Dec 102019

Almost 50 years ago when the tobacco company Philip Morris was flushed with cash, they purchased the Miller Brewing Company. Miller immediately had access to PM’s marketing expertise along with the resources necessary to attack the beer industry. Miller created Miller Lite just as the baby boomers were turning 21, and the rest is history. One could argue that Philip Morris’ purchase of Miller Brewing was a defining moment in the beer industry

This acquisition by Philip Morris started a shift in the beer industry that continues today. Schlitz Brewing, in trouble for years due to their brewing process, finally sold out to the Stroh Brewing Company, also a struggling brewery. The massive debt Stroh had incurred with the purchase of Schlitz might cause one to wonder how Stroh ever believed they would survive. And they did not.

The G. Heileman Brewing Co. had been successful with the acquisition of regional brands, support of those brands, and the expansion of other brands. A key to Heileman’s success was the fact that they would award brands in a market to different distributors, thus pitting the distributors against each other. This model was effective until distributors got together and changed state laws to prevent such action from occurring.

Alan Bond, acquired G. Heileman in a takeover.  Bond had so much debt that the company had no chance to succeed, especially given their declining brands. Standing in the wings was Paul Kalmanovitz, who was also buying struggling breweries, but instead of spending against them, he stripped them of their assets, cut marketing, and reduced staff. Brands struggled and died but Kalmanovitz made money.

In the last 20 years, the beer industry has seen AB purchased by InBev, and Miller combine with Coors. Both companies have lost market share and volume while simultaneously experiencing rapidly growing margins. These two companies have been successful in aggressively purchasing key craft brewers.  The craft segment, however, is struggling with the growth of seltzers.

Recently the industry has seen a number of large successful beer companies sell out.  Most recently New Belgium Brewery, an employee owned brewery, sold to Kirin. Perhaps the most eye-awaking of all such transactions, was the recent news of Constellation Brands selling Ballast Point to Kings & Convicts. Constellation Brands is said to have paid $ 1 Billion for Ballast Point which caught the industry by surprise. Four years ago, Ballast Point’s sales were at 430K bels. while in 2019 the sales volume will be less than 300K bels.  In recent years, Constellation Brands had several impairment charges which indicated that Constellation had overpaid for Ballast Point.

The question is: why did Constellation overpay for Ballast Point? Why did Constellation sell Ballast Point for only $75 million after just four years? In so doing, Constellation walked away from their distributor’s commitment to the brewery. Constellation is not a beer company that is struggling because they have Modelo. Constellation has resources very few companies have.

Expect Kings & Convicts to be successful with Ballast Point because the brand will be the priority for the brewery, not a bolt-on brand or one that is there to support egos. If that were the case, then do companies make a brand or does a brand make a company?

Don’t let your ego get in the way of your ignorance.

 Posted by at 7:00 am