Wednesday, April 13, 2011

More on Goose Island

I agree, for the most part, with what Matt said on Monday about this. Goose Island has every right to sell its business and it isn't, in and of itself, a bad thing. Those of us who follow such things, and probably even those who don't, saw this coming a mile away.

But, Goose Island's claim that this is a "capital" issue is ... to be frank ... a crock. Or rather, it's only half a crock because, yes, capital plays a part in this, but it's really a distribution/production issue. Goose Island had a problem - through years of focusing on its brewpubs and the Chicago market, it became third fiddle throughout the Midwest to Bells and Great Lakes. There is not much room in the market for two regional breweries and one quasi-regional that removes an entire state from the equation (New Glarus).

So, for Goose Island to grow in the ways that it wanted to, it had to either take on Bells and Great Lakes head-on in a brand war, or it could take what it has in the Midwest and move on to bigger and better markets - namely, the rest of the known universe. This presents two problems for Goose Island: 1) how to distribute beer to the rest of the known universe and 2) how to brew enough beer to meet that demand.

Goose Island could have done what Boston Beer did: go public, release stock for a big equity boost, invest in contract breweries across the United States, hire a bigger sales force, and go on its own. It appeared poised to start doing this through its explorations with brewing at Red Hook to serve the East Coast market. It could have done what New Belgium did and sell more stock to its employees keeping the company private, increase its local capacity, hire a bigger sales force, focus on distribution efficiencies, and go on its own. It could have done what New Glarus did: be content with the Chicago/Illinois market, get a loan from a bank, increase its capacity and be happy being the biggest game in a big pond. However, Goose Island's owner decided "I don't really want to deal with this" and leveraged a current business asset - a partnership with Anheuser-Busch - to meet his goals.

AB/InBev is perfectly placed to solve the production and distribution problems facing Goose Island in its efforts to expand its brand outside of the Midwest. Moreover, this move doesn't dilute Goose Island stock or increase Goose Island's debt load. Indeed, AB/InBev gets a relatively lean company with an expanding brand and portfolio that it can leverage with its own breweries around the country/world to brew 312/Honkers/etc and leave the Chicago brewery to produce the high-end stuff. Moreover, AB/InBev already have distribution and sales networks established throughout the world that is just itching to sell real craft beer.* So, in one easy move, Goose Island expands its capacity and distribution without burdening the company to take that on.

In my own opinion, the real test will be whether AB/InBev can leave well enough alone and let Goose Island make its own production choices. I'm not entirely sure I agree with Andy Crouch (I rarely do); I don't think the acquisition itself indicates that AB/InBev or Miller or Coors are suddenly realizing that others do craft better than they do. I do think it shows that they are open to this possibility, though. It is entirely possible that AB/InBev want to (or at least will) muck-around with the recipes for different markets, turn them fully into a corporate brand that has no distinct identity, and derail efforts to make truly "craft" beer like Goose Island has shown some interest of late in actually doing. This was the downfall of Leinie's vis-a-vis Miller.

However, if AB/InBev can leave Goose Island to do its thing, then I think other breweries will see acquisition as a viable exit strategy to ensure long-term growth of a brand. And, if this can happen, we will start to see a lot (LOT) more investment in craft brewing.


* We'll ignore for the moment that most of these distributors do, indeed, already distribute "real" craft beer - but it doesn't pay nearly as well (including above-table and, ahem, below-table deals) as A-B does.

5 comments:

  1. What a well thought-out post!

    Thanks for doing such an exemplary job covering the GI/AB-IB bedfellows.

    The way everyone's chattering, this must be the biggest thing to craft beer universe since the Great Hops Shortage of '07.

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  2. It is almost impossible for me to believe that AB would fail to remove dollars from ingredients/process and shift them to advertising/promotion. Given the organizations capabilities, expertise and established business model I have to believe this would be their "maximizing" strategy, and it would be naive to believe that they will do anything but maximize.

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  3. Hey Anon, I'm not sure I agree. 10-20 years ago, definitely. By now, though, the big guys should have learned a couple of things. (1) They can't brew and sell craft beers on their own. New brands can't be mediocre, brewing beers that can compete with craft beers on flavor would disrupt their automation and process efficiencies (making beers like Miller Lite more expensive), and craft beer drinkers don't respond well to big ad campaigns, shallow marketing or lying. (2) Destroying individual craft breweries won't reduce competition. Existing craft breweries will grow, new craft breweries will open and the voids will be filled by non-industrial brands.

    I think breweries like SAB-Miller could easily build small breweries that are dedicated to craft beer, make excellent products and compete with craft beers (which, at the regional level, are themselves becoming more industrial and less artisanal). It's still easier to buy somebody like Goose Island and leave them alone, though.

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  4. Another take from Atlantic.com today

    http://www.theatlantic.com/life/archive/2011/04/goodbye-goose-island-the-rise-of-a-new-era-in-craft-beer/237257/

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  5. RELAX!

    Everything I'm hearing/reading about this deal means Goose will stay Goose. Goose will only be brewed in Chicago by Goose. Goose will not be relocated to St. Louis (not like the bigger Rolling Rock deal a few years back).

    The whole purpose of this purchase was for ABinbev to buy a little piece of the high-end craft market with Goose's reserve beers. And Goose had been struggling to keep up with orders at their relatively small brewery, so instead of pulling out of states (like Dogfish, Avery, Stone), they chose to ramp up their brewery with a little help from an existing partner. I think this is a good deal, and hope to see their Nut Brown & Oatmeal Stouts come out of retirement.

    I felt ok about the deal, but started to wonder after I read that Greg Hall got piss drunk in a Chicago pub a few days after the deal and was found pissing in empty glasses muttering how he "F#*@ed up big time". Maybe he was just sad about his exit from something he helped build. I still don't think they've "sold-out", they're in good hands and their head brewer is top notch (from Deschutes in Portland).

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