THE GIST
San Diego’s Stone Brewing planted a large, red pin in the timeline of the U.S. craft beer industry on the night of June 23, when it announced a sale to Sapporo U.S.A, Inc., a subsidiary of Japanese beverage company Sapporo Breweries, Ltd., for $165 million. A press release from Sapporo said Stone will become a second-tier subsidiary of the larger company, which also owns Anchor Brewing. Stone Distributing, wholesaler of Stone beer as well as other craft brands in Southern California, will become a separate company owned by Stone Holdings. Sapporo’s acquisition of Stone is expected to close in August.
The $165 million paid for Stone puts a $505-per-barrel price tag on the company, based on 2021 production figures.
That’s less than half the roughly $1,100 per barrel that Boston Beer Co. spent to merge with Dogfish Head Brewery’s approximately 300,000 barrels of production in 2019.
It’s also lower than the $660 per barrel that Monster Energy spent to acquire CANarchy Craft Brewery Collective’s 500,000 barrels of production earlier this year.
The sale represents a resolution to Stone’s multiyear search for a buyer as well as a definitive contradiction to the “anti-sell-out” stance of one of the industry’s most vocal brewery founders, Greg Koch. It seems Koch, Stone’s executive chairman, is literally incompatible with incoming corporate ownership of Stone; he announced in a lengthy blog post June 24 (quoting Heraclitus and Metallica) that he will step away from the company “soon” after a nearly 30-year career.
A current employee of Stone Brewing in San Diego who works in production says the news of the Sapporo sale has left workers “bewildered” and with many questions about how the transition will affect their job duties. This employee, who asked not to be named so they could speak candidly and avoid repercussions from the company, says representatives from Sapporo visited Stone months ago, but employees were told it was because Sapporo was looking for partners to contract brew its beer.
News of Stone selling to a multinational company has shaken employees, they say. San Diego workers were told of the sale during an all-hands meeting for evening employees on June 23; day-time workers were invited to a morning meeting on June 24. “One of the team members said to me, ‘I’m remaining positive but my soul hurts.’ They nailed it,” the employee says.
Stone’s sale to Sapporo comes seven years after private equity partner VMG invested $90 million in the brewery; Beer Marketer’s Insights reported in 2020 that Stone’s exploration of a complete sale was driven by the timeline for VMG to cash out.
Stone representatives did not reply to a request for an interview.
WHY IT MATTERS
The sale to Sapporo caps a rocky few years for Stone, which saw the company sell its vaunted Berlin brewery to BrewDog in 2019, lay off more than 300 employees in 2020, part ways with longtime CEO Dominic Engels the same year, and close its Napa taproom in 2021.
When current CEO Maria Stipp was hired in September 2020, many in the industry assumed it was with the goal of guiding Stone through a sale. (Previously, as CEO of Lagunitas, Stipp had overseen the sale of that brewery to Heineken USA.) In addition to finding a buyer for Stone, Stipp also oversaw a redirection of the company toward a more accessible, less intimidating attitude embodied by a sunny new flagship product, Buenaveza Salt & Lime Lager.
From Sapporo’s vantage point, Stone is an attractive asset for its production capabilities on both coasts, with breweries in San Diego and Richmond, Virginia. In its announcement, Sapporo indicated that it plans to brew Sapporo products for the U.S. market at Stone facilities, which would represent a doubling of Stone’s annual production of 326,281 barrels. Sapporo previously relied on production in Canada and Vietnam for supply of its beer to the U.S. market. Sapporo also stated that it aims “to further expand our alcoholic beverage business in North America” by acquiring Stone’s brands. The release names only one beer, Stone IPA, the brewery’s previous flagship that was supplanted last year by Buenaveza Salt & Lime Lager as Stone’s “number-one priority.” But amid efforts to “reset the tone and manner of the brand” toward what Stipp described as a softer, less aggressive stance, Stone’s sales have stalled in recent years:
Over the past four years, Stone’s chain retail sales have failed to reach their 2018 peak of $102.8 million in all chain retail stores tracked by market research company IRI.
Thanks to pandemic-induced boosts to packaged beers from larger breweries, Stone’s chain retail sales bounced from a down 2019 ($92.8 million) to growth in 2020 ($98.9 million).
In 2021, chain retail sales fell again to $83.9 million, their lowest levels since 2016 for the brewery.
Sales of Stone IPA in chain retail fell -42% between 2017 and 2021—an annual decrease of about $12 million. Buenaveza sales have only recouped 53% of those losses.
In the most recent 52-week sales period ending June 12, Stone's portfolio had decreased in sales -10.8%, a decline steeper than the craft category (-6.7%) and beer overall (-2.6%)
Stone’s annual production, as reported by the Brewers Association, dropped -2% from 2020 to 2021.
After years of difficulty, something had to give.
Yet Koch had spent his entire career as the loudest critic of craft brewery “sellouts,” which he derided as “cash grabs.” In his blog post announcing his departure, Koch writes that he will always be “a supporter of independent craft beer,” but that “I’ve softened my rigidity around this in recent years.” Yet an anti-“Big Beer” stance was a hallmark of Stone’s nearly four-year trademark lawsuit against MolsonCoors beer brand Keystone, which was decided in Stone’s favor just this March.
Koch will remain on the ownership team for Stone Distributing. Representatives from Stone tell Brewbound there will be no immediate change for breweries currently distributed by Stone Distributing. But the sale of the brewery raises a natural question: Is Stone Distributing for sale? California wholesale juggernaut Reyes Beverage Group would be a logical buyer:
Reyes is acquisitive and expansive with six wholesaler companies spread across California alone, and has money to spend.
But Reyes also has a focus on massive brands like Modelo, Pacifico, and White Claw that move large volume.
It’s not shown an appetite for managing dozens of craft beer brands, and it already has dominant market share in Stone’s Southern California footprint.
Two industry professionals, who asked to remain anonymous due to the sensitive topic, say Stone has been quietly shopping its distribution arm to interested buyers for years. One says that Stone initially hoped to sell both the brewery and distributorship together.
The sale to Sapporo is one of the biggest changes to impact Stone, with the potential for more to come. The current beer world Stone inhabits looks very different from the landscape when the brewery opened in 1996. It even looks very different from the landscape in 2016, when Stone was reaching its apex and could afford to be the “arrogant bastard” of the craft beer party.
Koch acknowledges as much in his blog post: “In 1996 I dreamed of a world where people had better options, and lots of them. But I never dared to dream there would be nearly 10,000 breweries in the U.S.” He writes that he always stood up for independent craft beer, which he called “the perennial underdog of the beer industry.”
“Until it wasn’t,” he writes.
Words by Kate Bernot