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Con-sol-i-da-tion

"the action or process of combining a number of things into a single more effective or coherent whole" That's what the dictionary says. But what does the reality say? In the craft beer business, we are now in the consolidation phase and firmly out of the creative experimental phase. We have been here before, as this has happened a few times in the beer business. Let's take a look back on those days and see what happened to try and predict where we go from here.


In 1870 there were 4,000 breweries in the United States with a population of just over 38 million. That translates to one brewery for every 9,500 man, woman and child in the U.S. Those breweries included Pabst, Anheuser Busch, and Yuengling. Lesser knows included Doyle and Co., Hucks and Mueller all destroyed by the fire of Mrs. O'Leary's cow in Chicago. Then, the consolidation started. In 1889 eighteen St. Louis breweries merge into one, the St. Louis Brewing Association. In 1899 the Pittsburgh Brewing Corporation forms out of the consolidation of twenty-one breweries. In 1901 Sixteen Baltimore brewers consolidate into the Gottlieb-Bauernschmidt-Straus Brewing Company. You get the picture. Consolidation is on the move and the combining of a number of breweries are blended together into wholes. Free to dominate their local communities, I can only imagine that prices went up, quality went down. Then the mother of all consolidations, Prohibition, takes place in 1919. Breweries started making near beer, the predecessor to kombucha I guess! and the bottom falls out of the brewery industry. Anthony & Kuhn Brewery of St. Louis sold to a laundry. In 1933 the 21st Amendment is passed, and the beer business is back in the game with a paltry 31 breweries back in operation. This is the first major consolidation in the American beer business.



Throughout the next several decades the brewery business started to regain its mojo. By 1950, 407 breweries were open in the United States. A few years later in 1953 Anheuser-Busch purchases the St. Louis Cardinals. Breweries were on a roll. But then the consolidation game came back in style, and this time they were hell bent on cornering the beer market. By 1961 230 breweries were in operation. Only 140 are independently run. In 1971 Phillip Morris acquires Miller. By 1983 the top six breweries (Anheuser-Busch, Miller, Heileman, Stroh, Coors, and Pabst) control 92% of U. S. beer production. Consolidation reached its high-water mark. They achieved their goal. Which brings us to craft beer.


In Kurt Anderson's book Evil Geniuses he wrote,"A recent paper by three finance professors found that when U.S. industry becomes lots more concentrated, the fewer, bigger remaining companies' efficiency does increase by 6 percent. But their profit margins go up by 142 percent! In addition, oligopoly breeds oligopoly because investors approve of it." This confirms my earlier blog about shareholder beer. What we are headed for is a watered-down version of craft beer. As someone told me once, why can't you make Wicked Weed beer, (owned by Budweisers InBev) at their facilities in Cartersville, GA? You can. At that size and scale, they dwarf the size of craft breweries and effectively end our ability to distribute.


Which leads us to distribution. The consolidation of the beer business is directly related to the pure oligopoly of the beer distribution business. In every state, there are just a handful of beer distributors who dominate the landscape. Because of the consolidation of big beer, the two major beer brands in the U.S. are either Budweiser or Molson Coors. Because of their immense size and scale, they visit every single beer outlet in their given state or territory every single week. They can deliver Budweiser just as easy as they can deliver Wicked Weed, or Goose Island, or Modelo or one of the 630 beer brands owned by InBev. Same is true for Molson Coors, (name recently changed as they own Miller as well). You see where I'm going with this. With every state dominated by two major beer distributors who sell two major beer company's beers who now make craft beer in enormous quantities, where does this leave the craft brewery? Off the shelves is where it leaves it. Not distributed, or barely distributed and if you can't distribute on a large scale well you might as well not distribute at all.


So, what can we do about it as craft beer owners and craft beer drinkers? First, be aware of what is going on. Push for self-distribution rights in the state you live. We have none in Georgia where I live but across the border in North Carolina craft breweries can self-distribute up to 25,000 barrels. But the most important thing you can do is to visit the craft breweries where you live and give them your support. Successful businesses can still be made by local breweries, but their path to becoming larger is being cut off by the size and scale of the large breweries and their affiliated distributors. In the cable television industry where I spent most of my professional career we would always say,"Content is King". Let's just make sure that our King of Beers is craft, not the one that is out to destroy our brands.

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