USA: Craft beer varieties are outpacing Bud Light, Miller Lite, wine and spirits

Fuller-flavored "craft" varieties, once shunted aside, have now become the brewing industry's healthiest segment, outpacing Bud Light, Miller Lite, wine and spirits with a 17.8 percent increase in supermarket sales last year, according to Information Resources Inc., Star Telegram published May 4.

Their growth in recent years has prompted the typically small, independent craft brewers to bring out more brands, including seasonal ones, and expand their territories. North Coast Brewing Co. of Fort Bragg, Calif., for instance, has found a market in Scandinavia.

The big industrial brewers Anheuser-Busch, Coors and SABMiller, stung by stagnating sales of their top brands, are responding by investing in their tinier rivals, creating their own craftlike brews and importing more brands.

For beer enthusiasts, it means more choice.

Hall's Grocery in Colleyville carries more than 650 beers and claims to have the state's biggest selection. Central Market in Fort Worth and United Market Street in Colleyville each offer more than 300 brands. Bars such as the Flying Saucer and the Ginger Man offer dozens of draft beers.

"The competition for the big brewers now is over who gets to be next to the craft beers in the supermarket coolers," said Paul Gatza, director of the Brewers Association, a Boulder, Colo., industry group of mainly small, independent producers.

"It could be argued it's a golden age," Gatza said during a break at a recent craft-beer conference in Austin. "After the ups and downs in recent years, I believe we've reached stability, a level of sustainability."

Major shakeouts

Even with the healthy growth spurts, craft brands still make up slightly less than 5 percent of the total beer market. And there are still big risks: The industry had shakeouts in the 1980s and the late 1990s. But for the first time since 2003, more breweries opened (96) than closed (52) last year, Gatza said.

Fritz Rahr of Fort Worth's two-year-old Rahr & Sons Brewing Co. is one of those hanging on.

Although every production run has sold out, the capacity at the brewery just south of downtown Fort Worth isn't big enough to cover all the costs; Rahr laid off his staff in 2005 to slash overhead. Rahr, a trained brewer, assumed production duties and contracted with Coors Distributing Co. of Fort Worth to handle sales and deliveries rather than do it himself.

In January, Rahr took on a new equity partner, Tony Formby. And with an infusion of capital, Rahr began planning a plant expansion and rehired staff, including a full-time brewer. Then he took a working sabbatical to restore family finances, leaving day-to-day management to Formby. Rahr plans to spend one week a month at the microbrewery.

Last year, production hit 1,800 barrels, but the brewery lost about $100,000, which Formby said is not unusual for a relatively new startup.

"Three thousand barrels is our break-even point," he said. "We are buying equipment now and plan to dou- ble output by the end of the year, then turn the cor- ner." And sales in Tarrant County were up 27 percent in January through March compared with 2006, he said.

"What saved us? Fritz working 14-to-16-hour days, seven days a week, and the volunteers," he said. Thirty unpaid enthusiasts run the bottling line and serve free beer at the brewery's Saturday tastings, which attract as many as 300 visitors. Formby says Rahr sells enough T-shirts and logo glassware to more than cover costs. And the tastings get the brewery's suds down the throats of prospective customers.

A 'heady moment'

Rahr is striving to follow in the footsteps of micros -- craft brewers that ship less than 15,000 barrels annually -- that have become established producers: Sierra Nevada, Colorado's New Belgium and the Brooklyn Brewery in New York.

"I've got to say, it's a very heady moment," said Steve Hindy, Brooklyn Brewery co-founder and board chairman of the Brewers Association.

Two decades ago, wholesalers often cold-shouldered the startups, so brewers like Hindy had to self-distribute. Today, wholesalers openly court microbreweries, whose products bring higher profit margins.

Distributors "are more interested than ever before," Hindy said.

One, Fort Worth's Ben E. Keith Co. announced in February that it was giving up lucrative benefits and perks as an Anheuser-Busch exclusive distributor in order to get a freer hand to acquire brands from independent craft brewers.

The move drew particular industry attention because Keith was Anheuser-Busch's biggest U.S. wholesaler, delivering about 35 million cases of beer a year in 60 Texas counties.

The company forsook hefty advertising dollars, a truck-painting allowance, access to new offerings like Rolling Rock Light and, according to Benj Steinman of the trade journal Beer Marketer's Insights, a 2-cent-per-case cash incentive.

Industry sources said the lost incentives could easily total $1 million a year for Keith. Based on its beer shipments, the company's sales are estimated at about $500 million.

"Wholesalers are independent businesses and make decisions about what brands to incorporate into their portfolios based on the preferences of consumers in their markets and what is best for their businesses," Anheuser-Busch said in a statement in response to questions about Keith's move.

Kevin Bartholomew, president of Keith's beverage side, did not return calls seeking comment. But he said at the Austin Craft Brewers Conference that his company is following an industry trend and hopes to pick up more regional and microbrew brands to distribute in Texas.

Busch not sitting idle

Meanwhile, Anheuser-Busch is expanding its line with a gluten-free beer and two organic beers, Wild Hop Lager and Stone Mill Pale Ale, as well as seasonal brews like Jack's Pumpkin Spice Ale.

Past efforts to launch craft-beer look-alikes have had mixed results. One of the few successes is Coors' Blue Moon, a Belgian-style wheat beer. Meanwhile, Anheuser-Busch has dropped ZiegenBock Light.

It's clear, Hindy said, that majors like Anheuser-Busch and Miller "are now paying attention to us."

And while the big boys have tried to emulate artisan styles, he said, few of their craftlike offerings win acceptance from enthusiasts: "I think it's an itch they just can't quite scratch."

A decade after pressuring wholesalers to limit distribution to only its brands, Anheuser-Busch last year started allowing a wide range of non-Anheuser-Busch beers to be sold through its channels.

The St. Louis giant has secured the import rights to the Dutch brand Grolsch as well as Czechvar, or Czech-made Budweiser. Busch also began importing some of the Brazilian-Belgian beermaker InBev's European brands, including Stella Artois.

Although many of its own beers are struggling, Busch's first-quarter earnings were helped by the InBev brands and by its 50 percent stake in Mexico's top brewer, Modelo. Nearly a third of Busch's income came from the $159 million generated by Modelo, according to Beer Marketer's Insights.

Busch also bought Rolling Rock from InBev and has aggressively promoted two West Coast craft beers, Widmer and Redhook. Busch owns 33.7 percent of Redhook Ale Brewery and 39.5 percent of Widmer Bros. Brewing Co., which holds equity stakes in two other craft brewers, Chicago's Goose Island Brewery and Kona Brewing in Hawaii. All these tie-ups allow Busch to channel their respective beers.

"Anheuser-Busch has done all these deals for one reason," said Steinman of Beer Marketer's Insights: "So it can bring to wholesalers high-margin imports and craft brands in order to keep its wholesalers on the reservation."

But Busch was unable to transfer the InBev brands to all of its distributors because of franchise-law restrictions in some states, including Texas, he said. About a third of the InBev portfolio is being delivered by Busch to direct rivals of its Bud wholesalers, who are not pleased, he added.

In Tarrant County, the situation is particularly complicated.

Busch brands sold by Ben. E. Keith face direct competition from Bass Ale, which Busch imports, and Löwenbräu, which the local Miller distributor handles. Keith's Busch brands also face competition from Busch's Rolling Rock and from the Busch-imported Stella. Both are marketed by the area's Coors wholesaler.

The 7-Eleven crowd

Convenience stores, meanwhile, are extremely important to such "macro" brands as Bud Light and Miller Lite, but aside from some areas such as the Pacific Northwest, craft beers haven't taken hold in them. Market share of craft beers in those outlets is about 1 percent.

"For craft brewers to break into convenience stores requires creative merchan- dising," said Nick Lake of ACNielsen, an iformation service.

But craft beer is sold more like boutique wine, shop by shop, often on personal visits, and few small brew- ers have a marketing team big or persuasive enough to get convenience stores with highly limited space to swap popular sodas for six-packs of Doggie Style India Pale Ale.

"No doubt they'd be stealing from soft drinks," Lake said. "But not all C-stores are created equal. Some put up the top three [craft brands] and don't sell, while others put up the top six and sell a hell of a lot of them. It all depends on execution."

Gary Sims, director of beer sales at Majestic Fine Wines & Spirits, questions whether those producers will ever appeal to brand-loyal Bud buyers.

"The general public has to be educated that beer is like Baskin-Robbins' flavors -- just a lot of different styles and tastes," Sims said.

He also suggested that there may be too many craft beers.

"A few years ago, we had three or four Christmas ales, and they sold like crazy," he said. "Now there's so many entries, they don't sell like they used to."

Crafting a beer

What's a craft beer? Craft brewers are small producers who use mainly traditional ingredients. Microbreweries are brewers that ship less than 15,000 barrels a year, and regional breweries between 15,000 and 2 million.

In 1979, President Carter set the stage for hundreds of future microbrewers when he signed a law allowing beer to be homemade.

Early commercial pioneers included the washing machine heir Fritz Maytag, who revived San Francisco's Anchor Brewing Co., and Jim Koch, a Harvard M.B.A. and descendent of brewers who started Boston Brewing Co.'s Samuel Adams line with family recipes, hedging the risk by contracting out the brewing, then gradually bringing home an ever-larger slice of production.

Today, there are nearly 1,400 craft and microbreweries in the United States.

In recent years, some have matched European brewers in quality, but with far more creativity. Fritz Rahr of Fort Worth's Rahr & Sons Brewing Co. put his own stamp on a recent brew, Stormcloud, an English-inspired pale ale crafted with German hops and yeast.

"I've been a beer connoisseur for years, and I enjoy different beers but prefer Belgian-styles. ... If they only serve Bud at a party, I go immediately to a store."

Sandy Vander Vliet, 44, Fort Worth, manager, business-supply retailer

"I drank Shiner Bock until an equine photographer I worked with had me taste his home-brewed beer. That was four or five years ago. Before, I didn't know what a lager or an ale was. Now I drink a wide variety."

Ross Hecox, 32, Weatherford, magazine editor

"I started drinking microbrews like Celis when I was 21. I'll drink a Miller Lite if there's nothing else, but I prefer triple-fermented Belgian ales like Maridsous."

$4.6 billion 2006 sales of craft brews

29.5 percent Sales growth at craft breweries the last three years

11.7 percent 2006 sales growth

17.8 percent Last year's craft-beer sales growth at grocery stores

10.9 percent Last year's import-beer sales growth at grocery stores

5 percent Craft-brand share of total beer sales

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