Photo by Bryan Roth
THE GIST
In hopes that filing for Chapter 11 bankruptcy and an influx of cash will right its business, Pennsylvania’s Weyerbacher Brewing is selling a 55% stake to a private investment group with no easily determinable history. The news was first reported by Breweries in Pennsylvania with additional details coming from Brewbound.
1518 Holdings LLC, for which Google doesn’t show any results until this week, is based in Philadelphia and comprised of “a loose group of four or five people,” newly-appointed Weyerbacher president and former COO Josh Lampe told Brewbound. No financial information about the transaction was disclosed. Lampe told Brewbound Weyerbacher had $2.1 million in bank debt and the Allentown Morning Call reported that the brewery had listed in its bankruptcy filing that it had between “100 and 199 creditors, with estimated liabilities between $1 million and $10 million.”
Lampe and his brother Chris are keeping about 30% of the remaining share in the company, with the last 15% going to "a handful of other shareholders," including founder Dan Weirback, according to Brewbound.
Trouble began mounting in February of this year, when Lampe first announced production and sales volumes weren’t up to snuff, forcing the business to lay off two sales people as a way “to get the company healthy before the investment came in,” Lampe told Philly Beer World at the time. That outlet, as well as Brewbound, reported that employees lost healthcare benefits due to an undisclosed issue with the company’s insurance carrier.
Reflecting on the bankruptcy news, Lampe told Brewers in Pennsylvania, “We’ve got a lot of really good things that are happening and this restructuring allows us to really get going with some of the projects we’ve been planning for a while.”
WHY IT MATTERS
When looking at the variety of options laid out by Lampe and his company, it reads like a checklist of what is popular (or necessary) for today’s struggling breweries.
Changes may include the continued production of spirits, which have been lapping beer in terms of alcohol beverage growth. Weyerbacher’s first spirits release, Jester’s Tale Vodka, came just last month (done in partnership with Triple Sun Spirits). In February, while Lampe was discussing the opportunities that would come from investment, the brewery was also eyeing its own canning line as a way “to host special releases and offer more flexibility than a mobile canner.”
That possible canning line is of particular note, as own-premise sales are a big driver for craft beer sales—and Weyerbacher knows it. Lampe told multiple outlets he hopes to spin some of the investment money into an opportunity to open additional taprooms, an important cash cow for breweries. According to estimates by the Brewers Association, taproom sales for members grew by around 400,000 barrels in 2018, setting another all-time high of 3–3.1 million BBLs, representing 40% of BA-defined “craft” growth. As Weyerbacher seeks revenue-positive efforts, the margins they would offer—not to mention, presumably, the ensuing need to create a new, modernized lineup of beers—make these moves a sensible starting point and an especially necessary one, too.
At its peak in 2014, Weyerbacher sold an estimated 19,500 BBLs, but has struggled to tread water since. Due to lack of funding, Lampe told Brewbound the company made only 11,000 BBLs last year, but is hoping to get back to around 16,000 in 2019, a production level where Weyerbacher resided in 2016 and 2017.
Sales in IRI-tracked grocery, convenience, and other stores haven't shown much promise over the same time period, hitting a high in 2015 and losing about 16% of volume through the end of 2018. Those sales were led by Merry Monks, a 9.3% ABV Tripel, which sold about three times as much in those stores than #2 Blithering Idiot, an 11.1% ABV Barleywine.
That alone may clue you into broader issues for the brewery, which once relied on its Imperial Pumpkin Ale as a top-three brand. Meanwhile, that beer still finished 2018 as Weyerbacher's #4 in IRI stores, notable considering that style of beer has been declining in popularity for years.
Weyerbacher has been around for 24 years, and it’s nothing new for a brewery of that age to struggle, though its size is still pretty small compared to peers that are also having a hard time. Weyerbacher’s hopeful solution feels decidedly modern, at least.
Along with private investment money, Lampe told Brewbound that 1518 Holdings is eyeing an employee stock ownership plan, which could bring a host of challenges unto itself. As the company has around 50 part- and full-time employees, there should be careful consideration before entering into that round of fundraising.
As explained in a two-part series on GBH last year (you can read an ESOP explainer and details and insight from those who run them), this kind of fundraising isn't as easy as making employees owners. It's a way to build liquid assets (money) outside of traditional investment opportunities (which, in the beer industry, have typically included buyouts from larger breweries or private equity). Of particular consideration should be:
Compared to other retirement options, ESOPs create substantial undiversified risk for employees, whereas a 401(k) could spread money across different kinds of investments to better create future potential for return... This is of importance in beer, where breweries can easily suffer from being young, undercapitalized, or over-leveraged (or any combination) in an industry that is wildly capital intensive and competitive. That’s a lot of risk, especially considering that a company must plan for the long term when vested employees can take their money due to retirement or leaving the company. Stock re-purchase obligations can be costly down the road if not considered from the start.
In addition to this option, Weyerbacher is eyeing contract brewing as a potential approach (that process itself was the topic of a four-part series on GBH last year), and is looking to fill about a third of its unused capacity expected in 2019.
After building an objectively successful business that lasted more than two decades, the solutions presented by Weyerbacher as a way to dig out of its financial hole are now regularly a part of day-one business plans used by its smaller, nimbler competitors. It’s all a complicated mess of what-ifs and potential, but also, ultimately, a question of whether it’s too little, too late.
Words by Bryan Roth