What is a little less obvious, but still easy to get our head around, is how them buying craft breweries can slow the growth of the entire craft category. When it comes to raw materials, it was only a couple of years ago that craft breweries were having very little competition from the multi-nationals when it came to sourcing their favorite hop varieties. Craft breweries are even known to regularly help each other on sourcing varieties if someone is in need, which we have experienced first-hand at Creature. It is just an example of the spirit of the industry: collaborators vs competitors. I’m not saying the people at the craft level of AB InBev don’t or can’t continue to behave this way — old habits, even good ones, die hard — but most of that resource sharing I suspect is happening internally between AB InBev brands now.

As the mega breweries buy smaller regional craft breweries, and quickly accelerate their growth through expanded geographic distribution, incremental chain retail placements, and increased marketing support, they are bringing their buying power into the craft beer space, and using that purchasing power to secure large quantities of difficult-to-source varieties of hops and potentially other raw materials. If AB InBev can grow these breweries fast enough, they can impact the overall ability for other craft breweries to grow by limiting access to the raw materials market. That’s happening even from larger craft breweries who want to protect their future resources. Buy now, share later. From that perspective, growing these craft brands may not be about a nice long-term steady growth plan for the brands, but rather a quickly executed defensive play to slow the growth of competitive independent craft breweries in the short-term.

Another place they have been aggressive is in influencing distributors. It was only about a year ago that AB InBev introduced an incentive to their distributors, where AB InBev would refund 75% of distributors required marketing spend on AB InBev brands (up to $1.5 million) if AB InBev beers make up 98% of that distributors’ sales. The incentive was tiered, so that the greater the share of non-AB InBev sales, the less money the distributor would get. Those incentives were aimed at the larger craft brewers like New Belgium, and mid-size fast growth breweries like Creature Comforts, as they promised not to count sales of breweries with smaller (less than 15k bbls) production levels (which is often smaller local brands). Clearly, this was an incentive designed more to inhibit sales of craft beer than to increase sales of AB InBev — it likely would have only kept the status quo for AB — and thankfully the department of justice stepped in to investigate.

From a retail perspective, AB InBev can utilize their influence to get their new “craft” or “high end” brands into retail store sets, eliminating space for local craft brands. This is truer at big chain, liquor, and convenience stores, but that’s where the new growth is coming for craft breweries beyond the taprooms. They can further offer price promotions to secure key ad windows to drive sales of their “craft” brands. This creates downward pressure on the craft beer category price, a game that local craft breweries have a tough time playing, given their higher cost structures for operations. They are forced to choose between lowering their price to preserve their volume, resulting in less money to fund future growth, or hold their price, risking volume, which puts their ability to maintain their position at retail at risk. In this way, AB InBev is pushing price the way Wal-Mart did, systemically, and likely with similar effect for local producers and retailers.

The last part of the imaginary “Carlos Brito question” relates to the most important task of all: stopping the brand equity erosion of their core premium legacy brands. How buying a craft brewery solves this issue is not so clear, but stick with me. Given the enormous, multi-billion dollar values of the Bud and Bud Light brands carried on AB InBev’s balance sheets, an erosion to any one of them, which would require a write-down in goodwill (an impairment charge), would make the money they are paying to acquire craft breweries insignificant. Think I am making this stuff up? Here is a line from their annual business report in 2016:

“If the business of AB InBev does not develop as expected, impairment charges on goodwill or other intangible assets may be incurred in the future which could be significant and which could have an adverse effect on AB InBev's results of operations and financial condition.”

The billion-dollar question AB InBev must answer is: how do they stop their most prized brands’ volumes and values from eroding due to a significant price gap at retail vs craft, when they cannot take the brands’ prices up without risk of losing even more significant volume to their competition given their consumer and competitive set for those brands? Answer: they bring the price of craft down.