Albeit with Selective Palettes
We’re seeing a trend of small breweries — often, legacy breweries — merging with similar-sized peers, either competitors or out-of-market.
Strategic buyers have driven transaction activity through YTD 2023, comprising >90% of total deals, per Carleton McKenna’s transaction analysis. Key motivations for consolidation include penetrating new geographies and channels, production capabilities and capacity, product diversification (both in alcohol and NAs), greater revenue opportunities and achieving economies of scale.
Private equity and financial sponsor buyers, which comprised a small amount of transaction activity YTD 2023, have been largely overshadowed by strategics in the brewery sector. Lack of synergies, tighter lending markets and high valuations have made it difficult for targets in this sector to meet a financial sponsor’s investment thesis.
Non-craft Businesses Enter the Craft Market
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With cannabis-based Tilray, we saw an entrance into the craft brewery space via acquisition of eight AB InBev brands. This may shift forecasted consumer sentiment, though likely not until the end of 2023.
Similarly, Bayou City Hemp purchased 8th Wonder Brewery & Distillery in June 2023¹. The acquisition deepens a relationship that had been established in 2021, when both businesses partnered to develop and release a CBD-infused non-alcoholic beverage. 8th Wonder’s super market partnerships with H-E-B, Walmart, Kroger and many other outlets will enable the full lineup of beer, spirits and cannabis-infused drinks to take prime shelf space across the United States.
South Carolina-based Striped Pig Distillery (“SPD”) partnered with Ghost Monkey Brewery (“GMB”) to develop a special addition beer, “New BeGINnings,” a Belgian Wit style beer that combines SPD’s award-winning gin with GMB’s microbrewery capabilities². The success of this collaboration was a precursor to SPD’s acquisition of GMB shortly thereafter in late May 2023.
Though acquisitions have been a main focus for companies already operating in the craft brewery space, these examples of non-craft partnerships have illuminated the synergistic possibilities for non-craft businesses entering the segment. Carleton McKenna expects a continuation of cross-market product releases combining craft and non-craft offerings, which may serve as a test trial for some future acquisition partnerships.
Penetration into the Spirits Market
Molson Coors recently announced its acquisition of Blue Run Spirits, solidifying the brewer’s market approach going forward. As a boutique whiskey brand, Blue Run’s limited-release business model is expected to continue attracting customers – especially with their production being overseen by Bourbon Hall of Famer, Jim Rutledge³.
Similarly, Constellation Brands has continued to focus on the success of their Mexican import brands including Modelo, Corona and Pacifico while divesting within their craft and specialty divisions. Not only has Constellation Brands increased international focus, but they have also invested in female- and minority-owned businesses operating in the alcoholic beverage sector. Following in the footsteps of Constellation, AB InBev divested its craft beverages in favor of pushing the sale of their Beyond Beer portfolio in South America – with Brazil already showing a strong foothold for profit.
Though not wholly identical in strategy to ABInBev and Molson Coors, Constellation Brands has focused significant M&A activity towards the premiumization of wine products. In June 2023, Constellation Brands acquired Domaine Curry, a luxury wine brand from Coup De Foudre Napa Valley. Further diversification outside of the traditional brewery space will allow Constellation to enhance its already powerful portfolio of wine under their subsidiary, The Powerful Wine Company. The company has reshaped its wine and spirits portfolio to become a leading global premium, fine wine and craft spirits house of brands that align with today’s consumer preferences. With this acquisition, Constellation Brands Wine & Spirits will continue to target strategic growth through a global omni-channel strategy, including U.S. wholesale and international channels, and DTC acceleration⁴.
In the same vein of strategic partnerships between craft and non-craft businesses, Constellation Brand’s became a minority investor in an alcohol free brand, Töst in May 2023. Töst is a carbonated water, white tea and herb beverage that does not go through fermentation at any point during its production process. Töst’s CEO, Brooks Addington, said regarding the acquisition, “We believe our mutual consumer-centric focus and desire to deliver premium product experiences positions Töst for exponential growth in the coming years.”⁵
Even traditional beverage company, Coca-Cola has capitalized on the desire for spirits-based drinks with an array of spiked offerings in the past two years, including Topo Chico Hard Seltzer, a Jack Daniel’s and Coke RTD cocktail and a newly announced Absolut Vodka and Sprite cocktail which will debut in 2024⁶.