Beverage Dynamics

Beverage Dynamics - September/October 2016

Beverage Dynamics is the largest national business magazine devoted exclusively to the needs of off-premise beverage alcohol retailers, from single liquor stores to big box chains, through coverage of the latest trends in wine, beer and spirits.

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American Made 38 Beverage Dynamics • September/October 2016 www.beveragedynamics.com possible models for cooperation between brewing companies. "There are so many that are emerging—things like Duvel and Firestone, True Craft [an investment consortium pioneered this year by Stone Brewing Co.], the different private equity aggrega- tions—a lot of those work to combine mutual strengths," he says. "It's too early to say yet which of those models are most effective in the long term." Ridge brought up the craft industry's reputation for collabo- ration. "There are collaborations that are less formal, in terms of combined purchasing power and shared best practices—a lot of that is still going happening, so we partner in a lot of arenas with other craft brewers, fi nding advantages in working as a team," he says. These more local collaborations have seen one small brewery buy another. "Sometimes this is for business reasons, sometimes it's for regulatory and licensing reasons," Watson says. "You buy a brewery that already has a taproom, for example, and you can expand and use that taproom." THE BIG BREWERS MAKE THEIR MOVE It is the more ambitious acquisitions, not the partnerships between relative equals, that make independent craft brewers leery. Craft breweries have for years enjoyed growth that the big brewers, with their fl at volumes, could only envy—despite the vast difference in scale. The big players have evidently decided in this decade that, after trying to ignore craft styles, elbow them off the shelves or create them in-house, their strategy will be to buy the producers outright. After purchasing Chicago's Goose Island Brewing Company in 2011, ABI has picked up seven craft brewing com- panies since 2014. MillerCoors, while generally choosing to run its craft- styled brands through its Tenth and Blake specialty division, has picked up two craft companies in the past year, while Heineken acquired half of fast-growing Lagunitas and Constel- lation bought Ballast Point for $1 billion. The BA's Watson explains, "It's something that small brewers are certainly worried about, especially in conjunction with some of the incentive programs that AB has been rolling out at the distributor tier. It's certainly part of a coordinated strategy where they're looking to build a portfolio of brands and become a one- stop-shop for their distributor. That concerns small brewers, who would prefer to see consumer pull prevail over supplier push." Ridge described it from the independent brewery's perspec- tive. "The biggest disruptions have been in the major strategic buyers, primarily Anheuser-Busch, purchasing both craft brewers regionally, as well as wholesalers," he says. "As an independent competitor now going up against the world's largest brewer, with regional craft brew- ers as well as wholesalers in our region, it's a differ- ent dynamic than when we started ten years ago, when it was all indepen- dent breweries competing on the same playing fi eld." But to the small brew- eries that are thus ac- quired, the relationship with the larger partner means effi ciencies of scale, cost advantages, logistics, marketing muscle and access to the fi nest distri- bution network. Denver's 25 year-old Breckenridge Brewery is only months into its new relationship with ABI. Hav- ing found a home in The High End, ABI's specialty division, Breckenridge will soon have a new brewery with a capacity fi fty percent larger than its old facility. EFFECTS FURTHER DOWN THE CHAIN With the proliferation in brands, analysts didn't foresee that con- solidations would have much effect on consumer choice. But Watson predicted that distributors would feel the effects. "Dis- tributors have a lot of brands, and it doesn't take much shift in focus to create real market challenges for small brewers," he says. "This isn't just about the AB side; it's also about the MillerCoors side. If suddenly the AB distribution network is locked for small brewers, that means a more crowded MillerCoors distributor network where each brand gets less focus." Ridge, whose Ninkasi brands are distributed in some areas by the local ABI house, notes, "When AB buys a local Califor- nia craft brand, there's going to be more pressure within those distribution houses to put more focus on that brand. That's just good business from their end, but it does kind of disrupt our position within their portfolio when those things happen." But, he stresses, "It's all about the relationship." It may be the retailer who is caught at the sharp end, pulled between customers who demand novelty and variety, and sup- pliers with mixed agendas. "Now that the source of the beer and the motivation is getting a little less obvious, it's especially important for the retail tier to question the recommendations of folks who may have their own interests above the retailer or consumer in mind, pushing the brands that they own into retail sort of irrationally," Ridge says. "That's where retailers are going to be able to understand what their customers want, and not just what is recommended to them to carry." BD JULIE JOHNSON was for many years the co-owner and editor of All About Beer Magazine. She has been writing about craft beer for over twenty years. She lives in North Carolina, where she was instrumental in the Pop the Cap campaign that modernized the state's beer laws. THE BIG BREWERS MAKE THEIR MOVE It is the more ambitious acquisitions, not the partnerships between relative equals, that make independent craft brewers leery.

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