What's brewing with Missouri beer?

By Forrest Dougan

Published Dec. 2, 2008

How the U.S. lost its largest beer producer

One of the many magical qualities of beer is that, relatively, it is a very cheap beverage. In a slow economy, one often sees that beer sales will stay even or increase while wine and quality liquors decrease, according to brewmaster James Ottolini of Schlafly (and every college student ever). This had been the classic model for beer sellers for the better part of the last century. But the increased popularity of microbrews has mutilated this pricing model, like it has all other sections of the beer industry. Now, with the slumping economy, we're left wondering how beer drinkers will change their drinking habits.

The effects of this economy were made all too real by the InBev/AB merger this summer. The sale of America's largest brewer to a foreign company caught many consumers off guard. But many inside the industry were not nearly so surprised.

Anheuser-Busch was slumping far below the market averages posted by other companies (Miller, Samuel Adams, InBev, etc.) But the unusual thing about the beer industry is that this was not good enough. The first offer from InBev, $65 per share, was refused by most shareholders. This offer was not the actual offer. The company was just pinning AB down, and everyone who follows the beer industry knew it. Then the brewing giant (that owns 50 percent of Grupo Modelo and 27 percent of Tsingtao, China's leading beer producer, in addition to premier brands like Stella Artois) gave the actual offer of $70. Carlos Brito, CEO of InBev, had no intention of getting AB for $65 per share; he was backing AB into a legal corner, says Robert Steyer of The Saint Louis Beacon.

When InBev gave the new price offer AB had to accept on legal grounds, and InBev knew this. AB is a public company, so it had to offer itself to the Belgian behemoth under the laws that require public companies to act in the best interest of their shareholders. Basically, InBev took everything you drink that is not brewed in a bucket in your hometown with this deal (because you sure as hell don't drink Coors).

The slumping stock price of Anheuser-Busch was not due to a lack of sales. So why was the company forced to sell to InBev despite the brewery's Dow Jones Industrial Average-beating stock price?

Merely being profitable was not enough, and InBev had a better offer.

Part of AB's stock slump happened because AB came late to the microbrew game. They advertised that their beer was just a classic beer. The campaign led to a slow burn. Along with AB's notoriously fat corporate perks, AB's stock slipped because it failed to take into account the microbrew obsession that has formed since the mid-'80s. To make matters worse, Bud's Belgian ownership will put a bad taste in the mouths of loyal American drinkers.

Microbrews: beer's indie kids?

Now, Anheuser-Busch is trying very hard to keep up with the microbreweries that are creeping onto the national beer scene. Go to the local grocery store and you can get a wheat beer from Kansas City, a Belgian, Guinness from Ireland or some local brew. To get in on this market, AB has introduced American Ale, an attempt to edge in on the craft brew market, using Bud's size to brew for less.

(Ironically, it's a Belgian company that makes a beer called "American Ale.") In addition to marketing the American Ale, AB is keeping its old workhorses, Budweiser and Bud Light, which tout their "drinkability" over other beers. Whatever that means.

Sitting at the bar of local brewery Flat Branch Pub and Brewing on a Friday night, some "post-grad and grad students, anywhere from 24-45, with a steady income," as Flat Branch manager Jarret Crader calls them, have saddled up to the bar.

These are the main members of the crowd at Flat Branch, which also includes some younger drinkers and some older customers. (For the purposes of MOVE, old = 47).

The microbrew or craft beer movement started in the early-to-mid-'80's, mostly in California, that wonderful breeding ground of culture. There are many contributing factors to the growth of the industry. The first is that Americans, flush with imports, were clamoring for better beer. The crisp, clean lagers of America's big-box brewers weren't satisfying American drinkers.

The fashion of quality beer grew up alongside the Napa Valley wine movement and the American cuisine revival. Restaurants and people got involved in better recipes and local foods. With more interest in food came a need for higher quality beers and wines.

Some say globalization caused the revival — that people want their replica German steins filled with replica German Lagers. T.J. Bishop, a bartender at Shakespeare's Pizza, gave his insight while drinking at Flat Branch. "There is definitely an imitation — that 'I wanna be Euro,' vibe about drinking these craft beers," he says. But Bishop thinks his attitude is more accurate of his drinkers at Shakespeare's and his fellows at Flat Branch. "I still drink Busch, but I like the finer things in life," he says. While many craft-brew drinkers are taking off into uncharted territory, many still have their old ballpark brews.

Lucky for recession-era college student, the brews will get comparatively less expensive as the craft beer makers get bigger. How AB's new ownership will affect the price of a case of Busch and other beer pong brews remains to be seen.

How will the merger affect my beer of choice?

Despite talk of American drinkers balking at Bud's new foreign ownership, T.J. Bishop of Shakespeare's said his experience has been that people who might have mentioned a change in habit were, as he puts it, "all talk and no walk." Since the economy took its holiday-killing turn, he has noticed more of the "King of Beers" flowing from the tap at the bar. From the Flat Branch side, Chris Denman, a bartender six months in, says: "I don't feel like anything has changed, orders remain the same."

Denman also says Flat Branch's market or even Columbia's market might not be a good measure of the effects.

"A wide variety of bars cater to certain frats or indie rockers... while more aware drinkers come here," he says.

When one shifts the view to a larger city like St. Louis, the effects are much more drastic. The Saint Louis Beer Company, maker of Schlafly, is increasing production from 22,000 barrels to around 30,000, according to brewmaster Ottolini. They might even be adding another eight-hour shift, according to brewmaster Brennan Greene. The Flat Branch Web site has an apology for "selling out of 263.5 gallons of pumpkin ale."

Meanwhile, newly formed AB-InBev is doing well. The company's stock got a boost from the merger.

For Bud, the biggest changes will be in new brewing projects such as Bud Light Lime, not from classic brews. Brito has said InBev is about profit. Period. They have promised to do nothing that will change any old markets.

As for consumers, will they stop buying beer in a slow economy? Flat Branch customer Kyle Wilmot sums up what is probably the attitude of most drinkers: "I've cut back on everything else but beer." Wilmot added about his Bud Light, "I'm waiting to notice a change, it tastes the same price."

Wilmot says he doesn't have enough animosity to stop buying AB products, but craft brews are good enough that he'll be drinking more. The market seems to be thinking the same way.