Economic experts warn that the impending merger between beer giants Budweiser and Miller may have a significant impact on the fate of craft breweries in Texas and across the nation. The precise nature of that impact, however, is a matter of some discussion among those closest to the issue. Some believe that the merger could have a positive effect on craft breweries by increasing the cachet of these flavorful beers in the consumer marketplace. Others predict that the increased financial resources available to the merged companies will allow them to market their products more effectively, cutting into the sales and revenues for craft breweries. For brewpubs currently operating with a Houston beer license, keeping an eye on this developing news story can ensure the highest level of proactive response to the market changes ahead.

The Biggest Beer Merger Ever

The purchase of SABMiller by Anheuser-Busch represents the largest single acquisition in the history of the beer industry. Anheuser-Busch offered well over $107 billion for Miller in a deal that is still being examined by federal lawmakers. Concerns have been raised that this merger will in effect create a near-monopoly in the beer industry. It is estimated that one out of every three beers sold in the U.S. will be produced by the company resulting from the merger of Budweiser and Miller.

Statistics and Rankings

Sales figures for 2015 indicate that the Bud Light, Coors Light, Miller Lite, Budweiser and Michelob domestic beer brands continue to dominate the U.S. marketplace:

• Bud Light brings in approximately $2.0 billion annually as the top-ranked in sales for the U.S. marketplace.
• Coors Light pulls in $1.0 billion in sales each year.
• Miller Lite ranks third at $862.6 million in annual sales.
• Budweiser rakes in $718.7 million for Anheuser-Busch per year.
• Finally, Michelob Ultra Light is ranked fifth in annual sales at $428.2 million.

Despite the different branding approaches and names attached to these beers, two companies are responsible for all five of the top-selling beers for 2015:

• SABMiller produces both Coors Light and Miller Lite.
• Anheuser-Busch manufactures Michelob, Budweiser and Bud Light.

The proposed merger will not include Coors; instead, Molson Coors intends to buy out the controlling interest currently held by SABMiller and to operate independently from both companies. Nonetheless, the combined economic force of these two brewery powerhouses is likely to impact the craft beer industry in a number of ways.

Craft Beer on the Rise

In 2014, craft beer producers maintained an 11 percent share of the overall marketplace and accounted for $19.6 billion in sales overall. The nature of craft brewing, however, means that those sales and profits were divided among numerous small companies. The Texas Alcoholic Beverage Commission (TABC) is responsible for issuing licenses to brewpubs, craft breweries and other enterprises that produce or sell alcohol to consumers. Current figures indicate that approximately 156 brewpubs and breweries currently hold a TABC license to produce beer in the Lone Star State.

Potentially Damaging Effects

Some smaller breweries fear that the proposed merger between Miller and Anheuser-Busch will have a chilling effect on their ability to obtain aluminum cans, glass bottles and raw materials with which to produce their brews. The power wielded by the new mega-corporation could significantly reduce the ability of craft brewers to compete for supplies and market space. Worse yet, both Anheuser-Busch and Miller have histories of purchasing craft breweries and continuing to sell their products without relabeling or indicating their ownership position to consumers.

For brewpubs and craft breweries, maintaining a valid Houston alcoholic beverage license can limit issues with regulatory agencies and other state authorities. Adopting a proactive approach to current supply chains can also ensure that operations can continue without interruption even if this mega-merger goes through.

On September 14, 2015, Deep Ellum Brewery took legal action against the Texas Alcohol Beverage Commission (TABC) in an effort to overturn what the company describes as an archaic law that unfairly limits its ability to compete with brewpubs, distilleries and wineries in the state. Many of the laws governing the sale of alcoholic beverages in the Lone Star State were enacted during Prohibition and have not been seriously revisited since that time. In 2013, the increasing popularity of craft beer led to reduced restrictions on its sale for on-site sales and consumption at microbreweries and brewpubs; however, more must be done to even the playing field for all companies with a current TABC license.

Unequal Treatment of Businesses

The law prohibiting breweries from selling their products for off-site consumption is particularly unfair because other businesses are not constrained by these regulations. For instance, wineries and distilleries can sell their products on-site for carryout and consumption elsewhere. This difference in how businesses are treated under TABC regulations can have a significant effect on the profitability of craft breweries in the competitive marketplace. The lawsuit filed by Deep Ellum Brewery is intended to even the playing field for breweries and to provide added options for consumers in the state of Texas.

Other Legal Challenges to TABC

Earlier this year, Wal-Mart filed suit against the TABC to overturn legislation that prevents the mega-corporation from selling alcohol. TABC regulations prevent public companies from selling hard alcohol of any kind and limit private companies to ownership of five or less liquor stores unless the permits for additional stores are purchased from a blood relative. If this lawsuit is successful, Wal-Mart could soon enter the retail alcohol market in Texas, presenting even more competition for breweries that cannot even offer carryout sales for their current customers.

Big Corporations Still Calling the Tune

The 2013 legislation that offered a small measure of relief for beleaguered craft beer producers was orchestrated in part by Rick Donley, the president of the Beer Alliance of Texas. While his efforts did provide some much-needed breathing room for small-scale craft breweries, the adjustments fell far short of the changes needed to ensure profitability and public access to the products of small craft brewers. Donley has advised a wait-and-see attitude for craft breweries interested in pursuing further reforms and changes to bring Texas law into the 21st century. Many brewers, however, feel that they have waited long enough for their chance to compete on a level playing field with other businesses in the Texas alcoholic beverage industry.

Fast Growth Fuels Friction

One obstacle to TABC reform is the pressure from other elements of the industry to retain the status quo. Craft beer producers have seen an enormous increase in popularity over the past decade. These added sales are due in large part to increased consumer awareness of the quality and variety of products available through these small-scale breweries. Larger companies and distributors have a real stake in preventing craft breweries from making further inroads into their markets and have brought pressure to bear on regulators to stop any further expansion of opportunities in this fast-growing sector of the industry.

Depending on the outcome of both the Deep Ellum and the Wal-Mart lawsuits, craft breweries may see significant changes in the next few years. Acquiring and maintaining a Houston beer license can be the key to taking advantage of the potential new opportunities in the take-out alcohol marketplace. Additionally, a Houston liquor license can allow these businesses to operate under current laws and to serve customers who wish to consume beverages on-site during their visit. By staying on the right side of the law and working to improve the regulatory environment for their operations, craft breweries can continue to achieve growth and profitability in the Houston marketplace.

Texans who enjoy cracking open a can of Lone Star beer or sampling the latest craft brews are not alone. For more than 160 years, Texans have supported the state’s vibrant beer industry. Today, we are in the middle of a microbrewing renaissance that began more than 20 years ago. It all started in 1978 when former President Carter paved the way by allowing home brewers to partake in the craft without a Texas beer license. This decision has helped the industry come full circle going from local breweries to corporate conglomerates and back to microbrewing.

Although craft brewing seems like a new idea, it is how the beer industry began in Texas and many other states. During the 19th century, British immigrants made stouts, porters and ales with recipes from their native country. These ales could be brewed and enjoyed almost immediately without aging. By the 1860s, German immigrants transformed the beer culture and helped shape the industry that we know today.

Small German breweries sprang up in San Antonio, Brenham, New Braunfels and immigrant enclaves across the state, but German beers were more difficult to produce. Unlike the top-fermenting British ales, Germans preferred lagers that fermented for months in cool temperatures. For these reasons, German lagers were brewed in the winter and were stored deep underground. At William Menger’s Western Brewery in San Antonio’s Alamo Square, barrels were aged in a cellar protected by stone walls that were 3 feet thick.

During the mid-1800s, there were roughly 20 small brewers in the state, and 77 people worked in the industry. Steam engines and advances of the Industrial Revolution increased overall production but decreased the number of breweries. Some of the larger institutions, such as Menger’s, produced 1,500 barrels of beer annually. The smallest brewery sold 49 barrels a year.

By the 1870s, the industry reached an all-time high. Some 58 companies held a Houston beer license, and these brewers produced 16,000 barrels collectively. However, the industry experienced a rapid decline. Strong competition, poor products and financial issues caused smaller breweries to shut their doors. As mass production increased, beer barons needed more capital to invest in machinery that would increase production from thousands of barrels to millions.

Adolphus Busch was one businessman who embraced the new business model. He raised $400,000 to build the cutting-edge Lone Star Brewery in San Antonio. Pearl Beer was another company that used technology to produce 110,000 barrels annually. As these large corporations took over the industry, Prohibition became the new threat. Some breweries rebranded themselves, and other companies produced soft drinks and “near beer” to survive. After this era, national firms like Miller invaded the market.

Throughout most of the 20th century, per capita beer consumption increased steadily. Conglomerates bought up the few successful brands, and small brewers struggled to keep their businesses alive. The Spoetzl Brewery, which produces Shiner beer, embodies the struggle of these underdogs. When vertically integrated beer makers, bottlers and distributors ruled the market in the 1980s, Spoetzl’s production was cut in half. The company changed hands and gradually achieved success under the leadership of Carlos Alvarez. Between 1990 and 1994, the company’s production went from 36,000 barrels to 100,000 barrels. Eventually, mega-corporations like Miller and Budweiser became a victim of their own success. Now, the beer industry has gone back to its roots thanks to consumers who embrace craft brews and microbrew brands.

In 2008, Houston had just one craft beer maker, which is defined as a brewery that produces less than 75,000 barrels per year. Today, many more independent companies are requesting a Houston alcoholic beverage license to cater to consumers who seek out original craft beers and brewpubs that offer a singular product and experience.