THE GIST
Three months after Anheuser-Busch InBev declined to move on its exclusive rights to purchase Craft Brew Alliance (CBA) and its roster of breweries, its decision to hold fire literally paid off: the multinational will finally purchase CBA, with one estimate putting the savings around $157 million. The companies announced a deal yesterday in which AB InBev will pay $16.50 per share, a decrease of $8 from the previously negotiated option.
CBA reportedly had 19.6 million shares to sell, which amounted to almost 69% of the company that AB InBev didn't already own. At that estimation, the buyout price comes out to about $323 million, aside from additional costs that may come from absorbing any outstanding, long-term debt, something that doesn't necessarily scare ABI. Reuters reported a final total of "about $321 million."
That price tag isn't too far off from what Mahou San Miguel paid in full for Founders Brewing Company, which was sold to the Spanish brewer via two purchases—the first totalling $96.3 million for 30% in 2014, before another almost $200-million buyout this fall. Founders is expected to produce around 600,000 barrels in 2019, while the Craft Brew Alliance collection of breweries will likely turn out around 750,000 BBLs this year. AB InBev’s craft breweries sold about 2 million BBLs combined last year.
By adopting CBA's roster into its Brewer's Collective craft portfolio, AB InBev brings its tally of craft breweries to almost 20, and further entrenches geographical advantages in the Pacific Northwest and East Coast. AB InBev’s most recent acquisition came in August with the buyout of Cleveland's Platform Beer Company. In this move, the multinational is gaining:
Hawaii's Kona Brewing Company;
Oregon's Widmer Brothers Brewing;
Washington's Redhook Brewery;
Florida's Wynwood Brewing Company;
Massachusetts' Cisco Brewers;
North Carolina's Appalachian Mountain Brewery;
Gluten-free producer Omission Brewing Company; Square Mile Cider Company; and the pH Experiment, a brand incubator for CBA.
Through AB InBev’s former minority stake in the company, CBA brands have had the benefit of access to ABI production facilities and its “red” network of distributors, an increasingly consolidated and important part of the industry in terms of getting brands to market.
WHY IT MATTERS
Through the first three quarters of 2019, CBA's crown jewel, Kona Brewing Company, showed 11.3% growth in grocery, convenience, and other chain stores tracked by IRI, a market research firm. Make no mistake—this is the core reason behind ABI’s interest in buying Craft Brew Alliance. Kona is projected to reach around 500,000 BBLs of production this year, the equivalent of a top-10, Brewers Association-defined “craft” brewery. But it’s not just the brewery’s continued success in the U.S. that’s of interest.
Kona is now produced at Ambev facilities in Brazil, which are part of the AB InBev conglomerate. Kona has received a heavy push in the country, with particular focus in Rio de Janeiro, and CBA plans on “leveraging the experience as a model for other key ABI markets.”
Along with the fact that the South American country is the home of AB InBev (Brazil’s AmBev merged with Belgium’s Interbrew in 2004), Kona’s presence in the country fits within an economic analysis that shows Brazilians between the ages of 21–34 "are willing to pay a premium for what they perceived as a well-designed and a well-crafted beer" as the population is "increasingly trading up quality over quantity."
As of 2017, the most recent year of data available, AB InBev brands comprised two-thirds of the market share in Brazil, led by lower-cost brands like Skol, Brahma, and Antarctica, which have stayed flat or declined in recent years. The opportunity for Kona to play a big part in the premium beer market could be a lucrative one.
Kona has also fared strongly in the U.K., where it sold about 10,000 BBLs as recently as 2017, and is estimated to be slightly higher today, making it one of the biggest American craft brands.
The other side of this coin is the potential fate of Widmer Brothers and Redhook brands, which CBA had purposefully minimized in recent years under its "Kona Plus" strategy, which directed national focus away from the legacy businesses. While propping up and paying more attention to Kona, CBA retracted Widmer and Redhook into their home markets of Oregon and Washington, respectively. Portland, Oregon-based writer Jeff Alworth is already envisioning the downfall of Widmer: “Selling the site in Portland wouldn’t be a shock and would further discount the total price. Widmer became Oregon’s oldest brewery when BridgePort closed up shop earlier this year; don’t be surprised if Portland loses Widmer entirely in the not-so-distant future.”
Both breweries have refocused on a brewpub model, with IRI-tracked sales following suit. Widmer was down 9.5% through the first three quarters of 2019, and Redhook declined 15.7%.
Among these established pieces of CBA comes one potential wild card: Wynwood’s La Rubia Blonde Ale. The beer has been talked about as a “standalone brand,” and in a conversation with GBH this summer, one CBA executive likened it to Firestone Walker Brewing Company’s 805 Blonde Ale, which has become one of the best-selling beers in the country, all while staying exclusive to California and a few states in the Southwest, including Arizona, Nevada, and Texas. La Rubia is seen as a potential East Coast equivalent, after being "born out of a Caribbean Hispanic culture" in Florida, and could be positioned to appeal to a growing segment of non-white drinkers.
CBA had already eyed expansions into New York, Pennsylvania, Connecticut, and Massachusetts to end this year, a move the company felt was supported by the brand’s success in Puerto Rico. This year’s IRI-tracked sales of the brand surpassed all 12 months of 2018 in August.
But that’s not all. Less than two weeks after MillerCoors announced it was restructuring and changing the company name to Molson Coors Beverage Co. to reflect its commitment to non-beer products, this purchase gives AB InBev new ammunition in its ongoing fight against a main competitor. Along with its wide collection of beer brands, AB InBev now has access to a Kona hard seltzer to build alongside its lineup of Bon & Viv Spiked Seltzer, Natural Light Seltzer, and Bud Light Seltzer. Additionally, CBA’s Omission is planning 90-calorie, gluten-removed seltzers.
Along with a seltzer line created by Platform, ABI will have multiple national brands alongside localized and regional versions at a time when seltzer sales are through the roof, charging toward $1.5 billion in sales this year.
Craft Brew Alliance’s pH Experiment, a product incubator arm of the company, has been functioning in a similar space around flavored malt beverages and non-beer products. Created to be nimble and tasked with offering quarterly releases of new, on-trend products, pH is working toward what AB InBev’s ZX Ventures’ stated goal once was—to find the Next Big Thing, and to be there from the start. Those marching orders have since changed for ZX, but pH has already released PRE Aperitivo Spritz and Pacer, a “low-proof seltzer” at 2% ABV, two entries that fit into a continually growing and evolving “better-for-you” market.
As if that weren’t enough, AB InBev will also reap the reward of personnel, not just products. CBA CEO Andy Thomas is under contract to remain with the company through 2021, while Christine Perich, CBA’s chief financial and strategy officer and former New Belgium CEO, COO, and CFO, has a contract that runs through the end of 2020. With the experienced C-suite leaders in place during this transition, AB InBev has two unique POVs to guide this period of change.
All together, these factors add up to a laundry list of items that make this deal worthwhile for AB InBev—and that’s before considering the money saved by waiting a few months to pull the trigger. It’s an “exciting next step” for CBA and AB InBev, Thomas said in a press release announcing the deal, adding that investment in innovation “to meet the changing needs of today’s beverage consumers” will nurture the growth of both companies.
After years of will-they-or-won’t-they, the formal alliance between ABI and CBA isn’t just about growth—it also makes for a powerful and nimble joint actor able to shift with consumer demands across beer, and other alcoholic beverages, moving forward.
Words by Bryan Roth