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From the Publisher


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Craft beer and specialty coffee share a common history. In the early 1900s, every town had its own roaster and brewer.

The styles varied based on the heritage of the roaster or brewer, local tastes, and the availability and quality of ingredients. As certain brands became larger and had access to more capital, the natural cycle of mergers and acquisitions led to a homogenization of products to appeal to the largest customer base possible. Eventually (and it took a long time), this opened the door for a reemergence of local, craft-based pioneers who developed vibrant businesses focused on creating a different experience for their customers, particularly through quality and variety.

Given the billion-dollar nature of recent acquisitions in both industries, the mergers and acquisitions cycle is certainly moving full steam ahead, but based on the popularity of the craft movements, it is hard to imagine that this means a return to the commodity-style products of the second half of the 20th century. The stated goals of the acquiring companies—whether it’s Constellation Brands discussing its acquisition of Ballast Point Brewing & Spirits, or Peet’s Coffee & Tea discussing its acquisition of Stumptown Coffee Roasters or Intelligentsia Coffee—is that the companies being acquired will continue to operate as independent entities, and will continue to provide high-quality (and high-margin) products.

This doesn’t mean, however, that these acquisitions won’t have a significant impact on the economics and the direction of these industries. Can these mega-companies continue to be market leaders in quality, given the growth required to justify to investors the large sums paid for these acquisitions? Whether its hops or coffee, can the supply chain provide high quality while fulfilling increased demand? Who will survive the margin pressures and payment terms that can be demanded by large-volume roasters?

Not all is doom and gloom for small roasters and roaster-retailers, though. Opportunities will be available to establish local and regionally focused brands and products. There will be smaller growers and new regions that are unable to provide enough quantity for larger roasters. There will be a group of consumers who will view the acquired companies as damaged brands, or perceive that the quality is lower merely from association with a larger holding company. Finally, there will be potential rewards for high-growth small and midsize roasters, as these will continue to become top acquisition targets.

In all of this, I envision paths to success both for large, more efficient companies and for small, nimble roasters. Perhaps this leaves midsize roasters in the most difficult position, having to be efficient and nimble at the same time. I look forward to hearing your opinions on how these changes are impacting our industry in general and your companies specifically.

With regard,
Connie



 
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