What Happened to Ballast Point?
Among the hundreds of consumer product M&A headlines in Q4 2019, one corporate divestiture in particular stood out to us: Constellation Brands’ sale of Ballast Point to the virtually unheard-of Kings & Convicts Brewing Company. Was this a shift in strategy for one of the leading beer, wine, and spirits producers as it pursued the cannabis space? Had Ballast Point fallen out of favor with consumers in the four short years since Constellation acquired the super-premium brand? Who / what is Kings & Convicts Brewing Company and what will be the fate of Ballast Point?
First off, a bit of a primer on the industry. The market for beer has drastically changed over the past two decades as consumer preferences shifted from more traditional choices such as light and premium brands to craft beer. The quality, variety, and the story that craft beer brands tell allowed craft beer production to become one of the fastest growing alcoholic beverage segments in the U.S., generating an estimated $27.6 billion in revenue in 2018, a little over 24% of the total beer market share (~13% volume share). While overall beer consumption volumes are flat to down in recent years, the U.S. is the world’s leading craft beer market with over 7,500 independent craft breweries established across the nation. Simply put: American beer drinkers are spending more while drinking less beer.
After a relatively short slowdown in U.S. beer M&A activity, deal volume picked up again in 2019, including two other significant acquisitions and one major regional brewer making its first acquisition. In May 2019, Boston Beer Company and Dogfish Head Brewery announced their $300 million deal, calling the transaction a preventive measure for being bought out by “industry giants.” Little World Beverages, a Kirin subsidiary, announced in November that it would acquire Colorado’s New Belgium Brewing from its employee stock ownership plan. The nearly $400 million transaction included San Francisco’s storied Magnolia Brewery. Also noteworthy was Sierra Nevada’s first ever acquisition, which entailed San Francisco’s Suffer Fest, a small but innovative craft brand aimed at outdoor enthusiasts.
So what happened to Ballast Point, the pioneer of the $15 six-pack? All reporting on the San Diego-based brewer indicates that despite Constellation’s massive distribution push beginning in 2016, sales volumes grew, peaked, and then rapidly declined through 2019 by over 50% from a peak of 431,000 barrels across 49 states. National craft beer demand growth slowed during this time and many competing regional craft brewers countered with citrus-infused IPAs, most of which retail for less than Ballast Point’s flagship Sculpin IPA. As Men’s Journal put it, “in craft beer, there are no sacred cows.” Another likely factor is consumer backlash, as craft beer has long been known as a category with loyal consumers who want to drink nothing but local suds. Building on that point, the proliferation of American brew pubs led to a 2013-2018 production CAGR of 10.9% vs. 8.6% for regional brewers. Now officially re-designated as a craft brewer (no single investor owns more than 25%), Ballast Point’s new owners, including experienced industry veterans, have vowed to hire 70 new sales staff and focus on reviving the brand.
MHT Partners’ Consumer Growth team remains bullish on the craft beer, as well as wine and spirits categories, as premiumization continues to more than offset flat-to-declining consumption volumes and presents opportunities for entrepreneurs and acquirers alike.