Published in Food/Agribusiness

Bell’s Brewery CEO predicts Michigan beer market will reach ‘equilibrium,’ M&A to ramp up

BY Sunday, December 22, 2019 08:03am

Bell’s Brewery Inc. founder Larry Bell sees another two years of turmoil ahead for the craft brewing industry, particularly as growth continues to level off and as more owners opt to take “a boatload of money” and sell their companies. As Bell’s Brewery looks ahead to celebrating its 35th year in business in 2020, the company continues to remind customers that it remains a quality and fiercely independent option amid a growing number of products now part of multinational conglomerates. 

The Brewers Association is talking about another year of 4 percent growth in 2020, well off the pace from the middle of the decade. While growth is slower, is that necessarily bad?

Listen, most industries would be really happy with 4 percent growth right now. If the American economy was growing at 4 percent now, oh my gosh — that would be unbelievable! It’s just we’ve been spoiled by having years of 20 percent growth. Especially as our market has matured, 4 percent is a nice number. And if craft beer is growing at 4 percent and macro beer is actually declining, craft beer is actually grabbing more market share.

Larry Bell, president and founder of Bell's Brewery Inc. COURTESY PHOTO

How do you see hard seltzer factoring into the market next year?

I think we’re going to see the Great Seltzer Wars of 2020. It is going to be crazy in your grocery market on the shelves there, as all the big guys launch new products and as White Claw and Truly try to protect their space. It’s going to be a little bit nutty with the seltzer thing, as Bud Light Seltzer and Corona seltzer come out. White Claw is doubling down and investing a lot of money into new plants. Not everybody’s going to win at that game. It could be a blood-bath for some. For craft brewers, where that’s a problem is as those seltzers start pushing shelf space in the off-premise (stores), it becomes a little bit harder especially for the smaller players to hold onto their space in those sets. That could definitely hurt smaller packaging breweries.

With more craft brewers getting into seltzer, does that muddy the waters for the industry in any way?

It could change how people look at their beer portfolio. I think it depends on who they are. If they’re part of a group and that group has decided ‘this is going to be our seltzer brewery,’ well then maybe that’s going to be successful for them. But seltzer production is a little more high tech. To make it good and clean, it’s a lot easier to do it in a bigger, more technologically advanced brewery than in a smaller brewery.

Does Bell’s look to play in that product category at all?

We do not. We are beer brewers, thank you very much. We don’t make fermented sugar water with flavors.

The dealmaking continued in the craft beer industry in 2019. What’s your prediction for M&A in the coming year?

I think we are going to see one more major deal before the end of the year, and I think we are going to continue in 2020 to see some more M&A activity.

Who’s going to be buying?

The Asians and the Europeans still have an interest in the craft beer space in the United States. It would appear that Constellation prob-ably doesn’t anymore because they screwed up what they had (with Ballast Point) and have done so poorly. Probably not ABI (Anheuser-Busch InBev) — they have a pretty full portfolio. I could see MolsonCoors possibly mak-ing some more acquisitions. They’re going to be losing an incredible amount of production volume over the next two years as Pabst switches (its production contract) over to City Brewing in LaCrosse, Wisconsin. You’re talk-ing 5-6 million barrels of production. That’s a whole plant for those guys. Will they be looking to pick other things up to make in there? I think they probably still have some interest in acquisitions.

Are the buyers hitting the market at the right time, given that some of these breweries are starting to realize they might be over-leveraged or are getting forced into an exit?

Definitely. These people talked like this thing was going to be growing 20 percent a year. As you get into it and you’ve been doing it for seven years and maybe they’re not making the kind of money they thought they were going to makeand they’re over-leveraged, maybe it’s time to get out of this. ‘Who can help me?’

How do those stressors change the dynamics in the industry?

We’re going to see this rate of closure that’s been accelerating maybe accelerate a little bit more in 2020. And certainly the velocity of openings is going to slow down.

Yet the Michigan market has continued to grow in recent years. Will that change?

I think we’re going to start finding some equi-librium as far as the number of breweries in the state. I know there’s some new people opening up in Grand Rapids. We’ve had three closures here in Kalamazoo, and I don’t know how many openings we’re going to be having here now. I think we will start to find equilibrium in the openings and closings in the state. I predict we will see some M&A activity in the state.

How do these dynamics affect a craft brewery like Bell’s that’s approaching 35 years in business?

Honestly, these mergers and acquisitions right now are a positive for us. As we continue to tout our independence, I think that resonates with a certain group of consumers. There’s not a lot of us O.G. craft brewers left that are independent, that haven’t done a deal. I think that’s a plus for us right now, and we’re going to continue to push that.

As all these fads come and go, where do you see the craft beer industry going next?

We’ve kind of come to the end of the original craft beer revolution, and now it’s going back to what it was when I started. This small brewers group was about small, independent brewer-ies and what we could do to band together, to try and keep our place in the market. It’s not about the ingredients anymore, or tradition. It’s really about are you small and independent and those are the people that are going to hang out together and make sure that they can still have access to the marketplace.

Read 7698 times Last modified on Monday, 23 December 2019 10:02