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10 things the beer industry won’t tell you

By: Priya Anand - Marketwatch - Date: 11/29/2014

1. People drink less beer than they used to. Here’s something for beer fans to say cheers to: The majority of Americans live within 10 miles of a brewery. There are now nearly 3,200 breweries nationwide, up from 97 just 30 years ago.

Beer has long been the nation’s favorite alcoholic drink: 41% of Americans say they prefer beer, according to a recent Gallup poll, compared with 31% who favor wine and 23% who opt for liquor.

The surging number of breweries reflects a growing taste for smaller-batch, “craft” beers.

How much do you know about beer? “It’s harder to find people who say, ‘oh, I don’t like beer,’ anymore because there’s so many different flavors that there’s probably a beer for every legal-age drinking adult at this point,” says Paul Gatza, director of the Brewers Association, a network of more than 2,300 U.S. breweries and 43,000 home-brewers.

Still, beer consumption is slipping. Overall sales for the $100 billion beer market were down 1.9% in terms of volume in 2013, the fourth decline in the past five years. Wine and liquor have been steadily winning over more drinkers since the 1990s.

2. Our culture—and prices—are becoming more winelike. Craft beer is the cash cow of the brewing industry: Sales increased 20% in 2013 to $14.3 billion, according to the Brewers Association. Every two days, three breweries—mostly craft—open in the U.S., says Bart Watson, the association’s staff economist. As of last year, only 54 U.S. breweries were large-scale or noncraft. “We’ve really seen a resurgence of beer culture,” he says.

But the small-scale production at craft breweries means higher brewing costs per barrel, and that can mean lighter wallets for consumers. A 24-pack of 12-ounce bottles of domestic premium beers (think Budweiser or Coors Light) sold for an average of $20.23 at supermarket and convenience stores in the year ending Nov. 2, according to the research firm IRI. For craft beers, the price jumps to $34.93—73% higher.

Some worry the boom could give beer culture the kind of pretentiousness associated with wine snobs. Already, breweries are starting to act a lot like vineyards. Many include tours of brewing and packaging operations, a taproom for tasting and sales and restaurants or brew pubs.

Craft beers are the darling brew for beer drinkers, but there may be a few things even diehards don't know about them. MarketWatch's Priya Anand reports on the News Hub.

Each year, more than 51,000 people visit Stone Brewing Co. in Escondido, Calif., north of San Diego, from “die-hard enthusiasts who are already very well up to speed and encyclopedists with their knowledge, to somebody who thought before they visited that beer was that fuzzy yellow stuff they drank over television commercials,” says Greg Koch, Stone’s co-founder and CEO. The tour costs $3 and includes a souvenir tasting glass and four beer samples. Visitors can also walk through the 19-acre Stone farm, where the brewery grows hops and organic produce for its two restaurants.

“We are huge beer geeks. It’s a counterculture,” Koch says. “The goal has always been to help people understand that there is such a thing as amazing beer. As geekery grows, the number of things to geek out about grows.”

3. Craft beers could get you drunk a lot faster. Beers can range from less than 3% to more than 14% alcohol content by volume (ABV). While most mass-market beers have an ABV of 4% to 5%, the average is 5.9% for craft brews, according to the Brewers Association. Stronger beers are changing consumption patterns.

“The beer-drinkers in the 1970s and 80s, a lot of them were very loyal to one brand, a standard lager or an American lager. The idea that someone would come home and drink a couple of six-packs in a night was a common story,” says Gatza of the Brewers Association. “Now, you don’t hear of anyone drinking more than a handful of beers. A big night out might be four beers.”

4. Beer’s ‘Big Two’ are losing ground. Anheuser-Busch InBev BUD, -0.59%   and SABMiller SAB, -3.06%  , the two largest beermakers in the U.S. and the world, have noticed the declining sales of traditional beers. A-B InBev, whose brands include Budweiser, Corona, and Stella Artois, accounted for 47% of U.S. beer sales volume last year. But compared with 2012, those sales fell 12%. Sales of Budweiser, its flagship U.S. brand, declined 28% from 2008 to 2013.

“People make a reference to death by 1,000 cuts,” says Benj Steinman, president of the industry news service Beer Marketer’s Insights. “There are all these little players nipping at Anheuser Busch and MillerCoors. Competition’s thriving.”

Watson, the Brewers Association economist, compares beer to high-end coffee. “Thirty years ago, the vast majority of the U.S. coffee market was Folgers on the shelf, or Maxwell on the shelf, and we’ve really seen a revolution. You have your local coffee shop, and you go there and you know those people. We’re seeing something similar in brewing.”

5. So they’re getting ‘crafty’. Earlier this month, A-B InBev said that it will buy Bend, Ore.-based 10 Barrel Brewing. The announcement came nine months after it announced plans to acquire Blue Point Brewing Co. on Long Island, N.Y. It also purchased Chicago-based Goose Island Beer in 2011.

The acquisitions underscore the competition in the beer world between craft and “crafty”— the name small brewers have given to craft-like beers made by bigger brewers. The Brewers Association defines true “craft” beers include only those produced by independent breweries that make no more than 6 million barrels annually.

Craft brewers say the “crafty” beers, whose labels often don’t indicate their corporate parentage, can mislead buyers and crowd independent brewers off the shelves. The big beermakers say they’re just catering to consumer demand. Felipe Szpigel, vice president of the high-end business unit at Anheuser-Busch, says the company offers products that are “balanced and on par with what beer drinkers are looking for.”

“Consumer feedback tells us beer drinkers care about taste, quality and experiences, they are not concerned about labels,” Szpigel says. “That criticism is coming from other brewers.”

6. We’ll use our muscle in the fight for shelf space. Craft-brewers say the big guys have an unfair edge in the competition for space in bars and stores. Forty-eight states have laws that virtually lock companies into using one wholesaler, and small breweries may get pushed to the side when large brewers require wholesalers devote more attention to their brands.

Bigger brewers say their distribution practices fall within the law. “We believe in a free market and we sell our brands on the merits and the quality of the liquid in the bottle,” says Pete Marino, a spokesman for SABMiller unit MillerCoors.

Are some brewers crossing legal lines? The Boston Globe reported this fall that Massachusetts state regulators are investigating claims that some bars accepted payments in exchange for putting beers on tap, a practice that is illegal there. Authorities have requested documents from several major beer makers and craft breweries. State laws vary, but the practice is either illegal or restricted in many areas. California, for example, forbids brewers from giving gifts worth more than 25 cents per unit to distributors.

“Wine and spirits have been beating beer, and the inability of the brewing industry to unite to further beer as a whole probably is one of the factors contributing to the outperformance of wine and spirits,” says Steinman of Beer Marketer’s Insights.

 

7. That small, local microbrewery? It’s backed by Wall Street. Small breweries are catching the attention of private-equity investors, given the industry’s impressive growth rate. In August, the Riverside Company, a global private-equity firm based in New York and Cleveland, said it would invest an undisclosed amount in Salt Lake City-based Uinta Brewing. St. Louis Brewery, which sells under the Schlafly label, was acquired by Sage Capital, also based in the city, in June 2012. The cases represent a growing trend.

“Despite craft beer’s image as a kind of mom-and-pop business where owners are working on the bottling line, there’s big institutional money coming into this space,” says Craig Farlie, managing director of Fort Lauderdale-based investment banking firm Farlie Turner & Co, which works on mergers and acquisitions and private placements for breweries.

Proponents of small, independent operations say big money is antithetical to their culture, particularly if the brewery becomes too focused on corporate metrics like quarterly earnings and stock prices, rather than the art of beer-making.

“Can they withstand the urge to be greedy and maximize dollars” Farlie asks, “versus taking a slightly longer view and saying ‘we want to do this in the right way and allow these brands the best possible opportunity to grow and flourish’?”

8. There’s some surprising stuff in your pint glass. Fancy a nice cold pint of fish guts and plastic bits? Research has found both could end up in your beer.

Microplastics smaller than 5 millimeters appeared in 24 German beer brands, including the top 10 most popular, according to a study published this year in the journal Food Additives & Contaminants. Researchers said the particles may have originated in bottles and made it through the cleaning process, or could have been too small to get filtered out. They also found skin and a dead insect.

Beer also includes other less-than-appetizing additives: A gelatin found in fish bladders, for example, is used in some stouts in the clarification process, which removes cloudy particles from the drink.

The rocketing popularity of craft beer has encouraged brewmasters to be more experimental. Consider Stone’s Crime and Punishment beer, infused with about 15 different chili peppers—a creation the company says is designed for true masochists. New Belgium Brewing Company offers a Coconut Curry Hefeweizen. A black-truffle beer launched by Chicago-based Moody Tongue Brewing Company will set you back $120 a bottle. And Ashland, Ore.-based Rogue Ales even produced a beer using yeast derived from its brewmaster’s beard.

9. The craft craze is putting pressure on hops farmers Demand is growing for hops, a key ingredient that imparts a bitter flavoring and aroma to beer. U.S. hops production increased 28% in 2013 over the previous year, with 79% of domestic hops coming from Washington state.

Craft brewers use three times more hops than noncraft brewers to make the same amount of beer, according to the Brewers Association. Small-scale brewing also means they get less out of the hops than industrial operations, which “extract every last possible bit,” says Kevin Riel, president and CEO of the Double R Hop Ranch in Harrah, Wash. Economists say growing craft demand could drive up hops prices—and, eventually, beer prices—across the industry.

Riel says about seven years ago, 85% of the more than two million pounds of hops grown annually on his family farm went to major breweries. Now, about 70% of the hops go to craft brewers. His farm communicates with each brewery regularly to achieve the specific aroma and variety of hops the brewmaster envisions while growing about 1,100 acres of the already labor-intensive crop.

“It has made life much more complicated on the farm level,” but Riel calls the shift from Big Beer to craft more rewarding. Local breweries send bottles brewed from his hops to his mailbox. In his many years of farming, Riel says, “I have yet to go to the mailbox and open it up and have a case of Bud Light in there.”

10. Your kids could major in beer More than 2 million Americans work in the beer industry, according to the Beer Institute, in fields including brewing, farming, distribution, imports and retail.

The brewing boom has also created a need for workers who understand the science behind brewing, how to pair beer with food and how to run a business.

There are at least 17 brewing education programs across the U.S. and Canada, according to the Master Brewers Association of the Americas. Oregon State University offers a four-year degree in fermentation science and production, and the food science and technology program at University of California-Davis includes a brewing science specialization.

The growing love for craft beer means that those serving it must prove their know-how. Ray Daniels, a beer writer who teaches at the Siebel Institute of Technology in Chicago, the oldest brewing school in the country, launched the Cicerone Certification Program to credential such professionals in 2008. It has certified nearly 44,800 beer servers (the first level), 1,477 cicerones (think beer sommeliers) and seven master cicerones.

To get certified, beer servers must pass a 60-question multiple-choice exam with a score of 75% or higher. A cicerone must pass a four-hour exam that includes three hours of writing and a 12-sample tasting test. Master cicerones take a two-day test that includes 10 hours of essays, two hours of oral exams from industry experts and two hours of tastings.

“The bigger trend is just about Americans rediscovering gastronomy in general,” Daniels says. “Twenty years ago, there was no such thing as a foodie. Beer just happens to be a part of that.”


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