The Macrobrewery Drunken Spending Spree May Be Slowing - Why That May Not Be Good For Craft Brewers...
We all remember the colossal failure that was the Budweiser Super Bowl Commercial from 2015 schooling us all on what it meant to brew beer 'the hard way' (by brewing thousands of gallons at a time on system with all the complexities of a Keurig) and poked fun at pumpkin peach ale (which the company had just added to its own portfolio after buying out Elysian Brewing). With the macro business model falling apart faster than a zombie river dancing, the macros turned to the most powerful weapon in their arsenal to stop the bleeding - their checkbooks.
Apparently, brewing beer the hard way isn't all it's cracked up to be. For the past few years, macro giants AB InBev and SABMiller have been quietly buying up craft breweries left and right. What likely began as a pilot in 2011 with AB InBev purchase of Goose Island (for $38.8M) has become a macro shopping spree. There's been a run on craft breweries over the past 3 years no less feverish than Walmart on a Black Friday at 12:01am. Even some of my favorite breweries like Devils Backbone have succumb to the macro's temptation. Here's a list of notable brewery acquisitions from 2014 to 2016, along with the brewery's prior year estimated production.
2014 Craft Brewery Acquisitions:
- Blue Point Brewing - AB InBev - 2013 barrelage: 60,000 - $24M
- 10 Barrel Brewing - AB InBev - 2013 barrelage: 23,500
2015 Craft Brewery Acquisitions:
- Elysian Brewing - AB InBev - 2014 barrelage: 54,443
- Golden Road Brewing - AB InBev - 2014 barrelage: 28,700
- Breckenridge Brewing - AB InBev - 2014 barrelage: 64,371
- Four Peaks Brewing - AB InBev - 2014 barrelage: 58,630
- Ballast Point Brewing - Constellation Brands - 2015 barrelage: 123,435 - $1B
2016 Craft Brewery Acquisitions:
- Devil's Backbone Brewing - AB InBev - 2014 barrelage: 43,886
- Hop Valley - SABMiller - 2015 barrelage: 38,500
- Terrapin - SABMiller - 2015 barrelage: 57,000
- Cigar City Brewing - Fireman Capital - 2015 barrelage: 60,000
- SABMiller - AB InBev: 2015 Barrelage: 276,000,000
Aside from private equity venture firms performing a few acquisitions, all has become relatively quiet on the M&A front. The last acquisition should be the most worrisome for craft brewers. Craft brewers not only have to contend with draconian distribution laws at the state level, they now have to contend with one of the largest distribution networks famous for using unscrupulous methods to gain an unfair competitive edge in the past.
One may question how antitrust groups didn't start howling like a scolded dogs when the merger between the world's two largest beer makers was announced - well, they did. However, when you have AB InBev sending the likes of nearly 60 lobbyists to capitol hill to whisper sweet nothings in politicians' ears, you can guess how that would turn out. To push the merger through, SABMiller had to divest a portion of its brands.
The bureaucrats who let this deal fly no doubt lined or will be lining their pockets for years to come - well that, or they're just totally incompetent. To make the merger look pretty on paper to the antitrust watchdogs, AB InBev agreed to divest its US brands, which was primarily made up of it's Miller line (whoop-dee-doo).
In the end, the macros may end up winning the beer wars by using an old tactic from their past. They successfully used this strategy against one another before InBev bought everything. It's a technique known as 'Billboarding'. Billboarding is a strategy used to take up as much space as possible in retail establishments to limit the brands the strategist has to compete against. Ever wonder why Budweiser sells their 'beer' in 24oz, 40oz, 4 packs, 6 packs - bottles, 6 packs - cans, 12 packs - bottles, 12 packs - cans, and case sizes? Now add in, Bud Light, Bud Ice, Bud Dark, Bud Grandma's Edition, and multiply each of those by the various packaging sizes, and you end up with more refrigeration space than 95% of retailers have available or care to allocate to aisles upon aisles of beer. Craft brewers have already cited difficulty competing with each other for shelf space. The industry is going through a period of regionalization - where craft breweries not part of a distribution network that has substantial pull within the industry will be left out in the cold. Couple this billboarding strategy with less than reputable independent distributor pricing, faux 'craft' sell outs, cutthroat pricing, and the macros still represent a very real and present danger to craft breweries.