How Hazies Stopped Ballast Point
Constellation is coming in for some pretty thick Schadenfreude following the company’s announcement last week that it was closing down some Ballast pubs and stopping construction of another. No one loves buy-outs, but when Constellation paid a billion dollars for Ballast Point in November 2015, it really rubbed people the wrong way. It was peak Ballast then, as the San Diego brewery was enjoying explosive growth thanks to the fruit IPA trend and charging $15 a sixer for it. Because of these things, no one seems to feel very bad for Ballast right now.
Here’s a confession: I wasn’t one of the nay-sayers. I wrote at the time that I understood the company’s logic and didn’t think it was crazy. That may have been second only to my conviction that Trump could win the election in terms of epic miscues. And yet, Ballast’s collapse gives us an opportunity to revisit the deal and see where it went sideways. One mistake was on Constellation; the other illustrates the vagaries of the beer biz.
In 2015, craft brewing had been on a decade-long cycle of incredible growth. Volume nearly tripled between 2006 and 2015. Goose Island IPA, brewed at AB plants and distributed at a discount nationwide, was growing at 250%. Constellation wanted to enter the craft segment, and ABI had illustrated the advantages of buying breweries outright. The company chose Ballast Point, clearly (now) overpaying but relying on three hypotheses: 1) that IPA was going to be the future of craft, 2) that there would be a small number of breweries able to seize and hold a national market, and 3) that Ballast Point, with its San Diego cachet and red-hot Sculpin brand, was the best vehicle to go national quick. The billion dollars secured what looked to them like the strongest IPA maker in 2015.
Complimentary trends quickly revealed the faults of this thinking. The first, which I don’t think anyone saw at the time, was the idea anyone could create a national IPA brand. There were around 4,500 breweries when the deal was struck; another 3,000 have opened in the forty months since. In that time, Goose IPA did go national, but has been in decline since. Much of the growth in the craft segment has been with new breweries selling hyper-local. Goose Island may be available naitonwide for years to come, but that will come at the cost of being a discount IPA. Ballast’s preposterous retail price was never going to survive a sustained national campaign, even if some breweries were able to establish national brands. (Though Constellation was at least correct in betting in IPAs.)
But the really big mistake was missing the trend on the other corner of the country. Just at the moment Constellation was gambling everything on grapefruit IPAs, hazies were entering the national consciousness. This was the more deadly error. San Diego IPAs are essentially the inverse of hazies: they’re sharply bitter, they feature a hop palate of citrus-pine, they’re clear or nearly so, and they favor neutral yeasts. Hazies represented an evolutionary leap forward, harnessing new-wave hops for densely tropical aromas, and hopping techniques that de-emphasized bitterness for fruitiness. High-ester English ale strains had the side-effect of making heavily dry-hopped beers cloudy.
Big deals like the acquisition of Ballast Point take months or years, so the hazy thing wouldn’t have been nearly as prominent when talks started. Still, any company making billion-dollar bets have to account for trends, and Constellation totally missed the haze craze.
No brand was more identified with the (old) San Diego school than Ballast, so this represented some very bad timing. But it’s worth considering those forty months to see just how radically the market shifted. I wrote my first post about hazy IPAs a bit after the acquisition. A year after the deal, breweries were still flooding the market with grapefruit IPAs and calling it “innovative.” Meanwhile, craft beer growth has stalled out—a predictable cyclic event, but one which came exactly at the moment Ballast was trying to create a national footprint.
And finally, the two trends were complimentary accelerants for each other. The more big brands groped for national markets, the more their beers seemed mainstream and passe. Meanwhile little breweries have feasted on sales of small-batch IPAs that siphon sales away from supermarket brands. Whether “independent” means anything to consumers is an open question, but the market is nevertheless fueled by new, local breweries selling pints and cans from their taprooms.
Everyone was right: Constellation was crazy to pay a billion dollars for Ballast. But it’s an interesting thought experiment to consider what might have happened if hazies hadn’t come along.