ABI Acquisition vs. PE Firm

Yup, there is no way of knowing who will buy the brewery 3-5 years down the road. Having stated that I would suppose that some folks might say this is just the case of 'kicking the can down the road'?

I suppose we will know more in another few years here.

Cheers!

 

Here's my reason:

Anheuser-Busch's (pre-InBev) stats in the 75 years after Repeal:

mid-1930s – #1 brewer out of 700 – 2.3% share.
1958 – #1 brewer out of 240 - 8.2% market share.
1983 – #1 brewer out of 35* - 33.4% market share.
2008 – #1 brewer out of 13* – 49% market share.

* ’83 and ’08 brewery totals = only the pre-craft oldline companies. Other years, give or take a few.

In the 1960s, the 20th largest US brewery had a barrelage of 1-1.5 million bbl., which at the time meant around 1-1.5% market share. Last year, #20 Brooklyn brewed under 300,000 bbl., or 0.13% share.

Yeah, there's a lot of breweries these day, but once you get past the top 200 or so ("Large" + "Small Regional" by Brewers Assoc. definition), all the rest - some ~5000 breweries - account for about 4% of the total US beer market.

(Someone else can do the PE figures... )

 

Interesting, looks like Anheuser-Busch experienced it greatest growth while engaged in a "beer war" with Phillip-Morris.

 

Hmmm... interesting thought - and depends on how you look at it, I guess.

Take the period between 1970 (PM's first full year of owning Miller) - and 1981 (when Miller's rapid market share growth pretty much peaked at between 22-23%, staying relatively flat for the rest of the century):

1970) AB 18% - Miller 4%
1981) AB 30% - Miller 22.5%

The most interesting period in there is AB's strike year of 1976, when they lost over 4 points. As one would expect, Miller picked up nearly that much. But the following year, AB pretty much recovers their lost share yet Miller continues its growth.

 

I think the strategy of both PE and ABI are not quite the same... Either of their goals are to make money. The strategy of ABI is towards mastering the market. The strategy of PE funds vary depending on the firm but at their worst are about cutting costs and boosting profits to sell at a big ROI.
I will support breweries invested by PE funds because there are two possible outcomes:
-Everything's good and the brewery is successful while fitting in the marketplace.
-The people that are really going to get hurt by this is the brewery themselves in the long term from benefits, safety, and quality cuts or being sold to someone that they have no control over.

ABI buyouts are often great for the specific brewery being bought out and devoted customers of that brewery... But over the long term it will negatively affect competing breweries and possibly the consumers limiting the options available at outlets.

So it depends on the viewpoint that you care about. If I loved Goose Island and wanted them to be successful then I have no problems with the ABI buyout. Benefits improved, safety improved, resources to improve processes increased. But now small breweries that could corner the potential markets across the nation suddenly now have to compete against a big name-brand company with unfettered access to the established distribution network and agreements.

If they were bought out by a bad PE firm then the employees could be screwed over. Costs could be cut impacting quality, or they could be overstretched to boost perceived value before being sold for profit.

As people have said it depends on the PE firm. Some are good and some are bad for the recipient of the investment. I was trying to make my point using the worst case scenario... The shitty business practices include cutting employee benefits, laying off employees to reduce costs, pushing unsustainable growth, pushing production at the cost of quality, and others.

Sadly the average business practices in America so often prioritize short term gains and profit while quality is an afterthought... When you have a PE firm that may not understand the brewing industry that may be exacerbated for the brewery being bought out... But then the impact is felt by the brewery receiving the investment and there is little impact around the market.

 

As one of those who has often tried to point out that not all PE firms are the same nor do all Sales to PE have the identical contractual arrangements, I sympathize with the point you wanted to make.

Yes, but sometimes those business practices are actually motivated by efforts to either save the business from finishing it's downward spiral into going out of business or are motivated by eliminating burdens incurred years ago that are no longer needed. For example, InBev was roundly criticized here and other places when they took over AB to become ABInBev and then changed a long standing policy that only whole grain rice be used in Budweiser. The allowing of some broken grains was widely interpreted as cutting quality. Yet the home brewers on here and the Pro brewers I've had contact with have made it quite clear that having some broken grains made absolutely no difference to the quality of the beer so long as the grade of rice in use was the same.

 

To emphasize your prior point of different firms and different strategies.

There's a huge difference between a brewer approaching a PE firm and saying something like I need x for expansion purposes which costs y can you help with cash? Let me explain the ROI on your shares in my company.

Vs. Hi, we're here to take your board and bought up a majority stake while no one was paying attention, cut labor in half by the end of the q, cut packaging by 10 bp and if you dont heres your new CEO.

There are different things that are happening.

 

People hate ABI because a handful of craft brewers TOLD them to hate them.

PE firms are much worse for craft beer than ABI could ever be.

 

From what perspective? PE firms definitely do run businesses into the ground (I don't know how many. A few, or many) But that just really affects that one business. Everyone else can easily fill the void.

ABI can be great for a single brewery that they buyout. That can be seen with Goose Island and Elysian. It seems great as a consumer because now I have the option to buy Goose Island and Elysian in Texas whereas before the buyout I couldn't... But there is only a finite amount of tap handles and money in any market, and having these competitors move in with much more resources means that some small breweries that could have been successful and grown here flounder or can not get off the ground.

That takes more money out of the market here, that means fewer people employed here.

There have been hop shortages in the past. What happens when in the future there is a really bad year and hop yield is only 66%. For breweries with ABI's owned fields they are much more insulated from the impact. The corporate owned breweries don't have to compete with the other breweries to get ABI's hop supply while smaller breweries have to fight to get a supply driving up demand and prices. That will either cut into the small breweries money supply or force them to increase prices. The effect will be lower on Elysian and Goose Island meaning they can choose to increase prices along with the market and make more profit or keep prices the same being below the market because they don't feel the cost increase.

This can drive breweries out of business and/or mean consumers will switch to the brewery that is more affordable, putting more of a strain on the smaller ones.

The impact of the mega-corporations can have a serious impact on variety and the consumers even if there is no malicious intent. There are many reasons why ABI and MillerCoors gained such dominance over the 20th century, and if we are not careful I can only see that cycle repeating.

 

As a concise retort to your statements, I say, "Unless you own a brewery or are employed by one, who cares?"

There are more than enough breweries around to provide consumers with the choices they desire. More breweries doesn't mean more good beer. It just means more breweries. More quality, consistency, and availability, which these ABI owned breweries provide, is what people should be concerned about.

 

I care because it directly affects me as a consumer. For now there are more than enough breweries but that doesn't mean there always will be. All it takes is competition to kill off breweries decreasing the actual variety. I care because people having jobs and money in the area enables them to keep everything alive so I want more people to be able to start up breweries and make money in the market.

Another difference between PE and ABI owning breweries is that the PE will make a good ROI if the craft brewing industry is successful. ABI makes a good ROI only if they are able to get good control of the market.

To see how that impacts us as consumers look at the bill that was recently passed by the Texas legislature. It limits breweries to how much they can produce and still run a taproom, and it forces breweries to pay distributors for doing nothing... The brewery has to sell their beer to the distributor and then buy it back in order to sell it in the breweries taproom... This means they have to pay the distributors to do zero distribution because the beer never leaves the building.

This was supported by ABI who owns Karbach because they were able to lobby to get an exemption for themselves in it and they also have stakes in the distributor so the money doesn't fully leave the corporation. But it stymies the craft breweries in the state limiting their ability to expand or compete. It means that breweries are looking to move out of state.

The PE firms opposed this law such as the one who invested in Oskar Blues that just moved into state and this law will affect. As well as Deep Ellum brewing and some others.

So yes, this does impact consumers and not just the people who work in or run breweries.

 

You are completely correct in saying this. However, you undoubtedly realized that competition includes other craft breweries.

PEs have no interest in making a brewery "better", only more profitable, so that return on investment only applies to them selling the brewery. And when they do so, with the brewery, very probably, being worse off from a beer perspective than it was when they bought it, yet better from a profit and loss perspective. ABI is pro-brewery. PEs are pro-profit. There is no arguing that.

There are myriad examples of ABI's anti-competitive behavior. Although that is "bad" for smaller breweries, they either need to create a better lobby (VERY unlikely) or find loopholes in the laws. You can't fight these guys head on. You need to be smarter, not stronger, than them.

 

@EvenMoreJesus made a comment of: "You need to be smarter, not stronger, than them."

Permit me to suggest that an aspect of "smarter" is that craft breweries should recognize and exploit differentiating topics. For example, one thing that a craft brewery can be that ABI can never be is a small, local brewery. The drink local movement is very strong these days. Craft breweries can exploit this aspect while for ABI there really is nothing they can do here since they are a Mega-Brewery.

One way that small. local breweries can exploit this situation is by setting up tasting rooms that will attract customers to both consume beer on premise but they can also provide beer for customers to take home. In the past this would mean principally growler sales but more recently crowler stations have become available. Another option is pre-packaged beer with a popular format in my area being 4-packs of 16 ounce cans.

Depending on state/local laws there are others retail options for these small. local breweries to sell their beers. One small, local brewery near me sells their beers at a weekly Saturday farmers market. I am sure that there are other clever ideas these small. local breweries can come up with as to how to increase retail sales.

There is indeed a large segment of the beer market who principally purchase their packaged beers at heritage retail outlets (e.g., Supermarkets, Liquor Stores, Convenience Stores, ...). As the craft beer market matures these folks could very well expand their choices on where they choose to purchase their beer.

The contemporary craft beer market is very competitive. BIG BEER is indeed part of the competition but so is other craft breweries (both the larger distributing craft breweries but also the plethora of small, local craft breweries). In 2016 the rate of growth of new craft breweries was over 2 new breweries per day. In this present and continually growing craft brewery scene it is the breweries that learn how to best compete which will survive in the long term.

Cheers!

 

Yes I realize that competition includes other craft breweries... That's why I'm not advocating against capitalism. I'm arguing that the mega-corporations gobbling up the craft beer market has a long term detrimental effect for both the small breweries and eventually consumers.

You are not looking at the long term impacts. Yes the breweries themselves get support and distribution but this has the potential to negatively impact us as consumers.

ABI and MillerCoors are pro-profit. They may support the brewery itself but the way they continue being successful is not by stagnating, but trying to increase market share. They are most successful when they can hurt the competition... The only way PE firms will be ABLE to sell and make a good ROI is if the craft beer market is healthy. They may run the brewery they control into the ground but if it is seen as a poor investment nobody else will buy the brewery. The PE firms that invested money in Deep Ellum or Oskar Blues will have a harder time selling the breweries and cashing in if the laws get changed to make it even harder to make money as a craft brewery.

The new law in Texas means that companies will not want to invest in craft breweries here because that will impose new restrictions on their investments. That's why ABI supported the law. It means the only companies that will have the strong cash flow in Texas are the breweries that they own.

It's very short sighted to focus on the success of one brewery. Sure a brewery could very likely be screwed over due to control from a PE firm but that screws over just that brewery and they chose to take the money. ABI may be good for the single brewery that they buyout, and it's good that consumers now get easier access to the brewery. But consumers are hurt by the lobbying that ABI does or the laws they support that hinder the craft beer community, and they will lose out by more breweries closing because they can't get their products to the consumers due to a lack of retail space.

 

Absolutely!

Note to the VAST majority of small craft breweries: make your tasting room inviting for GOD'S SAKE! "Industrial" is NOT inviting. People WANT to stay and drink beer, but only at places that are comfortable.

 

@Roadkizzle said, "You are not looking at the long term impacts. Yes the breweries themselves get support and distribution but this has the potential to negatively impact us as consumers."

"When?" is my question. When will the slippery slope, (which has been a ramp upwards, not a slope, for the last 15 years) start leading the craft beer movement into this negative impact? So far craft beer is the only segment of the beer industry in this country that is growing in a declining overall market, and has been for the entirety of the Beer Wars that have set out to destroy us. So far every year is better for fine beer lovers than the last. When will this destruction happen? Next year? Ten years? Twenty? Fifty? My guess is never, but I have only observations and data to back up this opinion.

 

I fear that is not really sustainable... Sure Goose Island and Elysian are not "local". But do you think Houstonians think that Karbach is no longer local? If ABI or MillerCoors was able to buy out Trillium do you think that most Bostonians would no longer think they were local?

Also, that only works without the big guys throwing around their money. As the increasing hostility in the legislatures towards taprooms is showing they are trying to limit the ability for the small breweries to succeed in distinguishing themselves as "local".

As ABI and MillerCoors get more and more traction within the craft beer market there will be so many more blurred lines between them and independent breweries. It won't be sustainable for small breweries to rely on distinguishing themselves as local as long as there isn't pushback for the big corporations capitalizing on the same market.

 

Can you provide reasons or evidence to say that it was ABI rather than to an orgainzed group of Independent Distributors in Texas, many of whom will be affiliated with ABI only in that they are the independently owned companies which have an agreement with ABI to handle distributon of ABI beers in that distributor's area of Texas? From all that I've seen so far all that lobbying you speak of came from within Texas as Texas distributors worked on preserving their own self interest.

Thanks.

 

I don't know, and I don't really care. It took throughout the 20th century for the beer market to lose 85% of the breweries and AB/Coors/Miller to control over 90% of the market. For the past 20 or so years they didn't understand the craft beer market. It is only recently they've been realizing what the craft beer drinkers want. The purchases of Goose Island and support and continuation of their big/experimental beer programs, Elysian and 10 Barrel, and Wicked Weed shows they are getting a lot smarter at what consumers are wanting. I don't want to wait until the craft beer market is already overrun and is unsustainable.

The big corporations are not playing the short game. They are going to try to win by attrition, just like people saw throughout the 20th century.

 

The lobbying to get the law on the books WAS done by the distributors...

But ABI by proxy of Karbach were fighting against it because it initially immediately applied to them and disallowed breweries from operating more than 1 taproom. ABI was able to get the bill changed to allow for up to 3 taprooms and current breweries exceeding the capacity to be grandfathered in with less restrictions... That only applies to Karbach, Shiner, and Revolver currently...

After those amendments Karbach and ABI supported the bill. They were not the lobbyists to get it on the books but they supported it when they were able to get it to support their goal of hindering the craft beer competitors.