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.” Energy shots are the fastest-growing part of the energy drink category and are stealing the momentum from their bigger – in package size – rivals, according to Consumer Edge Research founder Bill Pecoriello.
In fact, the largest energy shot brand, Living Essentials’ 5-Hour Energy, now grabs nearly one out of every ten dollars spent on energy drinks in the convenience store channel, according to a category analysis by Beverage Digest.
The upshot, if you will? Energy shots are taking share and usage occasions away from energy drinks, according to Pecoriello.
The total energy market is still growing – up 4.7 percent over the 12 weeks ending May 17, according to Pecoriello’s data from Information Resources Inc. – but the growth has shifted. Energy shots grew by 84.5 percent during that period, while energy drinks slipped by 0.8 percent.
Overall, energy shots now account for 11 percent of the energy market and the big brands have yet to make a serious impact on the sub-segment. Living Essentials’ 5-Hour Energy still owns 78 percent of the category, followed by NVE Pharmaceuticals’ Stacker 2: 6 Hour Power with 7 percent. Hansen has made the biggest impact of the beverage players to flood into the category, with its Monster Hitman.
5-Hour’s lasting legacy could be as a new major beverage player – or it could be one that gets swallowed up quickly by a huge offer from a bigger company, Pecoriello projected.
“Using past history as a barometer, an independent or ‘new’ player should be able to sustain itself in this sub-segment,” he wrote. “Red Bull and Hansen were both relatively non-existent in US beverage before the creation of the energy drink segment.” The Kool-Aid man, that big, smiley, wall-destroying pitch-man for powdered beverage mixes, recently sat down for an interview with Beverage Spectrum. At least, we think he sat. We conducted the interview by email. Typing usually involves sitting, but the physics of a bipedal pitcher sitting in an office chair are a bit… questionable.
“Why the Kool-Aid Man? Well, he’s responsible for his product’s continued popularity – one that has seen something of a resurgence with the growth of single-serve powder packs. Additionally, he became part of the advertising industry’s Ad Icon Walk of Fame in May. Since his never-flagging public profile and the occasional ad and cameo (he’s constantly busting in on the Family Guy) continue to make Kool-Aid Man an irreplaceable part of the public consciousness, we thought it best to grab him right after getting his Walk of Fame laurels.
Beverage Spectrum: Do you have doors in your house, or just a large hole in each wall?
Kool-Aid Man: We have standard entryways in my place. Although I previously suffered from “door-a-phobia,” I’m delighted to announce that I’ve overcome the condition and we’ve plastered up all the misshapen methods of egress I’d previously used.
BS: How often have you burst through a wall into an awkward situation? What’s the worst you’ve seen, and what do you usually do about it?
KAM: There were definitely some embarrassing moments, like the time I accidentally crashed into a therapy session with a two-liter friend I won’t name. The poor guy was just opening up about his not being able to run the distance!
BS: In one commercial, you help apprehend a pair of bank robbers. Did you ever consider a career in crime fighting?
KAM: Like most red-suited American boys, I wanted to be a law enforcement officer in my youth. But I just couldn’t overcome the instinct to yell “Oh, Yeah!” every time I was about to make an arrest. It made it impossible to sneak up on felons.
BS: You have become something of a pop-culture touchstone in recent years. How do you feel about being parodied by Family Guy, Dane Cook, and numerous amateurs on YouTube?
KAM: How can you criticize a thirst for fun! After all, didn’t someone once say that imitation is the sincerest form of flattery? That’s the way I have to look at it – it’s not in my nature to be angry with anyone. •