Why a New Brewpub Is Sparking Controversy in San Diego

In late 2014, Anheuser-Busch InBev acquired Bend, Oregon's 10 Barrel Brewing. Just over a year later, the deep-pocketed beer giant has helped 10 Barrel's Boise, Idaho brewpub thrive, plans on opening another brewpub in Denver, and is now engaged in talks to open brewpub doors in downtown San Diego.

This same narrative has played out across the United States recently, with larger breweries acquiring smaller breweries, sometimes opening brewpubs, and always using their dollars to bring their brands onto shelves and tap towers. It's not a new business strategy. More appropriately, it's history repeating itself.

It makes sense why the Belgium-based AB InBev would want to bring the 10 Barrel brand to Denver and San Diego, two of the finer craft beer destinations in the United States. It also makes sense that the San Diego's independent brewers would be angered by an international conglomerate coming to town.

But Garrett Wales, co-founder of 10 Barrel, claimed San Diego was always part of the brewpub plan and, in fact, 10 Barrel's entrance into some of America's finest beer cities pays homage to their independent breweries.

"Before we even sold, we made a list of cities we wanted to be in," Wales told me. "Once we got our brew team together, we felt like we had the ability to make the best beer in the country. We set out on a mission to prove it.

"It's about the brewpub experience. It's not about the money. We're going into an educated market [in San Diego]. We made that list a long time ago. It's happening a little faster than we thought it would, but it would have happened anyway."

The acquisition and subsequent growth of the 10 Barrel brand through brewpubs may have signified a shift for AB InBev—a recognition of the types of beers that are becoming prevalent in the beer world, as well as an emphasis on the beer-drinking "experience" of a brewpub. Still, brewpubs have classically been attached to independently owned enterprises, which AB InBev certainly is not. That disconnect is part of what angers the San Diego beer community and has prompted local support to derail 10 Barrel's plan.

In February, the San Diego Downtown Community Planning Council heard from a variety of business owners, residents, and journalists, each citing reasons why a 10 Barrel brewpub shouldn't move into San Diego's burgeoning East Village neighborhood.

"Of course large companies have the right to open and operate where they see fit, but there should be complete transparency of who the ownership is and where the money is going," wrote Eric O'Connor, cofounder and brewmaster of Thorn Street Brewery, to the council.

Despite the vocal opposition, the council approved a neighborhood use permit for the facility, the first of many steps to make the brewpub a reality in East Village.

"At the end of the day, the consumer will judge with their wallets," Wales told me. "We see it as a compliment to the local breweries and the educated customers."

A photo posted by 10 Barrel Brewing Co (@10barrelbrewing) on Apr 8, 2016 at 12:29pm PDT

By definition, a craft brewery sells fewer than six million barrels of beer per year. Yet those numbers can be difficult to parse when "Big Beer" companies like Anheuser Busch and MillerCoors own a number of smaller, seemingly independent brands, such as 10 Barrel (AB InBev), Blue Point (AB InBev), Elysian (AB InBev), Blue Moon (MillerCoors), Killian's Irish Red (MillerCoors), and Pilsner Urquell (MillerCoors).

In the eyes of some brewers and drinkers, the fact that 10 Barrel does not publicly advertise its AB InBev affiliation furthers the confusion between what is craft beer and what's not. The parent company may not slip by craft beer aficionados, but those who don't find themselves patronizing those sudsy communities and message boards may believe they're drinking something truly "craft" and independent.

"Obfuscation is the key," said Stone Brewing's Greg Koch, a vocal opponent of the Big Beer business model. He believes that those companies blur the lines between craft and non-craft so that most consumers won't make the effort to find out who makes what.

Over the past 20 years, San Diego has become home to many of the best and most productive craft breweries in the country. But, 10 Barrel coming to San Diego wouldn't even be the first recent intrusion of Big Beer on the city's grassroots brewing community. Last year, Ballast Point sold a controlling stake to Constellation Brands, which also owns Corona, for $1 billion; earlier in 2015, San Diego's Saint Archer sold to MillerCoors.

"Historically, it has been independent brewers who have built the thriving beer community that San Diego is now known for around the world," wrote San Diego Brewers Guild president emeritus Kevin Hopkins in a press release earlier this year. "The risk underlying the acquisition of breweries by large, international corporations and the risk of businesses like the proposed 10 Barrel brewpub in San Diego is that beer drinkers here may think that when they patronize these businesses, and buy and drink beer, that they are supporting the local brewing community. That is not the case."

Hopkins is correct, but only partially so.

San Diego did have a thriving beer population prior to Prohibition, which amounted to seven breweries and 55 saloons; post-Prohibition, there were just three breweries in the city. Though those three breweries did a serviceable job, their success was short-lived. The big, national brewers began to make deals with bars and liquor stores to sell their beer exclusively and used their deep pockets to buy out local breweries across the United States. (Sound familiar?) By 1953, there were no more local breweries in San Diego.

More than 60 years later, craft beer consumption is booming in America. Craft beer sales were up 12.8 percent in 2015, according to the Brewer's Association, certainly taking a few former "macro" drinkers into the fold. Despite a 6.3 percent revenue growth for AB InBev and MillerCoors being "in-line" with their 2014 earnings at over $1.3 billion, those companies have surely taken notice of a swinging pendulum of tastes.

A photo posted by 10 Barrel Brewing Co (@10barrelbrewing) on Mar 24, 2016 at 3:15pm PDT

Drinkers shouldn't be fooled into thinking there's some motive more prevailing than money behind the acquisitions of craft breweries, but are the acquisitions themselves necessarily nefarious?

Wales admits that there are people who'll avoid drinking his product on principle, and he's OK with that. The bottom line, he said, is that 10 Barrel has to respect the opinions of a craft beer crowd that may avoid anything AB InBev touches.

"You can't tell someone how to feel," he told me. "I get that there's a sentiment, or a resentment about an international company coming in. I respect that right. Our goal is to put our best foot forward, focus on quality, treating people well, and creating an authentic 10 Barrel experience. If that's not enough, fine."

Despite being owned by an international beer giant, 10 Barrel plans to continue making the best beer it can, now with the added value of a deep-pocked corporation that can bring its product to more people.

But there will be challenges, both in the brew house and boardroom.

AB InBev's gross profit margin for Q4 2015 was 62.41 percent. The margins for craft breweries are substantially less, however, due to higher costs associated with small-scale production and higher-quality ingredients. Greg Koch of Stone Brewing takes umbrage with the idea that a Big Beer-owned company can continue to produce a high quality product.

"How long do you think a [lesser margin] product can exist on the books of a publicly owned company that is driven by shareholder price?" Koch asked. "It cannot. The only possibility is they must take that and they must slowly increase those margins over time to bring them in line with the corporate objectives that they are required to maintain."

Put simply, Koch's opinion is that the beer has no choice but to get worse.

Wales disagrees.

"There's zero room for compromise on quality," Wales assured. "[Quality drop] is not a concern. Why would they come out to us or Elysian or Goose Island and risk fucking it up? That's the last thing they'd want to do."

As evidence, Wales noted that 10 Barrel's latest seasonal beer, a single-hopped pale ale, was just released, and AB InBev "never even asked the cost." Cost-reduction for brews, he said, was "literally never part of the conversation."

For some craft beer drinkers, there's a sentimentality attached to local beers produced by locals. The acquisition by a seemingly faceless corporation corrupts this relationship. It even makes food movements associated with craft beer—farmers markets, buying local, farm-to-table—seem ultimately like a fad, because some day, someone with more money will always win out.

The bleeding of Big Beer into craft beer was inevitable, but San Diego's independently thriving beer community has always boasted that its beer could compete with the big guys. Now may be the time to prove it.