Jonathan Ingram's picture

Craft Beer Billionaires are Changing the Game

A U.S. Senator, who long ago seemed to have a handle on what disturbed people most about the political process in Washington, once offered this line about the problem of budgets. “A billion here, a billion there,” he said, “and pretty soon you’re talking about real money.”

That’s the tune that now seems to be humming through the craft beer community. A billion dollar deal here, a billion dollar deal there and pretty soon you’re talking about real beer money.

Last year, according to respected individuals who work on the financial side of the beer business, there were three major deals that figured in the billion dollar range. The best known was the purchase by the publicly-traded Constellation Brands of Ballast Point Brewing Company for $1 billion. Using the current metric of $3,000 per barrel as a pricing guide for breweries in demand, Tony Magee brought in $1 billion by selling a 50 percent stake of Lagunitas Brewing Company to Heineken International. Given similar metrics, Firestone Walker would have been worth close to $1 billion prior to Duvel Moortgat taking a majority interest.

If people were stunned by the actual sales, the pricing should give them a double stunner, if not an imperial pause. Homebrewers-turned-brewery owners that every serious beer lover could relate to have suddenly started turning into billionaires. On top of this, the countervailing forces of macro beer and a Belgian company with financial expertise were behind the deals.

Given that Anheuser-Busch InBev and MillerCoors were also snapping up smaller breweries last year, likely at similar price points per barrel, should craft drinkers be worried?

Personally, I’ve started seeing a helluva lot more six-packs priced at $14.99 since the Ballast Point sale, where the company’s purchase price was motivated in part by its ability to not only grow fast but command 50 percent higher profit margins than most craft brewers. This pricing falls in line with those four-packs that would work out to the same cost per bottle, sure. But still, prepare for the higher pricing of six-packs in demand, especially IPAs and those with higher ABV.

It seems the consumer can’t win. Either you can’t get a popular shelf whale, and even if you can get a craft brew that is consistently popular and stacked high on the shelves, it could cost considerably more.

The issue of finding craft beers on the shelf is the other “whale in the room.” At the same time the number of craft breweries is increasing – 5,000 now looks to be a reasonable number for the near future – the number of wholesalers and distributors is shrinking. Yep, the same consolidation that we’re seeing on the corporate and craft level in brewing is taking place among wholesalers. That means more craft brewers seeking deals with fewer decision-makers. It also means more distributors in the hands of macro brewers in states where laws allow such relationships. (Beware the relaxing of the three tier rule that prohibits brewers from distributing.)

With craft self-distribution limited in most states and with the ability of wholesalers to buy and sell the contracts they made with brewers in some states, it is the best of times and worst of times. There’s lots of creative, independent brewing and a tighter squeeze when it comes to selling it in retail outlets.

Call me Alfred E. Newman-ish, but I’m not worried when it comes to getting craft. Craft brewers have always been able to outsmart their bigger rivals as well as the hang-ups in the distribution networks.