Big Beer Bets on the Future

Another week, another buyout, another yawn. Except not this time, because the topline number has startled even cynical old beer writers like me:

Corona and Modelo beer brewer Constellation Brands Inc (STZ.N) said it will buy San Diego-based craft beer maker Ballast Point Brewing & Spirits for about $1 billion to compete in the fast-growing craft beer market.

A billion here and a billion there and pretty soon you're talking real money. Some quickie comments as the news comes in.

The Rationale

Ballast Point is one of the strongest brands in the US. There aren't a ton of top tier brands out there, so it makes sense that Constellation paid premium dollars for it.

The Valuation

On the other hand, the brewery only made 115,000 barrels and was only the 31st largest craft brewery in the US last year. Which means Constellation paid super premium dollarsar--far in excess of the current value of the company. (No financials were disclosed on the Lagunitas deal, but reports said Petaluma's--and Chicago's--finest was also valued at $1 billion, and it brewed five times as much beer in 2014 and has far greater capacity.)

The Radical Shift in the Market

All of which leads me to this last point, which is one I think most people haven't fully digested yet. Big beer companies are betting on the steep decline of mass market lagers in the US. I constantly get asked whether we're in a bubble or not, and this should be gold-plated proof: we're not. A permanent upheaval has begun in the beer market, as mass market lagers get replaced by what we formerly called craft beer. Whomever can hoover up market share on the full-flavored ales and lagers  will be the big winner in the marketplace of 2030. And if you don't believe me, believe AB InBev, Heineken, MillerCoors, and now Constellation, who are paying way, way more for breweries than their absolute 2015 value. 

The reason is because they're betting on the future, and they're betting on "craft."

Update. I elaborate on this post at All About Beer: "Betting a Billion Dollars Against a Bubble."