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Buying Piecemeal

Beverage World:

By Bill Anderson

More and more, emerging brand sales are not outright sales at all, but two-step acquisitions which have the major supplier buying only a portion of the small brand at the outset, with a complete acquisition later on. These transactions are taking many forms.  Coke acquired a partial interest in Honest Tea before buying all of the brand last year.  Ditto for ABI’s acquisition of Goose Island Brewery.  Bacardi invested in the small cachaca brand, Leblon, and Avion tequila signed a distribution deal with Pernod Ricard that also included a minority investment in the brand.   Tata acquired a significant stake in the NA brand Activate last year and has since added to its original investment.

This is a trend that will likely continue, and there are good reasons why.

With distribution choices growing more limited and becoming far more difficult to navigate, young brands are looking to align with more experienced suppliers which will have leverage with key distribution partners.  Asking your distribution partner to devote critical resources is easier if you’re part of a broader brand family.  If you’re a single brand, it’s getting increasingly difficult to get mindshare from your distributors. Simply put, succeeding alone – no matter how differentiated your brand might be — is now getting much harder.

For an acquisitive supplier, getting in early also provides numerous benefits. The most obvious is a smaller price tag, calculated off of much lower case volumes. Big suppliers have been burned in the past by waiting for too long, engaging in expensive auctions, and drastically overpaying.  They’ve now learned their lessons.

Another advantage is that they maintain the allegiance and work ethic of young founders. By only buying a portion of the company, suppliers get the entrepreneurs to stay motivated. The large suppliers can use this as a learning tool. It’s often said that many large acquirers don’t have the DNA in-house to develop cool, authentic brands. The beverage world has become about small brands having a big impact, but big working committees at large suppliers rarely come up with the next small, game-changing brand.

Alignments like these provide the perfect way for large suppliers to get closer to coveted consumers.  Small brands are often started by smart and highly focused women, millennials and minorities who know better than anyone how to reach their core consumer demographic.  They know exactly what influencer accounts their brands should be launched in, their use of social media is natural and highly specific, and their links to important charitable causes are authentic and honest.

It’s not that outright sales won’t happen, but partial sales will be a trend to watch.