Beverage Market Update – August 2024

Beer Disruption Expected to Accelerate Distributor Consolidation in the Beverage Market

Beverage distributors need to future proof their business models by offering products that satisfy consumers’ thirst across a wider range of occasions and moods to achieve sustainable growth, a trend underpinned by massive shifts in consumption preferences across the Beverage market in recent years. The sector’s post-pandemic evolution—where dynamic consumer preferences, impacts of slower economic growth, and geopolitical risks have posed new challenges—has created a ripple through the supply chain, leading to abundant merger and acquisition (M&A) opportunities for producers and distributors alike. Notably, alcoholic beverages segments saw the most drastic increase in off-premises consumption during the pandemic as local restaurants, pubs, and entertainment events shut down for health safety and consumers resorted to drinking at home. These segments subsequently saw the most drastic decrease, declining 86.6% since its peak of 18.7% in 2021, according to the Bureau of Economic Analysis (BEA).¹

Notable changes to alcoholic beverage shipment volumes have underscored the new dynamics of the segment. In 2021, U.S. beer shipments reached a three-year high of 169.2 million barrels, driven by a sharp COVID-19 related bump in consumption as consumers delt with stay-at-home mandates, according to the Beer Institute’s December 2021 Domestic Tax Paid Release.² However, what followed was a 10.4% drop in U.S. beer shipment volume during 2022-2023 to 151.5 million barrels, the lowest level since the report’s first issue in 2013, according to the Beer Institute’s December 2023 Domestic Tax Paid Release.³ Shipments have exhibited further deterioration through June 2024, falling 4.8% YOY, according to the Beer Institute’s June 2024 Domestic Tax Paid Release.⁴ Brewers have attempted to meet volume and inflationary headwinds with price increases to drive top-line performance over the prior two years, but price hikes have only accelerated a trade-down behavior that consumers have displayed throughout the uncertain macroeconomic environment and further compounded volume declines. After falling 1% YOY in full-year 2023, total U.S. beer imports have increased 8.5% YOY through June, according to the Beer Institute and the U.S. Department of Commerce’s June 2024 and December 2023 Import-Export Reports.^{5, 6} This figure reflects Constellation Brands’ (NYSE:STZ) portfolio company Modelo Especial’s recent rise to the top brand in the U.S. with more than $4 billion in retail sales in 2023, exceeding Anheuser-Busch InBev’s (ENXTBR:ABI) Bud Light by $240 million, according to a Beer Marketer’s Insights article.⁷ The ranking reshuffle reflects the fragility of beer brands in the current market, with a large portion of Bud Light’s sales decline attributable to an ineffective advertising campaign that led to the April 2023 Bud Light boycott. As non-domestic beers have become more popular, U.S. brewers have increasingly invested in new product innovations, including non-alcoholic and functional beers, and collaborations between distributors in an effort to regain market share both in the U.S. and internationally. Through implementing more effective digital marketing strategies, increasing product innovation and use of technology (AI), the U.S. Beer industry can emerge on a transformative path to stronger volume growth by 2025.

Alcohol distribution continues to adapt to changing consumer behavior. Beverage distributors must expand their brand offerings across alcoholic and non-alcoholic products to future-proof their business.

Ross ColbertManaging Director, Capstone Partners

Consumer Preferences Drive Major Disruption in Craft Beer, Distribution a Focus Among Brewers for the Foreseeable Future

Consumer preferences have shifted rapidly since the COVID-19 pandemic, particularly driving growth in two major groups: Ready-to-Drink (RTD) Spirits and Non-Alcoholic Beers. RTD Spirits, including popular brands High Noon, BuzzBallz, and White Claw, have seen extremely high growth in recent years, observing 30.4% YOY off-premises scan growth in 2023, according to NielsenIQ (NIQ).⁸ Health has become a priority for consumers in the post-pandemic environment. Subsequently, major beverage companies and large brewers have increased their low- or no-alcohol beer offerings as healthy consumption trends among consumers are expected to grow significantly for the foreseeable future. Notably, Molson Coors (NYSE:TAP) recently launched a Blue Moon non-alcoholic option, which the firm cited as the top selling new non-alcoholic beer of 2024, according to its Q1 2024 earnings call.⁹ Craft non-alcoholic beer producer Athletic Brewing has taken over legacy players Heineken and Budweiser as the top-selling non-alcoholic beer, boasting more than 80% sales growth YOY in 2023, according to an interview with Bill Shufelt, CEO of Athletic Brewing.¹⁰ Athletic Brewing’s growth figures also position the company as the fastest growing craft brewery in the U.S.

With the rising popularity of RTD’s and non-alcoholic beers, craft brewers experienced a sales slowdown in 2023, falling 1.8% YOY to $7.4 billion, according to IBISWorld.¹¹Retailers have been forced to reallocate shelf-space, destocking microbrews in favor of FMBs and non-alcoholic alternatives. These evolving consumer tastes have caused a reset in the once rapidly expanding craft brewery space. The number of craft breweries grew from less than 100 in 1983 to 6,406 by the end of 2020, according to the U.S. Department of the Treasury.¹² Moreover, 90% of these breweries produced fewer than 15,000 barrels and 4,705 brewed less than 1,000 barrels in 2020. A broadly tightening economy, coupled with destocking of craft beer and unfavorable supply-demand dynamics, has led to increased consolidation, restructuring, or closings of many small craft breweries. As a result, craft brewers have increasingly adopted defensive strategies by scaling back distribution and reverting to localized market share footprints. Distribution channels have become imperative to finding a route-to-market for small craft players with innovative and niche products. As beer wholesalers jockey for position in the changing landscape, small distributors connected to local, innovative products are expected to attract acquisition interest from larger strategic buyers looking to solidify a spot at the forefront of shifting consumer preferences while providing downstream buyers with unique product offerings.

Alcoholic Beverage Consolidation Fuels Rebound in Market M&A Activity

M&A activity in the Beverage market has shown signs of a rebound to-date, climbing 5.6% YOY to 95 transactions announced or completed. Strategic buyers have remained the primary driver of deal activity, encompassing 75.8% of year-to-date (YTD) transactions. However, private equity firms have buoyed total transaction volume above the prior year period, increasing 156% from nine to 23 deals, as they look to resume deploying capital to meet limited partner (LP) investment return expectations after two years of relative dormancy. Notably, add-on acquisitions have contributed to 17.9% of transactions YTD, totaling 17 deals, indicating that sector sponsors are looking to resume pursuing inorganic growth opportunities for their portfolio companies. Product innovation and collaboration between soft drink and alcoholic beverage producers have become a primary driver of M&A activity in Beverage market (see Capstone’s August 2023 Beverages Sector Update). As market headwinds have continued to propel buyer interest in small-scale craft brewer roll-up opportunities, Beverage market M&A activity is expected to remain healthy through year-end and into 2025, with alcoholic beverages segments providing the largest boost to sector-wide volumes.

Recently, transaction activity has leaned heavily towards alcoholic beverage producers and is expected to act as a tailwind for beer distributor M&A as wholesalers look to expand their brand portfolios and gain economies of scale. Notably, alcoholic beverage targets have made up the majority (72.6%) of Beverage market deal activity to-date. Furthermore, among seven beverage Distributor/Wholesaler segment deals to-date, five represented transactions including beer distributors. Beer distributors deal volumes to-date have remained relatively in line with YTD 2023 and 2022, which saw eight and nine transactions, respectively. Beer Wholesaling in the U.S. is a fragmented space with mega-wholesaler, Reyes Beverage Group holding 10.3% of market share, followed distantly by Columbia Distributing at 0.5% market share, according to IBISWorld.¹³ The space has seen continual consolidation over the years, falling from 4,595 traditional beer distributors in 1980 to around 3,000 in 2020, according to the National Beer Wholesalers Association (WBSA).¹⁴ Capstone expects consolidation among beer wholesalers to pick up through year-end and into 2025 as industry volume headwinds, and higher fuel, delivery, and labors costs have caused margin contraction for smaller distributors. These typically family-owned wholesalers struggling to adapt and scale with the changing industry are expected to make attractive targets for strategics that have adopted a grow-or-die mentality. Roll-ups of smaller regional players can help large strategics expand territory and further diversify its portfolio to accelerate sales volumes and generate meaningful cost synergies. Select transactions are highlighted below.

• Sunkey Beverage Holdings Acquires Silver Eagle Beverages (July, Undisclosed) – Sunkey Beverage Holdings, a family-owned Florida-based beer distributor, acquired Silver Eagle Beverages for an undisclosed sum in July 2024. Headquartered in San Antonio, Texas, Silver Eagle Beverages is one of the nation’s largest independent Anheuser-Busch (AB) distributors. Furthermore, Silver Eagle also wholesales Constellation Brands’ Modelo products, domestic and imported microbrews, craft beers, spirits, and non-alcoholic beverages in the Southwest Texas area. Through acquisition, Sunkey will obtain more than 3,800 accounts across 14 counties in Texas through the deal, according to a press release.¹⁵
• Sazerac Acquires BuzzBallz (May, Undisclosed) – Sazerac, a leading global distilled spirits company, acquired BuzzBallz for an undisclosed sum in May. BuzzBallz produces a flagship RTD Spirits beverage with its identifiable spherical packaging and its portfolio includes other RTD brands such Uptown Cocktails and Sip Sip Hooray. The firm has experienced robust and steady growth since its inception in 2009. After recording just $1 million in revenue in its second year of operations, the company saw revenue jump to $20 million in 2016 and then $100 million in 2026; today, total revenues are now estimated at $500 million, according to a Forbes article.¹⁶ Notably, BuzzBallz CEO, Merrilee Kick, looked to sell the company in 2021 and Sazerac passed on the opportunity, deeming the valuation too high. When approached with the opportunity again in May 2024, Sazerac accelerated the timeline and deal terms were signed within weeks, exemplifying alcoholic beverage M&A market strength in 2024. While BuzzBallz expects the partnership to help expand its global distribution footprint, Sazerac cited BuzzBallz’s brand and talented management as a reason for its interest. “Merrilee [CEO] and the team at BuzzBallz have created incredible brands and we are both honored & excited to partner…Merrilee’s creativity, commitment to quality and drive is inspiring,” said Jake Wenz, CEO and President of Sazerac, in a press release.¹⁷ Merrilee, CEO of BuzzBalllz, has remained at the helm at BuzzBallz after the transaction’s close.
• E. & J. Gallo Winery Announces Investment in Montucky Cold Snacks (May, $49.7 Million) – E. & J. Gallo Winery, a U.S.-based leader in wine, spirits, and RTD production, partnered with Montucky Cold Snacks (MCS), the 46^th-largest craft brewer in the U.S., via a $49.7 million investment in May. The partnership marks Gallo’s entrance into the Beer subsegment through MCS’s flagship Cold Snack lager and runs adjacent to the company’s continued expansion into the RTD Spirit space. Notably, the firm also acquired spirits-based RTD maker Waterbird (May, undisclosed) and canned-cocktail producer Salt Point (March, undisclosed) in 2024, as well as spiked-lemonade producer Fishers Island Lemonade (May, undisclosed) in 2023. Interestingly, Montucky experienced both dollar sales (8.0%) and volume declines (14.4%) YOY leading up to the sale in mid-May, according to a press release.¹⁸ Despite their recent pressures, MCS has seen substantial growth since its founding and Gallo’s investment is expected to shore up the brand’s route-to-market.
• Ace Beverage Group Acquires Nude RTD (May, $8 Million) – Ace Beverage Group (ABG), a subsidiary of Corby Spirit and Wine (TSX:CSW.A), acquired Nude RTD for an enterprise value of $8 million, equivalent to 2.7x EV/EBITDA (May). Nude RTD produces sugar and sweetener free RTD spirits in Western Canada. The firm holds the fourth highest market share in the RTD space in British Columbia with its 25 active SKUs, according to Corby Spirit and Wine’s fiscal year Q3 2024 earnings presentation.¹⁹ ABG and Corby cited Nude RTD’s brand strength, Western Canadian penetration, and production synergies as key rationale for the acquisition. “We’re excited to leverage the Nude team and brand to propel our expansion in Western Canada...paving the way for a national platform to introduce cutting-edge RTD innovations to consumers nationwide,” noted Cam McDonal, CEO of ABG, in a press release.²⁰
• Prime Drink Group to Acquire Triani Canada (January, $31.4 Million) – Prime Drink Group (CNSX:PRME), a Canadian diversified beverage holding company, announced it will acquire Triani Canada for an enterprise value of $31.4 million, equivalent to 1.5x EV/Revenue and 9.8x EV/EBITDA (January). Triani produces, bottles, sells, and markets alcoholic and non-alcoholic beverages such as Cantini, Ettaro, and Enjoy wine brands; Octane, Mojo, Baron, and Seagram malt-based beverages; and Hickson brand non-alcoholic beverages. The deal structure includes a $13.5 million earnout to be paid by Prime based on achieving certain EBITDA targets in fiscal years 2024, 2025, and 2026. Triani’s 100,000 square foot beverage processing facility and expansive production and distribution operations were noted as the key drivers for the transaction. “The expansion of our processing facility to over 100,000 ft² underscores our commitment to catering to a growing clientele, which includes the production of well-established brands. Our strategic alignment with Prime is expected to facilitate the expansion of our operations and expertise across North America,” said Tristan Bourgeois Cousineau, CEO of Triani, in a press release.²²

The Beverage market is expected to continue its significant evolution as consumption headwinds will likely remain a challenge for the space in the near-term. However, RTD Spirits and non-alcoholic beverages have provided sector participants with ample growth and innovation opportunities, leading to a promising M&A market moving into 2025.

To discuss changing consumer preferences impacting beverages businesses, provide an update on your business, or learn about Capstone's wide range of advisory services and credentials in the Beverage market, please contact us. 

Andrew Woolston, Associate, was the lead Market Intelligence contributor to this article.

Endnotes

1. Bureau of Economic Analysis, “Table 2.4.5 Personal Consumption Expenditures by Type of Product,” https://apps.bea.gov/iTable/?reqid=19&step=3&isuri=1&1921=underlying&1903=2017, accessed June 25, 2024.

2. Beer Institute, “December 2021 Domestic Tax Paid Release (01/26/2022),” https://www.beerinstitute.org/wp-content/uploads/2022/01/December-2021-Monthly-Domestic-Tax-Paid-Shipment-Estimate.pdf, accessed July 1, 2024.

3. Beer Institute, “December 2023 Domestic Tax Paid Release (02/08/2024),” https://www.beerinstitute.org/wp-content/uploads/2024/02/December-2023-Monthly-Domestic-Tax-Paid-Shipment-Estimate.pdf, accessed July 1, 2024.

4. Beer Institute, “April 2024 Domestic Tax Paid Release (6/07/2024),” https://www.beerinstitute.org/wp-content/uploads/2024/06/April-2024-Monthly-Domestic-Tax-Paid-Shipment-Estimate.pdf, accessed June 20, 2024.

5. Beer Institute, “April 2023 Domestic Tax Paid Release (06/08/2024),” https://www.beerinstitute.org/wp-content/uploads/2023/06/Beer-Institute_Domestic-Tax-Paid_April-2023.pdf, accessed July 1, 2024.

6. Beer Institute, “April 2024 Import-Export Report from the U.S. Department of Commerce,” https://www.beerinstitute.org/wp-content/uploads/2024/06/Import-Export-April-2024.pdf, accessed June 20, 2024.

7. Beer Institute, “December 2023 Import-Export Report from the U.S. Department of Commerce,” https://www.beerinstitute.org/wp-content/uploads/2024/02/Import-Export-December-2023.pdf, accessed June 26. 2024.

8. Beer Marketer’s Insights, “Modelo Especial $$ Sales over $4 Bil, $240 Mil Ahead of Bud Light in 2023 Circana; a $1.5-Bil Swing,” https://www.beerinsights.com/archive-article/51161, accessed June 20, 2024.

9. NielsenIQ, “A Look Back at 2023 Alcohol Trends,” https://nielseniq.com/global/en/insights/analysis/2024/a-look-back-at-2023-alcohol-trends/, accessed July 2, 2024.

10. Molson Coors, “30-April-2024 Molson Coors Beverage Co. (TAP) Q1 2024 Earnings Call,” https://s27.q4cdn.com/826627388/files/doc_financials/2024/q1/Molson-Coors-Q124-Earnings-Transcript.pdf, accessed June 20, 2024.

11. Just Drinks, “”With Growth Comes Growing Pains” in 2024 – The Low-and-No Industry C-Suite Has Its Says,” https://www.just-drinks.com/interviews/with-growth-comes-growing-pains-in-2024-the-low-and-no-industry-c-suite-has-its-say/, accessed July 2, 2024.

12. IBISWorld, “Craft Beer Production in the US,” https://my.ibisworld.com/us/en/industry-specialized/od4302/performance, accessed June 20, 2024.

13. S. Department of the Treasury, “Competition in the Markets for Beer, Wine, and Spirits,” https://home.treasury.gov/system/files/136/Competition-Report.pdf, accessed July 1, 2024.

14. IBISWorld, “Beer Wholesaling in the US,” https://my.ibisworld.com/us/en/industry/42481/companies, accessed June 20, 2024.

15. National Beer Wholesalers Association, “Industry Fast Facts,” https://nbwa.org/resources/fast-facts/#DistributorData, accessed June 20, 2024.

16. Brewbound, “Sunkey Beverage Holdings to Acquire Silver Eagle Beverages,” https://www.brewbound.com/news/sunkey-beverage-holdings-to-acquire-silver-eagle-beverages/, accessed June 20, 2024.

17. Forbes, “How BuzzBallz Drinks Went from a Fun Side Hustle to $400 million Fortune,” https://www.forbes.com/sites/chloesorvino/2024/06/01/how-buzzballz-drinks-went-from-a-fun-side-hustle-to-400-million-fortune/, accessed July 15, 2024.

18. Financial Post, “Prime Drink Group Corp. Enters Into Binding Letter of Intent to Acquire Triani Canada Inc.,” https://financialpost.com/globe-newswire/prime-drink-group-corp-enters-into-binding-letter-of-intent-to-acquire-triani-canada-inc, accessed July 2, 2024.

19. Brewbound, “Breaking! Gallo Makes ‘Strategic Investment’ in Montucky Cold Snacks,” https://www.brewbound.com/news/breaking-gallo-makes-strategic-investment-in-montucky-cold-snacks, accessed June 20, 2024.

20. Corby Spirit and Wine, “YTD March FY24 Earnings Call,” https://corby.ca/wp-content/uploads/YTD-March-FY24-Earnings-Call.pdf, accessed July 15, 2024.

21. PR Newswire, “Ace Beverage Group to Acquire Nude Beverage brand from MXM Beverages Ltd.,” https://www.newswire.ca/news-releases/ace-beverage-group-to-acquire-nude-beverage-brand-from-mxm-beverages-ltd--822271277.html, accessed July 15, 2024.

22. PR Newswire, “Global Spirits Company Sazerac Signs Deal to Acquire BuzzBallz, A Rapidly Growing Beverage Business with Innovative Brands,” https://www.prnewswire.com/news-releases/global-spirits-company-sazerac-signs-deal-to-acquire-buzzballz-a-rapidly-growing-beverage-business-with-innovative-brands-302094943.html, accessed July 2, 2024.