pissed we bought a Toyota. However, a good friend of mine was excited as that car was built in her hometown in Kentucky.

        I get your anger and/or personal feelings. I just don’t get the target.

        • Don
          April 1, 2011 at 10:15 am #

          Listen Zac, I’m no monument to Justice! Just felt a rant coming on, and had to get it out. Kinda like when a baby pukes. You don’t know when it will happen or where it will land, but you’re pretty sure it will be messy, and someone’s gonna get it on them!

      • April 1, 2011 at 10:28 am #

        Rants are cool. I just have a habit of not being able to let some things go. If you remember, I started coming around here when that whole Lost Abbey label thing happened. I sometimes feel another perspective is necessary when dangerous stereotypes go unquestioned. I’m not saying what you’re doing is dangerous. I’m saying that accepting your opinion and emotions as fact is dangerous. It’s up to readers to figure that out, but sometimes that other perspective needs to be addressed. No hard feelings. It was an honest rant. I can respect that.

        Now, can you get back to some posts about beer? Also, sipped on some of the New Holland Brewers’ Whiskey last night…God, I love that stuff!

        • Don
          April 1, 2011 at 10:35 am #

          Oh Man! That is some of the best whiskey I’ve had in a long time! Great stuff. No hard feelings at all Zac. I really appreciate your perspective too. You can be the yin to my yang…Wait, that sounded bad.

      • April 1, 2011 at 10:40 am #

        Sounds good, Papa Bear. 😉

      • April 1, 2011 at 10:47 am #

        Interesting line here, gentleman!
        Maybe some other point of view: having lived in Europe and in the States, it seems to me that most of this comes out of a lack of understanding of the other. Europeans don’t get the size of the US, and the different mentality that brought about (am painting with a broad brush, more details can be given if we’d meet over some beer or scotch… 😉 ), and Americans don’t really get the (over) nuanced thinking of Europeans, or how a very long history still influences them every day.

        Put that into action on corporate level, and you get the stuff Don was talking about. So he is right. But in the same vein: don’t let an American corporation try to run a European one, equally destined to fail…

        (If you have some whiskey left, I’d love some… Will bring my bottle of Glenlivet Nadurra…)

  12. April 3, 2011 at 10:28 am #

    Needs more rant.

    • April 4, 2011 at 9:51 am #

      And less cowbell.

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