Sapporo’s acquisition of San Diego-based Stone Brewing Company will support a large expansion of the Japanese beer maker’s U.S. beer sales and production, according to a supplementary explanatory materials document filed by Sapporo Holdings.
Stone and Sapporo U.S.A. signed a “membership interest purchase agreement” today, valued at $165 million with an additional $3 million in advisory fees, with an equity transfer scheduled for August. Stone founders Greg Koch and Steve Wagner will “step away from the brewing side of the business,” but will retain their ownership of Stone Distributing Company, Stone CEO Maria Stipp – who is staying in her position post-sale – told Brewbound.
The primary purpose of the deal is to acquire a U.S. manufacturing base for the Japanese beer brand, according to the document. Stone operates two breweries – one on the West Coast in Escondido, California, and one the East Coast in Richmond, Virginia – which Sapporo believes it can use “to strengthen growth of the Sapporo brand.” Sapporo identified California, Texas, Florida and New York as primary markets for growth.
With the expansion, the company plans to increase the overseas sales volume of Sapporo branded beers to 10 million case equivalents by 2026. Sapporo uses 20-pack of 20 633-mL bottles as its case measurement, which converts to 428 oz. cases, about 1.5x the size of a standard American case equivalent of 288 oz., so that equates to about 1,078,629 barrels. The total Sapporo sales volume (including other brands, such as Stone’s offerings) will increase to 30 million cases (nearly 3,235,887 barrels) by 2026. By 2024, the company is aiming for 8 million cases (about 862,903 barrels) in U.S. sales volume. The increases will “roughly double” the use rate of the two Stone breweries, according to Sapporo.
Not only do Stone’s two breweries provide physical spaces for Sapporo production, but they will provide supply chain relief, as the acquisition will “significantly lower logistics costs by promoting local production for local consumption,” and will “stabilize and streamline operations” across Sapporo’s U.S. business, according to the supplementary materials.
Sapporo also plans to expand its overall beer business beyond the Sapporo brand, “through acquisition of prominent brands, such as Stone IPA.”
Stone Distributing is not part of the acquisition, because “the distributing business is not a part of our operating portfolio in terms of North American business strategy,” Sapporo said. The wholesale business will “spin off into a new company” according to the supplemental document.
Sources have told Brewbound that the distribution could also be sold off, with business valued at around $150 million.
“Prior to carving out the alcoholic beverage wholesale business,” Stone had net sales of $230.13 million in fiscal year (FY) 2021 (ending December 2021), with an operating loss of $9.639 million, according to Sapporo. Further insight to Stone’s struggles are detailed in Sapporo’s notice of acquisition, submitted to the Tokyo Stock Exchange, which noted that Stone has operated at a profit loss for at least the past three years: -$14.054 million in FY 2019, -$19.075 million in FY 2020 and -$11.921 million in FY 2021. Those figures go beyond operating income losses.
“While it is difficult to isolate this performance based on beer manufacturing and sales business, restaurant business and alcoholic beverage distributing business, the beer manufacturing and sales business and restaurant business that will be acquired expect to turn a profit in FY2023 because production efficiency will be improved and utilization rate doubled with the manufacturing of Sapporo Premium Beer,” Sapporo wrote.
“The promotion of local production for local consumption in the United States is expected to contribute to the earnings of Sapporo U.S.A. and synergies from both companies is expected to lift profits in 2024 and beyond, resulting in steady progress in recouping the investment.”
Prior to the deal with Sapporo, ownership of Stone was divided among four holding groups: Stone Brewing Investments, Inc. (61.2%); VMG Stone Brewing Holdings, LLC (19.5%); Stone Employee Holdings, LLC (15%); and HH Stone Holdings, LLC (4.3%). Sapporo will take over 100% ownership stake of the brewing operations from Stone Brewing Holdings, which was established in May 2016 — the same time VMG made its $90 million investment in Stone to start the True Craft platform to keep craft breweries independent, which never got off the ground.
As Stone CEO Maria Stipp testified in March during the company’s trademark infringement lawsuit with Molson Coors, the San Diego brewery owes VMG/Hillhouse $464 million, with a due date of June 2023. Stipp declined to discuss details of that debt during an interview earlier today.
“This transaction was not on the heels of that question and quite honestly has nothing to do with the story that I’m telling today,” Stipp told Brewbound.