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Why US craft beer is still holding its value - Comment

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just-drinks' beer commentator has had another craft acquisition to digest this month. Stephen Beaumont takes a closer look at Anheuser-Busch InBev's decision to eventually move for Craft Brew Alliance. His conclusions may differ from yours.

Anheuser-Busch InBevs full takeover of Craft Brew Alliance is all about Kona, argues Stephen Beaumont

Anheuser-Busch InBev's full takeover of Craft Brew Alliance is all about Kona, argues Stephen Beaumont

A lot of (deserved) attention has been paid this month to Anheuser-Busch InBev's acquisition of the portion of Craft Brew Alliance that it didn't already own, at a lower price than the three-year option the company allowed to lapse a few months ago. Some commentators have pointed to the purchase as evidence of a downturn in the value of craft beer companies.

I disagree.

For a start, we need to stop pretending that the transaction is about anything other than Hawaii's Kona Brewing. Sure, CBA is a collective of eight company brands, including two - Widmer and Redhook - that were once powerhouses in the craft brewing heartland of the US Pacific Northwest. Today, however, all save Kona are struggling or tiny, or both. Last year, the Hawaiian brand accounted for almost two-thirds of the group's total volumes.

Calculated in dollars-per-barrel, as just-drinks deputy editor Andy Morton pointed out the day after the deal was announced, Kona alone values the acquisition at US$446 per barrel, still far below the $1,120 per barrel that Boston Beer Co paid for Dogfish Head Brewery in May. But, here, once again, it makes sense to look at what has been purchased. 

Breweries are not widgets; all the same thing and the only difference being the number per box. When Boston Beer bought Dogfish Head, it was purchasing a brewery still solidly in growth mode, and one that filled key gaps - IPAs and sours - in the Boston Beer portfolio. While the same could be said of A-B InBev and Kona, the latter being the sort of aspirational lifestyle brand the big brewer lacks, Kona came with seven breweries-worth of baggage, which seriously weighed down and likely devalued the Hawaiian brand.

If there is a lowering in the dollar value of craft brewers evident in this deal, it comes from a restoration of sanity rather than a devaluing of the craft segment. Deals like Constellation Brands' purchase four years ago of Ballast Point for $1bn, valued at $3,500 per barrel of production, were overpayments of 'dot-com bubble' proportions. Comparing them to more rationally-calculated deals in order to make the case that craft brewers are now entering some sort of crisis is straying too far towards constructing a narrative.

That's not to say that craft brewing in the US isn't getting to the point of a potential crunch period. It may well be, but the headwinds the segment might soon be facing are entirely of its own construction.

The now-global craft brewing movement was born in the US, and the point of differentiation it made from day one was based on flavour. By the 1980s, the pale and lightly sweet lager style had grown to define big brewery fare in both the US and Canada, to the point that other beer styles scarcely exited, or if they did, were confined to beer marketing purgatory. Microbreweries - craft brewers, now - emerged to fill that style gap with bold and unapologetically-flavourful pale ales, porters, stouts, bocks and other traditional beer styles.

'Drink local' was then only one small part of the craft beer equation. 'Drink flavour' was by far the main message. 

In the 2000s, however, locality became far more important than taste, to the point that 'drink local' became less a slogan, more a dogma. Further, over the past couple of years, local markets have grown so crowded that even this specialised message wasn't considered sufficient. Subsequently, it was replaced by 'drink new', a mantra that compelled brewers to release new brands on a more-or-less continual basis, the more outrageous their appearance or ingredients, the better. 

While 'drink new' has worked well in recent times, it is now showing signs of age. Beer consumers seem to be slowly tiring of the new-beer-every-day craft culture and are turning instead to more simple, straightforward and, perhaps most importantly, consistently reliable beverages, hence the recent rise of hard seltzers and various iterations of pale lager. As craft brewers looking for volume begin to pivot into the hard seltzer realm, as many in the US are now doing, they risk erasing any remaining point of differentiation that might still exist to separate them from the big brewing concerns. 

If that happens, I can see craft brewers finding it increasingly difficult to command the sort of ultra-premium pricing they have been able to charge for the past decade or more. And then, we'll see some serious devaluation of the sector, likely in record time.

For more beer commentary from Stephen Beaumont, click here


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