There has been a lot of talk recently in the beer industry about when a small brewery sells out to a multi-national company. Just recently Lion has bought out Byron Bay Brewing, last year Asahi bought out Mountain Goat and American favourite Ballast Point was bought out by Constellation Brands for $1 Billion.
Unless you are a shareholder or an economist, you probably don’t care what happens to these businesses too much, BUT if you love craft beer like us, you do will definitely care what happens to the BEER ! So what does happen? Well before we answer that questions, let’s clarify something, this article is an an OPINION, it is not based on any hard core statistical analysis, so just keep that in mind.
Well the first thing that generally happens is that the decision sparks some sort of outrage (or at least fervent discussion) about what this will mean to the beer. The hard core craft enthusiasts will say that that is the end, it’s all down hill from here and may even refuse to buy the once loved beer on principle alone. Whilst we don’t really subscribe to that theory, it does carry some weight because one of the things people love about a craft brewer is that is basically a hand full of local people, working really hard and by supporting this beer, they are supporting that local business and community. Of course when the take over comes in, the money is now going back into a big commercial enterprise which may run their operations off shore, so local money ends up going overseas.
That leads to the next logical argument which is that it becomes all about profit. Many small business owners around the world work countless hours in their business sometimes with no wages for years and when they finally start making a profit, they pour all of that money back into the business. This is common in most small businesses and is in most cases how they can afford to grow. When a big company steps in they are looking for commercial opportunity to expand their range, their brand, their appeal, but most of all to expand their profit making capabilities. One of the main motivations is to impress their shareholders so they can continue to grow. So how does this effect the operation of the business and the beer? Well it could impact on the brewery in a number of ways. Firstly, lets look at the positives. The small brewery now has some serious financial backing which would allow it to invest in to new equipment, increase production, employee more staff and even move into new premises. The down side could be that with a focus on profit, the new owner looks at ways to cut costs, with the real fear being this could be in the ingredients or brewing process which would effect the precious output which is of course the beer we (used) to love. To date, in the takeovers that we have seen there is little evidence to support this although there are plenty of conspiracy theories out there that say the beer has changed since the take over.
So what else can happen? In our opinion, the real change and danger of a takeover occurs when the new owners want to change the direction of the business they by out. Whilst most brewers looking to sell out, would probably try to be true to the brand they worked hard to develop, even after the sell out the fact is that sometime down the track, this can happen. Probably the best example of this is the Western Australian brewer Gage Roads.When this beer lover visited their brewery in Freemantle more than 10 years ago, they were at the epicenter of Craft Brewing in Australia. They were all about the beer with their direct-to-the-drinker brewery, where you could tap one of the freshest beers in the country and although by today’s standard the range was quiet limited, at the time they were well ahead of the game.
So what happened to Gage Roads? Well around 2010 they sold a 23% share of their business to Woolworths, and whilst this does not constitute a total buy out, for the sake of the argument, the case still stands. Woolworths saw the buy-in as an opportunity to buy up a supply line and ensure good access to the brand, as craft beer sales grew. With power to wield over the brewer, it soon become apparent that Gage Roads would become the equivalent of a exclusive brand beer for Woolies and distribution was limited to Woolworths owned stores including Woolworths Liqour, (now defunct), BWS and Dan Murphy’s. For the next few years, things seemed to remain unchanged and in this article written in 2012 things sounded good (at least for investors) with increases in sales for Gage Roads although in the warning to investors about risks, it says “The down side is that Woolworths holds the upper hand in the relationship and can force Gage Roads to sell its products cheaply thereby reducing Gage Roads margins and profits”
At this point of time, we would have probably argued that the BEER was still the same and although the company structure might have changed, the new owners hadn’t had any major impact on the actually beer. But then something DID change, with the continued growth and demand for craft beer, came more competitors, but even that growth shouldn’t have changed Gage Roads direction. What did appear to happen though is with all these new brands fighting for space on a Woolworths shelf, Gage Roads brand positioning seemed to move. They were no longer a unique product and with Woolworths facing competition against their old friends at Coles, they could use the exclusive brand as promotional tool and started to discount the brand. Of course this increased pressure on pricing now starts to impact on the brewing process and inevitably corners get cut and the quality of the BEER gets compromised.
In our opinion the final change came with the official re-branding of the beers, which came with not just a new look label, but a whole new range designed specifically to fit into this market. At was at this point when the BEER finally became the victim in all of this and the once quality craft beer, became a common mega-swill beer just like the multi-national beers. If you have tried any of these beers, you will almost certainly agree, that they are no longer “craft beers”.
This article written just this week, looks like it signifys the final nail in the coffin for the brand with a further 16% decline in sales in the past 9 months and negative cash flows. Unfortunately whilst “The company partly blamed a market-wide decline on mainstream, commercial-style beers for the drop in contract sales” we think the truth is much different. It is clear to us, that the part ownership of Woolworths had a significant effect on the BRAND, and the DIRECTION of the company and this ultimately lead to the BEER not being what it once was.
So whilst there will no doubt be lots of discussion and varying views on these sort of takeovers, we think one thing is pretty clear. At the end of the day, it is the BEER that matters and if the BEER continues to be of a high standard, most drinkers will continue to support the brewer. When that changes, well it’s game over.
Update 10 September 2016.
The Gage Roads story continues with them looking to by back shares from Woolworths. It just goes to show, you should never sell your soul. Read the story here.
Another update 8 February 2017 – Return to Craft. Maybe you should never have left?
Another update 11 March 2019 – Export Market Grows