After eight months of self-distributing its products, a change in Kentucky law has forced a Cincinnati, OH-based beer company to find a local wholesaler.
While Rhinegeist Brewery-owned Riverghost Distributing won’t be getting out of the wholesaling business altogether, it has sold the distribution rights to its parent company’s fast-growing beer brand to rival Heidelberg Distributing.
Calling the Kentucky side of the Ohio River an up-and-coming market for wine and craft spirits, Riverghost will continue to distribute those products, something that is allowed under the new law, which bars brewers from owning a beer distributorship.
“Kentucky is one of those markets where craft and artisanal consumption is about to gear up,” said Goulding. “We still see an opportunity that exists for Riverghost, representing some brands that aren’t currently in the state.”
The law’s primary aim was to get brewing giant Anheuser-Busch InBev out of the distribution business in Kentucky — a change lobbied for by AB rival MillerCoors as well as the state’s craft brewers — but it also forced Rhinegeist to get out of the self-distribution business.
Rhinegeist/Riverghost co-founder Bryant Goulding told Brewbound that after launching the Kentucky distributorship last October, the company had been on pace to sell upwards of 50,000 cases of its own beer throughout Kentucky, but the new law forced them to divest and pivot.
“We were a gnat on the ass of another player,” he said, alluding to Anheuser-Busch InBev. “We didn’t really have the resources to continue lobbying and we quickly got to this place where we realized it was best to find a partner that could re-launch us and take us deeper than we could take ourselves.”
According to Goulding and co-founder Bob Bonder, Rhinegeist expects to sell more than 100,000 cases through Heidelberg, a wholesaler that has now evolved from rival to partner — at least on the Kentucky side of the Ohio River. They will continue to compete in Ohio, where Rhinegeist self-distributes its products in Cincinnati, Dayton and Columbus.
“In some ways, they are our biggest competitor in our backyard,” Goulding said of Heidelberg.
Although specific transaction details were not disclosed, Goulding described the valuation as “strong” and representative of the brand’s future potential in Kentucky. Goulding also explained how he and co-founder Bob Bonder arrived at the multiple, noting that 2015 forecasts included selling more than 100,000 cases with a new Kentucky wholesaler.
“We followed a discounted cash flow model of what our expected growth would be, getting us to our present value and reconciling that with comps that are out there,” he said. “We had heard word of mouth what a realistic multiple would be, but every brand and market is different.”
Four current Riverghost employees already tasked with selling the Rhinegeist product will transition into dedicated Rhinegeist brand ambassador positions, working alongside the Heidelberg salesforce to manage the company’s new retail accounts, Goulding said.
Rhinegeist currently brews on both 60-barrel and 20-barrel brewhouses, and will have 60,000 barrels of fermentation capacity in August. After producing 11,000 barrels of beer in 2014, Rhinegeist is projecting to more than double sales volumes as Heidelberg moves to quadruple the company’s points of distribution in Kentucky over the next 90 days, Goulding said.
“We are going to have to get better at forecasting,” he said.