When Big Breweries Sell Out, It’s Bad For Little Breweries
We’ve been having an interesting conversation since the sports drink conglomerate Monster purchased Canarchy last week. On Tuesday I discussed how rare it is for independent breweries to remain independent once they reached a certain size. I was surprised to hear many drinkers respond with a bitter shrug: who cares what happens to bigger breweries anyway?—they’ve already sold their soul for growth.
That wasn’t the response of brewers themselves, though. In an immediate reaction, Barley Brown owner Tyler Brown fired off this comment, which captures a lot of their anxiety: “‘Independent.’ 🙄Coca-Cola owns Topo-Chico Hard Seltzer. Coca-Cola owns 19.3% of Monster, and is the preferred global distributor of Monster. Now Monster and partner Coca-Cola own Canarchy. I wonder, will Canarchy struggle with aluminum can supply the same way as their fellow small independent craft brewers do?”
With 9,000 breweries in the US all buying from the same ingredients and equipment brokers and all trying to use the same, few (and quickly consolidating) wholesalers to get to the finite number of retail sales points, the industry is tightly interconnected. Canarchy isn’t a butterfly flapping its wings in Japan: it’s another front of storm clouds gathering overhead. Canarchy does not exist in a vacuum.
I have been exchanging texts and emails with brewers about this, and I’d like to post an especially lucid comment I received from one of them. It ably describes the crunch of all this consolidating. The writer wouldn’t mind me using their name, but I think it might be better to leave it unsigned. It’s really good, and the words don’t depend on knowing who wrote them. I will say it’s a small and independent Oregon brewery.
“I’m sure you remember when small brewers would say to each other, ‘it’s only a matter of time before AB decides to crush us all.’ Well that didn’t come true, obviously. But with more and more of the old stalwarts selling to corporate America (or Japan or Brazil) it’s starting to feel like we’re a bit of an embattled industry. The Canarchy thing feels different because it’s coming from out of the alcohol space. But then again, I guess the Southern Tier/Victory thing [Artisanal Brewing Ventures] is a bit like that with outside money. And I guess Canarchy was always Fireman Capital or whatever. Either way, I think the revolution is ending. There will remain small breweries, but [the Brewers Association’s] dream of 20% independent is completely out of reach now. I could see in 5 or 10 years the share of independent, non-corporate or non-conglomerate (Sam Adams/Dogfish, etc) breweries dropping down to the 5% level in terms of total barrelage. It would be like the ‘90s and early 2000s again.
“I don’t feel like Chicken Little. There will still be LOTS of ‘better beer’ out there. Just that the idealized, independent brewery is falling away.
“[For] breweries in the 30,000 + BBLs area, it’s going to be rough if they’re not A) Sierra sized, or B) Teamed up with some others. The problem with the distribution tier, when I think about it, is that for those breweries it’s very hard to find a ‘right sized’ distributor that isn’t aligned with Anheuser-Busch or Molson Coors. And all of the breweries that grew to be that size needed to work with an AB/MC distributor to get there. So when Deschutes, or Pfriem or Ninkasi or Freemont or Ft George or maybe even Ruebens goes into a new market, they need a distributor bigger than one that survives on breweries our size or smaller. And that only leaves AB/MC distributors. If they go with a Point Blank [a small craft distributor] in a new territory, that distributor is probably dealing with a large number of local small breweries, as well as some ‘nearby’ ones as well. A ‘larger’ brewery signing with them can only expect sales equal to a small brewery’s sales from that distributor. But—and it's a big but—not only is 1000 BBLs not that meaningful to them (if they're lucky to move that much out of their home territory), they also need to have a full-time sales person to get beyond 1000 BBLs in the new territory. So is it really worth it? Particularly when every brewery that has ‘gone corporate’ in that territory probably has huge advantages in scale efficiencies locally. It's going to be a big squeeze. Yikes!
“Which brings me back to my ‘shrinking independent breweries’ hypothesis. If you look at the breweries that are truly independent—with no joint ownership of any sort, making only one brand of beer—I think they could easily very soon make up only 5% of the market again. Sure there's a lot of room for 300 - 10,000 BBL breweries in that 5%. But I fear for the little-bit-larger craft breweries that try to go it alone, those in the 20,000 - 200,000 BBL range. Sam Calgione was rather prescient when he talked about not wanting to be a ‘middle fish.’
“And to your point about cities with multiple unaffiliated distributors, due to economies of scale, once you have an AB and a MC distributor, every other distributor ends up being pretty small. The mid-sized breweries there are going to eventually get destroyed by the ‘sellouts’ and ‘team-ups.’ It'll all end up being ‘if you can’t beat ‘em, join ‘em.’ We’re out of the goldilocks period of the 2010s.”
I’ll close by adding a counterfactual. Imagine a world in which there are a couple dozen independent breweries making 300,000 - 2m barrels a year. Their intention is not to drive prices ever lower or crush their competition. They have a stake in the “better beer” industry thriving and growing. Because of their size, ingredient and equipment vendors are keen to have their business. They make attractive targets for wholesalers as they expand. This would create the reverse dynamic from the one described above. Whether you owned a brewery selling a thousand or a hundred thousand barrels, that would be a more favorable environment. So even if you think the Sierras and Deschutes are already sell-outs because of their size, recognize that if there were more of them around, it would be good for the breweries you did care about. Consolidation at the upper tier is not going to be good for small breweries.