New brewpub locations, a rebrand, and a commitment to lower prices haven't been enough to keep California's Ballast Point Brewing Company on solid ground. Parent business Constellation Brands confirmed via Brewbound this week that its one-time star beer partner would close two locations and stop work on a third. The closures impact current locations in San Diego and Temecula, and a San Francisco brewpub will no longer move forward.
Separately, Good Beer Hunting was told that the change also includes layoffs of about 20 people from Constellation’s Craft & Specialty beer division, according to a former employee. That group has overseen Ballast Point, Florida’s Funky Buddha, and Texas’ Four Corners. Based on the description of the restructuring, the change sounds similar to adjustments made in recent years by Craft Brew Alliance: pull back beer businesses to add focus on home markets. Constellation had already laid off staff from its Craft & Specialty team last summer. Brewbound also reported that, along with layoffs at Ballast’s brewery and brewpub locations, staffing losses would impact sales positions in the South and Midwest.
Stephanie McGuane, communications and brand PR for Constellation Brands' beer division, declined to comment on any personnel changes, but tells GBH that Constellation is "working with impacted employees to help them transition to opportunities either within or outside the company."
"Our goal is to right-size our investment, resources and align with consumer trends," she adds. "Ballast Point will continue to have a robust presence in Southern California and be available in markets across the country."
At one point a darling of the American beer industry, as evidenced by Constellation’s $1-billion purchase in 2015, Ballast Point has had a rough time ever since. From 2016–2017, total volume declined about 14%, according to data reported in the Chicago Tribune. IRI sales of its packaged goods in grocery, convenience, and other stores fell 11% between 2016–2018. Brand leaders Sculpin IPA (-8.3%) and Grapefruit Sculpin IPA (-13.1%) showed similar IRI declines.
The start of 2019 has been no different, and the first three months of the year showed another slide in sales when measured against the first quarters of 2017 and 2018. Comparing this year's January–March timeframe to the same period two years ago—when Ballast Point was at its peak—reveals the portfolio lost 19.3% in IRI over the comparable timeframes.
Meanwhile, Constellation Brands’ stock has been up year-to-date, gaining about $30 per share since January 1.
According to the former Ballast Point employee, who spoke to GBH on the condition of anonymity, part of the challenge following Constellation’s purchase was the company’s belief that having wine and spirits professionals run a brewery would create a smooth transition. For Ballast Point, at least, it clearly hasn’t. Former president Marty Birkel—who departed in February—spent more than seven years as Constellation’s wine and spirits chief global sales officer before taking over at Ballast Point.
That change was part of a larger shakeup in 2016 that included the departures of nearly all key leadership. Ballast Point's founder, CEO, CCO, COO (and head brewer), general counsel, and lead R&D brewer—all different people—left within a one-week period in July 2016. The unprecedented brain drain led GBH to ask a question at the time that seems to have found its answer almost three years later: "Can a brand like Ballast Point or Sculpin ever return on that $1B investment without its core founding team and lead brewers in place?"
Talent retention can be a hot-button issue in beer, especially among executive ranks—experience and specialized skill sets are becoming unique bargaining chips as the many changes across brewing, distribution, and sales play out. The loss of Ballast Point’s leadership group, some of whom turned around and sold a former Ballast Point spirits company to Anheuser-Busch InBev, probably stung then, and Constellation is definitely feeling it now. In the last two years, Constellation has recorded almost $200 million in impairment charges for Ballast Point, writing off a chunk of the original purchase price due to unrecoverable losses.
One result of the leadership changes was a loss of identity both in stores and at the brewery, the former employee noted. In terms of production, they lamented the former success of the brewery's R&D efforts, which created "hundreds" of beers a year to test with customers. Since the purchase, Ballast Point became more reactionary. "Instead of leading trends," they say, it became about making "the safest bets," which just recently included New England-style and Brut IPAs, announced in February. A new 99-calorie Lager, part of a broader “better-for-you” movement in craft beer, was also recently unveiled.
“We have done a lot of market structure work, to understand what a consumer thinks about when buying beer,” Jim Sabia, Constellation’s CMO, told Brewbound in 2017 when rolling out new packaging and price structures for Ballast Point beers. “They look at national, regional and local brands, but then they look at IPA. IPA is part of the structure of how craft beer drinkers buy craft beer.”
He wasn’t wrong—IPA drives craft beer growth—but the trouble was drinkers weren’t flocking to Ballast brands.
From the perspective of the former employee, a slowdown of product releases alongside declining sales made it harder for grocery and convenience-store volumes to stay up. When stores prepared new sets for placement of beer brands, Ballast Point kept falling behind. The former employee also estimated that, as of late, the marketing budgets for Funky Buddha and Four Corners were outspending Ballast Point by four-to-one. All those factors make 2017 seem like another lifetime, when Ballast Point aired TV ads during the World Series that cost an estimated $650,000.
It’s been a long, bumpy fall for Ballast Point, though it does align with some of Constellation’s other recent moves, including leaning on premiumization and shifting away from lagging brands. In February, the company announced it would sell or discontinue as much as 40% of its wine and spirits portfolio, and just recently sold a group of lower-priced wine and spirit brands to competitor E. & J. Gallo Winery for about $1.7 billion.
Constellation’s focus on cannabis has also shifted in a big way. What started as an initial $191 million investment into Canada’s Canopy Growth Corporation in 2017 has ballooned into a total of $4 billion so far. Marijuana could easily be the next “premium” item that Constellation prioritizes, with at least one analysis deciding that Canopy is set up for "global domination."
As far as domination in the American beer space goes, however, perhaps it’s best to start cutting losses with Ballast Point. After expanding into a number of new markets, Funky Buddha’s portfolio earned almost 40% growth in IRI sales in 2017–2018, and is already on track for another record-setting year. Four Corners jumped 74% in IRI sales in the same timeframe and, perhaps most importantly for Constellation, represents a way to expand its customer base. When announcing the purchase of the Texas-based Four Corners, the company referenced “culture” or its various synonyms eight times, in a nod to the brewery’s “bicultural brand”—its joint Hispanic and American background.
“It’s a compelling opportunity for Constellation because Four Corners’ bicultural inspired flavors and branding capitalize on one of the hottest trends in beer—Hispanic influenced products,” Constellation president and CEO Bill Newlands said at the time, adding that Four Corners “embraces and reflects the diversity of its people.”
For a long time, it was Ballast Point that reflected the changes within the U.S. beer industry, finding wild success with Sculpin IPA and its various offshoots—a brand-extension strategy that has been increasingly deployed by brewers big and small. But as things have changed around it, the company never lived up to its eye-popping price tag of $1 billion. That itself may have put undue pressure on a large brewery, at a time when many of its similarly-sized peers are having trouble staying relevant.
The resulting news is an acknowledgement, perhaps, that overpaying for a company while underestimating market forces has created a squall that Constellation can’t avoid.