The founder of the Boston Beer Company and Sam Adams said the Justice Department needs to adopt a tougher stance on takeovers of craft breweries by the two biggest companies — or risk further reducing consumer choice and irreparably hurting a popular segment of America's beer industry.
The market has effectively turned into a duopoly where Molson Coors and AB InBev control about 90% of the beverage’s production in the U.S. today, said Jim Koch, the chairman of Boston Beer who helped pioneer the craft brew craze more than three decades ago. He expressed concern the DOJ would allow further consolidation by greenlighting acquisitions of craft breweries that make up the remaining 10% domestic beer output.
“The Department of Justice needs to look very closely at the ability of the big brewers to buy up competition,” Koch told Food Dive on the sidelines of the Beverage Forum in Chicago. “The [government] should view its job as encouraging the long-term competitiveness of the U.S. beer industry.”
Beer giants binging on craft brews
Craft brews have benefited from the public's interest in a more localized and diversified breed of beer, factors that have disrupted the U.S. marketplace for the drink. But that has attracted the attention of big producers eager to tap into the segment for growth.
With millennials gravitating toward craft beers — which have the bold and authentic flavors they crave — big brewers may have little choice but to develop their own brands or look to acquire them.
As part of the agreement to approve the $100 billion merger that created AB InBev last July, the DOJ handed down a series of restrictions to prevent any disruption in the distribution for craft brewers. Bob Pease, CEO of the Brewers Association, said at the time that he didn't believe those regulations went far enough.
AB InBev later closed its purchase of craft brewery Devils Backbone in September, but the DOJ promised at the time to “carefully scrutinize any future craft acquisitions.”
Two months later, AB InBev announced it would buy Texas-based craft brewer Karbach Brewing Co., one of the fastest-growing U.S. craft beer brands. The DOJ signed off on the deal a month later.
Jim Koch questions “whether the DOJ is doing their job by allowing” deals like these to take place.
“The last part of the beer industry that is highly — almost purely — competitive is craft beer,” he told Food Dive. The antitrust regulator needs “to encourage the big brewers to innovate and enter craft beer on their own rather than buying craft breweries and reducing the number of competitors that way.”
Independent craft brewers have been squeezed out of stadiums and music venues — replaced instead by craft beers produced by the big brewers. With mergers like these, the consumer gets “a facade” of choice, Koch said. “The beer drinker should have the ability to choose their beers rather than have it controlled by the brewers.”
"You can do three things — you can buy, borrow or you can build. Well, we think it's cheaper to buy than to build or borrow. So we're going to do what is economically most viable for our company."
Vice chairman of Molson Coors
Pete Coors, vice chairman of Molson Coors, defended the decision by companies like his to enter the space through acquisitions. His company has purchased four small regional craft breweries in the last 18 months.
"There is no law against it. Why wouldn't it be okay?" he told Food Dive. "You can do three things — you can buy, borrow or you can build. Well, we think it's cheaper to buy than to build or borrow. So we're going to do what is economically most viable for our company."
During remarks before the Beverage Forum, Koch discussed the challenges facing the beer industry. Since 2000, beer consumption per capita is down 25%, which is worth about $5 billion in sales — a figure Koch said would be “significantly higher” if not for craft producers. The number of breweries in the U.S. has increased from 1,447 in 2005 to 5,005 at the end of 2016, much of it tied to craft brews.
According to Brewbound and IRI Worldwide, craft beer’s growth slowed to 4% by volume last year, the first time it hasn’t increased by double-digit percentage points since 2004. The Brewers Association said the 8% growth seen in mid-2016 was “a period of maturation” for craft beer. Koch expressed concern that with too many choices, consumers may not know which craft beer to have, and instead they go with a safe brew they know.
"There's not yet a shakeout [in craft beer]," he said. "There is pressure today."
For much of the past 15 years, retailers expanded shelf space for craft beers because it made money and brought in higher-end consumers, Koch said. With only so much room at grocery and convenience stores, this appears to be ending. "They are now getting to the point of 'no mas,'" Koch noted. "It's a harder shopping experience for [the store's] consumers, they take longer to find what they want."
As growth in craft beer has slowed and the number of brews in the segment has reached a saturation point, Boston Beer has been among the hardest hit. The company announced its first annual sales drop in February and provided an uninspiring forecast for 2017. Boston Beer produces Sam Adams and Angry Orchard Hard Cider, among other brands.
Despite his criticism of the big beer companies, Koch said the industry as a whole would be better off if they “could get their mojo back” that existed during the end of the last century when ads such as Budweiser’s “Wassup” and "Bud - Weis - Er" frog campaigns were popular.
“I need you guys to be successful,” he said. “The mass domestic brands draw people into beer business … and they create the customers that we can then trade up to more flavorful, higher-end beers. They seem to have lost the ability to create the cultural relevance that was so wonderful in the 80s, 90s.”