Small breweries are being squeezed up by conglomerate power. But are giants like InBev about to get their comeuppance?Take a trip down the beer aisle at your local grocery store. It might appear that independent craft beers are booming. The great variety of labels indicates that somehow the little guys have managed to buck the consolidation trends of so many other industries and bring their suds to a mass market.

The beer aisle at my local Safeway in Lynden, Washington, for instance, hosts the usual domestic mainstays (Bud, Budweiser, Miller, Coors, Sam Adams), cheap college beers (Pabst, Milwaukee, Busch), Mexican beers (Corona, Negra Modello, Dos Equis), standard one-off foreign imports (Guinness, Kokanee, Fosters, Stella, Heineken), and enough other smaller brands to induce vertigo.

A local beer-drinking customer who didnt want to stay on the well-trodden path could buy a Pyramid Apricot Ale, a Dogfish Head Sea Quench Ale Session Sour, a Thors Equinox dark ale, a Silver City Ripe N Juicy Double IPA, or a Sufferfest Repeat Kolsch Style Beer with Bee Pollen, to pick a few almost at random from a huge number of choices.

The brands available on my beer scouting trip in early February included those already mentioned as well as Shiner, Founders, New Belgium, Sierra Nevada, Shock Top, Kona, Alaskan, Lagunitas, 10 Barrel, Aslan, Deschutes, Widmer Bros., Ninkasi, Red Hook, Elysian, Fremont, Iron Horse, Kulshan, Pike, Fat Tire, and Mac & Jacks.

That list is far from exhaustive. These labels were slapped on lagers, pilsners, pales, porters, IPAs, ambers, browns, stouts, Belgians, fruity beers, sours, light beers, wheat beers, and near beers.

The number of beers Americans can choose from in 2020 is truly staggering. The transformation of the beer market from the stagnant 1970s to today is often referred to as the craft brewing revolution, for good reason. It has been driven by an explosion in the number of smaller breweries across the country, from several dozen to several thousand. Yet many believe this revolution is under threat.

Threats After Prohibition

The threat this time is, by and large, not coming from without. Jacob Grier is a libertarian-leaning mixologist in Portland, Oregon, and author of the new book The Rediscovery of Tobacco: Smoking, Vaping, and the Creative Destruction of the Cigarette. Alcohol prohibition is a live issue in Indonesia and some other Muslim-majority countries he told me. Here? Not so much. The American Prohibition Party does manage to linger on, admitted Grier, but it gets a negligible number of votes.

That doesnt mean there are no calls to prohibit things that we consume. Rather, our taboos have shifted. Yesterdays crusades to ban alcohol and marijuana have largely given way to new calls to ban cigarettes and opioids. Grier warns that some advocacy organizations are trying to build the case against even moderate drinking but, for now, theyre sailing against a beery wind.

The real problem in the American beer market, according to many critics, is coming from within the industry itself. Jeff Spross is a left-leaning economics and business columnist for The Week. He believes that the beer aisle provides a handy lesson in the corrosive influence of monopoly power on American society if only you look a little closer.

You see, while it might seem like we’re awash in brands and a hefty selection of craft beers, Spross writes, it turns out a lot of those options are actually owned by the same small selection of beer-making giants.

And while there is much greater variety available to mass market nationwide than the choices we used to have, the distribution system that exists in most states makes the variety I noted in my beer aisle trip the high foam mark nationally. In many states, you wont have nearly so many choices.

Big Beer Gets Bigger

The biggest of the beer giants is generally referred to as AB-InBev, or just InBev for short. It is a true international colossus formed of the merger between Anheuser-Busch and Belgium-based InBev. As of 2017, it owned some 400 beer brands around the world, according to Spross. As of 2020, that number had climbed to over 500, according to the AB-InBev website, which declines to give a complete list. Its larger brands include Becks, Budweiser, Corona, Hoegaarden, Leffe, Michelob Ultra, and Modelo.

AB-InBev was born of mergers and buyouts and doesnt see any reason to stop. After the Anheuser-Busch and InBev merger in 2008, it swallowed up fellow beer heavyweight SABMiller in 2016 (though it had to sell MillerCoors off to Canadian firm Molson to satisfy regulators). And it hasnt limited its thirst to larger labels.

In 2019, AB-InBev announced plans to buy the Craft Brew Alliance, a collection of originally smaller breweries, including Kona, Widmer Bros., and Redhook. It already owned about a one third stake in these breweries. So long as regulators dont balk, the remaining two thirds will soon be bought for north of $200 million.

The Craft Brew Alliance deal is far from the first craft brewing acquisition by AB-InBev. Through its Brewers Collective craft business unit, it also owns and operates well-known brewers Goose Island, 10 Barrel, Elysian, Platform, and many others.

AB-InBev has also acquired stakes inbeer publications. A few of these are beer review sites, which Spross argues is truly insidious. ZX Ventures, a venture capital group owned by AB-InBev, bought stakes in RateBeer and The Beer Necessities. If a massive brewer can own a stake in a major beer rating site, it could well influence what beers that outfit recommends to customers in the first place, Spross warns. He points out that the fiercely independent craft brewer Dogfish Head was so upset by this development they asked that their beers be pulled from RateBeer’s website.

Capitalist outrage is a funny and flexible thing, however. While Dogfish Head may have balked at the outsized influence of one large beer company in 2017, when Spross wrote the column, it sold out to one of that companys mid-sized competitors only a few years later. Boston Beer Company, which owns Sam Adams, knocked back the smaller craft brewer last year in a $300 million deal. And it wouldnt be too surprising to see AB-InBev buy Boston Beer Company a few years from now.

Alcohol Meets Antitrust

Beer is different from whiskey in the sense that freshness matters. Its generally better to drink it as close to the time and place that it was brewed to get the full effect. But if we set aside any buy local preferences for a moment, from the beer drinkers point of view, what does it matter if AB-InBev owns many of the beers that we drink, so long as this doesnt significantly reduce choices, hike prices, or lead to the beer getting skunked?

According to Glenn Reynolds, a law professor at the University of Tennessee Knoxville, the prevailing theory of antitrust law is that monopoly power has to be doing harm to the consumer for the government to act. If all that AB-InBev and its remaining large competitors were doing was buying up existing breweries and allowing them to keep offering beers that their customers want, where is the harm?

One huge problem that small firms face is exit and succession. Many firms cant find a way to adequately compensate the founders, or staff the business after them, that allows those firms to survive in the long term. AB-InBev and company could be doing a service to the customers by making sure the beers keep brewing after todays brewers have moved on.

Chris Krukewitt is a founder of Heliotrope Brewery in Lexington, Virginia. I asked for his thoughts on consolidation in the beer industry. He said that his perspective was shared by pretty much all beer geeks in the know.

Krukewitts first observation was that the big boys are buying craft breweries, claiming that changes will not be made and then about a year later the changes hit. For instance, Maybe the Vienna Lager from Devils Backbone is no longer actually brewed in Virginia but in a Bid plant in New Jersey, and then Wicked Weed is no longer brewed in North Carolina but in the production capacity vacated in Virginia.

In other words, large buyers are taking advantage of their greater capacity and logistics to chase efficiencies and lower taxation. These sorts of actions are common in many industries and do not, in themselves, lead to consumer harm.

The Fight for Shelf Space

The Heliotrope founder admitted that beer production juggling was a relatively minor complaint. The real problem, he said, is the shelf space at retailers. AB-InBev and other large players push their formerly craft now faux craft beers onto the shelves squeezing out independent brewers.

To make matters worse, Krukewitt said, distributors cut back on purchases from independent brewers and do not sign new distribution deals with up-and-coming brewers who are effectively shut out of the retail market.

This constriction is depriving beer drinkers of significant choices unless they want to go to all of the breweries themselves. That would take some time, given the vast expansion of craft breweries.

Austin John is director of production, sales, and fun for Apocalypse Ale Works, about 50 miles south of Heliotrope, which brags that it is the first brewery in Forest, Virginia since Thomas Jefferson brewed in the 1800s. My life has always been about beer, John said.

Growing up, Johns father was a home brewer. After they won a homebrew competition at Baltimores Clipper City Brewing, they decided to go all in with a family-owned-and-operated brewery in 2013, which specializes in European styles like Belgian Dubbels, Quads, Doppelstickes, and Scottish ales. At the time, they were Virginias 43rd brewery. The last time John checked, there were over 250 breweries in his state.

John believes that fellow craft brewer Krukewitt said it well and that the problem he pointed out is the heart of the issue. In the three-tiered distribution system here in Virginia and many other stateswhich insists on some distinction between producers or importers, wholesalers, and retailersbig money controls the retail market.

There are very few independent decision makers at these retailers, thus ceding control to the local distributor, John explained. That means, to get on a shelf at a volume retailer requires major effort, capital, and perhaps more importantly, support of your distributors.

And here is where the big money comes in to make things difficult for smaller operators. Many of these distributors that are supposed to service these independent brands are direct affiliates of AB-InBev, or MillerCoors, effectively creating a duopoly by means of vertical integration, said John. This is hardly a competitive environment for independent brewers, making significant market growth increasingly difficult.

Laws are different from state to state. Some states rigidly enforce the three-tiered distribution system and the distinction between brewers, wholesalers, and retailers, with the exception of on-premises sales to the public. Virginia is one of the more rigid states. Heliotropes Krukewitt said that they are barred by law from bringing their suds to supermarkets directly. We must use a distributor, he said, and are legally not allowed to own any percentage of a distributor.

Mandating independent ownership of distributors doesnt mean that these distributors will favor smaller firms. Many see themselves as primarily go-betweens between large beer companies and supermarket shelves.

Take Pecht Distributors, which the Anhauser-Busch website will point people to as one of their distributors in Virginia. It was founded and owned by Robert Bobby Pecht Jr., who died in 2016. Pechts obituary boasted of him being a third-generation Anheuser-Bush beer wholesaler and concluded This Buds for you, Bobby!

John admitted that there can be a few benefits to being distributed by these shadow puppet warehouses. Even if they are greatly influenced or owned by the larger players of the beer market, they still want to make money and thus will take chances on a bunch of small independents that might sell.

However, he warns breweries to beware of distributors promises. For instance, they might say that they have their own brand development team that can do wonders for your product. That teams incentives are going to be stacked much more in favor of pushing bigger brands.

John also thinks that the industry consolidation trend is going to make things harder for small operators to gain any footing. For so long these macro brands were focused on the center of the marketplace, leaving niches in the market previously filled by independent brewers, he said. The point of these acquisitions by the macro brands is to close these niches, especially regionally, squeezing independents out of the marketplace.

Some states, such as Washington, have a set of laxer regulations that intentionally carve out more leeway for microbreweries. According to the Washington State Liquor and Cannabis Board, which regulates all alcohol, microbrewerieswhich are breweries that brew fewer than 60,000 barrels annuallymay have their own warehouses and self-distribute their own beer.

There are larger beer distributors here that microbreweries can use, but they dont have to in order to get their suds to a larger market. This strike a balance that is more favorable to smaller players, and is probably a good model of better beer regulation for other states. Though even in Washington, plenty of industry people and beer geeks complain about the influence of big beer.

Limiting Big Beer

AB-InBev has faced little difficulty so far in its mergers and acquisitions. It was forced to sell off MillerCoors as part of the 2016 SABMiller merger. In 2019, AB-InBev was slapped with a $225 million fine by the European Commission for making it hard to import cheap beer from the Netherlands to Belgium.

Antitrust enforcement in America can vary from administration to administration. It was generally lax under President Obama. I asked professor Reynolds if that is changing under the Trump administration. He replied, Not yet, though theyre making noises, and what weve seen so far in beer mergers is consistent with that.

Antitrust regulators in the Justice Department have asked for more information in the pending acquisition of the Craft Brew Alliance, but have given no larger indication that they will intervene. If American regulators wont rein in AB-InBev and other larger beer companies, then what might? The two best candidates right now are looming debt and consumer choice.

To make the sorts of large purchases that AB-InBev has, it has had to borrow a lot of money. Its debt hovers over $100 billion. The beer giant first announced, then canceled, then offered again an IPO on the Hong Kong stock market for some of its Asian business in 2019. The IPO was expected to raise nearly $10 billion. Because global beer sales have taken a dip, it only raised half of that.

There are a lot of different ways to consume alcohol. AB-InBev wasnt prescient or nimble enough to see the hard seltzer craze coming or to get into it before upstart White Claw got a pretty tight grip on that new market.

Even when global beer sales bubble up a bit higher after we recover from forced social isolation, it is by no means certain that AB-InBev, MillerCoors, the Boston Beer Company, or other large players will get the most business. Some of AB-InBevs brands have had awful luck. Early 2020 saw Corona sales tank. There is some debate about why but the coronavirus global pandemic surely didnt help. Other brands that were hot at one time, such as Goose Island, have seen sales struggle.

When I asked veteran mixologist Grier what had changed in his industry since he started mixing drinks in 2008, he said, The biggest evolution with spirits and cocktails is the diffusion of quality. It used to be that there were a few places and people making very good drinks, and the small community of dedicated cocktail lovers would really make effort to seek them out. Now both the skills and the appreciation for quality drinks are so much more widespread that you can find them in far more venues.

The same applies to beer. Americans used to have far fewer choices and a limited palate for beer. As the available choices have expanded, so have their tastes. Matthew Merz is producer of the Portland-based beer-related television show Drinking with Daren and a resident of southern Washington state. He recommended a brew pub, inn, and restaurant called McMenamins that is located in Kalama, Washington. It is not the only one of its kind.

What makes Brian and Mike McMenamins establishments so special, Merz said, is not only that each location is truly unique unto itself, but that each has their own brewing team handcrafting vast arrays of ales as original as the property theyre fermenting in. The McMenamins craft brewing experience isnt just limited to the standard line up-of ales Pacific Northwest patrons have become accustomed to at all 24 of their breweries; it includes a selection of extraordinary ales of all styles developed and only available at each of these remarkable sites.

The experience is more than just the beer, though we thought (I brought the wife along) the variety and quality of beer at the Kalama Harbor Lodge was excellent. What has become a chain of brewpubs was founded by brothers Mike and Brian McMenamin in 1908. Part of the McMenamin experience is that most locations refurbish grand old historic locations that had fallen into disrepair. Many local communities are clamoring for a McMenamins and this is the sort of thing that big beer will have a hard time swallowing up.

The craft brewing revolution is poised to get a whole lot bigger, regardless of distribution deals. According to the National Beer Wholesalers Association, In 1983, there were 49 breweries in all of the United States. In 2017, that number had jumped to 5,648 reported brewers, and at least a quarter of those have no plans for, or need of, distribution.

At the end of 2017, federal permits had been issued for over 10,000 breweries. More than 1,200 additional permits were issued in 2018. At this point there arent many states with fewer breweries than the whole country enjoyed in the early 1980s.

The total output of all American breweries is over 200 million barrels a year, and theres more on the way. Craft breweries are popping up at a rate far faster than AB-InBev and other big players can buy them up. Regardless of brand ownership, this great flowering and fermentation is having a real effect on the number and quality of choices that you can make on your next trip to the grocery store.

Jeremy Lott has interest in a liquor store in Washington state.