LEXINGTON, KY / ACCESSWIRE / March 23, 2016 / The burgeoning industry of brewing craft beer has heightened investment activity, as big brands look to supplement stagnant sales, small brewers seek more distribution and venture capital looks to fill its glass to capitalize on rising popularity of craft beer amongst millennials. The flurry of deals in the past couple years was highlighted in a Brewbound article in August, including Fireman Capital taking a stake in Oskar Blue Brewery, Riverside Capital taking ownership of part of Uinta Brewing and Southern Tier Brewing selling a partial stake to Ulysees Management.
The Brewers Association defines a craft brewer as "small, independent and traditional," meaning the brewery produces less than six million barrels of beer annually, less than 25 percent of the brewery is owned by an alcoholic beverage industry member (who is not a craft brewer itself) and the beer's flavor is derived from traditional of innovative ingredients and fermentation. In some cases, big corporate beer money has blurred the lines of a "craft brewer," such as in the case of Anheuser-Busch InBev (NYSE: BUD) going on a craft brew buying bender with the purchases Breckenridge Brewery, Four Peaks Brewing and London's Camden Town Brewery in a matter of one week in December to increase the number of craft brewers under its umbrella to seven. The King of Beers also owns approximately a 32 percent stake in Craft Brew Alliance (NASDAQ: BREW).
The thirst for ownership of craft brewers is underscored by industry growth that is outstripping longstanding brands. The Brewers Association showed that craft beer sales grew a robust 17.6 percent by volume in 2014, whereas the overall beer market expanded just 0.5 percent. From a dollar perspective, the craft beer market appreciated by 22% to $19.6 billion, while the overall beer market inched ahead only about 1 percent to $101.5 billion. Craft beer exports still remain relatively low, but are gathering momentum to 383,422 barrels exported in 2014, up 36 percent from a year earlier. According to research firm IRI Worldwide, craft beer's market grew another 18.8 percent by volume and 23.4 percent in dollar terms in 2015.
With these stats in mind, it becomes more clear why AB InBev is snapping up craft brewers left and right.
Still, some craft brewers remain quite resistant to private equity and major beer companies for fear that the integrity of their brews and their business models will be compromised. Many brewers in the craft class share a common mantra of environmental sustainability, perhaps lending to the popularity amongst today's hipsters. Craft Brew Alliance was forged in 2008 with the merger of two pioneering Pacific Northwest craft brewers – Redhook Brewery and Widmer Brothers - and has grown into one of the nation's largest craft brew companies with six brands in its portfolio. Sustainability is a cornerstone of Craft Brew Alliance's business model, utilizing processes to minimize water and energy consumption to reduce their environmental footprint while making their products.
Appalachian Mountain Brewery (OTC: HOPS) certainly fits into the mold with its popular craft brews and sustainability model. The company employs many "green" technologies, including solar and water conservation technologies, at its brewery and flagship restaurant. The Boone, NC-based upstart became one of only a handful of craft brewers to enter the public domain with a reverse merger completed just over two years ago. AMB, as the name is often shortened, has a growing portfolio of craft brews, including Black Gold Porter, Boone Creek Blonde Ale, Long Leaf India Pale Ale and Spoaty-Oaty Appalachian Pale Ale, brewed at its 10-barrel tasting room and served at its flagship restaurant, as well as other local restaurants and sent out through a growing distribution network.
AMB has won numerous awards already for its beer and restaurant, such as Yahoo! Travel Top 50 Craft Brewery; gold, silver and bronze medals at the 2015 US Open Beer Championships; and a gold medal for its porter at the 2015 Great International Beer Festival. In 2014, AMB was chosen as winner of Brewbound's Start Up Brewery Challenge and ultimately won Startup Brewery of the Year at the "Start Up Brewery Challenge Boston." The company was also awarded the prestigious 2015 Solar Champion Award from the Solar Energy Industries Association for its sustainability practices.
AMB recently partnered with Craft Brew Alliance and Cisco Brewers in a first time collaboration that resulted in a new craft beer to "celebrate the extraordinary places each brewery calls home." The beer, called "Konambisco," is an amber ale featuring cacao from CBA's Hawaii-based Kona Brewery, cranberries from Nantucket Island, MA-based Cisco and local honey from AMB. The beer debuted at the 21st Annual Kona Brewers Festival earlier this month.
The goal of the pact is to expose consumers in different regions to flavors of craft brews from other parts of the country and explore opportunities for synergistic expansion between the companies. "While we're literally from opposite sides of the U.S., our deep connection to our homes and our local communities is something we share," said Sandi Shriver, Brewery Operations Manager, Kona Brewing Co., in the announcement.
"Backstopped by some delicious beer, we are rapidly and successfully growing our business via our slogan of ‘Community, Sustainability, Philanthropy'," commented AMB chief executive Sean Spiegelman in a phone conversation. "Craft beer is much more than just a consumer product; it is a movement in which most of our peers share the philosophy that tremendous shareholder value can be realized without jeopardizing environmentally sound principles. The public has embraced craft beer as better on all fronts and I believe that's part of the reason the industry is experiencing hockey stick type growth."
Appalachian Mountain Brewery is reaping the rewards of consumer adoption of craft beer. The company recently disclosed that 2015 revenue increased 79 percent over 2014 to $1.74 million, bolstered by expanded wholesale distribution with Craft Brew Alliance throughout Western North Carolina. Late in the fourth quarter, AMB began a statewide rollout and, as of March 16, Long Leaf IPA, Boone Creek Blonde, Spoaty-Oaty Appalachian Pale-Ale, a seasonal line of AMB beer in 16 ounce cans and the core products in draft are available statewide. Total beer production rose 330 percent from a year earlier to 3,840 barrels (1 barrel = 31 gallons). Further, the company maintained strong margins at 65 percent for all of 2015.
"We expect our growth trajectory to continue," said Spiegelman in the prepared statement, adding that the distribution partnership with Craft Brew Alliance keeps exceeding his expectations.
"The craft brew industry is thriving and companies like AB InBev, Molson Coors (NYSE: TAP) and Constellation Brands (NYSE: STZ) buying their way adds to recognition and speaks volumes about the potential," Spiegelman said during our call. "We're still early in our growth curve, but we're executing and surrounding ourselves with incredible partners to help us build long-term sustainable shareholder value."
As craft brew aficionados and enthusiasts continue to trend in line with broad consumer interest in "going local," craft breweries appear to be showing investors that thinking small may prove to be thinking big as more breweries consolidate and public opportunities materialize for investors.
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