Your Favorite Craft Distillery Might Be Going Corporate: Should You Worry?

Bryson also believes that big distillers have taken note of what happened in the world of beer. "They're not making the mistake of ignoring them or belittling them, like the big brewers did," he says. In other words, big liquor brands don’t plan to be ambushed in quite the same way, following a proactive rather than reactive approach.

So how does the current state of affairs stack up to craft brewing’s timeline? "I can pinpoint it almost exactly; it's about 1993 in craft beer days," says Bryson. "Distillers are getting bigger, and better, their number is rapidly increasing, wholesalers are picking up brands they know nothing about... and a correction is coming. I think there's going to be a fair amount of lightly used small distilling equipment on the market within three to five years."

Whether brands flounder and die, succeed independently, or succeed and then get bought out, the role of "craft," however hard that is to define, is crucial. "Large companies aren't very good at innovating, so they use startups for their R&D," Morton says. "Several of the big guys have even gone as far as to create venture groups that are investing in craft brands so they can get in early."

RISKS OF BEING BOUGHT OUT

The advantages of selling a brand are clear. More money with less risk. Superior infrastructure and resources. Easier access to and recognition with consumers. But there are risks, as well: particularly of homogenization, the new great breadth of American whiskey and spirits being quickly brought back down to a more controllable, cheaper, acceptable-to-most-consumers standard.

"We'll probably see both, from different segments and different companies," Bryson says. "But don't pin 'homogenization' on big companies. I remember Harlen Wheatley [Buffalo Trace's master distiller] recently, as he stepped back from cutting down an oak in Missouri — literally, with a chainsaw — that would go to make another batch of Single Oak Project bourbon, saying: 'I'd like to see those craft guys do that.'"

In other words, when the resources of a major player are put to good use, they have a far greater capability to experiment and innovate. "Big makers can do really cool things if they want to, and the current market gives them the support to try," Bryson says. "And remember what makes Buffalo Trace's continued innovation possible: sales of Fireball [both are owned by Sazerac]. So there it is, one company going in both directions."

Another risk is that the buyer can change the direction of a company against the founder's will. That played out most memorably, and publicly, in Chip Tate's departure from Balcones. While the two sides still tell a different version of the same story, in either instance, the money and the founder differed, and separated. Beyond that example, there's also the risk of a big player purchasing a craft producer, then instantly eliminating its operation by fundamentally changing the product. Some buy brand name and then produce it cheaper and on a larger scale, based upon their own internal capabilities and efficiencies.

"I do fear that a few deals will produce negative results," Mooney warns. "And the most likely model for failure will be for a larger company to acquire a brand, take it out of the craft distillery that hatched it, and send it off to a large co-pack facility, or an in-house factory, to reduce costs. Credibility will be lost, and everyone will lose."

Barrels at the Buffalo Trace Distillery. Photo: Carl Wycoff/Flickr

WAIT FOR THE DOMINOES TO START FALLING

As 1,000 American distilleries turns to 2,000 and beyond in the years ahead, dominoes will indeed start falling. How that plays out, for better or worse, should at least make for an interesting show.

One of the first major signs that American craft spirits were coming of age was the acquisition of Tuthilltown Spirits and its Hudson Whiskey lineup by William Grant & Sons in 2010. But that was six years ago, and there hasn't been a tidal wave in its wake. "Hudson was an outlier, an exception; I don't think it's a harbinger," Bryson says. "Production brands will need more time to establish themselves as something worth buying; look at how long it took until craft brewers started getting bought up." Angel’s Envy is another brand that made the jump. The non-distiller producer, currently transitioning to fully-fledged distillery, was bought out by Bacardi by last year. The conglomerate had already been an investor in the brand.

Meanwhile, even as the vast majority of craft brands have not been acquired by larger players, other pieces have been falling into place internationally. As the big boys continue making more moves, a domino effect is inevitable. One company acquires a new Irish whiskey, and another matches them; one adds a Scotch to the portfolio, so does another.

For instance, Sazerac bought Irish whiskey brand Paddy just months ago; it’s arguably a response to the 2015 purchase of Slane Castle Irish Whiskey by Brown-Forman. Also earlier this year, Sazerac bought the Southern Comfort and Tuaca liqueur brands... from Brown-Forman. Perhaps that helped fuel Brown-Forman's next move, obtaining a trio of single malt distilleries and brands, Glendronach, BenRiach, and Glenglassaugh.

Such companies are loathe to talk about their specific plans, of course, but according to Sazerac CEO Mark Brown, "we think it is likely for more small whiskey brands to be bought up by larger companies, much as we have seen in the craft beer sector. Sazerac continues to actively look at acquisitions in all sectors of the industry."

And while the industry didn't receive another massive shakeup as was expected after Suntory bought the entire Jim Beam portfolio in 2014, creating Beam Suntory, a trickle could turn into a waterfall at any time.

When this does start to unfold with more frequency, expect a rush to nab the most established craft brands. Does that happen in two years, as Mooney projects? In five years, as craft brands start to flounder, as per Bryson? Farther down the road? It's too early to call, but once the first pieces get taken off the board, more and more will follow in rapid succession.

Photo: Africa Studio/Shutterstock

WHAT SHOULD CRAFT BRANDS DO?

Counterbalancing the potential consolidations are several factors beneficial to the owner of a small craft brand. One is what Morton calls craft investing, as allowed by title III in the Jobs Act which went into effect this May. The new legislation allows an individual to invest in a private company in exchange for equity. "Craft investing is unlike traditional stocks in that investors have a more direct relationship with the companies they invest in, and the people behind those companies," Morton says. "Not only does this open up a new source of capital to small craft distillers, it builds a community of investors who can help promote the companies they're investing in. This won't level the playing field with the big boys, but it will improve the odds."

Mooney believes that tax relief and incentives — including one tax reduction bill currently being considered in Congress — would provide a much-needed boon to the independents, as well. Both provide the financial shot in the arm that selling a controlling stake in a brand would provide.

But Mooney contends that selling to a big company isn’t necessary a bad thing. "Companies and brands need scale to survive and eventually succeed, and a spot in the portfolio of a large company is an effective way to achieve this," Mooney says. "Acquisitions of craft distillers and brands will invigorate the portfolios and organizations of several large companies, and will eventually bring new thinking into 'big spirits.'"

"That's good for consumers," he continues. "Some craft distillers will achieve scale independently, and that's even better. Either way, what most founders care about is the long-term health of the brand they created."

Ultimately, the people with the money control the show, so if they're coming from the right place, there's a greater chance of success in the ways that matter to the brand's founders, but also to the consumer — quality, innovation, new choices on the market, and affordability. "Is it a good or bad thing for drinkers?" Bryson asks. "That all depends on quality and pricing. Unfortunately, pricing seems headed up; that's not a good thing."

Every match won't be made in heaven, but the situation can work for all parties — buyer, seller, consumer — with the right intentions. "I believe that whether an acquisition is good or bad depends on the buyer and their approach," Mooney says. "If a large company acquires a craft distiller but leaves everything great in place, and simply offers market access, everyone wins."

Jake Emen is a writer based in Washington, DC. Angie Wang is an editorial illustrator, cartoonist, and prop designer on Steven Universe. She currently resides in Los Angeles.
Editor: Erin DeJesus