Beer Club Subscription Issue 116 (June 2019)

Beer mergers, acquisitions and the closure of breweries are becoming more common in our industry, especially as the Australian market grows and matures.

In recent years we've seen the multinationals buyout 4 Pines, Feral and Pirate Life in the backend of 2017 and also the merging of businesses with the likes of Stockade and Mornington Peninsula brewing in 2018.

More recently there have also been breweries listed for sale or closing:

• In May this year Sample Brewing went into administration
• Canberra based contract brewers Pact Brewing closed in April 
• HopDog Beerworks, McLeod Brewing and Barrow Boys all wound up their operations 
• And the following breweries are currently up for sale; Wig & Pen, Brookes Beer, Gulf Brewing and Blizzard Brewing

The market is becoming more competitive and while we are not trying to be alarmist with the above (we still believe the Australian craft beer industry is in a strong growth phase), we do find it interesting to look at the state of the industry at any given point in time.

It's also important to note that within any industry the fundamentals rely on supply and demand and as supply increases, competition increases along with it, especially if demand does not always grow at the same rate. 

So if 1% of breweries were to close each year, then 5 years ago this percentage was off a much smaller number of total breweries. Currently there are 600+ breweries, brewpubs and brewing brands in Australia so if the closure rate was to be 1% you could expect to see 6 breweries close each year (hypothetically - it could be more or less).

With this in mind and considering the Australian craft beer market strongly follows many US trends we thought it interesting to take a look at the recent Dogfish Head and Boston Beer Co merger and not only see what the future could mean for the Australian market, but also how our industry compares to the US market.

Boston Beer Co & Dogfish Head $300M Merger

On the 10th May 2019 it was announced that two well known American craft brewers, Boston Beer Co and Dogfish Head, are joining forces in what is a $300M craft beer merger.

Beer Cartel co-founders Geoff Huens & Richard Kelsey shared their take on the merger, the driving forces behind it and what it means for craft beer.

You can view the full video below...

Here's a breakdown of the deal with some figures converted to litres for comparison to the Australian beer market.

Reasons For The Merger

• The American market is becoming increasingly competitive, with over 7,000 breweries operating there and a further 1,000 breweries forecast to become operational in 2019
• To drive efficiencies both on the brewing side of both businesses as well as within logistics and administration
• To leverage a stronger buying relationship with suppliers
• to create a complimenting beer portfolio

Now for a quick overview of the merger...

Boston Beer Co (Samuel Adams)

• Number 2 craft brewery in the USA
• 4.3 million barrels brewed annually
• 1 US beer barrel is 115 litres, which equates to about 500 million litres
• Annual sales of $995 million USD

Dogfish Head

• Number 13 craft brewery in the USA
• 300,000 barrels brewed annually, equates to 35 million litres
• Annual sales of $120 million USD

The Merger:

• Deal was worth $300M
• Dogfish Head co-founders Sam and Mariah Calagione will receive about 406,000 shares of Boston Beer stock valued at $314.60 per share = $128M USD
• Dogfish Head shareholders will get a $173M payout
• LNK Partners, a private equity firm that had a 15% stake in Dogfish head, will exit the investment

Once Merged Revenue & Volume

• $1.1B USD company in revenue
• 4.6 million barrels a year = 529 million litres
• Some synergies to be found with both businesses having many commonalities in roads to market, meaning some cost savings possible

The Merger In Comparison to the Australia Beer Market

The Australian the beer market is worth about $4.9B AUD, producing 1.2 billion litres a year. CUB and Lion have about 45% share each (craft beer has about 10% share of value and 5% share of volume)

This means, once merged Boston Beer Co / Dogfish Head will be (by volume):

• almost the equivalent of half the total Australian beer market
• roughly the same size as either CUB or Lion
• about 10 times the size of our entire craft beer market

For perspective the likes of Two Birds Brewing brew between 1 and 2 million litres and Stone & Wood produce 12 million litres of craft beer per year.

Craft Breweries Per Capita

It's interesting to look at both the American and Australian craft beer markets in terms of the number of craft breweries per capita to understand if there is anything Australian breweries can learn from the American market.

In the USA there are currently 7,000 craft breweries with an estimated 1,000 more breweries to open in 2019.

To say it is a competitive market is an understatement. It is becoming cut throat.

With a population of 327M this equates to 1 brewery for about every 46,000 people.

In Australia we have approximately 600 breweries with a new brewery opening every once a week.

Australia has a population of 25M this equates to 1 brewery for about every 42,000 people.

Lets look at that again...

USA = 1 : 46,000

Australia = 1 : 42,000

In comparison Australia is actually a more competitive market in terms of craft breweries per capita, but where it differs is that Australia is in a growth stage compared to the America's maturing market, i.e. Australia still has a lot of people still just "getting into" craft beer.

The Australian market has about 10% of beer drinkers drinking craft beer, while the USA is approximately 15-18%.

Remaining Craft

The merger will still see the new entity still called a craft brewery - in the USA the current definition of a craft brewery allows for up to 6 million barrels a year (they will be about 4.6 million barrels). This leaves them with growth up to 1.4 million barrels, or 161 million litres (13 x Stone & Wood annual brewing output).

Dogfish Head In Australia?

We may possibly see Dogfish Head beers in Australia, here’s why.

In the past Sam at Dogfish Head has mentioned one of his problems was just meeting domestic demand. He could sell all his beer in the USA so why bother looking at Australia or other export markets. With the merger Dogfish may be able to tap into brewing capacity at Boston Beer Co's breweries (if capacity is still an ongoing issue).

Further to this Boston Beer Co (Sam Adams Lager) currently export to Australia so there are existing relationships that could be leveraged there.

And last if their goal is to have continued sales growth in what is becoming a maturing domestic US market, an easy avenue for growth could be through exports.

We certainly do hope we start seeing some exported to Australia as they make great beers!

Future Mergers, Acquisitions & Closures

Mergers, acquisitions and closures will happen, it goes without saying given all markets are in a natural and constant state of flux throughout each stage of an industries life-cycle. 

The real question is the who, what, where and when? 

The reality is we don't know.

While the rumour mill always has plenty of hearsay suggestions as to who will be next we choose to wait and see. However, there are a few things we see as being key to a brewery's success:

• Have a venue to call home will becoming critical for success. Breweries need a home in which they can invite craft beer drinkers into and share experiences. 
• Brewpubs will become an increasingly popular business model where breweries can have both a hospitality, events and production venue all in one.
• Become part of the local tourism industry and partner with local businesses.
• Make your venues family friendly and invite all walks of life through the doors, not just the stereotyped beer hipster. 
• Build a tribe of strong followers that share your passion for beer and are strong advocates for what you stand for and do.
• Have a great sales team that is passionate for beer and understand the dynamics and intricacies of the craft beer industry. 
• Last but not least focus on making a top notch quality product driven by consistency and continually look to innovate. Don't do what you did 2, 3 or 5 years ago as the market is continuously evolving.

What are your thoughts on the growing craft beer industry? 

Leave a comment below or head to our Facebook group, Beer Cartel Craft Beer Collective.

This Month's Tasting Notes

Beer Number 1: Mountain Goat Goat Lager

Style: Lager

ABV: 4.2%

Colour: Light Golden

Serving Temp: 4˚C to 7˚C

Recommended Glass: Lager

Description: A new modern Aussie lager. It's an uncomplicated, anytime sort of beer with a Mountain Goat twist. Thanks to a generous allotment of Australian Galaxy and Ella hops and a painstaking fermentation schedule with landed on this clean, balanced lager. It's one very enjoyable beer.

Beer Number 2: Clare Valley Brewing Stout

Style: Stout

ABV: 6%

Colour: Black

Serving Temp: 7˚C to 12˚C

Recommended Glass: Stout

Description: Roasted Barley and Chocolate malts are used in the creation of this rich, dark, delicious beer. The roasted chocolate/coffee flavours are balanced with the addition of Cara and Crystal malts. A sprinkling of UK hops EKG and Fuggles are added to create a traditional, easy drinking stout.

Beer Number 3: Little Alchemist Wicked Wit-ch

Style: Witbier

ABV: 5%

Colour: Light Golden

Serving Temp: 4˚C to 7˚C

Recommended Glass: Tulip

Description: This is our take on the classic Belgian Witbier (‘White beer’ in Flemish). It is pale and cloudy in appearance due to it being unfiltered and having a high percentage of wheat and addition of oats. This gives the beer a full mouth feel and with late additions of citrus peel & coriander seed the beer has a fresh zesty aroma.

The Wicked Wit-ch is our first signature beer in the Albedo range (derived from Latin meaning whiteness). With its soft character and fragrant aroma, Witbier is perfect for a hot Australian summers day.

Beer Number 4: Hawkers IPA

Style: IPA

ABV: 6.5%

Colour: Amber

Serving Temp: 7˚C to 12˚C

Recommended Glass: IPA

Description: Hops, and lots of them! Bitterness with tropical, citrusy and piney notes that is balanced by a malty backbone.

About the Author: Geoff Huens is the co-founder of Beer Cartel who conjured up the idea of a beer subscription delivery service after his year abroad travelling through South America, the USA and Europe. With his partner in beer, Richard Kelsey, this later evolved into Beer Cartel. Through a passion for bringing amazing beers to people around him, a rekindling of his Belgian heritage and love for exploring new beers he can often be found writing about beer or chewing the malt over his favourite beer style, American Barleywines.