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Strategic Partners Won’t Doom Craft Brewing

Brian Mulvaney

The amount of change in the craft beer industry has been rapid, vast and disruptive over the past 10-plus years. Craft-beer-centric regions like San Diego, Colorado and the Pacific Northwest have been particularly exciting and even other historically less craft-beer-centric regions such as Austin, Atlanta, Chicago and Ashville have turned into new craft hubs, complete with craft beer tourism.

Some of the revolutionary craft founders have sought the security of a strategic partner while many others have pushed for continued independence. One certainty is that craft beer is now available everywhere, from the taco stand, to the ballpark, to fine dining restaurants and of course to the ever sprouting local brew-pubs. This has to be one of the best times in history to be a lover of craft beer and a partner to the industry, like Bank of America Merrill Lynch, given the sector’s continued growth.

Funding Growth

Not that long ago there were a number of entrepreneurial brewers who were trying to figure out how to convert their passion for home brewing, bolder tasting beer and fierce independence into actual brewery businesses that could support their employees and families. This group of entrepreneurs who own breweries — such as Stone Brewing Co., Lagunitas Brewing Co., Brooklyn Brewery, Widmer Brothers Brewing, The Boston Beer Co., Dogfish Head Brewery and Anchor Brewing Co. — changed not only how Americans enjoy their beer, but how the world does.

Some of these breweries went from trying to scrape up a few million dollars to make payroll and buy hops to having some of the largest global brewers offering them staggering amounts of money to acquire or partner with them. Other brewers have been able to find institutional investors such as private equity and family offices that have provided the owners with some well-deserved payout while allowing them to continue to grow.

There have been mixed reactions to many of these transactions by both the craft beer industry players and the consumers who feel that the core craft culture and entrepreneurial spirit were somehow compromised or “sold out.” Yet it could be argued that many of these craft brewers in fact have actually pursued and accomplished the American dream and should be applauded and admired for pursuing their dream and passion, creating a successful business and reaping the financial security for themselves and many of their employees.

Next Generation of Brewers

The beer industry is certainly much more competitive and challenging for the next generation of entrepreneurial brewers, yet their ability to secure capital and know they have options in the future has never been better. The new challenge facing both the new and older craft brewers will be that of self discovery in determining what their business and branding models need to be.

With more than 4,000 brewers in the United States, it is most likely that there are already multiple breweries in their local markets and a couple of regional brewers with strong brand recognition and possibly a national brewery in their regions. It is also probable that there are existing breweries with a similar brand, lifestyle or geographic identities.

It will be much more difficult for any of the smaller brewers to become larger regional or national brewers given that there are now already more than 25 larger regional/national brewers.

Additionally, five years ago the large global brewers such as ABInBev, MillerCoors and Heineken did not have much of a presence in the craft category, but now all three have multiple craft/craft-style brands they are aggressively supporting to capture market share from the independent craft breweries. This is not to say that there is no room for more craft breweries to succeed, rather that the definition of what this success is may be different and how they connect with their avid consumer base will take passion, creativity and innovation.

As the craft industry continues to grow and change both locally and globally, it continues to provide opportunities for both new and existing breweries to succeed on a local, national and now global basis with unprecedented access to capital and wealth.

Brian Mulvaney heads the Beverage Finance Group of Bank of America Merrill Lynch.

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