Sapporo takes over San Francisco’s Anchor brewery

Given the agitation over Anchor’s sale to Japan’s Sapporo, which was announced on 3 August 2017, it makes you wonder if craft beer lovers are in denial over private equity’s game: buy a company, build it up and then sell it on.

When the private equity Griffin Group bought Anchor from Fritz Maytag in 2010 for an undisclosed sum, the clock was ticking away for the Anchor brewery. What the investors, who had worked in the drinks industry before, were really interested in was Anchor’s distillery (which was not sold to Sapporo), whose growth in recent years must have lived up to the investors’ heady projections, whereas the brewery has witnessed a sales decline, in fact.

The 121-year-old San Francisco brewery is widely credited with sparking the craft beer movement in the US. Anchor was on the verge of bankruptcy when Mr Maytag bought it in 1965. He changed the brewer’s focus, making high-quality beers at higher prices. The new business model worked, and by the mid-1970s, Anchor was turning a profit and set the stage for craft brewers across the nation to follow his example.

Anchor was producing about 90,000 barrels beer (105,000 hl) when in 2010 Mr Maytag, then 72, sold the brewery and the distillery which he had set up in 1993, to the Griffin Group, led by Keith Greggor and Tony Foglio, investors in US-based Preiss Imports and one of its brands, BrewDog.

The duo is well-known in the industry for its work in building the Skyy Vodka brand, whose management they took over in 1998 and increased the company tenfold, before completing a long process whereby Italy’s Campari Group acquired ever larger stakes in Skyy, eventually taking full control in 2007.

Reportedly, Anchor produced 135,000 barrels beer (160,000 hl) in 2016 and was sold for about USD 85 million (about 2.5 times its 2016 annual sales of USD 33 million). This indicates that Anchor is in a category of its own (a heritage brewery) and therefore did not attract the valuation of scale-able start-up breweries: the going rate for craft breweries in the heady year 2015 was USD 1,000 per barrel beer sold, according to rumours.

Explaining his reasons for the brewery’s sale, Mr Greggor cited “difficult market conditions” and “declining volumes”. As to the low valuation, Mr Greggor told the online news service Brewbound that “there was rampant enthusiasm and exuberance for the value of craft breweries [in 2015], which was a blip. There is a reality that is settling in now, as to where the correct value may lie. Our objective was not to maximize the sale [price] of Anchor but to ensure Anchor’s legacy in San Francisco.”

Given that Anchor is sitting on a prized piece of real estate, it was widely believed that any buyer of Anchor would tear down the brewery, set up a new one in the desert and convert the site into flats.

As said, not included in the present transaction is the distillery, which Mr Greggor and Mr Foglio will keep and grow. At the moment, Anchor’s distilling operations are intertwined with the brewery, but the owners will start searching for a site to build a new facility of their own.

As Mr Greggor admitted, the distillery today is about 30 percent bigger, in terms of revenue, than the brewery. In the early days, it needed the Anchor brewery as a big brother to be able to exist. Now the business has become strong in its own right and can forge its own path. Allegedly, the distilling and distribution side of Anchor’s business has grown 500 percent since 2010.

Eventually, the partners realised that they have one business (beer) in an incredibly difficult category and one business (spirits) where they are flying. “We didn’t want to drag Anchor Distilling down by taking investment from spirits and putting it into beer all the time, which is what we have been doing for the last couple of years,” Mr Greggor was quoted as saying.

For Sapporo, which bought Canada’s number three brewer Sleeman in 2006 for USD 400 million, the purchase of Anchor is its first foray into the US craft beer industry. It said it intends to keep operations in San Francisco.

It also hopes to sell US craft beer in the developing craft beer markets of Southeast Asia and Australia.

Anchor currently distributes its beer to all US states and more than 20 countries.