10 Barrel Brewing, Big Breweries, Small Breweries and A Possible New Trend

Yesterday, 10 Barrel Brewing, a brewpub in Bend, Oregon announced that Budweiser owners AB Inbev had bought the company. This, judging by the reaction online I have seen, people are really very surprised. I’m not really, I have to admit. Whilst I had never heard of 10 Barrel Brewing, and I don’t know a huge amount about the purchase, I’m sure it makes sense from Budweiser’s point of view. This, and a conversation I’d had on Twitter with Tim Anderson about the ‘There’s A Beer For That’ campaign the previous day made a thought come to mind.

On both sides of the Atlantic the big, multinational brewers like AB Inbev, Molson Coors and SAB Miller are losing sales to smaller, newer, independent breweries making interesting, quality beer. Naturally, these bigger breweries are not going to sit there and let this happen. They have tried a number of things including reducing prices to try and undercut small producers. This has failed because it all it serves to do is further devalue your already faltering brands. As my current boss once said to me, ‘once you have pulled your pants down on price, it is impossible to pull them back up’. The other thing these brewers have tried to do is to create sub-brands to market craftier beers. This makes sense for them, they already have all the brewing equipment, staff and distribution deals in place to get their new products to the market. The cost to the brewery is fairly low, a bit of design work and a bit of marketing, but nothing like the cost of setting up a new brewery. This has largely failed too. Partly due to the fact that despite the new name and fancy packaging, people realise that ‘Revisionist’ is just Marstons, ‘The Faversham Steam Brewery’ is Shepherd Neame and that St Edmund Brewhouse is just Greene King with a mask on. The second reason that this has failed is that the beer really isn’t very good. I remember tasting the Revisionist beers at a trade show shortly after they launched and actually laughing.

Forget hops are the new big thing, forget sour is the new hops, the next new big thing in the craft beer industry will be big breweries trying to buy smaller breweries. Unlike the insidious way that smaller breweries were bought in the 60’s, 70’s and 80’s by bigger ones only to be closed, removing completion, these acquisitions are very much to be bought as going concerns. The big brewers have realised that they can’t win custom with their old portfolios, they can’t brew credible beer even when they try, but they have cash.

The worst part of running a small brewery, even if it is successful is cashflow and finance. Cashflow is tough because to make beer you have to buy ingredients, brew with them, ferment them, pay overheads like rent, cleaning chemicals, water, waste and staffing then you have to deliver the beer. This process might take a month. On top of that, the customer will want a minimum of thirty days credit normally, so for your initial outlay you might have to wait for two months for a return. Aside from the cashflow issue, banks for the last ten years or so have been pretty reluctant to lend money to start-up businesses, this means that a lot of new breweries are financed by a mixture of personal savings and private investor’s money. This is a mixed blessing, investors will often be involved in the running of the company and have business savvy, however, all their investment is based on their appetite for risk and, essentially what reward as a percentage they can earn out of the business. If the business is successful and someone comes along with a fat cheque book, most investors will rub their hands and laugh all the way to the bank, leaving the founder of the brewery in a position they weren’t necessarily expecting.

This has happened a few times already, we have seen Molson Coors acquire Sharps so as to have a credible cask brand they can expand nationally. In the US we’ve seen Goose Island and Redhook sold. In Australia, Little Creatures has always been at least part owned and founded by money from Lion Nathan which, in turn is now owned by Kirin. All of these breweries still make good beer. If anything, with the finance for expansion and better brewing facilities afforded to them the beer has the potential to be better, more consistent and more widely available. In those examples I have mentioned both the brewery being bought and the brewery being purchased have been open and honest about the purchase. This has to managed carefully as if you try to get sneaky an conceal things like Blue Moon tried to, and the stealthy initial purchase by Coke of Innocent smoothies, things will go sour pretty quickly, especially if things are changed without people’s knowledge. Coke came under particularly heavy fire for reneging on Innocent’s contribution to charitable causes.

I don’t think we need to worry about every small brewery being a target for purchase I’d expect to see ten or so sold in the next couple of years. And, managed properly, if the big beer accountants stay out of the business and let them go on making good beer but allow them access to the resources I can’t really see a downside. AB Inbev have already got Blue Point Brewery, Goose island and a major distribution ownership deal at Redhook in their portfolio and have added 10 Barrel. They seem to be serious about having a craft beer operation, and it would seem logical they buy more breweries soon.

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One thought on “10 Barrel Brewing, Big Breweries, Small Breweries and A Possible New Trend

  1. This new wave of microbrew acquisitions is being handled better. Goose Island get a lot out of the AB/InBev acquisition, namely better distribution, and access to AB/InBevs Hop & Grain contracts. There is a great reddit AMA out there that sheds a lot of light on the internals of the Goose Island deal.

    Historically the acquisitions were about acquiring the market share of your bought out rivals. Which usually meant that the old brewery would get shut down, and operations consolidated centrally. Nowadays the acquisitions are about buying growing businesses, best to leave them alone.

    Like

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