What Does It Mean to Be a Craft Brewer? Not What You Think

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By Jason Notte

There are more craft beer brewers today than a year ago, but there are still a bunch of brewers formerly known as craft feeling left out of the club.

Last year, the Brewers Association cut some slack to brewers who use maize, corn or rice as adjuncts in their brewing process and increased their ranks considerably. Before that, the association -- a craft beer industry group that also runs the Great American Beer Festival and the American Homebrewers Association -- was leaving out some of the oldest independent breweries in the country.

After a lot of soul searching, the association changed its definition of a craft brewer last year -- already flexed in 2010 to raise the production limit for small brewers from 2 million barrels to 6 million to accommodate Samuel Adams producer Boston Beer (SAM). By softening its stance against using rice and corn as adjuncts and whittling down the "traditional" pillar of its craft brewer definition, the association welcomed some well-loved brewers, including Pottsville, Pennsylvania-based D.G. Yuengling & Son (the oldest in the U.S., founded in 1829); St. Marys, Pennsylvania-based Straub Brewing (1872); New Ulm, Minnesota-based August Schell Brewing (1860); and Monroe, Wisconsin-based Minhas Craft Brewery (1845 as Blumer Brewing).

While the new definition technically won't go into effect until the association compiles its stats for 2014 in February, the change was a huge deal for the craft beer community. The association board of directors includes some of the most influential names in craft beer, including Sierra Nevada founder Ken Grossman, New Belgium Chief Executive Kim Jordan, Dogfish Head creator Sam Calagione, Deschutes Brewing leader Larry Fish and Allagash head Rob Tod.

It's All About the Politics

However, the association's stance was causing some fracturing among small brewers. It had been sponsoring the Small BREW Act in Congress and pushing for tax breaks for brewers that produce 6 million barrels or less. The Washington-based Beer Institute had been supporting the competing BEER Act that would give tax breaks to all brewers, but in increments based on production. The association's proposal draws a firm line between "craft" and importers/big brewers, but it looked shaky when the association was actively deriding small brewers as "crafty." The board knew it needed those small brewers' support but, according to the association's statement, "to change horses in the middle of the Congressional session could have burned the association's ability to get Congressional co-sponsors for any legislation, perhaps for a couple of decades."

The political implications of this tweak shouldn't be overlooked. The association acknowledges that its is trying to take 10 percent of the beer market by volume and changed its mission statement to reflect a new goal of 20 percent market share by 2020. By bringing Yuengling on board, the association just added a brewer that produced 2.79 million barrels in 2013.

That said, it doesn't mean the association is willing to bring in any brewery with less than 6 million barrels of U.S. production. The "independent" portion of its craft brewer definition still excludes any brewer selling more than a 25 percent stake of their operation to a member of the alcohol industry that isn't a craft brewer. That leaves out Fordham and Old Dominion, as those Delaware-based brewers are 49 percent owned by Anheuser-Busch InBev (BUD), and recent Patchogue, New York-based A-B acquisition Blue Point Brewing.

Fall on or beneath it, as Athens, Georgia-based Terrapin Beer does with a sub-25-percent stake owned by MillerCoors -- and you're in. Drift above it with a share owned by MillerCoors, A-B InBev or any other large brewer that the association deems inappropriate (though Kansas City-based Boulevard Brewing and Cooperstown, N.Y.-based Brewery Ommegang's owner, Belgium's Duvel Moortgat, is just fine by the BA) and you're excommunicated.

While the craft beer blacklist isn't what it used to be, there are still enough notable brewers on it to make it worth mentioning. Here are five:

5. Goose Island Brewery

Why it's not craft: Owned by Anheuser-Busch InBev.

The Chicago brewery got its start in 1988 but got its first taste of craft beer wrath when it joined up with Redhook and Widmer Brothers in the Craft Brewers Alliance in 2006. Despite saturating the Chicagoland area in 312 Urban Wheat during the summer and warming it with its barrel-aged Bourbon Country Stout during the winter, it occasionally drew critiques for associating with a collective that was distributed and partially owned by Anheuser-Busch.

Despite a trophy case full of medals from the Great American Beer Festival, whispers about the supposedly inevitable drop in Goose Island's quality became deafening. Last year, founder John Hall sold the company to Anheuser-Busch InBev outright for $38.8 million. Since then, questions about Goose Island becoming a national brand (which it was, to a degree, when the Craft Brewers Alliance brewed it in various locations) and about Bourbon County Stout going year-round have continued to circulate.

There's still release-day, line-waiting, ticket-holding demand for Bourbon County Stout in Chicago and nothing about Goose Island's numbers indicate outsized success as A-B's "craft" beer brand. According to Beer Marketer's Insights, Goose Island sold 150,000 barrels of beer in 2011, its first year with Anheuser-Busch. Not only is that less than half of the 623,000 barrels sold by the Craft Brew Alliance in the same year, but it's a fraction of the 713,000 barrels sold by Colorado-based New Belgium and the 858,000 barrels from California-based Sierra Nevada. It's a little brewery in a big company, but it's getting a lot more company these days.

4. Mendocino Brewing

Why it's not craft: Owned by UB Group in Bangalore, India.

It's one of craft beer's most important breweries, as well as one of its most cautionary tales. Back in 1983, Michael Laybourn and Norman Franks bought the brewing equipment from pioneering microbrewery New Albion Brewing and hired New Albion founder Jack McAuliffe to run the place, in Ukiah, California. McAuliffe came up with the recipe for the brewery's flagship Red Tail amber ale and made it the cornerstone of California's first brewpub and only the second post-Prohibition brewpub in the U.S. behind Bert Grant's Yakima Brewing.

That lasted for nine years before the owners got the idea to sell shares in the company and advertise the sale with fliers in their six-packs. By 1997, UB Group owner Vijay Mallya had bought up controlling interest. The Brewers Association craft beer industry group considers Mendocino not craft, while Mendocino-owned brewing facilities in Saratoga Springs, New York, are used largely to produce UB's Kingfisher line of beers. Red Tail Ale and its home brewpub still exist as relics of what once were, but Mendocino Brewing is a hollow shell of the promising brewery it was 30 years ago.

The association doesn't consider it a craft beer, largely because the overwhelming majority of UB's U.S. output is Kingfisher light lager. If it did, Mendocino would have been the 31st-largest craft brewer in the U.S. in 2013 and the 41st-largest brewer overall.

3. 10 Barrel Brewing

Why it's not craft: Owned by Anehuser-Busch InBev.

In many corners of the country, beer drinkers would simply stop buying a beer they either didn't like or no longer felt like supporting. In Bend, Oregon, those drinkers are a bit more vocal about it. When 10 Barrel sold to A-B late last year, its Facebook (FB) page and Twitter (TWTR) feed were filled with angry voices declaring them sellouts, vowing never to drink their beer again and trying to turn anyone within shouting distance against the brewery.

To some, it may look like the outsized zealotry of fans who may need to drink just a little less beer. To locals, however, it speaks to just how deep the relationship with 10 Barrel was and what the area beer communit had invested into the brand.

After being founded as Wildfire Brewing back in 2006, the brewery switched names to reflect its original 10-barrel brewing system in 2009 and made waves by hiring away brewmaster Jimmy Seifrit from Bend neighbor Deschutes Brewing in 2011. 10 Barrel followed that by hiring brewer Tonya Cornett away from Bend Brewing that same year to serve as head of research and development and absconding with hop-centric brewer Shawn Kelso from Baker City, Oregon-based Barley Brown's in 2012 to lead the brewing team in the Boise, Idaho, brewpub that just opened last year. Earlier this month, it hired a fourth award-winning brewer - Whitney Burnside of Pacific City, Oregon-based Pelican Brewing - to run its its brewpub when it opens in Portland, Oregon, this year.

10 Barrel just won three medals at the Great American Beer Festival in Denver in October -- including a gold for Cornett's Cucumber Crush Berliner Weisse -- and was definitely on the "craft" side of the "craft vs. crafty" debate. Now, to its harshest critics, 10 Barrel just joins Blue Point and Goose Island on A-B's craft trophy wall. To its supporters, it's still the brewery that made Apocalypse IPA and a stable of other great beers. To its owners, it's just a better-funded, better-supplied version of the brewery they ran before. To the Brewers Association, 10 Barrel is a far less independent version of its former self that just gave itself every advantage craft brewers don't typically have. It's not saying 10 Barrel isn't a quality brewery: It's just saying it isn't craft anymore.

2. Pyramid Brewery/Magic Hat Brewing

Why it's not craft: "Imported adjunct beer sales exceed domestic production."

This has nothing to do with Pyramid's apricot beer, its brewpub in Seattle, its restaurants or its bland labeling that make it look oddly like Costco (COST) house brew. It has nothing to do with Magic Hat's apricot beer or its Burlington, Vermont, brewery being surrounded by high-profile competition such as Hill Farmstead and Heady Topper maker The Alchemist.

Remarkably, it doesn't even have much to do with who owns those two breweries. Pyramid's been on a wild ride since 2008, when it was sold to Magic Hat Brewing for roughly $25 million. Just two years later, investment firm KPS Capital Partners and its North American Breweries snatched up both Pyramid and Magic Hat and included them in its stable alongside beers such as Genesee Cream Ale, Dundee Honey Brown, Canada's Labatt Blue and Costa Rica's Imperial.

In 2012, KPS Capital sold NAB to Cerveceria Costa Rica, a subsidiary of Florida Ice and Farm, for $388 million. That makes Pyramid, Magic Hat and tiny Portland, Oregon-based Portland Brewing even more minute portions of a large international conglomerate.

Beer trade clocked Magic Hat and Pyramid's sales at 337,000 barrels in 2012. That's about equal to the 336,000 they sold both the year before and in 2008. But the overall NAB number including Genesee, and imports jumped to nearly 2.6 million barrels. Again, not inherently bad, but the fact that those barrels not only include Labatt's - an Anheuser-Busch InBev product produced in Canada - but include more of it than any is amount of beer that NAB produces in the U.S., means it has to go.

That doesn't mean those breweries can never be craft again, mind you. It just means that Magic Hat, Pyramid and Portland have to hope that demand for Labatt's wanes a bit. For example, Boulevard Brewing in Kansas City and Brewery Ommegang in Cooperstown, New York, are owned by Belgian brewer Duvel Mortgaat, but each is still considered craft because Duvel imports relatively little beer into the United States. Portland, Oregon-based BridgePort and Shiner, Texas-based Shiner, meanwhile, only gained "craft" status in 2006 when parent company Gambrinus lost the right to import Corona. Though tastes have shifted since the last time Magic Hat and Pyramid were considered "craft," the association would be more than happy to welcome them back as soon as they ditch their awkward Canadian friend.

1. Craft Brew Alliance

Why it's not craft: "Owned about 35 percent by A-B." Well, it's 32.2 precent, but why make a big deal about percentages?

That group's Widmer Brothers Brewery operation got its start when Kurt and Rob Widmer first opened shop in Portland, Oregon, in 1984. Its Redhook brand has been around since 1981 and has breweries in Washington and New Hampshire. Even relative newcomer Kona Brewing has made beer on Hawaii's big island since 1994.

In Beer Marketer's Insights editor Eric Shepard's view, all of that far outweighs the percentage of A-B ownership. "The notion that Rob and Kurt Widmer aren't craft brewers is an absurdity to me," he says. " At 24 percent [A-B ownership share] they're pure, and at 26 percent they're dirty? There's a certain sense of it being ludicrous."

Yet BA and its supporters say that the 25 percent stake isn't so arbitrary. While the alliance says A-B has no real administrative control or production input and functions more as a partner and lender, the BA and its associates say CBA's refusal to buy back the offending 7.2 percent stake says that A-B is pulling the strings. Meanwhile, the Widmer brothers still have a big stake in the company, and Kurt Widmer still serves as its chairman. His brewery still serves as the company's creative craft nexus, while the Redhook brand has been revived as a gateway beer for non-craft drinkers. Through partnerships with sports radio host Dan Patrick and the Buffalo Wild Wings (BWLD) restaurant chain, Redhook is doing what its cred-obsessed "craft" counterparts are too aloof or scared to do: Going after former light-lager drinkers where they live.

Kurt Widmer, for his part, says his brewery and CBA's exclusion is petty nonsense that only closes off options for craft brewers. BA want to put as much distance between itself and the big brewers as possible, but it does so by punishing small, pioneering brewers who worked the system and got A-B to do their heavy lifting for them. Considering the heavy consolidation within the beer distribution industry, the Craft Brew Alliance may not be the last to strike a distribution deal such as this.
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