As 2015 came to a close, Anheuser-Busch InBev purchased three craft breweries in five days, and a handful of other major brewers made their first craft brewery acquisitions in 2015. With this much action surrounding craft beer, it's clear that major brewers — and the rest of the industry — recognize that the entire landscape of beer manufacturing in the U.S. is shifting.
With dozens of craft beer transactions and even more rumors surfacing in the past year, U.S. beer manufacturers are in for a shift in the overall beer landscape. Whether they distinguish their brands from craft beer or jump on the acquisitions trend, manufacturers will contend with the inevitable growth of craft, as beer industry players say this acquisition spree has only just begun.
2015: A year in review
By Brewbound's count, at least 24 craft brewery transactions took place last year. Here are a few highlights of craft acquisitions announced by major brewers:
- January: AB InBev and Elysian Brewing
- September: Heineken and Lagunitas Brewing (50% stake)
- September: MillerCoors and Saint Archer Brewing
- September: AB InBev and Golden Road Brewing
- November: Constellation Brands and Ballast Point Brewing & Spirits
- December: AB InBev and Four Peaks Brewing
- December: AB InBev and Breckenridge Brewery
Why are major brewers snapping up craft competitors?
Craft beer is taking away more market share from major brewers, particularly as light beer, which many major brewers depend on for a bulk of their sales, sees sales declines. In 2014, craft beer had claimed 11% of the volume market share and 19.3% of the retail market share. In 2015, those numbers jumped to 18.8% of volume market share in key U.S. retail channels and 23.4% of dollar sales, according to IRI Worldwide.
"It's a different market segment, a different kind of consumer, though we're seeing more and more people on the macro-scale interested in craft beer," said Danielle Teagarden, alcohol beverage attorney with Reiser Legal PLLC. "So there's lots of market share there that they're interested in capturing."
Focus on the future
With sales numbers continuing to grow, major brewers recognize that for many beer drinkers, the future is in craft.
"If I'm a person running a large brewery, and if my primary beer is a light lager, and that segment is now on the downward trend, and I need to ensure that I can look to the future, I'm going to go buy a craft brewery," said Earl Kight, chief commercial officer at Ballast Point Brewing & Spirits.
By acquiring a craft brewery, craft brewer loyalty could rub off on the major brewer.
"[Major brewers] get to tap into this amazing loyalty to that product that’s been established," said Teagarden. "[Beer fans'] loyalty to certain brands, and the attitude and personality a beer brand has cultivated, is nothing short of tremendous."
Strong entry point
Two key factors come into play when major brewers select craft breweries to acquire: how fast the brewery and its brands are growing and the strategic partnerships that can be made in that brand’s region.
When Constellation announced its acquisition of Ballast Point last November, Constellation's first craft beer acquisition, the company agreed to a sum of $1 billion, the largest acquisition deal in craft beer's history. Ballast Point earned Constellation's confidence by reporting a more than 100% increase in volume over the past year with a 51.7% gross margin.
"If you're gonna enter a segment, you probably want to enter it with the fastest-growing brand that's out there," said Kight.
What's in it for the craft brewers?
Influx of capital to improve logistics
An influx of capital from the acquiring company enables craft brewers to take care of financial needs:
- Increase production capacity by building more breweries and hiring more staff
- Improve their infrastructure with better equipment and technology
- Expand distribution beyond their city, region, or even the U.S.
- Improve packaging, such as upgrades to recyclable or renewable materials
- Have better access to ingredient sources
- Enhance branding, including label design
- Expand marketing efforts
With these improvements, craft brands can become more valuable to the major brewer that acquired them.
Major brewers extend to the craft breweries their relationships and strategic partnerships with distributors, ingredients suppliers, and other entities along the supply chain. Opening up those relationships enables craft breweries to expand and potentially become significant revenue contributors alongside major brewers' other brands.
That very element of customer loyalty that major brewers want to tap from craft brewers can be threatened when a craft brewer is acquired by an entity like AB InBev or MillerCoors. Confusion arises as to whether craft brewers that are acquired by major brewers can still call themselves craft based on the "independent" aspect of what constitutes a craft brewery, per the definition set by the Brewers Association.
"The less you look like a small, hardworking, bootstrap startup and turn into this bigger, more everywhere brand, the less the craft-seeking consumer identifies with it," said Teagarden. "…. Maybe the beer, the recipe hasn't changed, but the perception of the brand has."
Where does the industry go from here?
An increase in acquisitions could be a natural progression for the U.S. beer industry as it has been for other market segments: As a category becomes crowded with more producers, consolidation is inevitable, as has been seen with the plethora of mergers and acquisitions in other segments of the food and beverage industry. That consolidation includes larger companies acquiring fast-growing smaller brands.
"If you're growing quickly, and you have incredible margins, and you have a super quality product, it's inevitable that someone's going to come calling," said Kight.
Benefits and drawbacks aside, those closest to the industry and these acquisitions believe that this trend will continue. This is only the beginning of how craft can transform the U.S. beer industry—whether as standalone breweries or as part of a larger operation.
"I don't think it's done," said Kight. "I think you'll still have additional brands be purchased. Some people are looking at it as regional, some as national brands, but I think it's going to continue."
"It'd be surprising to see another moment like a Ballast Point, a big valuation like that," said Teagarden. "But from my chair, I don't really see it slowing down."