After the Buyout: Getting a Grip on the Elysian Deal

In the aftermath of last week's news regarding Elysian Brewing and Anheuser-Busch, the uproar has subsided. Maybe the distraction of the Super Bowl in the Northwest had something to do with that. But there have also been some thoughtful, insightful articles that have helped put the sale into perspective.

Probably the most well-reasoned article appeared on Brewbound, which conducted a candid interview with Elysian co-founders, Dick Cantwell, Joe Bisacca and David Buhler. Good stuff. And there's been some interesting stuff in the various industry newsletters, which I sometimes read via the pirate channel.

Some of the more juicy tidbits:

Red Zone
Now that they own Elysian, AB will push to integrate it at AB-owned, "red" branches wherever possible. That can be a messy business. Elysian is currently in 11 states outside Washington, distributed in many places by MillerCoors and indie craft outfits. Getting Elysian into red branches will be an interesting process to watch. Here in Portland, Elysian is distributed by Columbia. It will surely wind up at AB-owned Western (formerly Morgan) fairly soon. There will likely be a brand swap or cash payout involved in that. Should be fun to watch this play out.

Damages
Elysian had been a counter-culture icon in the Seattle market for 20 years. No one knows what will happen to the brand's rep in the city going forward. Seattle is the second-ranked craft market in the country. People are serious about their beer and fiercely independent in the Emerald City. Some retail outlets are dumping their Elysian inventory. Will the discord last? Will the damage be long-lasting? Stay tuned.

Money For Nothing
One of the things that came out in the Brewbound article is that Elysian's co-founders had some options as they looked to expand and solidify their business. They are anticipating 50 percent growth in 2015 and that was going to require a significant investment within a year or two. They could have chosen a private equity partner. But there was concern that private investors would be looking for a quick profit. In the end, they (Cantwell dissented) decided Anheuser-Busch provided more of what they wanted and needed, though other offers were (they say) higher.

Shelter from the Storm
Beyond the need to partner with someone who would be in the game for the long haul, Elysian wanted to insulate itself from what Bisacca describes in the Brewbound piece as, the coming "bloodbath" in craft beer. He thinks grocery and related stores have expanded their beer sets about as far as they can and that there will soon be a price war for shelf space. The idea of a shakeout is seldom discussed publicly in the industry, though it ought to be. Anyway, Elysian eventually decided that partnering with Anheuser-Busch is the best way to shield itself from the prospect of a coming storm. And maybe they're right.

Big Business
Calvin Coolidge famously said, "The business of America is business." Along those lines, there will be more buyouts like the one that just happened. Anheuser-Busch hopes to acquire a collection of craft brands which it will use to bolster its slipping position. It will do this in many areas by operating in two of the three regulatory tiers. That approach is only marginally legal and it isn't going to benefit craft beer as a whole. Only AB and the acquired breweries are likely beneficiaries.

I honestly wonder how many buyouts it will take for people to start thinking about craft brewers in the same way we think about other entrepreneurs. The goal of any business is to build a following and attain financial stability and success. It isn't a crime. In craft beer, the values used to build brands include small, locally owned, independent, artisan, etc. And craft breweries aggressively embrace those values...right up until the day they sell to Anheuser-Busch.

There are certainly brewers who are more committed to craft's spoken values than others. But the reality is that craft beer is a business, increasingly a mainstream, big business.  Maybe it's time for everyone to come to grips with that and move on.

Behind Laurelwood's Big Deal: Something for Everyone

Last week's announcement that Laurelwood will be partnering with the Craft Brew Alliance for a portion of its production brewing caught some people flat-footed. It was unexpected. But make no mistake, it's a huge deal. With something for everyone.

The details of the deal have been reported in several places, notably by John Foyston here. Essentially, the deal will expand Laurelwood's capacity to around 20,000 barrels a year. They brewed just over 5,400 barrels for Oregon in 2012, according to OLCC numbers, and another 1,300 or so were sold out-of-state. The bulk of the new production is going into 12 oz bottles of Workhorse and Red (which will not be organic in bottles).

Putting their most popular beers in six-packs is something owner Mike DeKalb has been thinking about for a while. And it makes sense. Laurelwood has built a solid reputation via 22 oz bombers and kegs in Oregon and Washington. Smaller bottles are a logical step because six-packs remain the most popular form of retail packaging in beer.

They aren't going to have to go out and find places to sell this beer. Laurelwood has already built demand for its beer in Portland and beyond. They have put a ton of effort into developing Seattle, one of the best craft beer markets in the country. In fact, they have been unable to fully develop all of their markets because capacity at the Sandy brewery is maxed out.

"We've been putting 80 percent of our production effort into Workhorse and Red," said Micah Bell, Laurelwood's director of marketing. Portland was apparently getting 85 percent of what they were producing. With a good portion of that production moving to the CBA, they will now be able to fill distribution holes in Oregon and Washington. Alaska, British Columbia and California are on the horizon.

Some 12,000 barrels of the additional production capacity will be at the CBA's Woodinville, Wash. facility. From a strategic standpoint, this is perfect because a lot of that beer is going into the Seattle area. Brewing and bottling it in Woodinville means the beer will be at its best when it hits store shelves. Woodinville fits into Laurelwood's plan almost perfectly.

One of the more significant things about this arrangement is it allows Laurelwood to continue to develop its markets without investing in a production brewery or bottling plant. Many thought they would open a production facility after the Sellwood pub launched last year. There's no doubt DeKalb considered it. With the CBA deal, he can delay a decision on that. He may very well build a production brewery at some future point, but delaying the decision gives him more time to figure out what it looks like.

Vasili at work

Of course, people are already wondering if beer contract-brewed by the CBA will live up to the standards of Laurelwood's relatively small operation. I am generally not a fan of contract brewing. However, Laurelwood brewmaster Vasili Gletsos has significant experience on large production systems from his time at Pyramid. He will be working with highly competent CBA brewers to ensure solid production values. We'll see how it works out, but I get the feeling things will be fine.

For fans of Laurelwood here in Portland, shifting production will be huge. They will continue to brew for 22 oz bottles at the Sandy brewery and the organic brewing program will be maintained for beers served in the pubs. More importantly, Vasili and his crew will be freed up to create more specialty beers. I'm looking forward to the specialty board having more options. And I suspect some of these beers will make their way to better shops around town.

This deal has something for everyone, for sure.