Squeamish Market Breaks Buyout Momentum

Here we are nearly three months into 2017 and not a single notable US craft brewery has been bought by big beer. That's not the scenario many predicted. After several years of intense activity, many expected to see more buyouts this year. Nope. What the hell?

A good part of what's going on can be traced to the dramatic craft slowdown that occurred in mainstream outlets during 2016 and is continuing into 2017. The other day I talked about why the slowdown isn't as serious as the data suggests. That logic still holds.

Indeed, it's clear that craft growth is happening in smaller outlets that aren't tracked by IRI or Nielsen. Beer bars, breweries, taprooms, growler stations and related outlets have multiplied like rabbits in recent years and are stealing a lot of volume from mainstream stores.

And collapsing sales in mainstream grocery and convenience stores are a serious issue for potential craft suitors. Missed sales projections by large and small brands and an imploding category have deal makers like Anheuser-Busch and MillerCoors on edge. They're afraid to pull the trigger.

Fear of a sagging market isn't the only reason checkbooks aren't opening. The big box slowdown means it's now a buyer's market out there. Deals that were being negotiated or contemplated are dead or being reevaluated. Paying too much for something that tanks is a risky career move.

The uncertainty extends to other buyers. Private equity is in the same boat as AB and MC. They see a soft market that looks increasingly risky. Reports suggest some of the more recent private equity acquisitions haven't panned out very well. Craft is no longer an investment darling.

Another bad hombre is debt. The industry is swimming in it. Anheuser-Busch and MillerCoors both have it, thanks largely to MegaBrew. They'd like to pay it down before they take on any more. Brewers have debt problems, too. Many borrowed to finance expansion when things were booming. Now they're stuck. They can't afford to sell at the prices suitors are offering or might offer. Debt is a double-edged sword in a sketchy market.

Consider the case of Speakeasy Brewing, which just closed. They've been around 20 years. They took on debt to expand. But the growth they expected failed to materialize. They were badly over-leveraged and sought capital to keep going. Lenders wouldn't play ball in this market and they were forced to close. This may be a common theme until things stabilize.

As far as the big boys go, they're moving from acquisition to consolidation, focused on the craft brands they have. The High End is putting a lot of effort into getting its beers in grocery sets around the country. That's going to be the status quo for awhile and it's going to impact small brewer access to shelves in large stores and national chains.

The flip-side of that effort is a place like the recently opened Breakside brewpub in Slabtown. Breakside has built a solid reputation with great beers. It distributes fairly widely. But the Dekum pub is tiny and the Milwaukie facility is for production. Breakside wanted a stronger presence in the local market. So it invested a lot on a marquee location that will achieve just that.

My newest (anonymous) industry friend predicts we're moving toward a system that is both hyper-local and hyper-national. He sees the High End and related MC brands eventually dominating national chains, while smaller breweries, like Breakside, dominate local pubs and such. He may be onto something. We shall see.

As for buyouts, don't expect to see many for awhile. The indicators are too negative. Breweries that took on debt expecting high growth or a big buyout are in deep trouble.