Consolidating Continues Apace -or- Mind Your SKUs

The indefatigable Chris Funari reports this morning that Cigar City has gone the way of private equity.

Cigar City, a leading independent brewery based in Tampa, Fla., has agreed to sell controlling interest to Boston-based private equity firm Fireman Capital Partners, which already owns majority stakes in Oskar Blues, Perrin Brewing and the Utah Brewers Cooperative outfit that includes the Wasatch and Squatters brands.

Together, the five craft breweries make up what the firm calls United Craft Brews LLC., a separate holding company and special purpose fund set up specifically for craft brewery acquisitions.... Collectively, all five companies produced more than 320,000 barrels in 2015 and ranked as a top-15 craft producer. In addition to its presence in Utah, the group has beachheads in the major craft markets of Colorado, North Carolina, Michigan and Texas.

The whole article is worth a read--though at this very late date, there's not a lot to add. I did find it to be satisfyingly congruent with another bit of reportage that came out today from Jason Notte. (It's listed as "opinion," but it's more heavily reported than anything I ever do.) In that piece, Notte describes the glut of SKUs and the potential challenges they pose. (An SKU or "stock keeping unit," is a product's identifier on store shelves; for example, Deschutes might have five SKUs at a grocery store for Mirror Pond, Black Butte Porter, Obsidian Stout, Fresh Squeezed IPA, and "seasonal." That seasonal SKU would rotate throughout the year, so you'd see eight Deschutes products at that grocery store over the year--even though there are just five SKUs.)

Bump Williams Consulting has made a living providing analytics to the beer, wine and spirits industries since 2008. In that time, it’s watched the number of beer SKUs rise from 4,843 to 11,833. Craft beer SKUs alone have soared from 2,274 in 2008 to a whopping 7,400 last year, more than tripling the amount of products that the industry sent into the marketplace.

All of that variety is great for consumers, but it acts as a spur to larger companies who want prominent placement so they can cut through the chaos and get a sizable chunk of the whole. There are a number of players now grabbing for that market, and they know there's not room for very many winners. More Notte:

According to data from IRI, a Chicago-based market research firm, 48.85% of all craft beer sales came from the top 10 brands alone: Samuel Adams, Sierra Nevada, New Belgium, Shiner, Lagunitas, Small Town (Not Your Father’s brands), Deschutes, Stone, Goose Island and Bells. A whopping 62% come from the top 20. 

The reason there's so much consolidation happening right now is because each passing week makes it harder to enter that top high-selling tier. Gaining national distribution is hugely expensive, and hanging onto it will require substantial funds. Small brands have the appeal and market experience, and big beer companies have the money. With ABI money, Goose Island managed to push their 20-year-old IPA into the country's top five. That's what this combination can do for brands. But, if you're a regional brand selling 50,000 barrels, the opportunity to grow 20x and become a national player is starting to sunset. And big beer knows it only needs a few horses to ride, so the scramble is on.