If you’re the owner or operator of a regional American craft brewery that began its life in the ‘80s or ‘90s, chances are good that you’re currently living through an age of uncertainty and fear.
There is a culling underway in the craft beer industry, a reshuffling of the deck as old-school brewers such as Mendocino or Saratoga Brewing Co. shutter their doors, as we’ve written about in depth. Some of those breweries had scapegoats upon which they could blame their woes, such as bad investors or incompetent leadership.
New Hampshire’s Smuttynose Brewing Co. has been another brewery in trouble throughout 2017 and 2018, but unlike some of the others it doesn’t have a clear-cut scapegoat. It has faced a more troubling problem—people were just drinking less of its beer. MUCH less, in fact. Although the numbers are oddly hidden at the very bottom of this piece from Brewbound, they are shocking when you do the calculations. In 2016, Smuttynose suffered an 8% drop in sales, which brought total production to 48,000 barrels that year—by no means a good figure, but not completely devastating. However, 2017 was truly disastrous, as total barrels dropped to an estimated 35,000. That is a 27% drop in production in a single year. Few businesses could possibly be able to handle a gut-wrenching fall like that one, which makes it all the more clear why Smuttynose had to be sold at public auction to Provident Bank, its lead lender, for $8.25 million last week. It was a case of increased competition and decreasing interest in the brand that came at the worst possible time, in the wake of Smuttynose committing to an expensive new facility that was meant to rapidly increase (rather than decrease) production.
“The company’s financial models were based on 20 years of consistent growth but the explosion of microbreweries has led to changing dynamics in the marketplace,” said Smuttynose owner Pete Egelston in a previous statement. “This dramatic shift occurred just as Smuttynose committed to a major infrastructure investment with the construction of the new production facility. As the turmoil in the marketplace stabilizes, Smuttynose, a trusted brand with strong consumer loyalty, can regain its footing with a major infusion of capital.”
So Egelston hopes, but he won’t be personally in charge of the next phase of the brewery’s life. That would be Rich Lindsay, a former Boston Beer Co. and Night Shift Brewing exec, appointed by new venture capitalist owners Runnymede Investments, who purchased the brewery this week “for an undisclosed sum.” According to Brewbound, Runnymede representatives say they “plan to make several investments in the beer company in the coming months, including hiring more sales reps and installing a canning line.”
“[Former Smuttynose owners] Peter [Egelston] and Joanne [Francis] have assembled a great team and an impressive production facility,” Runnymede owner Chris Broom Jr. said in the press release. “We’re taking a long view and plan on making immediate investments to strengthen the brand and return to growth.”
Egelston, meanwhile, said that Smuttynose’s employees were “eager to turn the page and start our next chapter.” His former partner, Joanne Francis, said the following: “We’ve built a strong foundation with a lot of untapped potential, but circumstances over the last couple of years have held us back. With a strong partner who understands that potential, there’s no limit to what we can now accomplish. We can’t wait to roll up our sleeves and get started!”
We can’t help but possess some degree of skepticism here, given the currently contracting beer market and the ever-increasing field of local competition that Smuttynose faces. The former owners (likely relieved to be able to step down in the near future) can say that “untapped potential” exists for the brewery to now exploit, but if it was that easy, they’d already have been TAPPING said potential. Can more salespeople and a new line of canned beers really turn things around? For the sake of venerable brands such as Smuttynose Porter and Finestkind IPA, let’s hope that is the case.
Regardless, this being a VC firm, the ultimate goal will be increasing the value of Smuttynose as a company so it can later be resold. Will Smuttynose ever find long-term independent ownership again? Or will the rest of its lifetime involve rehabilitation, followed by acquisition by a larger non-craft entity?
The future is hazy as a modern IPA, but our best wishes go out to the members of the Smuttynose team.