Constellation Brands is exiting the craft beer business. Constellation, which has found success with Mexican import brands Modelo, Corona and Pacifico, said it will divest of its craft and specialty division to refocus its efforts on its core brands.
“As the industry evolves, trends throughout the craft beer segment have changed significantly and we have therefore made the strategic decision to bring our dedicated Craft & Specialty efforts to a close and transition our remaining brands so that we may focus on driving accelerated growth for our core portfolio, while fueling innovation in key spaces to develop a pipeline of strong brands for the long term,” a Constellation Brands spokesperson told Brewbound.
As part of the exit, Funky Buddha Brewery in Florida and Four Corners Brewing Co. in Texas will return to their respective original founders.
Ryan and KC Sentz, the founders of Funky Buddha Brewery, announced their deal for the Overland Park craft brewery in a press release this afternoon. Financial details of the transaction were not disclosed, but it is expected to close in June.
“As we approach our 10th anniversary, it seems like the perfect time for our business to evolve and reignite the community’s passion for craft beverages,” KC Sentz said in the release.
“We enjoyed working with Constellation and we learned a lot from them,” Ryan Sentz added. “As we embark on the next chapter, we plan to push boundaries and create entirely new drinking experiences in beer and beyond. We’ll be serving good vibes on tap for many years to come.”
In announcing that they were buying back the company, the Sentz brothers said Funky Buddha under their control will “focus on beverage innovation, new consumer experiences, and additional product lines.” Floridian wheat beer and Hop Gun IPA will remain the brewery’s flagship offerings and continue to be sold throughout Funky Buddha’s distribution footprint, while the brewery adds new beers to its portfolio.
The reacquisition of Funky Buddha comes after a year of double-digit production volume loss for the craft brewery, which produced 37,500 barrels of beer in 2022, a -14% decline year-over-year (YoY) according to the Brewers Association (BA). The decline followed what appeared to be a bounce-back year for the brand in 2021, when it increased annual production volume +15% after a -10% decline in 2020.
Constellation acquired Funky Buddha for an undisclosed amount in 2017, which at the time was producing more than 31,500 barrels annually. The Florida brewery joined previously acquired Ballast Point within Constellation’s craft portfolio, which Constellation acquired for a blockbuster $1 billion in 2015. Constellation later sold San Diego-based Ballast Point to Chicago-based Kings & Convicts in a $41.1 million deal announced in 2019 and closed in 2020.
At the time of the Funky Buddha acquisition, Constellation leadership expressed a desire to purchase a brand in an existing key market, in search of craft brands that worked in markets where Constellation’s existing brands, such as Mexican import brand Corona, sold well. One year later, Constellation acquired Dallas, Texas-based Four Corners Brewing.
In the fourth quarter of fiscal year 2023, Constellation recorded an impairment charge of $66.5 million for its craft beer division, according to a 8-K form filed with the U.S. Securities and Exchange Commission (SEC) earlier this year. That charge most likely pertained to Funky Buddha, whose acquisition price was included in $149.1 million reported in Constellation’s 2018 annual report for the purchase of the craft brewery and Schrader Cellars.
Constellation previously recorded a $6 million impairment charge for Four Corners, previously valued at $10 million, in a 2021 SEC filing.
Four Corners has posted sharp production declines since its acquisition, with annual production volume declining -52% in 2022, to 5,000 barrels, after a -34% decline in 2021 and -7% decline in 2020. The Texas brewery was producing nearly 12,000 barrels annually when Constellation acquired it in 2018.
Funky Buddha recorded impressive production growth in its early years. In 2013, its first full year in operation, the brewery produced 2,020 barrels, according to data from the BA. Funky Buddha tripled its production in the next two years, putting out 6,769 barrels in 2014 and 19,310 barrels in 2015, according to the BA.
By the time Constellation acquired it, that growth began to level off with +1% growth in 2018, its first full year with the Mexican imports giant.
During its tenure with Constellation, Funky Buddha launched a hard seltzer in Florida in 2020, which expanded to 10 more states in 2021.
Similar to Anheuser-Busch InBev (A-B) and Molson Coors throughout the middle of the last decade, Constellation wasn’t immune to the siren call of craft’s growth. But its acquired craft brands never flourished in a beer portfolio that included Modelo, Corona and Pacifico, which operate under extremely different playbooks.
In 2018, Constellation restructured its salesforce and laid off dozens of dedicated craft beer sales reps.
Funky Buddha and Four Corners aren’t the only acquired craft brands to return to independent ownership. Last week, the co-founders of Appalachian Mountain Brewery bought the company back from A-B after having originally sold it to Craft Brew Alliance in 2018, which A-B acquired in 2020.
Constellation can now focus its attention on its import brands, which continue to drive growth for the company. Constellation’s beer business topped $7.456 billion in net sales in FY 2023 (ending February 28), a +11% increase YoY. The company recorded a +6.9% increase in shipments (sales to wholesalers) and a +7.5% increase in depletions (sales to retailers) in the fiscal year, shipping approximately 389.2 million case equivalents to record its 13th consecutive year of volume growth.
For fiscal year 2023, Constellation is projecting net beer sales to increase between +7% and +9%, with operating income growing +5% to +7%.
Modelo was the No. 1 import brand by dollar share in NIQ-tracked off-premise channels in the last 52 weeks (ending April 22), increasing dollar sales +17% YoY and volume +12%, according to data shared by 3 Tier Beverages. Corona was No. 2, increasing dollar sales +7% and volume +3%. No. 5 Pacifico, below Dutch import Heineken and its sister Mexican import Dos Equis, increased dollar sales +35% and volume +30% in the period.
Constellation expects Modelo Especial to become the country’s best-selling beer in dollar sales in the near future, beer division president Jim Sabia told the company’s beer wholesalers in March.