While Macro Turns to Seltzer, Kirin Doubles Down on Beer
When Larry Bell announced he was selling his 36-year-old brewery last week, most of us focused on Bell’s, the brewery being acquired. But we may have missed a more interesting development. In a moment when all the focus is trained on seltzers and FMBs, purchasing craft breweries looks like a quaint (and losing) strategy for growth. Bell’s is a large and healthy regional brewery—an expensive acquisition and a risky one in a country with fierce competition and a glut of breweries.
Indeed, most of the other giants, like AB InBev and Molson Coors have been transparent about their strategies to embrace that “beyond beer” world of alcoholic seltzers, sodas, coffees and so on. They’ve watched sales of mass market lagers fall for the better part of a decade, haven’t found a cash cow in their craft holdings, and they’re selling beer short. Kirin, on the other hand, has built up a portfolio of key UK and American craft breweries, and with its purchase of Lion in 2009, dominates in Australia and New Zealand. Far from shorting beer, they’re investing a lot of money in its future. While ABI and MC play the short game of trend-chasing, Kirin is investing in expensive craft infrastructure. What do they see others don’t?
It was just a decade ago that big beer moved decisively into craft when A-B bought Goose Island. In the period of consolidation that followed, the big beer companies each pursued a different craft strategy. The company formerly known as MillerCoors bought smaller, generic breweries with brands they hoped to mold into future Blue Moons. ABI built a craft portfolio, diverse in styles and region, to protect its distribution network. Heineken, with an extensive portfolio of European breweries, chose to buy a single brewery in the US—Lagunitas—and use it as their beachhead for growth here.
In 2019, Kirin bought New Belgium outright (which in turned owned Magnolia), and has a piece of Brooklyn, which has partnerships with 21st Amendment and Funkwerks. In the UK, they acquired Fourpure and Magic Rock, both important and established craft breweries. While the UK has no equivalent to Bell’s in the craft realm, they represented serious investments in the growing segment there. Finally, of their large South Pacific footprint, Little Creatures has become the envoy to the world, with locations in London, Hong Kong, Auckland, Singapore, and (briefly) San Francisco.
As a short-term strategy, this looks mighty dubious. Craft beer is a terrible space to compete if you want to sell a lot of beer. It’s incredible fragmented, so at best a company hopes to establish a foothold in a piece of a piece of a piece of the market. That makes everything, from production to distribution to marketing and sales, fragmented as well. If a big beer company wants to enter the US craft market, they have to select a style within it, hoping to carve out enough of that niche to sell nationally. Contrast that with hard seltzer and FMBs, which can be made simply at scale in any plant and distributed, marketed, and sold in a single fat, efficient stream. Why would anyone screw around with craft beer?
Based on these major commitments in established breweries, we can only assume they’re not thinking short-term. One can only guess at Kirin’s thinking, but it might look something like this: We don’t know what the drinks market will look like in a quarter century, but we know that beer will still be around. It’s fortunes have fluctuated over the past 12,000 years, but it has always survived. Hard seltzer? Canned cocktails? Ranch water? Hard coffee? These are less sure bets. Okay, so if beer will be around in the long run, what will it look like and who will be making money? Here we may see the contours of a strategy.
For centuries, breweries have seen the value in consolidation. Making beer is complex and capital-intensive; beer is heavy. The more anything in the process can be streamlined, the cheaper and easier it is to put a pint in drinker’s hands. So while it’s possible for small breweries to carve out regional footprints they can dominate, it’s almost impossible for indies to compete nationally or internationally.
Don’t read this analysis as an endorsement of Kirin. I normally don’t share in the moral outrage about large breweries the way some folks do. Despite their periodic hardball tactics (sometimes illegal), at the end of the day they make and sell beer. They don’t strip-mine for coal or push opioids into the black market or hawk nicotine vape pens to kids. Kirin is a special case. They are a malignant force in the world. Kirin is the majority owner of two breweries in Myanmar that directly support the repressive ethnonationalist military there. And despite the promises they made earlier in the year to divest in these holdings, they’ve changed their minds and are quietly still doing business with the military. Think about that the next time you reach for a Voodoo Ranger.
It’s fairly simple math. The breweries that make money selling a lot of beer will be the biggest and most well-established. In 25 years, the breweries making the most money will be the few that established popular national brands and the infrastructure to supply them. The only real question is what kind of beer will we be drinking in 25 years. With this (probably incomplete) family of craft brands, it appears Kirin believes it will be something other than mass market lagers. The fact that most of the other big breweries are quitting the space makes it all the more alluring for the ambitious company willing to invest a lot of time and money consolidating its position. As craft consolidates, a few big suppliers will win out, offer high-quality, well-regarded beer at a competitive price. Kirin, it seems, is positing itself for that dominance.
If their assumption about the market is correct—that growth in beer will be among erstwhile craft styles rather than mass market lager—(and I believe it is), it confirms trends that have been in place for years. With Bells’ sale, even fewer independent craft breweries appear on the list of the country’s largest companies. Once a brewery gets large enough to make a couple hundred thousand barrels, it’s very hard to compete in the US. The brewery’s footprint has to reach out into distant markets teaming with exciting small, local breweries where they’re weaker. (No one in Iowa needs Deschutes anymore.) They can’t easily compete with the small locals on their turf, but they also can’t compete with the industrial-scale brands like Goose Island and Lagunitas at the supermarket level, either. One way or another—through collectives like Canarchy, strategic partnerships, outright sales, or, worst case, failure—regional independent craft breweries have a ceiling for growth.
Finally, there’s almost no risk of customer blowback in buying breweries like Bell’s now. Despite a sustained, decades-long battle to make “independence” a buying factor among consumers, it’s clear they don’t care anymore. If you want proof, have a look at the favorite beers and breweries cited by readers of Craft Beer & Brewing. If any group was going to penalize these breweries, it would be fans dedicated enough to subscribe to the last print beer mag. A brewery may get special points for independence, but even rabid drinkers don’t actually care who owns them. (A Heineken-owner Sierra Nevada probably wouldn’t remain readers’ fave brewery, but it would only slide a few slots, like New Belgium.) Success and good beer, far more than independence, are what people care about. And that, too, is nothing new.
No idea if Kirin will be the king of craft in 25 years. Too many unknowns will determine that. But I am convinced that if a brewery wants to become the king of craft, they have to make real commitments now and plan for the long term. Which is exactly what Kirin appears to be doing.