Constellation Brands to Acquire Ballast Point Brewing & Spirits

A brand has value only by virtue of the income it generates or could generate. The argument you're making is that sales in the US (for Modelo brands specifically) translate into greater awareness and sales globally. At best that's a maybe, but I don't really buy it. The value of the brand may increase in the aggregate, but its a moot point because the US Corona and the Global Corona are prohibited by the DOJ from ever being united. So really its two brands, Corona USA and Corona Global.

 

It seems a bit self-righteous.

 

Anhueser-Busch has something like 2 dozen WOD's (Wholly-owned distributorships) in at least 9 US states - their "Wholesale Operations" page is not up to date, they've bought (and sold) a few more in recent years, including one in NJ. In most cases, they distribute only ABInBev products and beers from breweries which have national distribution deals with AB.

MolsonCoors still owns at least one distributorship, in Colorado (at the time of the US MillerCoors merger, Coors owned 3 distributors).

 

While it does happen, I imagine it's in the minority of retailers country wide. Large retailers anyway.

 

Don't downplay the significance of losing the beer industry to big business. And especially don't bring the internet and automobile industries to prove a point. The internet is a zero marginal cost entity that has been monopolized by tiny number of firms, forcing consumers to choose corporate in order to consume at all. The automobile industry is dominated by a tiny number of firms as well. You cannot just up an open an automobile manufacturing facility the way you can a brewery. The craft beer industry is like a shining beacon of hope in that it's one tiny industry that allows consumers to support the little guy if they choose to. But don't blame people for having the ability to make that decision in a world where it's otherwise almost impossible.

 

There is nothing surprising about this at all. It all makes sense: buy it or don't. I have been able to get better beer for way cheaper for years. I know these guys and I'm happy for them.....their beers, mixers, and distillates are cutting edge and surely profitable. A perfect target for big money.
We are a spoiled people. Look around at all of the "real' issues.

 

I suspect you know less about the beer business than you think you do. For example, I know as a fact that the craft segment across the biggest chain stores have seen a significant increase in shelf space, paired with a decrease in space for macro brands. Before you try to claim that a decrease in Bud Light space was made up for with extra Goose Island slotting, don't bother, you're dead wrong.

Further, what price war in craft? Craft beer overall is a very price inelastic product to the consumer, so there isn't much advantage spending money to drop price as opposed to investing that money in marketing. The only place where a "price war" makes sense is price to retailer on draft lines. If Goose can sell a half barrel at $95/half and the next cheapest craft option is $150, then a lot of bar managers will prefer to take the extra margin knowing that they'll make more money in aggregate with the "crafty" kegs. Alternatively, Ohio is a self distribution state, so brewery X who self distributes can generally significantly undercut the price of a brewer that has to sell through a distributor. That's just the reality of business, different businesses have different cost structures.

You also said that macro breweries "often dictates grocery store sets by tying other brands to favorable pricing and promotion from Bud."....What are you smoking? Most states it's illegal to vary pricing by retailer. I guess you could claim that quantity discounts and such are variable pricing since Joe's Liquor might not be able to take a 50 case QD like a large store would, but if there is a 50 case QD to large retailers, in most states, Joe has to be able to buy at the same price.

Every retail account I'm familiar with, there's a hurdle rate for every segment/package. You don't have to be a "top seller" to keep your space, you just have to not be at the bottom.

You obviously don't know a whole lot of the numbers you claim to, because NYFRB is still selling like it cures cancer. Do I understand why people drink it? No, but sales numbers don't lie.

My suggestion is simply before you try to inform people about how the market works, understand it yourself. Perhaps what you're saying is true for some tiny part of the country you're in where there's some super shady retailers or macro distributors, but if so, that's the exception, not the rule.

 

Well put. Facts are not friendly to the conspiracy theorists.

 

Beer is not Constellation main interest, wine is. They are the 3rd largest winy company in the USA. I'm not surprised the a wine company acquired a craft brewery and don't doubt others will.

 

Eh. They don't distribute to Michigan anyway so they're not getting my money. Sad to see more big beer consolidation and consolidation that involves a prestigious craft brewer at that. That being said, I wouldn't turn down a billion dollars either. Constellation Brands went all Ted DiBiase on Ballast Point.

 

Not the whole story... Before the acquisition was completed AB-Inbev was forced to divest all interests in Crown Imports. Crown Imports (Corona, etc..) is 100% owned by Constellation. The two companies are not "tied at the hip".

 

They don't benefit in the US at all. It's a direct competitor, the main one chipping away at, likely, more market share than craft
VICTOR, N.Y., June 7, 2013 - Constellation Brands, Inc. , a leading beverage alcohol company, announced today that it has completed its acquisition of Grupo Modelo's U.S. beer business from Anheuser-Busch InBev for approximately $4.75 billion. The transaction includes full ownership of Crown Imports LLC which provides Constellation with complete, independent control of all aspects of the U.S. commercial business; a state-of-the-art brewery in Nava (Piedras Negras), Mexico; exclusive perpetual brand license in the U.S. to import, market and sell Corona and the Modelo brands Crown currently sells and the freedom to develop brand extensions and innovations for the U.S. market.

 

Just stopping by to point out that monopolistic tendencies are inimical to capitalism, not one of its strengths. Those of you saying "suck it up, capitalism is beer-eat-beer," have it backwards. If companies are gobbling each other up and then engaging in practices that *stifle* fair competition, that's not capitalism. Or from the anti-capitalist viewpoint, it's a huge weakness of capitalism.

 

For what it's worth, I was talking to a Lagunitas employee in Chicago (lots of people making Lagunitas comparisons here) and she told me that most people who get all bothered about these buyouts don't understand the full scope of the deals. I'm sure it's different in every case but the main reason Lagunitas sold (a 50% stake) to Heineken was to get access to their international distribution network, which is the most expansive network in the industry. Nothing is changing about the way they brew and Heineken isn't getting any recipes or proprietary information or operational oversight. Lagunitas just wants to share their product with more people around the world and Heineken just wants to help them do that (and make a little money from it too, of course). All that says to me is that the folks at Lagunitas truly believe in what they do and that's about the most important trait a business can have. Granted, I'm sure a lot of these sales happen for the wrong reasons but I'd like think that most of them happen for the right ones. I doubt that most craft brewers are in it to become billionaires.

 

You have an interesting book.

 

I think you are reading his words incorrectly.

It's very true that macro's shelf space is getting smaller while crafts is getting bigger, but the point is that when AB buys Goose, AB is forcing Goose at the retailers by saying "mr retailer, if you want to continue to buy Bud, you must buy goose from us." Or, they work goose into the structure of the deal by saying "we will give you x amount of free cases of Bud when you bring in Goose." So obviously the retailer is going to put goose on the shelf and in the cooler if he received free product. Thus, taking away a spot for another craft brewery because the spot is filled by Goose. Maybe that account would have bought goose anyway, but maybe he wouldn't have and it would have allowed a spot for a different brand.

This was also his point for grocery store sets. Bud holds so much weight in the industry that they work hand in hand with the grocery store on the layout of their brands. Ever notice what's at eye level at your grocery store? While all the other independent brands are on the bottom, if they are in the store at all. Not to mention which brands receive the huge floor dispays and end caps.

How do you figure a brewery that self distributes can drastically undercut the breweries that go through a distributor? They have the new added costs of trucks, fuel, repairs, employees, insurance ect. Turns out to be about the same.

I guess I will just re use your sentence.
My suggestion is simply before you try to inform people about how the market works, understand it yourself.

 

I don't understand the hate completely. Is it simply because it was bought out by a large company? I mean, I'd hardly call constellation "big beer." Sure they're ranked number 3 in the US, but that's because the grupo modelo brands fell into their lap. They don't have beer in other countries they operate. Right place,right time and they soaked up the top import in the country and another import that's growing like weeds year over year (modelo). They only own the brewery that was part of the grupo modelo deal, and well now BP. Not positive/don't care enough to look, but believe the only thing they've done beer wise with previous brands is the Chelada extension on modelo. Can't hate on them for literally buying a cash cow in the modelo deal.

Anyhow, good for ballast point, that's some huge money.

 

If you really wanna stick it to AB, buy it. Modelo and corona are a few of the biggest reasons for loss of sales of bud and bud light. An ABI person walks into a store, they blow fuses if there's more displays/awareness of those Mexican beers than their product. You need to edit that book

 

The valuation makes no sense without an enormous continued increase in sales. (And the corresponding increase in production facilities to support that.) Constellation says this deal will add $0.05 a share in 2017. That means they are expecting profit from operations to be just over $8.5 million. Maybe I'm just too conservative in my investing, but someone is using extraordinarily rosy projections to make their numbers work. Even if they were able to double both their margin and sales it still is over valued.

Kudos to the people at Ballast Point though. I would sell out for that kind of stupid money in a minute.

Oh, and as long as the quality stays up and distributors don't hold cans for ages I'll still buy plenty of grapefruit sculpin.

 

Goodbye BP, you will be missed. I loved your beers, but not anymore... Am I cool now, guys?! xD


Anyway, Just like with Lagunitas, if their beers taste the same, I will keep buying them.