- Constellation Brands is selling craft brewer Ballast Point to Chicago-area Kings & Convicts Brewing Co., the alcoholic beverage company announced Tuesday night. The deal includes the brand, four brewpubs in California, including Downtown Disney/Anaheim; a new brewpub in Chicago’s Fulton Market District and Ballast Point’s original homebrewing supply and tasting room in San Diego, according to a press release. It will not acquire Constellation's Craft & Specialty operations in Daleville, Virginia. The deal should close in the first months of 2020. Terms of the sale were not disclosed.
- Constellation's 2015 acquisition of Ballast Point was a record-setting deal. The alcohol giant paid about $1 billion for the California craft brewery. In a statement about the deal four years ago, Constellation touted the deal as giving it "a high-growth premium platform that will enable Constellation to compete in the fast-growing craft beer segment, further strengthening its position in the highest end of the U.S. beer market."
- Trends have changed dramatically since Constellation acquired Ballast Point, CEO Bill Newlands said in the statement announcing the sale. “Ballast Point remains one of the most iconic craft beer brands in the country and we’re pleased to transition the business to an owner that can devote the resources needed to fuel its future success. At the same time, this decision allows Constellation to focus more fully on maximizing growth for our high-performing import portfolio and upcoming new product introductions, including Corona Hard Seltzer, scheduled to launch this spring.”
To anyone who's paying attention to Constellation and Ballast Point, the writing has been on the wall and the divestiture of the craft brand is not a surprise.
After a 2017 rebrand and price reduction failed to boost sales, Constellation has been quietly closing Ballast Point locations this year — shuttering an 80,000-square-foot sour beer and barrel aging facility in San Diego, a Temecula, California brewpub, and the taproom and restaurant at the Daleville R&D facility that Constellation is keeping. In the last two years, in what a Constellation spokesperson told beer industry publication Sightlines was an effort to "right size" its investment in craft brewing, there have likely been more than 80 layoffs at these brewery locations and among sales staff for Constellation's craft brands — including slashing almost all of the craft beer sales team last summer. And according to Sightlines, Constellation has recorded $200 million of impairment charges, unrecoverable losses from the high purchase price of Ballast Point.
What is surprising about this sale is the buyer. Kings & Convicts is a small craft brewery that started outside of Chicago in 2017 and is relatively unknown outside that area. According to ChicagoNow, it's estimated Kings & Convicts will have produced 660 barrels by the end of the year, while Ballast Point will have made 200,000 in the same time frame. Kings & Convicts has plans to open a second 48,000-square-foot facility in Wisconsin next year — and the company says it soon plans to hire a national sales and marketing workforce, since Ballast Point has such a massive footprint. Kings & Convicts CEO Brendan Watters told Brewbound the acquisition came about after he asked someone from Constellation this summer if he could buy Ballast Point.
It is understandable that Constellation is stepping away from the craft brew business. While there has been growth in the segment, it's been slowing the last few years. In 2018, the Brewers Association reported craft beer has a 13.2% share of the beer market — worth $27.6 billion — with sales up 3.9%. This all sounds positive, but the beer market in general has actually been falling, with total sales down 0.8%. The number of craft breweries has gone up 13.2%, but the number of microbreweries closing has gone up too, to an eight-year high of 123. Some statistics that have shown craft beer sales on a large upswing have been artificially inflated because hard seltzer — the segment most quickly on the rise — is included in the same category. Analysts have even speculated that 2019 might actually be the first year that craft beer sales are in the red.
As beer sales are falling across the board — though Mexican brews like Corona and Modelo, both owned by Constellation, have been some of the industry's strongest performers — Constellation has been working to realign its portfolio. Earlier this year, it sold about 30 lower-end wine and spirits brands to E. & J. Gallo Winery for $1.7 billion, looking to invest instead in premium, craft and millennial-friendly drinks. The company has taken stakes in craft gin, bourbon and whiskey company Black Button Distilling; Los Angeles-based craft mezcal brand El Silencio, and North Carolina craft spirit and canned cocktail maker Durham Distillery. And in October, Newlands announced Corona Hard Seltzer will hit shelves next year.
Constellation's entire history with Ballast Point shows the company's penchant for taking huge gambles. Industry watchers have said the $1 billion purchase price of the craft brewery was the largest for that kind of a deal.
In 2018, Constellation made another pricey acquisition of stake in a company that it thought was the future: its nearly $4 billion investment in cannabis company Canopy Growth. While many have touted cannabis-infused beverages as the future, this investment has yet to deliver financial benefits to Constellation. In its most recent earnings report, the company wrote down $839 million on the investment, which resulted in a $484.4 million loss. Whether this investment is better than the anchor that Ballast Point turned out to be is riding on the success of cannabis products that will be hitting shelves in Canada this month — and the direction that U.S. regulations go in the segment.