What feels like the worst kept secret in craft beer industry circles was finally revealed yesterday, as MillerCoors announced it would acquire a majority stake in fast growing San Diego craft brewery, Saint Archer Brewing.
Financial terms were not disclosed, but a recent Wall Street Journal valuation estimate, which pegged craft brewery multiples at $1,000 per barrel, could mean Saint Archer fetched as much as $35 million — In a press statement, MillerCoors said the company expects to produce 35,000 barrels in 2015.
Rumors of a deal between to the two companies surfaced in late July and, at the time, both companies declined to comment on the validity of the speculation.
For MillerCoors (a joint venture between SAB Miller and Molson Coors Brewing), the deal with Saint Archer represents the first major investment in a craft beverage company since it purchased Crispin Cider in February 2012. The year prior, MillerCoors — via its Tenth and Blake craft and import division, which at the time was led by former CEO Tom Cardella — purchased a 25 percent equity stake in Athens, Ga.-based Terrapin Beer Company.
The deal also marks the second craft investment this week in what has become a dynamic and important California marketplace — Heineken International announced it would purchase 50 percent of the much larger Lagunitas Brewing on Tuesday.
The regional significance can’t be understated. California is home to more than 570 craft breweries and there’s another 240 in planning, according to the California Craft Brewers Association. Collectively, those companies are disrupting the retail landscape and making it more difficult for outside beer companies to succeed. In their latest earnings calls, both Boston Beer and Craft Brew Alliance detailed their own challenges to growth in California — CBA’s Andy Thomas called the market “hyper-competitive.”
Who is Saint Archer?
The company launched in April 2013 with a fairly standard set of core craft items – a blonde ale, pale ale, white ale and IPA. Co-founder and CEO Josh Landan, an action sports filmmaker with ties to that industry, helped secure significant investments from popular skateboarders and surfers to initially help get the brand off the ground.
Focusing intently on its identity and strong branding, Saint Archer launched in San Diego to some skepticism from the local brewing community. Many typecast the brewery as nothing more than a “marketing company,” and some prominent San Diego brewers in the area questioned their intentions in craft, wondering how a company with celebrity “brand ambassadors” (investors) – pro skaters Paul Rodriquez, Eric Koston and Mikey Taylor, among many others — would act in the marketplace.
Despite the criticism, Saint Archer attracted top-level brewing and sales talent from the onset. It hired Jeff Hansson, the former national sales director from Coronado Brewing, as its vice president of sales. Kim Lutz, who had previously brewed at Hawaii’s Maui Brewing, was hired as Saint Archer’s head brewer and, months later, the company tapped Yiga Miyashiro, who brought experience from Port Brewing/Lost Abbey as well as Pizza Port Brewing Company, as its director of brewing operations.
The moves paid off. In its first six months, the company secured over 700 draft handles and 1,800 retail placements. In 2014, the company would ink partnerships with prominent music and sporting venues like Sleep Train Amphitheatre and Dodgers Stadium. It won a gold medal for its White Ale at the 2014 Great American Beer Festival and quickly scaled company-wide production to 17,000 barrels.
The Deal
In a call with Brewbound, Landan said he wants to “bring premium craft beer to as many people as possible,” noting that MillerCoors brings resources that will help the company scale.
“The way they speak about craft and what they want to do with craft is in line with my vision as well,” he said.
For his part, Scott Whitley, who took over as CEO of Tenth and Blake last September, said a deal with Saint Archer will help fill gaps in a Tenth and Blake portfolio that is led by the Blue Moon and Jacob Leinenkugel brands.
“We are leaning towards hoppy styles right now,” he said. “The credentials of California brewers as makers of great craft beers, particularly hoppy beers, are second to none right now. This gives us a chance to partner with a company that offers a complimentary suite of beers.”
Indeed, at a time when IPAs are driving much of craft’s growth – sales are up 45 percent according to market research firm IRI Worldwide — Tenth and Blake doesn’t have a brand that is identified with being hop-forward. Instead, the portfolio is more heavily skewed towards lighter offerings like shandies, American wheat ales and imported lagers.
According to IRI, Tenth and Blake sold 12.4 million cases of beer to multi-outlet and convenience stores year-to-date through August 9. Of that, about 7.5 million cases were Blue Moon Belgian White and Leinenkugel Seasonal Shandy.
“I really respect what MillerCoors has done with Blue Moon and Leinenkugel,” Landan said. “They took care of those brands and treated it like a craft beer should be treated. That was really appealing to me.”
But those brands are in decline in California as Mexican imports and fast-growing locals continue to wreak havoc on just about every other offering. For the 52-week period ending July 26, sales in multi-outlet and convenience stores for most MillerCoors craft brands are down, according to IRI Worldwide. The Blue Moon brand family was down 4.6 percent and the Leinenkugel brand family was down 5.5 percent.
Saint Archer, meanwhile, was up 137 percent during that period and it is poised to overtake other MillerCoors brands like Crispin and Peroni. It’s already larger than Third Shift, which was down more than 50 percent in that period.
“California is where trends start,” Whitley told Brewbound. “Brands that go west to east have a pretty good run. So, if you’re looking at regional markets to build and start a business in, that right there was incredibly attractive to us.”
Next Steps
In a note to wholesalers, Whitley said Saint Archer would operate as a separate business unit under Tenth and Blake’s leadership.
“They’ll have access to the resources of Tenth and Blake, and MillerCoors, to help realize their long-term aspirations,” Whitley wrote. “In the short term, we’ll focus on ensuring Saint Archer has the capacity to support its strong growth, as well as ways of working together on items ranging from procurement to sales and distribution. For now it’s business as usual for Saint Archer.”
Saint Archer won’t immediately look to expand its footprint, the pair told Brewbound.
“The upside in California alone is significant,” Whitley said. “It’s a key beer state with rapid growth we have to make sure that the home market is in good shape from a supply standpoint.”
So, to set Saint Archer up for continued success at home, MillerCoors will help the company move away from a 30-barrel brewing system that is nearly “maxed out,” Landan said.
“We have a 200,000 barrel capacity footprint in San Diego, but you reach a certain point where the 30-barrel system isn’t good enough anymore,” Landan said. “We are pushing the current system as hard as we can. It will be nice to have a partner like MillerCoors as we grow. We’ve never scaled a brewery to 200,000 barrels and the expertise they have building out a world-class facility was attractive to us.”
Once the additional capacity comes online, Saint Archer will also look to leverage MillerCoors’ retail chain penetration, Landan said. Most of the company’s product is currently sold on-premise and through independent retailers and only 10 percent is sold through “the big off-premise chains.”
“We are going to be really smart, thoughtful and strategic,” said Whitley. “We want to enable growth, provide scale and support from our end and continue to dial up the quality of the products as well as the opportunities down the road.”