China’s Craft beer Future Will Not Be Determined by Foreign Brands
China’s Craft beer Future Will Not Be Determined by Foreign Brands
July 31, 2018

By Carl

This blog will now be the home of any updates relating to the main topic. If you haven’t read the blog concerning the main topic, please click here.

Update (September 27, 2018)

When I first posted this blog back at the end of July, I made the following statement: “The bloat of the global craft beer market is being forced to look at ‘developing markets’ as a dumping ground for volume and excess capacity because we are entering an age of distressed capital expansion in craft beer worldwide.” I even alluded to the dumping of excess stock in my “Two Kinds of Bullshit” blog post from over two years ago (August 30, 2016. Count it). It was even the fifth point in my blog titled, “Five Things That Will Happen in Chinese Craft Beer in 2018 (or They Won’t Happen, No One Fucking Knows.” Well, not to slap myself on the back too much, but in the past couple of weeks that very thing has just now happened in China with Stone’s major China-wide release of their Punk in DrublicHoppy Lager.

Before we delve too far into this, let me first point out that point number 5 in the aforementioned blog had the subtitle of “We’re about to be drowned in overextended, and yet still awesome, international craft beer brands.” My feelings about Stone as well as the overextension of other craft beer brands to China have been made clearly, but this statement includes the breweries themselves as well as the brands they are exporting to China. During the panel discussion we held at our 2018 Beijing Invitational Craft Beer Festival, I mentioned an anecdote about a certain famous beer brand from a certain famous brewery showing up on the shores of China not long after their product was deemed tainted and recalled on the American market. While Stone’s Punk in Drublic does not seem to have any infections, their release of this beer in China this September is just another example of unethical business practices foreign breweries believe they can get away with in China. Here’s why:

For those of you who don’t know, Punk in Drublic is a collaboration beer between Stone Brewing and the American punk rock band, NOFX. Formed in 1983 in LA, NOFX first hit mainstream success in the 1990s with the release of their 1994 album Punk in Drublicand since then have become one of the most successful independent bands of all time.First brewed in 2017, Stone and NOFX’s collaboration – Punk in Drublic – has been a way for Stone to sponsor NOFX as well as profit themselves by collaborating with a longstanding, well-known punk band at their eponymous music festival.I’ve personally never tried the beer myself, but I’m sure it’s fine. I’ve never said Stone made bad beer.

However, for those of you who don’t know this past May Stone chose to break all ties with NOFX and their Punk in Drublic Hoppy Lager due to extremely insensitive comments made by the front man of NOFX – “Fat” Mike Burkett– about the mass shooting that took place at a concert in Las Vegas, Nevada earlier this year. We don’t need to list the exact comments made here, but let’s just say that it’s some real ignorant shit. Responding swiftly after the comments, Stone Brewing HQ made the following statement concerning their collaboration with Stone:

“We at Stone Brewing are aware of NOFX’s insensitive and indefensible statements this past weekend. As a result, we are severing all our ties with NOFX, including festival sponsorship and the production of our collaboration beer. We respect punk rock, and the DIY ethos for which it stands. To us, it means standing up for things that you believe in, and fearlessly committing to what’s right. And it is for that reason that Stone Brewing is immediately disassociating ourselves from the band NOFX. Stone had a sponsorship deal for this summer’s Punk in Drublic festival. Emphasis ‘had.’ That sponsorship is now cancelled.”

At the beginning of September, do you know what beer the Stone China team started promoting as shortly becoming available nationwide in China? Punk in Drublic. The same hoppy lager beer that Stone Brewing HQ completely disassociated themselves from back in May of this year.

Let’s not even get started on the fact that this beer – a hoppy lager, aka a DRINK AS FRESH AS POSSIBLE beer – is arriving in the mainland with a BBD from Stone listed at 120 days and having been brewed on March 28th, 2018. 120 days after March 28this July 28th. It’s now September 27th, and these beers were just starting to be sold here in the past couple weeks. (These date information comes from the official Punk in Drublic poster that has been translated into Chinese for consumers).

Furthermore, apparently rather than sacrificing all the profits from this beer, Stone has incidentally rebranded their Punk in Drublic Hoppy Lager as just “Stone Hoppy Lager,” which is now on sale on draft at their Shanghai Brewpub (picture below) and presumably other places as well. Coincidence?

So, assuming that Stone stuck to their word and didn’t brew any more of this beer past May, this also puts us into September. It is late-September now, a few weeks after they started promoting Punk in Drublic in China. At the end of the day, what this shows is misleading enough to appear as blatant disrespect towards the Chinese craft beer market as well as the craft beer drinkers in China.

To be fair, Stone did concede in their press release that the Punk in Drublic beers already produced and on shelves would still be sold, but that neither Stone nor NOFX would take any more profit from the sales of these beers. Instead, all profit made from the sales of Punk in Drublic will be donated to the Las Vegas Metropolitan Police Department Foundation and its efforts to provide trauma counseling to first responders along with other safety related programs. However, what I am curious about is Stone’s altruism. Why haven’t we in China heard about their disassociation with NOFX concerning this collaboration?Shouldn’t we also be informed about their intention to donate all future sales of this beer to the Las Vegas Metropolitan Police Department Foundation? The reason I ask these questions is to hope that they have an answer, because otherwise it is impossible for me to assume these beers have landed in China for any other reason than to dump them on a purportedly uninformed customer base.

All of us are really excited to see Stone’s 2018 charity declarations for public donations to include the shipment of Punk in Drublic received in China. We’re sure they will be super transparent and easy to validate.

I decided to take a break from blogging and focus on the various tasks that Great Leap committed to over the last 18 months. From closing our round for the funds needed for our Tianjin expansion, to the reality of losing one of our most beloved locations, and to seeing the next generation of not only Great Leap’s production capacity but also something that will push China craft beer beyond the novelty stage. Life is good. Nevertheless, life is never easy. Throughout my months of public silence, I have experienced a realization that I’d like to share with those that follow this blog: 

1.China’s craft beer future will not be determined by foreign brands. 

From the opening of the ZX Ventures “craft” Brewery in Wuhan, to distributorships being acquired by foreign breweries, to the laughable claim that Stone Brewing is here to “change the game” of Chinese craft, I’ve held my tongue. During this time, I have continued to speak publicly both in English and Chinese language forums and conferences and my focus has been on what is right about craft beer in China. Nobody likes the industry peer who has found success but is still overly critical. BUT, and this is a big but, it is the responsibility of industry leaders to encourage said industry to find its voice, strive for quality, and demand commitment to the overall goal of presenting the best of China to the world. 

That being said, lazy international brands see China as an easy target. The bloat of the global craft beer market is being forced to look at “developing markets” as a dumping ground for volume and excess capacity because we are entering an age of distressed capital expansion in craft beer worldwide. 

Many would point to ABInBev as the best example of this, but they’re actually not. ABInBev – along with their owner, 3G Capital – are actually world-class investors when it comes to craft beer acquisitions. They never overpay for brands, they always find brands that are exposed to minimal or nominal amounts of regional debt, or the brands they acquire have impatient board members and ABInBev makes reasonable offers for breweries which, despite their temporary cash flow problems or board  toxicity, actual have massive regional upsides. The example of bloat and disappointment that more fits where we are headed in this conversation is Stone Brewing. (Full disclaimer, I used to love Stone. They were the epitome of independence and cool. Their brands were brash and bold. Their statements to the industry were provocative without being overly condescending. However, something happened about four years ago that smashed the respect at the admiration I had for Stone and most notably their cofounder Greg Koch.) In July 2014, Stone, on the cusp of realizing a dream of almost every craft brewer with a passion for the history and tradition of our trade – namely opening a new wave craft brewery in Berlin, Germany – in my mind did something so insulting and unforgivable that it changed their brand from hero to petulant child with a soiled diaper. That act of insult that dropped them from many people’s list of admiration to nothing more than an unwanted houseguest? It was the gathering by Stone of all the brands of German brewing tradition (represented by bottles) at a publicity stunt onto which they dropped a literal stone, thus breaking the silent line of respect that connects the international brewing community across scale, output, and technical ability as well as damaging American craft beer’s reputation in Germany for months or even years. As a result of Stone’s brash and unnecessary act of “ribbon cutting” of their now open Berlin facility, bureaucratic red tape appeared, delays were imminent, and capital expenditure ran dry. 

Parallel to this now costly and delayed project in the heart of Europe, Stone followed the march east of so many other West Coast brands. After Lagunitas Brewing expanded to Chicago, Sierra Nevada to Asheville, North Carolina, and Green Flash opened and subsequently closed a plant in Virginia Beach, Virginia, Stone themselves made the call to open an almost 600,000 hL-sized facility mirroring its Escondido mega-campus in Richmond, Virginia. The result of many of these aggressive and advantageous expansions became the sample set of craft beer’s rough start to 2018. Green Flash failed to reach expectations set out in their loan agreement and their debt note was called in by their bank, resulting in a liquidation sale. Sierra Nevada’s project saw some delay but the bank of Chico was fiscally stable enough to keep worries at a minimum. Tony Magee and Lagunitas found their expansion put them in deeper waters then they had expected and the constant calls of commercial acquisition were finally, albeit begrudgingly, answered and Heineken began the 24-month process of complete acquisition of the once heralded California brand. 

Stone’s situation is also one that will eventually end up in the case study section of an MBA course on the proper way to scale and fund an industry leader without exposing the principles to debt burdens and distress. Delays in Richmond and the financial stress of delays in Berlin put an undo amount of concern on the books for Stone Corporate in Escondido. What most likely happened next is that the distress of debt put Stone’s founders in the perilous position of having to either sell the debt to a predatory fund or take an unreported series C/D/E at a lower valuation than their previous round. This is every business founder’s nightmare. If you think student loan debt collectors are bad, imagine what it’s like when the terms of your bank loan or private debt note are stretched to an uncomfortable degree and people start getting to that level of anxiety that is easily defined as “loud” and “terrifying”. Most of these dudes resemble Christoph Waltz’s character in, well, almost every movie he’s acted.  They are unpleasant, and they want their money. 

Indicators of this distress are obvious. The brewmaster who elevated Stone to one of the most respected brands of the mid to late 2000s and the guy that literally wrote the book on IPAs, Mitch Steele, left Stone to start his own project in the great state of Georgia. Greg Koch was replaced as CEO to focus on brand ambassadorship roles and run a small VC fund with a mandate to incubate the future of independent craft beer. Even more, the once anti-export and pro-freshness ethos of the company, heralded by their legendary best by requirements, was scrapped for Asia-focused distribution and expansion pushes with export friendly 180- and 360-day best by dates. 

Many of you who are reading this may have been able to connect some of these dots already, but Stone was famously proud of its commitment to local and fresh. Famous to the point that they leveraged the future of the financial stability of the company by building a plant in Virginia just to guarantee freshness for East Coast markets and consumers. It is now possible to find Stone IPA in grocery stores across Asia with one-year best by dates stored at room temperature next to famously pasteurized European heavy weights like Super Bock and Warsteiner. This is not the future promised by the famously outspoken Greg Koch. These are all indicators that now Stone lacks the luxury to drive their own ship. They no longer have the choice to be proud. What happens when a brand’s identity is based on an oral history and it’s connection to fierce independence and pride is stripped of the functional benefits of said pride, but it still has to market and advertise on those ethos’s? A shit show, that’s what happens. 

Their China plans are fairly obvious. Shanghai will be the flagship and they will continue to roll out “game changing” shops in Chengdu and Beijing, most likely Wuhan and Shenzhen, and then probably everywhere else. But are brands like Stone and BrewDog the heroes we are looking for? Does China craft beer have to tolerate a marketing push from a brand that suffers from a selective memory who had their chance to lead the world and instead chose to expose themselves to debt and the controlling manipulation of predatory investors that follows? We will continue to have to hear about Stone and others because their new leadership teams will pay Jiuhuar and ImBeer to lavish us with tales of gargoyles and market dominance. Nevertheless, the question is worth asking, would 2007 Greg Koch sit silently by while an outside brand set up shop in San Diego and told tall tales of relevance and purity when he knew the reality of the situation was more one of necessity than triumph? I doubt it. My guess is that if a brand came to his territory and claimed they were going to “change the game,” 2007 Greg Koch wouldn’t resist the temptation to make his opinion known. 

The second realization I had is connected to Stone’s habit of botched market entries, but is not restricted specifically to their missteps.

2.Don’t fall for the misconception that foreign brand approval validates Chinese craft beer.

I was really upset when the reality of China’s craft beer reputation was related back to me for the first time. It was 2014, and I was recruiting breweries for our first invitational craft beer fest in Beijing. For those of you that came that year, it was about as successful as Jing A’s first 8×8 festival. Some sessions had people, some didn’t. All in all a good first attempt, but forgettable in the end. I remember the responses I got from breweries that just weren’t ready to take a chance on China. Three Floyds, Stone, Revolution, Deschutes all had reasons not to attend. Political reasons not to go, fears of future intellectual property issues, as well as references to rumors they had heard about distributors mistreating product and holding brands hostage all added up to disappointment. 

At that time, I thought that if foreign brands could help validate China then it would be easier to convince local consumers that craft beer had a future. I remember expressing these emotions to my buddy Nunzino, and he responded with an alternative prediction: it would be Chinese craft brewers that win the trust of local consumers, and by that time foreign brands will be begging to get into China that would become more of a distraction than a support system. I wish I could communicate or impart that realization to every one of my local peers, but it’s just something you have to go through yourself as an entrepreneur to truly understand. 

As usual, Nunzino was right. What happened over the next couple of years wreaked of desperation, missteps, and mistakes. Brands that over expanded too quickly and needed a place to push product started appearing in China (There’s no reason for a brewery that has a brewpub-sized operation to send beer to China. It’s weird.) Even more common is the aforementioned examples of once bulletproof large brands like BrewDog and Stone finding themselves in situations where they have to expand to China because of terms set forth by their investors. 

Out of all of the beer that is so eager to be in China now, I would say with confidence that based on their motivations only a handful of brands are going to last and have positive impact. The rest will die both loud and painful deaths as Chinese consumers reject the foundation of desperation that brought them into this market. For those that are here for the right reasons, welcome to China.

Did Stone Brewing’s Berlin Beer Rally Send the Wrong Message?

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