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Wednesday, October 7, 2015

No Safety in Numbers: Understanding the Buyouts

The recent announcement that Golden Road Brewing is being acquired by Anheuser-Busch raised some eyebrows, but didn't produce the flood of negative responses that we saw with 10 Barrel and Elysian buyouts. Like mass shootings, we're getting used to these things.

There were a number of comments made by Golden Road co-founder, Meg Gill, who got a fairly soft grilling by the media. Reading through the quotes, I began to gain a new perspective on why these buyouts are happening...and why they will continue to happen.

This isn't a situation where Gill is cashing out. Even though Golden Road was built to sell, as one article suggested, she isn't going anywhere. It also wasn't a scenario where they needed an infusion of capital to expand production. Golden Road has access to private equity capital.

It's quite clear that she was looking for security. She sees big advantages in being part of the AB family, which she describes as the "winning team in craft beer." There are decent reasons for this. Being on the team gives Golden Road access to a supply chain that will reduce production and packaging costs. The extensive AB distribution network factors in, as well. Gill described AB craft CEO Andy Goeler as a "brilliant marketer." Seriously.

Not to get too far afield, but I'm not sure I would describe anyone at AB as brilliant when it comes to craft beer marketing. Building craft brands isn't and hasn't been their claim to fame. They're mostly good at cutting costs through economies of scale and leveraging advantages built since the end of Prohibition. But never mind. Be my guest if you think these guys are brand builders.

In fact, it appears Gill decision to partner with AB may have been driven by the escalating craft brewery count. She sees an increasingly crowded marketplace where competition is getting brutal. She came to doubt Golden Road's ability to stay relevant in that environment on its own. So she phoned Anheuser-Busch, the only entity she deemed capable of providing the needed help.

Many assumed AB would target a California brewery this year. The surprise with Golden Road is its size...projected around 45,000 barrels this year. Most thought AB would go bigger. There's also the price. Experts believe they paid $100 million ($2,000 per barrel), significantly more than they are thought to have paid for 10 Barrel or Elysian.

But there's a method to AB's madness. They wanted a presence in the LA market. With this buy, they will own breweries in the nation's three largest metro areas...New York (Blue Point), Chicago (Goose Island) and LA (Golden Road). Add the top two craft beer cities to that list with Portland (10 Barrel) and Seattle (Elysian) and you've got a nice little collection. With more to come.

It may not have been on Gill's mind, but AB is leveraging its position in ways that go well beyond standard marketing. As discussed here in the past, the company is actively working to enable vertical integration of markets similar to what existed prior to Prohibition. Demolition of the three-tier system is part of that effort.

For now, this is happening primarily in states where the laws are flimsy. The Golden Road deal, once finalized, means Anheuser-Busch will operate in all three tiers (owning brewers, distributors and retailers) in California, Oregon and Washington. Only California, via the DOJ and state attorney general, is looking into AB's activities. Oregon and Washington are, so far, mum.

You really can't fault Meg Gill for selling Golden Road. I've seen a number of reports suggesting Golden Road's beers aren't that great. If you want to improve a mediocre product and push it out to an increasingly competitive market, maybe leaning on AB's distribution network and supply chain efficiencies is exactly the right move.

Given the state of craft beer, where new breweries continue to open virtually by the day, I expect to see more established breweries looking for ways to insulate themselves from the brutality of the marketplace. Selling to AB is one way to do that so there's no telling how many of these folks will wind up in the hands of big beer. To be continued...


  1. I think you underestimate the "brilliant marketing" of AB. You're looking at it through the lens of craft beer, which is an entirely different world. AB understands national marketing campaigns FAR better than any craft brewery. They understand how to roll out a campaign that includes not only logos and slogans, but beer mats, beer tents, etc. Beyond that, they can put ads on billboards, in legacy media, possibly on TV (at least in select markets), as well as giving dollar support to the kind of marketing typical for craft beer. They can do promotions and special events--all of which is SOP for their brands. Look at the way they're marketing Goose Island, which is a blueprint for all this.

    There are then acts a big brewery can take that are sort-of marketing: making sure beer appears on endcaps in supermarkets; pushing it out to non-craft retailers; putting it on draft at places like stadiums and performance venues. And on and on. AB looks weak because it's selling a declining product. Don't confuse that with poor marketing. In one way, AB remains the king of beers.

  2. We just had a smaller scale merger in Washington with Pacific Brewing and Malting (Tacoma, Wa.) purchasing American Brewing (Edmonds, Wa. just North of Seattle). Kind of interesting seeing a smaller, newer brewery expanding via acquisition of an aspiring regional brewery.


Keep it civil, please.