THE GIST
On Jan. 10, two major craft beer brands announced ownership changes:
Salt Lake City’s Uinta Brewing has been purchased by a joint venture that combines importer/sales and marketing company US Beverage with Colorado-based private investment firm FC Crestone.
Molson Coors Beverage Company announced it will sell two brick-and-mortar locations that formerly housed San Diego’s Saint Archer Brewing Company to Ballast Point owners Kings & Convicts Brewing Company, which says it will keep current staff and designate the Miramar, California facility as the new operating headquarters for Kings & Convicts.
Both moves are evidence of the increasingly challenging landscape for regional and national craft beer brands, and could be harbingers of what’s at stake for the category as consumer preferences reshape the beverage alcohol space.
For years, Uinta had been plagued by what Brewbound referred to as “a wide but shallow market” for its beer—a nation-wide sales strategy was made comfortable by a 2014 private equity investment from Riverside Company. In 2019, Riverside exited the investment and private equity firm Golub Capital bought a controlling stake in Uinta.
Similarly, Molson Coors’ vice president of craft beer division Tenth and Blake, Paul Verdu, says that Saint Archer’s current sales in its markets of California, Arizona, Nevada, Oregon, Washington, and Hawaii weren’t keeping pace with the company’s investment in that brewery, which was bought in 2015 by then-MillerCoors for $35 million, according to estimates by The Wall Street Journal. Molson Coors will discontinue production of Saint Archer beer effective immediately, though it will retain ownership of the Saint Archer brand.
“In 2016, when we invested heavily in the brewery and infrastructure, we had much higher sales goals for Saint Archer. The volume never materialized and business became far too costly to continue to operate,” Verdu said via email. According to estimates by the Brewers Association, 2019 featured the highest levels of production for the California brewery, which made 65,000 barrels that year. It dropped to 55,000 barrels in 2020, the last year of estimated data, which was still good enough to put Saint Archer among the top-100 largest breweries in the country.
For both Golub and Molson Coors, the beginning of 2022 marked the deadline for seeing return on their investments in these craft breweries—returns that didn’t materialize to their satisfaction.
WHY IT MATTERS
While craft breweries were darlings of the beverage alcohol industry just a decade ago, investors are no longer patient with them beyond typical investment timeframes. Like companies in any other industry, an infusion of money from private equity or multinational conglomerates still means someone is watching the clock.
While Uinta and Saint Archer had momentum just a few years ago, both saw sales drop in 2021.
For Uinta, this was a continuation of recent trends: The brewery’s IRI-tracked chain retail sales had been in decline every year since 2017, falling from $20.3 million that year to $11.2 million in 2021.
For Saint Archer, the drop off was more recent. The brewery had seen IRI-tracked chain retail sales nearly quadruple 2017-2020, growing from $4.7 million to $22.8 million. But last year, the trend reversed drastically amid a reset of priorities from Molson Coors: Saint Archer posted just $8.3 million in IRI-tracked sales in 2021, a year after Molson Coors discontinued Michelob Ultra competitor Saint Archer Gold. (But not before spending $20 million on an ad campaign for the year-old brand in 2020.)
For Molson Coors, though Saint Archer had been increasing sales leading up to 2021, the juice wasn’t worth the squeeze—especially with other, more successful craft beer brands like Hop Valley and Terrapin competing for attention in the company’s portfolio. In 2020, Saint Archer’s best sales year, it sold just 65% of what Hop Valley did. And where Saint Archer struggled in its home market, two-thirds of Hop Valley’s added dollar sales in 2020 came from its home state of Oregon.
“This was a difficult decision, but we believe the right one as it will enable us to devote more resources to our other craft brewers across the country,” Verdu wrote in a letter to wholesalers regarding the Saint Archer sale.
What’s in it for the buyers, Kings & Convicts and the US Beverage’s joint venture? Namely, capacity.
Both Uinta and Saint Archer’s facilities are reportedly capable of producing roughly 100,000 barrels of beer. US Beverage just bought a brand with national recognition and sales infrastructure that could be put to use selling a pared down or revamped portfolio of Uinta products. It also now owns a production space—with about half its capacity currently unused—that could potentially be put to use in service of the more than a dozen brands it imports and markets.
Kings & Convicts can convert its new Miramar brewery and taprooms to Ballast Point locations, or turn them into hubs for a potential collection of craft beer brands should it acquire more. A spokesperson for Kings & Convicts says the additional space “will effectively help to close the gap in the brand's previous production capabilities.”
Molson Coors’ and private equity firms’ scrutiny of their craft portfolios comes at a time when the category is struggling. Bart Watson, chief economist for the Brewers Association, a trade group representing what it defines as small and independent breweries (which would not include craft beer brands owned by Molson Coors), noted in a December 2021 webinar that while craft beer sales volume recovered in 2021 compared to the pandemic-raved year prior, they still lagged behind 2019 numbers as the year closed.
For investment firms and beverage companies that have made multimillion-dollar investments in craft breweries, those are discouraging numbers. The picture is even less rosy when 2021 craft sales are compared to what they would have been if craft had continued growing at +3% annually, roughly the rate it had grown in the years prior to the pandemic (and what investors would have expected years ago when they bought into craft breweries).
“Not only are we behind where we were in 2019, but we’re even further behind where we could have been,” Watson said of the 2021 craft numbers.
Breweries are responding to these challenges in different ways: Some have formed brewery collectives to increase their resources and share or lower costs, while others are courting private equity. Given the level of investment it takes to make regional or national beer brands thrive in a competitive market, most investors expect to see dividends within a relatively short time frame. The only safe bet here? More change is coming.
Words by Kate Bernot