For the last six generations, beer has defined Jim Koch's family.
And for much of that time, his family's story has criss-crossed that of another brewing company, Anheuser-Busch. Koch's great-great grandfather founded their family's brewery the same year Anheuser opened its doors. Both were housed in St. Louis. Koch's grandfather even worked as a brewmaster at the Anheuser brewery post-Prohibition.
But in the years since, the Anheuser and Koch breweries have taken very different paths, ones that have led them to become more foes than friends.
In 1984, Jim Koch used his family's lager recipe to start Boston Beer Company, which has since become the largest "craft" brewer in the country. He brews Samuel Adams, a rich lager named after the American revolutionary that comes with the tagline "take pride in your beer."
Anheuser, on the other hand, has spent the last two decades swelling in size. It is known for pale lagers like Budweiser and Bud Light, "the sure sign of a good time", both of which have become cultural icons. Fourteen of its more than 200 brands alone make the company over $1 billion a year in revenue. And in 2008, a merger with beer company Inbev turned Anheuser into a global conglomerate and the largest brewing company in the world.
[PHOTOS: U.S. News Looks at the World's Best Beer]
In the past couple months, Anheuser-Busch InBev has been trying to expand that market share even further, with the purchase of Grupo Modelo, the Mexican beverage company that brews the popular import Corona. But the U.S. Justice Department effectively blocked that $20.1 billion deal in late January, filing an antitrust lawsuit against Anheuser because it said the purchase would substantially reduce the company's competition in the marketplace.
In a statement, Anheuser-Busch InBev said the action was inconsistent with the law and "the reality of the market place."
Although Koch doesn't want to comment specifically on the merger, he has a reason to welcome a restriction on the influence of big beer. In recent years, craft brewers have sounded an alarm over the clout of Anheuser-Busch Inbev and MillerCoors, who today control 90 percent of the beer market. Craft brewers hold just 6 percent. And they say big beer is using increasingly deceptive and strong-arm tactics to keep craft down.
"Their preferred business model is an oligopoly," says Koch of the company that was once interwoven with his family. "I don't see them as trying to deliberately set out to destroy us. But we are very potentially the collateral damage."
The Start of the Struggle
Dogfish Head's Sam Calagione, right, and Samuel Adams' Jim Koch, left, pose for a picture in Washington in 2011. (AP)
The battle between craft breweries and big beer stretches back to the 1990s, when the idea of buying a beer brewed by a small, independent brewery first took off. In 1991, annual volume growth of microbrewing was 35 percent. Four years later, it had leapt to nearly 60, according to the Brewers Association.
At the time, many Americans had only a nebulous notion of what craft beer was and how it was made. So when Anheuser-Busch launched a series of negative ads criticizing Boston Beer Company for using contract breweries to produce some of their beer, the ads were strikingly effective. Believing the ads were unfair, Koch appealed to the Better Business Bureau in 1997, who ultimately ruled in his favor. Neither Anheuser Busch-Inbev or MillerCoors would comment for this story, directing requests instead to the Beer Institute in Washington, a trade group that represents the entire $223 billion beer industry. The institute did not comment on the 1997 campaign.
But speaking to U.S. News from his Boston headquarters as he sampled his own beer—part of a daily routine for years—Koch is more than happy to talk about the ads, and the harm he believed they caused him. He says the campaign caused distributors to drop him across the country, and stalled the growth of craft beer for years to come.
"They have shown that they can do a lot of damage to craft brewers," he says, pointing to the flat-lining of craft beer growth in the late 1990s. "But I learned... that we as craft brewers need to, because we are all so small, stay together. If they can divide us, get us to attack each other, we will damage our industry."
[READ: Website Lets You Compare Local Beer Prices]
Craft brewers are heeding Koch's advice. The Brewers Association, a trade group of some 2000 small and independent brewers, was founded in 2005 to be a "passionate voice for craft brewers" and craft beer, and it has made itself as vocal as the bigger Beer Institute.
The association has even created what appears to be the first definition of a craft brewery: a brewery that is "small, independent and traditional." The brewery must be less than 25 percent controlled by a big beer conglomerates, and must brew less than 6 million barrels a year.
Sam Calagione, who founded the craft beer favorite Dogfish Head and chairs the Brewers Association, says it's about a lot more than the numbers. "The craft brewing renaissance happened because American consumers fell in love with the taste of craft beer and the idea of craft beer: supporting small, family, local, artisanal businesses."
The Beer Institute's spokesman Chris Thorne offers a very different definition. Craft beer "is a marketing term," he says.
The Fight Stays Fresh
Fifteen years after Anheuser released its slew of negative ads about Boston Beer, the fight between craft and big beer is more intense than ever.
Greg Engert, the beer director for the Neighborhood Restaurant Group, a group of nine restaurants and bars in the D.C. area, believe this is because craft brewers have truly taken off. Despite its relatively small market share, the popularity of craft beer has experienced a meteoric rise in recent years, while big beer's sales in the U.S. have seen a continuing decline.
"Now that craft brewers are so successful, there's more riding on it. The investment in your business is huge. Your staff has gotten enormous. It's at that point when you start to be a little more concerned about how this game has been playing out," he says.
When Calagione started Dogfish Head in the back of his Delaware restaurant in 1995, he was brewing just 100 barrels of beer a year. Today, his brewery produces more than 171,000 barrels, and distributes it to some 30 states. Dogfish is among the fastest growing craft breweries in the country. And Calagione himself is known widely for his role on the Discovery Channel TV show Brewmasters.
[READ: Cheers for Beer ... Shampoo, That Is]
At a December event held at the New America Foundation in Washington, Calagione spoke passionately about the negative impact of big beer's influence as several Department of Justice anti-trust lawyers sat in the audience.
"The success or failure of a beer should depend on how great that beer is… instead of artificial restraints to distribution," said Calagione. He also said he had "grave concerns" about the Modelo deal because it would give "more control and more power" to the two biggest beer companies.
The New America Foundation released a report that day agreeing with Calagione, and warning that big beer was using its power to "squeeze independent beer distributors" and "marginalize craft beer makers"—hurting both brewers and beer drinkers in the process.
The result, according to craft brewers: independent beers get squeezed out of liquor store and grocery shelves, restaurants and bars, and sporting venues and airports.
The Space Race
Both Anheuser-Busch InBev and MillerCoors employ "category space analysts," whose job is to visit a store like 7-Eleven and consult them on the optimal placements of beer on the shelves.
"They are doing the sets, they [say to a store]: 'We can do that for you,'" says Koch. "And then they can take my beer from eye level to the top shelf, which drops my sales rate in half."
With thousands of small breweries in the works, beer buyers and brewers say the battle for shelf space may only get worse.
Koch says he has also seen Samuel Adams beer pushed out of airports and sports venues—two places where consumers do a lot of sampling. "We work very hard to get our beer into a sports venue, and then when the big brewer realizes we got in there... they buy out the bowl, and then we're gone."
During Super Bowl XLVII, Anheuser-Busch InBev was the only beer company to get advertising time, spending more than $20 million on ads that introduced a sophisticated new beer called "Black Crown."
[READ: Beer Will Help Power Alaska Brewery]
Nick Anderson, a prominent beer buyer at neighborhood liquor store Arrowine in Arlington, Va., says the ads were another indication that big beer wants a piece of the action surrounding craft beer.
"They're calling it 'Black Crown' golden amber lager. To me, that just smacks of putting a bunch of buzzwords in a bin and pouring it out. They're thinking: 'What will people just discovering beer respond to? Let's just call it that,'" he says.
The Beer Institute—acting as the voice for the big beer conglomerates—says craft brewers' complaints are ironic because they're doing so well.
Data released by the Beer Institute last month shows the number of brewers in the U.S. has reached a historic high of 2,751—and more than half of the new breweries are craft.
"Beer drinkers have more choice than at any time in American history. Where's the evidence of their argument?" says Thorne. "Ultimately, this is a time to celebrate among young brewers because we have so many choices."
Big Beer Gets Crafty
Craft brewers also say big beer uses a number of deceptive tactics to make consumers think they have more choice than they actually do.
Perhaps the most slippery of these attempts is the mimicking of craft beers' style. Blue Moon, Shock Top and Leinenkugel are all flavorful beers that are marketed to Americans as craft beers. They are also all enormously popular: Blue Moon sold 2 million barrels last year, while Shock Top and Leinenkugel each sold more than 500,000.
But they aren't craft, at least by the Brewers Association definition. Blue Moon and Leinenkugel are made by MillerCoors. Shock Top is made by Anheuser-Busch Inbev. And their labels often don't say that.
The Brewers Association has a somewhat derogatory name for these beers: "crafty." Craft brewers say big beer is being deliberately opaque, because they like consumers to think the beers are made by independent entrepreneurs.
Blue Moon brewmaster Keith Villa, for example, often talks about his early days selling the Belgian white-style beer, when he traversed the U.S. to explain why a cloudy beer was worth drinking, and that like wine, beer can also be paired with food.
But Calagione says that creation story doesn't jive with reality. "It was never this thing funded by a guy in a bike shop—like [craft beer] Sierra Nevada, or in a restaurant— like I did at 25. It was always started and grown by Coors Brewery. This is not how the people at MillerCoors are choosing to tell their story."
In a December piece in the trade publication Beer Business Daily, Villa pushes back against that sentiment, saying he deserves credit for "introducing the beer drinking masses in America to Belgian-style beer."
Villa also suggests craft brewers should be more grateful for big beer's help, noting that he helped craft brewery the New Belgium Brewing Company—which makes the popular amber ale Fat Tire—get their start, including helping culture their yeast and working with immigration offices to bring in Belgian brewmasters.
But brewers like New Belgium may have a reason to be upset with big beer. One of the most bitter complaints of craft brewers is that big beer wins consumers by introducing beers whose names resemble the names of actual independent beers. After New Belgium came out with a popular beer called Sunshine Wheat, MillerCoors, through its Leinenkugel brand, came out with a beer called Sunset Wheat. The beer even had a similar yellow label, which says that the beer is "carefully brewed by the Leinenkugel family for five generations."
From Brewer To Consumer
The Beer Institute says it is puzzled by many of the frustrations voiced by craft brewers. The group's president, Joe McClain, believes that the three-tier system of alcohol distribution—which has kept producers, distributors, and retailers independent and separate since Prohibition—is currently working.
"[We] have opposed any effort to dismantle or weaken this system precisely because it has worked so well," McClain wrote in an E-mailed statement. "Our position is that a healthy three-tier system requires balance between the tiers, meaning that brewers and importers maintain some oversight, within federal and state regulatory codes, over how their beer is marketed by distributors."
But some of the lines of the three-tier system have begun to blur. Several smaller craft brewers are lobbying for the right to self-distribute. Both Anheuser and MillerCoors own their own distribution companies. And Anheuser recently signed distribution agreements with two craft brewers, the Seattle-based Red Hook Ale Brewery and Hawaiian Kona Brewing Company. It has also taken steps to possess its own craft breweries, with the most high profile acquisition happening in May 2011, when it bought Chicago-based craft brewery Goose Island for $40 million.
More acquisitions may be coming. Tony Magee, who in 1993 founded the craft brewery Lagunitas, which is known for its irreverent labels, recently wrote on Twitter that he believed Anheuser-Busch was interested in his company. But he also made it clear he wouldn't sell.
"Selling one's brewery is selling all of one's best friend's careers, their hearts, the portion of their lives they spent working for you," he wrote.
Anderson believes not every craft brewer will be able to resist acquisition.
"In three years [craft brewers] will have 10 percent of the market. When it hits double digits, that's when it starts getting really intense," he says. "You wont see [Anheuser-Busch] Inbev trying to buy Modelo deals. You'll see ABI trying to buy every independent craft brewer they can... and for as many guys as there are like Tony who have no real interest in selling their companies, there are going to be guys who will see offers they can't refuse."
The Fight Spills Onto Capitol Hill
There is one fight that may bring big beer and craft beer together in 2013. Both say they will be fighting this year to lower the federal excise tax on beer, which has been around since the Civil War. Both sides believe they pay more than their fair share.
"Nobody is going to win by fighting with each other," concedes Koch. "The bigger prize is if we can work with one another and regain the share of alcohol consumption that we lost." Although Americans currently name beer as their preferred drink over alcohol and wine, beer is not as favored as it was two decades ago.
But while the two sides might hold hands on the excise tax, another policy fight may break them apart once again.
Legislation is expected to be reintroduced in Congress that would give tax breaks to breweries with an annual production of 6 million barrels or less—much higher than the 2 million barrels to which a tax break currently applies. The move would protect the bigger craft brewers, like Koch's Boston Beer Company or Calagione's Dogfish Head, even if they were to double in size. Those breweries argue it's a way to keep all craft brewers—big or small—in the fold.
Republican Pennsylvania Rep. Jim Gerlach, who introduced a similar Small Brew Act in previous years, may introduce the bill again. A number of craft and small brewers sit in Gerlach's district, including Victory Brewing Company, whose brands are distributed in 30 states. Gerlach's spokesman Kori Walter said the congressman's intention is to "help small brewers compete on a level playing field."
The Beer Institute, logically, opposes the tax break legislation. Thorne says the current break has "served [craft brewers] well" since it was enacted in 1977, and points to the record growth in the number of small breweries as proof.
Beyond Capitol Hill, it's likely that 2013 will also see this fight move to court. Anheuser-Busch InBev responded to the Justice Department's anti-trust suit with a promise to fight for its Modelo merger.
"We remain confident in our position, and we intend to vigorously contest the DOJ's action in federal court," it said in a released statement.
If one thing is clear, it is that craft brewers across the country will be tuned into that court fight. The Brewers Association has even hired influential law firm Jones Day to represent the interests of independent brewers in the fight.
Though Koch wouldn't comment directly on the merger, he said he had a "much longer historical perspective on this relationship between the big guys and the little guys."
"The big guys usually win," he says, and then pauses. "But not always."
Reader Comments (