Published in Food/Agribusiness

As consolidation continues, craft brewers worry about access to market

BY Sunday, May 29, 2016 11:29am

If ever there was a sign that the craft beer business has matured, it’s that the money has finally showed up and taken an interest in the industry.

From private equity funds and pseudo family offices to well-heeled strategic buyers including the cadre of the world’s largest brewers, capital is flowing into the craft beer industry. That’s at least true for companies that have significant capacity already in place or coming online, or that have established brands and distribution on a regional or national basis. 

“There’s not a lot of industries out there that have 40-50 percent gross margins, 20-30 percent EBITDA margins, they’re growing double digits and they have industry tailwinds where the overall industry is growing at double-digit rates,” said Ryan Buckley, managing partner of Livingstone Partners LLC, a Chicago-based M&A advisory and investment banking firm. 

Buckley, a Muskegon native, advised Chicago-based Goose Island Beer Co. on its sale to Belgium-based Anheuser Busch-InBev N.V. in 2011, a deal that kicked off the company’s buying spree for craft brands. Last year, Buckley also advised Fennville, Mich.-based Virtue Cider Co. as the struggling hard cider maker sold a majority stake to Goose Island. 

“It’s not a surprise that a lot of investment dollars are chasing it,” he said. “It’s just that craft beer has historically been a place that’s shunned outside investment. That, of course, has changed over the last two to three years.”

But ask most small craft brewery owners or the sector’s trade association about the influence of Anheuser Busch-InBev, and they’ll typically cite the company as the largest threat the growing industry faces. 

“The state of the industry is like a chess match between AB and craft,” said Brandon Finnie, managing director of Hungerford Valuation in Grand Rapids who advises brewery owners on financial transactions, M&A and shareholder disputes. “There’s room for craft, but AB is trying to change that. They’re trying to push out the little guys. It’s buy ’em or beat ’em.”

Typically, AB-InBev and other international brewers have focused their buying habits on the larger craft breweries and mostly ignored small, locally focused producers, according to Ryan Behringer, an audit associate and member of the food and beverage practice at accounting firm Plante Moran in Southfield. 

“They’ve come to the conclusion that the local breweries that don’t distribute are not going to go away,” Behringer said. “They’re not going to worry about the small guys. From their perspective, they’re worried about how they can keep their shelf space.”

But many craft brewers say AB-InBev’s consolidation of the industry’s wholesale tier could affect them, particularly in how they can access the market in areas where the mega-brewer owns distributors.

In nine of the 15 states where it’s legal, AB-InBev owns wholesale operations, totaling 21 distributors nationwide that handle “between 7 percent and 8 percent” of the company’s sales volume, CEO Carlos Brito told the Senate Judiciary Committee in December. 

The company doesn’t own any distributors in Michigan.  

“AB-InBev in the last eight months purchased five formerly independent distributors, and when that happens, that closes off one of the routes to market for small, independent breweries,” Brewers Association President and CEO Bob Pease said during a press conference at the Craft Brewers Conference earlier this month in Philadelphia. “It’s the impact that AB has on the distribution tier that’s a concern for us.”

On top of that, AB-InBev also plans a $108 billion takeover of U.K.-based rival SABMiller PLC in a deal that craft brewers say could restrict access even further and create the world’s largest brewery organization. 

“If the merger goes through unchecked … we feel that would lead to a very tilted playing field for small, independent breweries,” Pease said. “It would reduce access to market for our members and would reduce access to choice for the beer drinker.” 

After making “hundreds of millions of dollars in bets” in brands and distributors across the country, it makes sense that AB-InBev will look to “exercise their influence,” Buckley said. 

“When you’ve got AB that has its distribution muscle and they’re making the strategic bets that they are … in order to get a return on that investment, they need to see significant growth,” Buckley said. “They’re going to exercise their influence to push these brands through their distribution channels.” 

MiBiz Staff Writer Nick Manes contributed to this report. 

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