The beer business in the United States has been a classic David versus Goliath battle for the last couple of decades.
On one side was industry leader Anheuser-Busch InBev and its nearly 50 percent share of the U.S. beer market. On the other side was a growing group of upstart brewers with limited production, but big dreams in their heads and big hops in their brews.
But recently a new trend is starting to impact the marketplace: Goliath is spending big money to bring David over to its side.
"Anheuser-Busch is making a lot of calls, they're taking a lot of calls, visiting a lot of breweries. They're definitely interested in the space," said Chris Furnari, editor of Brewbound.com
The global brewing giant recently spent an estimated $200 million dollars buying four craft breweries to add to its already extensive brand portfolio.
"If you look at craft right now, it's playing a very important role in the industry, and while around 80 percent of consumers still enjoy and drink domestic large lagers, the craft piece of the business is really growing," said Andy Goeler, CEO of craft for Anheuser-Busch InBev's Anheuser-Busch division. "It's adding a lot of excitement and so our strategy is really simple, it's to participate in the excitement that's going on in craft."
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To that extent the Anheuser-Busch has developed a two-pronged approach: Create its own in-house national brands like Shock Top, while at the same time expanding its portfolio by acquiring established regional craft brewers with room to grow.
"We look for owners that share a passion, have an amazing beer culture and have partners that take a long-term view and who want to keep expanding and do more things in the world of beer," he said.
Anheuser-Busch made its first craft splash in 2011 with the purchase of Chicago's Goose Island Brewery for $38 million.
The acquisition of Goose Island—one of the craft industry's pioneers—stunned the craft brewing world, but the move would prove to be prescient. In the years since, Anheuser-Busch flagship brands like Budweiser and Bud Light have struggled and Anheuser-Busch North American sales volume has been on a downward trend—including a drop of 1.3 percent last year.
The craft segment, meanwhile, has been on a steady upswing, posting an 18 percent increase in volume in 2014, while reaching double-digit market share for the first time.
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Those types of numbers have not gone unnoticed at Anheuser-Busch InBev headquarters.
"It's interesting that this company that is $47 billion in global sales is really paying keen attention to this," said Benj Steinman, president of Beer Marketer's Insights. "At the global Anheuser-Busch InBev level they're very interested in this from (CEO Carlos) Brito and on up to the board."
The deal machine
In February 2014, Anheuser-Busch announced the purchase of Blue Point Brewing in Patchogue, New York, for an undisclosed amount (estimated to be about $24 million). Eight months later, it purchased Bend, Oregon's 10 Barrel Brewing, again not disclosing the terms, but with some industry insiders pegging the cost at about $50 million.
The company opened its wallet again in January of this year, this time buying Seattle's Elysian Brewing, for an undisclosed amount.
The purchase of Elysian gave a slight pause to many who thought there may be a regional craft acquisition strategy at work, with the presumption being Anheuser-Busch was looking for a craft brewing presence in each region.
For Steinman, the purchases of 10 Barrel and Elysian went beyond just giving Anheuser Busch a beachhead in the Pacific Northwest.
"They've both been very weak markets for Anheuser-Busch, they have a very low market share there," he said. "If you look at the IRI data, the hottest craft brewer last year was 10 Barrel in Portland, and in Seattle, it was Elysian. So they can get a couple share points and hot brands in markets where they are struggling."
The spending spree has certainly gotten the attention of the beer business, with craft breweries looking at Anheuser-Busch's involvement with trepidation—a fear Goeler says is misguided.
"The number one principle is to make sure that we let them maintain their culture, their authenticity, so we're not buying them to make them into Anheuser-Busch companies," he said. "We're buying them for who they are and what they've achieved and what they've done in the world of beer."
Goeler said his company's activity in the craft space benefits both the craft beer segment and the beer business as a whole.
"We are getting craft beers to more consumers than probably anybody in the U.S.," said Goeler. "We are able to bring resources to these companies and help them reach and get more people interested in the industry."
Where to next?
With craft brands in the Midwest, Northeast and now Pacific Northwest, a popular topic of conversation is which areas the company will target next.
"California is a must. It's the largest market in the country," said Steinman. "At its peak, Anheuser Busch had a 50 share of market in California and last year it was down to 36.5. I think they're going to be intent on having a California craft brewer."
While Goeler admits geography is a factor, it is further down the priority list behind the aforementioned things like culture, long-term vision and desire to expand, he said.
"We could build our own brewery in California if we wanted and hire a local brewmaster to run it," said Goeler. "But it would be a big mistake without having that whole spectrum of what's important in the world of beer today."
The 'Goldilocks' size
Beyond geography, another pattern may be emerging. The Blue Point, 10 Barrel and Elysian acquisitions have a "Goldilocks" commonality about them: Not too big, not too small, but just right in size.
"My sense is there is a sweet spot between brewers ranked number 40 and 80 on the Brewers Association list, those that are somewhere in the neighborhood of 50,000 barrels," said Brewbound's Furnari. "I think they try and target companies that are looking to make that next step, that probably need to make a capital investment of anywhere from $10-$20 million to double or triple capacity at their breweries."
For Furnari, a key question for Anheuser Busch going forward is how much are they willing to spend on acquiring craft brands.
"It's like buying a used car, you're going to have to put some money into it," he said. "It's not just the amount they have to spend to buy a craft brewery, often times they need to spend even more to improve efficiencies at the brewery or to scale up the brands spending in distribution, marketing and advertising."
However, one thing seems certain: Goliath isn't done wooing David.
"It's only a matter of time before they announce their next acquisition and I'd be surprised if they didn't get another deal done this year," said Furnari.
Steinman echoed similar thoughts, pointing out that the acquisition talks may not be as one-sided as many craft beer loyalists might expect.
"I'm sure Anheuser-Busch will be doing more deals, I don't know how many but I do hear that their ceiling is higher than the handful I had originally assumed," he said. "I think a lot of craft brewers are entertaining discussions at the very least and contemplating transactions in larger numbers than anyone knows about."
For his part, Goeler isn't ruling out the possibility of more acquisitions.
"I don't know where the endgame is," he said. "As is it unfolds and we continue to build it, we'll feel where that point is."