Bevscape/NOSHscape/Brewscape BODYARMOR Goes

Coke Acquires BodyArmor for $5.6 Billion

In early November, the Coca-Cola Company announced it had acquired full control of sports drink maker BodyArmor for $5.6 billion, its largest acquisition to date.

The beverage giant exercised its option to purchase BodyArmor in full at a preexisting discount, as included in a 2018 deal that gave Coke U.S. distribution rights to BodyArmor and a 15% stake in the brand.

According to a press release, New York-based BodyArmor will be managed as a separate business within Coke’s North America operating unit and its current executive leadership team, including co-founder and chairman Mike Repole and president Brent Hastie, will remain with the brand through at least 2022 and will work “on vision and strategy for 2023 and beyond.”

“BODYARMOR has been a great addition to the system lineup over the last three years, and the company has driven continuous innovation in hydration and health-and-wellness products,” said Alfredo Rivera, president of the North America operating unit of Coke, in a press release. “We’re excited to bring BODYARMOR into The Coca-Cola Company and work with Mike Repole and his leadership team on the next stage of growth.”

In the past year BodyArmor has emerged as the number two brand in the sports drink category, overtaking Coke’s own Powerade. According to NielsenIQ, BodyArmor has a 16.5% dollar share of the category, while Coke has an existing share of 13.8% for the 52-week period ending October 9. Meanwhile, Gatorade owner PepsiCo controls 66.3% of the space.

In the same period, dollar sales of BodyArmor have increased 46.9% to about $1.3 billion, while Coke’s portfolio was up just 2.4% to $1.1 billion and PepsiCo rose 12.1% to $5.5 billion.

BodyArmor was co-founded in 2011 by Repole and serial entrepreneur Lance Collins and Repole, who had previously co-founded Glaceau, the maker of Vitaminwater and Smartwater, which sold to Coke in 2007 for $4.1 billion. In 2013, NBA All-Star Kobe Bryant joined BodyArmor as a director and the company’s third largest shareholder, as well as a prominent face of the brand.

“Ten years ago, we set out with a vision to create a better-for-you sports drink with a goal of becoming the #1 global sports drink,” Repole said in the release. “Our talented leadership team under Brent Hastie, our 400 dedicated employees and incredible Coca-Cola bottling partners have helped us build this remarkable brand. If it wasn’t for Kobe Bryant’s vision and belief, BODYARMOR would not have been able to achieve the success we had. I couldn’t be more excited to become part of the Coca-Cola family and set our sights on the future.”

The announcement was released at exactly 8:24 a.m. EST on a Monday morning to pay tribute to Bryant, who died last year, with the time representing the two different jersey numbers he wore during his tenure with the Los Angeles Lakers. Bryant’s estate is expected to receive about $400 million for his stake in the brand.

As well, Coke is buying out Keurig Dr Pepper’s (KDP) 12.5% stake in the company. According to Goldman Sachs Equity Research, KDP’s stake is valued at $825 million. A report in Seeking Alpha added that KDP had purchased the stake for $25 million.

But it’s not just KDP and Bryant’s family who have seen their investment in BodyArmor pay off. According to Nick Giannuzzi and Ryan Lewendon, partners of law fi rm Giannuzzi Lewendon which represented BodyArmor in negotiations, roughly 50% of the brand’s 400 employees are set to receive over $1 million in the transaction, ranging from executives to lower level staff.

Lewendon noted that outside of some family offi ces the cap table had almost no private equity or funds involved and most of the company’s investments came from individuals.

“It was unbelievable to see how something like this could change so many lives and almost everyone it helped was someone who helped build the brand,” Giannuzzi told BevNET. “Mike brings everybody in, everybody’s a partner.”

The deal has been in the works since at least February, when Coke notifi ed U.S. antitrust regulators that it was seeking to acquire a controlling stake in BodyArmor. Goldman Sachs estimated the fi nal valuation at around $6.6 billion or a higher-than-average 6.7x sales multiple.

At $5.6 billion, the BodyArmor acquisition passed Coke’s $5.1 billion purchase of Costa Coffee in 2018 as the largest in company history. The deal also comes at a time where Coke has aimed to double down on its larger

brand acquisitions, notably Costa and Topo Chico, and has divested under-performing brands like Zico and Odwalla. In recent years, Coke has also passed on several acquisition opportunities, including Health-Ade and Suja, after making initial investments in those companies.

As part of the agreement, Repole will work on developing new marketing, packaging and innovation strategies across Coke’s still beverages portfolio, the release stated.

Analysts responded favorably to the announcement, stating that the “long anticipated” deal provides BodyArmor with a global expansion opportunity while Coke is now positioned to tackle Gatorade head-on with an innovation-driven brand.

Howard Telford, senior head of soft drinks at Euromonitor International, said in a statement that the acquisition exemplifi es Coke’s interest in expanding its functional beverage offerings, noting that BodyArmor has benefi ted from better-for-you positioning with low calorie and no added sugar products.

Ahead of the acquisition, Credit Suisse announced it was positive on the prospective deal, stating that “Over time, we expect Coke will roll out BodyArmor globally, replicating the ‘Monstermodel.’” The report noted that Monster has quadrupled its international business in the last eight years from $500 million to $2 billion. As well, BodyArmor has signifi cant room to grow, the report suggested, as rolling six month velocities of $95,000 currently trail behind Gatorade ($150,000). However, the brand has a strong ACV of about 90%.

Goldman Sachs Equity Research said Coke “is acquiring a highly attractive beverage asset” with signifi cant momentum and strong category fundamentals. With Powerade also in its portfolio, Coke still controls less than half of the market share for sports drinks. However, the report suggested that as the category is expected to reach $15 billion by 2030 (up from $7.5 billion in 2021), Coke appears likely to continue positioning BodyArmor as a premium brand while Powerade will serve as a value product.

Lewendon said Coke primarily sees Powerade and BodyArmor as servicing two different consumer bases, with BodyArmor acting as “much more of a lifestyle brand than a sports drink.”

Looking ahead, Giannuzzi and Lewendon said the deal also refl ects the expanded opportunity for disruption within the food and beverage industry. While strategics may now have higher standards for acquisitions, choosing to purchase high performing brands that are “winning their category,” the chance to create those brands has also risen. Lewendon noted that when BodyArmor launched, trying to compete in the sports drink category was “sacrosanct,” but the better-for-you trend has changed the game and BodyArmor’s record high price is the proof.

“There’s an opportunity to rethink everything that’s out there,” Lewendon said. “Nothing is sacrosanct from disruption anymore.”

AriZona Co-Founder John Ferolito Returns To RTD Tea With Saint James

After fi ghting to exit the RTD tea game, AriZona Iced Tea cofounder John M. Ferolito bought back in.

The beverage entrepreneur announced in September the forthcoming launch of a line of organic green teas called Saint James Tea, available in 16.9 oz. Tetra Paks in four fl avors: Original Green Tea, Blueberry & Raspberry Tea, Pineapple & Mango Tea and Passionfruit and Peach Tea. Named in honor of one of Ferolilto’s personal mentors, the drink is meant to “offer a healthy, great-tasting product that is benefi cial for people and the planet,” he said in a release.

Saint James marks Ferolito’s return to the RTD tea category, after spending a couple decades building AriZona (alongside fellow co-founder Don Vultaggio) into a powerhouse national brand and the star of parent company Beverage Marketing USA’s portfolio. But his beverage experience extends into alcohol via a track record in beer through Hornell Brewing, and malt liquor with budget brands Crazy Horse and Midnight Dragon. His exit from AriZona and the subsequent battle over the sale of his 50% ownership stake, valued at around $1 billion, went on for years before the two parties reached a settlement.

Ferolito is joined at Saint James by several other notable names, starting with the brand’s new creative director, Jon Buscemi. The acclaimed footwear and luggage designer is involved with multiple CPG ventures, including Wolves Whiskey and truffl e-infused hot sauce maker Truff, but Saint James Tea represents the right opportunity to realize a years-long ambition to get involved in RTD beverages, he said. As one of his fi rst moves, Buscemi tapped multidisciplinary creative studio PLAYLAB, INC. to design the look of Saint James Tea, having done similar work for clients like Adidas and Louis Vuitton.

“From a trend standpoint, what Saint James is doing within the health and wellness space is exploding. It’s the perfect time to introduce an innovative brand like this to the market,” said Buscemi in a press release. “As a nation, we love these drinks, but they are always full of sugar. I’m involved because I love the way it tastes without any regrets.”

The company’s other partners bring additional credentials to the table: that includes Brenden Cohen, CEO of Bond Audio and D’Angelico Guitars, and Roy Warren, Jr., son of the late Roy Warren who created and helmed healthy CPG startups like Bravo Brands, Attitude Drinks and Gratitude Health. Sales veteran Andy Stallone, meanwhile, has come onboard to help manage the brand’s rollout in Florida.

KIND Founder Launches Mexican Food Brand with Former Cholula, KIND Execs

KIND Snacks founder and chairman Daniel Lubetzky is looking beyond the snack aisle for his next bite. The outspoken executive and entrepreneur is aiming to take a fresh approach to Mexican food with the announcement of his next venture, SOMOS, in September.

The company was founded in 2020 by Lubetzky and several longtime colleagues, including Miguel Leal, formerly the CMO at Cholula and EVP at KIND, and Rodrigo Zuloaga, a nine-year veteran from KIND who led marketing for the company’s efforts in Mexico and last served as VP of international new business development. Leal, who is based in New York City, will also serve as CEO.

According to several job postings on Linkedin which have since been fi lled, the company will be “re-envisioning Mexican cuisine in the U.S. with a focus on authenticity, convenience, and sustainability.” The posting goes on to state that Lubetzky, as well as his “two other KIND alumni” grew up in Mexico eating traditional dishes such as chilaquiles and tacos and missed these dishes when they moved.

“When they came to the United States, [our three founders] enjoyed meeting up with friends at great Mexican restaurants but were disappointed with the options available for creating authentic Mexican meals at home,” the posting notes. “Together, with their Mexican heritage and years of experience in CPG food, they’ll deliver ready-to-eat foods that honor Mexico’s rich culinary traditions and celebrate the cultural vitality of modern Mexico.”

An SEC fi ling from January indicates that an entity known as Somos Amigos had raised $3.25 million of a total round of $3.75 million. In the fi ling, Lubetzky is listed as president of the company with Stacy Dick, president and CFO of Lubetzky’s investment fi rm Equilibra Partners, and Elle Lanning, KIND’s chief of staff and EVP of corporate development, also listed as directors.

Somos Amigos, which has an Austin address, also has several trademarks including: “SOMOS: Food From the Heart of Mexico” and “SOMOS Spirits.” The trademarks encompass the majority of the products sold in a grocery store, including tequila, mezcal, sauces, spreads, soups, snack mixes, seasonings, beans, and a variety of confectionery, savory snacks, and bakery items.

Along with the co-founders, the staff roster (according to LinkedIn) has pulled in some veterans from KIND and Cholula — which was sold by Catterton to McCormick in 2020 for $800 million. Leal’s Linkedin indicates he left the hot sauce brand in March of this year.

According to Linkedin, SOMOS’s current staff have all previously spent time at either KIND or Cholula. Coming from the snack brand is SOMOS VP of Digital and Ecommerce, while the brand’s head of sales, head of fi nance, head of supply chain and procurement manager all last worked for the hot sauce company.

According to research by Claritas conducted in 2019, the U.S. Hispanic population has surged from 22 million people in 1990 to a projected 72 million by 2024, representing 54% of the nation’s total growth. Furthermore, 2020 research by IRI and Boston Consulting group pointed to “products aimed at the Hispanic Market” as one of the consumer trends it expects businesses of all sizes to invest in over the next several years.

Of course, SOMOS is entering a competitive market, with some established competitors already trying to broaden their offerings to reach a younger audience. Ortega recently launched caulifl ower-based taco shells and tortillas, while General Mills has attributed some of its recent North American sales growth to Old El Paso, which has introduced affordably-priced meal kits

There’s also emerging brands in-market. For example, Siete Family Foods produces Latin-American inspired foods — but a difference could be in Siete’s emphasis on fusion and special diets, with products such as almond four-based tortillas and sea salt and vinegar chips sitting alongside Mexican shortbread cookies and enchilada sauces.

However, SOMOS has the potential to fi ll a gap in the market for affordable, authentic Mexican-inspired products that reach across all channels and appeal to younger consumers.

Still, there’s Lubetzky himself to consider. The KIND founder not only has a wide consumer reach, with a regular presence as a guest “shark” on television show Shark Tank, but also is a darling of the CPG industry with deep ties to retailers. His outspoken nature — which includes the need for businesses to be mission-driven and an emphasis on compassion and understanding for all – also appeals to younger consumers, who are looking at company values when making purchasing decisions.

“When team members are scared to be themselves, an organization’s culture can quickly turn sterile, risk averse, and stagnant. Having grown up in Mexico immersed in Latin culture, I am accustomed to a warm and open approach that includes not taking yourself or others too seriously,” Lubetzky recently wrote online in honor of Hispanic Heritage Month. “I have observed American culture to be more serious and ‘by the book.’ While it is important for teams to operate professionally and with the utmost respect for one another, we could all afford to loosen up a little.

Real Good Foods Announces IPO

In October, frozen food brands Real Good Foods filed with the Securities and Exchange Commission (SEC) to undergo an initial public offering. The company seeks to raise $86.25 million in order to expand its distribution and capacity at a new manufacturing facility.

Founded in 2016, Real Good Food produces frozen entrees, sandwiches, appetizers and desserts that cater to consumers looking for convenient, better-for-you comfort foods. Positioned to serve consumer interest in low-carbohydrate, highprotein options, the company’s offerings are gluten-free and grain-free, swapping traditional ingredients for either a base of chicken and parmesan cheese or plant-based proteins and fibers. As a result, some of its offerings have four times less carbohydrates than the competition with twice as much protein.

There’s a real consumer need, the company said in its prospectus, to develop these better-for-you options, noting that 13% and 42% of the U.S. adult population suffers from diabetes and obesity, respectively.

“The purpose of our company is to fulfill our mission of making craveable, nutritious [health and wellness] foods accessible to consumers while taking an uncompromising approach to the creation of products that are delicious, convenient, and have broad appeal,” the filing states.

According to Real Good Food, the U.S. health and wellness industry is valued at $170 billion. In the frozen aisle, Real Good Foods’ two core strategic growth subcategories are frozen entrée and breakfast — which, according to SPINS data in the prospectus, comprised 48% of the approximately $58 billion U.S. frozen food category (excluding frozen and refrigerated meat) during the year ended December 2020.

During the six months ending June 30, 2020 and 2021, the company had net sales of $18.1 million and $35.5 million, respectively.

Historically, the SEC filing notes, the company has sold the majority of its products under the Realgood Foods Co brand, with a few “select” private label products as well. For the 12 week period ending June 13, the company’s branded products had an average of approximately 170,000 “total distribution points” across the United States — with distribution points defined at the sum of the number of stores selling each SKU. Comparatively, the company noted, other leading health and wellness brands within the frozen food category had over 930,000 total distribution points during the same period.

Real Good Food products are sold primarily in natural and conventional grocery, drug, club, and mass merchandise stores, with an average all-commodity volume (ACV) of approximately 20%, as of June 13. The company’s largest retail clients are Walmart, Kroger and Costco — in 2020 these three retailers accounted for 28%, 17% and 12%, respectively, of net sales for a total of 57% of the company’s net sales (a drop of 9% from 2019).

Still, despite the company’s efforts, the filing notes it has experienced net losses every period since its inception. In 2019 the company had net losses of $14.2 million and in 2020 net losses of $15.6 million.

The COVID-19 pandemic has been part of the reason for these losses. On the product front, while a key driver of sales was previously the company’s line of frozen pizzas, the betterfor-you pizza subcategory saw a drop in sales during the pandemic. Sales issues were compounded by financial difficulties by one of the company’s co-packers, “which negatively impacted our ability to produce enough products to meet demand and resulted in lower net sales.”

Additionally, many retailers cancelled or delayed category resets and reviews during the pandemic, resulting in slower sales growth.

In response to these issues, in March 2020 the company “temporarily reduced” its overall headcount in marketing, accounting and operations by ten employees. While these efforts allowed the company to preserve capital, the cuts in operations, the filing notes, also “had a negative impact on our ability to grow our net sales.”

Real Good Foods claims it has the largest social media following of any brand within the frozen food category with roughly 365,000 Instagram followers alone as of the end of June. For comparison, the company notes, that’s more Instagram followers than the top seven selling health and wellness frozen food brands (Amy’s Kitchen, Applegate Farms, California Pizza Kitchen, InnovAsian Cuisine, Aidells, Michael Angelos, and Perdue) combined. But it goes beyond sheer volume: with the filing also noting the company has higher engagement on each post.

A strong social media presence has benefi tted the brand by allowing the company to decrease costs associated with traditional media and advertising spend. Instead, the fi ling notes, the company has “direct, authentic conversations” with its consumers via social media, SMS text, email and through social media infl uencers.

“Through this approach to community engagement, we are able to build brand trust and, in turn, loyalty, which effi ciently draws new consumers to our brand, provides a forum for real-time feedback, and allows us to understand our diverse population of consumers more deeply,” the fi ling notes. “We also believe our extensive community engagement resonates with our retail customers, leading to additional shelf space and distribution points for our products.”

Real Good Foods develops most of its products in fewer than six months, with product concepts fi rst conceived by the company’s marketing team and then tested via what the company calls its RDF Labs — a select, diverse group of customers that have opted to try new items. This process not only allows the company to iterate quicker than using traditional research methods but also, it states in the fi ling, gather “more helpful” information and ultimately “introduce new products with higher confi dence of market acceptance.” Most products are also fi rst released on the brand’s website, before the company invests in pursuing retail distribution.

“This process provides us another opportunity to marry our products to our consumers’ preferences, as our most avid consumers engage with our products through this channel and provide additional feedback,” the fi ling notes. “This disciplined approach to product development has resulted in a market acceptance rate higher than industry standard by the time our new products arrive in retail channels.”

In March, the company also acquired the manufacturing facility of its former co packer, shifting more of its production (which the company says requires specialized process and equipment) in-house. As of June, the company was producing more than 70% of its products at its California plant.

The next priority for Real Good Foods is to focus on increasing its total distribution points and its velocities with existing customers as well as continuing to grow brand awareness. In terms of product innovation, the company will seek to expand into “multiple adjacent food categories within and outside of frozen,” via innovation or acquisitions.

The move to more self-manufacturing will also benefi t the company long term, it believes, by improving gross margins and quality control. Future investment into the production equipment and automation will only “increase effi ciencies and reduce labor costs.”

Maui Brewing Transitions Some Production to Mainland

Hawaii’s largest craft brewery, Maui Brewing, has transitioned production of some of its products to Denver, Colorado, following multiple supply chain constraints.

Maui products for mainland distribution — which covers 23 states — will be produced at Denver-based Sleeping Giant Brewing, while Maui explores options for its own facility. The fi rst batches of Maui’s hard seltzer brand produced at Sleeping Giant started November 1, while production of the brewery’s other beer offerings will begin in the fi rst quarter of 2022.

“We have to now think about the supply chain of not only getting our items, but now once we’ve created beer, getting a booking for a boat, getting a container for that boat, and getting it onto that boat in time and having no issues at the ports,” Garrett Marrero, Maui co-founder and CEO, told Brewbound. “It is quite emotional for those of us who’ve been around Maui Brewing since inception, but as the world changes around us, we have to respond to those changes.”

Sales from the mainland of the United States and internationally make up about 18% of the Kihei, Hawaii-based craft brewery’s total sales. Because of this, Marrero said the company hasn’t focused too heavily on growing outside of Hawaii. But supply chain issues — including two separate weeks in October in which the brewery shut down due to no carbon dioxide (CO2) in its bulk tank, and up to 26-week lead times for malt container shipments — have forced it to reevaluate.

“The handling of COVID, and the supply chain breakdown post-COVID is kind of forcing our hand to look at how do we continue to grow as a company and do our job to make sure that our team has pay and benefi ts and the bank notes paid, and all of those wonderful things that are very important to us to make sure our family is taken care of,” Marrero said. “It’s not to say we won’t have challenges producing in the mainland, because some of the same challenges exist there. However, on a far, far lighter level than they do in Hawaii, and response time is a lot quicker once situations are rectifi ed.”

With the transition to mainland production, Maui is increasinging its overall growth plan. In 2021, the brewery is on track to produce around 65,000 barrels of beer and hard seltzer, up from 43,000 barrels in 2020 — in which 12,000 barrels were just the newly launched hard seltzer — and 59,000 barrels in 2019, according to Marrero. In 2022, he said the company is targeting 100,000 barrels.

“We’re not planning on opening any new markets as of right now. It’s just merely meeting the demand that we already have in the current markets we’re in, which is probably a three-fold increase over what we sell there already, if we could just get them their beer fast enough,” Marrero said.

Prior to the transition, increased sales from the mainland “gutted” the brewery’s margins due to increased shipping costs. Now, the brewery will absorb the costs and will be able to “give that right back to [its] fans.”

“We’ll be able to deliver more beer and seltzer faster, and at a better price point,” Marrero continued. “And overall, at a much, much fresher code date and with a lower carbon footprint. So it checks all the boxes that I think our fans want.”

Additionally, the brewery is exploring direct-to-consumer shipping, which is prohibited in Hawaii.

“We believe that all small craft brewers should have the right to reach their customers, especially in a world of distributor consolidation,” Marrero said. “If you look at the SKU proliferation of even the big brands, these small brands that are sub-5,000 barrels are tough to fi nd a distributor who’s willing to give them the time of day. And in some cases, it doesn’t make sense due to the ridiculous franchise laws to distribute through a wholesaler who then you’re beholden to for the rest of your life. So being able to reach a small customer base of fans, through the mail, I would think is a smart business decision.

“And for us, we’d be able to reach those markets that we don’t have the desire right now to invest in heavily by putting sales reps and full marketing forces behind them. So I think it’s a win-win for beer and for beer lovers,” he continued.

Marrero acknowledged previous criticism he’s expressed of breweries claiming to be “island brands” but producing on the mainland. Because of this, Marsha Hansen, Maui director of marketing, told Brewbound the brewery is making a large investment in new packaging for its mainland products. The “Island Brew” label will be removed from offerings produced outside of Hawaii, and it will be “very clear if you’re drinking it here, this is where it’s been made.”

“One thing that will set us apart though is making sure that we are abundantly clear and transparent about where that beverage you were drinking is coming from,” Marrero said. “We would never try to hide where our beer is coming from, because we believe it’s our fans’ right to know and right to vote with their purchase where that beer comes from.

“If it’s really important to them that it comes from Hawaii, well, we welcome them to come to Hawaii to drink. But if it’s just that they love Big Swell IPA, or Bikini Blonde Lager, or Sunshine Girl, etc. and they want to get it more readily available and at a lower price point, then I think they’re gonna win overall.”

Over the past several months, Maui has appointed new members to its leadership team, including 26-year industry veteran Chris McJunkin as its new chief sales offi cer, and former Wormtown Brewery GM Scott Metzger as its chief operating offi cer.

Stone Shutters Napa Brewpub Amid Legal Dispute With Landlord

Stone Brewing abruptly shuttered its taproom in Napa, California, following a legal battle with its landlord over rent payments during the pandemic.

“We’re incredibly disappointed to leave Napa,” Stone wrote in a statement. “We poured so much passion into the renovation of the beautiful 1877 Borreo Building. We’d hoped to be a part of Napa’s vibrant downtown for many more years.”

The location’s 40 employees are now out of work, but Stone “will be offering the opportunity for some team members to relocate to Southern California and will do all we can to support those we leave behind in Napa, including providing severance and benefi ts coverage,” the company said.

The Escondido, California-headquartered craft brewery and its Napa landlord, West Pueblo Partners, have been embroiled in a legal dispute over non-payment of its $40,000 monthly rent bill for much of 2021, according to the Napa Valley Register.

California enacted some of the most stringent and longest lasting restrictions on breweries, bars and restaurants during the COVID-19 pandemic. Onsite service was restricted and at times prohibited from March 2020 through the end of last year.

Court documents show that Stone did not pay rent in December 2020 and January-March 2021, and West Pueblo Partners served its tenant with a “5 Day Pay or Surrender Possession” notice on March 23. The brewery countered with a civil action against its landlord arguing that the force majeure provision in its lease “excused its failure to pay.”

“The dispute is about rent we deferred during the hardest months of COVID, but which we always intended to pay over the remainder of the lease,” a Stone spokesperson told Brewbound. “We paid full rent during the pandemic through November 2020 based on West Pueblo’s promise to help with rent relief.

“Beginning in December 2020, when COVID cases surged and government restrictions shut-down our Napa restaurant and brewery, we began deferring rent payments,” the spokesperson continued. “Beginning in May 2021, as restrictions eased, we started paying the deferred rent and have timely paid full rent since June 15. West Pueblo Partners refused to cash any of these payments and insisted on terminating our lease even though we have always told them we would and always intended to pay the full amount of rent over the life of what was supposed to be a 20 year lease.”

Stone and West Pueblo Partners’ lease agreement contains the following force majeure provision:

“If either party is delayed, interrupted or prevented from performing any of its obligations under this lease, and such delay, interruption or prevention is due to fi re, act of god, governmental act or failure to act, labor dispute, unavailability of materials or any cause outside the reasonable control of that party, then the time for performance of the affected obligations of the party shall be extended for a period equivalent to the period of such delay, interruption or prevention.”

However, in her tentative ruling granting West Pueblo Partners’ motion for summary judgement, Judge Victoria Wood explained that the force majeure did not preclude Stone from paying rent, citing prior case law that the provision “does not contain language that excuses performance on the basis of poor economic conditions, lower than expected attendance.”

Although Stone pointed to its use of the force majeure provision to not pay rent for eight days in 2018 when construction of the Napa taproom was halted due to smoky conditions from the Camp Fire, Wood noted that the situations are different.

“While [West Pueblo Partners] was unable to fulfi ll its obligation due to the fi re, i.e., the [force majeure] event, it was relieved of that obligation, which relieved Stone of its obligation to pay rent during that period,” she wrote. “Conversely, there is no evidence showing that Stone ever lost the ability, temporarily or otherwise, to fulfi ll its obligation to pay rent due to COVID.”

In court documents, Stone detailed that the Napa location accounted for one-third of its hospitality division’s losses. The Napa location losses were “so substantial they jeopardized the brewpub operations,” according to court fi lings. Wood noted that Stone’s operating income in the fi rst quarter of 2021 increased 53% over the same period in 2020, and the company had $9 million in credit in 2020 and secured a $2 million letter of credit in January 2021 for a lease for a new headquarters and an expansion to its distribution center.

In a statement to Brewbound, West Pueblo Partners argued that “Stone Brewing, one of the top 10 largest craft brewing companies, chose to stop making its rent payments even though it had the money to pay rent.”

“It makes us incredibly sad that Stone Brewing chose to spend money on litigation rather than on making rent payments and supporting its Napa workforce,” co-owner Kevin Teague told Brewbound.

Before it was renovated into Stone’s Napa brewpub, the Borreo building was vacant for 15 years, according to Stone’s press release announcing the outpost in May 2016. The 10-barrel brewhouse and 9,500 sq. ft. taproom and restaurant opened its doors under the Stone fl ag in May 2018.

Bell’s Brewery to Sell to New Belgium Parent Co. Lion; Larry Bell to Retire

Two craft beer pioneers are joining forces in a blockbuster deal.

Kirin-owned Lion Little World Beverages has struck a deal to acquire Bell’s Brewery, the second largest craft brewery in Michigan and the seventh largest Brewers Association-defined craft brewery by volume in 2020.

Bell’s will join New Belgium as the second piece in the international beer manufacturer’s U.S. craft brewery platform, following the 2019 acquisition of Fort Collins, Colorado-based New Belgium. Once complete, the deal will create the fifth-largest craft brewery control group, trailing Anheuser-Busch’s Brewers Collective, D.G. Yuengling & Son, Molson Coors’ Tenth & Blake, and Boston Beer Company.

“The Lion team was really clear that part of the relationship with New Belgium was about building out a larger platform in the U.S.,” New Belgium CEO Steve Fechheimer told Brewbound. “As we’ve thought about that over the past two years, most of which was during the pandemic, it was pretty clear to us that there’s not really a better cultural fit, brand fit, legacy story than there is with Larry Bell and the wonderful company he’s built here.

“This is a significant step in terms of bringing that platform together,” he continued. “I’m super excited about where this takes us as companies.”

Financial terms of the transaction were not disclosed, although Lion will acquire 100% of the Michigan-based craft brewery, which operates in Kalamazoo and Comstock. Founder Larry Bell will retire. The deal is expected to close within the next couple of months, pending regulatory consents and other customary closing conditions.

“This isn’t a money grab. It’s not a hostile takeover. This is a rational, mature adult decision that I feel is the best thing for the company and my employees,” Bell told Brewbound.

With Bell’s, Lion adds one of the first craft breweries, a workforce of 550 and around 500,000 barrels of capacity in the Midwest.

For its part, New Belgium is on pace to cross the 1-million barrel-threshold this year behind the IPA heavy Voodoo Ranger franchise, which makes up about 65% of the brewery’s business.

Year-to-date through October 3, New Belgium has posted nearly $273.2 million in off-premise dollar sales (+19.9%), while Bell’s has recorded $88.2 million in sales (-4%) in multi-outlet and convenience stores tracked by market research firm IRI. Combined, New Belgium and Bell’s hold a little more than 1% share of beer category dollar sales, according to the firm.

Bell’s portfolio will give Lion iconic craft beer brands, including flagship offerings Two Hearted Ale, Oberon wheat ale and seasonal Hopslam IPA, in addition to New Belgium’s Fat Tire amber ale. The combination of two decades-old craft breweries results in an “unrivaled portfolio, which we think allows us to better serve customers, better serve partners,” Fechheimer said.

In making the announcement of the deal to sell the brewery he created, Bell cited two factors.

“First, the folks at New Belgium share our ironclad commitment to the craft of brewing and the community-first way we’ve built our business,” he said. “Second, this was the right time. I’ve been doing this for more than 36 years and recently battled some serious health issues. I want everyone who loves this company like I do to know we have found a partner that truly values our incredible beer, our culture, and the importance of our roots here in Michigan.”

Speaking to Brewbound, Bell said he recently beat a second bout with cancer. “There comes a time where you realize you need to make some important decisions in life. And for me that time is now,” Bell said. “I’ve been CEO of Bell’s for over 38 years. I founded it in 1983 at age 25. That’s a long time to be CEO.” Bell explained that Bell’s board of directors approved plans

to explore a potential sale process in January.

“I really wanted to make sure that Bell’s would get transitioned to a good company to carry on the legacy of brewing and community commitment and valued employees,” he said. “I’m really fortunate to have this agreement with Lion, who’s going to have us join forces with New Belgium. I’d rather be around and help in that transition for everybody that I care about at Bell’s. It’s not fair to have some trustee of mine to take care of my personal business.”

In mid-January, Bell’s named long-time employee Carrie Yunker to the newly created role of EVP, as part of the company’s succession plan. Once the transaction closes, Yunker will continue in her role guiding the Michigan craft brewery’s daily operations. Yunker will report to Fechheimer and also join the combined entity’s leadership team. Also joining the leadership team will be Bell’s VP of operations, John Mallett, who will be focused on integrating the two organizations.

“As a shareholder and board member, I am excited to support the sale of Bell’s to Lion and to join forces with New Belgium,” Laura Bell, Larry’s Bell’s daughter and the company’s former CEO, said in a press release. “Our job as owners is to ensure the best future for Bell’s and I believe this step is an important and critical part

of our journey to continue the Bell’s legacy long into the future.”

Asked about wholesaler alignment, Fechheimer said adjusting those relationships is not a Day One priority. Bell has been vocal about his refusal to accept successor wholesalers that are owned by Anheuser-Busch InBev, Molson Coors or the Reyes Beer Division. The Bell’s portfolio was notably excluded from Reyes’ acquisition of Indianapolis-based Monarch Beverages in October 2020. However, New Belgium has actively sought out partnerships with Reyes in California and the Chicago area.

New Belgium has gained distribution in all 50 states, but Bell’s has not yet fi lled out the entire U.S. footprint. The brand is distributed in 43 states, Washington, D.C., and Puerto Rico, excluding northern and central California, Oregon, Washington, Idaho, Montana, Utah, Alaska and Hawaii. Similar to the companies’ wholesaler alignment, expanding Bell’s reach is not an immediate goal.

“As we think about the entire strategy and entire opportunity, we’ll obviously look at those seven states,” Fechheimer said. “There’s benefi ts when you’re that close to being national to becoming national, how do you service some other large national customers, and I’m sure we’ll get there. But that’s not a Day One priority that we’re going after.”

Bell’s, however, will align with New Belgium’s business practices, including seeking B Corporation certifi cation, 100% carbon neutrality by 2030, $1 per barrel philanthropy, and 100% score on the Human Rights Campaign Corporate Equality Index.

The acquisition will place Bell’s outside of national trade group the Brewers Association’s defi nition of a craft brewery, notably “less than 25% of the craft brewery is owned or controlled (or equivalent economic interest) by a beverage alcohol industry member that is not itself a craft brewer.” Bell’s volume will no longer be counted among the BA’s craft brewer data set and will have to cease use of the BA’s independence seal on its packaging and marketing materials. However, Bell isn’t fretting over the brewery losing its craft designation.

“Both of these companies were forged in the early fi res of craft beer, and may not have BA certifi cation, but certainly -- certainly -- these two companies have the spirit of craft beer from when the movement started,” Bell said. “So I don’t think anybody’s gonna worry about that. I’m not going to lose sleep over it. And I’m guessing Steve isn’t either.”

Bell fi rst ventured into the world of beer while working at a bakery in 1976 following his graduation from Kalamazoo College, according to the brewery’s website. Working with yeast sparked his interest in fermentation and he began homebrewing, eventually opening a homebrew shop, the Kalamazoo Brewing Supply Co., in 1983. Bell sold his fi rst batch of beer commercially in 1985 and self-distributed locally until signing on with Ann Arbor-based Rave Associates in 1989 to expand its footprint within Michigan. The brand expanded to Wisconsin and Indiana in 1990.

In 1992, Bell’s expanded to Illinois and launched its iconic summer seasonal Oberon wheat ale, which was originally titled Solsun but renamed four years later due to trademark concerns.

“Larry picked the name because he played Oberon, King of the Fairies, in his sixth grade production of Shakespeare’s A Midsummer Night’s Dream,” the brewery website reads.

Bell’s crossed the 100,000-barrel mark in 2008 and doubled its volume in four years when it shipped 200,000 barrels in 2012. Upper Hand Brewery, a sister company based in Escanaba on Michigan’s Upper Peninsula, opened in 2014. The brewery, which produced 4,958 barrels of beer in 2020 according to the BA, is included in the Lion transaction.

The BA honored Bell with its Recognition Award in 2010 as a leader “whose inspiration, enthusiasm and support have contributed to the brewpub and microbrewery movement.” In September, the trade group gave the same award to Mallett, who also serves as president of the Master Brewers Association of the Americas and chairperson of the American Malting Barley Association in addition to his long career at Bell’s. Mallett received the BA’s Russell Schehrer Award for Innovation in Craft Brewing in 2002.

In retirement, Bell said he will be focused on the Larry J. Bell Foundation.

“I intend to be rooting around the stacks for a while,” he said.

And maybe a few more Chicago Cubs games?

“Well, let’s get some pitching,” Bell, a long-time Cubs fan, said.

“And some hitting, as well,” added Fechheimer, who Bell said also roots for the Cubbies.