A Bad Day for Good Beer?

News that Anheuser-Busch InBev (NYSE: BUD  ) was buying Chicago-based microbrewery Goose Island for nearly $39 million startled the beer world on Monday, and especially those in craft beer circles. So far its foray into the craft beer market has not been especially tasty. Have you tasted a Leffe Blonde lately? You might realize that it doesn't quite have that distinct Belgian taste that the original brewers had in mind when they first brewed this once fine beer. That's because under A-B's watch the beer is now brewed with corn and other cheap preservatives that are a signature flavor in many of its products.

While the Anheuser-Busch touch may be hazardous to some tasty beer, I think this only the beginning of a much larger industry consolidation that is taking root. As I wrote last month, the craft beer movement continues to gain steam and it remains the only sector of the beer industry that is growing. The mass-marketed industry behemoths like Anheuser-Busch and Molson Coors Brewing (NYSE: TAP  ) have taken notice and are slowly starting to add craft breweries to beef up their portfolios. However, it is possible that this may not be such a bad thing.

A necessary evil
While craft brewers may not want to admit it, they also need these massive beer makers for capacity, distribution, and deep pockets. Ramping up production at breweries is expensive and involves massive investment, and tons of additional fixed costs. One of the country's most popular craft breweries, Delaware's Dogfish Head, actually recently pulled its product out of four states because it was having a difficult time meeting demand in its local and more core distribution regions. Fans of Brooklyn Brewery should know that the majority of its brewing is done outside of Brooklyn, in upstate New York, by a large contract brewer, and Boston Beer (NYSE: SAM  ) has outsourced much of its brewing for years just to meet demand and continue to grow.

Goose Island announced in February that it too would need to move production for some of its beer from Chicago to the east coast in order to meet demand. For brewers, beer is their art, and no one likes having their art performed by someone else. It is a battle that almost all growing breweries must wage, and the dark-side is increasingly winning out against costly investments in additional capacity in an industry that is littered with many more failures than successes.

A stronger network
The good news for craft beer fans is that Goose Island founder and President John Hall will still run the company as CEO, and the biggest change at first will be the immediate ramp-up in production at Goose Island's main brewing facility through a capital infusion from Anheuser-Busch.  In the upcoming years, as Anheuser-Busch adds to its portfolio, there are a number of strategies that it can pursue with this much-loved brand, but for now executives plan to preserve the recipes and processes that have made Goose Island a success for so long.

Additionally, Goose Island beers will now be much easier to find. Aside from specialty grocer Whole Foods Market (Nasdaq: WFMI  ) , which has always kept a large inventory of craft beer on its shelves, and Walgreen (NYSE: WAG  ) , which has recently started to take some initiative in this area, finding craft beer can be a challenge for many. Have you ever seen a wide selection of craft beer in superstores like Wal-Mart (NYSE: WMT  ) or even traditional grocery stores like Safeway (NYSE: SWY  ) ? You can bet that Anheuser-Busch will make sure that its new brand gets shelf place in some of these large retailers.

Craft beer drinkers might not like drinking beer under the Anheuser-Busch umbrella, but we sure better get used to it. I don't believe Anheuser-Busch bought Goose Island to change its recipes and create a Bourbon County Stout Light, and both sides have said as much. Goose Island has created products that consumers here know and love -- any A-B tinkering with these products a la Leffe Blonde, is a much riskier proposition.

Instead I believe Anheuser-Busch bought Goose Island because better tasting craft beer is the future, and certainly not one of its core competencies at this point. The acquisition is just the beginning of what I believe the future holds for the brewing industry. It remains to be seen if this is a good thing for craft beer drinkers, but it sure looks like a win, albeit a small one, for investors in Anheuser-Busch. 

For more Foolish coverage on A-B and its forays into the craft beer world, add Anheuser-Busch to My Watchlist.

Andrew Bond owns no shares in the companies listed. Boston Beer and Whole Foods are Motley Fool Stock Advisor recommendations. Molson Coors and Wal-Mart are Motley Fool Inside Value picks. Wal-Mart is a Motley Fool Global Gains selection. Wal-Mart is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Wal-Mart. The Fool owns shares of Molson Coors Brewing and Wal-Mart. You can follow Andrew on Twitter @Bond0 or on his RSS feed. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2011, at 9:13 PM, kstoltz wrote:

    Wait a minute......AB buys Leffe, and subsequently Leffe starts tasting "off" because they're now using cheaper ingredients.....and we're supposed to assume that they are going to leave Goose Island's recipes alone? But hey, at least you'll be able to find the subar version in more locations.

  • Report this Comment On April 01, 2011, at 12:30 PM, BioBat wrote:

    kstolztz,

    Like you i'll believe it it when I see it. I will miss their Bourbon County Stout...

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