Tuesday, February 23, 2016

Why big distribution really matters and what smaller breweries can do about it

Southern Tier Celebrated their alliance with Victory
Brewing with this picture on their Facebook site
Jeff Alworth over at Beervana recently predicted that it's distribution that will drive beers future, using a somewhat alarming development to drive his point. He notes that Goose Island's Goose IPA's recent explosive growth rate of 260% , making it one as the top five nationally selling IPA's. Goose Island is owned by Anheuser-Busch InBev (A-B InBev), and accomplished this feat by largely leveraging there pre-existing distribution system, simply putting Goose IPA into the hands of more people than any smaller brewery could.

Personally, I find Goose IPA to be a rather underwhelming IPA compared to more national favorites like Sierra Nevada's Torpedo, Green Flash West Coast IPA, Deschutes Inversion IPA, and Lagunitas IPA. Go to rating sites like Rate Beer and BeerAdvocate and you'll find a similar story. Goose IPA rates well, but other IPA's with large, national distribution rate higher. It's hard to come to any other conclusion that Goose IPA's success is largely driven by the resources its corporate parent has to get it on more shelves in front of customers.

That's what makes makes all the recent "craft" brewery acquisitions by large corporate breweries a scary development for small regional breweries heavily dependent on retail sales. How can smaller breweries fight back? Well, they can join forces and get bigger. That's just what eastern regional breweries Victory Brewing and Southern Tier decided to do, effectively merging as Victory Brewing was brought into Southern Tier's parent company, Artisanal Brewing Ventures.  On their own, each brewery was a strong regional brand, with both ranking around 30th in size by the Brewers Association.  (Victory was a little bigger than Southern Tier before the merger.) Combined, they now rank as the 15th largest breweries craft brewery, with an annual capacity of 250,000 barrels a year.

Expect to see more of this. Brewing involves many economies of scale, whether in sourcing materials, investing in brewing, bottling and other production equipment, and of course, distribution. Brewery consolidation is inevitable and don't be surprised it the merger and acquisition frenzy of smaller breweries joining forces becomes every bit as intense as what the big corporations have been up to these days.

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