Following Carleton McKenna’s January 2023 release of the Craft Brewery Outlook for the next five years, here’s how Q1 and Q2 forecasts are rolling out:
- Large an regional brewers will continue consolidating to:
- Expand their geographic reach and customer base,
- Support premiumization strategies,
- Diversify brands and expand range of products (beer and non-alcoholic beverages),
- Open doors and opportunities for growth in an increasingly competitive and maturing market.
We’re seeing a trend of small breweries — often, legacy breweries — merging with similar-sized peers, either competitors or out-of-market.
Numerous craft brewery acquisitions were announced in April 2023, covering New Jersey to California. For example, California-based Bear Republic Brewing and Drake’s Brewing are set to merge, with Drake’s acquiring all formulas, recipes, and intellectual property¹. Similarly, Georgia-based NoFo Brew Co. acquired Tantrum Brewing’s 10,000 sq. ft. facility in Cleveland, Georgia, including all land, and brand assets within the business’ operations¹.
Cleveland-based Saucy Brew Works (“Saucy”) acquired Cartridge Brewing, another Ohio-based craft brewery in Kings Mills. This partnership will combine craft beer offerings between both brick-and-mortar locations in Ohio and provide additional production capabilities to both businesses outside their respective geographic reach².
Further, Rochester’s FX Matt acquired Maryland-based Flying Dog in May 2023. This acquisition will shift Flying Dog’s production to FX Matt over the remaining summer months before ceasing all operations in Maryland. FX Matt is expected to continue making investments following their recent investments over the last five years, which included a $35 million brewhouse and tank farm expansion in 2021³.
- Simultaneously, we see major brands looking to divest segments of their craft beer businesses to:
Focus on driving accelerated growth of core portfolios,
Fuel innovation in key spaces to develop pipeline for strong brands,
And limit underperforming brands impacted by the pandemic, inflation, and highly competitive market.
Constellation Brands has continued to focus on the success of their Mexican import brands including Modelo, Corona and Pacifico while divesting in their craft and specialty divisions. 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 – Brazil already showing a strong foothold for profit.
Japan’s own Sapporo Holdings will close Anchor Brewing Company in San Francisco due to the after-effects of the pandemic, rising inflation and further economic difficulty of rising material costs, rent, labor and many other variables. This comes after reports stating Sapporo saw a lack of interest from potential buyers within the craft brewing space⁴.
- Deals are less frequently craft-on-craft.
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 Rutledge⁴.
Additionally, Ninkasi Brewing out of Eugene, Oregon, has consolidated with Wings and Arrows, an alcoholic beverage brand offering a variety of canned cocktails. Ninkasi had a tumultuous history prior to the pandemic and this venture under newly formed Great Frontier Holdings hopes to continue the brewery’s legacy⁵.
- “Rising health consciousness is boosting consumer sentiment toward non-alcoholic beverages⁶.”
With cannabis-based Tilray, we saw an entrance into the craft brewery space via acquisition of eight AB InBev brands, which may shift forecasted consumer sentiment, though likely not until the end of 2023.
AB InBev is racing toward a better market position as they continue to put focus on the Beyond Beer portfolio. According to Q1 2023 reports, Beyond Beer products delivered $325 million in revenues and is expected to increase by year end.
Oregon’s Deschutes Brewery announced the addition of a new non-alcoholic IPA that will be produced in-house. This product shift will allow Deschutes to scale and package an expanded portfolio of non-alcoholic beverages in the future, in addition to realizing the value of their investment into Sustainable Beverage Technologies’ BrewVo equipment³.
Three Weavers Brewing Company, an avant-garde craft brewery based in Inglewood, California, announces the launch of two aesthetically innovative product lines: GRDN PRTY, a cocktail-inspired flavored malt beverage and NA – Three Weavers Non-Alcoholic Brews. These new offerings meet the demands of health-conscious and flavor-seeking individuals in the ever-evolving alternative beverage landscape¹.
Over the next five years, AB InBev, Tilray, Deschutes, Three Weavers, and many other beverage companies – both alcoholic and non-alcoholic – will continue to demonstrate their market strategies in the development of blue ocean products and greater revenue opportunities, with a push to increase global reach.
- “A trend toward premiumization, which will be fostered by rising disposable income levels, will encourage consumers to trade up to more expensive beverages⁶.”
According to the Brewer’s Association, premiumization is reflected in higher priced brands that are seemingly performing ahead of the curve. Momentum has yet to slow down, however the stronger brand will be able to charge more for their product, and therefore promising a gap between producers⁷.
For example, AB InBev is poised to gain from product premiumization through their Beyond Beer and international growth tactics. The company’s three global brands – Budweiser, Corona, and Stella Artois – advanced 15.4% outside of North America in Q1 2023 alone. AB InBev’s Beyond Beer portfolio consists of non-alcoholic or low alcohol beverages such as Cutwater, NURTL, Rita, and Hoop Tea⁸. Though these products align with the traditional alcoholic beverage items, this portfolio is aimed directly at health conscious, major markets with the capacity to spend more for premium products.
Over the last 7 months, market activity has aligned closely with forecasted industry performance and evolving consumer expectations. Given the close adherence to future forecasts, we expect additional mergers and acquisitions within the space and further shifts in the market landscape. Major industry players are only just beginning to develop their new market positioning strategies. What could this mean for industry segmentation opportunities and smaller producers in the coming years?
