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…

Room for more breweries?

Looking at the growth of craft breweries in the United States over the past decade, many have pondered if there perhaps are too many breweries these days. Noticeably the question took on more significance once the number of craft breweries eclipsed 5,000 in 2016. Blasphemy or Truth? Reality dictates it is based on upon factors within each state of the union. One thing I love about the Brewers Association of America is their willingness to keep such detailed statistics. This is particularly relevant when it comes to determining the answer to such questions as how many is too many?

According to BA 2016 data, Maryland has not reached saturation yet at 65 breweries. How do they know? Taking the overall craft beer production, barrels sold, population, and economic impact (just under $652 million for 2016) they created an algorithm to determine where each state ranks and when they near the tipping point of saturation. Currently Maryland ranks 36th in the nation with 1.5 breweries per capita. Based on our population each adult in Maryland consumes approximately 2 gallons of beer per year (raising us to 25th overall!) So what does this tell us? We have far fewer breweries than most states, but we drink a lot more craft beer per person. It also means we have room for growth. Vermont does not have room for growth ranking 1st at 10.8 breweries per capita (100,000) and they have a noticeably smaller economic impact than Maryland at $271 million. Vermont has reached saturation, and other states like Colorado are not far behind.

Even with all of this room for growth in Maryland, which is rapidly marking her place as a premier beer tourist destination, there are still more than 65 breweries (2016 numbers)and counting.  How does a brewery in Maryland stake a claim as relevant, worth a drive,  or investment in a six pack? What value can a new brewery add to those already established? It is fairly  simple really. The priority focus of  a new brewery should be to make certain they are producing a quality brew. There is no longer room for errors in the market as consumers are less forgiving, and more willing to drive to the brewery down the street if they feel a product isn’t well crafted. Beyond quality how does a brewery set itself apart? This is where it gets tricky. I am always the first person to state that every palate is different and what one person loves another will find no affection for leaving the field wide open when it comes to flavor and style.

Many breweries try to make their mark via the name- attempting to make it synonymous with the state, or a particular city, or sports team, or important person. When the field begins to get crowded these catchy names may become irrelevant and lost in the mix forcing breweries to find something else to set them above. A niche perhaps? Indeed. There is so much that has changed in the industry since brewing first began in the colonies and even more so since Repeal of Prohibition. Hop varieties have multiplied, offering innumerable possibilities for creative (sometimes adventurous) brewers willing to try something new. Most recently exciting news has come out of Britain that a new strain of yeast has been discovered specifically for lager beer. This offers the possibility of more variety for craft lagers. Another opportunity for brewers is stretching beyond strict BJCP style guidelines as many American brewers have been known to do. Additives are bit tricky, even if one does not want to stay within the guidelines. One of the defining features of craft used to mean no adjuncts (or technically fewer than macro) and specifically corn was targeted as a no-go for craft. Things have changed. One example is a curiously crafted popcorn beer created by a brewery down south- that is thinking outside of the box! A consumer would be hard pressed to find this anyplace else.

Perhaps the ‘niche’ is reversing the trend and going back to what reawakened a love of beer- the historic brews that got us drinking once again. Stillwater Artisanal created a post- Prohibition lager, Premium that relied upon corn and rice adjuncts to mimic the style of the time. Many breweries have seized upon historic beers as a distinctive focal point and the results are often quite delicious- bringing thirsty patrons back for more. The bottom line for new breweries is that there is room for growth in Maryland if they start with quality brews (regardless of the styles they make) it is the first step to longevity and recognition. Beyond that anything is possible in this rapidly expanding industry. It can’t wait to see what they come up with next!

Prost!