Are investors ogling the beer industry like they used to with soft drinks?
Private equity group KPS Capital Partners, LP recently created North American Breweries as a portfolio company to invest in the beer market, and so far they have bought Labatt USA, the U.S. distributor for the classic Canadian beer brand, from Anheuser-Busch InBev. They also purchased High Falls Brewing Company, which includes the Genesee and Dundee brands.
Combine the creation of North American Breweries with growing speculation that efficiency-seeking AB/InBev might next put Pennsylvania warhorse Rolling Rock on the auction block, and we started to wonder if the industry wasn’t looking at a redux of the period around the year 2000, when outside investors scooped up non-alcohol brands like Naked Juice and Snapple, then retooled them for sale to bigger beverage companies.
Given the way some of those transactions have shaped the industry, and the success that Pabst found in rebuilding the once-languishing Blue Ribbon beer label, we wondered at the potential for rolling up some long-ignored traditional American beer brands.
Matthew Meyer, a senior VP at the financial consulting firm, Deloitte, said he thought that conditions were favorable for investment in traditional beer brands. He pointed to recent declines in the price of important commodities such as hops and grain that could make beer production more profitable.
Additionally, according to Meyer, consolidation within the industry is forcing large conglomerates to spin off their non-flagship brands.
“As a result of the large transactions, such as InBev’s purchase of Anheuser-Busch, what you will see is a chance to acquire non-core assets as a result of the amount of leverage that was required,” Meyer said.
Even so, Meyer said that the credit markets need to loosen up before there will be any action.
Regardless of the economic forecast, some investors are wary. Sherbrooke Capital’s John Bello, no stranger to selling non-alcohol brands, said he once tried to retool Rheingold, a classic New York-based beer brand. He invested in promotion and even brought back the Miss Rhinegold contest. But in the end the effort failed.
Now, however, Bello feels that if there is untapped value in an older brand, it lies in broader marketing and improved distribution, not in brand investment.
Bello called the idea of reviving traditional beer brands “nostalgia on a fool’s errand.”
Tim Jacobi, the brand manager for Pabst Blue Ribbon until 2007, agrees with Bello, saying that old beer brands lack the potential for big investor reward. Jacobi, who presided over the PBR brand during the period that the beaten down working-man’s beer underwent a stunning resurgence, said that, “old brands aren’t a winning horse.”
He found that when he was working with Pabst, people identified with PBR as a quality non-commercial brew. But, Jacobi said, that kind of product is hard to nurture and does not lend itself to investors – many of whom, he said, are likely to repackage, aggressively market, and, in the process, alienate customers who want the familiar comfort of an old time beer brand.
“Investors are driven by spread sheets, margins, all that financial stuff,” Jacobi said. “Consumers can be driven by tradition, emotion, heritage and belief systems. If you mix those two, I think you lose as an investor.”
Jacobi added that the appeal to investors may be limited because there have not been any really big beer revivals. MSNBC recently reported that despite innovative marketing and the combined distribution of the Miller and Coors networks, Miller High Life accounts for only 14 percent of Miller’s overall sales.
“Miller High Life is the biggest success story,” Jacobi said. “And it isn’t really all that big.”