FDA Killing Big Beer’s Competitors

If you saw the movie Beer Wars, which was released last year, you might remember one hard-working entrepreneur featured in the film named Rhonda Kallman. Rhonda, the co-founder of the Boston Beer Company (makers of Samuel Adams beer) and winner of Beer Business Daily‘s “Maverick” award, broke away from her very successful Boston-based brewery and risked it all to start her own craft brewing company, New Century Brewing Company, in order to sell a unique kind of beer she believed would be a hit: a caffeinated light beer.

As the movie Beer Wars shows, things got off to a shaky start for Rhonda, but the demand for alcoholic drinks with a caffeine kick eventually picked up. At just 4 percent alcohol, New Century Brewing Company’s flagship product Moonshot contains 69 milligrams of caffeine: less than half of the caffeine in a “tall” 8-ounce cup of coffee from Starbucks. Yet, that was enough to get her brewery on the short list of companies that the FDA issued warning letters this week telling them to reformulate their products. If the brewers choose to reformulate their products, they know that they will lose their competitive edge. As Rhonda Kallman put it:

I was fully hoping and optimistic that the FDA would create some standardization around what is safe in their mind in terms of caffeinated alcohol…The difficulty for me is if I remove the caffeine, there’s no real reason for Moonshot.

The FDA’s action will most likely result in a huge loss of market share for these small independent companies. Like New Century Brewing, Phusion Projects LLC, the maker of Four Loko, is also a small company run by three college friends. Energy drinks were a surprise hit on the market with consistently growing demand, adding pressure on big breweries.

By no means do I think the big breweries had a hand in FDA action, nor do I believe that they would consider the latest developments beneficial to their businesses in the long-run. However, FDA over-regulation does still have the effect of killing small business and keeping competition among a few large, well-established titans in the industry.  Small businesses simply cannot absorb the burdens of regulation as well as larger companies with many successful products can. For example, Miller Brewing Company was able to absorb the loss of its popular alcoholic energy drink Sparks.

It is highly unlikely that small fledgling brewing companies like Phusion Projects and New Century will be able to survive the loss of their most popular product lines. Currently, there are nearly 1,600 breweries in the United States (according to the Brewers Association). But if the FDA and other regulatory agencies continue to create hurdles that make competing with large brewers more difficult for entrepreneurs, we may find ourselves back in an environment where there are only 50 brewers throughout the country, as was the case in 1983.