Craft Beer Defies Definitions

Is it that Craft Beer as an industry has changed and thus changed the meaning of craft beer itself? Or, was what craft beer meant hard to define in the first place?  Does it need a definition? What effect does a definition have on the industry anyway? (*cough*  taxes  *cough*)

America loves to categorize things, including beer styles.  Take IPAs: American, east coast, west coast, no coast, English, double, imperial, triple, even IPA & 1/2.  It is one thing to label a beer so as to convey what it might taste like, but too much definition (or use of vague terms) serves only  to confuse matters. It seems we want the label on the bottle to tell us what to taste, instead of us taking chances and finding out for ourselves. Perhaps this is American as well…but that's another topic.

The Brewers Association has changed, or altered, its definition of Craft Beer several times. The reasons they have done so have been mentioned elsewhere and speculated just about everywhere. What defines craft beer? Ingredients, volume, ownership, origin?  One plausible reason that has not really been touched upon, as far as I can tell, is that defining craft beer may just go against craft beer's essence. Well, perhaps to a point.  But craft beer existed before its definition. How it started is where the essence lays: motivation for brewing beer.

The pioneers of the craft beer scene started brewing beer because they were not satisfied with the beer selections at the time. They thought beer could be better and decided to make their own. While making a profit was (probably) part of the equation, it wasn't the prime motivation. These brewers wanted to make and drink great tasting beer. This desire, and the beer they produced, defined craft beer.

Of course, motivation is difficult to quantify in the first place, but additionally arduous these days in that craft beer is selling quite well, which brings in profits, which in turn muddies the motivational waters.   Is a certain brewery making beer for sheer profit or great taste? Again, hard to determine at most levels. It seems fair to say, though, that acquisition of breweries feeds the desire to obtain profits and less about improving (or ensuring) quality.

To make matters even more unclear is the expense needed to open a brewery. And add to that the inspections, zoning, legal and social red tape a prospective brewery must navigate prior to first lighting of the kettle.  Brewing is a business after all, and money finds itself in the middle of it all. How it affects the craft of brewing differs among breweries.

This is a delicate balance in the craft beer world today; craft against business. Breweries face difficult decision making processes further complicated with multiple voices in the room. Do they sell an under-par beer with off flavors to make up for the cost of brewing it? Or do they dump it to maintain quality?  Either way it is an easy decision on one hand, and the wrong decision on the other.  But that decision could reinforce the craft essence or cast some doubt.

What would those craft beer pioneers have done?

The Problem Big Beer Faces

Brewing is an ancient art, dating back thousands of years of human civilization. It was used in bartering, as currency, to purify water and as a social lubricant. It is, and has been, everywhere in daily life as part of the community. It should come as no surprise, then, that brewing can be big business as illustrated by the sheer numbers of production from the largest breweries.  Bases on such numbers it would seem that these breweries’ beers are revered and loved by all. This is not the case and 20 years ago the big breweries paid no mind to detractors. With over 95% of the beer market, why would they?   

However, that 95% is no more. The Brewers Association envisions that by 2020, what made up that other 5% (namely craft breweries) will increase to 20%, thus decreasing the value of the aforementioned largest breweries, who are now taking notice. It seems their reaction has two main tactics: buy up craft breweries, and/or produce beers similar to those of craft breweries. The first is straightforward. Goose Island Brewing out of Chicago sold to AB-InBev a few years ago, much to the chagrin of craft beer lovers. Many saw this as a giant, international corporate conglomerate bullying the small, local family business into submission—not the best image to have for large corporations, even though it is not accurate.

The other tactic is a bit cloudier. Instead of straight up producing and offering other types of beer, some large breweries create smaller breweries, which then produce such beer. This avoids the stigma associated with the big breweries created by the first option. It seems creating a smaller brewery, using a different name, and producing different types of beer is preferred to just buying a smaller brewery.  Perhaps this is the better way to go…at least in the short term.

Here is the problem: deception lasts only so long before it comes back to bite. The second option addresses a symptom of big brewers’ perception, not what produces this perception.  While the first option, buying smaller breweries, comes with push-back, at least it is honest and open. Maybe this is by default as it is difficult to hide a multi-million dollar deal.  Still, the public is not deceived, either in reality or (importantly) through perception.  The creation of smaller, otherwise named breweries is not only deceptive, it is willful intent to deceive. What the public calls “lying”, and this betrays any relationship and significantly damages trust.

From there, it does not really matter how the beer is produced or even if it is high quality.  The public has a tendency to shun those who have betrayed them.  While America is a forgiving country and allows for mistakes, it has little tolerance for those who manipulate its patience, sympathy and embrace of small business.  As the voices of craft beer lovers gets louder, so too will their cries of foul play of Big Beer. This is starting to happen and an example of the counter-reaction from Big Beer is more deception...without lying.  The prime example is the new Miller Fortune, labeled as an “undistilled beer” (every beer is undistilled) and a “spirited lager”, clearly (and intentionally) aimed at the whiskey market.  Do they really want to deceive those consumers as well?

In the mean time, craft beer drinkers will continue to expose Big Beer whenever they can, shun Big Beer and tell others to follow suit. However, just as America has no acceptance of deception, it still is forgiving. An apology, a real one, followed by acts of conciliation (more than “gestures”) can go a long way. It remains to be seen if Big Beer comprehends this, accepts it, and follows through. The bottom line is that the animosity towards Big Beer is not aimed at the Beer (although that is where the fallout lands), but at the Big—not the product of Big Beer, but Big Beers’ treatment and value of relationships.

Small BREW Act, Taxes and Craft Brew

The growth of craft beer as an industry has persuaded some to take notice as to what "craft" brewing really means and its role in the overall beer industry. While debates continue over craft v. crafty, production levels salience on definitions and independent v. corporate brewing, one issue has craft brewers seemingly debating each other, and that issue is tax.  More precisely, excise federal tax on the production of beer, no matter if it's craft, independent, neither or both. 

Basically the excise tax code is set up so that those breweries who produce more beer are taxed more on the federal level. Right now, that production level is 2 Million barrels per year (those producing such quantities are taxed more per barrel than those producing less).  On the ground, it currently means that all craft breweries do not pay this extra tax, but large breweries (like SABMiller and AB-InBev) fork over the money.

Yet, the growth of craft beer has pushed some breweries closer to this 2 Million barrel level, and therefore more taxation.  As such, or by coincidence, the Brewers Association has altered/updated its definition of craft brewery to include breweries producing up to 6 Million barrels per year (among other stipulations).  Following this, there have been efforts to alter/update the tax code.  Without getting into details, the new tax proposals seek to increase the production level to 6 Million barrels per year before enduring the full excise tax of $18/barrel. 

This has some people in an uproar (or at least discomfort).  Some claim that only a handful of large craft breweries will benefit from this while most of the other medium/small craft breweries will see little benefit, especially if the money saved by the large breweries is spent on marketing--giving them a leg up on the competition, which is the smaller breweries.  Are you following?  It's a bit complicated, so to summarize:  Craft breweries are getting bigger. Getting bigger means more excise tax.  Change definition of "bigger" to avoid this tax burden increase. Those "bigger" breweries benefit most, while smaller breweries see little gain. I think that's the gist of it.

This will be interesting to watch to see if a rift develops (or grows) between the handful of big craft breweries (like Sam Adams, Sierra Nevada, New Belgium , etc) and the more numerous small breweries (like Crooked Stave, Lagunitas, Foothills). It will also be interesting to see how the Brewers Association handles this disagreement.  It should be noted that the BA supports this new tax code, as well as a majority of its member breweries. Consensus is difficult to achieve in any industry, so we'll see how this situation develops, if at all.  Sources predict that this new tax code will not pass Congress.

It should also be noted that the main argument in favor of this proposed tax code is job creation.  With the money saved from the discounted excise tax (from $7/barrel to $3.50/barrel for production under 60,000 barrels), small breweries can re-invest in their companies, hire more employees and build up their neighborhoods.

Craft and Crafty Beer

The Brewers Association recently announced that the time has come to draw a line between authentic craft beer and crafty beer. The BA wants clarity as to what companies produce which beers.  In other words, the BA doesn't want large breweries to claim to be producing craft beer when, according to BA definition of craft, they are not.

Ostensibly, the crux behind this debate is the definitions of craft and large breweries.  Is this simply a case of small companies trying to make a name for themselves? Or is it a case of large companies trying to dominate smaller ones?

The scale of production of a brewery is the central figure used to define “craft[1]” and “macro[2]”, but it’s not the only one.  A craft brewery cannot produce X amount of beer and still be considered "craft". But how does production affect the "craft" side of beer? That's a tough question for BA to address.  So, ownership is another factor, and its salience towards defining “craft” has increased in recent years for several reasons, mentioned below.

For the most part, craft and macro were separate and didn’t directly compete.  Anheuser-Busch's foes were Miller and Coors; Dogfish Head's (DE) foes were…well, that’s hard to say since their share of the beer market was less than 1% and localized.

But times have changed. Craft beer has exploded over the last 10 years, even during the Great Recession, while macro beer has expanded over the globe, into China and India. Today the number of small breweries in the U.S. has eclipsed 2,000 while the number of macros has decreased (due to consolidation) to a handful.  In that time Miller and Coors merged, Anheuser-Busch was bought by InBev and Boston Beer Company’s (Sam Adams) success has persuaded the BA to re-define “craft”.  The latter's growth has pushed the "craft" definition to new limits, literally.

While the big breweries were merging they were also keeping an eye on the small guys.  The latter’s success did not proceed unnoticed. The small breweries’ market share in the beer industry has surpassed 6%, while overall beer sales have decreased: Craft is going up, macro is going down. To assuage this, macros have taken to two tactics: compete with craft, or buy them (or both).

Buying is financially easy, but personally difficult. The beloved Chicago-based Goose Island brewery was bought by AB-InBev and ended that competition, and was greeted with intense beer-geek backlash.  And this highlights a dilemma: is Goose Island still “craft” even though it’s owned by AB-InBev?  And why would that matter? We’ll get back to that.

The other option, directly compete, is tricky, because in order to do so the macro company must admit there is a difference in terms between craft and macro, thus accepting the “craft” definition, and thereby admitting that there's a difference in product.  MillerCoors is attempting to compete directly by establishing smaller brew houses with their own brands and labels, like Blue Moon, Tenth and Blake, AC Golden. But why do they need to do this? Why not just produce the Blue Moon recipe under Coors labeling?  And here we are back to the question posited above: Why does labeling, and therefore ownership, matter?

First, we must establish that it does matter. The actions of BA and the macros establish that it does. And here we (finally) get to the core issues: product and livelihood. 

Product: The difference between the craft breweries' products and the macro breweries' products are vastly different. Craft breweries produce varieties of beer, while the macros produce, mostly, one. While craft brewers detest the product from macros, they do marvel at the consistency macros display on such large scale productions. In short, craft beers are more diverse, while more susceptible to production mistakes, while macros are consistent yet uniform. And this are the stigmas each carry.

Livelihood: The conflict attaches to the product, or perhaps more directly the stigmas.  Many craft beer geeks (their numbers are growing) don't see macro beer as "real beer", but as mass produced flavored water. They are defiant toward the macros and do not want any of their money going to these businesses. Macros know this, so they turn to tactics mentioned above.  If they succeed then the craft breweries will have direct competition with large breweries that they never really had before. And this threatens their passion and livelihood.

The key point here is that the BA and craft brewers do not wish to eliminate the competition. They are not calling for macros to cease production of certain beers. What they are calling for is the claiming of such beers by their owners. Those craft beer geeks want to support the small breweries, but are being deceived by small brewing operations owned (and operated) by the macros. And that is what the BA is trying to confront: displayed ownership of product. Why hide it? Be proud of your product is the BA mindset. Perhaps this sheds light on a larger difference in the modus operandi of marco and craft: To make money or make beer?

Further reading:

http://www.brewersassociation.org/pages/media/press-releases/show?title=craft-vs-crafty-a-statement-from-the-brewers-association

John Cochran of Terrapin Beer Company highlighting the complexity of brewing, beer and business.

http://business.time.com/2012/12/27/trouble-brewing-the-craft-beer-vs-crafty-beer-cat-fight/#ixzz2K3fu06H9

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[1] The term "craft" replaced the common term "micro" as the popularity of small breweries increased, and so too did their production, thus ushering in a need to change the definition

[2] Characterized as "American Adjunct Lagers" and commonly referred to as "BMC" (Bud/Miller/Coors)