Last week Bart Watson, chief economist of the Brewers Association, gave a press conference full of insights and hidden gems into the national landscape of beer sales. As the presser took a big picture view, we figured we’d break down for you, dear reader; an analysis that you typically have to subscribe to our patreon to get. Or, ply me with pommeau at a DC Beer bottle share before I leak such insidery information. We wanted to provide a clearer, specific picture rather than a big picture mosaic, but still a little context goes a long way.
The headlines regarding craft beer sales have been largely negative. Award-winning author and journalist Jeff Alworth wrote, “the craft beer segment is flat,” which is to say, there are growth issues. Is the issue the same for the world’s biggest brewers and America’s smallest? Yes and no. It begs the question, do massive companies want their consumers to know the scope of their layoffs? There is of course shuffling in staff for our small breweries in the DC metro region, but given the size of sales teams, it’s less noticeable if 10 people get laid off compared to 100. When Other Half, DC’s biggest brewery, got their loan forgiven through the Payroll Protection Plan, data from the Small Business Administration listed their loan forgiveness with 85 jobs reported across all their locations. But even DC’s biggest is a small brewery when compared to the world’s largest and breweries of its size aren’t typically covered in outlets like Brewbound, Good Beer Hunting, or Vinepair, where one topic gets thrice the coverage.
We’ll get more into Anheuser-Busch InBev SA/NV, AB InBev, or ABI later. For now, consider the words of economist Watson:
“Static for the category doesn’t mean that all parts of the category were static… We see a contrast… between distributing breweries which saw volumes decline in 2022 and onsite, brewpubs and taprooms who make up the vast majority of breweries which collectively grew in 2022… the slowdown in the total numbers is a result of that market becoming much more competitive. That doesn’t mean that overall demand for craft brewing is slowing as much as we’re seeing challenges in distribution and there’s still opportunities in that hospitality focus.”
For beer growth, Watson differentiates between distributing breweries–those selling beer via distribution to supermarkets, who are shrinking–and brewpubs and taprooms–places selling beer directly over the bar to you, the consumer–who are growing.
There are breweries going after both: distribution and the taproom or brewpub sales models.In DC and surrounding exurbs, we have several. These are breweries who sell beer in grocery stores and directly to you, over the bar. In Navy Yard there’s Solace, off U Street is Aslin, and in Union Market there’s Crooked Run. Perhaps they’re in your supermarket or your mom and pop grocer. Wherever you see these breweries, you can go directly to their taproom in the district, or Virginia, or you can get their beer to go from your grocer or supermarket. And you can buy Atlas and Brau at the source, or at Giant.
Consider the case of Devils Backbone, a brewery owned by the world’s largest brewer, ABI, who is opening a restaurant and taproom in Charlottesville next month. This is a smart move, and you can expect the Devils Backbone Backyard to clean up on West Main Street, with the potential to serve hundreds, if not thousands, of people daily. The brewery, which experienced financial success prior to the ABI takeover, is a part of ABI’s The High End division. But smaller brewers like Devils Backbone face layoffs as a result of ABI pumping money into the “beyond beer” category: drinks like hard seltzer; NÜTRL; or canned cocktails that can contain tequila, “natural lime, orange & triple sec flavors” like Cutwater Lime Margarita.
We spoke to a former Devils Backbone employee who believes there are hundreds of recent job cuts across the small breweries owned by ABI, within their The High End portfolio. In the case of Devils Backbone, the brewery recently leased a fleet of 28 new Subarus, wrapped with branding. The employee speculated these cars went back to Enterprise and someone could get a sweet deal on a Subaru wrapped with “Orange Smash”–one of Devils Backbone’s contributions to the beyond beer category–on the sides. When asked whether or not ABI is taking dollars from their craft breweries and putting it towards “beyond beer” brands like NÜTRL, a vodka-seltzer; and Cutwater, spirits-based, ready-to-drink (RTD) canned cocktails, this former employee said that they “absolutely are… So much of what Cutwater was gaining was just purely fueled by the money AB was pumping into the wholesalers.”
There is a tangible spike in Cutwater sales, whether it be organic or a result of a cash infusion from ABI. Our source saw retailers that previously accounted for 800 cases a month sold boosted to 12,000 cases monthly.
Clear financial terms for ABI’s The High End breweries can be hard to come by, but award-winning journalist Kate Bernot writes that with their 13 craft breweries, ABI’s acquisitions have cost them upwards of $600 million. $600 million for all of these breweries would buy a lotta Stella Artois.
Further illustrating the point that ABI is shifting its focus is NÜTRL, the “beyond beer” product that earned $28.5 million last year. Compare that with Devils Backbone, which earned $21.6 million, a smidge less than Four Peaks Brewery of Arizona ($24.6 million), and Colorado’s Breckenridge Brewery who pocketed a cool $23.4 million.
Our source noted “Stella is the brand that makes the company” and indeed that beer is the hallmark of ABI’s High End division. This tracks with what a former AB employee told Good Beer Hunting: “Craft means nothing to AB.” In 2021, ABI began producing Stella Artois in St. Louis, Los Angeles, Newark, and Jacksonville. If Stella can be made in breweries that make Budweiser, what’s to come for the much smaller brewers? It would seem inconceivable, but in theory Devils Backbone Vienna Lager could be brewed in other breweries, including those in Belgium. For now ABI decides which brands, say Goose Island IPA, or Wicked Weed IPA, will be made outside of their original sources of production.
Though breweries like Devils Backbone and Wicked Weed had been profitable before being purchased (Devils Backbone was purchased in 2016), the last five years have seen a consumer push toward hard seltzer and canned cocktails. ABI responded by moving resources to the marketing departments of hard seltzer and RTD brands. Some High End brewery employees felt a whiplash after being told they could make lofty expansion plans, and then five years later being told that their brewery needed to be more profitable.
According to our source, the layoffs from small breweries numbers in the hundreds. Sales people from places like Devils Backbone, or Karbach, a Houston brewery, amounts to cannibalizing the profits of small breweries to go after the hard seltzer and RTD markets. Our source was quick to note the scale of the layoffs, though coverage of the layoffs has lacked numbers of employees who left or were fired/made redundant.
Consider the sales team of Karbach, who might have an intricate knowledge of the Houston metro market. A layoff, or restructuring, means more work for the sales staff that remains: there are now some High End salespeople who need to focus on Stella Artois, Goose Island, and Karbach products. A three-for-one brand to employee ratio, whereas the sales person’s main focus before was a local beer in local markets.
The former employee thought of the focus and marketing dollars ABI is putting into the Cutwater brand, over the product line of Orange Smash produced by Devils Backbone as robbing Peter to pay Paul.
Ii ABI is paying off one by incurring another? It’s unclear. But what is clear from their hundreds of layoffs or redundancies in their smaller breweries is that the world’s biggest brewer is betting on the “beyond beer” segment.
In two weeks, on May 10, at the Craft Brewers Conference, Sam Calagione of Dogfish Head, Garrett Marrero of Maui Brew. Co., and economist Bart Watson will be leading the seminar “Approaching the Beyond Beer Category with Craft Beer Integrity.” Are there independent craft beer companies betting on this segment? It’s a worthy question, though a difficult one to answer. I suppose if any craft brewery making hard seltzer or RTDs doesn’t lay off hundreds of people, they’ll have more integrity than the world’s largest brewer. Still, this question leaves out distribution companies, which are a massive economic puzzle piece in the larger question of “how are breweries doing?”
As I discuss RTDs with local business owners and brewers, there is the sense that the beyond-beer train has left the station. In April 2021, DC Brau, the District’s second-largest brewery, stated that seltzer accounted for 20% of their total sales. And while I personally don’t regularly buy hard seltzer, I’d much rather buy a DC-made product than a Truly or other beverage made from further afield where my dollars won’t circulate in the local economy. This is purely my bias, but it’s foolish to think your money doesn’t have an impact.
This week when I was buying beer, I heard two beer distributor sales reps talking. Overheard was rep number one, saying to rep number two, “We should start an RTD company!” It was difficult to know if they were joking or being serious.