Craft beer is going from strength to strength in the US

Craft beer is going from strength to strength in the US

Do craft brewers view private equity firms in the same way HG Wells did his Martians in War of the Worlds?

“Intellects vast and cool and unsympathetic,” Wells wrote in the opening chapter of the sci-fi staple, “[who] regarded this earth with envious eyes.”

For companies such as craft brewers, whose independence is a big part of their branding, unlocking the door to outsiders keen to profit from craft's strong growth could be regarded as risky. DogFish Head Owner Sam Calagione reportedly said as much last week, when he warned that many private equity firms like to disguise themselves as minority investors before trying to negotiate a deal that would give them full control.

It seems, however, that the need for money now outweighs the risks.

Calagione's quotes above are from a Reuters article, which claimed that a number of top independent brewers in the US - including DogFish Head, Brooklyn Brewery and Lagunitas - are seeking private-equity investment. It is a growing trend that, according to Rabobank analyst Stephen Rannekleiv, will only accelerate as the US craft industry chases the investment it needs to grow bigger. The numbers may look good - craft beer holds about a 20% value share of the beer market from only 10% of volumes - but new challenges are arising as the category matures.

“It's a very crowded marketplace with more competition coming in all the time,” Rannekleiv told just-drinks. “You look at a company like Boston Beer and see that a lot of the growth is coming from its Angry Orchard cider brands instead of beer.”

There is also the threat from mainstream beer as it fights back aggressively to regain the share lost to craft. Anheuser-Busch InBev's acquisition of craft brewers such as Goose Island has brought its cost efficiencies to the category, causing concerns of a price war, according to Rannekleiv. “What they are doing to gain share in the market place is to get aggressive on pricing, and that's something that they are able to do very efficiently,” says Rannekleiv.

When Orson Welles adapted War of the Worlds into a radio play in 1938, some worried listeners mistook it for a real-life news report and thought that inter-galactic war had broken out. Last week's Reuters article was also accused of misleading readers, with Brooklyn Brewery president Robin Ottaway telling Craft Business Daily that the article had “twisted (its information) a bit”. Meanwhile, Brooklyn Brewery told just-drinks it has no plans to engage with private equity while an earlier story on Lagunitas was flatly denied by owner Tony Magee.

At the same time, however, Brooklyn Brewery has admitted that it is talking to people about investment, as there is a lot of interest out there. “You'd be silly not to in this environment,” Ottaway said.

Whether these mixed messages are because the brewers are frightened of appearing beholden to outside help is difficult to tell. What is clear, however, is that the relationship between craft brewers and private funding is now less War of the Worlds and more Close Encounters.