On this episode of the “VinePair Podcast,” hosts Adam Teeter and Zach Geballe talk about the collapse of Silicon Valley Bank and its impact on California wineries and what this may mean for the Wine Industry Report. The two then discuss recent moves that seem to signal Anheuser-Busch InBev’s shift away from the craft beer industry, just over a decade after they started buying up craft breweries. Tune in for more.

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Adam Teeter: Hey, everybody. I know you’re used to hearing me coming at you at the beginning of the podcast with our traditional intro, but Zach and I are here with you, on this Monday morning, recording right now at 7 p.m. on Sunday night, 4 p.m. his time, with some breaking news. I think everybody is probably aware, well, or maybe not, depending on where you sit in the wine world or tech world, of the news that started to hit like an avalanche on Friday, but really began last Wednesday, about Silicon Valley Bank being shut down by the federal government. A few other banks have now been shut down as well. To most people in the world of finance, this was a tech and crypto story. We had some banks that had invested in crypto, other banks like Silicon Valley Bank that had not. We’ll explain why they got shut down in a second, were closed and people were really freaking out about what that meant for funds for lots of different large tech corporations that had raised tens or even hundreds of millions of dollars. It is estimated that over half of all of America’s tech companies bank with Silicon Valley Bank. On top of that, a majority of venture capitalists also have banked with Silicon Valley Bank. I can get into why that is in a second. What I think a lot of people are not aware of, except for you, fine listeners, because we’ve been talking about a specific report by this bank for the last basically what, Zach? Three or four weeks?

Zach Geballe: I was going to say at least a month. Yes.

A: -is that a majority of American wineries, especially California ones, also bank with Silicon Valley Bank. There’s estimates that anywhere from, as The Chronicle is reporting, I think it was thousands of wineries. Then as Wine Business has reported, at least 400 major wineries bank with Silicon Valley Bank. As of Friday when the bank was closed, it was unclear if there would be any money available that were in these accounts that was over the $250,000 that the FDIC guarantees in accounts when there’s a bank failure. For the last, I don’t know what, Zach, like 72 hours, but really more like 48, we’ve seen a lot of speculation as what this meant for California wine, and how this was really going to deeply impact the wineries and the regions. This is definitely a bank that has spent a lot of time ingratiating itself to the wine community, specifically really taking the time to understand the wine industry’s unique business. Rob McMillan, who is the head of the wine division, is very highly respected in the wine industry, especially in the California wine industry. I think before I get into how the collapse happened and what the aftermath looks like it’s going to be now as of, again, 7 p.m. Eastern time, 4 p.m. Pacific — Zach, what had your impression of Silicon Valley Bank been before all of this happened on Friday?

Z: Well, it’s really funny because I was thinking about, as we were discussing, recording this, I was thinking about how the words Silicon Valley are obviously such an important part of this story because it’s really, in a lot of ways, what the bank’s bread and butter business was, was at Silicon Valley. Yet, as you said, as someone in the wine industry, someone who thinks about that bank and its positioning through the lens of the wine industry, and, in particular, the California wine industry, as soon as this news started popping up on Friday morning, it was like, “Oh, man.” To me, it was like, “What is this going to do to the wine industry? What is it going to mean?” On the one hand, it was a good reminder that this bank that I have seen and interacted with this one very small piece of their business, a piece of their business that they had, justifiably, been proud of and had championed and promoted, as you said, but still, in terms of actual dollar figures, was a very small part of their business, is the part that is important to us. It’s an important thing to note that for businesses that were banking with Silicon Valley Bank, wine businesses, it’s a reminder that the bank definitely had a lot else going on, as you’ll get into, and that they were much more — I don’t think most of the people who banked with Silicon Valley Bank, they did so because they had that longstanding relationship with the wine industry. Because they appreciated Rob McMillan and the relationships he had built for many years in the industry and their position as really important financiers and bankers for a lot of the best-known wineries in Napa. Again, you’re the economics guy on this podcast. I’m just the wine guy, in a way. I do think that it’s an important reminder that, even with all of those things in place, even with those strong relationships, Rob himself put out a statement today, I think, that was basically like he was just as blindsided as everyone else. It was not something that they saw coming. The thing I’ve heard a little bit, and again, as you mentioned, a lot of the customers are in California, and my connections in California are not as strong as they are, say, here in Washington. I was kind of enmeshed in a bunch of Washington wine stuff this weekend. It was obviously a lot of the talk of the trade, such as it is more from a distance than like, “Oh my God, I’m personally screwed.” This stuff ripples throughout. We’ll talk more about that too. It was striking because I had thought about the importance of this bank to the California wine industry for some time, and to think even if, from a purely monetary sense, some of these businesses are made whole and nothing negative happens to them, the loss of that centralized resource and that piece of the community, it’ll be felt.

A: Yes. Look, we do not know, we cannot confirm who is a current client of SVB, but some names that you have seen associated with the bank for years now are ones like Chateau Montelena, Westwood, Ram’s Gate, Darioush, really famous wineries, especially famous wineries in Napa and Sonoma, that are well capitalized that have clientele of high net worth that buy their wines, that bank was entrusted, Silicon Valley Bank. Let’s talk about why this happened because, I think, for a lot of people who listen, you’re probably like, “Well, that’s great, I’m hearing a lot of things bandied around about crypto or bonds, et cetera.” To really understand what happened, the simplest way that I can explain this is this was a good old-fashioned bank run.

Z: Yes, “It’s a Wonderful Life” in real life.

A: This is exactly what happened. What happens with most banks is when banks take on people’s deposits, they then invest your deposits. Not for you, specifically, they are in the business to make money as well. They take the money that they are holding from you, and they invest into Treasury securities, bonds, et cetera. Usually, that’s not a problem. Even as interest rates change, they go up, they go down, the bank is able to weather that storm, and you’re still able to have access to your money. The problem here is that Silicon Valley Bank is over 50 percent customers from venture capital and tech, and that is never a really great thing in the world of banking. For the last thirty years, SVB would argue this has been a great thing, this has been what has helped define the reputation that Zac was just talking about. It’s this, like, it’s the smart tech bank, it’s like it’s where you’re supposed to go. I remember when we were starting VinePair or even prior to that when I was at NYU, they sponsored entrepreneurship competitions and programs. They were always the bank that people recommended, and a lot of that is because they were able to give a lot of preferential terms to founders. They claimed, just like with wine, that they understood the world of entrepreneurship, that they understood the ups and downs, and they also claimed to understand venture capital. One of the things they did in the VC world is when you raise a fund in venture capital, you raise a fund from a bunch of different LPs or limited partners, and you take on cash that goes into your fund. The issue with venture capital is that, often, even though let’s say that you have secured a large amount of money from the State Retirement Fund of Alabama- Let’s say that — because all of these funds, the Policemen’s Union of New York, they all invest their capital places so that the dues from their membership earned money. They don’t often wire the same day they sign paperwork, the same day that they say that they’re going to come into your fund. They may not wire for 30 days, 90 days, 120 days, but if you’re in venture capital, the whole point is that you’re investing when you see an opportunity. What Silicon Valley Bank did a lot as well is they made themselves very attractive by offering very low or even almost no- interest loans to VCs to say, basically, “If we see that you’ve already secured the funding, we’ll use those signed documents as guarantee, and we will front the cash for you, so that you can go ahead and write that check to the next Uber, the next Airbnb, the next Amazon.” That was very attractive to lots of different VCs, and then they brought in the companies they invested in. The problem is that a lot of deposits have begun to slow down over the last year or so to Silicon Valley Bank as tech specifically is going through what we’ve already termed, on this podcast, the Patagonia recession. There’s been less fundraising in the Valley and just across the country in general. It’s been a lot harder to raise and start businesses in the last year or so. You’re having a lot of people, who are the more seasoned tech companies, reporting low earnings, et cetera. Things began to dry up. At the same time the things were drying up, the Fed is raising interest rates to try to slow inflation. When they’re raising interest rates, what does that do? That raises interest rates on the bonds that Silicon Valley Bank holds. The money is coming due, and so the way that Silicon Valley Banks thought that they were going to fix it was they announced they were going to sell off a bunch of stock. They were going to sell off 2.25 billion shares after already selling more securities, after already selling $21 billion in securities, prior, to try and shore up the money they needed to cover the deposits that are currently at the bank. That spooked a ton of VCs, and you had VCs, including very prominent ones like Union Square Ventures and Peter Thiel telling their companies and themselves to pull the money. Really, on Thursday and then into Friday, all of these funds are pulling the money. I actually think, which is really crazy, Zach, I’ve been talking to people, I think most people in the wine industry were oblivious that this was happening. I think that, even though they banked with this specialized bank, I don’t think they paid attention as much as they probably should have, to what was happening in tech, but they were banking with a specialized bank. I think a lot of wineries had their money in here still, but a lot of tech companies started pulling their money. Really, it was the VCs pulling. Remember, we’re talking about funds. These are $100 million, $200, $500 million funds that people are pulling out in mass. Eventually, it just was too much, and the government just seized control and closed the bank. That happened to another crypto bank on Thursday, announcing they were winding down. Then another bank that’s based in New York, Signature, was just taken over tonight by the federal government. Again, because of their involvement in cryptocurrency, et cetera, that is also slowing. They were like 30 percent leverage there over the pandemic. The problem with them, which is just a random aside, but shows they’re a big bank to lots of nonprofits in New York. There’s always other industries that bank at these banks, these more regional banks. That’s why it shut down. For the last 72 hours-ish, no one has known if they were going to wake up tomorrow and be able to take out anything from their Silicon Valley Bank accounts that was higher than $250,000, which I think a lot of people also forget, is that that’s the only amount that the government guarantees in any account they will ensure. If there’s more than that, they don’t guarantee that they will cover that for you if it gets lost because of a bank closure. I have to imagine this weekend, Zach, there were lots of people, first of all, freaking out, and then other people circling. There are going to be some opportunities to get some steals.

Z: Basically, let’s put it this way. You’re much more the expert on this than I am, but I will say this thing. My understanding is based from doing a lot of reading on this over the weekend and the recent joint statement put out by Treasury, the Federal Reserve, and the FDIC covers this ground, which basically says, if you were someone who was a depositor at Silicon Valley Bank, you had an account of some kind, business account, personal account — I guess, obviously, presumably, they had some personal clients. Basically, if you just used it like a bank, normally, they’ve said that essentially your deposit will be protected. Now, what exactly that means, when you might be able to access those funds, all that’s hard to say at this point. Again, by the time you all are listening to this on Monday morning, you might have more clarity than we do on Sunday evening. The point is that I think if you’re someone listening to this who had an account at Silicon Valley Bank and you’re a winery or someone in the trade or whatever, I think you should be able to get your money back eventually. It’s unclear when. For businesses that are often cash-flow intensive, it’s real.

A: Actually, just to cut in here, it looks like as of 6:20, this evening, it’s unclear what this means, to be honest, but they are saying they will have access to all of their money starting Monday, March 13.

Z: Okay, that’s good.

A: The way Josh and I are interpreting this is this means everyone’s being made whole, but this is because the government themselves are stepping in and guaranteeing this with a $35 billion backing because. To jump ahead, I think all of this was — everyone thought they might get their money back, as you were saying, but then everyone was like, “Sh*t, we don’t know when, and how do we make payroll?” There are lots of people over the weekend who were basically like, “We’re offering you zero credit loan or a very low-interest loan, et cetera, so that you make payroll for your businesses, if you bank with Silicon Valley Bank.” What happened in the last 24 hours, really, I think is what caused the government to do this. To be fair, they’re not bailing out the bank, but what they are doing is they’re trying to prevent any more panic. In the last 24 hours, they tried to go ahead and close a deal with what most people think it’s going to be another regional bank. The goal, according to a bunch of different reports, is that the federal government does not want these banks to sell to major banks like a Goldman or a JP Morgan, et cetera. The ideal fit for this is a larger regional bank, which I actually didn’t realize they were just a regional bank, but like Capital One or there was a whole list of others, of banks that — US Bank, that are big banks, but they’re much more regionally focused, but they would have the capital to basically secure all of this. What most people think is happening right now though, is that none of these banks want to buy in with all the crypto these banks still hold. They think that by shoring it up and guaranteeing no more panic, everyone has access to their money, everyone calmed down the, and then being able to go in there with all of their financial experts and extract the real business of the bank from some of the other things that some of these banks were doing, that they should be able to, by the end of the week, have buyers for all these different banks. Then, honestly, you’ll just become a client if you still have your account there of US Bank or of Capital One or whatever happens as they close these deals. That’s what’s happening, but they’re just saying, “Hey, we’ve increased the number so that we don’t set off a panic that you think that all of your money besides $250,000 is gone.” Look, I think tomorrow there will be some people that pull their money out if they can, but it’s a much better situation than it was two hours ago.

Z: I do think that the other thing about this that’s important to note is that, obviously, it’s very unclear, at this point, because as Adam was just mentioning, there’s no clear sense at this moment of, as the business is parceled out, how it might be sold off, what things might happen. I think it is probably a reasonable expectation that the wine-specific service that Silicon Valley Bank provided, there’s some chance that it is retained intact in another entity, but I wouldn’t count on it. I think it’s unlikely that a purchaser would be looking at that specific element of the business as particularly attractive. I have to imagine it was probably profitable because banking is generally profitable but I don’t know that it was necessarily — I think it was not a passion project, probably the wrong way to put something done by a publicly traded company, but I think they had a — what’s the word I’m looking for here? They had the veneer of being — not veneer. It was a nice line item. It was a nice selling point for the bank. It was a specialty item that set them apart from other banks, and I could be completely wrong. We could find out by the end of the week that the wine division will be just left intact in some other entity, and that would be great. I think the wine industry in California appreciates having a banking structure set up that understands the realities of the wine business in the same way that, whether you’re in any other line of business, it’s nice, if you’re working with a bank, to have them have some understanding of your business, but I don’t think that’s the most likely outcome at this point.

A: No, I agree. This whole thing has just been absolutely crazy. I think one of the lessons that I think a lot of people will take from this is, again, just the reminder that banks that overspecialize in one area like this are not always going to be the safest. This could have happened if the bank was overspecialized in any number of industries where there are thought leaders in the industry that could very quickly mobilize people to turn away, and that’s really what happened. There were thought leaders on Wednesday and into Thursday that were, like, “We need to get our money out,” and the run happened and there was nothing that could stop it, besides finally the government, which, look, I also want to be clear, this is why we do have a federal banking system. This is what was supposed to happen. This is how it’s supposed to work. Like we said, the government’s guaranteeing they’re going to make everyone whole. The people who are invested in the banks, who own shares in the bank, they’re not going to be made whole, you own that stock. If you had lots of stock in the bank, et cetera. They’re very clear to say that’s not going to be something they’re going to fix. If you had money in the bank, meaning you were an actual client of the bank, they’ve decided to shore up enough funds in order to cover all of those deposits, which is really amazing. Look, someone’s going to buy these banks. There’s too many high-profile clients of these banks that people would want to continue to have as clients of their own banks. I just can’t imagine that, in the next four or five days, everyone decides to just completely wire their money out and open new accounts, because we all know what that does to payroll, to health insurance, to all the bills we have to pay. Going through an updating, “Okay, we’ll now have to make sure that everyone knows where the money to pay the checks comes from.” I don’t see it happening. I think that this will get fixed before then, but this has just been absolutely wild. I think the one other thing that I’ve heard people talk about that may not ever be the same again is that we may never see this many wineries all concentrated in one place. That is actually what made the Silicon Valley Bank wine report so powerful, is Rob just had access to all of these wineries, who were very willing to give him honest answers about how their business was doing. He was able to look at that against, while staying anonymous, the deposits he was seeing and the cash flow he was seeing coming in and out of the bank from these wineries. I can see a lot of these wineries, when the dust clears, going to other banks, and maybe not all being at the same place again. That’s going to be a shame just because I do think that this has always been a report that has been very valuable for the industry. I know there’s a lot of hope. People are talking about this, that in the coming months, someone figures out, maybe it’s Rob, maybe it’s other people, how this report is brought back to life with the same amount of credibility and data that the previous reports had because we’ve spent like three weeks on this thing already.

Z: Yes, it’s true. It’s weirdly timed given how salient Rob’s reports the last couple of years have been and how I think we certainly talked a lot about it and the industry as a whole has really talked a lot about that. I think you’re right that, without the access to that many wineries, that much data, it’s going to be a lot harder for him or anyone else to put together such a comprehensive report. I don’t think it’s impossible. I think Rob seems — he put up a blog post today about what comes next, and I think it’ll be really interesting to see what he tries to do and maybe this, in some way, furthers those efforts. I’m sure there will be some kind of report in early 2024. What it exactly looks like and how it compares to previous years, hard to say, but it’s definitely a bummer for the — you know certainly very well, Adam, that the kind of data and the ease of accessing it that we have at VinePair is an invaluable tool for lots of different kinds of work that we do. Even if you can get a bunch of people on email or on an online survey or whatever to respond to your prompts, it’s not the same as then also being able to check that against the financial data. I think that’s a level of verification that’s just going to be harder to achieve without the backing of the bank.

A: Well, Zach, I want to thank you so much for making this happen tonight.

Z: Go make dinner. Naomi’s hungry, I hear.

A: I know. I got to go cook. I do really appreciate it, man. You texted and you were like, “We should do this.” I was like, “Yes, we definitely should.” We hopped on and made it happen. For those of you that skipped over this the last 25 minutes and are already on your way to the main subject of today’s Monday podcast, you missed a great discussion. For real, thanks everybody for listening. Now enjoy the previously recorded “VinePair Podcast” where we’re going to talk about the things we drank and some other really fun stuff too. Zach, we’ll be back here Friday.

Z: Sounds good.

A: From VinePair’s New York City headquarters, I’m Adam Teeter.

Z: And in Seattle, Washington, I’m Zach Geballe.

A: This is “The VinePair Podcast.” Zach, I think we have maybe two more of these before I’m going to be out for a little while and we’re going to get you a guest host, okay, man? You’re going to be fine.

Z: Okay, I don’t have to just talk to myself for 30 minutes straight, that’s good.

A: I’d like to hear what the community thinks. If you as a listener want to hear Zach just talk for, instead of the 25 minutes of a 30-minute episode he normally talks, you want to hear him for all 30, I’m just f*ckin’ around. Then, let us know [email protected] if you would like him to have a co-host

Z: Oh my God.

A: -you don’t have to email in. We all know that you’re cool with it.

Z: Oh my God, I can’t even imagine. I know there are obviously, I’m sure we both listen to podcasts where it’s just a singular host, and sometimes you don’t even-

A: I do not, I can’t.

Z: It’s just I don’t want to do something that scripted. I think you have to script a podcast like that. Listeners, in case you can’t tell, this is not scripted. I don’t think it — it’s not what I’m interested in, so please, please, listeners, unless you really want to subject all of us to that, just write about something else, literally anything else. Just not me as a solo host, please.

A: I think that the other thing that’s really interesting is like, those kinds of podcasts out there, a lot of these solo ones, you see that eventually, they wind up bringing somebody in, either like a different person every time or someone to like prompt them with questions they respond to or whatever, the producer or whatever because if not yes, it’s hard to just listen to someone just talk even when it’s scripted, but that being said, I would like to hear you talk a little bit. So what have you been drinking this week?

Z: Good question, so the highlight for me, as you all are listening to this temporally, but has not happened since we recorded this was Taste Washington. I will get into that next week, whether with Adam or with this punitive guest host in the future, but a big wine event here in the city, so I’m excited about that. I think the things that I’ve had recently, they were particularly exceptional. I know that I’m speaking to the correct audience about this, but had a really lovely bottle of Xinomavro from Alpha Estate the other night, just something that I think you and I are both-

A: Great wine.

Z: Yes. Just big fans of the variety, the producer, it’s striking to me how complex and interesting wine it is and yet still very affordable. Go buy some Xinomavro, folks, if you haven’t already. I think the other highlight for me has been just really enjoying, I’ve had a couple of them recently, and I think I talked about it on the pod not super long ago are like black lagers or even a black pilsner that I had the other day, and it’s just like, I love darker, maltier beers, but I just can’t get myself that into a porter or a stout all that often. We’re here in the middle of March, it’s getting to be a little nicer weather in Seattle. I’m not really looking for something that’s like 7 to 8 percent alcohol and really rich, but I want some of that still sweet, chocolaty multi-tone, so dark pilsners and lagers are just a really nice option. Yes, it’s been kind of my like — we’re going to get into some more real springy beer here in a bit. They’re starting to hit the shelves and I’m starting to see them and starting to get excited about that, but it’s still not quite, I’m not quite there personally, emotionally. Still a little in winter mode, so those are a nice midpoint for me. What about you, Adam? What have you been drinking?

A: Two things. One, I went to Lullaby for the first time recently, and Tim’s been pretty high on the bar. Other people that I know as well have really sung its praises. It’s in the Lower East Side. It’s actually interesting, it’s in this, where I used to live in the East Village on Third and B. I would walk to this area of Suffolk and Clinton, et cetera, like a lot, because there’s only a few blocks south of Houston, and it was like this weird no man’s land. There weren’t any destination bars like those were all more in the — I consider this area very much like the Eastern Lower East Side, do you know what I mean? Like when you’re pushing towards Clinton, you’re like Avenue B, Avenue C et cetera, like equivalencies, you’re just in the Lower East Side, obviously, and a lot of the bars everyone talked about were always either or further south, like south of Delancey, or they were west in the Eldridge areas, and this spot is really great. I just really, really loved the drinks I had. I had the Stardust, which was a drink created by Brother Cleve, who is a very famous bartender from Boston who actually recently passed away, but he was involved in the opening of Lullaby. Then I had an excellent, just so dry and perfectly made Martini. Just really, really great Martini, and then they brought out M&M shots as we were leaving, and I was just like, oh man, I don’t think I can do this, but I will anyways. For those of you who do not know what an M&M shot is, it’s Montenegro and mezcal 50/50. It’s actually a really cool combination, but like, oh boy. I was like, “This is three drinks and I got to go home and cook dinner. Damn.” But it’s a great bar and I can see why it’s getting so many accolades. Then also, over the weekend, I went to Miss Ada because Naomi was craving Miss Ada, and everyone here knows it’s like my favorite restaurant in New York. I think that Maggie, who is the beverage director there, does just a really excellent job of curating the list and having excellent cocktails and is across the board fantastic, and she had a collection of different Beaujolais from the same producer, and I had one of them and I didn’t take a picture, so I don’t remember. I’m sorry, but she has a really delicious Beaujolais and very well priced. I was like, “Holy sh*t, the Beaujolais is like 60 bucks.” That used to be always the case, so I think she has a really good job also finding value for a spot like that. Really fun night, and yes, that’s about it. We’re going to talk about how ABI is digital out of its craft brands. Zach, you want to kick us off there?

Z: Sure, sure, so this is a little bit building on a piece, a Hop Take by our good friend Dave Infante. Just talking about where, what’s going on with ABI there and the process of perhaps trying to either divest themselves of or reduce their footprint in what they slash, we generally consider craft beer, and to update or to set the scene for those of you who aren’t as familiar, who maybe don’t pay as much attention to beer as you might to some of the other categories. Basically, a little over a decade ago, ABI got a real horny for craft beer and they bought a bunch of breweries over the next five or six years starting with Goose Island in, I think, 2011, but a bunch of other things, whether it was Blue Point or Devils Backbone, Elysian out here, et cetera, Wicked Weed, a bunch of others, basically bought all these, brought them into this created umbrella section of ABI’s business, and were like, “Okay, craft beers all the rage, we got to have craft beer. Our attempts to mostly create our own brands have largely failed and we are going to basically just buy our way into the category instead of trying to create beer in-house that appeals to the craft beer consumer.” Perhaps unsurprisingly, and as we’ve touched on in the podcast a few times recently, craft beer as a category has struggled, and a lot of the larger producers of craft beer have struggled, especially when you take out their success in not beer products, it’s not surprising that ABI — this behemoth with no real loyalty to any of these brands beyond the money they’ve put into them — is looking to basically shed some of them so they’ve cut a lot of, they’ve laid off a lot of people at a number of these breweries. They’re also in the process of apparently full-on closing down, I believe, Platform Brewing, which is when the-

A: I used to love Platform.

Z: Fair enough. I’ve never tried it, so I can’t speak. I got no comment here, but I think basically what Dave said and what we’re seeing, what ABI’s current strategy seems to be is like, “Okay, do we have a beer from this producer, or from this nominal brewery that is really popular? We’ll keep making that.” They’re not going to stop making Bourbon County Stout or whatever, but are they going to keep the full line of these breweries going? Are they going to keep them really fully engaged in making only those beers? Or are they going to move production of some of these, even these successful beers into more centralized brewing facilities? No one really knows, but it does create this question of, are a lot of these brands going to just wither away?

A: I think that the problem here and what the cause of all this is that a company like ABI is very used to building brands. They’re not used to building breweries. The problem is that when they started getting nervous that craft was about to eat at their lunch, they started buying breweries, which is what normally happens. That’s how tons of breweries in the early aughts were able to raise massive capitals to start in the first place, right? It was you go out with a pitch deck that says, “Hey, for your $5 million investment, I’m going to value this brewery at $25 million and give you 20 percent of my company, and in exchange for that, I am going to guarantee, based on exit prices recently, that you are going to make a 10x return.” Whatever, right? That was happening like crazy across the country. I saw so many pitch decks in like 2010, 2011, and a lot of the breweries in New York probably were built off of those promises. I think a lot of those breweries now have just figured out how to become profitable or they’ve gone under and pay out some a dividend. That was the promise. The promise was being fueled by some of these huge acquisitions that were happening both at ABI and Constellation. Constellation, that Ballast Point billion-dollar purchase was just f*ckin’ eye-popping. Then you had the Goose Island purchase, you had the Wicked Weed purchase, lots of other stuff. Then Suntory and Heineken and Kirin, they were also like, they’ve been around buying stuff, but not in the same way as ABI because ABI was like the big bad wolf. The fact that instead of blowing people’s houses down, the big bad wolf was like, “Oh, I’ll just bring you into my pack.” People were getting excited, so then they became a money rush. The problem here is that ABI’s core competency is building brands inside its own brewery. At the end of the day, ABI is a large brewery with a bunch of different brands. That’s the way that I think you have to think about as a marketer. It knows how to build Bud Light and skews off of Bud Light. Things that taste like Bud Light, like it doesn’t know how to build to take a company like Goose Island that has wildly different products and build all of them equally. It knows how to take the one core product, which is the Goose Island, is it Honker Ale? Which one is the big IPA one?

Z: Yes, I think that’s right.

A: It knows how to build that and it knows how to build Bourbon County. It doesn’t know how to build all the other esoteric sh*t. For a while I thought maybe I thought, well that’s fine. Let the breweries do what they want locally. Let them still do all the fun esoteric sh*t. Who cares? Let them open tons of taprooms. Guess what? The problem is that ABI and Constellation — These are publicly traded companies. When you’re a publicly traded company, your business is actually not what you sell. What you sell is not the business when you’re a publicly traded company, the business is the share price. The share price matters more than anything else. Your customer stops being the drinker, your customer becomes the shareholder. And look, this is what’s happened in our economy. The entire purpose is maximizing shareholder value. The way that you maximize shareholder value is you do things ahead of time in order to mitigate your share price falling if sales fall. The easiest thing for ABI to do to maximize shareholder value is say, “Hey, hey, we’re getting ahead of this. We let this get out of control. We’re shutting this sh*t down. We’re going to close some of these breweries. We’re going to stop all this creativity happening because we’re not about creativity, we’re about profit. We don’t care that Wicked Weed or Goose Island or whatever is now in the mood to make light lagers and pilsners because that’s not what they’re known for. We’re going to do what we’re doing with Kona and we’re going to build big brands like Kona Big Wave and that’s it. We’re going for the next big beach beer or the next big IPA, but we’re not going to let them do all the other silly sh*t that gets in the way,” because they have to maximize shareholder value. This was always bound to happen. I just think that ABI talked a pretty big game early on like, “Oh, we’re just buying breweries and we’re supporting them.” That’s what it felt like was happening in craft. At the end of the day, that’s not what makes them money. What makes them money and what they know how to do is build a brand. Goose Island, as it is, is not a brand, it’s a brewery. They need to build behind a brand like Bourbon County Stout.

Z: I think it’s also, talking about the shareholders and the disconnect from where maybe these businesses as independent breweries were focused, which is on maybe their investors, but also of course on their consumers, it’s also the reality that like, I think there was a lot more, and maybe this is a little bit what you were saying in a way, there was a lot more willingness to let some of this stuff hang out there and let these brewers do their thing when craft beer as a segment was doing well. I think that as craft beer’s successes have ebbed and I think in particular a lot of these breweries are seeing probably even more decline than your average craft beer brewery because there’s a segment of the craft beer crowd that basically was like, the moment any of these were bought, was like, “I’m never drinking that again because it’s now owned by ABI, I don’t want any part of that.” Those people are often the most diehard and they might stick with their local breweries, but they’re not in a possible space for these ABI-owned breweries to gain back the audience. I think it’s that reality that you come into this much bigger enterprise that suddenly you’re beholden to a whole different set of demands and expectations and incentives and all that kind of stuff. I also think that that point about not knowing how to build brands, especially brands that aren’t like Bud Light extensions, is actually a really interesting point. It shows you, as Dave highlights in the piece a little bit, how ABI has flailed around with some of these brands not really knowing what to do. Like basically taking like, for example, Devils Backbone and basically being like, okay, we’re going to put out Hibiscus lemonade flavored and these canned cocktails and stuff to like basically saying oh, we have this recognizable brand. The same way they did Bud Light Seltzer and still face this ongoing problem, and I think there was survey data recently that over half of consumers believe that it has beer in it. It’s like, there’s this belief that these brands, that these breweries were valuable for their names independent from the beer or at least ABI is hoping to make that true. It’s really just I think not the case. I think you just can’t really take the brand away from the core products that built it. If the demand for those core products has gone down, well then, you’re kind of f*cked.

A: I think that that’s 100 percent true because you didn’t do anything to build true loyalty to these brands. I also think ABI, for some of these brands, like Platform, the only way to probably build loyalty and make these brands bigger than they are, these craft brands, is actually the brewery model, right? The brewpub model. Does ABI really want to be in the business of brewpubs? Again, that is a money loser, that does not look good on the balance sheet when you go to report earnings to shareholders. There are a lot of really successful regional craft breweries around the country that have multiple locations and have continued to grow because they’ve opened locations in every city. They start to feel local in their cities, even if they’re not truly local. There’s breweries that maybe have started in Asheville, but then they open in Greensboro, North Carolina and they also open in Charlotte and then they also open somewhere in South Carolina, maybe Hilton Head, Knoxville, Tennessee, and Nashville, all that stuff, right? They have all these locations, and in their communities, they feel like local breweries even though they actually started in Asheville. That’s not a benefit to ABI and that’s why ABI closed all the Platforms and ultimately closed Platform down. Platform had a ton of locations. I remember going to a Platform in Cleveland years ago, and being like, “Oh, this place is f*cking cool. It was a fun bar and the beer was good. I think at the time, it was one of the buzziest spots in Cleveland, one of the buzziest breweries. I think they probably were looking like, oh, we need something in the Midwest. We already have Chicago, like Cleveland’s another beer I see, let’s buy Platform. I think one of the reasons that Platform is getting so much attention was because they were doing seltzers before everyone else, they’re doing a bunch of really cool stuff, but part of the thing I think that made Platform cool, at least the location I went to, was the bar was just fun. It was like a fun bar. It was a fun experience. I don’t know if ABI wants to be in that business. Now, I think what’s really interesting is on the flip side, Diageo with their only beer brand Guinness has decided they do want to be in that business, and they are opening lots of Guinness taprooms. I know they’ve got the one in Baltimore, they’re opening one in Chicago. There’s apparently a lot of others that are being teased as coming. I think you can probably figure out which ones are going to be coming. Think about any cities in America that potentially have large Irish populations, and they’re probably going to get a Guinness Storehouse or Guinness Storehouse Light in these cities because they’ve decided that this is good for the brand and they have figured out that this is “a marketing expense.” But I don’t think ABI wants to do that.

Z: Yes. Well, I think the problem is, and I think we are actually going to maybe talk about this on Friday, so I don’t want to spoil that too much because it’s going to be a very, very Irish episode, but I do think that what comes along with Guinness is a broader cultural cache that is easy to translate into a brewpub experience that people get excited about. I think that it’s harder to do that with a lot of these brands. I also think the last piece of this that’s interesting is, I think that you’re seeing ABI also struggle to compete with the really truly big and successful independent craft breweries. We’ve talked a lot on the pod recently about what New Belgium and what Sierra Nevada are doing right. Obviously, I guess Sierra Nevada’s not independent anymore, but whatever, they have really, really popular craft/craft adjacent whatever beers in the market that are growing crazy, and because in a way I think they’re just, it’s a different, I don’t know if it’s a different ownership model exactly or what? But it’s like they have a better understanding of what is going on in craft beer, where their audience is going, where to find growth. ABI seems to really be flailing around because in part, I think, they just bought these properties because they’re like, “We got to have it.” Maybe a decade ago shareholders or some of the high-powered people on the board or whatever, were like, “Why don’t we have craft beer? The future of craft beer, why aren’t we there?” It was like, “Well, who’s Helen? What can we buy?” With the exception of, like I said, Goose Island mostly and maybe a couple of others, they don’t really seem to have a clear winner or a clear pathway to keeping these products and these brands, these breweries successful. Again, if you’re looking at how Voodoo Ranger and how Hazy Little Thing are everywhere now, that’s closed off a lot of avenues, I think, for some of these ABI products.

A: Well, and look, here’s the thing, there’s one of two arguments you can make here, right? You can either make the argument that besides Goose, and there was a minute where Goose was everywhere and Goose was basically like if you were at a regular bar, so not a bar that was specializing in craft beer, but just like — like Cherry Tavern in the East Village and you were looking for an IPA, there’s a very good chance that the IPA was Goose because that’s just what they pushed in. They were like, “Well, you already buy Bud Light from us, you buy Stella from us, so it’s just going to be easier for you to buy Goose from us than take the time to do some research and find that one random local craft.” And that was a good strategy for a while. I think what they didn’t predict there was that even these bars now will take the time to look for the local craft. In New York now, I see lots of people who even at the dive are like, “Oh, well, no, we have Green City on draft from Other Half.” Sometimes even Brooklyn or whatever, right? Brooklyn’s become a big brand in New York in a lot of ways. They screwed up there. I also think you could make the argument that they maybe didn’t buy the right other brands, but on the flip side, you could make the argument that no, maybe they would’ve done this to any brand. If they had bought New Belgium or they had bought Sierra Nevada, which obviously Sierra Nevada is still not for sale, but if they had done either of these, maybe these would still be the same outcome because at the end of the day, they’re a publicly traded company that has a lot of things to answer for. New Belgium is owned by a subsidiary of Kirin based in Australia. I don’t know if I have to look if Lion’s a publicly traded company, we’ll look at that later. Someone can correct me. Again, there’s a little bit more wiggle room there and experimentation, and so Kirin can allow for New Belgium to be experimental. That’s how Voodoo Ranger came about and then put a sh*t-ton of money behind Voodoo Ranger while still not totally neglecting the core that a lot of old-school fans in New Belgium love, like Fat Tire. I think they’re going to allow the same thing to happen to Bells, which they also just purchased, right? What’ll happen with Two Hearted, which is a beloved IPA, which was a huge competitor and in the same region-ish to Goose Island, right? I don’t know, I think that ABI just as a whole, its core competency is as a large beer company that understands how to market and push mass-market brands.

Z: And distribute, to be clear too, and distribute.

A: Yes. And distribute mass-market brands. Most of these craft brands are not mass market and even the New Belgians and Sierras of the world, they are big, big, big brands, but they are not mass-market brands. You don’t go to a sporting event and see Voodoo Ranger everywhere. You see Bud Light everywhere. They know how to do that, that’s what they’re good at. They know how to be in every f*cking Walmart in the country.

Z: Yes, but they don’t know how to be where craft beer is.

A: Exactly. It just then goes back to, well, then this does not look good on an earnings call. You gotta cut it because the stock price cannot take a hit from something that you just want desperately to make work. I’m sure that they have some, I’ve met people at ABI, there are very smart people that work there, and I’m sure that there are lots of people there who desperately want these brands to work. At the end of the day, you cannot take the time to allow these brands to work if it is hurting the stock price, and so, it is what it is.

Z: Yes.

A: Well, let us know what you think, [email protected]. Hit us up, got ideas? We got another in a week or so, maybe another listener question’s going to be a subject for our podcast. Next Monday, we’re going to talk about an article that I published today on VinePair. Give it a read, and then we’re going to talk a little bit more about it. It has to do with nightlife and whether or not that could be what’s hurting America’s most famous wine region. Zach, have a great week. I’ll talk to you on Friday.

Z: Sounds great.

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