Constellation Acquisition
Constellation’s (STZ) planned acquisition of Grupo Modelo SAB’s U.S. distribution and production arm may prompt it to begin buying craft brands, according to a report by San Francisco-based Demeter Group Investment Bank, which specializes in alcoholic beverages.
Constellation (STZ) may follow a pattern it used to consolidate in wine, picking and choosing fast-growing, premium-priced market leaders popular with millenials within specific hot styles, like wheat beers and India pale ales, Demeter said.
Constellation Chief Executive Officer Rob Sands said the company is open to craft acquisitions and is considering introducing a brand of its own with celebrity chef Rick Bayless.
“It depends on the deal,” Sands said in an interview. “The craft segment is very fragmented and comprised of a lot of very small regional players so it depends on what it is. Some of that stuff could be too small and immaterial for us.”
Scaling Up
Some craft founders may be persuaded to sell because they face daunting odds scaling up in a market so overwhelmingly dominated by mega-brewers, which have a lock on distribution. Case in point: While Boston Beer, the largest craft brewer, shipped almost 29 million cases in 2011, AB InBev shipped 538 million cases of Bud Light alone.
They’re “going to be smart enough and forward-looking enough to recognize some of the issues that are ultimately going to make competing in the industry more difficult,” Ziebold said. “They’re going to want to take money off the table.”
Larry Bell, whose Bell’s Brewery Inc. is among the country’s largest craft brewers, isn’t sure how many solicitation letters, packets and e-mails he gets. He’s trained the receptionist to screen them out. During a meeting a couple of months ago with a major bank, Bell was shown an internal document detailing how to structure deals with various brewers. Bell’s name was on the list.
Family Name
A top executive from a mega-brewer that Bell declined to name once slipped a business card into Bell’s pocket at a beer summit in San Diego saying only, “You’re selling. I’m buying.” Bell wasn’t and didn’t.
“It takes so long to build equity in the brewery, once you’ve got it -- especially if your name is on it,” he said. “Do you really want to sell that to some private-equity people that are just there to make a bunch of money and flip it? What does that do for your legacy? That’s not why I spent 30 years building the business.”
Bell was working at a bakery in 1980 when he parlayed his knowledge of grain into brewing beer in his basement. He used a $200 birthday check from his mother to start his business three years later, brewing with a 15-gallon soup pot and garbage pails.
Now in 18 states and Puerto Rico, Bell’s has posted average annual growth rates of about 20 percent with ales such as Two Hearted and Oberon without opening a new market in four years.
Investor Buyouts
Bell recently finished buying out 60 original investors to become a family-owned business, which he plans to pass on to his children. The last of those investors cashed a check for $590,000, having invested $2,000 almost three decades ago. Bell said if he makes any deal, it’s more likely to be as a buyer of a smaller brewery. He, too, believes there’ll eventually be sellers and that others will follow quickly.
“The first large craft brewer to go is probably going to get the most dollars per barrel,” Bell said. “If you are on the fence and you think you want to get your money, that may be the time while the getting’s good.”
Stone Brewing Co. founder Greg Koch, who refuses to ever discount his beers that include Arrogant Bastard Ale and Stone Ruination IPA, is unequivocal: “I will never sell out,” he said of his Escondido, California-based craft brewery, among the 20 largest in the U.S. “There’s no case to be made.”
‘Revolutionary Side’
Koch said banks are lining up to give money for expansion without an equity stake, so he doesn’t buy arguments from crafters who justify selling out because of the need for capital to expand production and distribution.
“I’m on the revolutionary side of the equation, on the fight-the-power side,” Koch said. “We have a responsibility as craft brewers, just like artisanal coffee roasters and cheese makers, to help shift the national consciousness into things that are real instead of this prefab manufactured industrialized notion of food and drink, which is killing us clearly.”
