Big Beer is Done With Craft
Former Elysian brewer and Cloudburst founder Steve Luke expressed the relationship between small and large breweries a decade ago, and after a failed fling, we seem to have returned to the enmity. Source: Cloudburst Brewing
If you needed any more evidence that the marriage of convenience between big beer and craft beer had ended in a messy divorce, this should do it:
The Elysian Brewing production facility in Seattle's Georgetown neighborhood will close on Dec. 31, leaving dozens of jobs in question. Elysian's parent company Anheuser-Busch confirmed to KING 5 that workers were informed of the decision on Thursday. The adjoining taproom was shut down immediately.
AB InBev (ABI) was in a long and contentious contract dispute with Elysian’s Teamster union, which has added an especially ugly note to the announcement. If AB InBev still owned many smaller breweries, the news could be considered a warning to plucky little staffs elsewhere. Instead, they’re divesting their craft holdings as fast as they can, so screwing the union was probably more a byproduct than central cause of the decision. It was nevertheless an especially sour ending to ABI’s relationship with the Emerald City.
With ABI sales of eight breweries last year and Molson Coors dumping four of their breweries a few months ago, we can call 2024 the final chapter in “corporate craft” era of American brewing. ABI will no doubt radically scale back Elysian’s offerings going forward to streamline production, distribution, and sales. In 2020, ABI purchased Craft Brew Alliance for a single beer, Kona Big Wave, which is now a standalone brand in their portfolio. I would expect them to strip Elysian of everything but Space Dust going forward.
This was never a great union. National breweries and small, regional breweries have not just different business models, but nearly opposing reasons for being. since this is the end of the line for these relationships, it’s worth doing a bit of forensic work to understand why they didn’t work.
Big Breweries Want Sales, Not Complexity
Let’s recall the series of events that led big breweries to invest in smaller ones. Going back 30 years, the bigs were starting to get worried that these little guys were damaging their sales in selected markets—and more than that, weakening their distributors. In the Pacific Northwest, where Anheuser-Busch had always been weak, little breweries became popular far faster than elsewhere. To support their distributors and remain relevant, AB bought minority stakes in Redhook (Seattle) and Widmer Brothers (Portland). I recounted this history in The Widmer Way.
We wouldn’t see any other purchases for another decade and a half. After Widmer and Redhook, the craft market stalled and remained a tiny portion of the overall beer market. That wouldn’t change until the early teens, when several trends put the squeeze on the bigs. Craft beer was finally growing again and though volumes were never amazing, revenues grew until they were about a quarter of the market. Meanwhile, Mexican imports started a run on the U.S. market that never slowed down. The market for the kinds of beers they sold shrinking, big breweries bought into craft as a hedge against continued slippage.
There was a structural misalignment between small and national breweries, however. Little breweries made a lot of different kind of beers. They might have had a flagship that accounted for a majority of sales, but the whole portfolio was essential to the brand identity. Yet big breweries are not adept at complexity. They want brands they can brew, package, and sell at volume. When Anheuser-Busch set up a national network of breweries and distributors, that organism was designed to sell just a few beers at different tiers across the mass market spectrum.
Buying regional lager brands made sense because they could easily plug it into the system. Buying breweries like Goose Island, with dozens of brands along with a line of barrel-aged stouts and wild ales, was a poor fit. Josh Noel’s book Barrel-Aged Stout and Selling Out is the most comprehensive exegesis you’ll find on the tensions between the two approaches, but I detailed some of the them in my biography of the Widmers as well.
As a coda to this mismatch, I noticed a startling stat in a recent Beer Business Daily story describing how in one market the craft segment accounts for 41% of SKUs, but just 5% of gross profits. That’s unsustainable for retailers and large breweries. It’s different for small breweries, who make and sell beer in a specialty marketplace of local vendors. But it’s just too complex and expensive for big breweries to compete in such a market unless it represents substantial volume. Craft hasn’t grown as a share of the market in a decade, though, and big breweries now conclude it’s just not worth the effort. And reasonably so.
Small Breweries Don’t Care About Commodity Beer
Ten years ago, it was common to hear just-sold small breweries talk about how great the new arrangement was going to be. When a beer company was the buyer, the small brewery would often count it as a virtue that their new owner was a brewery that understood them. Some of that was, of course, giddy wish-casting by an owner who had suddenly entered the top 1%. But some of it was true. The brewers did think big breweries would just give them access to a big market to conquer.
At the time of Wicked Weed’s purchase, the founder tried to console fans worried the brewery they loved was about to change.
"These guys did not buy us to squash us and blow all of our brands out and change who we are," said Walt Dickinson, 35-year-old head blender and co-founder of Wicked Weed. "They bought us because they believe in who we are, and I think consumers are going to find that in time, as well."
Wicked Weed was famous for their wild ales at the time of purchase, building up a huge reputation for their unusual beers. They had opened the Funkatorium in Asheville to showcase them a few years before the sale. This is how most little breweries differ from larger ones. They do not want to become a manufacturing plant selling lakes of a single commodity lager. They get into the business jazzed about beer like the wild ales that formed a big part of the brewery’s identity. At that time, sour ales were on the rise, but even Wicked Weed couldn’t sell that many of them. They were committed to try, though, because they loved them.
This example is relevant because a couple weeks ago ABI announced it would not be reopening the Funkatorium after the damage of Hurricane Helene. Is this the kind of decision the founding Dickinson brothers would have made had they still owned the brand? (Since I live so far from Asheville, I wondered how much of an emphasis ABI placed on Wicked Weed’s wild ales—if they even still made them—but couldn’t because they have ditched the website in favor of an Instagram feed. Again, not decisions small breweries make.)
Small breweries don’t inhabit a morally-superior world, despite all the rhetoric of the early craft era arguing they did. Just like big breweries, they just make beer. But they do inhabit an entirely different business reality, one this is largely incompatible with the manufacturing model of an ABI. I support the decisions of brewers who cashed in a decade ago 100%. It’s a little silly to expect a person to walk away from tens or hundreds of millions of dollars. But equally, it was a little silly to expect those breweries to retrain their small-time charm and quirkiness once an international firm takes over.
So here we are, kind of back where we started. If you want a cheaper beer and don’t mind a mass market lager interchangeable with all the others on the shelves, you’ll buy a Bud Light (or more likely a Modelo). But if you want a characterful beer that is very much distinguishable from others on the shelf and you’re willing to pay more, you’re going to grab a locally-made IPA or Italian pilsner.
The divorce is final. All that’s left is the division of assets.