Craft Brewers Extol Benefits of Independence During GABF Panel Discussion

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As conglomerates scoop up more craft breweries, what are the ramifications for those who don’t sell out? That’s what a quartet of well-known craft brewery figureheads tried to address last week during a panel discussion at the 2016 Great American Beer Festival.

Moderated by Brewers Association CEO Bob Pease and featuring Allagash Brewing founder Rob Tod, Dogfish Head founder Sam Calagione, New Belgium CEO Christine Perich and Modern Times Brewing founder Jacob McKean, the conversation – titled “Why Independence Matters” – examined the meaning of independence at a time when many craft owners have sold all or parts of their businesses to large, multinational brewing entities.

Since 2011, more than a dozen craft breweries – including Goose Island, Golden Road Brewing, 10 Barrel Brewing, Elysian Brewing, Breckenridge Brewing, Four Peaks Brewing, Devils Backbone, Blue Point Brewing, Hop Valley Brewing, Terrapin Brewing Company, Revolver Brewing, Saint Archer Brewing, Ballast Point Brewing and Lagunitas Brewing — have been purchased by the likes of Anheuser-Busch InBev, MillerCoors, Constellation and Heineken.

A majority of those deals have occurred in the last 22 months, and roughly 30 more craft breweries have sold to other strategic buyers, private equity firms, or their employees during the same period.

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But in the eyes of the Brewers Association, and the panelists who joined last week’s conversation, deals made with large brewing conglomerates, differ significantly from those made with private equity firms or smaller strategic partners — like Duvel Moortgat, which purchased Boulevard Brewing in late 2013 and Firestone Walker in 2015.

“To me, the one thing that makes you just completely, fundamentally different is whether or not you are owned by one of the big breweries,” said Tod. “If you are owned by one of the big breweries, you have completely different access to raw materials, completely different access to distribution, completely different access to retail. You are just fundamentally different”.

Panelists agreed, saying that a deal with A-B or MillerCoors gives a craft brewery instant access to a nationwide distribution network that can be turned on with the flip of a switch.

“I think the advantages are access to market,” argued Perich. “We know it can be challenging for craft brewers and if you have a larger partner, that opens up space for you to get into the market.”

Calagione, who praised the three-tier system and noted that many family-owned distributors are responsible for helping his brand, and others, get to market, took issue with the fact that a consolidating middle tier is becoming “more and more dominated” A-B.

“Only the world’s biggest brewery owns a sizeable fraction of the distributors in the middle tier,” he said.

“That is an advantage for the breweries that sell out to the world’s biggest brewery. They have access to distribution that none of us do,” he added.

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Influence over — and in some cases ownership of — the distribution network limits consumer choice, panelists argued, pointing to recent the Department of Justice investigation into Anheuser-Busch InBev’s takeover of SABMiller, which closed yesterday.

“I think a lot of people are not necessarily aware that a lot of their choices are made for them,” McKean said. “Choice is not the ability to choose any of four different beers. It is the ability to choose whatever beer you want. It is the ability to have a market that functions as a meritocracy, not one that functions just as a way for one company to push to market whatever they want.”

And the “reality” of how beers owned and produced by ABI and MillerCoors get to market “are very different from the reality of the smaller, independent breweries in America,” Calagione said.

“I really think of independence in the consumer context,” Calagione said. “It is about choice and transparency. It would be a really boring world if one or two dominant brewers can convince the consumers that they have every beer that a consumer would ever need in their portfolio.”

“We don’t have their access to ingredients. We don’t have their access to capital. We don’t have their access to distribution,” he added.

Of course, the question of selling their businesses — to either private equity firms or a large strategic partner — was raised.

For McKean, selling the Modern Times business would be “an intensely personal thing.”

“If I were to sell my brewery to a macro brewer, knowing the kind of practices that they use, and how they view craft beer, that would be like throwing a hand grenade over my shoulder on my way out the door,” McKean said. “And I am just not going to do that. To me, that is a deeply unethical thing.”

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Tod, who pointed to an unaligned distribution network consisting of A-B, MillerCoors and independent wholesalers, said that large beer companies like A-B are less interested in a deal with his company because of how tangled the distribution setup is.

But that hasn’t stopped private equity buyers from making offers.

“We get private equity calls all the time,” he said, noting that he gets about two calls per week. “I am completely uninterested in selling. I didn’t get in this for money. I got in this to give people unique experiences with beer.”

And even though it’s been suggested that private equity firms are looking to purchase craft breweries only to re-sell them to another buyer down the road, other panelists agreed that accepting investment from the private sector was preferable to selling to A-B or MillerCoors.

“Private equity is essentially a way to capitalize your business, just like senior debt from a bank is,” said Perich. “For me, it is the control piece. Do you control your fate or does someone else control your fate? If you get too deep with a bank, they control your fate. If you get to deep with private equity, they control your fate. The same is true with a strategic.”