Fireman Capital

Forecast for 2017: Craft Beer Turf Wars

The number of craft breweries continues to grow rapidly, while the growth of the craft sector is slowing. Which means something has to give.

Jason Notte of Marketwatch.com predicts that 2017 will be the year of the turf war; there will be less mergers-and-acquisitions activity and more competition among breweries to claim shelf space.

This could be the year that craft breweries lay off workers and make other cuts in an effort to trim costs. Industry leader Boston Beer Company has been hit hard by shrinking sales of Samuel Adams Boston Lager; the company’s shares have tumbled 50 percent from their 2015 high.

We’re also likely to see more breweries bring in private-equity firms. Already this year, Victory Brewing Company and Southern Tier Brewing Company have formed such partnerships with such firms.

And we’re likely to see smaller brewers focus on taproom traffic and food sales and avoid the battle to get their products on store shelves and on bar and restaurant menus.

Notte believes that Oskar Blues is the brewery to watch because it has been the craft sector’s trend-setter for years. The brewery was the first to can its beers and the first to build a second facility in the eastern United States. Two years ago, it kicked off the private-equity trend when it sold a majority interest to Fireman Capital. It then used some of that money to acquire craft breweries in Michigan, Florida, and Texas; the latter two states are considered underserved beer markets. Oskar Blues also borrowed from the big national brewers’ playbook. It rolled out more mainstream beers, sponsored sporting events, and put an emphasis on brand recognition.

Notte concludes, “Whether drinkers benefit from [this] turf war or become victims of it remains to be seen.”

How Oskar Blues Managed Growth

Can a craft brewery get the funds needed to expand without its independence? Dale Katechis, the CEO of Oskar Blues Brewery, found an answer. Instead of selling out to a larger brewery, he brought in Fireman Capital, a private-equity firm in Boston. Katechis met Dan Fireman while developing a succession plan for his brewery, and concluded that Fireman would make a good business partner. He said, “It was refreshing to meet someone who understood the heart and the soul of this business was and knew how important the heart and the soul is to it. Sometimes, it isn’t the best business decisions that are the heart and the soul.”

Oskar Blues used some of Fireman’s cash to acquire Perrin Brewing Company of Grand Rapids, Michigan. Katechis was introduced to the brewery by Keith Klopcic, a co-owner of Oskar Blues’s Michigan distributor. Perrin had gone from zero to 14,000 barrels in two years, and had a distribution network in place; however, it “wasn’t into packaging.” After taking over the brewery, Katechis introduced a canning line. Cash flow doubled within three months, and Perrin is expected to grow substantially. Klopcic is in charge of Perrin, which will remain independent of Oskar Blues.

Powered by WordPress