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Thursday, January 23, 2014

Morgan Dumps Craft Chumps in Wake of Buyout

Sometimes the beer business is creative comedy. Sometimes tragedy. Sometimes it's a mix of both. You just never know what crazy and insane chain of events is coming down the pike. I suppose that's one of the things that keeps it interesting.
Sure thing

When I reported on Anheuser-Busch's buyout of Morgan Distributing a couple of weeks back, I did not know what the fallout would be. It's probably fair to say no one knew. We suspected the buyout would lead to Morgan being more active as a pusher of AB products. We didn't know the rest.

Thanks to reliable industry sources, we now know. There's no sugarcoating it. Within days of AB taking over, Morgan terminated its craft brands. Yep. Fired them. They later rescinded the termination letter and told craft brands they were up for "assignment"...a nice way of saying for sale to other distributors.

There are a couple of things to keep in mind.

First, Morgan was not exactly a bastion of craft beer. Its short list of craft brands included Three Creeks, Silver Moon, Gilgamesh and Uinta. The Commons was a recent, hot addition, which I'll get to. I'm leaving out the CBA (Widmer, Kona, Redhook, etc.) brands, which Morgan already pushes heavily, because the CBA is distributed by AB and wasn't going anywhere.

Second, Morgan likely would have lost its craft brands in the wake of the buyout due to the way Oregon law works. When distributor ownership changes, contracted brands have the option of renegotiating new deals with anyone they want. Firing them just made that point official with an exclamation point..

All of Morgan's former craft brands are looking for and will soon have new homes. The Commons will go back to self-distribution, which is what they've done from the outset. It's almost comical to consider that Morgan worked diligently to sign these guys then dumped them days into the relationship. That's pretty funny in a sick sort of way.

The more significant point to consider is this: The new bosses at Morgan had ZERO intention of retaining their craft brands. They wanted them gone, the sooner the better. I'm told Morgan has so much going on with its AB portfolio that it has no room for craft brands. They have given other distributors the green light to go after their former brands and expect no compensation at all.

What are they up to? AB-owned Morgan will clearly become a bastion of AB brands. As I said in the earlier post and as Ezra outlines in his post on how the three-tier system works, self-distribution laws in Oregon allowed this takeover to happen. Anheuser-Busch will essentially be distributing its own beer via Morgan. Perfectly legal. They are also reportedly looking to purchase Maletis, which has a far more significant craft presence than Morgan ever had. This is how AB intends to address declining market share in Oregon.

The danger of this arrangement is clear. Buying up distributors is part of an effort to push craft brands into a corner while stuffing AB products down the throats of consumers. These guys are anti-craft beer. Period. Distributors have extensive control over what appears on store shelves, in taverns and other retail settings. You can bet AB intends to use that leverage to the fullest extent possible. If you haven't heard of Shock Top or Bud Light Platinum, you will.

In my mind, what's going on should be illegal. Oregon's self-distribution law was intended to help small brands. Many small breweries need the dollars that would otherwise go to a distributor when they're getting started. No one apparently considered the possibility that gigantic companies would use the self distribution law to buy up distributors and bully the market. Ye gods!

This is not good news if you're a fan of good beer. Trust me.

23 comments:

  1. I'm a bit frustrated no one posting articles about this deal haven't checked in with the OLCC to confirm the distribution legalities. Oregon Self-Distribution provision allows breweries to sell and deliver their own beer directly to retail accounts if the brewery's annual production is lower than 5,000 barrels. The AB/Morgan deal obviously does not fall into this category. It is an entirely different licensing arrangement.

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  2. Seems to me there's a nitch in the beer industry waiting to be filled. A distributor that only sells craft beer.

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    1. Doesn't Point Blank Distributing fit that bill? http://www.pointblankdistributing.com/breweries.html

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  3. Indeed, Aaron, Point Blank sells only craft brands.

    Josh, are you saying you think AB's acquisition of Morgan falls outside Oregon law due to production numbers?

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  4. No, ABI's ability to own Morgan (soon to be known as Western Beverage) does not fall under the self-distribution laws, which cap off at 5k barrels a year. Basically, it's a set of licensing loop holes that allow this deal to happen, which really dismantles the notion of a 3-tier system.

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  5. My understanding is there is no cap on what Oregon production breweries can self-distribute. This is from the horse's mouth...I haven't looked at the text of the law. Brewpubs do, indeed, have a cap of 5K. Regardless, AB has no production brewery in Oregon and should not subject to production brewery laws. They are exploiting a loophole and making a mockery of the three-tier system. And this isn't the first time. They did the same thing when they acquired Western in Eugene. That acquisition has never been challenged. The only way to stop them here will be to close the loophole in the law, which means through legislation. That will be an interesting task in the current political climate.

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  6. ABI should just pull a Kevorkian on Oregon. I do bot anticipate craft-centric retailers to allow diminished craft SKUs or for consumers to buy Bud Platinum instead of an IPA. Yes, "Western" will probably affect outlets like convenience store coolers, but did they stock or sell Commons in the first place?

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  7. Craft-centric retailers are never going to go away from good beer because of a distributor change. They will get the beer they want from whichever distributor or brewery distributes it. It's convenience stores and traditional grocery stores that stand to lose the most in this deal. Because they often rely on the distributor to put appropriate stock on shelves and in coolers.

    Whether Morgan carried The Commons beer is a mute point. There was a contract in place and it was terminated, along with all of their craft accounts, after the AB takeover was announced. AB doesn't like craft beer. They want to sell their own brands. This may turn out to be more important symbolically than in practice. But it is the reality.

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  8. "AB doesn't like craft Beer"?!?! Blasphemy! Have you heard of Shock Top?

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  9. Can I send you some Shock Top? It would be my pleasure. You could share it around just like the Cascade beers. Talk about blasphemy. Haha

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  10. Western Beverage Eugene has Ninkasi and 10 Barrel in their "AB strict" portfolio. I guess some things Beervana Buzz can't find while over using Wikipedia....

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    1. If Western does distribute Ninkasi and 10 Barrel, they evidently prefer to keep it quiet. Neither brand appears on the Western website. You may wish to do a little bit of web searching yourself, Rami.

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  11. If it's any consolation, the vast majority of Portland falls into Maletis territory (where AB brands are concerned), so AB/Morgan/Western won't be able to exert much influence in the city.

    That said, I do feel bad for many of their craft brands. I doubt Uinta will have any trouble finding a home because there's plenty of demand for their beer, but I suspect some of the others will have a difficult time finding a home in the increasingly crowded portfolios of Columbia, Maletis, or Point Blank. If anything, I suspect General will make a bid for most of them in an effort to boost their craft book.

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  12. It was obviously fortuitous for me to suggest the fired brands would "soon find new homes." I assumed they would, but it's a crazy world. Maybe they will land at General. I don't know. There aren't very many.

    The point on most of Portland being Maletis territory for AB brands is exactly right. Just remember, AB has been trying to buy Maletis, too. What would Portland's craft beer landscape look like if that happened? I doubt it will happen, but it's food for thought.

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    1. If you choose to believe that increased consolidation in the beer business or any business is good for America, so be it. I do not agree, will never agree. Small business made this country. Big business has mostly torn it down.

      I welcome comments on posts here, regardless of whether they agree or disagree with my thoughts. What I don't welcome is long, rambling, incoherent comments that veer wildly off-topic. Since I control what appears here, it is my prerogative to delete comments along those lines. It's not about me being offended. It's about keeping the discussion focused. So keep your comments focused if you want to be heard here.

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  19. I deleted them for you, Pete.

    SEE! I'm nice.

    I figure I will wait until the transition is complete then we can see what happens and if you still feel the same after the dust settles.

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  20. I'm not going to bother replying to most of Rami's rants, but I did want to correct him on a couple things.

    Rami said, "Big companies have made the amazing Bourbon County Stout actually available to us here in Oregon. Thank you AB."

    That's patently untrue. We received Bourbon County Stout in Oregon every year from 2007-2010, and only stopped receiving it when AB bought them in 2011. Yes, they resumed shipping it out here, but only a tiny fraction of the quantity we used to see.

    Later on, he rambles about this "new business" and says, "The employees of this new company have opportunity to better their lives with stable jobs and careers."

    Their sales people who sell AB products may certainly have a chance to better their lives, but what about their craft division? There are a bunch of sales reps that will quite possibly be out of a job in the coming weeks because they'll no longer have any products they can sell.

    All in all, Rami's posts read like those a corporate shill trying to defend his new bosses...

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Keep it civil, please.