THE GIST
Molson Coors Beverage Co. has started 2020 with a statement acquisition that deepens the company’s commitment to beverage alcohol products outside of beer. In its purchase of Detroit’s Atwater Brewery on Tuesday, the multinational is buying a company that has struggled to grow beer sales in recent years, but which has diversified its portfolio through non-beer lines of hard seltzers and spirits.
Atwater is the fifth craft brewery buy for Tenth and Blake Beer Co., the U.S. craft division of Molson Coors Beverage Co., and its first since 2016, when it bought Revolver Brewing in Granbury, Texas; Hop Valley Brewing Co. in Springfield, Oregon; and Terrapin Beer Co. in Athens, Georgia.
Terms of the acquisition were not disclosed, and the deal is expected to be finalized in the next two months. According to Molson Coors, Atwater produced 23,000 barrels of beer in 2019. That’s down from 35,500 BBLs in 2018 and less than half of the 48,500 BBLs it produced at its peak in 2015, according to Brewers Association numbers. (Atwater founder Mark Rieth says those numbers are “mostly inaccurate,” but neither Rieth nor Molson Coors provided production numbers for years prior to 2018.)
Atwater’s largest brands by volume in grocery, convenience, and other chain stores are Dirty Blonde Ale, Vanilla Java Porter, and Whango Mango Wheat Ale in distant third. The brewery’s sales have slowly declined in retailers tracked by market research firm IRI over the past five years. Volume decreased almost 3% 2018-2019 and is down 6% 2015-2019.
But Atwater has other appealing assets that put it on Molson Coors’ radar, and which were mentioned specifically in the multinational’s announcement: namely, a line of distilled spirits that launched in 2015 and hard seltzers that debuted last year. Atwater also operates three Michigan taprooms in Detroit, Grosse Pointe Park, and Grand Rapids; adding physical locations to its stable has also been of interest to competitor Anheuser-Busch InBev in its own craft acquisitions.
Rieth echoed that message loud and clear, telling GBH that Atwater’s growth following its purchase by Molson Coors will be based on digging deeper in its home markets and growing non-beer brands.
“Number one, it’s about solidifying our innovation strategy beyond beer with things like hard seltzer. In our home markets, we have so much room to grow here,” Rieth says, using innovation as a stand-in term for non-beer products. “Then we can look at some other markets around the country or bring one of the brands across the country, like Saint Archer Gold is doing now.”
Paul Verdu, vice president of Tenth and Blake, tells GBH that discussions between the Molson Coors craft division and Atwater had been in the works for years—likely around the time Atwater moved its distribution to the M1 Network of MillerCoors wholesalers in 2017—and that the seltzer launch wasn’t what drew Molson Coors’ attention. Rather, in addition to its beer, he says Atwater’s three taprooms and its capabilities for new product development were factors that made it attractive acquisition. That reveals a telling wrinkle for M&A activity in an ever more competitive industry: it’s no longer just beer that’s driving sales of breweries.
WHY IT MATTERS
This deal comes at a critical period for Molson Coors, which, in October 2019, consolidated business units as a way to refocus on a broader beverage spectrum (both alcoholic and non-alcoholic) beyond beer. The company retired the name MillerCoors when it combined its Latin American business and Molson Coors Canada to form a North American unit headquartered in Chicago. It also brought all its Molson Coors International business under Molson Coors Europe, resulting in 400-500 layoffs globally. New president and CEO Gavin Hattersley has promised to expand Molson Coors’ portfolio beyond the beer space, commenting on the company’s own blog: “We’re over-indexed in declining segments, our core brands have seen years of volume losses, and we haven’t had the resources needed to fully invest behind our innovations.”
That begs the question: Why invest in a small, regional brewery whose sales have been more down than up recently? Atwater is, on the face of it, an anomaly among the kinds of craft breweries that catch the hungry eyes of global beverage companies. Why would Molson Coors buy a brewery that’s barely maintaining sales in grocery and chain stores? Atwater owner Mark Rieth had outlined several ambitious expansion plans in the past that never came to fruition, including a $15 million, 100,000-BBL production facility in Austin and a second brewery located in the Southeast U.S.. In 2016, Atwater finished a round of equipment upgrades that cost $2.5 million.
Given the grand, and unmet, ambitions—and the money already invested into a business whose sales have remained flat—what made Atwater an attractive acquisition now?
“I suppose in the world of craft these days, steady is pretty good,” Verdu tells GBH. “[Atwater] had bigger plans to go into some farther-away markets and states, but the way we see it, the core health of the business is in southeast Michigan and the surrounding states.
“Our belief is just when you think you’ve tapped out in your core market, you’ve stopped trying,” Verdu adds. “We think the vast majority of the growth for several years will come from southeast Michigan and throughout the state.”
Atwater does fill a geographic niche within Tenth and Blake’s portfolio, which doesn’t contain a Great Lakes or Midwest brewery besides Leinenkugel’s, which Verdu says is a “complementary” brand to Atwater. (Leinenkugel’s reentered the Tenth and Blake portfolio this year after its IRI-tracked sales fell 17% 2018-2019; Verdu says the multinational has plans to “reinvigorate” that brand this year.) He cites Atwater’s spot as the fourth-largest brewery in Michigan, a beer-centric state, as proof the brand has potential.
However, the fact that Atwater still hasn’t taken off in a state filled with thirsty, beer-loving residents could be a red flag. And that’s why the company’s non-beer products may be a key piece to this deal.
Verdu says Atwater’s lines of hard seltzer and distilled spirits fit in perfectly with what the renamed “Beverage Co.” is trying to accomplish. Molson Coors’ shifting attention to products other than beer means the company will likely see Atwater’s seltzer and spirits as a test case for how craft breweries can approach such extensions. It’s the first of Tenth and Blake’s breweries to produce a hard seltzer, although Molson Coors does own the Henry's Hard Sparkling Water brand, which sold about 60,000 BBLs of product in IRI-tracked chain stores last year.
“The fact that they’ve launched the seltzer and have a craft spirits brand is an opportunity for us to learn from that and to see what works and doesn’t work,” Verdu says. “We’ve found in all of our craft partners that you have to focus on your core styles that have gotten you where you are, but you have to focus on innovation too. It’s about having a foot in both worlds and that’s something Mark and his team have already done.”
Tenth and Blake has largely seen success for its other acquired craft partners, and while 2019 was up for the combined group, IRI-tracked sales varied widely. Saint Archer (41.9%), Hop Valley (10.7%), and Terrapin (8.1%) all showed growth, while Revolver had flat volume sales in grocery, convenience, and liquor chain stores. Molson Coors believes so strongly in its Saint Archer Gold brand as a direct competitor to low-calorie leader Michelob Ultra, it’ll spend up to $5.6 million for 30 seconds of airtime during this year’s Super Bowl.
Meanwhile, long-tenured craft brands under the Molson Coors umbrella have struggled. Blue Moon’s portfolio declined 3% in 2019, and Jacob Leinenkugel Brewing Company has had it worse in recent years, losing 34.4% of IRI volume 2015-2019. Leinenkugel’s Shandy sales especially have had losses, likely attributable to competition from hard seltzer. Molson Coors could be hedging its bets in that area of the country with the Atwater purchase, or it could use the newly acquired brewery as a test case for how homegrown hard seltzer could fare in Michigan. Or both.
“It’s quite interesting that as we speak, [Atwater is] ramping up their seltzer a bit and they have craft spirits,” Verdu says. “That’s two areas for us from a craft perspective to learn more about.”
At first it might have seemed like Atwater had much to learn from its parent company’s playbook—but this deal could prove to be a mutual education.
Words by Kate Bernot