Ballast Point brews the popular Sculpin IPA

Ballast Point brews the popular Sculpin IPA

Constellation Brands' beer ambitions took a giant leap forward in 2012 when it secured the US rights to Grupo Modelo's brands. Yesterday, it took another big stride with the US$1bn acquisition of craft brewer Ballast Point Brewing & Spirits.

But, while the Modelo purchase gave Constellation a massive ramp up in beer scale, the Ballast buy - Constellation's first move into craft beer - is a different proposition altogether. The San Diego company is on track to produce 4m cases this year compared to Constellation's 201m cases of beer in its most recent fiscal year. However, those volumes are expected to realise US$115m in net sales for Ballast, or about $29 a case. Constellation last year made just $16 a case from its beer shipments.

CLSA analyst Caroline Levy says that these high margins go a long way to assuaging concern over the hefty price tag that left some analysts with "sticker shock", including Stifel's Mark Swartzberg, who said "it is more capital than we would have expected". Swartzberg might have a point: although the cost was equivalent to Heineken's outlay earlier this year for Lagunitas (the Dutch brewer spent $500m for a half share), Ballast has far lower volumes and currently only sells in 30 US states, with half of its sales in California.

On the plus side, this gives Ballast scalability, and Levy believes Constellation's distribution network will help grow its brands. Meanwhile, Constellation is expanding the draught version of the flagship Mexican beer Corona in the US, and has high hopes for it. Ballast, which Levy says has 41% of its sales in the on-trade, can provide the slipstream for Corona's draught ambitions.

One thing Constellation won't profit from, however, is Ballast's spirits portfolio. The company is better known for beers such as Sculpin IPA, but it also distils a range of vodkas, rums, gins and whiskey's, as well as RTD cocktail cans. Those spirits will not be part of the deal, a Constellation spokesperson confirmed to just-drinks today, and they will remain with Ballast founder Jack White.

However, the spokesperson added: "Constellation does plan to leverage the Ballast Point trademark and distilling capabilities from an innovation and NPD perspective to bring new craft spirits to market."

That means we can expect new products developed by Constellation released under the Ballast Point umbrella.

It also suggests that yesterday's deal was a two-for-one. Constellation has not only entered the craft beer segment for the first time - it also has a toehold in craft spirits.