Craftwashing in the U.S. Beer Industry

beverages

Article Craftwashing in the U.S. Beer Industry

Philip H. Howard ID Department of Community Sustainability, Michigan State University, East Lansing, MI 48824, USA; [email protected]; Tel.: +1-517-355-8431

Academic Editor: Jan Bentzen Received: 17 November 2017; Accepted: 11 December 2017; Published: 26 December 2017

Abstract: (1) Background: Big brewers, which have experienced declining sales for their beer brands in the last decade, have been accused of “craftwashing” by some craft brewers and their aﬁcionados—they deﬁne craftwashing as big brewers (>6 million barrels per year) taking advantage of the increasing sales of craft beer by emulating these products or by acquiring craft breweries, while also obscuring their ownership from consumers; (2) Methods: To estimate the prevalence of these practices, the ownership of U.S. mainstream and craft beer brands was decoded and visualized. In addition, an exploratory case study analyzed how these ownership relations are represented in the craft sections of selected retailers (n = 16) in the Lansing, Michigan metropolitan area; (3) Results: By October 2017 in the U.S., all but one big brewer had either acquired a craft brewery, or formed a distribution alliance with one—without disclosing these relationships on the packaging. In the study area, 30% of 4- and 6-pack facings recorded in craft beer sections (n = 1145) had ownership ties to big brewers; (4) Conclusions: Craftwashing is common in the U.S. beer industry, and this suggests consumers must exert substantial effort to become aware of their own role in reinforcing these practices.

Keywords: craft beer; ownership; visualization; case study

1. Introduction The beer industry in the United States has experienced rapid growth in the “craft” beer segment in recent years, and declining sales in more mainstream segments. By 2016, for example, the craft segment had grown to 21.9% of U.S. beer sales by dollar value [1], while domestic sales were down by 2.8% [2]. It is no surprise then, that the definitions of these categories are contested [3], and that big breweries (those producing over 6 million barrels per year) have increasingly moved into the “craft” space. They have done so by introducing craft-like brands and/or by acquiring formerly independent craft breweries. Critics have called these actions “craftwashing” [4,5], drawing from term greenwashing, which describes deceptive marketing practices for environmental issues. Previous scholarly studies of the craft beer industry have identified a number of regulatory barriers that hinder the growth of this segment, such as excise taxes, zoning laws and distribution restrictions [6–10]. Other researchers have explored consumer perceptions of “authenticity,” and found that craft beer drinkers have negative perceptions of beer produced by big brewers [11] (or even breweries that offer beer styles associated with big brewers [12]). There has been little research, however, on how these opaque patterns of ownership are reflected in “craft” beer selections at retailers. How effective are craftwashing strategies in the craft beer segment? More specifically, (1) how many formerly independent craft beers are actually owned by big brewers; and (2) how is this represented on the shelves of typical retailers when ownership ties are obscured? To begin to answer these questions, I conducted an analysis of ownership of leading big brewer and craft beer brands, and visualized this in a cluster diagram. I then applied these results in an exploratory case study of the craft beer sections of 16 retailers in the Lansing, Michigan metropolitan area.

Beverages 2018, 4, 1; doi:10.3390/beverages4010001 www.mdpi.com/journal/beverages Beverages 2017, 3, 63 2 of 13 and visualized this in a cluster diagram. I then applied these results in an exploratory case study of Beverages 2018, 4, 1 2 of 13 the craft beer sections of 16 retailers in the Lansing, Michigan metropolitan area. The results indicate that nearly all big brewers engage in craftwashing strategies, and that they have Thebeen results effective indicate in taking that up nearly 30% allof big“craft” brewers shelf engagespace in in the craftwashing case study area, strategies, as measured and that by they all 4-have and been 6-pack effective facings in takingrecorded. up 30%In addition, of “craft” retailers shelf space that inwere the locally-owned case study area, were as measured more likely by allto offer4- and both 6-pack larger facings craft sections, recorded. and In fewer addition, brands retailers with ownership that were ties locally-owned to big brewers. were Below more I likelyprovide to additionaloffer both largerbackground craft sections, and my and theoretical fewer brands perspect withive/hypotheses, ownership ties followed to big brewers. by more Below detail I provide on the methods,additional results, background and a discussion and my theoretical of their implications. perspective/hypotheses, followed by more detail on the methods, results, and a discussion of their implications. 1.1. Background 1.1. Background An initial craftwashing strategy was launching “faux craft” or “crafty” beers, with the productionAn initial of craftwashingthese products strategy by big was brewers launching kept “faux relatively craft” or “crafty”hidden beers,[13–15]. with The the packaging, production placement,of these products and even by big the brewers price keptof these relatively beers hiddenleads typical [13–15]. consumers The packaging, to believe placement, that andthey even are purchasingthe price of thesean independently beers leads typical owned consumers craft beer. to On believee example that they is Anheuser-Busch are purchasing anInBev’s independently (Leuven, Belgium)owned craft brand beer. Shock One exampleTop: an internal is Anheuser-Busch document in InBev’s 2014 touted (Leuven, data Belgium) indicating brand 75% Shockof consumers Top: an thoughtinternal documentit was from in a 2014 small touted brewer, data and indicating highlighted 75% of the consumers line, “Shock thought Top it is was (AB from InBev a small subsidiary) brewer, Labatt’sand highlighted big bet in the the line, battle “Shock against Top Micro is (AB Craft” InBev [16]. subsidiary) Labatt’s big bet in the battle against MicroThe Craft” “crafty” [16]. strategy, however, encountered slower sales in recent years, such as an estimated 4% declineThe “crafty” for Molson strategy, Coors’ however, (Denver, encountered CO, USA) brand slower Blue sales Moon in recent and 9% years, decline such for as Shock an estimated Top in 20164% decline [17]. As for a Molsonresult, a Coors’more recent (Denver, strategy CO, USA) is the brand acquisition Blue Moon of successful and 9% craft decline breweries for Shock by Topbig brewers.in 2016 [ 17AB]. InBev, As a result, for example, a more has recent acquired strategy ten iscraf thet brewers acquisition in the of U.S. successful in the last craft seven breweries years, byas shownbig brewers. in Figure AB 1, InBev,and has for partial example, stakes has in five acquired more. ten Ownership craft brewers ties to inthe the new U.S. parent in the corporations last seven areyears, also as typically shown in not Figure disclosed,1, and haseven partial as the stakes big inbrewers’ ﬁve more. resources Ownership enable ties the to distribution the new parent and marketingcorporations of arenewly also acquired typically brands not disclosed, to increase even dramatically. as the big brewers’ resources enable the distribution and marketing of newly acquired brands to increase dramatically.

Figure 1. Geography of craft acquisitions made by Anheuser-Busch InBev in the United States, 2011 Figure 1. Geography of craft acquisitions made by Anheuser-Busch InBev in the United States, 2011 to 2017. to 2017.

Craft brewers, particularly those organized in the Brewers Association (Boulder, CO, USA), have been increasingly vocalvocal in in their their displeasure displeasure with with these these actions. actions. They They point point out out the the numerous numerous efforts efforts big brewers have engaged in to keep independent craft brewers off the shelves of retailers and distributors, as well as to discourage consumers from buying their products. Just a few examples include: Beverages 2018, 4, 1 3 of 13

• One of the two leading beer firms is frequently designated by retail chains as the “category captain”, which gives them the power to design the placement and allotted shelf space for the entire beer section, including direct competitors’ products [18]. • After an investigation, the Department of Justice prohibited AB InBev from “continuing practices and programs that disincentive distributors from selling and promoting the beers of... rivals” [19]. • AB InBev ran advertisements during the 2015 and 2016 Super Bowls belittling craft beer drinkers [20,21]. Although the U.S. government has not yet intervened in craftwashing disputes, there have been several private lawsuits accusing big brewers of deceptive marketing for “import” brands that are actually brewed in the U.S. (one against AB InBev brand Beck’s was successful) [22]. In Australia, however, the largest brewery was fined approximately US $18,000 by a government agency, and agreed to stop distributing its “Byron Bay Pale Lager”. The regulators said the packaging on the Carlton & United (now a division of AB InBev) beer had deceived consumers into thinking it was made in a small facility, far from the industrial-scale brewery where it was actually produced [4]. Jim Koch, the founder of Boston Beer Co., (Samuel Adams) (Boston, MA, USA) has said, “I think a beer drinker shouldn’t have to hire a private detective to figure out who actually makes the beer that they’re drinking” [23]—although it should be pointed out that he engaged in a very similar practice with the “Oregon Beer and Brewing Co.” (Salem, OR, USA) in the 1990s [24]. In response to craftwashing, the Brewers Association, which represents small and independent brewers in the U.S., released an “independent craft” seal in June 2017. Members and eligible non-members can place this seal on their beer labels, to help consumers identify which breweries do not have hidden ownership ties. To qualify, a brewery must produce 6 billion barrels or less annually, and have less than 25% ownership by a larger beer/wine/spirits firm [25]. Under this definition, craft brewers that sell ownership stakes to private equity firms remain eligible for membership. The goals of private equity firms, however, are typically to achieve returns of 25–100% compounded annually, and a payout within three to seven years [26], which increases the likelihood that these breweries will eventually be sold to larger firms. One of the largest members of the Brewers Association, Boston Beer, is publicly traded, and is therefore also susceptible to takeover attempts by larger firms.

1.2. Theoretical Perspective and Hypotheses In this study I use Nitzan and Bichler’s theoretical framework of Capital as Power [27] which posits that capitalists seek to improve their position relative to other dominant firms. Importantly, this means that they do not attempt to maximize profits, nor necessarily to achieve growth in production or sales, as long as they obtain a bigger share of the total, such as by beating average returns [28,29]. A key means of achieving this goal is “strategic sabotage”, which may involve numerous strategies for increasing firms’ “earnings and capitalization relative to—and often by undermining—those of others” [29] (p. 7). Maintaining regulatory barriers that disproportionately affect smaller firms is one example, but controlling shelf space is another—dominant beer firms have been effective in increasing the visibility of their offerings, while also limiting or even removing visibility for competitors. AB InBev and Molson Coors, for example, have allegedly used their power as category captains, mentioned above, to take up disproportionately more shelf space relative to their percentage of beer sales [18], particularly for the most prominent locations, such as at eye level and the end of rows [30,31]. These strategies of strategic sabotage do not need to be logically consistent, and may result in ironies—an example is an AB InBev Super Bowl commercial mocking pumpkin peach ale, just one week after acquiring a craft brewery that makes an ale with pumpkin and peach flavors. Dick Cantwell, one of the founders of this craft brewery, Elysian, turned in his resignation notice soon after the ad was aired. He explained, “There’s a big difference between an independent craft brewery that makes its own decisions and an enormous company that has one arm devoted to what they consider to be craft beer. In the case of Anheuser-Busch, they are perfectly content to have the different arms of their company at war with each other” [32]. Big brewers have frequently responded to criticisms from Beverages 2018, 4, 1 4 of 13 smaller craft brewers with variations on the theme “can’t we all just get along?” They emphasize their shared interest in growing beer sales, while also deflecting attention away from their actions that limit growth in the craft segment [5,33]. Based on a previous study of wine in this region, which reported more varieties of wine and more Michigan-produced wine at locally owned retailers [34], I developed two preliminary hypotheses for this study. These were that when controlling for retailer format (which allot differing amounts of shelf space to beer):

Hypothesis 1. Locally-owned retailers offer more craft beer selections.

Hypothesis 2. Locally-owned retailers offer fewer brands with ownership ties to big brewers.

Additional support for these hypotheses come from the fact that locally-owned retailers are much less likely than national chains to select one ﬁrm as a “captain” for category management. Captains may increase the number of stock-keeping-units (SKUs) for their own ﬁrm, but also frequently reduce the total number of SKUs in the category [35]. To differentiate themselves from chain stores, some locally-owned retailers emphasize their selection of beers from regional craft breweries, including signage to highlight local or regional offerings. Increasingly, however, nationally-owned retailers are imitating these strategies to capture growing consumer interest in local craft beer [36].

2. Methods For the first component of this study, the 25 largest brewers in the U.S. were selected based on data from Beer Marketer’s Insights [37], and the ownership relations of their subsidiary brands visualized in a cluster diagram. A cutoff of the top 25 was selected because no breweries below this ranking had ties to big breweries in the US, and therefore they would not have increased the complexity represented in in the visualization. Additional craft beer brands were added to the figure, however, if they had ownership connections with big brewers headquartered in other part of the world (e.g., Japan), or if they had ties to private equity firms. This figure was developed using the diagramming software OmniGraffle (version 6.6.2, Seattle, WA, USA). The only brewer on the Beer Insights list that was omitted was tenth-ranked Mike’s Hard Lemonade Co., (Chicago, IL, USA) because the Brewers Association excludes flavored malt beverages from their definition of “beer”. Parent firms and their brands were coded as craft or non-craft brewers, based on Brewers Association definitions (prior to acquisitions). Brands that promote a “craft” image, but introduced by big brewers, were color coded in the visualization “crafty”. Partial equity was represented with dashed lines, and the percentage of minority stakes identified, if known. Distribution alliances were represented with dotted lines. As mentioned previously, clear ownership data is rarely found on the product labels of brands owned by big brewers, and even websites may not reveal the full extent of subsidiary brands (Leinenkugel’s website, for example, lists the copyright as belonging to Jakob Leinenkugel Brewing Company—Chippewa Falls, WI, USA, with no mention of parent corporation Molson Coors). The data for this visualization therefore came from numerous sources, including press releases, newspaper articles, and industry trade journals or blogs. Key sources of data included Vinepair’s “Definitive Timeline of Craft Beer Acquisitions [38] and a more narrowly focused cluster diagram I previously created based on 2010 data [39], although all relationships were verified with additional sources to ensure they were accurate and up to date. The second component of this research was an exploratory case study of craft beer selections at retailer shelves in the Lansing, Michigan metropolitan area in October 2017. It encompassed the city of Lansing, but focused primarily on retailers in the more affluent cities and suburbs to the north and east, which were expected to have larger craft beer selections (even compared to other outlets belonging to the same chain in this area). Table1 shows the demographics of the metropolitan area, Beverages 2018, 4, 1 5 of 13 which indicates a lower average income, higher poverty rates, and less ethnic diversity in comparison to national averages. Michigan ranks 6th among all states for the highest number of craft breweries [40], and includes two of the top 25 breweries by sales in the U.S. (Bell’s and Founders). State-specific regulatory barriers [6,7,9], and the fact that beer is heavy and expensive to transport [41], both present challenges to national distribution for many craft beer firms. As a result, retail selections found in this area are unlikely to be representative of other regions of the country.

Table 1. Lansing-East Lansing, MI Metro Area (population 472,276) demographics compared to the United States, 2015 [42].

Demographic Lansing-East Lansing Metro Area US Median age 35.4 37.8 Median household income $51,839 $55,775 Poverty rate 17.5% 14.7% Ethnicity White 76.6% 61.5% Black 8.2% 12.3% Hispanic 6.6% 17.6% Asian 4.6% 5.3% Multracial 3.7% 2.3%

An inventory was conducted at 16 retailers, which were purposively selected to ensure representation along two dimensions: (1) retail format; and (2) store ownership. Table2 shows the number of retailers in three categories for each of these dimensions. Four of the format/ownership combinations were represented by just one retailer (e.g., a single nationally-owned natural foods retailer), because there were no other options to select from in this area, which reduced the power of the study to detect differences among these dimensions.

Table 2. Format and ownership of retailers in the case study.

Format Local Ownership Regional National Total Grocery/Supermarket 2 1 3 6 Natural Foods 1 2 1 4 Convenience 1 2 3 6 Total 4 5 7 16

The inventory was limited to 4- and 6-pack facings in the refrigerator cases at most of these retailers. A facing is a package visible at the front of the shelf, with identical items stocked behind it, as shown in Figure2; these are periodically repositioned at the front of the shelf by employees as items are removed by customers. Most retailers also stocked single bottles/cans and larger packages (e.g., 12- and 15-packs) in their refrigerator cases, as well as various sizes on unrefrigerated shelves. However, these typically duplicated brands and varieties stocked as refrigerated 4- and 6-packs, and thus were not recorded. An exception was made for two of the natural foods format retailers—these had more limited refrigerator space, which contained primarily single bottles/cans, and 4- and 6-packs were displayed primarily on nearby unrefrigerated shelves. All 4- and 6-packs were recorded at these two stores, refrigerated or not. Craft beer was shelved distinctly from other types of beer at all grocers and natural foods retailers in the study, and every facing in the craft section was recorded. Although the visualization of national ownership includes relationships for brands in the relatively new category of alcoholic root beers, nearly all Lansing-area retailers shelved these products in a separate section (usually with ﬂavored malt beverages and hard ciders). Some convenience stores, due to their more limited shelf space, did not have distinct craft sections, and mixed craft brands with other types of beer. For these retailers, Beverages 2018, 4, 1 6 of 13 Beverages 2017, 3, 63 6 of 13 retailers,only the brandsonly the typically brands typically found in found the craft in sectionthe craf oft section larger retailersof larger wereretailers recorded were recorded (e.g., omitting (e.g., omittingalcoholic alcoholic root beers, root mainstream beers, mainstre beer brandsam beer and brands “import” and “import” beers). beers).

Figure 2. Example of craft beer facings at a grocery-format retailer. Figure 2. Example of craft beer facings at a grocery-format retailer. These data were then coded for parent company ownership, and analyzed statistically. Based on my theoreticalThese data framework, were then coded I expected for parent even company small equity ownership, stakes from and analyzed big brewers statistically. to provide Based them on significantmy theoretical advantages framework, over I expectedfully independent even small breweries—these equity stakes from could big include brewers greater to provide access them to distributionsigniﬁcant advantages and retail channels, over fully or independent even the abilit breweries—thesey to sabotage such could access include for close greater competitors. access to Therefore,distribution I decided and retail to channels,place brands or evenwith any the big ability brewer to sabotage ownership such stake access in the for category close competitors. of having Therefore,ties to big Ibrewers, decided torather place than brands the with Brewersany big Asso brewerciation’s ownership allowance stake of in less the categorythan 25% of equity. having The ties analyticto big brewers, strategy rather included than thecalculating Brewers the Association’s percentage allowance of big brewer, of less private than 25% equity equity. and The craft analytic beer ownershipstrategy included for all calculatingshelves, as thewell percentage as for eye-le of bigvel brewer,shelves. privateA stacked equity bar and chart craft visualization beer ownership was createdfor all shelves, to illustrate as well the big as brewer for eye-level and craft shelves. beer ownership A stacked percentages bar chart visualization for each retailer. was In created addition, to aillustrate treemap the visualization big brewer andof the craft shelf beer space ownership allocated percentages to big brewer for each brands retailer. across In addition, all retailers a treemap in the studyvisualization was generated of the shelf with spaceRAWGraphs allocated (app.rawgraphs.io). to big brewer brands across all retailers in the study was generatedThe analytic with RAWGraphs strategy also (app.rawgraphs.io). included ordinary least squares regression analyses using the software PSPPThe (1.0.1, analytic https://www.gnu.org/). strategy also included The ordinary dependent least variables squares regressionwere the number analyses of using craft thefacings software per retailer,PSPP (1.0.1, and https://www.gnu.org/the percentage of craft). beer The with dependent ownership variables ties to were big thebrewers. number The of independent craft facings pervariables retailer, were and the the retailer percentage characteristics of craft beer of withformat ownership and ownership, ties to bigwhich brewers. were Thetransformed independent into dummyvariables variables. were the retailerGrocery/supermarket characteristics format of format and and local ownership, ownership which were were coded transformed as the default into categories,dummy variables. as these Grocery/supermarket were expected to have format the andlargest local number ownership of craf weret facings. coded asNatural the default and conveniencecategories, as formats, these were and expected regional to and have national the largest ownership number were of craft coded facings. as the Natural comparison and convenience categories. formats, and regional and national ownership were coded as the comparison categories.

Beverages 2018, 4, 1 7 of 13 Beverages 2017, 3, 63 7 of 13

3.3. Results Results

3.1.3.1. U.S. U.S. Beer Beer Brand Brand OwnershipOwnership FigureFigure3 illustrates3 illustrates the the results results of theof the analysis analysis of ownershipof ownership at the at nationalthe national level, level, as of as October of October 2017. It2017. shows It shows that nearly that nearly all large, all non-craftlarge, non-craft brewers brewers (yellow) (yellow) have made have made alliances alliances with craft with brewers craft brewers (blue), either(blue), through either through an ownership an ownership stake or stake a distribution or a distribution partnership. partnership. In addition, In addition, the two the largest two brewerslargest (ABbrewers InBev (AB and InBev Molson and Coors)Molson bothCoors) have both ﬁve have or five more or “crafty”more “crafty” (red) (red) brands. brands. Diageo Diageo (London, (London, UK, andUK, parent and parent of Guinness of Guinness and other and other import import brands) brands is the) is only thebig only brewer big brewer that has that not has yet not allied yet allied with a craftwith brewer. a craft Alsobrewer. notable Also is notable that at leastis that a dozenat least craft a dozen brewers craft have brewers been partiallyhave been or partially fully acquired or fully by privateacquired equity by private ﬁrms (green).equity firms (green).

Ownership of Leading U.S. Beer Brands

# s a les rank non- private Partial Ownership craft “crafty” according to craft equity Beer Insights, 2017 Distribution

Ulysses Manage- South- Encore ment ern Tier Consumer Brook- Bridge- Capital Lord Fire- lyn Port Full Sail #23 Hobo stone DUVEL Victory Walker MOORTGAT minority e q u ity #20 24.5% equity Dogfish Boule- Head Valterra GAMBRINUS vard #25 15% equity #16 LNK Spoetzl/ Omme- Partners Shiner gang KIRIN Pyramid Tappeto Gen- Magic- Volante Trumer YUENGLING esee Hat Pils #7 Sapp- oro Funky Enjoy Beer Abita FIFCO Port- Anchor Buddha Ballast Labatt- (NORTH land/ Steam Point SAPPORO USA AMERICAN MacTar- #18 Yuen- nahan's Congruent; gling BREWERIES) Main St. Bruery #8 Capital Uni- Traveler Corona Seven- Honey broue CONSTELLA- Kings Brown TION Coney Moun- #3 Island tain Schlafly Brew HopCat Castanea BOSTON Beer Partners Modelo Samuel Presi- AdamsBEER Kar- Wicked dente Harbin Sam bach Weed #6 Adams Sage Estrella Pacifico Capital Jalisco Montejo Blue Schmidt Mich- Goose Angel Jacob Point Dom- elob Island Con- City Best Hum- inion crete Schaef- Olde #15 Mc- boldt Beck's Beach Sorley's er Sara- MINHAS Butte Bodd- toga Leffe 49% equity Heile- Ball- Creek ingtons Red #24 Old Mil- man antine ANHEUSER- Ford- Hook waukee ham Taj 49% equity Minhas Schlitz BUSCH Mahal Pearl UNITED Hoe- Bass INBEV CRAFT Stroh's Carmel gaarden 32.2% equity Pabst BREWERIES #1 BREW Rolling Shock ALLIANCE Olympia Rock Kona Blatz Top Flying Golden #14 National Horse Ko- Mendo- Road Bohem- Primo kanee Kirin Bud- cino Natural Bell’s Piels ian weiser Ziegen- King- New Mag- Broth- PABST Stag Bock Widmer fisher Wild Belgium nolia ers (OASIS BEV.) Broth- Blue Brecken ers #5 44% Stella -ridge Minerva Rainier equity Spaten Artois Busch Four Margar- Peaks Falstaff itaville/ 10 BELL’S NEWNew Belgium Moon- Land Barrel Devils #17 BELGIUM Lone St Pauli Shark Back- Tsing- New minority light Red- Franzis- Star Girl bone #12 tao Holland equity bridge kaner Indepen Small Best dence Elysian Town Damn Dog Tag 50% equity Tiger Faust Beer minority e q u ity DESCHUTES Shorts Mur- 19.99% #19 Stone TSG phy's Red Killian's Consumer equity Lagu- Stripe Irish Partners nitas Dos Red #13 Carling minority Equis Key- De- South- Colo- stone equity end rado Third schutes Cruz- Native Shift Sweet- Zywiec campo Molson STONE Water HEINEKEN #22 #4 Tecate Blue Perrin Saint Moon Coors Brewing Amstel Archer Ice- Cigar house Hein- Sol City eken MOLSON New- Birra COORS Old Red castle Moretti Vienna Sierra Terrapin #2 Dog Fireman Nevada Wa- Capital satch Hop Partners Valley Uinta Hamm's Leinen- Foster’s kugel's SierraSIERRA Squatt- MAHOU SAN minority e q u ity Revolv- Miller NevadaNEVADA ers er MIGUEL Henry #11 Staro- Oskar The Wein- Milwau- pramen Blues Riverside hard's kee's Co. Barmen Best Herman Jo- seph’s 30% equity Sol Peroni Extra Lech Gold DIAGEO Pilsner Found- #9 Guin- Urquell ers Center- ness Grolsch #21 Cristal bridge Tyskie Capital Smith- wick's Gordon Kil- Aguila Biersch kenny Cus- Harp quena Rock Bottom

O ctober 2017 philhow ard.net

Figure 3. Ownership of leading U.S. beer brands. Figure 3. Ownership of leading U.S. beer brands. Among these brands, one of the few exceptions to obscuring ownership is Third Shift, which wasAmong introduced these by brands, Molson one Coors of the nationally few exceptions in 2013 to. obscuringThe bottles ownership are held in is a Third craft-style Shift, whichuncoated was introducedcardboard bycarrier, Molson with Coors single-color nationally printing. in 2013. Although The bottles some are heldinitial in packaging a craft-style formats uncoated identified cardboard it carrier,as a product with single-color of “Band of printing. Brewers”, Although and did somenot link initial it to packaging the parent formatscorporation identiﬁed [43], eventually it as a product the ofsmaller “Band print of Brewers”, on the front and of did the not packaging link it to stated, the parent “crafted corporation by Coors [master43], eventually brewers”. the This smaller brand printwas

Beverages 2018, 4, 1 8 of 13

onBeverages the front 2017 of, 3 the, 63 packaging stated, “crafted by Coors master brewers”. This brand was once8 highlyof 13 visible in craft sections at a number of Lansing area retailers, and continues to be sold at retailers nationally,once highly but visible was not in foundcraft sections on any at of a thenumber inventoried of Lansing shelves area retailers, in this study. and continues to be sold at retailers nationally, but was not found on any of the inventoried shelves in this study. 3.2. Case Study of Lansing, Michigan Retailers 3.2. Case Study of Lansing, Michigan Retailers A total of 1145 facings, in a 4- and 6-pack format were recorded. For the sample as a whole, 64.1% were identiﬁedA total of as 1145 having facings, craft in ownership, a 4- and 6-pack 5.9% format had full were or recorded. partial private For the equity sample ownership, as a whole, and 64.1% 30.0% werewere fully identified or partially as having owned craft by bigownership, brewers. 5.9% A total had of full 275 or of partial these facings private were equity recorded ownership, at eye and level, but30.0% analysis were of fully this or subsample partially owne indicatedd by big that brewers. the ownership A total of percentages 275 of these werefacings quite were similar—64.4% recorded at craft,eye 4.7%level, private but analysis equity ties,of this and subsample 30.9% big brewerindicated ties. that Subsequent the ownership analyses percentages therefore focusedwere quite on all facings.similar—64.4% In addition, craft, due 4.7% to the private small percentagesequity ties, recorded,and 30.9% those big brewer with private ties. Subsequent equity ties were analyses placed therefore focused on all facings. In addition, due to the small percentages recorded, those with private in the craft category. equity ties were placed in the craft category. If I had applied the more lenient Brewers Association deﬁnition of craft, 73 facings of Short’s If I had applied the more lenient Brewers Association definition of craft, 73 facings of Short’s (19.99% owned by Heineken) and 2 facings of Brooklyn (24.5% owned by Kirin) would have moved (19.99% owned by Heineken) and 2 facings of Brooklyn (24.5% owned by Kirin) would have moved to the craft category, resulting in 70.7% craft, and 23.4% with larger stakes held by big brewers. to the craft category, resulting in 70.7% craft, and 23.4% with larger stakes held by big brewers. The Theanalysis analysis does does not not include include in inthe the big big brewer brewer cate categorygory those those brands brands with with distribution distribution alliances, alliances, however.however. This This would would only only have have affected affected NewNew Holland nationally, nationally, which which has has a adistribution distribution deal deal with with Pabst,Pabst, but but this this Michigan-based Michigan-based brewery brewery accountedaccounted for 45 facings, or or 3.9% 3.9% of of the the study study total. total. FigureFigure4 shows 4 shows the the results results for for each each retailer, retailer, organizedorganized as ascending from from the the smallest smallest to to largest largest numbernumber craft craft beer beer facings facings in in each each ofof thethe threethree retailerretailer formats. As As expected expected,, these these formats formats had had strong strong differencesdifferences in in the the number number ofof craft facings, facings, due due to to more more limited limited shelf shelf space space at convenience at convenience stores, stores, in incomparison to to natural natural food food stores stores and and mainstream mainstream grocers. grocers. Convenience Convenience stores stores offered offered 8 to 8 to39 39craft craft offerings,offerings, with with the the locally-owned locally-owned storestore offeringoffering the most facings facings in in this this format. format. There There was was more more variationvariation in in shelf shelf space space devoted devoted to to craft craft beerbeer atat natural and grocery grocery formats: formats: as as low low as as 14 14 craft craft facings facings atat one one nationally-owned nationally-owned grocery grocery retailer,retailer, and as high high as as 237 237 at at one one locally-owned locally-owned grocery grocery retailer. retailer. TheThe average average number number of of facings facings for for all all16 16 retailersretailers waswas 71.5.

O w nership tie s fo r “craft” b e e r fa c ings (n = 1,145) at sixteen retailers in Lansin g , M ichigan

R e ta ile r

Form at O w nership Total #

62.5,37.5 8

66.7,33.3 9

Convenience 50.0,50.0 10 30.8,69.2 13

68.8,31.3 16

74.4 25.6 39

45.5 54.5 44

7 3 .0 2 7 .0 74 Natural 78.5 21.5 93

6 9 .0 3 1 .0 145

35.7,64.3 14

50.0 50.0 44

70.0 30.0 70 G rocery 67.4 32.6 138

75.4 24.6 191

76.8 23.2 237

N u m b e r o f 6 - a n d 4 -p a c k fa c ings (labeled by % in each ow nership category)

FigureFigure 4. 4.Ownership Ownership ties ties for for “craft” “craft” beerbeer facingsfacings (n = 1145) 1145) at at sixteen sixteen retailers retailers in in Lansing, Lansing, MI, MI, USA. USA.

Beverages 2018, 4, 1 9 of 13 Beverages 2017, 3, 63 9 of 13

TheThe average average number number of of craft craft facingsfacings withwith ownership ownership ties ties to bigto brewersbig brewers was 37.9%was when37.9% calculatedwhen calculatedat the retailer at the levelretailer (i.e., level not (i.e. for, the not total for the number total ofnumber facings of in facings the study). in the Locally-owned study). Locally-owned retailers had retailerspercentages had percentages in a relatively in a relatively narrow range, narrow from rang 21.5%e, from (natural) 21.5% (natural) to 25.6% to (convenience). 25.6% (convenience). Regionally Regionallyand nationally-owned and nationally-owned retailers retailers all reported all report highered percentages, higher percentages, and their and facings their withfacings big with brewer big ties brewerranged ties fromranged 30.0% from (grocery) 30.0% (grocery) to 69.2% to (convenience). 69.2% (convenience). FigureFigure 5 illustrates5 illustrates the thefacings facings with with big brewer big brewer ownership ownership ties by ties brand by brandat all 16 at retailers all 16 retailers (338 facings).(338 facings). This treemap This treemapshows the shows breakdown the breakdown of the 30% of the of 30%study of shelf study space shelf that space was that coded was codedas “craftwashing”,as “craftwashing”, divided divided by parent by firm, parent and firm, subdivid and subdivideded by their brands. by their The brands. brands The with brands the highest with the percentagehighest percentageof facings ofwere facings Michigan-based were Michigan-based breweries breweriesFounders Foundersand Shorts and (approximately Shorts (approximately 22% each).22% However, each). However, Molson MolsonCoors’ “crafty” Coors’ “crafty” brands brandsBlue Moon Blue Moonand Leinenkugel’s and Leinenkugel’s also take also up take a up significanta significant amount amount of space of in space the region’s in the region’s craft beer craft sections beer sections(21%), although (21%), althoughnone of Molson none ofCoors’ Molson recentlyCoors’ acquired recently brands acquired were brands recorded were recorded in the study in the studyarea. Conversely, area. Conversely, AB InBev’s AB InBev’s recent recent craft craft acquisitionsacquisitions took took up up substantially substantially more more shelf shelf space space than than their “crafty”“crafty” offeringsofferings (Shock (Shock Top, Top, Wild Wild Blue). Blue).Interestingly, Interestingly, another another “crafty” “crafty” brand brand owned owned by by this this firm firm Landshark, Landshark, was was previously previously found found on on area areashelves, shelves, but but not not during during this this inventory inventory period. period. Constellation Constellation has alsohas beenalso been quite quite successful successful in placing in a placingCalifornia-brewed a California-brewed acquisition acquisition on this on area’s this area’s shelves shelves (11%), (11%), after after paying paying $1 billion $1 billion for Ballast for Ballast Point’s Point’scraft craft brewing brewing and and distilling distilling operations operations in November in November 2015. 2015.

Division of “craft” s p a c e fo r b ra n d s w ith o w n e rs h ip tie s to b ig b r e w e rs “crafty” size proportional to num ber of 4- and 6-pack facings at 16 Lansing-area retailers (n=338); % refers to parent com pany share of total number of big brew er facings craft acquisition

N A B /F IF C O (.0 3 % ) A B IN B E V (1 7 % ) M AHOU SAN MIGUEL (22% ) HEINEKEN (29%) KIRIN .6 ) (.06% (1 % ) SAPPORO (1 % ) GAM - BRINUS

MOLSON COORS (21%) C O N(7% ) STELLATION

FigureFigure 5. Division 5. Division of “craft” of “craft” space space for brands for brands with with ownership ownership ties tiesto big to bigbrewers brewers across across all sixteen all sixteen retailers (n = 338). retailers (n = 338).

TableTable 3 shows3 shows the the results results of ofthe the regression regression anal analyses.yses. For For Model Model 1 the 1 the dependent dependent variable variable is the is the totaltotal number number of ofcraft craft facings. facings. Not Not surprisingly, surprisingly, re retailertailer format format was associatedassociated withwith thethe number number of of craft craftfacings, facings, although although the the difference difference between between grocers grocers and and convenience convenience stores stores was muchwas much stronger stronger than the thandifference the difference between between grocer grocer and natural and natural formats. form Theats. model The model predicts predicts that compared that compared to grocery to grocery retailers, retailers,a convenience a convenience store isstore expected is expected to have to 90have fewer 90 fewer craft facings,craft facings, and a an naturald a natural foods foods retailer retailer 26 fewer 26 fewercraft facings,craft facings, after controllingafter controlling for ownership. for ownership. The preliminary The preliminary hypothesis hypothesis that locally that locally owned owned retailers retailerswould would offer more offer craft more beer craft selections beer selections also received also some received support some from support this model. from It this predicts model. a retailer It predictswith nationala retailer ownership with national will haveownership 78 fewer will craft have facings, 78 fewer and craft one withfacings, regional and one ownership with regional will have ownership59 fewer will craft have facings 59 fewer in comparison craft facings to local in comp ownership,arison afterto local controlling ownership, for format.after controlling for format.

Beverages 2018, 4, 1 10 of 13

For Model 2 the dependent variable is the percentage of craft facings with big brewer ownership ties. There were very weak differences between retailer formats and percentage of craft beer owned by big brewers, after controlling for ownership. Ownership, however, was associated with stronger differences. In comparison to local ownership, the model estimates 19% more craft facings from big brewers in a nationally-owned retailer, and 14% more in a regionally-owned retailer, after controlling for format. This provides some support for the preliminary hypothesis that locally owned retailers would offer fewer brands with ownership ties to big brewers, although this model explained much less variation (R2 = 0.06) in comparison to Model 1 (R2 = 0.48). Both models were very limited in the number of potentially confounding variables that were controlled, however, and the discussion below offers suggestions for what to include in models in future research.

Table 3. Ordinary least squares regression models for retailers: (1) total number of craft facings; and (2) percentage of craft facings owned by big brewers (n = 16) 1.

Model 1: Total Number of Craft Model 2: % of Big Brewer Facings Per Retailer Ownership Ties Per Retailer Independent Coefﬁcient (S.E.) p Coefﬁcient (S.E.) p Variables Constant 164.36 (29.27) <.001 .26 (.08) .009 Retailer Format Grocer (default) Natural −26.44 (34.66) .462 −.04 (0.10) .716 Convenience −90.00 (30.34) .013 .01 (.09) .876 Retailer Ownership Local (default) Regional −58.98 (35.56) .125 0.14 (0.10) .204 National −77.72 (32.68) .037 0.19 (0.09) .065 R2 p R2 p Model .48 .023 .06 .356 1 Following recent suggestions from the American Statistical Association, p values are reported, but not used as a measure of importance [44].

4. Discussion The results suggest that craftwashing in the U.S. beer industry is quite widespread, with only one big brewer (Diageo) so far resisting craft acquisitions. It is difficult for a typical consumer to identify ownership ties with big brewers, both for “crafty” brands and those with formerly independent craft heritage. The large numbers of acquisitions by private equity firms in recent years suggests that even more independent craft breweries will eventually be acquired by big brewers or other large corporations. As a result, those who want to support independent craft brewers must exert substantial effort to remain fully informed, and avoid unintentionally reinforcing these trends. Locally-owned retailers in this study were more likely to have (1) larger craft sections; and (2) a lower percentage of brands with ties to big brewers, after controlling for retail format, which indicates some support for the preliminary hypotheses. Although the small sample size of the case study limits the power to make stronger generalizations, particularly outside Michigan, these hypotheses merit further research. This study was not able to disentangle if the low percentage of big brewer brands at locally-owned retailers was quite deliberate, or due primarily to offering larger selections. In other words, do these retailers offer a minimum number of brands with big brewer ties, and add an increasing number of independent brands with an expanded space dedicated to craft beer? Alternatively, do locally-owned retailers intentionally to seek to minimize the percentage of big brewer products they offer, regardless of the size of their craft beer shelf space? Anecdotally, the answer to the last question is yes, at least for several craft beer-focused bars and packaged beer retailers that very publicly dropped Wicked Weed immediately after it was acquired by AB InBev [45,46]. This question has not been answered with more systematic research, however, Beverages 2018, 4, 1 11 of 13 such as through interviews and surveys of retail managers (particularly those that do not make use of category captains). Future work could improve upon this study’s limited generalizability by expanding the sample size, and randomly sampling retailers, including a wider range of formats (e.g., liquor stores, bars, restaurants) and geographic locations. They could be further strengthened by including additional control variables at the retail-level, such as sales volumes for each brand, the size and composition of their entire beer shelf space (including domestic and import sections), and prices they charge relative to competing retailers. These studies could also potentially examine the demographics of regions surrounding retailers, or of the people who actually shop there, to explore additional hypotheses, such as fewer craft and independent craft offerings for less affluent customers. Another suggestion for additional studies is to employ longitudinal designs, and analyze changes in craft offerings over time. In particular, these could explore the possibility that (1) the power of big brewers will enable them to further increase the amount of shelf space they take up in craft beer sections; and (2) they will replace declining space for “crafty” brands with their more recently acquired brands. An alternative potential outcome, however, is that the Brewers Association label raises awareness of independent craft brewery ownership, and reduces sales even for big brewers’ brands with craft heritage. Craftwashing by big brewers has shifted from crafty introductions to acquiring brands with craft heritage. This change was influenced by the lack of effectiveness of their broader strategic sabotage strategies—the craft segment continues to grow, and at the expense of big brewers’ total sales. The situation is very dynamic, however, and the largest independent (or “mass craft”) breweries, such as Boston, Sierra Nevada, and New Belgium, have also experienced flat or declining sales in recent years. Much of the growth in the craft segment is now concentrated at the smaller-scale, such as neighborhood micro-breweries [47]. This has coincided with the rise of consumer “neolocalism”, or loyalty to local place identities [48]. A rapidly increasing number of craft brands are entering the U.S. market, but the amount of craft shelf space at retailers is remaining relatively static. As a result, retailers’ definitions of what is craft beer and what is not, will be a key factor in influencing how craftwashing strategies evolve in new directions.

Acknowledgments: This work was supported by the USDA National Institute of Food and Agriculture multistate project, NC-1198, “Renewing an Agriculture of the Middle: Value Chain Design, Policy Approaches, Environmental and Social Impacts”. Conﬂicts of Interest: The author declares no conﬂict of interest.

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