ABI – Beer Tinted Spectacles

Sell out

Crikey – talk about the hissy fit in UK craft beer. Camden Town sell out to ABI, particularly following Meantime falling to SAB and Brewdog, most publically, have a meltdown, kick out Camden products and declare Perpetual Independence.

Let me tell you up front though. I put some money into Camden Town Brewery. This doesn’t make me anti-Brewdog nor pro Camden. In this case, it was an investment, nothing more. I believe now, as I believed when assessing whether to make an investment in them, that they were a sound place to put some hard-earned brass. Here is (was) my rationale:

Firstly, the owners were not the types to be in it for the long term; amongst them Sir John Hegarty. He’s an Advertising Man – he has helped companies build their brands to increase the value of their companies all his working life; he’s also built businesses himself and become a ‘Sir’ as a result. We’re not talking about fighting for a ‘cause’ here like Keith Grossman or Jack McAuliffe or Fritz Maytag were in the 1960s and 1970s USA. Back then, beer was on its knees; behemoth brewers with gargantuan breweries churning out identikit pale ‘lager’. There was something to fight for. London, 2010 – the year Camden Town Brewery was founded? Frankly the craft beer craze was maturing, or accelerating at least. You could well ask 5 years ago, just as much as you could now: do we really need another craft brewery?

Camden: pops form the bar; instantly recognisable; consistent ‘hellish’ attitude = brand

Well yes, in a way – and here’s my second point. Camden Town was pushing for difference. It built itself around lagered beers, as well as some well brewed specialities – their Wit stands out in particular for me. Most other craft brewers – as much for practical and cost reasons than anything else – stick to ale and top fermentation. So do we really need another craft brewery? No, unless, like Wild Beer Company say, you do something that stands out. You can argue that Camden beers aren’t that different – but in a sea of craft brewed ale, there was little craft brewed lager in 2010; and even accounting for Meantime, still plenty of capacity to push into that space in London alone.

Thirdly, brand. Oh, I know what the purist will argue: the whole point that craft fights against is mass produced brands of non-descript lager: Carlsberg, Carling, Fosters, Stella, Peroni. But that’s an assumption based on a generalisation: that we all want something different. We don’t. Most of us, most of the time, want choices that are reliable and safe. That doesn’t – and I must stress this – doesn’t mean bland, everyday choices – but choices that we feel confident in; that we discovered, found ourselves, trust and that make us feel different. And it doesn’t mean niche. What the team at Camden did brilliantly is screw together an incredible brand: an amazing brand design and identity across the whole range that sings from the bar. A hellishly beautiful tone of voice that unites all their communication. Events, that bring you in to the Camden community and locality, yet which speak to us more widely. These guys didn’t set out to build a brewery, they set out to build a brand and they have done it incredibly.

And whilst I was in it for the long term – looking forward to my ‘Hells Raiser’ annual beer and trips to the AGM – equally, I fully expected Camden to sell; I just wasn’t expecting it to be in the first six months.

Throughout this, Brewdog’s behaviour has been fascinating – and two-faced. Immediately stopping-selling Camden products in their bars, because ‘they don’t sell anything by ABI’ (the small matter that the deal hasn’t gone through yet is a mere trifle) is one thing; but changing their origin story is another. Read their guff; it’s moving; it’s from the heart. But it’s a story. It’s economical with the truth. When Brewdog launched they were quite happy to trade with the mega-breweries they now despise to get their product to market. With Carlsberg. With Molson Coors. With Tesco. With Punch Taverns. I imagine that they still do. They were perfectly happy to buy into the hard work of these companies in building distribution channels and quite happy to grow their brands off the back of them. But that’s been deleted out of their official history now. But the real irony? Brewdog is a lesson in branding. Their beers are fine – nothing more. They’re no better or worse than other craft beers of their styles. The real difference is in the clothes that they wear; their attitude and use of the f-word like a teenager trying to impress his mates. If we truly drunk with our mouths and tastebuds and not our eyes we would all see Brewdog beers for what they are: great brand, average beer.

And there’s an interesting footnote here too: Camden went for about £85m; Meantime about £115m. Molson Coors back in 2010 bought Sharps for £20m… £20m for a larger brewery; in a beautiful location that gives the brand romance, with a leading brand in Doom Bar. Molson Coors must be having a little chortle to themselves now. But it also shows that the money is to be made in great brands – and more interestingly it seems, in lager.

Decisions, decisions

There’s a lot going on in beer at the moment: there’s a daily news narrative on craft beers; stories about old names being revived; people setting up breweries in shipping containers. Proportionately, there’s less about the corporate side: the 90% if you will. But it deserves some attention, particularly at this time. Particularly with the biggest deal in brewing ever being slated. Particularly with one of the biggest corporate deals ever, in fact.

That craft beer narrative is immensely strong. It is more than a story though; it is creating reverberations not just within beer, but across alcoholic drinks, across non-alcoholic drinks and beyond. The craft beer ‘revolution’ is the poster boy of reactionary consumerism; the proof that you can change the food industry not just from within but from the outside too. It is the manifestation of a growing consumer desire for authenticity, transparency, of personal stories over fabricated myths, or small over large – right across the food and drink industry. There’s a clear argument to be made that ABI buying SAB is a consequence of the rise of craft beer. Certainly if you look at their outputs it is supported: over the last few years ABI have bought ‘breakthrough’ craft breweries: Widmer, Kona, Goose Island amongst others; elsewhere they’ve been copying the rules of craft with brands like ‘Shock Top’. SAB have been concentrating more on strengthening their own brands and now have an incredible portfolio, with brands like Pilsner Urquell, Peroni and Grolsch. They too have bought into craft with the acquisition of London’s Meantime Brewery.

Let’s push beyond the “eazey-news” headlines though. What’s really going on here is polarisation. Yes, craft is growing but it’s growing disproportionately quickly in mature beer markets. Large scale, low growth markets; markets where consumers have had mass marketing rammed down their gullets for decades. But ABI and SAB have their focus elsewhere: to the places and the brands that they can drive long-term shareholder value growth. They’re focus is on central and southern America, India, Asia and Africa. ABI are clear that they want to be the first ‘global brewer’ and this deal gives them an incredible beachhead to push for conquest. As a deal, it will make South America a fortress; it will revolutionise their position in Africa; it will strengthen their footprint in Asia, in particular China, where they will acquire the World’s biggest beer brand, Snow.

Watching this form the side lines, what’s impressive about ABI is their utter commitment to the goal. The newswires yesterday were humming with the revelation that they would be prepared to sell off SAB’s prime assets, notably Peroni and it’s Nastro Azzurro brand. Grolsch too, was mooted as a candidate for sale. They have form here: when InBev acquired Anheuser-Busch they sold off Tsingtao in China – one of the few successful Sino-Anglo Saxon partnerships and a real crown jewel. This tells us a number of things about ABI. It tells us that they have a clear focus for growth outside North America and Europe where Peroni is notably strong – Peroni is a great brand but in the short term the only thing it is likely to do is give them issues with regulators (plus, the US rights stay with MillerCoors should the deal go ahead). It tells us that they have a purpose that is unifying and guiding their decisions. It tells us that they are willing to make not just choices but sacrifices – big sacrifices – in order to achieve their vision. And it tells us too that they believe in their brands – brands that craft beer lovers are generally scathing of (Bud Light, Budweiser, Stella Artois as well as an army of local brands – and they will back them to the hilt in markets outside our (European / North American) frame of daily reference. Whether you’re comfortable about the size of this deal and the global market share it will leave ABI with, it will be churlish – no, foolish – to ignore the business and brand building lessons that they teach us, again and again.

As the big get bigger, what do the small get?

The potential acquisition of South African Breweries (SAB) by their larger rival Anheuser Busch Inbev (ABI) has got many commentators gasping for breath: not at the audacity of it – that was reserved for when InBev (as was) took down Anheuser Busch – but rather the implications of the sheer scale. The scale, both of the deal (the fourth biggest corporate takeover) and the ultimate beast it will become (who we shall call ABSAB).

Interestingly, a stock response of commentators is ‘Don’t Panic Mr Mainwaring!’ The deal, as these deals do, will create opportunities for smaller operators. Drinkers, reviled by the deal and the inevitable consolidation / loss of brands in the shake-up, will vote with their wallets and support the little guy. New market niches will open up, too small for a goliath like ABSAB to spot, yet alone exploit. David will win the day! Fleet of footedness, quick decision-making will out!

And there will be some of this. Of course there will. But on balance, it’s a romantic notion and one that, in truth, isn’t borne out by precedent.

The first issue is growth. In most western, mature consumer markets beer is flat-lining or declining. Drinkers are drinking less. This pressure rolls through to licensees: what to stock; how much space they can give to beer and ultimately what brands end up on the bar. What licensees want is a range of guaranteed strong sellers and a ‘something interesting’ selection. ABSAB (Stella, Peroni, Budweiser) can fulfil one side, craft can fulfil the other (in fact, increasingly, ABSAB can fulfil this other side too). In less mature markets, there is underlying growth in beer consumption – in central and South America for example – and that growth is driven by brands. Big brands; famous brands, foreign brands; often American or European: brands that are a status symbol. ABI and SAB are getting together because growth in their core markets is slowing (or has stopped). They’re getting together because in emerging markets it’s about brands. The deal allows more consumers to access their brands in more markets, efficiently and cost effectively. And most consumers won’t react negatively. They won’t even think about it.

The second issue is craft. Craft beer, however you define it, is exciting, interesting and inspiring. It’s been brilliant for beer in many markets. But craft beer is, what? At best 10 – 15% of market volume. Most of us, most consumers, simply aren’t in the franchise or drink it infrequently. Most of us, in short, drink the sorts of beers that ABI and SAB make. Now, clearly there is growth and clearly craft is slowly, steadily impacting consumer perceptions of the market. But if we assume that the basis of the ‘Innovation-Adoption Curve’ is correct, then most of us are fairly unadventurous. We’ll follow. And what will this mean in terms of brands? It won’t mean opportunities for spontaneous fermented wild beers hitting the mainstream. It will mean the likes of Blue Moon, Goose Island, Meantime, Lagunitas, Kona becoming more widely available, and if we’re lucky the larger – independent – craft brewers – Sierra Nevada, Brooklyn, Boston Beer will be available too. But the real opportunity if for the crafty beers under the umbrella of brewers like ABSAB. They offer the rationale of differentiated choice, with the convenience of a single and efficient point of supply.

What ABSAB appreciate is that currently global brewing is over-supplied. There are two responses. One, consolidate to ensure supply over time reduces and is done cost effectively. Two, build brands. This deal does both and will be successful.

For smaller brewers, given that they can’t consolidate to the same level, the real opportunity is the second option. To build brands. Take the UK beer market. There are now 1,700 breweries. The UK is the most breweried-per-head country in the world. Yet the beer market has been declining at about 4% a year since 2005. Per capita consumption of beer is falling, despite the noise of craft. There will be a fall out, even with the UK Government’s small brewer duty relief (perhaps because of it). Now is the time to build brands not supply product. Look at Camden Town, only three years old, but already widely available throughout the capital. Why? Good beers (with broad appeal); tremendous branding. Look at Beavertown. Good beers (with more challenge to them), impactful branding.

No, the opportunities presented by ABSAB getting together are twofold. For consumers, it’s in the truly niche operators, who make more complex, highly differentiated and challenging beer styles that they can supply effectively to the market. For small brewers who don’t, the real opportunity is to build your brand. And the real money is to be made when the likes of ABSAB buy them from you.