Daddy Warbucks. A fitting role model for ABInbev?

Since my post the other day on the significance of ABInbev’s purchase of Wicked Weed I have had a few people (including Steve in the comments section – thanks Steve!) send me links to a recent story on the Good Beer Hunting website from Chris Herron, a former corporate brewer employee and current owner of Creature Comforts Brewing in Atlanta. Here is the link to the story.

To be frank, the story has given me pause.

I, like many, have been trying to understand the meaning and significance of corporate buy-outs. What does it mean for craft beer? Should we be concerned or just keep moving? How are we to treat the new corporate subsidiary, who was until recently “one of us”? For my part I have tried to avoid the shouts of “sell out!” and calls for boycotts and instead try to offer some thoughtful observations on how craft and corporate beer differ. And I think I, like many, instinctively come at it from the dual perspective of the consumer and of concern for quality, authentic beer.

This story makes me think I have been looking in the wrong places for answers.

It is a long piece (fully worth your time) so allow me to briefly summarize the argument. In short, Herron argues the underlying goal in ABInbev’s actions (and Molson-Coors, etc.) is protecting the value of their brands. Craft beer has undermined the “goodwill” (a term defined in the article) of their core brands. Buyouts are a way to shore up the value by, in short, creating downward pressure on craft prices. Newly purchased craft breweries both take up more craft “space” and do so at lower prices, thus forcing other breweries to consider price drops or risk losing market share. Price reductions shrink the differential between craft and the corporate core brands and thus maintain the value of those brands. You should read the article for the full logic of this process.

The crux of Herron’s argument can be seen in this quote:

I submit that maybe buying craft breweries is more of a tool to devalue the craft category and increase the brand equity of their core legacy beers. The impairment charges AB InBev could face are worth billions more than any craft brand they have purchased, and those purchases would be a small price to pay to save a legacy brand. These craft brands, whether they realize it or not, may just be pawns in the AB InBev game of chess. … If one of these craft brands they buy is a successful long-term brand, great, but more important to AB InBev, is the vital role they play in the short-term of ensuring that their premium brands retain long-term value. 

This is a VERY different way of understanding how the minds at ABInbev and other corporate breweries work, and it has my mind racing trying to consider the ramifications. Some initial thoughts:

First, buy-outs really are not about the brewery being bought out, for good or bad. The corporate brewer doesn’t actually care if the new acquisition works out because they are there to serve a different purpose. But it also means we shouldn’t be getting so lathered up over so-and-so being a “sell-out”; it is wasted energy. The purchased brewery is, as Herron states, a “pawn” in a bigger game.

Second, it should put to rest any defence of buy-outs as evidence of a growing interest by the corporates in craft as a sub-category, or of their ability to “improve” the craft category by bringing their money, expertise, technology, efficiencies, etc. They may very well do that (which was the point of the article spawning my first post on this topic), but it is ENTIRELY beside the point. The people working the mash paddles and those directly supporting them may still care but they also, to say it again, are pawns.

Third, it is useful reminder – even to someone like myself who is well trained in critical thinking- that corporations are not people and thus they don’t think and act like people (at the risk of anthropomorphizing them). They exist for one purpose and one purpose only – growing value for shareholders. And when that is your only purpose, both the product you create and the consumer to whom you sell are of secondary concern. We should always remember that.

Finally, I am struck at how billions of dollars of value in these breweries is based on thin air. The vague notion of “goodwill” being used in balance sheets as a real thing equivalent to buildings and brewhouses strikes me as remarkably foolhardy and a dangerous way to sustain a business. I realize the finance types will tut-tut at my incredulity and call me naive, but if they do, I will remind them of Enron and sub-prime mortgages – both creations of financial whiz kids concerned only about profit and not about people. How did they work out in the end?

Upon reflection I think the parallel of ABInbev to other such financial boondoggles is not so unfair.