Where’s the Value?

March 1, 2015 By Christopher Shepard

As taste is subjective, so too is the value of a beer to beer drinkers. None of us have identical taste experiences even if the liquid we’re tasting is technically identical. Personal preferences often guide our evaluation of the intrinsic properties of a beer—those detectable by a blind taster or beer judge. Of course, beer is more than just the liquid in the glass and has intrinsic properties other than those considered by a blind taster. The who, what, where, when, why and how of brewing a beer affect its appearance, aroma, flavor, mouthfeel and the rest. But since tasting rarely happens in such a controlled environment, a drinker’s knowledge of who made a beer, where or how can become caught up with that drinker’s evaluation of its taste. That in turn is likely to affect just how much the drinker will be willing to plunk down on the bar for the same beer the next time around.

That works both ways: knowing more about a company, its history and practices can make me more or less willing to pay a premium for its products. And a growing number of beer drinkers share that sentiment. Willing to scrutinize the companies that make their beer in ways they may not scrutinize the companies that make other products they buy, these beer drinkers helped flip the beer industry on its head.

By bringing beer drinkers to them with tours and taprooms, breweries share their stories while controlling the experience visitors have drinking their beer. And context, rather the who, what, where, when, why and how of the drinking experience, can also become entangled with taste. Controlling how drinkers interact with a beer, its flavors and its story has proved a powerful tool in the changing beer landscape in the United States and elsewhere.

All of the above, associated with small brewers, contrasts sharply with most mainstream beer marketing, which often references hoped-for drinking experiences full of fun and friends. That’s starting to change. The largest beer companies have signaled plans to refocus messaging on the beers they make, the people who make them and the places they come from. Will that in turn signal a shift in consumer values?

That is, the values of beer drinkers, the end consumers of beer. But they aren’t the only ones asked to assign specific value to beers. Distributors or wholesalers are typically the first consumers or customers of breweries. They buy beer from breweries to resell, and they also buy and sell brands. The way the relationship between breweries and distributors has developed, legally speaking, wholesalers can sell the distribution rights of a brand they distribute to another wholesaler. Breweries can initiate such transfers, but wholesalers must still be paid for the work they did leveraging their relationships with retailers to create brand equity in a given market. Brand transfers don’t happen very often with large brands that make up significant portions of a distributor’s business. For small brands, though, people will say moving brands happens “all the time” or that it’s “prohibitively difficult.” If we’re generalizing, it’s probably more accurately a combo of the two or somewhere between. (But that’s another topic.)

When brands are being transferred, brewers, wholesalers, consultants and lawyers spend hours determining their value. They consider the money earned from selling those brands, factoring out what was spent to sell them. They consider volume: how many cases were sold and could be expected to be sold. As wholesalers pay each other for brands, so have breweries started to successfully persuade distributors to pay for the right to distribute their brands.

People have started paying much more attention recently to the value of not just beer or specific brands but entire beer companies as talk about mergers and acquisitions has picked up. The known transactions and often rumors of price tags float around, paired with a brewery’s volume in order to come up with a dollars-per-barrel figure. Valuations of publicly traded companies, including brewers and importers of all sizes, already show a fairly wide range of per-barrel values. Some recent small-brewery transactions were rumored to have been valued at upward of $1,000 to $2,000 per barrel, a big jump. Besides limiting the number of potential buyers of a some of the larger small breweries, it also suggests a lot of faith in the growth of these brands.

Buying a brewery often means evaluating real estate, equipment and many other tangible assets as well as the various intangibles of the beer brands a brewery creates. These layers of value remind me a lot of the complexity of the brewing process, which, as a pretty intermediate homebrewer, I feel confident in calling infinitely complex. Or rather, as complicated as you want it to be.