Craft Brewing Investment Trends

As the sales of flavorful beer continue to soar, there’s seemingly no end to the outpouring of affection for it by a growing cadre of beer lovers. But as a wave of dollars flows into the craft beer business, it begs a question: who is going to be making the flavorful beer -- and the money that goes along with it?

From artisan breweries to microbreweries and those in the realm of a million barrels a year – or trying to reach that milestone, three patterns emerge over the past year. Some craft breweries are finding unique paths toward growth through bank loans and private sales. Others are taking private equity investments as a path to reaping financial rewards while remaining in the brewing business. A third group has elected to reap all the rewards by selling their breweries outright.

What this means for the market segment of craft remains to be seen.

In the category of outright sales are New York’s Blue Point Brewing Company, the 10-Barrel Brewing Company in Oregon and the venerable Elysian Brewing Company of Seattle – all recently purchased by AB InBev within a 12-month period. With the brewing giant poised to make good on its multi-million dollar investments, which previously included the acquisition of the Goose Island brand, that means these breweries’ production and sales are expected to increase – with the profits accruing to AB InBev.

AB InBev is not finished with its acquisition strategy, according to Townsend Ziebold, a managing partner at First Beverage Group. “ABI set a strategy of buying a series of regionals and they’re in the middle of executing that,” said Ziebold. You can look at a map of the United States and I don’t think ABI is finished with their regional strategy. My guess is they have several more to do.”

 In macroeconomic terms, the craft segment, which enjoys higher margins due to pricing, prospered during the Great Recession and took market share year after year despite those premium prices. This performance caught the attention of investors, banks and financial markets in general – in addition to major brewers. In an odd take on crowd funding, the top tier of craft brewery owners are often surrounded at the Craft Brewers Conference or any other meeting of the industry by would-be buyers, some of whom slip them notes or large denomination dollar bills signaling their intent.

Craft brewers are now welcomed with open arms at commercial banks as well. “There is a lot of debt financing available for breweries out there now from banks,” said Larry Bell, who over a decade ago contemplated bankruptcy during the first expansion of Bell’s Brewery when a bank loan hit a snag. “Banks are aware of the successes and profits going on now in the craft beer arena,” continued Bell, who has recently used bank loans to buy out his early partners and expects his daughter Laura Bell to run the brewery in the future.

From the perspective of another Michigan brewer, Mike Stevens of Founders Brewing Company, many of the same people who started the flavorful beer revolution will continue to sustain it despite investment from major brewers.

“These are really exciting times to be in the craft beer business,” said Stevens, who co-founded his company with Dave Engbers. Stevens sees the recent influx of financing as an opportunity for brewers such as himself and Engbers to keep brewing.“It’s going to become a chance for craft brewers to design the future,” he said. “I think there’s an opportunity to go forward and control our own destiny.”

With that in mind, Stevens and Engbers recently sold a 30 percent equity stake to the owners of Spain’s San Miguel brand. It was a good fit, said Stevens, because he and his partner want their families to follow in their footsteps at Founders and the Mahou family that owns San Miguel believes in that strategy.

Stevens and Engbers of Founders recently sold a 30 percent equity stake to the owners of Spain’s San Miguel brand.

At the higher production end of the craft scale, other changes have been obvious that will help sustain some of the original members of the Brewers Association’s Top 50 Craft Brewers, who are by definition independent. Publicly traded Boston Beer Company has bought breweries in key locations around the country. Private brands such as Sierra Nevada, New Belgium, Lagunitas, Stone and Green Flash are establishing new breweries east of the Mississippi using debt financing and Deschutes is looking. As part of its expansion, Green Flash bought into the highly regarded microbrewer Alpine, a fellow California company.

In New York City, ownership of Brooklyn Brewery, has been quietly transferred to the Ottaway family by co-founder Steve Hindy. Plans for a million-barrel brewery in the New York City area are underway for Brooklyn, whose greatest area of growth lies in exports.

For those in the Midwest, expanding in place also makes sense. Bell’s, located near Kalamazoo, and Founders, in Grand Rapids, are poised to dramatically expand operations using bank financing. While Bell declines to share his bank loan information, Founders has stated its expansion is connected to a $42 million loan. Boulevard Brewing Company, under ownership of craft-sized Duvel Moortgat of Belgium since 2013, has expanded its operations in Kansas City to the tune of $12 million in investment.

Others on the Brewers Association’s Top 50 list are turning to financing from equity groups, a more unique and complicated approach. In a short span in the fall of 2014, Southern Tier Brewing Company, SweetWater Brewing Company and Uinta Brewing Company each announced the sale of equity stakes to private equity investors.