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Constellation Brands cuts losses on US$1bn Ballast Point folly - Comment

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With a sale to Kings & Convicts Brewing Co, Ballast Point has fallen victim to the new broom of Constellation CEO Bill Newlands who, since his appointment in March, has shown a determination to focus solely on the company's best-in-class brands.

Ballast Point could come to signify the US craft beer scenes high watermark

Ballast Point could come to signify the US craft beer scene's high watermark

That Ballast Point was bought in 2015 specifically because it was the US craft beer industry's best-in-class shows how far the San Diego brewer has fallen. Its US$1bn price tag today looks ridiculous, and when the story of US craft beer is written, may well signify the high watermark of the craft beer craze - and its greatest folly.

At the time, however, the cost to Constellation did not seem onerous, even if analysts questioned its potential "sticker shock". And, if Ballast's potential had been realised, then US$1bn would have looked cheap. In 2016, the brewery had managed to convince consumers to pay upwards of US$16 for a six-pack, compared to the US$10 commanded by rival craft brands. That premium retail presence gave Ballast a net-sales-per-case double that of Constellation. Also, the brand was in just 30 states, which, coupled with Constellation's distribution network, offered plenty of scope for scaling up.

The project soon ran into trouble and in 2017 Constellation was forced into a humbling $87m writedown on Ballast that the Corona owner blamed on missed growth targets. Initial plans to use the brand as a platform for spirits failed to materialise.

And now, the ultimate humiliation - a sale to a company founded just two years ago.

Ballast Point may not be the only victim of Newlands' clear-out. The CEO has already dumped Black Velvet Canadian whisky to Heaven Hill Brands and is waiting for the ok to sell about 30 wine and spirits brands to E&J Gallo.

The sale of Ballast Point has proved that even a former US$1bn golden child is not safe from the chop. Many of Constellation's other brands will be on high alert.

Why US craft beer is still holding its value - Click here for a just-drinks comment


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