Billion-dollar Ballast Point sold to a Chicago brewery I’ve never even heard of, Constellation prefers Corona Hard Seltzer

What? [Drops breakfast beer in lap] Kings and Convicts Brewing Co. started brewing for the public in Highwood, Ill., in 2017, and now it owns Ballast Point Brewing — the company Constellation Brands bought in 2015 for $1 billion at the incredible height of the craft brewery acquisition craze. Just when you thought the beer market couldn’t get any zanier.

I’ll go out on a limb here (with absolutely zero evidence) and say Kings and Convicts did not buy the brand for half of that. A quarter? Estimates going around for the recent New Belgium Brewing Co. acquisition by Lion Little World Beverages and Kirin were in the $300 million to $400 million range. No financials have been shared on either, but logic would dictate this Ballast Point unloading has to be a much, much lower number than what Constellation originally paid.

This is in no way a slight on Kings and Convicts, but this is the first time I’m even hearing about this brand. Apparently, they’re big into golf simulators. Who are these guys and gals? According to the press release:

Kings and Convicts is a privately-held company backed by a small group of investors who are passionate about the Ballast Point brand and who are focused on the long term. Co-founded in 2017 by Englishman, COO and head brewer, Chris Bradley, and Aussie and CEO, Brendan Watters, Kings & Convicts brews ales and lagers out of its 5,000-sq-ft Highwood brewery and taproom in the North Shore of Chicago, which are available on draft and in cans at the taproom and in bars and restaurants across Chicagoland and Wisconsin.

So better said: A small group of investors bought Ballast Point, and they also own another, smallish brewery.

It’s been no secret that Ballast Point has been struggling

We reported back in April that Constellation and Ballast Point were closing two newish satellite locations — San Diego’s Trade Street brewery and Temecula, Calif.’s brewpub — while plans for its upcoming San Francisco brewpub had been shuttered. That took Ballast Point to five locations in California and seven total in the United States, counting new locations in Chicago and the opening of its recent Disney property in Anaheim, which looks pretty lavish.

In August 2018, Constellation announced it would be opening a tasting room and kitchen in San Francisco’s Mission Bay neighborhood in early 2019. We reached out this past January for an exact date, while doing this story on the Disney property, and we received no answer. The location was supposed to mark Ballast Point’s first northern California brewing location, and it had plans to house a restaurant and on-site R&D brewery. It never happened, but this did. According to the always informed Brewbound:

The decision [to close two locations] comes two weeks after Constellation recorded a $108 million impairment charge to Ballast Point’s trademarks, essentially admitting it overpaid when it bought the business for $1 billion in late 2015. Constellation previously recorded an $87 million impairment charge to the Ballast Point trademarks in June 2017.

It should also be noted that in August 2018 Constellation laid off sales staff that covered its craft products. Now, the Ballast brand is being acquired by a smaller craft brand that (for some perspective) only distributes in Chicagoland and Wisconsin. Current volume of Ballast Point, according to the press release, is expected to surpass 200,000 bbls in 2019, and the brand is available in all 50 states as well as internationally in 19 countries including South Korea, Sweden, Australia and New Zealand.

As part of the transaction, Kings and Convicts will acquire Ballast Point’s four brewpub locations in California, including downtown Disney/Anaheim, Long Beach, Miramar and Little Italy, as well as the newest Ballast Point brewpub located in Chicago’s Fulton Market District, which opened in May of this year, and Ballast Point’s original homebrewing supply and tasting room in San Diego’s Linda Vista neighborhood. As part of this agreement, Kings and Convicts will also retain all positions within Ballast Point’s existing workforce, with plans to hire additional resources to support the future growth of the business.

Constellation will retain its Craft and Specialty operations in Daleville, Va.

From the press release:

“We look forward to engaging the community and getting a connection back to the local markets through our distributor partners, on and off-premise retailers and our dedicated salesforce ambassadors,” said Chris Bradley, Kings and Convicts’ chief operating officer. “Ballast Point has well-established R&D programs, and we want to continue fostering that innovation and experimentation by listening to our consumers and serving specialty and local beers in each market.”

What did Constellation have to say about all this? Well, the company expects to realize slightly improved depletion and margin trends for the beer business upon close of this transaction, and it’s still got seltzer, so it’s fine.

“Trends in the U.S. craft beer segment have shifted dramatically since our acquisition of Ballast Point,” said Bill Newlands, Constellation Brands president and chief executive officer. “Ballast Point remains one of the most iconic craft beer brands in the country, and we’re pleased to transition the business to an owner that can devote the resources needed to fuel its future success. At the same time, this decision allows Constellation to focus more fully on maximizing growth for our high-performing import portfolio and upcoming new product introductions, including Corona Hard Seltzer, scheduled to launch this spring.”

Well, thank god for Corona Hard Seltzer. This transaction is expected to close by the end of Constellation’s fiscal 2020 year.

Also noteworthy: Kings and Convicts also have plans for a 48,000-sq-ft destination brewery in Pleasant Prairie, Wis., approximately 30 miles from Milwaukee, that will house a large production brewhouse, taproom, restaurant and event space. It’s expected to open in fall 2020. I expect we’re going to be hearing a lot more from these folks.