Ready-to-Sell Brewery Bought, Surprising None

Note: Post cleaned up for some egregious (Hop Valley is two hours from Portland, not two miles) and small-and-sloppy mistakes ("big" for "bit," etc). 

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The consummately generic Oregon brewery Hop Valley was the latest to join MillerCoors' growing portfolio. I swear to all that is holy that I'll quit posting every time this happens, but in this case I'll make an exception--since it's a local brewery, I'll tell you a bit about its reputation on background. It's original location was in Springfield, which is fused St. Paul-style onto Eugene, two miles hours south of Portland. You could pop into the brewery in a strip mall just off I-5 if you're headed south.

If that makes it sound like a bit of a generic place, you're on the right track. They made one stand-out beer some time ago, Czech Your Head, a really credible Czechish lager. Mostly, though, they fall into that anonymous middle band of breweries you see at the grocery store but which fail to register. The beer is perfectly serviceable, but forgettable.  I described it yesterday on Facebook as the kind of brand, with the kind of name, you'd see as the supermarket brand for a chain like Safeway. Aside from a scandal about a beer named "Mouth Raper" a few years back, they have maintained a low profile in the state. Here in Oregon, no one is gnashing her teeth and lamenting the loss of an important node of unique local culture.

If ever there was a brewery purpose-built to be acquired, Hop Valley is that brewery. You may safely ignore the sale and the brand henceforth.

By coincidence, I am headed down that way today, but I'll be going to Agrarian Ales, which is as close to the perfect opposite of Hop Valley as you can find.

The DOJ Clips AB InBev's Wings in Merger

I'm really getting tired of business news, aren't you? I'm going to try to talk about it less in the future. But when a $107 billion merger of the two largest beer companies in the world is approved by the US Department of Justice, clearing a path for a titan that will control a third of the world's beer production, I should at least acknowledge it in passing. And the news is actually good.

In its approval, the DOJ did two things that will ensure ABI's position in the US doesn't improve much. I was really dreading this merger, and I still think it's going to have malign effects on the world market. But in the US? Not so much. There were two issues here, control of the US market and distribution, and the DOJ addressed both (the full ruling is here).

Spin-Off MillerCoors
As expected, ABI has to spin off MillerCoors as a part of the deal. DOJ: "The settlement requires ABI to divest SABMiller’s entire U.S. business – including SABMiller’s ownership interest in MillerCoors, the right to brew and sell certain SABMiller beers in the United States and the worldwide Miller beer brand rights." This is not unexpected, and has been an acknowledged assumption about what it would take to get the deal past US regulators.

Restrictions on Distribution
More importantly, the DOJ puts strict limits on what ABI can direct its distributors/wholesalers to do, and how many distributor/wholesalers they may own. The press release doesn't detail these, so I'll turn directly to the ruling for the language. Here is the DOJ on the amount of the wholesale market ABI can directly control. "Defendant ABI shall not acquire any equity interests in, or any ownership or control of the assets of, a Distributor if (i) such acquisition would transform said Distributor into  an ABI-Owned Distributor, and (ii) as measured  on the day of entering into an agreement for  such acquisition more than ten percent (10%), by volume."

And here they are on the question of whether ABI can demand certain measures of loyalty from their independent wholesalers. "Defendant ABI shall not unilaterally, or pursuant to the terms of any contract or agreement, provide any reward or penalty to, or in any other way condition its relationship with, an Independent Distributor or any employees or  agents of that Independent Distributor based  upon the amount of sales the Independent Distributor makes of a Third-Party Brewer’s Beer or the marketing, advertising, promotion, or retail placement of such Beer."

The second condition is especially important. Recently ABI had instituted the Voluntary Anheuser-Busch Incentive for Performance Program (VAIP), which incentivized loyalty among its independent distributors. (Why they rolled that out when the merger was pending is anyone's guess. Seems hopelessly clueless to me.)

The DOJ's stipulations were stringent enough that even the Brewers Association, the trade organization that represents small breweries, gave it a qualified thumbs up. All of which means you can safely return to ignoring this issue and just enjoy your fine pint of ale.

One last note. Interestingly, despite having made it over this regulatory hurdle, the merger may not go forward after all--in part thanks to the Brexit.

The takeover of the London-listed brewer has come under scrutiny in recent weeks as a drop in the British currency has reduced the relative attractiveness of the all-cash offer aimed at most SAB shareholders. A source familiar with the matter told Reuters on Wednesday that the company’s board was weighing the terms of AB InBev’s offer, amid rising shareholder disquiet.

Stay tuned.

Fill in the Blanks

Introducing the Buy-out
[ _______________ ] announced today an agreement to acquire a majority interest in
[ ________ ]-based [ __________ ] Brewing Company.

Expression of Delight in Finding the Perfect Buyer
“Bringing  [ __________ ] on  allowed us to get to know each other better and realize the incredible potential of becoming a majority-owned partner with  [ __________ ] ,” said  [ __________ ] ,  co-founder and vice president of brewing development. “With  [ __________ ] 's dedication to helping us grow and their passion for creating high-quality craft beers, we knew it would be the perfect partnership. We look forward to continuing to create innovative beers to share with beer lovers nationwide.”

Anodyne History of the Acquired Brewery
[ ________ ] founders Buckowski and John Cochran set out in 2002 to craft beers unlike any that were available in the [ ________ ] at the time, choosing [ ________ ] as home base because of its distinctive culture and shared appreciation for music. The 84,000-square-foot brewery and 100-barrel brew house creates year-round and seasonal beers including [ ________ ], [ ________ ], and [ ________ ].

Expression of Delight in Finding Perfect Craft Brewery to Buy
 “The team at  [ ________ ] is so passionate and committed to brewing such terrific beers that we are thrilled to welcome them deeper into the  [ ________ ] family,” said Scott Whitley, president and CEO of  [ ________ ] . “As owners, our job is to work collaboratively with their team to support their continued success with their innovative, award-winning beers that complement our portfolio perfectly.”

Concluding Corporate Statements
[ ________ ]  Company joins other leading crafts in the [ ________ ] portfolio, including [ ________ ] Brewing Company, [ ________ ] Brewing Company and [ ________ ] Brewing Company. For more information on [ ________ ] Company and its portfolio of brands, visit [ ________ ] .com.   The transaction is expected to complete in August 2016. The terms of the transaction were not disclosed.

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This was the actual press release of an actual sale that took place today, though the form is so predictable it is 100% interchangeable with any recent or future acquisition. In this case, the acquired brewery was Georgia's Terrapin, and the acquirer was MillerCoors (which had already owned a minority stake).

Carry on.

Big Brewers Making Specialty Beer: Lessons from MillerCoors

Multinational beer companies hire the very best talent they can find, and the brewers and chemists at Anheuser-Busch and MillerCoors certainly have the experience and knowledge to brew any beer in the world.  But there's a real question about whether or not they're any better poised than craft breweries to compete purely on the basis of quality.

Last week, I had a rare opportunity to see what happens when a large brewery "unleashes" its brewers to make any beers they want.  In the case of MillerCoors, these are small, specialty-arms of the company that look just like craft breweries: the Sandlot, AC Golden, and the Tenth Street Brewery and Miller Valley Brewery (both in Milwaukee).  I was pretty psyched to see what their brewers could produce, and the line-up, which included six beers, four of them 8% and higher, was intriguing.  It is essentially the reverse of turning craft styles into commodity beer--it's when giant breweries attempt to make the kind of specialty beer that will never become mainstream.   The results were surprising and illuminating, and here are the lessons I took away from the experience.

Lesson 1: Good Beer Is Really Hard
I don't care how badass you are or how many letters follow your title: it's really hard to brew beer that is complex yet balanced, characterful yet drinkable.  You don't just whip up a world classic because you want to. 

Let's start where I started, with Sandlot's Wildpitch Hefe Weizen (4.4%). It was properly cloudy and had a light clove aroma.  But a sip revealed a problem: the malts were wrong.  It of course employs wheat, but that's only half the battle.  Wildpitch was thin and hollow, not soft and round.  A good weizen depends not only on wheat, but the aromatics and flavor of German malts, usually pilsner.  This beer, which was so thin it almost had a cidery quality, bore the telltale signs of American two-row.  One of the brewers, Addison Horine, was on hand and he confirmed the malt bill.  Nice yeast character, more clove than banana (as I prefer), but that wasn't enough.  

That experience was typical.  Like so many one-off craft beers I've tried over the decades, the beers had some fine qualities, but none cohered into excellence.  The others:

• Frederick Miller Chocolate Lager (5.5%), made with cocoa nibs.  Sally called it, accurately, a liquid Tootsie Roll.  It was well made, but tasted and smelled like Hershey's chocolate syrup.  Pleasant enough, but it didn't really taste like beer.
• Tenth Street Fragrant Fire (11.9%), a bourbon-aged "rye wine" made with Sichuan peppercorns, tien-tsin peppers, and Chinese mustard seeds.  A strange melange that I actually  enjoyed.  The whiskey and spice harmonized in an odd but pleasing way (though they didn't please Sally)--sort of like a gingery rum cake.  A worthy experiment.
• Tenth Street Big Eddy Stout (10.5%), a blend that had aged in bourbon barrels one and three years.  The base beer was slightly thin on the palate, but suitably velvety and only inflected--not saturated--in bourbon.  But here's the really shocking part: it had quite a bit of brettanomyces.  Nowhere in the description did it mention this, nor in my discussion with the MillerCoors people.  I assume it was a wild infection people were just pretending didn't exist.  (In fact, it was a fairly interesting flavor element.)
• AC Golden Brewing Goldenator Doppelbock (7.8%).  The brewery proudly talked about double decocting it, but this beer was a disaster.  It had no malt character--more American malts?--and punched under its weight.  But what really shocked me were the esters--tons of them.  In a blind tasting, there's no way I would have guessed it was supposed to be a lager.  Bocks work because, despite having lots of malt sweetness, they are lager-clean and ester-free. 
• Sandlot Nine Inch Ale (9.3%), a double IPA.  A strange bird that everyone was promoting.  Double IPAs are typically brewed thin so that the malt doesn't interfere with the hopping, especially tons of late-addition and dry-hopping.  This beer was the reverse; a heavy, sweet beer balanced by thumping bitterness and only a trace of aroma and hop flavor.  More like an old-school American barley wine, and pretty far out of step with where modern IPAs are heading.

In sum, none of these beers was a world-beater (though I thought the Fragrant Fire was noteworthy), and one was infected.  I have no doubt that the brewers could eventually dial in most of these beers if they worked on them (though barrel-aging, as Tenth Street demonstrated, is inherently uncontrollable).  But being well-trained professionals does not make it any easier to walk up to the plate and hit a home run, especially with weird styles you've never brewed before.  It takes a lot of time and effort to make exceptional beer.

Lesson 2: Big Breweries Don't Know Specialty Beer
Making production beer requires a brewer to put his attention on consistency.  When I visited the Budweiser brewery in St. Louis, I came to understand the overwhelming focus on this element of brewing.  It's a critical skill if you're making millions of barrels of mass market beer, but it doesn't serve you well when you start pulling out the boubon barrels and Sichuan peppercorns.  Specialty beer--the styles we associate with craft breweries--has intense flavors.  Craft breweries who regularly deal in 50 IBUs have developed a different focus: how to make intense flavors harmonize.  As weird as it sounds, I think that if MillerCoors wants to make really tasty specialty beers (double IPAs and spiced ales and barrel-aged stouts), they should probably send their brewers off to apprentice at craft breweries.  It's one thing to make very consistent light lagers; it's quite another to manage a barrel room.

Lesson 3: Big Breweries Need to Bone Up on World Styles
The problem with three of the six beers on offer were partly or wholly an issue of not understanding the style.  Doppelbocks need to be smooth and malty, but they also need to be alcoholic, have malt flavors and aromas, and be clean so as not to cloy.  Double IPAs are a meditation on hops.  Weissbiers should have billowing malts.  Failing to understand these qualities isn't important just because I'm a style Nazi.  It's important because there's a reason those beers are brewed the way they are--those qualities make the beers work.  If you understand them inside out, it's possible to start riffing and deviating from the standard profile.  But you gotta understand the basics, first.

Lesson 4: Big Breweries Are Not Poised to Compete at a Micro Level
Okay, I didn't get this from tasting the beers, but in talking to Addison and Lisa Zimmer.  I was surprised that these one-offs weren't more widely available.  When New Belgium or Dogfish Head do a specialty one-off, they send kegs around to key markets.  Why wasn't MillerCoors doing that with these beers? 

It's because MillerCoors has as much trouble scaling down as smaller breweries have scaling up.  They have national relationships.  They work with very large distribution chains.  They do publicity and advertising on a mass level.  Trying to figure out how to scale things down and put these beers in certain bars with small-bore whisper campaigns is alien to a company MillerCoors' size.  These small breweries are great for R&D, but they're not ready to compete head-to-head with Upright or even Russian River.

Final Thoughts
The blending of the markets--craft and mass--is beginning, but it will be a slow process.  There are always going to be customers for truly exceptional beer, and smaller breweries are in a better position to produce it.  Big breweries have a lot more resources to bring to brewing, but if they want to compete on quality alone, I don't think this is going to do them a lot of good.  I am slightly melancholy about the prospect of "commodity craft," but more and more, I'm convinced that in the sphere of exceptional beer, it will always be the little guys who dictate the terms of the conversation.  They live and breathe this stuff, and when you're making beer, that's what you've got to do to make it the best.

Coors, Cool Like Burt Reynolds

A little while back, I received an email from someone at Coors wanting to send me something from their latest promotion. I get a lot of inappropriate emails from PR people who have clearly never read my blog, but this was special: it came not long after I cited Pete Coors as the namesake of a DMS Award. Clearly, they weren't big readers. So of course I said: "Sure, send it along."

Last week, this is what arrived:

1. A Smokey and the Bandit (1977) DVD
2. Smokey and the Bandit poster
3. Coors beer cozy
4. Coors beer mat
5. Four vintage reproduction cans, drained of beer

At first, I thought the beers were just empty. Nope--they've actually been drained. If you click on the photo, you can see the hole in the bottom of the can laying down. So, not only did Coors not send me beer, they went to a great deal of effort to make sure I didn't get any beer. (Maybe they are readers, after all.) I received the usual press release touting Coors as the greatest beer ever brewed by human hands, along with a gauzy retrospective of their marketing schemes through the decades. Bizarrely, though, there's absolutely no mention of Smokey in the Bandit or why they would send a copy of the DVD and poster to me. What am I to make of all this?

As a sometime scholar of semiotics, this is my reading:

1. Coors is cool, like the Bandit's mustache.
   
2. Coors is sexy, like 61-year-old Jackie Gleason.
3. Coors is aimed at consumers old enough to reminisce fondly about the fun times of the mid-70s.
   
4. Coors is best drunk ice cold.
   
5. Coors is unfit for human consumption.

So there you have it. I suppose I should mention that Coors is excited to be releasing their Heritage Cans in February and March, and hopes you'll race out to buy them. But be forwarned: they may well not have been drained of beer in advance!