Court Opinion Offers Some Intriguing Insights and Lessons About the Rise of Large Brewers and the History and Culture of Brewing in the 1970’s

I recently came across a 1979 Second Circuit opinion in a case between a former brewery and the company that bought that brewery over a payment dispute.  The opinion made this statement as the preface to describing the 1978 lower court decision that led to the appellate court decision – “In an opinion that interestingly traces the history of beer back to Domesday Book and beyond…”  Obviously, I was intrigued.  The statement basically begs you to track down the lower court decision.  The full text of the lower court decision can be found here – Bloor v. Falstaff Brewing Company.

It doesn’t disappoint.  It’s the 1978 snapshot of the beer industry as testified to by “experts in the beer industry” and is not only a description of the antithesis of the current trend in beer, but also filled with the kind of trivia any respectable beer nerd will want to catalogue.  I’ll save you the time of reading through the whole thing and give you the best bits:

On the History of Beer:

  • All ancient beers contained various herbs to relieve the flatness and sweetness of simple beer. The use of hops for this purpose dates from the 10th century B.C., and is now almost universal. In English-speaking countries the presence or absence of hops originally distinguished beer from ale, but both products now contain hops, and the term “ale” now merely denotes a product with a heartier and more robust flavor.  The most recent edition of Encyclopedia Brittanica leaves unresolved the question of which beverage contained hops. In Vol. 3, p. 159 it states that “originally, hops were used only in ale preparation, and beers were brewed unhopped.” In Vol. 1, p. 215, however, the encyclopedists assert that “ale was until the late 17th Century an unhopped brew of yeast, water, and malt, beer being the same brew with hops added.” The articles in the latest Encyclopedia Brittanica are no longer signed by their authors, so we are unable to assign greater weight to either one based on any perceived difference in expertise.
  • The Domesday Book (1086) records the existence of some forty-three cerevisarii (brewers) then found in England, but the distribution of a brewer’s products nationally or internationally is largely a twentieth century, and in the United States specifically a post-World War II, phenomenon. [The Brewer in this case], produces an ale under the trade name “Ballantine India Pale Ale,” which carries in its name a reference to the earliest distribution of malt beverage beyond the brewer’s immediate vicinity: the shipment of “India Pale Ale” from England to India on cargo vessels which would otherwise have returned in ballast. According to theory or legend that brew was of such formula and quality as to survive the voyage. Today, all bottled or canned beer can be shipped and sold wherever local law and business conditions allow.

On the Decline of Local Smaller Brewers and the Rise of National Brewers

  • On the trial of this matter, experts testified that it was the exposure of American servicemen and women to the beers produced by the larger breweries under contract to the armed services that began the trend away from the many small, local or regional brewers, each of whom made their own beer with distinctive flavor, towards the few national brewers who produce beers essentially indistinguishable in taste and body.
  • The biggest single factor contributing to the decline of local and regional brewers has been the enormous market growth, with its consequent efficiency and economy of scale, recently experienced by the “nationals”: Miller’s, Schlitz, Anheuser-Busch, Coors and Pabst, with Pabst now holding only a precarious position relative to the other four. Although beer consumption in the United States has been rising at approximately 4% per year, the “nationals” have increased their sales by an average of 12% per year, with the difference coming largely out of the sales of the smaller, local and regional brewers. From 1956 to 1966 the nationals expanded their production capacity by some 5.5 million barrels; from 1966 to 1976 they expanded their capacity by more than 75 million barrels and each year produced beer at almost the full capacity constructed the previous year. The cost-effectiveness of full production is obvious, especially in light of the fact, testified to by Mr. Paul Kalmanovitz, Chairman of the Board of Falstaff, that the cost of the ingredients in any two brands of domestic beer is exactly the same, with the exception of coloring materials which might add 2 cents to the cost of a case of beer. It is estimated that by 1980 the nationals will have 80% of the beer market in the United States, a 24% increase over the share held in 1976.
  • There was expert testimony at trial concerning “general discussion” in the beer industry of the “predatory pricing practices” of the national brewers, although no formal court action has yet been filed against them. It was suggested that several of the nationals may have sold their product in areas, or generally, at a loss for extended periods in order to broaden their market and drive out competition. There is knowledgeable suspicion that some national brewers may have operated their entire malt beverage operations at a loss for these same purposes, while being supported by income from other operations. It is uncontested that the increases in the retail price of beer during the last ten years have lagged considerably behind rises in the cost of its ingredients and the labor to manufacture it.

On Advancements and Trends in Alcohol Advertising:

  • Advertising has also been a major factor in the growth of the nationals and the decline of local or regional breweries. It was undisputed at trial that, except for “ales” generally and excluding a very few distinctive smaller brews such as Rolling Rock Beer (produced by Latrobe Brewing Co. in Pennsylvania) and Anchor Steam Beer, made in San Francisco since the Gold Rush, all beers appear to be relatively indistinguishable in taste for the average customer. “Image” apparently sells beer, the image of the beer in the marketplace, and the image projected by advertising, of the typical consumer of that brand. “Macho” is a term frequently used by the experts in discussing the prevalent image sought to be fostered by the industry for its brand names. In “blind taste tests” (Ballantine Beer, for example, sampled in Budweiser cans against Ballantine in Ballantine cans) consumers consistently pick the image beer. “Image” has also been a major factor in the inroads expensive foreign beers have made into the American market.
  • In 1961 it became lawful for the major sports teams to combine to sell network television rights to their games. In an event, such as Monday Night Football, a minute of advertising can cost approximately $100,000.00, with a typical advertising “package” for the whole event costing about $1,400,000.00. For the national brewers such advertising is efficient and inexpensive: they sell beer in the same geographic area covered by the television networks, and the cost of reaching an individual home only amounts to seven-tenths of a cent. The same cost factors make national network advertising unreasonably expensive for the local or regional brewer.

On the American Public’s Tastes and Beer-drinking Habits.

  • At the beginning of World War II, two-thirds of the beer consumed in America was drunk in licensed premises or purchased in draft from such premises: the beer bucket was still a familiar household utensil. (In the simpler times it was the custom of laborers at lunch hour or the paterfamilias in the heat of a summer evening to dispatch someone to the corner saloon for beer. The person performing the errand was said to be rushing the growler and the growler, of course, was the pail itself. See, 1 W. & M. Morris, Dictionary of Word and Phrase Origins, 299 (1962).) Now only one-third of all beer is consumed in saloons and bars, and two-thirds is consumed at home. In addition, the taste preference of the American consumer has tended more and more towards clearer, lighter beers and away from “porters,” “stouts,” and distinctive heavy-flavored beverages. The phenomenal success of Coors Beer is partially attributable to Coors’ lightness. In the 1960’s several of the nationals, specifically Schlitz and Budweiser, reformulated their product to bring it more in line with current American tastes. Most recently, the brewing industry has been affected by a wave of “light” beers, beginning with Miller’s Lite Beer. Falstaff has marketed its version, Falstaff 96 Beer, containing only 96 calories. In 1977 “light” beers accounted for about 7% of total industry production. One additional nail in the coffin of the small brewer has been the increasing use of “no-deposit, no-return” retail beer containers. Originated in the late 1950’s, non-returnables are used today to package about 85% of all beer sold. The additional cost of the non-returnable container has had a disproportionate effect on the smaller brewer, whose product is most frequently a “price” or non-premium beer. The deposit bottle gave the local brewer a natural advantage over the national brewer. Its elimination has removed a natural limitation on the size of the geographic market area that the nationals could serve competitively. They can now supply vast areas of the country from centralized breweries without having to concern themselves with the cost of return transportation of empty bottles.
  • The result of all these changes, and the smaller brewers’ inability or failure to keep pace with them, has been the bankruptcy or elimination from the marketplace of many smaller brewers and the decline of the market share held by the local and regional survivors. After Prohibition there were some 866 brewers in the United States. Today there are only 40. Expert testimony at trial suggested that by 1980 there would be only 5 of any importance. Western New York provides in microcosm a view of the whole industry. In the 1890’s there were 32 local breweries in Buffalo alone; today only the Fred Koch Brewery (“The Tiny Little Brewery Where Real Beer Is Made”) remains in the whole area, and it is the nation’s second smallest brewer, holding only five-tenths of 1 percent of the American beer market. The smallest producer is San Francisco’s unique Anchor Steam Beer. Mr. Kalmanovitz testified that at the time of trial one of his breweries was the only independent brewer left in the State of California.
  • The result of all these changes in the industry has been to compel the smaller brewers to combine in order to produce beer at near capacity levels in one brewery, rather than at a fraction of capacity in several inefficient breweries.

Even the opinion’s author is interesting:  Judge Charles L. Brieant wrote the opinion – the photo of him in his N.Y. Times obituary is great – and really makes him seem like the kind of person you’d want to meet:  “Judge Brieant once said that he considered his pointed mustache as much a personal trademark as his well-known bow ties. ‘I guess if I took it off, no one would know me,’ he said.”

Ashley Brandt

Hi there! I’m happy you’re here. My name is Ashley Brandt and I’m an attorney in Chicago representing clients in the Food and Beverage, Advertising, Media, and Real Estate industries. A while back I kept getting calls and questions from industry professionals and attorneys looking for advice and information on a fun and unique area of law that I’m lucky enough to practice in. These calls represented a serious lack of, and need for, some answers, news, and information on the legal aspects of marketing and media. I've got this deep seeded belief that information should be readily available and that the greatest benefit from the information age is open access to knowledge... so ... this blog seemed like the best way to accomplish that. I enjoy being an attorney and it’s given me some amazing opportunities, wonderful experiences, and an appreciation and love for this work. I live in Chicago and work at an exceptional law firm, Goldstein & McClintock, with some truly brilliant people. Feel free to contact me at any time with any issues, comments, concerns… frankly, after reading this far, I hope you take the time to at least let me know what you think about the blog and how I can make it a better resource.

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