Having acquired the country's largest homebrew supplier, Northern Brewer, last year as a means of increasing its exposure to the craft beer market, Anheuser-Busch InBev (NYSE: BUD) has now launched a clever new marketing strategy to tie its growing portfolio of craft beers to home brewers.
Northern Brewer recently began offering starter kits to make homemade versions of some of Anheuser-Busch's most popular craft beer labels in your own kitchen, including Goose Island Brewing, Elysian Brewing, and Golden Road Brewing. And because it's the very same recipes you would get if you bought the beer at the store or in a taproom, it's a subtle way of diluting the distinction between mass-brewed, craft, and home-brewed beer.
One brewer to rule them all
Over the past few years, Anheuser-Busch has made a cottage industry out of buying up craft brewers, much to the consternation of many in the industry, including Boston Beer (SAM -1.29%) founder and Chairman Jim Koch, who has decried both A-B's ambitions and those of the craft brewers themselves for selling out.
In addition to the three brewers above, A-B has also purchased Blue Point Brewing, 10 Barrel Brewing, Devil's Backbone Brewing, Four Peaks Brewing, Camden Town Brewery, Breckenridge Brewery, and most recently, Wicked Weed Brewing. It also started its own mass-craft beer Shock Top, picked up a handful of beer distributors, and acquired both Northern Brewer and its sister operation Midwest Supplies.
Home brewing is a fragmented industry, and though it's the biggest, Northern Brewer accounted for just 6% of the industry's approximately $764 million in annual sales. By buying its way into the field, Anheuser-Busch ingratiates itself into the growth end of the beer market, and home brewing is of particular note because it is where many, if not most craft brewers, got their start. Founders of both Elysian and Golden Road began brewing at home.
However, by offering starter kits for its craft beers labels, A-B is closing the loop on the cycle of beer industry growth.
Gotta start somewhere
In a video announcing the availability of a Goose Island Porter starter kit, Northern Brewer makes clear that if you're interested in drinking one of these beers your best bet is traveling to the Chicago market to buy it. That's why this is such a smart move for Anheuser-Busch: beer lovers can't easily get to Goose Island's Chicago taproom or one of Elysian's four restaurants in Washington, but they can brew up a batch in their kitchen.
The megabrewer certainly hopes for something of a halo effect for its other beers when it purchases a craft beer, and by making it more broadly available it introduces more people to it than when it was just a local brand. Because of its size, there are synergies for the craft brewers unavailable if they remained independent. It also allows Anheuser-Busch to make its craft brand cheaper than its small rivals can.
Yet it's a dual-edged sword, because "local" is what's driving the craft-beer market today, and making a label national may backfire. A beer like Karbach Brewing that A-B bought last year is popular in Texas, but may not resonate in Oregon, and the beer drinkers who made the local beers popular feel affronted by the sellout. Wicked Weed Brewing reportedly lost a number of supporters and partners when it agreed to be bought out by Anheuser-Busch.
It's also operationally important for A-B because mass-produced beer sales have been falling steadily, craft remains a growth center, and the home-brew market, as noted, serves as the stepping stone from which craft brewers spring.
Still brewing up trouble
In addition to the three kits from the craft breweries it owns, Anheuser-Busch makes available through Northern Brewer kits from several other brewers, including Dry Dock Brewing, Lakefront Brewery, and Tallgrass Brewing. The difference between the kits, though, is that those from the A-B brand are marketed under the Brewery Edition brand, while the others are called its Pro Series. (Tallgrass did enter a distribution agreement with A-B back in 2009.)
This blending of craft beer into the home-brew market is likely to raise more hackles on the necks of some, but investors should consider Anheuser-Busch's savvy in bringing these two lines closer.