The money talks, I’ll not deny

I heard it once, it said,

“Goodbye”

~ Richard Armour ~

It seems every week another brewery that once prided itself on their “micro” status is bought up for an unimaginable amount of money by a massive “macro” conglomerate. While craft beer lovers are understandably confused and annoyed by this, many homebrewers have taken solace in the fact their passion is untouchable, that we are safe from big brand brewers meddling in our weekend rituals.

And then, out of nowhere, it came to light that Northern Brewer/Midwest Supplies, purportedly the world’s largest retailer of homebrewing goods, was acquired by none other than AB InBev. Why?

Curious of what this could possibly mean for homebrewing, I reached out to industry professional, Ron Rivers, hoping to gain some insight on the impact such an acquisition

might have. Ron is co-owner of New Jersey based Love2brew Homebrew Supply, which he founded in 2011 and currently serves a national audience through their online store, two retail stores, and a growing network of re-sellers. A hearty cheers to Ron for taking the time to share his thoughts on this issue!

| The Industry Speaks |

With the recent announcement of InBev’s acquisition of Northern Brewer/Midwest Supplies, the Homebrew Community has changed seemingly overnight. Social media has exploded with reactions some understanding, many more upset, about the choice to partner with the beer conglomerate. Change in our industry and the evolution of our community is a certainty, but the direction of both is still unclear. I offer my speculation and perspective not to debate over what is “right” and what is “wrong,” but rather to contribute to the conversation about what this may mean for all of us in the long term, homebrewer and homebrew shop alike.

At the outset, it’s important to recognize that Northern Brewer/Midwest Supplies is a great company. It is home to a large group of passionate individuals who have dedicated their lives to improving the homebrew community’s lifestyle; its founder, Chris Farley, put forth a vision of homebrewing that, throughout the years, has helped to shape an industry. Consequently, many of your favorite homebrew shops may not have been able to enjoy the progress that we have made today without his efforts. I personally believe he deserves all of the success he has achieved.

The first question to consider in the conversation is, “Why would InBev (ZX Ventures) acquire Northern Brewer/Midwest Supplies?” ZX Ventures is the global Disruptive Growth Unit of Anheuser-Busch InBev. A Global Disruptive Unit is a business entity that exists to disrupt existing markets and to displace their competitors through strategic advantages. Those advantages could take place in the form of a number of ways such as access to capital, access to goods, strategic innovation, and other methods that may be challenged for their legality. The InBev/ZX Ventures purchase of Northern Brewer/Midwest Supplies happened because InBev/ZX believes that they can derive significant revenue from the acquisition by using their marketing advantage, in turn displacing current homebrew retailers– this likely includes both online vendors and your LHBS (Local Homebrew Shop).

In addition, homebrewers are an excellent resource of beer innovation. With their purchase of Northern Brewer/Midwest Supplies, ZX Ventures will now have access to every Northern Brewer/Midwest Supplies customer’s purchasing trends (which kits sell best, which grains, hops, yeast, etc.), which will likely be used to feed new beers into their growing craft/macro brewery portfolio of over 200 beer brands. This portfolio will increase to over 350 beers after the recent SABMiller purchase.

The conversation inevitably leads to the question, “What happens now?” There are a large number of potential scenarios that can occur depending on InBev’s strategy. Based on my experience of the homebrew industry and community, I predict three potential scenarios and their likely effects on homebrewers and homebrew shops.

1. The Little To No Change Scenario

Northern Brewer/Midwest Supplies controls the current majority of sales in the homebrew industry and InBev could supply them with certain raw materials and disposable goods at significant reduction in cost while maintaining industry average prices that exist now. This scenario supports Todd Jackson of Northern Brewer when he says, “Nothing will fundamentally change…” However, it is questionable that InBev/ZX would make an investment without having a plan of action in place to improve profitability through change.

For the Homebrewer: Not much would change; many homebrewers have a LHBS or an online shop they prefer and that Homebrew Supplier would still likely remain competitive on the majority of items you like to use for brewing.

For the Homebrew Shop: Spread the joy of homebrewing and continue to help build your community. Focus on improving your service and offerings starting today. Even if nothing changes in the industry we should always be focused on improving the experience we can provide our local brewers.

2. The Change Of Strategy Scenario

One inevitability of this merger was some level of fallout of homebrewers who frequented Northern Brewer/Midwest Supplies. Many homebrewers commenting on social media feel slighted by this acquisition and have vowed to no longer support Northern Brewer/Midwest Supplies because of the merger. It is likely that the decision makers at ZX/Northern anticipated some level of customer loss due to the merger, so we have to ask– how significant will the fallout be and does it matter? It is a possibility that a new direction and investment would be to turn away from more advanced and veteran brewers in favor of newer brewers. In this strategy, novice brewers would not be immersed in the current homebrew community and, more importantly, not aware of the recent merger and what it means to the veteran homebrewer. In this scenario, you would likely see increased efforts to attract new brewers by increasing product offerings geared towards this group while reducing offerings that cater to veteran brewers.

For the Homebrewer: In this scenario, you would likely need to find a new supplier for your advanced brewing needs. Whether you choose your LHBS or another online supplier to meet your needs will be up to you, however you may be forced to leave Northern Brewer/Midwest Supplies.

For the Homebrew Shop: If you observe this trend occurring then you will need to respond accordingly by increasing your offerings to veteran brewers. This includes grain, hop, and yeast selection as well as equipment options. This strategy makes sense in any scenario as some of your extract brewers may choose to move to all-grain in the future and may be looking elsewhere for supplies.

3. The Industry Disruption Scenario

In this scenario, they utilize their market advantages to try to hinder existing local and online Homebrew Suppliers. One possible way of disruption would be pricing items as a loss leader– essentially losing money on the sale to attract new and existing business. I am not privy to InBev’s operational costs, however I believe it is safe to assume that they acquire 50 lbs of 2-Row for less than any of your LHBS or online vendors can. Slashing prices on certain staples could create an environment that would render most small local homebrew shops unable to compete on pricing (which according to the American Homebrewers/Brewers Association 2013 Infographic are frequented by 95% of homebrewers). This may seem like a pessimistic prediction, however within the last 6 months In-Bev has been investigated by U.S. antitrust officials over incentives to distributors to sell InBev brands at the expense of local craft brands, has been under a European Union antitrust investigation for preventing beers from entering the Belgium Market, less than three weeks ago was fined $6 million dollars for bribing Indian officials, and four days ago was approved to purchase SABMiller, creating the largest beer company in the world controlling 30% of the global beer market. These actions do not indicate an appreciation for fair and competitive market practices, so I would conclude that the industry of Homebrewing is not immune to this type of business mentality.

For the Homebrewer: In this scenario, you will face a decision about whether or not you are willing to pay more to support a small business industry, or if it would make more sense for you to save more money per batch. There is no wrong answer and I believe as a community we need to embrace that. Homebrewing is many different things to many different people, and in the end the decision will be made through purchases nationwide. If the majority of homebrewers decide to support the In-Bev/ZX/Northern Brewer/Midwest platform then the result will likely be a significant decrease in the availability of local Homebrew Shops. If they choose to support their LHBS, and said LHBS continues to provide excellent service and a helpful environment, then the industry could continue to improve as we are used to.

For the Homebrew Shop: Although this scenario may strike you as grim, I believe a continued focus on creating great homebrewing communities and improving our level of service (value) to our homebrewers will allow us to move forward and grow against disruptive efforts. This scenario is best handled by proper preparation, which means always being focused on making your LHBS experience the best available. Homebrew customers have choices when it comes to purchasing and they choose you. Never take that for granted, and be sure to constantly be focused on creating the best experience possible for your brewers. An open offer to any LHBS owner reading this: if you have questions or want to share ideas on how improve the experience you offer your local homebrewers, please feel free to email me at ron@love2brew.com.

Looking forward to what comes next is more ambiguous. To be clear, I do not know what InBev/ZX plans to do with their acquisition of Northern Brewer/Midwest Supplies and whether or not any of the possible scenarios discussed will be relevant. I am certain that whatever scenario and strategy they choose to implement will align with their purpose as a publicly traded company, which is to maximize shareholder value above all. The Homebrew Industry has changed and although we cannot foresee the immediate impacts of this change, we as a community are responsible for its direction. In his article Good Beer is Your Right, Northern Brewer founder Chris Farley said, “You make a choice, a vote, a statement every time you open a bottle of craft or homebrewed beer instead of a can from a factory with an advertising budget that could swallow your local microbrewery whole.” That statement has never been truer for the Homebrew Community. In essence, every dollar spent on homebrew supplies is now a vote and those votes will shape this industry going forward. My only suggestion to you is to be conscious of your vote.

Cheers,

Ron Rivers

Founder, Love2brew

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