21st Amendment Talks Brooklyn Deal and the Challenges of Being Cash-Strapped

Austin Ray

THE GIST
This past Wednesday, Brooklyn Brewery announced a pair of minor investments in 21st Amendment of San Francisco and Funkwerks of Fort Collins. But the deal is about more than equity—the three companies have come together to establish a joint sales and distribution platform, including field sales and key accounts teams of 70 people, and 90 brand ambassadors spread across 38 states.
 
For Brooklyn, the arrangement caps off an extremely active two-month stretch that saw the company establish three other new joint ventures outside the country. Not to mention, Brooklyn sold a minor stake to Japanese brewing giant Kirin last fall.
 
But what does the latest activity mean for the other brewers involved? Funkwerks and 21st Amendment are two very different companies—the latter a regional stronghold in cans, the former a smaller operation dedicated to glass 4-packs—that have shared little in common aside from the fact that that up until now they haven’t had the winds of corporate capital at their backs.
 
To answer that, we touched base with Nico Freccia, who co-founded 21A back in 2000, to explain at least what it means to his company. Ultimately, he says, it comes down to answering a simple question that a lot of breweries like his are wrestling with today: 

“How do you compete with people that have a lot more money than you and still retain independence?” says Freccia. 

Below, in a Q&A that’s been edited lightly for clarity, he answers his own question, as well as some more of ours.

ON THE RECORD
 
How did this deal come together?
There are a lot of breweries like us that are sort of in the middle. They’ve spent some money on expansion projects, and don’t have the cash left over to be out there spending lavishly on sales and marketing and promotions the way some of the breweries that have been bought by the bigger guys or the [private equity] guys do. So the conversation has come up: How do you compete with people that have a lot more money than you and still retain independence? Brooklyn had this idea in their heads and they were looking for like-minded partners.
 
In turn, how does this alleviate some of those challenges?
This idea kind of came out that craft breweries, inherently with the sheer volume of there being more than 5,000 of us, are relatively inefficient. We all have our own sales teams, our own back office, our own purchasing, and our own raw materials. And the reason that these big guys can have a lot of clout with their distribution networks and the retailers, particularly the chains, is because they’ve got power in numbers. They’ve got the brands to offer a one-stop shop portfolio, for instance. So we started talking about [how] maybe we can sort of be better versions of ourselves by banding together and sharing some of these things that we all have to spend money on, and that’s a way we could potentially compete with people who actually do have more money than us.
 
In the announcement, you guys seemed to hammer at the synergies between the three brands. Explain those for me.
Brooklyn had this idea in their heads and they were looking for like-minded partners. There were some added synergies between us, and also with Funkwerks. Brooklyn being in New York is a really iconic east coast, New York City-representative brewery. Most of their U.S. volume is in the east coast. 21st amendment is an iconic San Francisco-based brewery. Most of our volume is on the west coast. And then you have Funkwerks, which is in the middle of the two in Colorado. They’ve got a great reputation.

Then from a just a product line and packaging perspective, all of our beers are in cans. Brooklyn, most of what they do is bottles. Brooklyn’s flagship beer is a Vienna-style Lager. 21A doesn’t make anything like that. Our flagship beer is a watermelon wheat and an IPA that’s a west coast style. Funkwerks is packaged in bottles, 4-pack bottles.
 
So in terms of geographic location, packaging, and brands, we’re really elegantly complementary, not competing with each other, and with very little overlap.
 
You mentioned being cash-strapped. How did those challenges manifest in how you ran the business?
I think it’s really instructive to look at the past. A lot of breweries were able to go into new markets that were farther from home and have a lot of success right off the bat because there was really a hunger out there—or I should say a thirst out there—for a lot of different craft brands from a lot of different regions. We could go into Florida and have a lot of success because they’re like, “Hey, we get to try this west coast brewery.” So it’s become a lot harder to do that over the last couple years. You can’t just go into a new market and have instant success because there’s so much competition. You really have to build a support network and a support system and have that in place already and make sure you’re doing it right from the beginning because you only get one chance.
 
So for you does this deal serve to alleviate pre-existing problems or open the door to new opportunities?
It’s a mix of both. Texas is a great example. Texas is a great craft beer market. We could ship fresh beer in a day from our California brewery down there. Even Arizona—we’re not in Arizona yet because it’s an important market to us. It’s very close to southern California. It’s very close to our brewery, and we want to make sure we do it right. Three or four years ago we might’ve been able to start sending beer to Arizona or Texas without having a very deep support structure in terms of sales in place because the market was more open to it. Now we really need to have that in place and that requires money up front. So one of the benefits to this is we get to go into Arizona and Texas with an existing sales team that’s already strong, has relationships. Furthermore, we can add more value to that distributor partner there because he’s getting a group that brings significantly more volume than he had with just one brand.
 
What’s the first step now for 21A, moving forward in this partnership?
Just getting the teams to know each other, getting the teams to know the brands, so we’re ready to hit the ground running Jan. 1.

—Dave Eisenberg