When Craft Brewers Sell…

In recent years we have witnessed a vast growth in the craft beer market as well as a bit of a sell off. Why? The American dream? Certainly the entrepreneurial spirit of America includes building a successful business, selling it off and retiring comfortably. Many craft beer lovers are quick to castigate brewers that choose this path, often out of a sense of betrayal. The American dream also and often includes the creation of a business that foments the growth of communities through jobs and economic development, leaving a lasting legacy, sometimes for generations. This is the visage many staunch supporters of craft beer relish. These ‘dreams’ are not always mutually exclusive, but are often at conflicting purpose, most often based upon circumstance instead of (perceived) betrayal.

Currently, DuClaw Brewing founder Dave Benfield was quoted in a Baltimore Business Journal article as seeking an equity partner or new owner. As this information quickly spread, I was informed that DuClaw was not for sale but merely in need of funds to expand the taproom and canning line. This was based purely upon demand that the brewery could not meet until necessary funds became available. This is a perfect example of the convergence of needs potentially altering the course of the brewery. To remain competitive a brewery must be able to host patrons for tours and samples, and taprooms make that possible. That taproom however must be suitable to the interested number of attendees. Additionally, cans are the beating heart of craft at the moment. They are practical, prevent deterioration of the product for longer time than bottles, and are more portable (approved for beaches, parks, etc.) These are all practical business matters that smart breweries should invest in- if the demand is present. It clearly is in the case of DuClaw. So why tack on the extra- potential new owner clause. After all, it has served only to upset loyal DuClaw drinkers and begin an imagined countdown as to when AB-InBev will come calling.

Many breweries facing these sorts of expansion needs also require investment partners. 21st Amendment just sold an equity share to Brooklyn Brewery in a quest to drum up financial influx without ‘selling out’ to big beer. Brooklyn has also acquired an equity stake in Funkwerks, again helping them to remain competitive without ‘selling out’. 1 Brooklyn is a strong- perhaps ideal partner in the craft beer world, and has led the way in helping other craft brewers across the nation get started. Brooklyn cannot however invest in every craft brewery across the country. There are other interested investors, but there are major pitfalls to accompany them.

Last year Jim Koch of Sam Adams took part in a craft beer forum in Bethlehem, PA with Dick Yuengling and Ken Grossman. Koch made a statement regarding equity investors in the craft beer market that was rather jarring, “Equity investors have got to get a liquidity event…” meaning equity investments have a finite life span (anywhere from three to ten years) and at the end of that they need to be paid for their investment, quite a bit of money. If necessary this means resale, or a public offering. 2  The prediction? A great wave of sell-offs in the next decade for craft breweries that took on private equity partners. This is exactly the path many craft beer consumers object to. What is the alternative to investors? Not being able to meet the consumer demand equates to losing business, and the brewery’s market share in the region- or nation as the case may be. This is a downward trend that successful breweries want to avoid, as it may spell the end, particularly in highly crowded markets like California where they are nearing saturation. That is the antithesis of the American dream, and the very last thing craft beer consumers desire.

Beer for Thought…

Author: brewedinmaryland

Historian, author, craft beer lover.

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