Update, July 12: The announced merger between Silver Branch Brewing Company and Old Ox Brewery has fallen through, Silver Branch CEO and head brewer Christian Layke confirms. The news was first reported by DC Beer.
At issue was Old Ox’s second location in Middleburg, Virginia, which contains a taproom and brewery. Silver Branch did not want this location to be a part of the combined company, instead intending it to be sold. The sale would provide additional finances and allow the combined company to focus on adding equipment to Old Ox’s original location. Old Ox disagreed and the Middleburg location became “a stumbling block” to the merger. Old Ox continues to contract brew beer for Silver Branch.
Layke says Silver Branch still believes in the concept of lateral mergers or acquisitions among small breweries, and is still eager to find a way to expand its production capacity.
“If we were to see an opportunity to acquire rather than merge, it might be more right at this moment in time,” he says.
Layke demurs when it comes to speculation that Silver Branch might move into the former 3 Stars Brewing Co. space in Washington, D.C., after that brewery recently closed.
“We have looked at the facility. It’s something we considered but we have not gotten anywhere in any conversations with anybody,” he says. “There’s nothing else to say there.”
The original story follows.
THE GIST
Silver Branch Brewing Company of Silver Spring, Maryland and Old Ox Brewery of Ashburn, Virginia, have announced they will merge to create a new holding company called Silver Ox. Both companies will maintain independent production breweries, taprooms, and beer brands, and leaders say they don’t expect layoffs as a result of the merger.
On a basic level, the merger pairs one brewery with maxed-out-capacity (Silver Branch) and one that still has physical space to produce more beer (Old Ox). Silver Branch will gain access to space and equipment to increase its volume, while Old Ox says it expects to benefit from the taproom- and hospitality-focused expertise that Silver Branch’s leadership brings. Together, they hope to create a company that’s larger and has more diverse expertise than either does on its own.
The merger is partially a response to increasing pressures Silver Branch, Old Ox, and other small breweries face: greater competition at retail, tight commercial real estate that limits new locations, rising costs for ingredients and materials, a challenging labor market, and more. It echoes the recent formation of other brewery collectives and mergers/acquisitions, including IndieBrew, Mutual Respect Brewing and Distilling Collective, and 4 Noses Brewing Company’s acquisition of Odd13 Brewing—all of which occurred within the last six months.
Silver Branch and Old Ox produced 3,800 and 4,500 barrels of beer last year, respectively. They say that shared ownership will create opportunities for growth that could increase combined annual production to 10,000-15,000 BBLs, roughly equivalent to the 2020 production of Bend, Oregon’s Crux Fermentation Project or Madison, Tennessee’s Yazoo Brewing Company.
The companies declined to comment directly on revenue sharing, saying those details are still being finalized, but Silver Branch’s co-founder and chief operating officer Brett Robison says the companies’ “financial incentives are fully aligned in such a way that … total success will benefit all of the investors and managing partners moving forward.” They expect some brands may be more successful in certain areas than others, but say they’re committed to facilitating sales of popular beers, regardless of which brewery produces them.
WHY IT MATTERS
The increase of such mergers, acquisitions, and collectives among relatively small to mid-size breweries is only likely to continue as the U.S. craft beer market matures and becomes more competitive. According to the Brewers Association trade group, the total number of U.S. breweries reached a record high of 9,118 in 2021, even as beer production levels haven’t recovered to pre-pandemic levels.
Silver Branch and Old Ox say the partnership will help both companies overcome challenges they have faced:
A company of Old Ox and Silver Branch’s combined scale could bring together two revenue streams: selling the majority of its volume to chain retail like grocery stores while also making higher profit margins on beers it sells through its taprooms.
Old Ox president and co-owner Chris Burns says the brewery currently sells its beer in 943 accounts—Silver Branch has 546—and he believes both could increase 25% post-merger.
Silver Branch self-distributes its beer, and therefore an external wholesaler doesn’t take a cut. Leadership says it still makes 2.5 times as much on a keg’s worth of beer sold at the brewery versus that volume sold in distribution.
Silver Branch has been primarily a taproom-focused, self-distributing brewery since it opened in 2019, even as the pandemic’s closure of bars and taprooms gave a huge boost to sales of packaged beer sold at retail. This was part of a longer-term strategy: Brewery leadership thought it could reinvest profits made from higher-margin taproom sales to fund the infrastructure needed to eventually get into larger distribution.
For its part, Old Ox has been distribution-focused with less emphasis on taproom sales since it opened in 2014, and is now seeking to improve its taproom experience for guests. (When Old Ox opened, taprooms had just been legalized in Virginia.) Taprooms are especially important now: The Brewers Association’s chief economist Bart Watson noted in early April that “own-premise” sales have been critical to breweries’ recovery from the pandemic, as those levels have rebounded faster than other draft beer sales.
Silver Branch has also maxed out brewing capacity at its current location, and for two years has been unable to find suitable commercial real estate to lease in the Washington, D.C. metro area. The company even expanded its search area to Baltimore and Frederick, Maryland, but consistently saw prices between $20 and $45 per square foot for properties they considered too “warehouse-like.” (Lease prices vary by geography; $10-$30 is cited as a standard range for a brewery.)
Meanwhile, just this week, Old Ox added 2,000 BBLs of cellar capacity to its brewery, with physical room for four more 120-BBL fermenters; that space will in future be used to brew both Silver Branch and Old Ox beers. Silver Branch also hopes to benefit from Old Ox’s years of experience distributing around the Virginia area.
“We’re now at the point in our growth where the ability to brew larger batches of our most popular beers is becoming a necessity,” says Silver Branch’s CEO and head brewer Christian Layke. “[Old Ox’s] experience selling beer in Virginia is a huge asset to us, that ability to relate to wholesale buyers in Virginia.”
Old Ox and Silver Branch say their combined portfolio will make the company’s new total of three sales representatives more relevant to retail accounts:
Old Ox’s three best sellers are a Belgian Pale Ale, a West Coast IPA, and a Porter; Silver Branch’s are an IPA, a Czech Pilsner, and whichever of its rotating Lager series is currently available.
By offering a wide variety of styles, those sales reps can become more of a one-stop shop for buyers.
This has been conventional wisdom for other collectives, like Artisanal Brewing Ventures, whose reps sell a portfolio that includes, among other brands, Southern Tier Distilling, Victory Brewing Company, and Bold Rock Hard Cider.
In sales and other realms, the merger is intended to provide “instant scaling” and “instant leverage” for both companies, according to Robison.
Julie Rhodes, owner of Not Your Hobby Marketing Solutions in Broomfield, Colorado, says economies of scale are on the mind of most small breweries right now. They’re facing pressures including supply chain constraints, labor shortages, rising gas prices, consolidation among distributors, and competition from both beer and non-beer alcoholic beverages.
Over the past three years, as ingredients and freight increased in price, the national weighted average base price of a case of craft beer in chain retail (price with discounts/promotions removed) has risen from $39.29 in 2020 to $41.27 for the first three months of 2022. Craft beer’s increase is the highest of any segment of beer, roughly 17 cents more than number-two imports’ per-case price increase in that same period.
“Small to medium-size folks are in this messy middle. They’re not big enough to exert enough influence to set pricing in the market or get deals on raw materials or have cheaper logistics options for shipping, but they’re too big to not play in that space,” Rhodes says. “What options do they have? They form groups.”
That’s exactly how Old Ox and Silver Branch describe their thought process. Layke calls the move “two little breweries becoming one small brewery,” hoping their collective buying power and expanded sales team grants them additional leverage and value to ingredients suppliers and beer buyers alike. Their current brewing volumes already put them in the top 10% of Brewers Association-defined craft breweries, but next to the resources of national or regional competitors, these two breweries feel tiny. Size, in brewing, is mostly relative.
“Some of the residual impacts of the pandemic, like supply chain shortages and labor shortages, have absolutely put an exclamation point on why we think this is … a path to growth,” Burns says.
The ultimate goal is to create a company with diversified revenue streams: distribution in Maryland, Virginia, and Washington D.C., thriving taproom businesses (and possibly more locations if the opportunity arises), and/or the potential for direct-to-consumer or e-commerce capabilities down the line. Seeing how much brewery business models have been forced to adapt over the last few years has convinced both Old Ox and Silver Branch that having experience in multiple sales channels is the strongest defense against uncertainty.
There’s a more personal aspect to the merger for Burns, though. Old Ox is family-owned by Burns, his wife, and his parents. All four enthusiastically approved the merger, which will allow Burns’ parents, Graham and Mary Ann, to retire from their operational roles with the company while maintaining ownership stakes. Silver Branch, on the other hand, has more than 30 small investors in its company, all of whom also approved the merger once Robison explained why it was necessary to stay competitive in a maturing beer landscape.
Rhodes only expects to see more of these types of small brewery mergers and collectives in the coming years.
“There are still people applying for brewery licenses. There are still more [brewery] openings than closings,” Rhodes says. “There’s no reason to think that more situations like this with mergers couldn’t or wouldn’t happen.”
Words by Kate Bernot