Much has been written about ABI, MC, Heineken, Constellation Brands and others brands, regarding their recent purchases of craft breweries. This model of large companies purchasing smaller craft breweries was once very rare, but now it almost seems one craft brewer is purchased monthly. One of the main concerns is the amount of money, or multiples, being paid for these, mostly regional, breweries. With the recent slowdown in craft sales, there seems to have been some reduction, or slow down, in the purchase of craft breweries.
It will take years to determine if, or how many, of these acquisitions will turn out to be solid business decisions. One only needs to go back several decades to see the consequences of a purchase that went south.
Gambrinus, based in San Antonio, was created in the mid-1980s for the purpose of importing Modelo brands into the eastern half of the U.S. Not long after Gambrinus was established, the company purchased Spoetzl Brewing, or Shiner, which was about 24 hours from closing its doors. It was rumored that Gambrinus paid around $1 million for the brewery and subsequently allocated an additional $1million in working capital. The rest is history.
This acquisition by Gambrinus is arguably the beer industry’s most successful procurement of a craft beer. Shiner is one of the largest craft selling beers in the U.S. As successful as the Shiner deal was for Gambrinus, it might also hold the distinction of being one of, if not the worst, acquisition in the late 1990s.
In 1998, Gambrinus paid in the neighborhood of $69 million for Pete’s, a contract brewed beer that was, at the time, the second largest selling craft in the U.S. The beer was already in its early declining stages, and by 2011 was discontinued.
From an investment view, Gambrinus made a stock purchase for Pete’s, the craft having had a pile of cash in the bank which helped offset the purchase price. Secondly, Pete’s, at that time, owned a state-of-the-art software system which Gambrinus needed. Acquiring the cash and the software, along with being able to sell the brand for about 13 years, provided a return on the investment and, of course, Pete’s Wicked Ale could always come back as a retro brand in the future. Gambrinus could tout to having made the best, and worst, acquisitions ever made in the industry.
Constellation Brands, which paid around $1 billion for Ballast Point, recently announced an $87 million non-cash impairment charge. Ballast Point, not unlike Lagunitas, Revolver, Karbach, Goose Island and others, benefited by moving their distribution into either the red or gold networks, expanding their footprint, and leveraging extensive resources to rapidly grow their beers. In the second quarter of this year, Ballast Point dragged Constellations’ depletions trends by 50 base-points. This is ‘beer-speak’ for ugly!
The Ballast Point beers are at the highest price point in the industry, and now that the brand has gone national, the consumer may look at these price points and simply walk away. If the sales trends continue, repositioning Ballast Point will be an option, but with Constellation behind the brand, Ballast Point is a long way from the next Pete’s.
Stupidity combined with arrogance, and a huge ego, will get you a long way…
Beer Fooder; And than, there is the Stroh purchase of Schlitz driven by this infamous ad.