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The Realities of Expansion; A Look at the Firestone Walker & Duvel Partnership

The big news coming out of the craft beer industry this past week was the reported acquisition of California craft beer heroes Firestone Walker by Belgian beer giant, Duval.

Turns out these first reports were a bit erroneous. David Walker spent a fair amount of time attempting to clear the air about the deal between the two companies and to break it down to its simplest form, the two have entered into a partnership agreement that will allow Firestone Walker to increase their brewing capabilities and begin to cast a wider net in national distribution.

It sounds simple enough. But it poses an interesting dilemma for the surging craft beer industry, how do you handle expansion?

Time for a disclaimer; I am not an economist, financial planner or marketing wizard. That means I certainly do not know the best answer, however, what is most interesting is there doesn’t appear to be one answer. Many breweries seem to be finding new and unique ways the expand the appeal of their brands and entice new customers to try their luscious libations.

Here in San Diego we are all bearing witness to the exponential growth of the industry. Not only are more new breweries continuing to open, we are also seeing a surge in established local craft beer breweries opening satellite tasting rooms around the county. Mike Hess Brewing recently announced plans for a third tasting room to soon open in Ocean Beach. Culture Brewing, out of Solana Beach, also has a second location in Ocean Beach. North County brewers Belching Beaver and Rip Current have opened satellite tasting rooms in North Park while local legends Ballast Point is on number four, Stone Brewing is at five and Karl Strauss has eight brewpubs in Southern California.

Every successful business wants to make money and get bigger. Make no mistake, the people who start breweries may have gotten into the industry for the love of beer, but once you put your livelihood and the livelihood of your entire family on the line, you need that business to be success, nobody is making craft beer with the intention of simply breaking even. So what are the ways we have seen craft brewers grow their business and their brands over the past few years?

Sierra Nevada opened a second brewing facility in Mills River, North Carolina. Lagunitas also opened a second location in Chicago, Illinois and have announced a third brewing location for Azusa, California. Green Flash has broken ground in Virginia Beach, Virginia, Stone has done the same in Richmond, Virginia and I continue to hear rumors swirling about that Ballast Point will soon announce plans to open a brewery in Austin, Texas.

This method of expansion is obviously not applicable to smaller craft brewers. This is what the giants of the craft beer are able to do by being so well established and having developed a loyal following across the country. For these companies, it is all about long term planning. Not only will these location cut down on the expenses associated with transporting beer across the country, it also addresses what could be a serious issue in the future here in California; water. These other states have access to large reservoirs of water that will help make expansion even more feasible in the future.

Then there is the method that caused a huge stir in the craft beer community in San Diego with some effects still being felt, the time when Alpine Beer Company sold to Green Flash Brewing. It was something we had not seen yet, a craft brewer buying another craft brewer. In this instance, Alpine was not necessarily looking to expand, but the demand for their beer was so high and the deal allowed them to not only expand their tasting room and still brew their own beers at their East County San Diego location, but it got all their employees health insurance and other benefits they could not provided before the acquisition. Now, Green Flash can brew up larger batches of Alpine Beer for the masses here in California and pretty soon nationwide.

Another method of expansion is one I am loathe to even address so we will make it short and sweet and never bring it up again. You can sell your brewery to Inbev or SABMiller or one of the other giant conglomerates from around the world. But we all know that is a terrible idea…I’m looking at you 10 Barrel and Elysian.

Initially, the above method is what most feared for Firestone Walker.

This is not Duvel’s first foray into a partnership with a craft beer brewer. Over the past several years they have acquired Cooperstown, New York brewery Ommegang and most recently Kansas City’s Boulevard Brewing. Duvel, a family owned and operated company, has stayed relatively hands-off with both, allowing them to continue doing what they do best. Now both breweries have access to more resources and help distribute their beers on a far larger scale, as we are seeing first hand with Boulevard who has recently made their way into the San Diego market.

In several interviews David Walker has elaborated that this is more of a case of Duvel investing in Firestone Walker to aid with their expansion plans. If that is one hundred percent accurate I cannot say with any certainty at this point. Since both companies are independently owned, the financial terms or the deal were not made public. You can read what Mr. Walker told TheFullPint.com and BrewPublic.com right here.

It also should be noted that Duvel is not without faults of their own, especially in their home country of Belgium where it is a contentious fact that Duvel is known for forcing bars into contracts that must be honored even in the event that new owners take over. This became a very public issue for the owners of Moeder Lambic which fought and won a battle with Duvel in order to help ensure that tap handles would be available to smaller breweries that they wanted to support.

While I cannot claim that what Firestone Walker did is what I would have done, it is most certainly the option they considered to be the best for them and the people who work for them. The fact is that Firestone Walker is the 16th largest craft brewer in the country, but a whopping 80% of the beer they sell stays in California. While math was never my strong suit, I know that only leaves 20% for 49 other states. If they want their beer in the hands of more consumers, and since we already established that making money is the whole point of a business, this is clearly what they felt was the best option for their brewery. The most important issue for me is the status of genius Head Brewer Matt Brynildson, as long as he is happy, and all indications are that he is, and he stays at the helm of the ship, odds are very high that I will continue to enjoy the beers of Firestone Walker for years to come, and with any luck I will be able to do it in any state in the country and possibly any country in the world.

Cheers,

Tom

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