Beverage Industry Convergence is Heating Up!
“There’s something in the air tonight. Something in the breeze. Whistling round the chimney stacks. Rustling through the trees.”
What’s in the air these days? It’s the sound of change and evolution in the beverage industry. With an unprecedented level of margin pressure and changes in consumer preferences, beverage companies are being forced to relook at current strategies. To flip these market challenges into opportunities, it seems the often utilized convergence strategies of M&A, joint ventures, or strategic distribution agreements seems as viable as ever…
While convergence has manifested itself in a number of ways throughout beverage industry history, what we’re seeing now feels different.
Blurred Lines: Non-Alcoholic and Alcoholic Beverages
Should beverage intellectual property (IP) be thought of holistically? Maybe.
With the Big 3 non-alcoholic beverage companies (PepsiCo, The Coca-Cola Company, and Keurig Dr. Pepper) being so attached to the consumption of sugar-laden liquids, each has moved aggressively to reshuffle their portfolios in recent years. Up until last year, that didn’t really include alcohol, but that has changed quickly…
- The Coca-Cola Company and Molson Coors partnered to create Topo Chico Hard Seltzer and spiked lemonade under the Simply brand
- The Coca-Cola Company and Constellation Brands are creating ready-to-drink cocktails through the Fresca brand
- PepsiCo and Boston Beer Company partnered to develop a hard offering under the Mtn Dew brand
- Keurig Dr. Pepper and AB InBev owned Labatt Brewing have a Canadian partnership that sells a spiked version of Snapple
Alcohol represents a lucrative opportunity for non-alcoholic beverage companies whose own industry lacks meaningful growth on a scale large enough to impact the bottom line. So, what’s holding the Big 3 non-alcoholic beverage companies back from just creating alcoholic beverages themselves without partnerships?
The three-tier system of alcohol distribution. The basic structure of the three-tier system of alcohol distribution system is that producers can sell their products only to wholesale distributors who then sell to retailers, and only retailers may sell to consumers. This was set up after the repeal of Prohibition, but I (and many other beverage industry professionals) think the system is outdated and needs updating to account for today’s converging marketplace.
Further evidence for this notion stems from the biggest two alcoholic beverage companies (AB InBev and Molson Coors) focusing more on “beyond beer” offerings…
- AB InBev acquired HiBall Energy in 2017, but also has done investment deals Super Coffee and GHOST Energy through its ZX Ventures arm.
- Molson Coors has a strategic partnership with ZOA Energy (and beverage development/incubator L.A. Libations)
Whatever way you look at it, alcoholic beverage companies want more non-alcoholic beverage exposure, and the flipside is also true.
Monster Beverage & CANarchy Craft Brewery Collective Deal
On January 13th, Monster Beverage Corporation, maker of Monster Energy drinks, announced it was purchasing CANarchy Craft Brewery Collective, a craft beer and hard seltzer company, for $330 million in cash.
What? Why?
OK. This shouldn’t be that big of a surprise for those of you that consume my content regularly…
This CANarchy Craft Brewery Collective deal provides Monster Beverage with an immediate launchpad from which to enter the alcoholic beverage sector. They will instantly have access to a fully in-place infrastructure, including human capital, distribution and licenses, along with alcoholic beverage development expertise and manufacturing capabilities. It also (and maybe more importantly) allows Monster Beverage to enter the alcoholic beverage space while staying independent at the same time.
More Convergence Ahead?
Do you remember very recently when reports surfaced from Bloomberg that Monster Beverage and Constellation Brands would potentially merge?
While that business combination deal is likely dead now, there was a additional potential beverage convergence from it that I was excited about and I believe worth expanding on a bit more…
Monster Beverage has thrown around the idea of getting into the cannabis beverage market. Constellation Brands just so happens to own ~40% of Canopy Growth Corporation, which is one of the largest global cannabis companies.
You see where this likely is heading next? According to Brightfield Group research agency, THC-infused beverages will account for $1 billion in US sales by 2025.
You are already seeing a few holistic beverage IP plays in cannabis:
- Lagunitas Hi-Fi Hops
- Pabst High Seltzer
Final Thoughts
The Monster Beverage acquisition of CANarchy Craft Brewery Collective further strengthens the reality that beverage companies will go to great lengths to diversify their portfolios in today’s converging business landscape. This deal will certainly be an early case study, and competitors will be watching closely for early success indicators, as it will likely set off a domino effect of other deeper strategic partnerships and M&A transactions.
