USA: Beer industry’s first round of consolidation is largely over - analysts

The beer industry’s first round of consolidation is largely over as macro US brewers have slowed their pace of craft brewery acquisitions, making way for other types of deals that offer small brewers new paths forward, says Rabobank.

While craft beer brands are still registering consistent steady growth of roughly 5%-6%, the years of double-digit gains appear to be over and competing on price will become an important “strategic lever,” Rabobank senior beverages analyst, Jim Watson, says.

“Price competition in craft still isn’t as explicit, but it’s definitely increased,” Watson told BeverageDaily, adding that new, smaller craft beer brands are using price as one of their major selling points to crack into the market.

“We believe craft brewers need partners in order to survive in this new market.”

Recent deals including minority stake investments, cross-country craft alliances, and private equity deals are positioning small brewers for future growth while keeping their craft credibility intact, according to Rabobank.

“The competing forces of local vs. scale are seemingly at odds, but breweries are finding many ways around the contradiction,” Watson continues.

Deals such as Spanish brewer Mahou San Miguel’s 30% stake in Avery Brewing Co. and Founders Brewery Co. help support the breweries’ growth while maintaining their regional identity.

“Because it’s (Mahou San Miguel) not a well-known brewery; it really didn’t come across as a 'sell out' to consumers and they (Avery and Founders) still get straight up capital right away,” said Watson.

Another emerging trend is the alignment of multiple craft brewers to grow sales regionally and expand marketing efforts to gain proper attention from distributors and retailers. For example, Victory, Southern Tier, and Artisanal Brewing Ventures combined operations to form a new holding company. Additionally, Brooklyn Brewery has taken a minority stake in Funkwerks and 21st Amendment breweries.

“It’s going to be hard for a New York-based brewery to necessarily have terrific distribution and scale in states on the other side of the country, by forming an alliance they can each help each other in their core markets,” Watson said.

Lastly, private equity (PE) deals allow brewers to stay independent in the consumer’s eyes while still gaining access to funding and operational expertise, according to Watson.

PE funds like Fireman and Ulysses have taken stakes in multiple craft breweries such as Dogfish Head and Oskar Blues.

“Most consumers are completely blind to who has invested in capital and I don’t think PE [investment] sets off any alarms in a way an Anheuser-Busch takeover would, but you might not get that direct brewing knowledge,” Watson added.

The US craft segment will continue to expand and produce a new wave of entrants each year -- 1,100 permits for breweries were issued last year, according to the Brewer’s Association.

Therefore, new and existing brewers will need to strike the right partnership structure that provides access to resources and expertise, according to Watson.

01 February, 2018