The Graying Of The Craft Beer Industry…

Posted on Posted in Anheuser-Busch, Chicago, Goose Island, Greg Hall, InBev, John Hall

I was hoping for a slow day at the office but that foolish idea was dashed with the news that Anheuser-Busch InBev planned to purchase a full ownership interest in Chicago-based brewer Goose Island. The news certainly sent shock waves through the industry and even started trending worldwide on Twitter. I was even surprised at the turn of events. But in hindsight, I shouldn’t have been.

The time for reckoning with the future of craft beer in America is now. I am among many writers who have opined on the graying of craft brewers and the effects such demographics could have on the craft beer industry. As I have often written about in the past, including as long as two and a half years ago, many craft beer pioneers are now elder industry statesmen. Fritz Maytag bought Anchor Brewing 45 years ago; Ken Grossman started Sierra Nevada 30 years ago; Jim Koch toted his briefcase from bar to bar 26 years ago. Beyond these well-known figures, many founders of regional breweries have been in the business for 20 years or more now. And as with any other small business, many are owned by one person or a small group of aging entrepreneurs who’ve long been toiling in the brewhouse, glad-handing distributors, and hawking product every weekend at beer festivals. For these hard working individuals, vacations are few and downtime almost non-existent.

And as with any other hard driving profession, it eventually wears you down. With high debt levels and decades dedicated to building up their companies and employees, these brewery owners can’t just walk away. Not to the mention the disappointment felt by their loyal customers who they’ve worked so hard to gain. Craft beer fans will have to adjust to an uncertain future where the only certainty will be corporate shakeups and where change will be a constant.

As I wrote in 2008:

Craft breweries are run by people not corporations and these folks can’t continue in this tough business forever. Shareholders eventually want their initial investments back, owners want to retire, and if they don’t have kids ready to take over the business, end game options remain limited. Consolidation, either with other craft breweries or with larger brewing concerns, will be the norm not the exception. And while we can all appreciate how far craft beer has come since its early days, it’s time to contemplate the business realities that lie ahead.

Fast forward to last month and I wrote:

“[w]ith craft beer continuing to grow in dollar and market share, the big guys can’t be expected to sit back and watch their brands get ridiculed and become culturally irrelevant…

A watershed moment in the history of craft brewing, it’s time for the macro brewers to acknowledge the new role flavorful beer plays in this nation, the strength of its future prospects, and help raise the bar for beer in America. Instead of trying to demean, ignore, or dismiss characterful beer, A-B InBev and MillerCoors should endeavor to help usher in the next era of great American beer. Because one thing remains clear for the big guys in the midst of all this uncertainty: those meddling craft brewers aren’t going anywhere.

Craft beer is a young man’s (or woman) game. In this watershed moment, where America now plays host to more than 1,600 craft brewers, the future of craft beer is unfolding before us. For many of craft beer’s pioneers, a crossroads stands before them. Do they double (or quadruple down) and take on very substantial debt loads in order to load up with the stainless necessary to face the onslaught of future growth prospects? Or do they stay put, cap their growth, and enjoy their regional or local success? Or do they seek an exit strategy? The traditional exit options for these often closely-held corporations include 1) selling to other inside investors, 2) handing the reins to younger family members, 3) sell to another brewery (be it macro or micro), or 4) sell some or all of the shares to a private equity group. To date, many craft brewers have not yet had to contemplate such decisions but expect that they will be coming fast and furious in the next five years.

When craft beer was only growing a few percentage points per year, or even losing growth, craft brewers could feel secure in their decisions to take things slowly. With sustained, year-after-year double-digit growth, even in horrible economic times, craft brewers largely no longer have that luxury. Many feel that standing still is no longer an option. Yet the prospect of undertaking what is necessary to meet even a fraction of their growth prospects understandably scares the shit out of them. It’s a great problem to have in theory until the interest payments on the capital investments come due every month. When you we’re just getting used to brewing five or ten thousand barrels of beer per year, expanding capacity to 250 or 400,000 barrels has to, on some level, seem insane.

Some craft brewers have jumped headfirst into this situation, such as Bell’s Brewery $52 million expansion announcement. Many others are trying to figure out what to do.

With all the available options for craft brewers, one thing remains clear: a lot of your favorite breweries are probably going to be owned by someone else in the next ten years. It’s time that we reconcile ourselves to this prospect.

So where does that leave us? I can only speak for myself by saying that I look forward to my next pint of Goose Island Honker’s Ale when I visit Chicago this summer.

I look forward to hearing your thoughts on these issues and more.

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4 thoughts on “The Graying Of The Craft Beer Industry…

  1. How about calling it “Good News For A Change!” Except that for a change thing.

    Presumably, these brewers who sell are making a good return. Heck, I have heard that some craft brewers actually make money from sales, not only when they sell off the brewery. There is a theme in craft brewing that somehow we all are to assume the have done a horrible job at choosing a profession, the kids starved as the parents of Mom ‘n’ Pop Brewing followed a mad misguided obsession and in the end all they got was debt, debt, debt.

    Well, the good news is that that is not the case for many (even if it is for some) and that there is a good buck to be made when making good beer. Risky after all is, you know, risky. Don’t like it, don’t get into business. Take it on, do well and you get the bonus of a selection of sweet assets to sell.

  2. Interesting article, and angle. But, I don’t understand why “handing the reins” to someone else who is not a family member isn’t an option as well for these brewers. Admittedly, I don’t know a whole lot about business, but I have a basic grasp of how brewing operations work and evolve. Why couldn’t a brewery owner hand their “baby” over to someone else more likely to share their values? I don’t think most craft brewers are driven the same way as macrobrewers, holding the bottom line as more sacred than the quality of their product and the enjoyment they get out of making and distributing it. I also don’t understand why breweries have to continuously grow. Haven’t we seen this before? Didn’t it turn beer into sh*t? I understand that breweries have to remain profitable to continue to make beer, and that it’s easier to be more profitable when you produce more. But you said so yourself, expansions are what bring the debt right? You have to expand so that you can pay for the last one? I love Goose Island, but I can’t wait for their beer to get just a little more watery, just a little less interesting, a little less risky, so that people lose interest in it.
    I really have no problem with big corporations in general, but I don’t think that the way they view their products is compatible with what craft beer is trying to be. Maybe in the future calling a beer “craft beer” will be just as unuseful of a term by itself as “ale”.

  3. “Many others are trying to figure out what to do.”

    In this watershed moment…the future of craft beer is unfolding before us….a crossroads stands before them.

    Do they double (or quadruple down) and take on very substantial debt loads in order to load up with the stainless necessary to face the onslaught of future growth prospects?

    Or do they stay put, cap their growth, and enjoy their regional or local success?

    Or do they seek an exit strategy?

    _________

    Another alternative for brewers

    > ‘grow’ into NY’s Adirondacks where we have > 9 TRILLION gal/yr of pure soft constitutionally protected watershed outflow AND 90 MILLION folks w/i a day’s drive (350mi/560km) AND an EB5 Regional Center under development that will bring in TENS OF MILLIONS OF DOLLARS OF LOW INTEREST FUNDING EARMARKED ONLY FOR CRAFTBEER STARTUPS/GROWTH/EXPANSION/2ND SITING.

    This would be the exact opposite of hat-in-hand ‘begging’ some suit(s) to have some vision and open the purse strings. A 4 question app >

    1) how long you been brewing?
    2) got sample(s)? (don’t come without, btw) let’s try it.
    3) how much do you need? (biz plan in tow, too)
    4) where in/around the Adirondack Blue Line do you want to site?

    Period.

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