Beer, Capitalism, and the American Way

Understanding both sides of the Wicked Weed acquisition.

As a disclaimer, my thoughts on this matter may not be particularly popular.  Please feel free to agree or disagree with me in part or wholeheartedly. Part of what makes this country so great is that we’re all free to express our own thoughts and opinions. But let’s have a discussion about this acquisition instead of a witch hunt.

Let’s start with Wicked Weed, their owners, and the transaction… not the other party involved, but the transaction specifically.

Many will call them sellouts, I call them patriotic Americans.

Seriously, please tell me: What is more American than starting a small business from scratch, working your ass off to grow your little business into a big, nationally respected organization, and then selling the whole thing for piles and piles of cash? Isn’t this the epitome of capitalism? If you were to look at this scenario outside of the brewing industry, wouldn’t you be saying “Hell yes, good for them!”?

Don’t let our industry quirks jade your view of the business transaction that took place: some badass Americans built something that someone else thought was amazing enough to pay top dollar for, so they sold it. This is business- the goal is to make money. I’m going to guess that a vast majority of us have never sat in a room and had a check slid across the table with that many zeroes at the end of it.

Besides, try to understand what this means for their product on a national level. (Again, remove the name of the other party from your thoughts… think purely business). If someone approached you with an offer to plug you into a nationwide network of distributors, access to a world class sales team, and a chance to grow your brand beyond a level you could ever dream of… would you take it? 

Ah ah ah!! No “Yeah, but not to they-who-shall-not-be-named”... No emotional strings attached, would you take the deal?

The answer is yes, it’s the right business move. It’s the move that puts your product in the most hands. Period.

So feel free to call them sellouts if you’d like. But the way I see it, they were just following the capitalist ethos that built America.

The Flipside of the Coin

My defense of the transaction on Wicked Weed’s part is certainly not a celebration of their new omnipotent overlords. I have a serious problem with Anheuser-Busch InBev (ABI) and their business practices. But I’m afraid that all too often ABI is cast as the big, bad behemoth without a lay explanation as to why many of us within the industry feel that these types of acquisitions are bad for other craft breweries.

A quick lesson in beer sales and distribution:

Let’s assume that when a brewery sells beer it produced in it’s own tap room, the profit margin is 100% (obviously, it is not, but let’s just keep the numbers simple). In some, but not all states, breweries are allowed to “self distribute” their product, meaning they are allowed to their product directly to retailers (bars, restaurants, grocery stores, etc). When selling direct to a retailer, the breweries margin becomes more like 66%, as the retailer will need to make a profit off selling the beer as well.

If a brewery happens to be in a state like South Carolina (like us!), then they would not have the choice to self distribute. We are required to sell to a wholesaler (beverage distributor) who then sells to a retailer (bar, restaurant, etc.). And if you’re paying attention to the margins, you can guess what happens in a 3 tier system- we each get somewhere around 33%, give or take. In the end, a brewery operating in this system will need to sell substantially more volume in order to make the same gross profit.

Keep in mind that this is all in-state distribution. As soon as we start talking about crossing state lines (say from South Carolina to North Carolina), a distributor will absolutely be required.

Now here is the catch: ABI controls their entire distribution network. Any time you see a Bud Light, Breckenridge Brewery, and now Wicked Weed beer, it will have come from a distributor controlled by ABI.

Vertical integration! Great business move, right? They can sell all of their own products, keeping most of the margin in house, and tightly control their supply chain.

For them, yes. For the rest of us, not so much.

Here’s what really happens: ABI and its distribution network are so immense, sprawling, and full of cash, they are able to influence the craft beer market in a number of ways. They lobby state legislatures for laws that favor the big distributors (see North Carolina’s HB 500 battle raising the self distribution limit in the state), they use their deep pockets to discount prices (or simply give product away) to retailers to block craft beer sales, and they incentivize their sales teams focus on selling their products instead of the independent breweries they also represent (pretty serious conflict of interest when they write the laws forcing small, independent breweries to use a distributor). In short, they are able to control not only their own products' distribution, but they can also directly and indirectly influence the distribution of independent craft brands.

To phrase this more simply: many of us in the industry have problem with ABI because they prevent the craft beer industry from being a free market.  THAT’s why so many had such a visceral reaction to the Wicked Weed transaction. Not because Wicked Weed did something wrong, but because ABI once again flexed its muscular wallet and added another jewel to its crown. Not for the sake of the beer, or the craft, but because they want to control the market. That’s bullshit.

So if you’re feeling annoyed, irritated, pissed, or disappointed at this acquisition, grab your favorite independent brew, pour a little out for our homies at Wicked Week, and hate away at ABI. I hear ya if you never want another drop of an ABI owned brand- they rig the game against us little guys, and it sucks.

But leave the Wicked Weed crew out of it. It was a sound business decision, albeit with the devil. May we all be so fortunate as to have the opportunity to make a decision while staring at a check with that many zeroes for ourselves one day.