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.

Craft beers have been steadily increasing in popularity across the U.S. in recent years. During the first half of 2015, figures released by the Brewers Association indicate that approximately 12.2 million barrels of beer were sold and distributed by craft brewers nationwide. Production of craft beer products increased by about 13 percent during the same time period, spurred in part by the addition of 699 breweries in the U.S. since June 2014. Drinking establishments holding a Texas beer license have also seen an increase in the state’s craft brew production:

• According to the Brewers Association, 982,918 barrels of craft beer were produced by Texas breweries in 2014. Texas ranks seventh in the nation for production for these beer products.
• Texas craft beer production accounted for $2.3 billion in sales during 2012, the last year for which accurate financial figures have been compiled, and was second only to California in the dollar amount produced by the craft beer industry.
• In 2014, Texas was home to 119 craft beer breweries; nearly 50 more are either in the paperwork and licensing stages or have begun initial plans for operations in the Lone Star State later in 2015.

With the number of microbreweries steadily increasing both in Texas and across the country, craft beer is likely to be a growth industry for the foreseeable future.

What Is Craft Beer?

The Brewers Association defines craft brewers by their three defining characteristics:

• Craft breweries must be small operations that produce fewer than 60 million barrels each year.
• They must produce traditional beers created by brewing and fermentation.
• These brewers must be independent of large-scale corporations in the beer industry.

While the brewing methods may be traditional, craft brewers have produced decidedly innovative flavors and taste profiles. Typically created in small batches, these beverages enjoy enduring popularity among patrons of bars, liquor stores and other retail outlets.

The Economic Impact of Texas Breweries

A study released in July 2015 by the National Beer Wholesalers Association and the Beer Institute indicated that breweries in Texas employed roughly 124,000 people and amounted to $19 billion; this includes large-scale brewing operations along with the craft beer industry in the state. As time goes on, however, craft and local brew operations are taking an ever-larger piece of the economic pie. Industry experts attribute some of this popularity to the increased variety and premium positioning of these small-batch beers in the consumer marketplace. Craft beers are generally regarded as higher quality products and can be sold for higher prices as a result of this public perception.

At Home in Houston

The Texas Alcoholic Beverage Commission (TABC) is responsible not only for issuing Texas liquor license permits to bars and taverns throughout the state but also for overseeing and regulating breweries of all sizes. In the Houston metropolitan area, 31 establishments currently hold brewpub or brewery licenses with TABC; it is expected that more microbreweries and craft beer purveyors will follow suit in the latter half of 2015. Houston is an ideal location for these establishments thanks to its healthy economy and large urban workforce, which combine to create consumers with the financial means to enjoy custom-crafted beers in upscale and casual surroundings.

A TABC brewer’s permit is required for craft beer producers; additionally, a brewer’s self-distribution permit is necessary to sell these products through local grocers, wholesalers and retail outlets. Working with a company that specializes in Houston beer license applications and permits can ensure that all paperwork is completed correctly and submitted on time, allowing bars, pubs and breweries to manage their operations more efficiently. By enlisting a little professional help, prospective craft beer establishments can get the right start in the Houston consumer marketplace.