GERRY’S INSIGHTS BY GERRY KHERMOUCH
Everybody Get Together! The other day, at my local craft beer bottle shop, I found the
end of happy hour converging terrifyingly with the deadline for my BevNet Magazine column. The question plaguing me as I’d entered the premises a couple of hours earlier remained unanswered: What to write about? It was even more pressing now that I’d procrastinated my way into the higher-priced phase of the evening and my dawdling was depleting my wallet of a dollar more a draft. Aha! Convergence! In truth, that would be a topic better addressed at the beginning not the end of a happy hour, given the bewildering web of alliances being forged between alcohol and non-alcohol giants as the long-predicted convergence of those separate empires finally seems to be occurring. (Disclosure: my colleagues at Beer Marketer’s Insights and I launched my newsletter Beverage Business Insights partly out of a conviction that convergence was just around the corner. That was 19 years ago.) In many cases, these alliances are fairly straightforward deals wherein an alcohol player makes and distributes a hard version of a non-alcoholic brand, say, Molson Coors doing a beerified take on AriZona Iced Tea’s Arnold Palmer or a cervezafied version of Coca-Cola’s Topo Chico. In journalists’ terminology, those might rate as run-of-the-mill “dog bites man” deals, except that their sheer proliferation makes them confusing: AriZona has also teamed up with Heineken for a hard seltzer called SunRise; Coke just threw its lot in with Constellation for an alcoholic Fresca; that prompted Molson Coors to plaintively reveal that Coke’s got another brand in the hopper at MC, too. The man-bites-dog anomaly? That would have to be Pepsi’s deal with Boston Beer to itself distribute the Hard Mtn Dew upon which the two companies are collaborating, an initiative that requires Pepsi to navigate an exhausting array of bureaucratic hurdles in every state in which it plans to do business, even as it’s left Boston Beer trying to placate a wholesaler network that is furious that a key supplier would betray them by setting up a new competitor in the middle tier. (Boston Beer’s response: With or without its help, wholesalers gonna wholesale. I’m paraphrasing.) It’s a big pack for sure, and we could be forgiven for viewing these companies as playing some kind of three-dimensional chess? As a guy who hasn’t yet graduated from Yahtzee, I’ve wondered, for instance, whether Coke’s successive alliances might be aimed at cluttering potential exit routes of its energy drink partner Monster should Monster decide someday to flee the relationship now that it seems clear KO doesn’t represent its ultimate exit. After all, Coke announced the Fresca deal not long after word leaked out that Monster was talking to Constellation about an alliance. OK, maybe, though Coke higher-ups I’ve encountered have never struck me as particularly Rasputin-ish. I suspect instead Coke and its peers are just experimenting, getting in the game to see where things go. If not 3D chess, it’s still not a terrible way to proceed for companies trying to be agile and ready to pivot in disruptive times, as the buzzwords dictate these days. Still, for all the ink they’re getting now, most of those alliances could prove tenuous, not surviving the fate of the particular brands they’re putting into place. But I’d argue that the boldest move so far has been Monster Beverage’s acquisition of the CanArchy collective of craft beers, announced just as I was writing this column. After all, here’s a beverage company plunking down hard cash for a presumably permanent seat at the table in the beer and hard seltzer businesses. So what’s afoot there? The Monster/CanArchy deal bears some resemblances to PepsiCo’s acquisition of Rockstar Energy a couple of years ago. Both represent 34 BEVNET MAGAZINE – JANUARY/FEBRUARY 2022
less a move on coveted brands than attempts to clear obstacles in the path of playing in a promising sector with other brands. In Pepsi’s case, the deal enabled it to void a highly restrictive Rockstar contract that made it difficult to play in the energy category under Pepsi’s own Pepsi-Cola or Mountain Dew brands, or to create others via internal development, acquisition or other means – like the Bang Energy distribution deal it promptly inked. In Monster’s case, as the company was explicit in pointing out, CanArchy provides the infrastructure in licenses, brewing capacity and an established distribution network for Monster to move forward, including with its own alcoholic entries. Some of these are well along in development. So while I have no doubt Monster intends to do well by CanArchy brands like Oskar Blues, Cigar City and Deep Ellum, they’re not the real focus of the deal. Of course, with the $330 million price Monster paid for CanArchy is slightly less than the net income the company reported in its third quarter – if the CanArchy brands evaporated overnight, it’s not like investors would particularly notice. In contrast to PepsiCo’s $4.1 billion pricetag for RockStar, Monster’s deal is nearly risk-free. And it by no means precludes a broader deal with one of the alcoholic powerhouses down the line. The company retains great optionality, as the Wall Street guys like to say. There’s another side of this trend, too, of course: the alcohol players moving to play in non-alcoholic beverage spaces. That one’s not quite as interesting because there are fewer legal and logistical impediments to alcohol players’ efforts to participate in non-alcoholic segments. So the forays of the alc players into that area can seem more off the cuff: they pick up a brand here or there, through alliance, investment or outright acquisition. As for their distribution networks, those have long carried NA brands, albeit with greatly varying degrees of commitment and consistency. That said, several of them seem serious this time. Its corporate identity now rebranded as Molson Coors Beverage, that beer giant is focused on attaining meaningful scale with Zoa Energy and La Colombe Coffee but it’s got a flock of other brands at various stages of incubation. AnheuserBusch is running mainly with Ghost Energy and Super Coffee, but its Zx Ventures arm has taken a piece of a broad array of plays, many of them not remotely ready for Bud Light trucks. Constellation is working with BioSteel, Karma and Hop WTR. That’s not to even mention their dalliances on the CBD side. And another form of convergence – the boom in alcohol-alternatives – seems certain to accelerate their moves into NA plays that function convincingly for those occasions. But the more epochal shift will be the soft drink giants and their bottlers offering both NAs and alcohol. Those with a more global perspective, of course, will wonder why that should be such a stretch. After all, in many parts of the world, soft drink bottlers – including Coke’s and Pepsi’s – have long mingled alcs and non-alcs on their trucks. So maybe what we’re seeing now was inevitable all along, only a matter of time before the U.S. clambers aboard. Kind of like us getting serious about soccer, y’know? It would be nice to conclude by reporting that my final beer of the evening was a Harmonic Convergence. (Burlington Beer, Garage Project and Crooked Run have all done one.) Not on tap, alas. So I’ll leave you with this: As exciting as it is to watch this great convergence unspool, it may well end up as a zero-sum game, not the solution to the growth dilemmas of all these beverage giants, kind of an agreement between farmers letting herds freely stray into their neighbor’s pasturages. But the efforts may yield some fascinating new brands and sub-segments in the process in this ever-morphing beverage space. Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.
