When the term microbrewery had scarcely entered the vocabulary, Rich Doyle saw possibilities. Almost three decades ago, he became a co-founder of the Boston-based Harpoon Brewery, which has grown into the 12th-largest craft beer maker in the country.
Last July, with a stake of at least 40 percent in the business, he sensed it was the moment to make another move. He asked his partners to bring in an investor so the brewery could buy faltering competitors. And when they declined, he cashed out.
His decision reflects one side of the differing views within the industry about the direction the booming sector will take.
For those like Mr. Doyle, the current exuberance surrounding craft beer is creating a bubble of expansion that will pop and leave behind losers to be picked up on the cheap.
“I think that opportunity exists now and will exist even more when the exuberance cycle has run its course and people say, ‘Wow, I have a lot of capacity. Wow, margins aren’t as good as we thought,’ ” he said.
Rich Doyle, a Harpoon Brewery co-founder who recently cashed out of the company. “What’s interesting is you have a lot of entrants, with low barriers to entry, chasing a finite amount of growth," he said. CreditCharlie Mahoney for The New York Times
But his co-founder, Dan Kenary, and other shareholders have a different vision for Harpoon and its 190 full-time employees: that craft beer can continue to be a business of independent local operators with close relations between workers and management and constant, reasonable growth.
“To me, having grown up in this industry, philosophically it just fits really well with craft beer — independent, authentic,” Mr. Kenary said. “The idea of selling Harpoon, to anybody, didn’t ring true to who we are as a company.”
The clashing perspectives are surfacing throughout the industry as breweries look to manage the need for growth and the liquidity needs of founders who want to cash out. How it turns out will go a long way in determining craft beer’s future identity.
By any measurement, craft beer has been on a great run since it took off in the mid-1980s. The number of brew pubs and regional and microbreweries jumped from 1,521 in 2008 to over 3,200 in 2014, according to the Brewers Association, a trade group that defines craft brewers as those that produce fewer than six million barrels a year and are less than 25 percent owned by a large beverage maker.
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The boom is such that there are even state-sanctioned crowdfunding sites in Wisconsin and Indiana that skew heavily toward craft brewery funding.
To many in the industry, the growth seems unlikely to let up anytime soon. “I think that’s a consumer phenomenon that will persist for a while,” said Kim Jordan, chief executive and co-founder of New Belgium Brewing in Fort Collins, Colo. “I don’t think people will say, ‘Gosh, I really have a hankering for Wonder Bread.’ ”
On the sales side, craft brewers sold 17.2 percent more volume in 2013 than in 2012, compared with a 1.9 percent drop in overall beer sales. And craft beer now accounts for 14.3 percent of the $100 billion United States beer market.
“Brewery after brewery is looking for ways to grow because when you talk to these companies, the biggest constraint is capacity,” said Bart Watson, chief economist for the Brewers Association. “They’re selling beer as fast as they can make it.”
This has changed the industry’s investment dynamic. After years of being rebuffed by breweries, private equity and strategic investors are finally finding takers among craft brewers looking for capital to grow. Since last summer, SweetWater Brewing of Atlanta sold a stake to TSG Consumer Partners, Southern Tier Brewing in upstate New York sold a stake toUlysses Management, and Uinta Brewing of Utah sold a majority share tothe Riverside Company. And both Elysian Brewing of Seattle and 10 Barrel Brewing, based in Bend, Ore., sold themselves outright to Anheuser-Busch.
But for brewers who have shunned such investments, like Gary Fish, who founded Deschutes Brewery in Bend, Ore., in 1988, the way forward is reasonable growth.
“We have a lot of runway in front of us,” said Mr. Fish, whose company brought in just under $100 million in 2014. “We’re happy managing growth around the 10 percent mark.”
To bring in new capital without taking on investors looking for an ultimate sale of the company, one path is to offer employees an ownership stake. That is how Mr. Doyle cashed out at Harpoon. And Mr. Fish has instituted a similar employee stock ownership plan at Deschutes, taking on debt to buy out partners and then distributing their shares to employees.
“The ESOP has become a popular solution to cash out a founder or some owners and you’re not selling to Anheuser-Busch or Coors,” said Benj Steinman, president of the industry journal Beer Marketer’s Insights. “But it creates its own set of questions. How does the company move forward? Can it do so under ESOP structure as well as with founders with a strong vision? And debt is a whole other level of consideration.”
For other brewers, the way to grow is to bring in outside money and expertise. One is Will Hamill, who has spent 22 years building Uinta into a craft brewery with a 144,000-barrel annual capacity. Even after a recent $18 million investment, projected growth of 30 to 35 percent this year would put the brewery again at its capacity limit. He wondered if the business needed more than his skills.
“I’ve always grown organically and reinvested in the brewery,” Mr. Hamill said. “I’ve been doing it all on my own and I owed a lot of money. I’m O.K. with that, but I’m looking at another $10 million in investment. I was looking to give Uinta the growth it deserved and not hold it back..”
So Mr. Hamill took an investment from Riverside, which offered capital for growth as well as a payout for the shareholders. Steve Rice, Riverside’s vice president, says his firm saw an owner who had brought the company a long way but needed a boost.
“Going from zero to 50,000 barrels requires branding, strong culture and great distributors, and this can be accomplished by a special entrepreneur with a strong core team,” he said. “But to go from 50,000 to 250,000 and break into the top 10 craft brewers, you have extra infrastructure requirements, and that’s where a partner like Riverside can be helpful.”
As such deals become more common, some wonder how this will change the industry’s culture.
Ms. Jordan says this is a meaningful worry.
“What I do worry about is when you have companies who are selling to people whose brand story is not so compelling, who are not the founders,” Ms. Jordan said. “I think that colors the collective imagination of craft brewers as a whole. They move from an iconoclastic community of interesting business practices and interesting expression of the craft into a bit more of a business-as-usual model.”
For now, the question for brewers like Mr. Doyle is whether the push for growth will lead to more debt-laden firms and overbuilding — and bargains.
“What’s interesting is you have a lot of entrants, with low barriers to entry, chasing a finite amount of growth,” he said. “The industry will do very well as a whole, but you have a lot of people who are doubling or tripling capacity and taking on debt to do it.”
Mr. Steinman of Beer Marketer’s Insights agrees.
“People have built out way in front,” he said. “They’ve made bets and not all will succeed. It’s pretty likely there will be some that won’t survive. And then there might be some capacity available for cents on the dollar.”