Editor’s note: A version of this story appeared in the March issue of BevNET Magazine.
In the last 16 months, Anheuser-Busch InBev has acquired three craft breweries in three key beer states.
In January, it purchased Elysian Brewing in Seattle, Wash. That came less than three months after it acquired 10 Barrel Brewing in Bend, Ore., and a full 12 months after it bought Blue Point Brewing in New York. Those three breweries joined Chicago’s Goose Island, which A-B acquired in 2011, in a high-end division that also includes imports like Stella Artois, Hoegaarden and Shock Top.
And while specific financial information is only known for the Goose Island purchase – A-B spent $38.8 million – sources familiar with the company’s acquisitions estimate the brewer has spent upwards of $200 million to purchase its four craft brands.
Nevertheless, the question on nearly every craft brewer’s mind is “what’s the strategy?”
Andy Goeler, A-B InBev’s CEO of Craft, is the man tasked with shepherding all of these newly acquired brands. Over the last four months, Brewbound has asked Goeler, on multiple occasions, to elaborate on the company’s dealings in craft.
Specifics are hard to come by, but Goeler has at times indicated that the company’s acquisitions are driven in part by a recognition that its current set of offerings aren’t keeping up with the times.
“We want to make sure that we are providing a relevant portfolio of brands to our distributors and consumers,” Goeler told Brewbound in March. “As the industry evolves, and it is always in a state of evolution, we need to continue to evolve our approach to the business.”
Buying smaller breweries, Goeler said, is a “good way for us to continue to stay on the cutting edge of an industry that is providing those kinds of products.”
Not that Bud has been completely ignoring craft – its Shock Top brand, a Blue Moon rival, has grown from 1 million to 5 million cases since it was introduced in 2010, and has helped fuel many debates about what exactly comprises craft beer, but still, acquisitions are a much faster way to fill out the menu.
Buying smaller breweries, Goeler said, is a “good way for us to continue to stay on the cutting edge of an industry that is providing those kinds of products.”
Goeler has never revealed any specific formula behind the acquisitions, but in addition to changing consumer tastes, he ceded that proximity to those consumers is also a factor.
“We really try to hone in on the people that love more of a local connection,” he told Brewbound. “That is where these craft breweries come into play. Our ability to acquire some of these local crafts gives us a chance to appeal to the local craft consumers.”
It’s not clear that the company is deliberately taking a regional approach, but that’s how things have effectively evolved.
For now, Goose Island serves as the company’s “national” craft play while brands like 10 Barrel, Elysian and Blue Point focus on competing against independent regional crafts.
“Goose [being] national and having these strong regionals is a nice model for us,” he said at the Brewbound Session in Chicago. “It definitely plays against the demand for local.”
Regional acquisitions, Goeler said, gives A-B an opportunity to address local consumers and meet a wide range of flavor demands.
Collectively, the four states where A-B has already made acquisitions sell more than 22 million barrels of total beer annually, or about 10 percent of the entire U.S. beer market, according to figures from the Beer Institute. Other areas of the country where beer volumes are highest, California, Texas, and Florida could also be on their radar.
The brands that A-B has purchased, however, represent much less volume, and are nowhere near the top-producing breweries in their regions, or even their core markets (Goose Island excepted).
“I believe they are trying to acquire some regional breweries that have some good capacity but also have some constraints,” said Joey Redner, the founder one of Florida’s largest craft breweries, Cigar City Brewing.
Redner himself had a run-in with A-B last September. He and a colleague met with an A-B executive at his Tampa brewery to discuss a potential acquisition. Redner told BevNET that Cigar City was not and is not for sale, but that he took that meeting as a professional courtesy.
“You always take the meeting,” he said.
While an increasing number of breweries are indeed taking that meeting, others are worried by the prospects of having Bud buy up craft breweries and run that product through its system.
“I do think the world’s largest breweries are disingenuous in their intentions moving into the craft beer world,” Dogfish Head founder Sam Calagione told Men’s Journal in February. “They’ll buy a once-independent brewery – not naming names – and suddenly its IPA’s kegs are on the street for half as much as a true indie craft beer. It really shows they’re using these once-craft brands as pawns in their game to knock the true indie breweries off the board.”
Goeler disagreed.
“Disingenuous? Are you kidding me,” he said in March. “We wouldn’t be spending the money we are spending to purchase these craft breweries. We are beer lovers and we are business people. Yes, we are buying up craft breweries to add to our portfolio because that is what consumers are demanding. Over time, we have to continue to prove that we are in this for the long haul.”
“We are not trying to knock the bottom out of the craft segment,” he added.
It was a point Goeler also made at the Brewbound Session in June.
“There isn’t a volume goal or a share goal for us in the high-end,” he said. “Our goal is to continue to elevate beer as an industry.”
Nevertheless, efficiency is playing a role; one more characteristic of the last three brewery purchases has been that they have been in one of the 17 markets where A-B owns its own wholesaler. Putting Bud-owned beer on Bud-owned trucks has to have the potential to increase profitability – and it might be a way to enforce loyalty throughout its distribution network, as well, by offering a bigger family of products, possibly to the exclusion of others.
In the past, Goeler has said that craft acquisitions were “not driven by a distributor footprint as much as it is a great portfolio and company in terms of what they want to achieve.”
But Goeler said during one recent interview with Brewbound, “We are very biased about A-B wholesalers. One thing that is important to us is the wholesaler footprint. That is a key point in the decision process. Is it aligned more on the A-B side? We want these brands to eventually be in our distribution network.”
At the Brewbound Session, Goeler described the distribution component as a “critical piece” of the decision process and was asked if unraveling an unaligned and complicated distribution structure would be a deal breaker.
“Absolutely,” he said. “We want to work with our distributors. It is a critical piece of the success. We’ve talked to a lot of different craft businesses and owners and some of them, when they get big, start to have too much of a competitive distribution system in their mix. That is something that we look at.”
Regardless, craft is something that’s on the mind of Bud and its entire network – independent and wholly-owned – these days.
A-B executives have reportedly told distributors that the company will more strictly enforce its equity agreements in 2015, which could mean increased pressure to sell only A-B-owned crafts.
“We expect them to put maximum efforts behind the brands we own,” Goeler said.
That doesn’t mean that distributors are only going to take on Bud’s portfolio of craft, however. They’ve found that the new players are too important.
“I don’t think our craft partners really see A-B as a threat,” said Kimberly Clements, the president of Golden Eagle Distributors in Arizona, an independent A-B wholesaler. “Our goal is to grow our entire portfolio, not just a few brands, and we are going to do what is right for our marketplace.”
Prior to 2006, Golden Eagle participated in A-B’s exclusivity incentive program, selling only A-B products in exchange for a bonus on every case of beer sold. But, Clements said, the company “saw some advantages to selling other products,” and moved into craft, sales for which today comprise about 10 percent of the company’s 10 million-case business.
How much of that business Bud eventually expects to be from its own portfolio is still in the offing, but, Goeler said, opportunity is still out there.
“We definitely make some calls but we also get some calls,” Goeler said. “We are always talking.”
So who will A-B buy next? Goeler isn’t sharing.
“There are a lot of good conversations going on, so we’ll see,” he said.