Vignette #7, Jim Bicklein (Anheuser-Busch)

Brewer vignettes feature quotes from brewers I picked up in my travels around the world.

 “There are six of these mash vessels per brewhouse, so I have 18 mash vessels. Those mash vessels, because we long-brew Bud Light, right?—we’re in the cooker for three hours—so to maintain that mashing cycle we had to have more mashing vessels. We long-brew the Bud Light. This is designed to make light beers with long brewing mashing cycle for the enzymatic activity to break down the starches. In order for the process to break down the sugars in light beers, it just takes time. In light beer, more of the sugars are being broken down. So for Budweiser a conversion cycle might be about 45 minutes; it’s about 210 minutes for a Bud Light.”

“There’s three brewhouses, six of these apiece, and each brewhouse has two lauter tubs, so we have six lauter tubs and six brew kettles. And that will support about 50-60 brews a day depending on production demands. It’s nice that the brewhouses are broken up, because technically I can do three different products at a time. I’ll mash in a Budweiser, and then I’ll mash in a Bud Light, and then I’ll mash in a Natural Light on the other brewhouse; so that’s commonly how we run.”

(Bicklein here is describing the process at the St. Louis brewery; he was the brewmaster at the time I recorded him in 2013.)

Anheuser-Busch's Purchases Elysian

Another one down:

St. LOUIS and SEATTLE (January 23, 2015) – Anheuser-Busch today announced it has agreed to purchase Elysian Brewing Company, based in Seattle, Washington....

Joe Bisacca, Elysian ‎CEO and co-founder [...] will continue with Elysian along with his partners, Dick Cantwell and David Buhler. “After a lot of hard work, we’ve grown from one Seattle brewpub to four pub locations and a production brewery. With the support of Anheuser-Busch, we will build on past successes and share our beers with more beer lovers moving forward.”

Wow.  Weeks ago, when AB snatched 10 Barrel, I observed that their strategy appeared to revolve around finding independent breweries with impeccable cred, and they could hardly have done better than Elysian.  It's long been my favorite Washington brewery, and it's always my first stop when I hit Seattle.  It has always seemed the most Seattle of the Seattle breweries--an extemporaneous brewery that could be equal parts gritty and urbane and credibly support local sports teams or indie bands.  Elysian always seemed to be right where Seattle was a the time.

Will this change?  I'm normally agnostic about ownership structures, but as a fan, this is at least a little alarming.  But as I've been saying for years now: welcome to the big new world of craft brewing.

 Update. Why does this rattle me--admittedly not a local, but local-adjacent?  A big part of Elysian's allure was how well they represented Seattle and the heartbeat of the city. Just because a brewery is local doesn't mean it can channel the local mores, culture, and zeitgeist. Elysian could and did--which is a big part of why they were so good. Can they still do that as a division of AB? In the short term, almost certainly. But I fear we've lost a little bit of what made Seattle Seattle.  Or put another way:

does it really? pic.twitter.com/jFlFqWf1oD
— Evil Twin Brewing (@EvilTwinBrewing) January 23, 2015

Bud Watering Down Its Beer?

Post updated; see below.

In the bizarre news of the day, try this on for size:

Credit: Willy Volk

AB InBev’s St. Louis-based Anheuser-Busch Cos. routinely adds extra water to its finished products to produce malt beverages with significantly less alcohol content than displayed on its labels, violating state statutes on consumer protection, according to a complaint filed yesterday in federal court in Philadelphia. Similar lawsuits were filed in federal courts in New Jersey and San Francisco. 

Of course, the plaintiffs have the goods on St. Louis, right?  Ummm...

It’s unclear in the complaints how the plaintiffs determined the alcohol content was less than stated. [Attorney for the plaintiffs Josh] Boxer said the complaints are based on information from former workers at some of the company’s 13 U.S. breweries.

“On information and belief this is a corporate policy of AB to intentionally short the alcohol content,” Boxer said in a phone interview. “We believe this is a corporate policy that comes from AB InBev and trickles down.” 

This seems totally preposterous.  The upside to such a venture is a very minimal cost saving, the downside could be brand-jeopardizing.  Furthermore, a lab can determine who's right in a snap.  That the plaintiffs haven't done this seriously undermines their credibility.  But here's what it really sounds like to me: high-gravity brewing.  That's when a brewery makes a high-gravity wort and later adds water to bring the alcohol content to a particular level.  It's common at big breweries (though I haven't toured the A-B plant in St Louis yet--I hope to!--and don't know whether they use the technique).  I have been wrong so many times I shouldn't make statements like this, but: I'd put a lot of money on Anheuser-Busch to win this in a laugher.

________________
Update.  With a hat tip to Stan, let me direct your attention to Alcohol Beverage Testing News, an independent lab run by Gary Spedding--a former director of laboratories at Siebel--who's been doing those labs I wondered about.  Because of A-B's famously rigorous standards, Spedding has used Bud as his control beer.  He writes:

Also for calibrating our alcohol instruments Bud goes in after calibration to see hopefully 5.00% abv. pretty much on the nose. Not so recently. Now as low as 4.94% after slipping from 4.98% earlier in the year.

and

The Bloomberg article talks of other acquired brand changes for ABInBev and we have also noticed this with other classic beers in the giants stable. The article may have hit the nail or the King fair and square on the head. They relied on sensory perceptions of patrons but analytical parameters can confirm their suspicions. I think, from our early findings that it already has. 

I love how I my hubris was almost instantly exposed, but I love even more how it shows the value of blogging, even in the benighted era of Twitter dominion.  Thanks, Gary!

What's A-B Up To?

This is a fascinating development:

Anheuser-Busch InBev has applied for a federal trademark for "314" -- the area code for much of metropolitan St. Louis -- as well as for the telephone prefixes of 13 other U.S. cities.... Besides St. Louis' 314, other area codes that A-B is seeking trademarks for: 412 (Pittsburgh), 305 (Miami), 619 (San Diego), 202 (Washington, D.C.), 602 (Phoenix), 704 (Charlotte), 702 (Las Vegas), 214 (Dallas), 415 (San Francisco), 216 (Cleveland), 303 (Denver), 615 (Nashville) and 713 (Houston).

The obvious question: why? Well, there's this:

Chicago-based brewery Goose Island, which A-B bought this year for $38.8 million, produces a wheat ale called 312, a nod to that city's area code.

Here's the moment where a good blogger would offer some insight into A-B's motives, but I have none. Goose Island's 312 is cool because it's a Chicago brewery, Chicagoans know that, and they appreciate the local nod. But a San Diego-specific Goose Island 619 wouldn't necessarily draw the delight of Arrogant Bastard fans. (To this point, I am not surprised A-B skipped "503.")

It also seems pretty absurd that A-B could hold the trademark, even in a very constrained context, to a number. But trademark law and I don't see eye to eye, so what I think is absurd and five dollars will buy you a nice pint of ale.

InBev-Anheuser Busch Deal Back On

Hmmm...

The King of Beers is moving closer to wearing a foreign crown. After a week of contentious wrangling that included lawsuits and Securities and Exchange Commission filings, Anheuser-Busch, according to published reports and people who have been briefed, has engaged Belgian brewing giant InBev on a $70-per-share, nearly $50 billion deal to buy the company.

The St. Louis-based parent of Budweiser beer has been working for six weeks in a campaign to discourage InBev (BusinessWeek.com, 7/10/08), line up politicians to oppose the deal, and convince shareholders that a takeover by InBev, which markets brands like Stella Artois, Bass, and Beck's, is not in the best interest of the company or their investments. But a sweetened offer and mounting pressure on A-B management have brought the two companies to actual negotiations.

The Busch family, who own only 4% of the stock, are helpless to stop it. Analysts expect the deal to be done this weekend. As I've mentioned before, this seems uniformly like a bad thing. Strangely, as I read the news, my mind went to Nelson Muntz, perhaps meanly. "Ha Ha, you failed to protect your quintessentially American brand and now a bunch of Flemish-speaking Belgians have purchased your corporation!"

Sympathy for the Devil?

InBev has a lot of chutzpah. They make a hostile takeover bid for Anheuser-Busch, a bigger company, and then have the temerity to get pissed off when Bud doesn't fall in line:

Yesterday, InBev CEO Carlos Brito sent an annoyed letter to Anheuser-Busch’s board, complaining about A-B’s talks to take over the rest of Grupo Modelo. Brito warned, “In light of the reports, we believe it is important for you and your Board to understand that our proposal to combine with Anheuser-Busch by means of acquiring all Anheuser-Busch outstanding shares for $65 per share in cash is made on the basis of Anheuser-Busch’s current assets, business and capital structure.”

The issue is this: if Bud buys the Modelo Group, it will be too big for InBev to swallow. (Mainly because InBev has to go $40 bil in debt to swing the deal in the first place.) I have no idea what the shareholders will think, but putting the Modelo deal on the table is certainly a wise--it puts control back in A-B's hands and gives the company options. The irony is that InBev here is playing the American role--invading a company, but telling the invadees it's for their own good. Makes you sort of root for Bud, doesn't it? Sort of.

Amusing.

Borrowed Money--Wait, isn't that as American as apple pie?

This is sort of interesting. Despite a tight credit market, InBev managed to score forty billion (or 86.4% of the total) of its $46 billion offer on credit.

InBev, the brewer of Stella Artois and Beck's, said it would finance its $46.3 billion bid for Anheuser-Busch with at least $40 billion in debt and a combination of non-core asset sales and equity financing.

"This is going to be one of the top five global consumer companies. People want to hold the debt," said a source familiar with the InBev offer. "For the right deal in the right industry, banks will come up with the money."

That's one kinghell of a bet. InBev really thinks Bud is a great company, don't they? Interestingly, A-B could block the deal by getting bigger:

Something that may play a role in whether or not the deal goes through is Anheuser-Busch's joint venture with Grupo Modelo, brewer of the Mexican beer Corona. Modelo might see the Inbev proposal as a chance to buy back Anheuser's half of the joint venture, but it is unlikely that Bud would go for it, said Douglas Cogen, co-chair of the mergers and acquisitions group at Fenwick & West.

If Anheuser-Busch, on the other hand, purchased Modelo's half of the profitable joint venture, something that is rumored to happen, it would add $10.0 billion to $15.0 billion to its value, making it more difficult for InBev to follow through with the deal.

I know, I know, you don't care about this deal. Still, I can't stop myself from telling you one more thing. In reaction to this deal, wherein Belgians (who speakFrench!) gain the reigns of an American behemoth, nationalists are in a tizzy.

The Save AB website, which has garnered more than 8,000 signatures, compares the Budweiser brewer's place in the American pysche to “baseball and apple pie”, adding: “With your help we can fight the foreign invasion of AB. We will fight to protect this American treasure. We will take to the internet, to the streets, to the marble halls of our capitals, whatever it takes to stop the invasion.”

A $47 BILLION Bud? That's What InBev Will Pay

The rockin' huge news of the day--sorry, I'm late posting on it--is Belgian beer behemoth InBev's unsolicited bid to buy out Anheuser-Busch. (As penance, there's some value-added analysis below.) The deal:

BRUSSELS -(Dow Jones)- InBev (INB.BT) wants to turn Budweiser into its "global flagship brand" as part of the Belgian brewer's plan to buy Anheuser-Busch & Co. (BUD) for $47 billion, InBev executives said on a conference call Thursday.

The merger, which values of Anheuser at $65 a share, would create the first global beer company, combining InBev's sales in Western Europe, Latin America and Canada with Anheuser's dominant position in the U.S. market.

InBev, maker of Stella Artois, Beck's and Brahma, will use its global distribution networks to boost sales of Budweiser, the iconic U.S. beer, in places such as China, Canada and Latin America, InBev executives said on the conference call. The goal is to capitalize on a growing demand for imported beers that can be sold as premium products.

"Budweiser is known by consumers but it's not available in many cases," said InBev chief executive Carlos Brito.

Brito and Chief Financial Officer Felipe Dutra downplayed the role that cost- cutting will play in the merger, focusing instead on opportunities to boost sales of Budweiser and other Anheuser brands outside the U.S. and InBev brands in the U.S. The merged company won't close Anheuser's U.S. breweries, which Brito called "highly efficient."

Background
First: who the hell is InBev? InBev is the result of extremely aggressive growth by a Belgian company called Interbrew that started gobbling up cool little breweries back in the late 80s--including a whole raft of venerable and exquisite Belgian labels. It's big national brand was Stella Artois, which it started to turn into an international brand during this massive growth spurt. In 1995 it bought Labatt's and later snapped up England's Bass (2000) and Germany's Beck's (2001). The big change came in 2004, when it bought Brazil's AmBev (becoming ImBev) and became the world's second-largest brewery--after A-B. Now it has over 200 brands, including large holdings across Europe. It seemed to be very successful at snapping up post-Soviet breweries, too, and has a number of labels from the Czech Republic, Ukraine, Russia, etc.

Business Aspects of the Deal
For A-B, it probably means "streamlining"--creating efficiencies by cutting jobs and consolidating management. This is a regular feature of the now-familiar InBev method. It means taking A-B international, which brewery analysts criticize Bud for not having focused on. The Budweiser label may enjoy greater international fame, but residents of St. Louis are not happy:

Calling the offer to buy Anheuser-Busch deeply troubling, [Missouri Governor Matt] Blunt conceded that he lacked any immediate way to block such a sale. He called the St. Louis-based brewer “a great employer, a great corporate citizen and the maker of great products that are enjoyed in Missouri and around the world.”

For other US macros, it's terrible news. SABMiller was courting InBev and now has to confront a titan with twice the institutional advantage. As many of you know, macros have flatlined in recent years, leading to consolidation as the mini-macros (Miller and Coors) try to compete with A-B. This would further weaken their position--and probably lead to further consolidation.

Craft Aspects of the Deal
This could be a biggie, and we dive now into fully speculative waters. As the hops and barley crisis have shown, small breweries can be seriously affected by brands against whom they don't compete. The hops markets, in particular, are global, so the Lucky Labs of the world have a stake in this thing. Craft breweries have left juice to swing deals for hops, and many of the little guys are left on the outside. With InBev controlling some massive percentage of the world's beer production, this seems like a scary proposal.

Then there's the institutional advantages afforded by having such a huge stake in the market. Recall my recent post on distributors--InBev's bid would make A-B distribution deals all that much sweeter. In markets on the West Coast this won't be as big a deal as it will in smaller markets.

Finally, what about breweries in other countries? If InBev is trying to increas Bud's reach internationally, that means aggressive marketing that will overwhelm many small, venerable national brands elsewhere. One of my favorite things about international travel is sitting down with the local beer and seeing how regional tastes have evolved to suit the culture and climates there. The Buddification of the world is a nasty thought.

Local Aspects of the Deal
Bud has a stake in Widmer and Redhook--two locals who are in the process of merging right now. My guess is that it won't much affect their operations or the merger. A-B's stake is a minority one, and they haven't been involved in day-to-day operations. But I sent an email to the brewery, so I'll report back when I hear.

Could be storm clouds passing, but all things considered, I don't see any upside in this development.

[Update: No comment from Rob Widmer.]