Entrepreneurs / Small Business  February 26, 2016

NoCo brewers: Acquisition game not all bad for craft industry

FORT COLLINS — Anheuser-Busch InBev’s spree of craft-brewery acquisitions in recent years, including Denver-based Breckenridge Brewery in December, has caused plenty of hand wringing in the craft-beer community.

The trend, many worry, could jeopardize the small and independent culture that the American craft beer boom has been built around, blurring the lines between the little guys and mega brewers like AB InBev and making it tougher for independent craft brewers to land shelf space against AB InBev-owned brands.

At the same time, several Northern Colorado craft brewers on Thursday cautioned against branding those that do sell their breweries to the big boys as “sellouts.” Whether somebody is ready to move on from the business or is looking for an infusion of capital to expand, they said there are many reasons someone might want to sell. They conceded that, like it or not, acquisitions are going to happen in any mature industry.

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The brewers were gathered at Odell Brewing for BizWest’s CEO Roundtable on the brewing industry in Northern Colorado.

“Eventually, somebody’s going to retire,” Odell Brewing chief financial officer Chris Banks said. “So they make some choices that were right for them. I don’t so much see a problem with that.”

The take was an interesting one coming from Banks because Odell, like nearby New Belgium and Longmont-based Left Hand, have gone the route of employee stock ownership plans rather than selling out to larger brewers.

But just because Banks and others at the table Thursday weren’t holding grudges against those who do sell their businesses doesn’t mean they don’t have concerns about the trend in general.

So much of craft beer’s rise, Horse & Dragon Brewing co-owner Tim Cochran said, has been about the quality of the product and fuller-flavored beers, not to mention the unique stories and authenticity about each small brewer. If large brewers maintain the quality of the brands they’re acquiring — AB InBev’s stable also includes Elysian, Goose Island and 10 Barrel among others — that could make life challenging for craft brewers.  He said doing so could also prove difficult for the big brewers over time, however, since they’ve got to answer to shareholders with regard to the companies’ bottom lines.

“The optimistic point of view is we’re going to beat them because they’re eventually going to do something weird with their ingredients to make money,” Cochran said.

Both Banks and Greeley-based WeldWerks Brewing co-owner Neil Fisher said they don’t fear the acquisitions so much as the large companies controlling so much of the distribution chain and access to market. A case in point is AB InBev’s purchase of Loveland-based American Eagle Distributing last year, a move that wiped out a distribution option for many Colorado craft breweries. And that’s one area where brands acquired by big brewers stand to gain an advantage.

Fisher worries the large brewers could go after more than just control of access to markets as well, especially when the supply of resources like hops has at times struggled to keep up with demand in the booming craft beer industry.

“”What happens when they start going after supply lines and not just access to market?” he said.

Playing the acquisition game does have its advantages, some around the table noted Thursday. And it doesn’t have to mean being acquired by an AB InBev or MillerCoors.

Angie Grenz, a co-owner of Loveland-based Verboten Brewing along with her husband, Josh, said she anticipates seeing more instances of larger craft brewers buying smaller craft brewers.

One notable example of that was Longmont-based Oskar Blues, which itself took on a private equity investment to fuel growth, buying Michigan-based Perrin Brewing last year.

Expansion — adding brewing equipment and growing distribution territory is expensive — the Grenzes said. Joining resources with a larger brewery is one way to accelerate those gains without spending as much money yourself. And going with a larger craft brewer rather than a mega brewer has its advantages from a marketing standpoint.

“It doesn’t hurt the brand as much,” Angie Grenz said.

WHAT BUBBLE?: As the number of craft breweries explodes nationwide — and particularly in Colorado — the question is posed to brewers over and over about whether the industry is reaching a saturation point.

The consensus seems to be that craft beer — which owns roughly 11 percent of the overall beer market — still has room to climb before it hits a ceiling. But some new brewers are certainly being cautious as they look at their own growth.

Will Herdrick, who plans to open Absolute Threshold Brewery in Fort Collins this summer, said he wonders how many brands the retail market can sustain. His initial aim, he said, was to find a densely populated neighborhood where Absolute Threshold can become a neighborhood hangout.

“We’re just going to kind of sit back and see what happens (before packaging),” Herdrick said.

Of course, if there is a ceiling nearing for craft beer, some brewers aren’t upset about it. Excitement around the craft beer boom, Fisher said, has made it possible for some breweries to thrive without focusing on the quality of their beer. But as the market tightens, bad beer will be washed out from the marketplace.

“I’m kind of excited about the ceiling on some level because there’s some beer on the market (that’s not good),” Fisher said. “I think it gives the rest of us a bad reputation when beer shows up on shelves that’s not up to standards.”

THE CHAIN EFFECT: A major issue facing the craft beer industry is the push by grocery store chains to be allowed to sell full-strength beer and wine. Not only do many craft brewers worry such a development would make it tougher for them to get their beers on the shelves, but many opponents of the push say it’s unfair to liquor stores.

Currently, grocery store chains are allowed to sell full-strength beer and wine at only one store in the state. Similarly, liquor-store owners are not allowed to own more than one location or have a chain presence. But while the ballot issue being pushed for next fall seeks to allow grocery chains to carry full-strength beer and wine at all of their stores in Colorado, it does not give liquor stores the right to have a chain presence. Fisher said that runs counter to grocery stores’ claims that the ballot measure favors the free market.

“It basically isolates the chain model only to food vendors and not (independent liquor store owners),” he said.

QUOTABLE: Other soundbites from Thursday’s roundtable included:

On stalwarts New Belgium and Odell helping drive the strength of Northern Colorado’s brewing scene: “It just raises the bar for everybody,” Cochran said, noting that beer drinkers in the area don’t have a lot of tolerance for subpar beer. “I feel like Northern Colorado has done a good job and it’s because we have good examples (in Odell and New Belgium).”

On the experience factor of taprooms: “We have regulars that are friends now because they met in our taproom and started clubs or groups,” Josh Grenz said. “I think people want a sense of community. That’s tough to find at times.”

Sponsors for Thursday’s CEO Roundtable included: the accounting firm of EKS&H, BBVA Compass, and Hub International.

Participants included: Chris Banks, CFO/co-owner, Odell Brewing Co.; Tim Cochran, co-owner, Horse& Dragon Brewing Co.; Neil Fisher, co-owner/head brewer, WeldWerks Brewing Co.; Angie Grenz, co-owner, Verboten Brewing; Josh Grenz, co-owner, Verboten Brewing; Will Herdrick, co-owner, Absolute Threshold Brewery; David Fritzler, BBVA Compass; Luis Ramirez, BBVA Compass; Chris Otto, EKS&H; Mike Grell, EKS&H; Russ Henninger, Hub International; Jim Sampson, Hub International.

FORT COLLINS — Anheuser-Busch InBev’s spree of craft-brewery acquisitions in recent years, including Denver-based Breckenridge Brewery in December, has caused plenty of hand wringing in the craft-beer community.

The trend, many worry, could jeopardize the small and independent culture that the American craft beer boom has been built around, blurring the lines between the little guys and mega brewers like AB InBev and making it tougher for independent craft brewers to land shelf space against AB InBev-owned brands.

At the same time, several Northern Colorado craft brewers on Thursday cautioned against branding those that do sell their breweries to the big boys…

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