Cardella: Tenth And Blake Seeks Craft Partnerships
Here’s something a lot of craft brewers don’t like to share: They are every bit as interested in learning what Tenth and Blake – MillerCoors’ craft arm – can do for their businesses as MillerCoors is interested in talking to them about a partnership.
Tom Cardella, Tenth and Blake’s president and CEO, said during a recent interview with Brewbound that nearly 20 craft brewers approached him at this year’s Craft Brewers Conference, looking to discuss strategy and the future of their businesses. Those conversations, he claims, were unsolicited. Also unsolicited, Cardella said, are the phone calls from small brewers, which are beginning to come in more frequently.
“Because of the uncertainties within the craft segment and the rapid growth of new players coming in, we get a lot of phone calls from smaller guys that see us as an opportunity,” he said.
Cardella is a 30-year veteran of the beer industry and boasts executive stints with Miller, InBev, Beck’s North America and Labatt USA. Now, he’s drawing on that experience to help strengthen MillerCoors’ craft portfolio. He’s hoping craft brewers will recognize the opportunity to align themselves with the country’s second-largest beer company — something many in the space have viewed, until now, as a deal with the devil, an attempt by MillerCoors to “buy craft” rather than win converts organically.
Not surprisingly, Cardella doesn’t see it that way. But he’s also not rushing any deals.
“If it is a model that we think makes sense, we will create partnerships,” he said.
It’s no secret that Tenth and Blake has been looking at the segment intensely. The company has openly admitted to having conversations with a number of craft brewers. It already owns 25 percent of Georgia’s Terrapin Beer Company; the company has also shown interest in Boulevard Brewing, and acquired Crispin Cider in February.
“We maintain an ongoing dialogue with a fairly wide set of existing players,” he said.
He said the company wants to learn how to better support craft brewers and how Tenth and Blake might become more involved with new partners. Cardella said he has a bullish outlook on the segment, but he admits it comes with some concerns.
“The barriers to entry in the craft industry are very low right now,” he said. “Homebrewers with a passion have the ability to go out and find small amounts of capital. That model continues to be exploited, hence the ongoing dialogue that there are another 1,000-plus brewers coming onto the scene.”
His fear is that these new, small craft brands are going to have a tough time earning that coveted spot a wholesaler’s truck, something Tenth and Blake with its access to a large network of MillerCoors distributors can remedy.
His other concern is the continued capital constraints craft brewers face as they look to grow their brands – again, something Tenth and Blake, with its access to the MillerCoors coffers, can solve.
But he also recognizes that any relationship will likely depend on developing a reputation in the larger craft brewing community as a big brewer that recognizes how craft is rejuvenating the overall beer category.
Cardella’s message: We come in peace.
“We are builders of brands,” he said. “We want people to know that we are looking to build a portfolio of breweries and brands that will continue to please consumers, support the MillerCoors distribution network, and provide us the ability to have a meaningful dialogue with our retailers.”
It’s been a slow education process, but Cardella is optimistic. And as for investments, Cardella said he’s not sure when Tenth and Blake’s next craft deal will occur or what it will look like. The company is looking at both strong regional players and small local brands – the only caveat being that a smaller brand must be capable of scaling.
“What’s most important to us is the initial chemistry,” he said. “We want to find a relationship that not only enhances the value for both parties but one that maintains the spirit of the entrepreneur.”
Deals I: North American Breweries Sold
In October, New York City-based private equity firm KPS Capital Partners announced plans to sell North American Breweries (NAB) – whose brand portfolio includes well-known craft offerings like Magic Hat, Pyramid and MacTarnahan’s – to Cerveceria Costa Rica, S.A. for $388 million.
Reports of a potential buyout surfaced in September when Reuters, citing “sources familiar with the matter” reported that KPS had put the NAB brand up for sale. NAB has long been discussed as an acquisition target. At one point in 2011, it was rumored that the Japanese company, Saporro Holdings Ltd., was interested in cutting a deal. NAB officials regularly denied those claims and refused to comment on last month’s buyout speculations.
KPS formed NAB in February 2009 as a platform for investments and growth in the North American beer and malt beverage industries. At that time, KPS also announced NAB’s first three acquisitions: Labatt USA from a subsidiary of Anheuser-Busch InBev; substantially all of the assets of High Falls Brewing Company, LLC (now known as the Genesee Brewing Company); and a perpetual license for the Seagram’s Escapes and Seagram’s Smooth brands from Pernod Ricard USA, LLC. In 2010, NAB acquired Independent Brewers United, Inc, one of the largest craft brewers in the United States, and owner of the Magic Hat, Pyramid and MacTarnahan’s brand families of craft beer.
Deals II: Not Bad for Apple Squeezins’
In the third deal in the cider space Hard Cider Company LLC – maker of Woodchuck Hard Cider – sold in late October to Irish cider company C&C Group for $305 million.
“It is our belief that significant opportunities for growth of the cider category are possible by combining these iconic cider brands,” said Bret Williams, Vermont Hard Cider President and CEO, in press materials.
Later, Williams told reporters that “I think I left a lot of value on the table. We didn’t shop it around but I know we could have received a higher value.”
Still, he said, he doesn’t deny feeling “pretty good” about $305 million.
“I think it is a very aggressive offer,” he said. “If this were a large global brewer like MillerCoors or AB-InBev, I wouldn’t have sold. They offered a quick exit that was painless.”
Vermont Hard Cider Company joins an impressive C&C portfolio that includes brands like Magners and Hornsby’s. C&C purchased Hornsby’s last year for $26 million.
In August, Vermont Hard Cider Company relinquished its distribution rights for the Strongbow brand to Heineken. And in February, Tenth and Blake – MillerCoors’ craft arm –purchased Crispin Cider for an undisclosed amount. The Wall Street Journal has pegged that deal at $40 million.
The Woodchuck brand has something of a storied past. The cider company launched in 1991 as Green Mountain Beverage Company and was acquired in 1998 by H.P. Bulmer of England – at the time, the largest global cider producer. After Bulmer teetered on the edge of bankruptcy for years, Scottish & Newcastle purchased the company in 2003 for $278 million euros (Scottish & Newcastle was later acquired by Heineken, in 2008).
During the 2003 sale, Scottish & Newcastle reportedly had little interest in the U.S. cider business and Williams – who had been with Green Mountain Beverage since 1996 – assembled a small group of investors who were able to purchase the Woodchuck brand. Under Williams’ leadership, the company has become the largest U.S. cider maker, producing 215,000 barrels in 2011. The company is also in the midst of a $22 million expansion which includes a new, 100,000 square foot production facility scheduled to open in the summer of 2013.
Both domestic and craft brewers are paying attention to the cider space too. Anheuser-Busch extended its Michelob Ultra line with a light cider offering and the Boston Beer Company rolled out its Angry Orchard Hard Cider line nationwide in April.
Hard cider currently makes up less than 1 percent of total U.S. beer market (roughly 6 million cases), but growth is promising. The category generated nearly $450 million in retail sales in 2011, up 23 percent over 2010.