Craft brewers warily view Anheuser-Busch’s march into their market

Has the King of Beers become the king of fears?

Corporate giant Anheuser-Busch InBev has been making inroads into the craft beer industry, and small, independent brewers are grappling with its arrival onto their turf. Their fears grew when the RateBeer website, with roots in Santa Rosa, sold Anheuser-Busch a stake in the business last October, igniting an outcry and forcing industry observers to wonder if indie beer can survive now that the big guys are looking to buy their way into the club.

The Belgium-headquartered company has taken a number of steps to grow its domestic portfolio, even as it retains about 45 percent market share of the $37 billion U.S. beer industry. In contrast, craft brewers represent about 12 percent of the U.S. market, according to the Brewers Association trade group, though its share is much higher in brewing hotbeds such as the North Bay, one of the strongest craft brew regions in the country.

“Yes, it’s a threat,” said Tom McCormick, executive director of California Craft Brewers Association, which represents more than 500 craft brewers in the state. The No. 1 complaint from his membership typically concerns Anheuser-Busch, McCormick said.

Local brewers said they aren’t afraid of competition, but they bemoan the outsize advantages that Anheuser-Busch has, especially in marketing and distribution. The company employs an “if you can’t beat them, join them” philosophy by acquiring smaller craft breweries and to make it more troublesome, its efforts come at a time of slowing growth in the artisan industry. The Beer Institute trade group reported last week that the industry has 100 million barrels in idle capacity that breweries are not using for production purposes.

“My take is the industry is going through a transition,” said Richard Norgrove, brewmaster and chief operating officer at family-owned Bear Republic in Healdsburg. “In the end, I think this is going to be redefining about what craft is.”

Despite its overall size, Anheuser-Busch contends that it still plays a small role in the craft industry.

“The U.S. is the most completive beer market in the world. The three-tier system (manufacturer-wholesaler-retailer), which we fully support, ensures it will stay that way,” said Felipe Szpigel, president of The High End, which represents the company’s craft portfolio, in an email statement.

“The explosion of craft breweries in the United States has been remarkable and is great news for all beer lovers. With 700 breweries opened in just the last year, it shows no signs of slowing down. We are partners with just 10 craft breweries, and work with the entire industry to encourage growth and choice,” Szpigel said.

The most recent uproar started in May, when Anheuser-Busch bought its 10th craft brewery, Wicked Weed Brewing in Asheville, North Carolina. The news triggered an outcry from devoted craft beer fans, who charged the brewery known for its barrel-aged sour beers was “selling out.” Wicked Weed was forced to cancel a July beer festival after dozens of craft brewers said they would not attend.

The backlash has also been seen locally.

Anheuser-Busch has encountered resistance to efforts by its Golden Road brand, which it bought two years ago, to open a taproom in Oakland’s Temescal neighborhood amid opposition from local brewers.

And most notably, it acquired a minority stake in RateBeer, a digital website that provides reviews and ratings for a wide variety of beers, through Anheuser-Busch’s ZX Ventures unit, its global incubator and venture capital team.

RateBeer is owned by former Santa Rosa resident Joe Tucker, who for the past two years has sponsored the heavily attended RateBeer awards and festival in Santa Rosa.

In January, about 2,000 people attended the event at the Sonoma County Fairgrounds, which featured brewers from all over the world as well as locally, such as Russian River Brewing Co. in Santa Rosa.

The reaction to the RateBeer acquisition was ferocious, especially as the deal closed in October but was not revealed until June through reporting by the Good Beer Hunting website.

Delaware’s Dogfish Head Brewery founder and CEO Sam Calagione, one of the pioneers of the craft beer industry, posted a June 5 blog post in which he demanded that RateBeer pull its ratings of his beer, calling Anheuser-Busch’s ownership a blatant conflict of interest and a violation of journalistic standards of independence and fairness.

“To our fellow independently owned brewers, we encourage you to join us in this effort to ensure consumers continue to get the best and most accurate information about their beers,” Calagione wrote in early July. “For everyone else, we encourage you to shift the sharing of your beer opinions and reviews to another platform that remains loyal to the principles of journalistic integrity. America’s Independence Day is just around the corner. Support the indie craft brewing movement!”

Norgrove said he also asked to be removed, writing that “we don’t want our consumers to feel like they are being deceived or misinformed in any way.”

Tucker, who declined an interview request, wrote in a June 2 post on his site that the ratings would not be influenced at all by Anheuser-Busch.

“This obviously won’t and cannot change, and thankfully we have loud, opinionated critics in RateBeer’s ranks, and a data transparency initiative to ensure it never does,” Tucker wrote.

“I know this is surprising to many out there, but I’m confident I made the best possible decision.”

Pedro Earp, chief disruptive growth officer of ZX Ventures, said the investment would allow Tucker to upgrade and modernize the RateBeer site, especially as he was operating it by himself with volunteer administrators and coders.

“When we made the investment in RateBeer, we did so from a place of respect and admiration for the RateBeer platform and what it provided to the beer community. While our goal is to innovate and push boundaries every day, we also aim to always maintain trust and goodwill with our consumers and the beer community,” Earp said in a statement.

Still, there were raw feelings in the local beer community, where Tucker was a popular figure. Natalie Cilurzo, co-owner of Russian River Brewing with her husband, Vinnie, said what troubled her about the deal was that it was not disclosed immediately.

“I’m a fan of disclosure. I would have appreciated knowing before we all signed onto the event,” Cilurzo said.

To be sure, Anheuser-Busch is not the only large beer company that has made inroads into craft beer.

Molson Coors Brewing Co. has about a quarter of the market share and owns Saint Archer Brewing Co. in San Diego. Constellation Brands Inc. owns Ballast Point Brewing Co. in San Diego and Heineken International earlier this year purchased the remaining 50 percent of its stake in Lagunitas Brewing Co. in Petaluma to assume complete control.

But Anheuser-Busch’s reach goes well beyond the 10 craft breweries in its portfolio. It also has stakes in media websites such as October and The Beer Necessities and has bought Northern Brewer Home Supplies in Roseville, Minnesota, where customers can buy kits to make Elysian Brewing Co. Wise ESB and Goose Island Brewing Co. Porter - two other labels owned by the company.

“Many of us view this as a unique set of circumstances,” McCormick said. “It elevates the concern and elevates the threat level.”

Smaller and independent brewers are concerned that most consumers will not be able to spot the difference between them and breweries owned by large corporations, rendering the word “craft” meaningless in the marketplace and putting them at a disadvantage.

A recent Nielsen study found that 81 percent of craft beer drinkers resonated strongly with the words “independent” and “independently owned.”

The Brewers Association, which represents independent craft brewers, last month unveiled a seal that its members could use on their labels to inform customers that they are buying a beer not made by a large corporation. More than 1,250 breweries have signed a license agreement to obtain the art for the seal.

Collin McDonnell, co-founder of HenHouse Brewing Co. in Santa Rosa, said he would be interested in using the seal on its cans. Norgrove noted that Bear Republic’s beer labels have included the words “Independent since 1995” since its inception.

But focusing on “independent” is an oversimplification, Szpigel contends, as The High End brands also do outreach and support causes in local communities.

“It is not our or anyone’s job to define to consumers what is good or bad. I will always leave that decision to a consumer,” he said in a statement.

A Petaluma native, McDonnell said HenHouse prefers to source locally, getting its brewing equipment from a Healdsburg manufacturer, its T-shirts from a Sebastopol shop and its trucks from a Rohnert Park dealership.

“We need to be concerned about large corporations that are sending money out of the community,” he said.

In contrast, McDonnell said breweries acquired by larger companies tend to downplay the association. “Not a single one has made a decision to put Anheuser-Busch on its label,” he said.

There has been persistent concern about Anheuser-Busch’s concentration in the industry. The U.S. Justice Department last year approved Anheuser-Busch’s acquisition of SABMiller of the United Kingdom on the condition that the latter sell its Miller beer brands in the United States to Molson Coors so that the combined company would not own 70 percent of the U.S. market. It also added conditions so independent beer distributors who sell Anheuser-Busch beer would have the freedom to sell and promote smaller brewers.

“This settlement will prevent any increase in concentration in the U.S. industry,” the department said in a press release.

But others contend there remain problems in the beer wholesale industry, especially on retail shelf placement.

“The Department of Justice did not go far enough in day-to-day operations in how distributors take their product to market,” said Marty Ochs, a beer industry consultant in Portland, Oregon. McCormick also was dismissive of the department’s claims. “It’s not the real world,” he said.

The High End’s Szpigel disagreed and said its success will rest on consumer reception to its portfolio.

“The verdict on each craft beer will be made by consumers. No amount of distribution or promotion will keep substandard beers on the shelf,” he said.

Brian Hunt, founder of Moonlight Brewing Co. in Santa Rosa, observed that Anheuser-Busch lost market share to craft and is looking for ways to get it back. Lagunitas owns half of his brewery, though Hunt said he has been under no corporate pressure to change his brewing practices or ramp up production.

“The craft world used to be a friendly place,” he said. “Their (Anheuser-Busch) attitude is more competitive than friendly.”

The debate may ultimately come down to whether the majority of consumers - beyond self-described beer geeks - actually care if their beer comes from a large brewer or from someone local. McDonnell believes they do.

“I think Americans want to drink a beer by someone they once met and is their neighbor, rather than some faceless corporation,” he said.

Tucker, for his part, contends the data from his site shows they may not.

“I was very surprised to see that even connoisseur-biased reviewers don’t seem to care as much about ownership as I’d thought. I expected opposition to be evident in ratings. It’s not,” he wrote in a May 4 Facebook post.

“Google/Alphabet has acquired a company a week on average for the last 10 years. Apple has had slave worker scandals. Their hold on certain tech markets are fairly monopolistic. But Americans, as evidenced by brand sentiment surveys, don’t seem to care,” he added.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.