Stone Brewing's Plan for Craft Beer to Grow Without "Selling Out"

Stone Brewing founders Greg Koch and Steve Wagner. Credit: Courtesy Stone Brewing

Though 99 percent of the 4,200 breweries in the U.S. may be "small and independent," that overwhelming majority only holds about 12 percent of the beer market. But just five years ago, that was 6 percent, and the biggest brewing players — Anheuser-Busch InBev, SABMiller, and Constellation Brands — are fighting back by scooping up smaller breweries to avoid losing customers and revenue.

For fans of renowned breweries such as Goose Island (now owned by A-B InBev) and Ballast Point (bought by Constellation), buyouts mean wider availability of their favorite beers at festivals, sporting events, and grocery stores. But Greg Koch, co-founder of Stone Brewing, sees things differently. "The average consumer might look at Big Beer acquisitions of craft brands as providing more access and providing choice to consumers," says Koch. "But the reality is that the exact opposite is the stated and desired goal of the big companies. They are in business to control and to maximize their profit and their share price." As proof of the big player's strategy to acquire and shrink, Koch cites the fact that America’s 4,131 breweries as of 1873 had consolidated into 42 by 1979.

Still, it’s tempting for craft brewers to "sell out" because most strive to reach a wider audience — an incredibly costly endeavor industry giants can bankroll. How else is a craft brewery to expand when it has hit the limits of loans or equity?

Koch's solution is True Craft, a $100 million fund established to offer breweries the necessary funding for growth without giving up majority ownership. The details of how, exactly, this new venture will be subsidized and administered are to be revealed in the coming months, but Koch has confirmed that the plan is to purchase minority, non-controlling stakes in willing craft breweries, enabling them to expand without relinquishing control or compromising their values. "There needs to be a different model: one designed to allow for the principles, the ideals, the ethos of craft beer to continue in perpetuity," says Koch.

Sam Holloway, co-founder and president of craft beer consulting firm Crafting a Strategy, points out that in addition to providing cash for physical expansion, True Craft potentially offers wider reach for breweries that wish to bypass corporate distribution networks such as that of A-B Inbev. The Belgian-Brazilian conglomerate works closely with more than 500 wholesalers and privately owns many other distributors in the U.S. Instead, Stone, which owns a craft-only distribution company, could open distribution paths for a smaller brewery that it couldn't otherwise access. "What I love about Stone is that they're giving craft breweries another choice to decide who they want to work with to expand their brewery," Holloway says. "To me, the more choices that craft breweries have, the better decisions each can make."

Financially speaking, brewers have more choices than ever. In one recent example, Victory Brewing and Southern Tier got creative earlier this year by joining forces under a private equity firm called Ulysses Management. As a unified brewing entity that can price beer competitively, both breweries hope to be taken more seriously by wholesalers, who will distribute the beer more widely. Even Felipe Szpigel, President of The High End — Anheuser-Busch's business unit of craft and import brands — seems to see the value of providing different options to growing breweries. “Initiatives focused on the development of the beer industry are exciting, and I look forward to continuing the dialogue when all the details on [True Craft] are available,” Szpigel says.

Stone is many times smaller than the likes of AB-Inbev. But as a company that recently put roots down across the ocean in Berlin, Germany, and pulls in nine figures in annual revenue, the brewery is no small fry. Yesterday's scrappy brewers continue to grow at an astonishing rate, and with Big Beer brands making more and more purchases, it is becoming increasingly difficult to determine which brands are truly "craft." And with customers staying loyal to certain breweries no matter who owns them, the "craft" designation may be on the verge of irrelevance.

In the meantime, Koch seems optimistic that Stone's new financing model will not only appeal to the business community, but to brewers and consumers in love with beer. "I dream of a world in which the actual, real version in food and drink is more available than the homogenized, commoditized, industrialized version," he says. "That's probably an unrealistic dream, but I'm not gonna give up on it."