Dispute Reaches a Head Over Lifting Cap on Free Beer Gear

Stack up a frosty mug of North Coast Brewing Co.’s Red Seal Ale against a mass-produced Budweiser, California’s small brewers say, and any beer lover will conclude the better-known brand pales in comparison.

But add a few freebies with that Bud--such as a flashy key chain with one of those cute Budweiser frogs--and now the little guys complain that the scales are dangerously tipped in favor of Big Brew.

From Angel City Brewing in Los Angeles to Lost Coast Brewing in Eureka, California’s small brew masters are frothing over last-minute legislation backed by Anheuser-Busch, the world’s largest beer maker.

Now on the desk of Gov. Gray Davis, the bill would dramatically raise California’s limits on the value of promotional gifts that brewers can give to bars and restaurants to be doled out free to customers--a change that some small brewers say threatens their livelihood.

“They have buildings full of guys who sit around and think about this [merchandising] stuff,” said Mark Ruedrich, a former construction foreman who co-founded the critically acclaimed North Coast brewery in Fort Bragg, which two years ago was rated one of the 10 best at the World Beer Championships. “We produce as much as they spill in one day, so naturally we do not have the resources to approach the consumer that way.”

Quietly pushed through by Assembly Speaker Bob Hertzberg (D-Sherman Oaks) in the final days of Sacramento’s two-year legislative session, the now-notorious “trinkets and trash” bill never received a formal hearing.

Hertzberg and the bill’s author, Assemblywoman Helen Thomson (D-Davis), represent the legislative districts containing Anheuser-Busch’s two California plants, which brew 13 million barrels of beer a year.

The St. Louis-based company, which makes the “King of Beers” Budweiser brand, brews more than 100 million barrels a year overall, soaking up roughly half of the national beer market.

Small brewers, who make less than 2% of the nation’s beer, are asking Davis for a veto, saying that they cannot compete with the flood of freebies they expect from the likes of Anheuser-Busch and Miller Brewing Co.

But they concede that their chances against mighty Anheuser-Busch, a generous campaign contributor, are slim.

“The neighborhood bully often wins,” said Bob Judd of the California Small Brewers Assn. “That is what happened here.”

Anheuser-Busch shelled out more than $215,000 to state politicians during the first half of this year, including $10,000 to Davis and $22,000 to committees controlled by Hertzberg, campaign finance reports show. Davis has not taken a position on the bill, AB 2551, said spokesman Roger Salazar.

All the microbrew protests have left Anheuser-Busch Vice President Dane Starling with a bitter aftertaste.

Starling said he is stunned by the publicity the freebie issue has garnered, noting that his company has been working for years to raise the gift limit.

Thirty states have no limits, and several renowned craft-brewing states, including Oregon and Washington, allow far bigger promotional gifts than California--proof to Starling that critics’ arguments lack substance.

“My honest feeling,” he said, “is that if you are a microbrewer and you are going to go broke over this, then you have some other problems.”

For years, California has waged war against beer companies over their clever promotional efforts, fearful that they would entice people to drink more than they normally would.

Three years ago, for example, the California Department of Alcoholic Beverage Control obtained a court order to stop Anheuser-Busch from continuing its “Buy the Beer, Get the Gear” advertising campaign, which anti-alcohol groups had dubbed the “frequent drinker program.”

Ultimately, however, a court ruling allowed the beer maker to continue the promotion, which rewarded repeat customers with merchandise.

Although California placed limits on the freebies that beer makers can hand out to retailers in 1985, it has allowed makers of wine and hard liquor to give out pricier merchandise. That has led Anheuser-Busch and others to continually push for more equitable treatment.

The resulting bill was drafted by Hertzberg, who sympathizes with arguments that the current limit is unfair.

“Anheuser-Busch is one of the largest employers in the San Fernando Valley, and when they want something, I listen,” Hertzberg said. “We have a lot of people in California that come from other states; they are used to getting T-shirts and hats and they come here and only get a can opener. These are good customers, and [Anheuser-Busch] is worried about maintaining market share.”

Hertzberg said he cannot fathom how small brewers could consider the legislation a slap at them.

“You don’t go to a chi-chi microbrewery because you want to save a nickel or get a T-shirt,” Hertzberg said. “The guys who drink Miller Lite are not the same guys who are drinking that fancy stuff anyway.”

Under current law, brewers are limited to giving $15 worth of freebies annually per establishment, with the value of each gift to be passed out to customers limited to 25 cents.

Passed by the Legislature at 11 p.m., in the session’s waning minutes, the bill would raise the per-item limit to $1.35 starting in January, then to $1.50 the next year. It also would raise the limit per establishment to $65 for 2001 and $75 a year thereafter.

Because those values are determined according to where the goods are purchased, small brewers are recoiling with visions of mass-produced Ecuadorean Bud T-shirts and Malaysian baseball caps. But Anheuser-Busch representatives, who had wanted a $5 to $15 limit, say that such fears are completely unfounded, and that even with their substantial economies of scale, key chains and pin lights are all that the new limits would probably permit.

Such assurances are not likely to drown the sorrows of beer makers like Ken Allen, founder of the Anderson Valley Brewing Co. The goateed former chiropractor was buoyant recently after acquiring a set of vintage copper beer kettles from a small Bavarian brewery, which had gone bankrupt because of pressure from larger beer conglomerates.

Then he heard from his fellow brewmasters what Anheuser-Busch had done in Sacramento, and his heart sank.

“Here they go again,” Allen said of Anheuser-Busch as he sipped an India pale ale with his workers to cap off a day’s work. “They already have 50% of the market, but they want more, more, more. That’s what this is really about.”