Tuesday, 26 September 2017

Corporate indigestion

Following last year’s exercise in shooting themselves in the foot, this year CAMRA were more on target with their Good Beer Guide press launch, which concentrated on the threat to consumer choice from takeovers of independent breweries by multinationals. However, even this was a little wide of the mark, as the breweries being taken over have in recent years tended to be those in the “craft” field rather than producers of real ale.

It also contains an element of railing against fate. It’s simply a fact of business life that the most likely fate of a successful start-up is to be taken over by a larger competitor. Yes, of course in a sense it’s regrettable, but that’s just what happens. Very few go on to spread their wings and fly independently in the way that BrewDog has done. And, of course, in many cases the business owners will in effect have been made an offer they couldn’t refuse.

The current wave of takeovers are significantly different from those that occurred in the British brewing industry in the 60s, 70s and 80s. Then, the prime objective was to get hold of smaller competitors’ tied estates and distribution networks. Promises may have been made about maintaining production at original sites, and keeping brands going, but they were rarely worth the paper they were written on.

The current ones, however, are about acquiring beer brands, not outlets, and so there is much more of an incentive to maintain the brand equity. Inevitably in many cases it will end up being eroded over the years by changes in recipe and production methods, but if they’re not careful the buyers end up destroying the value of their own purchase. I also can’t help thinking that the takeover of a business that has been established for several generations and become part of its local community is much more of a loss than that of a start-up only a few years old.

There is a somewhat patronising aspect to Roger Protz’s comments. I don’t see that there is a conscious intention to deceive drinkers that they are buying products from a small, independent company, and consumers nowadays are sophisticated enough to understand that large companies operate niche or specialist offshoots that are differentiated from their mainstream products. Those to whom it really matters will know anyway.

There’s also evidence from the US of a consumer blowback against the brands taken over by multinational brewers. As the two beer markets are very different, it’s doubtful exactly how much this will read across to the UK, but it certainly suggests that some of the inflated premiums paid for craft beer brands will become a thing of the past.

Brewing remains an industry where the barriers to entry are very low, and thus we are likely in the future to see the cycle of cool new start-up turning into corporate acquisition over and over again.

18 comments:

  1. I think you hint at a notion that might scupper brand acquisition.

    Whilst it's logical for a company with brands that were higher margin and have declined to low margin brands to develop or acquire new high margin ones the question is why craft brands deliver higher margins. What are customers paying for.

    Is it just recipe, process, ingredients or is there some brand value inherent in small scale independence which is lost the minute after the take over.

    Some sections of the market are sensitive with brands being removed from craft bars and enthusiasts ceasing custom.

    Is there a wider market of craft customer that is uninterested in all this and just wants a beer that packs more than a light lager and is happy to pick it up from Tesco? The beer aisle suggest there is. That corporate craft can live alongside small scale authentic craft.

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    1. In the US there's a much clearer distinction between "craft" and "macro" than there is in this country. And remember, as I've said before, if you read the US market breakdown across to the UK, every single non-multinational brewer up to and including Marston's and Greene King falls into the "craft" camp.

      That's why I wouldn't expect the "craft blowback" to be so pronounced in this country. And, while there are undoubtedly some, it's questionable exactly how many beer drinkers are going to make a deliberate effort to avoid products known to come from multinational offshoots.

      The risk is more that, in the long term, the big brewers trash their own products by changing recipes and production processes.

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  2. Few of these takeovers are hostile. Far from it in fact, as founders, investors and shareholders realise their exit strategy. Sometimes there's a decision to be made between carrying on without further expansion or growth, take on more investment and risk the loss of control, or cash in the chips completely. I wouldn't be in the least surprised if BrewDog eventually cashed in especially as private equity fund TSG Consumer Partners now owns 22%.

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    1. In fact I don't think any of the recent craft acquisitions have been hostile. Let's face it, if Megabrew come along and offer you four times as much as you think your company's worth, it's going to be extremely hard to refuse.

      Once you've got beyond the "one man and his dog" stage, it's difficult to just bob along as a medium-sized business. In a sense, you've got to get on or get out. And it's often forgotten that, at the end of the day, every business owner needs an exit strategy of some kind.

      I look forward with eager anticipation to the likes of Curt Mattis telling us what a good think for craft beer the eventual corporate takeover of BrewDog is going to be ;-)

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    2. Whoever it is will have to be one of the biggest with BrewDog valued at around £1bn, but the weasel words that accompany the sellout should indeed be interesting!

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  3. It's not an issue unique to the beer industry, but this is what almost always happens when you overestimate the importance of 'brand' and underestimate that of 'product'.

    Time and again marketing twats convince themselves that they can buck this obvious causality, thinking that if it's a 'strong brand', it doesn't really matter what the actual product is like, missing the point that a substantial part of what defined the brand in the first place was the product. Tinker too much with that and the brand just looks hollow and meaningless and ultimately ceases to command brand loyalty.

    Case in point: the Wychwood brewery.

    About 20-25 years ago Wychwood actually made fairly decent beers. Certainly by early-1990s standards they were distinctive and original, and were of course complemented by an equally distinctive and original branding.

    Then they sold a big stake to ScotCo and some other corporate shit happened, and eventually ended up as a Marston's brand. The Halloweeny artwork still defines the 'brand', but the product on which it was built effectively disappeared years ago. Recipes were changed, ABVs lowered, flavours dumbed-down. Beer names were repurposed as the brand was extended to alcopops during that short-lived fad.

    They 'developed the brand', but Wychwood, once a relatively interesting brewery, became a byword for generic blandness - even though the superfioial, visual elements of the branding remained.

    As I say, it's not just beer. Citroen cars used to be quirky and individual with their trademark Gallic Batshit insanity. Then the company was taken over and it all went to fuck. The marque still exists, but now it's really just a badge stuck on generic, everyday vehicles. It means almost nothing as a brand because the underlying product has changed beyond recognition.

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    1. There are parallels with the automotive industry in how companies ike VAG and Toyota manage portfolios containing both premium and mainstream brands. However, on the other hand, Ford sold Jaguar Land Rover and Volvo, and SAAB, once owned by GM, disappeared completely.

      A key difference from beer is that you need to achieve pretty high standards of basic functionality, which is what did for Citroën and Alfa Romeo. And, unlike beer, the barriers to entry are huge.

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  4. I think this article is probably already out of date - the likes of ABI are now saying that they won't buy any more breweries in the US (although they recently picked up one in Oz). Certainly you won't get any daft prices being paid like Ballast Point which was priced on the basis that it was going to become a national brand and they've worked out that the "craft" market just doesn't really work like that. I imagine the huge resistance they got over Wicked Weed has also convinced them that the independence thing really is important to fans of that kind of brewery - whilst it will have brought in significant expertise with sour beers, I think they've realised that there's only so far that they can go with the pseudo-craft thing, they will make more money chasing the casual supermarket drinker than the hardcore WW-type drinker. Something like Goose Island is more the model - an ever-expanding range of supermarket-friendly ordinary beers, but still using their huge technical resources to make the bourbon stouts which cast a halo over the rest of the brand.

    It's a little bit different, but I think you can see the future with what Marstons are doing with Wainwright, which seems to be to take a brand they've already got and develop it as a focus for any new blonde beers without making it so "crafty" as to frighten off the average drinker in Marston pubs.

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    1. And there you have it. Not quite the full sellout but in order to grow the business they need loadsamoney and importantly a market and distribution network which AB Inbev can provide instantly. A bit of Googling reveals... 'Since its launch in August 2014, A-B InBev’s High End division has acquired 10 craft breweries, including 10 Barrel Brewing (Oregon), Blue Point Brewing (New York), Breckenridge Brewing (Colorado), Devils Backbone (Virginia), Elysian Brewing (Washington), Four Peaks Brewing (Arizona), Golden Road (California), Goose Island (Illinois), Karbach Brewing (Texas) and Wicked Weed (North Carolina). In addition to Virtue Cider, the High End also oversees the Shock Top, Stella Artois, Hoegaarden, Veza Sur Brewing (Miami) and Spiked Seltzer brands.'

      And only last week they snapped up Australia's 4 Pines and Virtue Cider, Mitchigan.

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    2. Er, it's a spoof, albeit a rather convincing one ;-)

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    3. It's the thought that counts! Still, in a year or two, who knows....

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    4. It seems to have touched a raw nerve! To my mind, that makes them come across as humourless and up themselves.

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    5. Taking themselves far, far too seriously. Par for the course with these right-on hipster outfits though.

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  6. Wasn't sure that that wasn't a spoof. Still not either.

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  7. Fake News. Sad !

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  8. "Very few go on to spread their wings and fly independently in the way that BrewDog has done."

    Of course Brewdog is now one of those "evil" multinationals itself ;)

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    1. Well, in a sense it's a case of "get on or get out". How many of today's feted craft breweries will still be in existence as independent businesses once their founders have left the scene?

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