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By April 6, 2016 0 Comments Read More →

Maintaining Authenticity in an Era of Acquisitions

By Elizabeth Hans McCrone

Few would argue with the premise that millennials have shifted market forces in new and exciting ways for the craft beer, wine, spirits and now cider industries.

There is a shared understanding that younger drinkers seek out beverage brands that appeal to their creative and experimental interests, that have fascinating stories behind them, and that resonate with their notions of transparency and authenticity.

And, while enduring brand loyalty may not characterize this generation the way it has for those preceding it, millennials do become attached to products whose history begins with, say, a brew in somebody’s college dorm or gin first distilled using discarded machinery on a family farm.

But what happens when these appealing, homegrown brands mature? When their success, largely driven by millennial consumption, attracts the interests of corporate businesses keen to tap into what is becoming an increasingly lucrative market share?

Greg Hall speaking at USBevX

Greg Hall speaking at USBevX

This was precisely the situation facing Greg Hall, son of the founder of the Chicago-based Goose Island Beer Co., in 2011 during discussions with Anheuser-Busch, and he spoke about it at the U.S. Beverage Industry Expo, “What’s the End Game for your Business: Growth, Independence or Acquisition,” in Washington D.C. in February.

Hall’s father Jon started Goose Island Beer Co. in 1988 as a single brewpub, long before Chicagoans were exposed to the craft beer revolution. The pub’s homegrown brew quickly became a local favorite and the company grew rapidly. Greg Hall joined the family business in 1991 at age 22, and served as Brewmaster of the enterprise for twenty years.

He says that in 2011, the company’s success was at a tipping point.

“We got to the point as an urban brewery that we were city-locked,” Hall explains. “We couldn’t expand anymore and we couldn’t keep up with demand. We wanted to find a partner to help us build another brewery. We looked, but none were suitable.”

Enter Anheuser-Busch Inc. (ABI), one of Goose Island’s distributors. Rather than partner on a new brewery, ABI offered to purchase a majority of the company’s stake, which would give them a controlling interest in the business. In exchange, Goose Island Beer Co. could expand beyond its wildest dreams.

It was an offer the Halls would not refuse.

“We figured that the investors would give us the resources to grow, more access to the beers we would always run out of and give drinkers access to the beer they loved,” Hall recalls. “It was a win, win, win, all across the board.”

But not everyone saw it that way.

“When it was announced, employees freaked out,” Hall admits. “It’s natural to want to say, nothing is going to change, but that’s false. Craft beer and cider … things change every year, no matter what.

USBevX-2017-Logo-with-date“We told them things are going to change. We’ll have access to new markets, more barrels for our barrel program, more benefits for employees … it’s going to be a good thing.”

Hall concedes that the sale of Goose Island Beer Co. to ABI created some negative ripples within the consumer and retail markets as well.

“We’ve lost some drinkers; some bars don’t sell Goose Island anymore,” Hall acknowledges. “But they’ve been replaced by so many other people who are now exposed to Goose Island … every new market we go into we think, ‘that’s fantastic.’”

Goose Island beers are now widely distributed throughout the United States and, since 2006, within in the United Kingdom as well. In addition, the sale allowed Hall to focus on other endeavors, like the successful creation of Virtue Cider in western Michigan.

Jeff Menashe is the CEO of Demeter Group, a company described as “financial advisors to and investors in high-growth, culturally relevant consumer brands.”

It’s part of Menashe’s job help investors identify companies poised for expansion and advise the founders and managers of other companies eager to realize greater profitability for their hard-earned work – i.e., ready to sell.

“We find people and others find us because they’re interested in a collaboration with high-growth, profitable brands in beverage alcohol,” Menashe states. “We’re agnostic about whether they’re looking to do an actual transaction.”

That said, Demeter Group helped facilitate the relatively recent sales of Seghesio Winery to Crimson Wine Group, J Vineyards to E&J Gallo Winery, and Benziger Family Winery to The Wine Group.

All three Sonoma County, CA wineries had been family-owned for decades and built from the ground up prior to the buyouts.

The question is, will such sales to large corporate interests fundamentally alter the successful identity of the wineries, especially among millennials who favor smaller, iconic brands?

Menashe says the buyers have already taken this into account.

“A lot of bigger wine companies cannot innovate quickly enough (to accommodate a changing market), so they’re looking to add a company like J Vineyards, which carries a premium $20 – $40 sparkling wine that’s interesting to millennials,” Menashe asserts.

Menashe suggests that more and more corporate buyers are opting to keep the existing structure of the companies they purchase intact in order to maximize brand stability and facilitate consumer loyalty.

“Benziger has more family members involved in the business now than when (The Wine Group) acquired it,” Menashe attests. “To help facilitate the brand … The Wine Group has learned that to keep it special, the front of the house will stay the same.”

Menashe believes that keeping the original owners visibly connected is a more recent practice that evolved from years of experience.

“We’re seeing more agreements that encourage ongoing involvement,” Menashe observes. “That’s changed over the last decade. It’s not as much tied to (the original owners) running the business, it’s more about freeing them up to focus on production and the evangelical part of the brand, as brand ambassadors. It’s making sure the company stays on the trajectory the founders put it on.”

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