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Boston Beer, Dogfish Head merger - Squeezed middle seek safety amongst themselves - Comment

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They are beer's squeezed middle. Far smaller than the international brewers, such as Anheuser-Busch InBev and Molson Coors, that dominate the US beer industry with their mass volumes and distribution leverage, yet much larger - and more unwieldy - than the new generation of nimble craft brewers blazing a trail, and finding growth, with Millennial consumers.

Boston Beer has found it impossible to turn around Samuel Adams volumes

Boston Beer has found it impossible to turn around Samuel Adams volumes

Chief among them is Boston Beer Co, which this week sought to kickstart its way out of a long-term beer volumes decline by swallowing up the smaller, yet still substantial, Dogfish Head Brewery. Heaven knows Boston had tried everything else - from going big on hard cider with the Angry Orchard brand, then sidestepping into hard seltzers when the company took to the sweeter side of the LAD (long alcoholic drinks) paradigm.

All of this seems to have worked - ciders and seltzers currently prop up growth for the company. But, cider lost ground to seltzers and now Boston's alcoholic sparkling water brand, Truly, is, in turn, losing out to newer, fresher rivals. On the investor front, analysts fear for Boston's future.

Meanwhile, nothing has shaken Boston's flagship Samuel Adam's beer brand out of its stupor. Not packaging overhauls, not changes to its seasonal range - not even an actual injection of nitrogen - could halt diminishing volumes. The question now, is will the partnership with Dogfish Head make a difference?

The two companies tout the power of their combined portfolios and how they will now be better prepared to take on the "global beer conglomerates" that were in part the reason for Boston's Jim Koch and Dogfish's Sam Calagione founding their breweries in the first place.

The craft beer revolution those two founders helped launch in the US hasn't come close to smashing the grip brewers such as Anheuser-Busch InBev and Molson Coors have on the US beer market.

But, it certainly changed the way they operate.

Faced with a fast-growing craft beer category, 'Big Beer' fought fire with fire and acquired the best and brightest craft brewers, retooling them for their own purposes. Thus, it wasn't Budweiser going up against Samuel Adams or Dogfish IPAs, it was Goose Island and Lagunitas, beers with the halo of craft and - suddenly - the marketing budget of Bud Light.

There is another barrier to the long-term success of independents forced to go it alone - time. The brewers behind the likes of Budweiser and Coors Light have been around for more than 140 years. Like jellyfish, they constantly regenerate their constituent parts with new CEOs, brand managers and master brewers allowing them to march on regardless.

Conversely, independents such as Boston and Dogfish are created in the mould of their founders, who still sit at the tops of their companies two or three decades on from when they first started brewing beers in their kitchens. Eventually, those leaders will look to move on. Whether their companies can survive the transition, and remain independent, is a question not yet answered in the modern craft beer world.

As one veteran founder of a leading craft brewer that sold to a big brewer once told me: "We can't expect these founders to carry on forever. One day, they'll want a retirement they can enjoy."

This week's merger came as something of a surprise to the beer industry. But, as time progresses it will be less of a surprise if other members of the squeezed middle look to ease their burden and, like Boston Beer and Dogfish, seek safety in each other.

Big beer versus craft beer - Is the fight finally over? - Click here for a just-drinks comment


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