[deepsouth]

I think the point is, they are losing market share to craft breweries and they put out psuedo-craft beer to compete with it but what they end up doing is just diluting their brand with more of the same.

i agree.

[Slowbrew]

Major's comparison to newspapers and the internet isn't too far off.  Most of the comments point to the same set of symptoms that happened in the newspaper industry.

1) Sales of papers started to slow a bit as a new media got started
2) Newspaper companies tried to ignore the completely independent internet journalist
3) Papers tried to make internet journalists look like hacks and nut jobs
4) Papers start laying off their news staffs (cheaper ingredients)
5) Sales continued to decline and companies started merging.  This continued until most media is controller by a small number of companies.
6) Many even tried giving their papers away (with a tank of gas or some other purchase)
7) "Free" news continues to hurt the old media companies. Now the new media has better quality than the old media.

The problem with a direct comparison is that the little beer guy isn't "free".  Their product actually costs more which will make the steps above take much longer to happen.  Not that craft brewers won't continue to chip away at market share but this will be a long war, not a quick battle.

Paul
Paul

[nateo]

The most enduring competitive advantage a business can have is good supply-chain management. BMC knows a ton about supply-chain management. From the dirt to your glass, they control every aspect very well. This is why they'll be around (and dominant) for the foreseeable future.

The supply-chain for a newspaper is nothing like an agricultural product. Their format (real papers) was no longer relevant, so their business fell apart. Unless beer becomes digital, I don't see how it's a similar situation.

FWIW, the Project 12 gold lager #63118 was actually pretty good. The other two, not so much.

[weithman5]

I think budweiser does make some good beer.  i actually like plain old budweiser on a hot day.  i have had their michelob amber bock which was good.  (except for some reason the version in oklahoma seemed to be a thinner version from what i had i florida)

[nateo]

I think budweiser does make some good beer.  i actually like plain old budweiser on a hot day.  i have had their michelob amber bock which was good.  (except for some reason the version in oklahoma seemed to be a thinner version from what i had i florida)

I'll drink Bud at the golf course. But I don't buy it to drink at home.

I think, if you think Bud doesn't "get it," then you don't really "get" what Bud is doing.

[redbeerman]

The problem with a direct comparison is that the little beer guy isn't "free".  Their product actually costs more which will make the steps above take much longer to happen.  Not that craft brewers won't continue to chip away at market share but this will be a long war, not a quick battle.

Paul

As you say Paul, "Their product actually costs more".  It also costs more to make per unit volume, thus the profit margins are smaller.  This probably doesn't fit the big boys business model.  If the big guys could live with smaller margins, they could produce a product that competes favorably with the "craft" industry more efficiently due to economies of scale.  A lot of times in industry a company will buy a smaller company and discontinue products of the smaller company because the margins on these products don't fit the profit strategy of the bigger company.  I have seen this many times.  So if the big guys business model demands high profit margins, "craft" style beers just don't fit.

[nateo]

So if the big guys business model demands high profit margins, "craft" style beers just don't fit.

What are the defining characteristics of the mega beer business plan? Intensive distribution (sell it everywhere), low margin, lots of mass media ads, high volume. Their business models demands small margins, not big margins.

If Bud Light was a high-margin product, they'd be bigger than Apple.

[a10t2]

As you say Paul, "Their product actually costs more".  It also costs more to make per unit volume, thus the profit margins are smaller.

From the numbers I've seen, I think it's actually the opposite. Granted, the big boys can negotiate for lower costs, and they use a little less in raw materials, but they're also selling product at half to two-thirds what small brewers are.

[DrewG]

This is a great read if you want some insight into how AB was run before and after InBevs bid. Some fascinating stuff. What a train wreck that family ended up being in the end.

And evidently I forgot to add a link. In any event "Bitter Brew" by William Knoedelseder

[redbeerman]

As you say Paul, "Their product actually costs more".  It also costs more to make per unit volume, thus the profit margins are smaller.

From the numbers I've seen, I think it's actually the opposite. Granted, the big boys can negotiate for lower costs, and they use a little less in raw materials, but they're also selling product at half to two-thirds what small brewers are.

Yes, but the product probably costs 20% of what the craft product costs to make.  A 4.5% ABV beer where the production efficiency is in the high 90% range.  Believe me, at half the price, their margins are still higher than the craft brewers.

[Jimmy K]

I think the point is, they are losing market share to craft breweries and they put out psuedo-craft beer to compete with it but what they end up doing is just diluting their brand with more of the same.

I don't agree that they are using these to try to compete with craft beer. I think they are mostly producing these beers for the fringe of their huge following of BMC drinkers who's thirsts are getting curious - but who still want something similar to BMC. 

[a10t2]

Yes, but the product probably costs 20% of what the craft product costs to make.

If we're just talking about ingredient costs, and about Budweiser versus, say, Ruination, sure. Budweiser versus Boston Lager, no way.

And ingredients are just a tiny fraction of what it costs to produce beer. Utilities, packaging, taxes, insurance, labor, transportation, marketing, R&D... Economies of scale can bring you small gains in some areas, but not a factor of five across the board.

[weithman5]

I don't agree that they are using these to try to compete with craft beer. I think they are mostly producing these beers for the fringe of their huge following of BMC drinkers who's thirsts are getting curious - but who still want something similar to BMC.

or maybe it is just to keep their brewmasters interested

[nateo]

Holy crap, it almost sounds like Sean knows how the beer industry works! I wonder why

[bluesman]

Yes, but the product probably costs 20% of what the craft product costs to make.

If we're just talking about ingredient costs, and about Budweiser versus, say, Ruination, sure. Budweiser versus Boston Lager, no way.

And ingredients are just a tiny fraction of what it costs to produce beer. Utilities, packaging, taxes, insurance, labor, transportation, marketing, R&D... Economies of scale can bring you small gains in some areas, but not a factor of five across the board.

Some interesting tidbits. 

Craft Beer makes a significant amount more profit than the BMC's "on premise".

http://www.forbes.com/sites/lauriekauffman/2012/08/30/this-brews-for-you-craft-beer-economics-for-your-labor-day-pleasure/

http://sellingcraftbeer.com/

Now the brewery's margins can be another story depending on the efficiency of the brewhouse,  ergonomics, utility cost, taxes, etc..etc...