Koch Sounds the Alarm for Craft. Op-Ed Shakes Things Up

On National Beer Day, Boston Beer Company founder Jim Koch got the craft world stirred up after he penned an op-ed for The New York Times hyperbolically titled “Is It Last Call For Craft Beer?”

Koch, a craft beer pioneer and the man behind Samuel Adams, painted a bleak future for the industry despite it being what he called “the greatest time in history to be a beer drinker in America.”

Among Koch’s signs of the coming craft beer apocalypse: “slack government antitrust oversight” allowing global beer giant mergers such as last year’s Megabrew deal between Anheuser-Busch InBev and SABMiller, craft brewery acquisitions by larger industry players (Koch pointed to A-B’s acquisition of Karbach in Texas, where A-B owns 52 percent of the beer market) and wholesaler consolidation that has thinned the ranks of the middle tier to less than 3,000 distributors. Many of those wholesalers, Koch said, are incentivized to sell A-B or MillerCoors products and are protected by outdated laws that “have the unintended consequence of creating an unfavorable balance of power.”

“Get some craft brewers together, and they’ll tell you that if we continue down this path, we may be witnessing the beginning of the end of the American craft beer revolution,” Koch warned.

In his op-ed, Koch, a member of the Brewers Association board of directors, made sure to celebrate the “5,300 small, innovative craft breweries making unique, flavorful, creative brews” but not the “cute-sounding brands,” such as Goose Island and Terrapin that no longer meet the BA’s definition of “craft.”

But Koch’s piece also ignored the threat from within. As the craft segment matures and slows to single-digit growth, legacy brewers have found themselves struggling to compete with more than 5,200 “small and local” BA-defined craft brewers who are all chipping away at market share, as Koch himself noted during his company’s latest investor call. Many hyperlocal beermakers are winning the battle for drinkers’ share of stomach by serving an increasing amount of fresh beer directly to consumers via their brewery taprooms. On top of that, emerging regional players are quickly becoming a thorn in the side of companies like Boston Beer, which continues to lose shelf space and tap handles to the 3,300 upstarts that have launched since 2011.

In fact, Boston Beer sales declined 2.2 percent in grocery and convenience stores last year, according to market research firm IRI Worldwide. Many of its brands, including flagship Boston Lager, declined by double digits in 2016. Those trends didn’t improve during the first six weeks of 2017 either, as company-wide depletions dipped 15 percent, largely due to the the poor performance of its latest seasonal release, Hopscape.

And even as Koch claimed that distributors are “free to favor their primary supplier over independent craft brewers when it comes to promotion, visibility, shelf space, and marketing support,” he neglected to mention that his company enjoys far greater wholesaler support in contrast to smaller craft enterprises. Earlier this year, Koch even touted his company’s middle-tier muscle during an investor call, claiming that Boston Beer’s products would eventually stand out amongst the swelling number of craft beer SKUs that have saturated the market.

“I believe that in the long run, the brands that are well supported, that maintained consistent quality that stand for important societal values, they ultimately prevail,” Koch said. “We plan on maintaining our distribution strengths, particularly our sales force, both on-premise and off and our supportive retailers and our wholesalers with the belief that in the long run, Sam Adams will return to growth.”

Though Koch lamented A-B’s and MillerCoors’ foray into craft, his own company, the second largest craft brewer according to the BA, has expanded considerably through the creation of brands such as Angry Orchard, Twisted Tea, Truly Spiked & Sparkling, and through its A&S Brewing incubator, which oversees smaller craft subsidiaries Angel City, Traveler Beer Co., Concrete Beach Brewery and Coney Island Brewing Co.

Both A-B and MillerCoors – which have lost millions of barrels over the last decade – have responded with objections.

“We understand Boston Beer sales are hurting right now and it is easy to blame the bigger brewers,” wrote Gemma Hart, A-B’s vice president of communications. “But with 5,300 breweries out there, the numbers don’t stack up, and we only see positive, exciting things ahead for our industry and for craft in particular, certainly not its demise! Some of Koch’s stats are also misleading and I want to point out that we employ people too – lots of them, over 16,000 in fact – and we are embedded in our communities across the country.”

On its blog, MillerCoors wrote: “Has the creation of ABI and MillerCoors, together with the three-tier system, hampered the growth of craft beer? It’s a tough case to make based on the explosive growth of craft. As Koch himself notes, craft brewers are coming down from an extended run of annual double-digit growth. It’s a tough case to make based on the proliferation of breweries since ABI and MillerCoors were formed.”

Crowl Around Texas

Cuvee Coffee’s crowler is finally free from the clutches of the Texas Alcoholic Beverage Commission (TABC).

The 20-month saga between the Austin, Texas-based coffee company and the Texas regulatory agency finally concluded with the TABC returning Cuvee’s crowler canning machine, which it seized during a September 29, 2015, raid of the retail store.

Cuvee founder and CEO Mike McKim appealed to the state lawmakers, who supported the return of the machine, which finally came back to the company in April. McKim celebrated the news on Twitter:

In a conversation Thursday with Brewbound, McKim sounded relieved that the fight was finally over.

“It’s over man,” he said with a bit of a sigh. “It’s all over. The great news is now retailers in the entire state of Texas, if they have a BG license and can sell beer and wine for off-premise consumption; a crowler is now a vessel that they’re allowed to use.”

To refresh: Despite several rulings in favor of Cuvee, the TABC continued the fight to stifle the use of crowler machines, which seal 32 oz. cans of to-go beer. In November, a Texas administrative judge ruled in Cuvee’s favor and dissected the state’s claim that a crowler “jeopardizes the general welfare, health and safety of the people” because “beer in crowlers is not properly oxidized, organisms can get into the product.”

“It appears disingenuous for (TABC) Staff to assert crowlers are dangerous to the public, unless they are sold at brewpubs,” Texas administrative judge John Beeler wrote.

The case didn’t end there. The TABC fought on with the allegation that Cuvee was illegally manufacturing beer, filing exceptions in December, which were overruled earlier this year, and the case was seemingly over.

Except, the TABC still had Cuvee’s $3,000 crowler machine.

“I learned, which is crazy, they don’t have to accept the judge’s ruling, even though we went through the whole process,” McKim said.

And it became obvious to McKim that the state agency wasn’t going to return his property. So he reached out to the governor’s office as well as state Rep. Ramon Romero Jr., who has also introduced a bill attempting to legalize the machines. Enough pressure was put on the TABC that the state agency finally relented with executive director, Sherry Cook, signing an order on March 13, and the agency returning Cuvee’s crowler machine.

McKim estimated that Cuvee sold about 1,000 crowlers in the few months before his business’ machine was seized by authorities. In contrast, growler sales have been “fantastically unsuccessful” due to the cost ($12 for beer and $15 for a glass container), he said.

“In the past 20 months, we’ve done 16 growler fills,” McKim said. “There’s a huge difference, man.”

In light of the Cuvee raid, retailers such as Whole Foods and Central Market had their crowler machines removed.

“Hopefully they’ll put crowlers back in all of their locations,” McKim said. “They’re so much more economical. Unlike growlers, they give you an opportunity for an impulse buy.”