Tuesday, October 16, 2018
Business

Behind Cigar City's sale: An irreverent craft beer brewery grows up

The harsh realities of business and successful startups are not quite on the front burner of the still mostly no-rules craft beer industry. But last Monday's deal involving one of Tampa Bay's premier craft beer endeavors — Cigar City Brewing sold to a Colorado brewery that in turn was acquired last year by a Boston private equity firm — should serve as a wakeup call.

It's fun to create tasty local beers with funky names like, in Cigar City's case, Florida Cracker or A Beer Named Sue. Other craft breweries boast even wackier beer names such as Son of a Peach, Naked Pig and Polygamy Porter.

Only 25 years ago there were fewer than 300 craft breweries in the country. Now that number is edging past 4,000. That's an average of 80 per state. That's a heck of a lot of brewery product to sustain.

Consolidation is coming.

Cigar City founder Joey Redner is learning what all start-ups must come to terms with — if they are as talented and as lucky as he has proved to be just to make it to the next step. Growing a business can be expensive and eventually demands serious money to pay for the next stage. Managing a bigger company can be very different from starting a company, often requiring different skills and oftentimes different people to make it work.

Redner was the majority owner of Cigar City Brewing. The business was initially financed in part by father Joe Redner, Tampa's most famous strip club king and owner of the infamous Mons Venus on N Dale Mabry. Redner became a significant minority investor in his son's brewery enterprise.

Now Joey Redner is selling his craft beer business to a bigger Colorado craft beer company called Oskar Blues. That brewery in turn had sold a major stake in itself in the past year to a Boston private equity firm called Fireman Capital Partners.

The Denver Post, which reported on the Cigar City deal by Denver suburb-based Oskar Blues, guesstimated that the Cigar City sale was for $60 million, based on 60,000 barrels of product at an industry average sales price of $1,000 per barrel.

I'm guessing that's a lowball number. We'll see if the actual price is ever disclosed.

What ignited this sequence of deals?

Joey Redner's explanation is a business classic. We've gotten as big as we can, given our resources.

Says Redner: "The main reason for the transaction is that we have reached the end of our runway as a brewery. We are maxed out production wise.

"I don't like to borrow money and the next phase was going to require massive capital."

This is not the first time Redner has considered shaking things up at Cigar City. Two years ago, he told the Tampa Bay Times he might move his brewery company to another nearby state if Tallahassee lawmakers passed legislation limiting how small breweries distribute bottles and cans. "I would be stupid not to consider it," Redner said at the time. Obviously, that legislation did not become law, and he did not move.

Last year, Redner was in talks to sell Cigar City to Anheuser-Busch, part of giant AB-InBev and whose mainstay Bud and Bud Lite beer brands are growing little these days. That's why AB-InBev has been busy buying up promising craft beers, nabbing such brands as Chicago's Goose Island in 2011, and Long Island's Blue Point, Bend, Ore.'s 10 Barrel, Seattle's Elysian, Los Angeles' Golden Road and Breckenridge Brewery in more recent years.

Over the last decade Anheuser-Busch, Miller and Coors all have been involved in major acquisitions. Today Anheuser-Busch InBev, owners of what was Anheuser-Busch and SABMiller, account for 70 percent of beer sales in the United States.

The renewed small brewery grab does not sit well with many craft beer hard cores and the millennial drinkers who help support the business and tend to steer clear of the giant beer conglomerates. Some deride AB-InBev, calling it "MegaBrew." In turn, the big beer companies have run ad campaigns lampooning independent craft beer labels as highbrow and, as one article described it: "hipster-precious."

Craft breweries also complain that big beer companies are taking over U.S. beer distributors at an alarming rate. In the process, they are increasingly controlling shelf space in retailers where beer is sold.

"We got into beer out of passion and an unwavering desire to travel our own path," Redner told the Denver Post. "We didn't want to just shove our round peg into some square hole and hope for the best."

Rather than just take his millions and run, Redner is doubling down. He'll keep running Cigar City as a subsidiary and with a personal financial stake in a network of bigger craft beer breweries that includes Oskar Blues. Part of the mission is to take advantage of the new brewing capacity that will become available to Cigar City and crucial to its growth.

Its buyout fits nicely with Oskar Blues' "against the grain" expansion strategy, notes the Post, that includes buying smaller breweries that are experiencing growing pains, building a network of regional Oskar Blues breweries and creating a cluster of side businesses.

As Oskar Blues spokesman Chad Melis told the Denver newspaper: "I think the goal is to be able to provide additional resources — financially and experience-wise — and create a collaborative environment where breweries can keep their culture."

As proposed in Monday's deal, Cigar City will join Oskar Blues, plus breweries that include Perrin and Utah Brewers under an umbrella organization called United Craft Brews LLC.

What does this all mean for the rest of Tampa Bay's vibrant craft beer scene?

Redner is still here but about to play in a bigger league, even if he is still fighting the good Cigar City craft beer fight. Consider him a role model for those seeking options to grow.

Since the 1970s, the U.S. craft beer industry has grown from zero to 11 percent of the market. That may not sound like much. But it's a big beer market. And the craft beer niche is growing a lot faster than the industry big boys these days.

Just don't expect the drive to consolidate to end any time soon.

Contact Robert Trigaux at [email protected] Follow @ venturetampabay.

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