Ignited with a stroke of President Jimmy Carter’s pen, craft brewing has shaken the American beer industry to its foundations. The passage of HR1337 in1978 meant that Americans could legally brew beer at home for personal use for the first time since Prohibition. Beer making was forever changed as ambitious home brewers gradually adapted their beer-making skills to producing larger batches on commercial systems. Rare is the craft brewer who didn’t start by making beer at home.
“I’d say over 90 percent of small brewers I talk to today have roots in home brewing,” says home brewing pioneer Charlie Papazian, president of the Brewers Association.
As a result, American beer diversity has resoundingly rebounded from Prohibition, with more than 4,100 breweries operating nationwide by the end of last year —the most since the 1870s. More than 600 of those breweries are in California.
We caught up with Tom McCormick, executive director of the California Craft Brewers Association, six months after the CCBA’s inaugural summit to discuss some of the challenges facing the industry, including rapid growth, brewery acquisitions, fair play and the association’s evolution. Founded in 1989 as a legislative advocacy group, the CCBA is expanding its role to better address the needs of the craft beer industry through education and consumer engagement.
McCormick noted that new craft breweries are opening across the state at an average of two per week. “Overall, we will continue to see market share grow for the foreseeable future, but I would expect the current velocity for new openings to slow down. That’s just a natural process, and probably a healthy one,” McCormick said. “It’s getting more difficult for breweries to get distribution and placement in the retail arena.”
Consequently, many new breweries are setting their sights on local markets and are selling beer out of their tasting rooms and brew pubs. “I see very few startups going into brewing with large systems or with a business plan that includes large distribution,” said McCormick.
Acquisitions of craft breweries by large alcoholic beverages companies was another trend much discussed by people in craft brewing in 2015. Lagunitas’ sale of a 50% stake to Heineken for $500 million was a hot topic at last year’s CCBA Summit. Before the end of the year, AB InBev had bought Golden Road, the largest brewer in Los Angeles, and Constellation Brands had acquired Ballast Point for $1 billion.
“Strategically, they’d like to buy up craft brands across the country so they can offer their wholesalers and retailers a local or regional craft brand that they own in all the major markets in the country,” McCormick said. “Without a doubt, we will continue to see that going forward.”
Besides taking up more retail shelf space with craft acquisitions or their own versions of craft beer, like Shock Top or Blue Moon, industrial brewers are flying under a craft beer banner at sporting arenas, airports and chain restaurants, usually without mentioning that they own the brewery. Meanwhile, ABInBev’s proposed merger with MillerCoors could create an even larger war chest for craft beer acquisitions.
Craft beer’s best defense might ultimately be its innate creativity — the quality that most endears the industry to discriminating consumers — and a seemingly endless parade of talented brewers.
Unlike large multinational companies that owe their allegiance to shareholders and investors who expect a predictable return on their investment, craft breweries are primarily obsessed with making the most challenging and delicious beer they can for customers who value variety and creativity over bland consistency.
Like technology entrepreneurs, craft brewers are not averse to taking risks and are more than willing to innovate in pursuit of brewing a beer that’s insanely great. The result is a creative dynamic in which brewers push the envelope farther and farther to the delight of craft beer lovers.
“It’s exciting to see where that might go,” said McCormick.
For example, barrel aging and sour beers have become increasingly popular among American craft brewers over the past few years. “I’m seeing a growth in consumer interest in both of those styles. And we’re seeing more breweries dabbling in sour beers and specializing either predominantly or solely in sour beers,” McCormick said.
Pay to Play
The CCBA is wary that some suppliers could use their financial clout to unfairly crowd out competitors in a practice called “pay to play,” in which bad actors pay retailers and pubs to feature their products.
In March, the largest craft beer distributor in Massachusetts paid millions of dollars in fines to avoid a 90-day suspension of its liquor license for conspiring with retailers to violate “pay to play” laws, underscoring the danger of suppliers unfairly and illegally crowding out craft beer on retail shelves and in pubs and restaurants.
California law prohibits a supplier from buying shelf space or providing an incentive to a retailer for product placement. “We have tied-house laws that prevent that and we want to make sure those aren’t eroded or torn down,” McCormick said. “We want to make sure that our members have fair and equal access in the marketplace and aren’t unfairly muscled out by large suppliers that illegally and unfairly leverage their size to gain unequal access to the shelf.”
McCormick, a former craft beer distributor, acknowledges that pay to play happens all over the industry, including in California. “I’ve seen it first hand and I know it goes on and it will always go on to a certain extent. Our concern is that it doesn’t accelerate and doesn’t become more commonplace than it is today.”
Enforcement of existing law has been stymied by a lack of resources at the ABC. The CCBA is trying to make the ABC more aware of pay to play violations and how they operate and would like to see the ABC play a more active role in enforcement as the craft beer industry continues to grow. “We are working to educate them about what and how it happens and what goes on in the industry. They’re not out there selling beer, so they don’t see it from that same perspective,” said McCormick.
Meanwhile, McCormick encourages CCBA members to report violations using Form 99E.
Intended to educate brewers and other industry professionals, the California Craft Brewers Conference in Long Beach from April 10-12 will begin with a discussion of this year’s legislative agenda, including changes in the tied house laws, an update on Prop. 65 sign requirements and the investigation of the proposed merger of ABInBev and Miller Coors.
The conference will feature workshops on topics such as water and energy efficiency, evaluating raw materials and new laws, among others.
Open to consumers and professionals, The Craft Beer Summit will be back in Sacramento from Sept. 8-10, culminating with a Summit Beerfest on the Capitol Mall. It’s anyone’s guess how many new breweries will be making their debut.
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