Craft beer has no reason to fear a beeropoly.
While Anheuser-Busch InBev's proposed $104 billion acquisition of SABMiller would undeniably create a behemoth in the highly consolidated beer market, the potential merger can also be viewed as a victory for the craft beer industry. Why? The move comes as both companies have lost market share to craft brewers. Here's why craft breweries have an edge over the big guys.
1. Craft beer continues to grow like gangbusters.
Craft brewers accounted for 11 percent of U.S. beer production volume in 2014, up from 5 percent in 2010, according to data from the U.S. Brewers Association. Last year marked the first time that independent breweries accounted for 10 percent or more of the annual U.S. beer production market. Craft brewers also grew annual sales to $19.6 billion last year, a 22 percent increase between 2013 and 2014.
What accounts for this growth? Millennials would rather support small, local brewers, even if they have to spend a little more money, according to Jason Wilson, founder of Alabama-based craft brewery Back Forty Beer Company, which grew annual revenue to $2.2 million in 2014 from $52,000 in 2010. "The new drinking-age adults grew up in a world where they had the ability to research companies," he says. "What's driving craft is this idea of a local, sustainable product where you know the people who are producing it." Meanwhile, older generations are increasingly looking at craft beer as a culinary treat, Wilson adds.
2. Craft beer entrepreneurs are cashing in--without completely selling out.
Last month, Heineken bought a 50 percent stake in California-based Lagunitas Brewing Co. for an undisclosed sum. The deal gives Lagunitas access to the resources of the world's third-largest brewer, which has a plan to take craft beer to the global market. MillerCoors also recently acquired San Diego-based craft brewery Saint Archer Brewing Co., while Anheuser-Busch bought Golden Road Brewing, the largest craft brewery in Los Angeles.
3. Craft brewers are making money for investors.
Craft breweries have become attractive investment targets for private-equity firms. In 2012, New York-based PE firm KPS Capital Partners made nine times its money by combining small brands including Labatt USA, Magic Hat and Pyramid into a single entity and selling the combined company for $388 million.
While it remains to be seen whether an approved merger of Anheuser-Busch and SABMiller will have a negative impact on craft beer, chances are good that a more dominant player in the global market will lead to new challenges for some smaller breweries.
"As these entities start to merge and get larger and larger, their ability to influence their wholesalers becomes more and more of a concern," Wilson says.