By Jason Notte, MarketWatch
Hey, did you hear about the craft beer brewer that partnered with a decidedly non-craft company?
No, we aren’t talking about BrewDog, the crowdfunded Scottish brewer that just sold a 22% stake for an estimated $265 million to TSG Consumer Partners, which is linked with Pabst Brewing Co. and SweetWater Brewing, and also Vitamin Water, Denorex shampoo and the Planet Fitness gym chain.
If not BrewDog, do we mean Lagunitas? The Petaluma, Calif.-based brewery sold a 50% stake valued at $500 million to Heineken in 2015, and founder Tony Magee announced on May 4 that he’s selling the remainder to the same company. Lagunitas already bought stakes in craft brewers from California to South Carolina.
Nope, we’re referring to Asheville, N.C.-based Wicked Weed, founded only five years ago by brothers Walt and Luke Dickinson, and three other people. Wicked Weed rose to prominence on its Great American Beer Festival silver medal-winning Pernicious IPA and Lunatic Belgian Blonde.
After opening four facilities in the Asheville area, boosting production to roughly 40,000 barrels a year and pricing its beers at the steep end of the curve, Wicked Weed announced May 3 that it will be the 10th U.S. craft brewery to sell to Anheuser-Busch InBev /zigman2/quotes/209225053/composite BUD +1.12% and join its craft and import group, The High End.
“We’re running out of space and looking at this brewery and what we’re trying to do, and we realized that the future is finding partners who believe in you and can support you,” Walt Dickinson said in an interview.
No kidding, Walt. Like we said, nine craft breweries have already joined ABI’s ranks. But Wicked Weed’s move didn’t sit well with brewers including Black Project (which pulled out of a Wicked Weed collaboration) and Jester King (which pulled Wicked Weed products from its tasting room), largely because of ABI’s political activity regarding state beer law and the economic pressure it has placed on small brewers through its distribution practices.
However, there are reasons why breweries still partner with Anheuser-Busch InBev despite the other options available to them, and they’re not all that dissimilar from those that push brewers to take millions from other multinational brewers or private-equity funds.
1. Paying back investors: A key portion of BrewDog’s deal with TSG Consumer Partners was repaying its crowdfunding investors with interest. Those who invested in the first round in 2010 will see a more than 2,700 return on investment.
In Wicked Weed’s case, the brewery was started five years ago with $2 million in investments. The last facility the brewery expanded into cost $1.5 million to build. While Walt Dickinson insists that “Wicked Weed could have continued along its current growth plan under its own weight,” his brother Luke notes that the stainless steel that goes into brewing equipment is not cheap and that it takes significant capital just to keep the lights on.
2. Continued growth: Anheuser-Busch InBev has a 1,700-acre hop farm in Elk Mountain, Idaho. It has a large plant less than four hours from Asheville that could come in handy. Its entire distribution fleet is refrigerated, which helps if you’re looking to move 78 different brands of beer to chain stores in Raleigh, Charlotte, South Carolina, Tennessee and much of the rest of the South.
“But do you need to be that big?” some may ask. Does anyone ask the same of Sierra Nevada or Boston Beer /zigman2/quotes/205338227/composite SAM +5.62% ? Latching on to ABI comes with an ugly bit of business jargon that’s kind of helpful to a growing brewery: synergies.
“In year one, we hit our five-year projection in our business plan, so this was not in our business plan,” Walt Dickinson said. “This has been part of us throwing that out the window and letting intuition and the market guide us to the point where we are today.”
3. A proven track record: Felipe Szpigel, president of The High End, notes that Aneheuser-Busch InBev has learned a few things since making its first craft beer purchase with Goose Island in 2011: How to expand, scale and market craft brewers. He feels he’s given brewers looking for a partner something to think about while they’re comparison shopping.
“There are plenty of these things happening in the marketplace,” he said, adding that companies can either sell themselves, create employee-stock plans for succession purposes or find other options. “People figure out their future.”
More importantly, on the brewers’ end, there are now enough people who’ve stuck with the ABI-owned breweries after the transition to tell new recruits how it’s worked out. For the Dickinson brothers, that was a huge selling point.
“To hear Felipe talk about his vision for us is one thing, but to hear from people I’ve looked up to my whole life as a brewer and have them tell me that things are going to be OK and that these are good partners — that meant a lot to us,” Walt Dickinson said.
4. Job retention: Ask the folks laid off at Stone last year if everyone keeps their jobs after a brewery gets private-equity money. Ask folks at the soon-to-be-shuttered Redhook brewery in Woodinville, Wash., if being aligned with Craft Brew Alliance did wonders for their job security. Ask those given notice at Pabst how they feel about TSG Consumer Partners’ banking.
Then read Draft Magazine’s interview with a staffer at an ABI-owned brewery who notes the new pressure to sell and formulate new ideas, but also notes how ABI “go[es] above and beyond anything I’ve ever seen to ensure people stay.”
Employment may not be high on the priority list for people who troll breweries with hate sites , but it was clearly on the minds of the Wicked Weed founders. Luke Dickinson noted that he was looking for a partner that would view the brewery’s employees and culture as “part of the family” as much as he did, while Walt Dickinson said ABI was the only candidate willing to “give us the autonomy to continue to be who we are and maintain our DNA as a company.”
Jason Notte is a freelance writer based in Portland, Ore. His writing has appeared in The New York Times, The Huffington Post and Esquire. Follow him on Twitter @Notteham.