Mergers and Acquisitions (M&A) in the beverage industry has declined 21.4% year-over-year as inflationary pressure and recessionary fears have “moderated” consolidation, reported investment banking firm Capstone Partners in its inaugural “Beverage Sector M&A Update.” Yet, the slowdown is in line with the broader M&A market across industries in the first half of the year.

An oddity from the report: Strategics accounted for 90.1% of the total deal volume YTD as major players optimize supply chains, gain economies of scale and diversify revenue streams and product mix. This is unusual, said Capstone managing director of beverage M&A Ross Colbert. Private equity has been a “lot more cautious” in beverage deals because “valuation multiples are higher than what sponsors are typically willing to pay,” 

“Strategics are much better positioned to do M&A in a market that some might say [where] there's more risk just given the increased cost of capital, inflation pressure,” he said. “Strategics are able to absorb those costs easier than a private equity sponsored transaction where it is highly levered.”

• Spirits and alcoholic beverages have been more “resilient” and a driver for M&A and capital markets, Colbert said. High-income consumer demand for premium products has insulated it from inflation with deals such as ingredient provider MGP’s subsidiary Luxco announcing its agreement to acquire Penelope Bourbon in May and Bacardi’s purchase of premium spirit brand D’USSÉ Cognac.
• Diversification is seen most acutely in consumer demand for ready-to-drink (RTD) alcoholic and coffee beverages. Think: Pernod Ricard’s acquisition of Skrewball Spirits, E & J Gallo Winery’s deal for canned wine and spirit brand Bev, and KDP’s $300 million minority stake in RTD coffee company La Colombe.
• Health and wellness continues to be a strong driver of the industry with deals like KDP’s stake in Nutrabolt, the makers of fitness-oriented energy brand Celsius, proving that better-for-you is a strong growth driver for M&A speculation and will continue into 2024.
• Despite the decreased rate of consolidation seen in the last year, there has been an increase of interest in suppliers, wholesalers, and outsourced manufacturers as both strategics and financial investors prioritize product efficiency and consolidate supply chains.

Although the M&A market is expected to rev up in 2024, sellers are playing a bit of a waiting game as they recalibrate to valuation expectations, Colbert said. “It’s still a buyers’ market, in the sense that valuations aren’t really where they were pre-COVID, largely driven by interest rates and the cost of capital.”

With ready-to-drink UPC proliferation nearing 7,000 items, how does an independent spirits company find a niche on the shelf when starting from scratch?

• Wolf Spirit Distillery, which recently announced a new RTD division, is “taking the high road.”
• The Eugene, Oregon-based company brought on the former Hard Rock CMO to spearhead a strategy based on upscaling beloved cocktails and focusing on ready-to-serve.
• RTS experienced small declines year-over-year, with shifting of volume to traditional spirits categories like tequila and whiskey. But the super premium segment (+395.7%) and ultra premium (+12.1%) segments are leading growth, according to NIQ.
• The company is also looking beyond the U.S., and hoping to get their craft premium+ prepared cocktails into other big RTD markets earlier than others.

With a focus on client communication and customization, TechniBlend’s experienced team goes above and beyond for clients. Schedule time with us at this year’s Pack Expo in Las Vegas to see why TechniBlend™ is the trusted partner of some of the largest beverage brands in the world. Learn more

Chilean food tech company NotCo has announced the launch of NotMilk Barista product designed for food service. On its website, the company claims the oat-based product was developed with and for baristas and produces “cold and hot foam like no udder.” 

• Last year, NotCo announced it had raised $70 million in new growth capital seeking to build a business-to-business food technology platform that “operates like Coca-Cola.”
• Co-founder and CEO Matias Muchnick told NOSH that establishing the B2B platform will allow NotCo to scale its technology quickly and efficiently, which is essential for the company to capitalize on its uniqueness” rooted in its technology and AI platform named Giuseppe. 
• According to the Good Food Institute’s (GFI) 2022 State of the Industry report, plant-based milk is the most developed of all plant-based categories, with dollar sales of $2.8 billion last year.

PepsiCo is digging into its pep+ sustainability initiative with the announcement last week that it was replacing plastic rings in its beverage six-packs with recyclable paperboard. The move is expected to begin in Q4 with a regional approach to the company’s Pepsi, Pepsi Zero, MTN DEW, Starry and Gatorade brands among others.

• The beverage giant will follow the same strategy of changing to paper packaging that it has already begun in Canada.
• PepsiCo’s pep+ initiative aims to create a more sustainable approach to supply chains with the goal of achieving net zero emissions by 2040 and to “improve packaging sustainability including reducing virgin plastic per serving by 50%” by 2030.
• The Coca-Cola company has already instituted its own paper packaging in many European markets and through at least one bottler in the U.S. Coors Light announced in March 2022 it was moving to remove plastic rings from its supply chain by the end of 2025.

Cannabis beverage producer Wherehouse Beverage Company, maker of the WYNK and Countdown THC brands, has hired two former Canopy Growth team members to new executive level roles.

• Wherehouse named Sol Clahane as its chief commercial officer. Clahane previously founded Boardroom Brew Beverage Consulting and is the VP and general manager for Canopy Growth’s U.S. division. 
• Phil McFarland, previously VP of strategic business transition at Canopy, was appointed as Wherehouse’s general manager for THC beverages.
• "The beverage industry is ever-changing, particularly with the emergence of THC-infused beverages," Clahane said in a statement. "As a whole, the industry hasn't been able to keep up with changing consumer needs. Brands such as WYNK and COUNTDOWN are uniquely positioned for the value and utility they provide to consumers. I see tremendous opportunity for growth and consumer engagement with these brands."

Meanwhile, Flyers Cocktail Co., which makes CBD-based NA cocktails, announced it was hiring Sierra Homer as Head of Operations. Homer just graduated from Harvard Business School – where she was active in the Business of Cannabis Club. My, how extracurriculars have changed!

In our most recent roundup of new spirits releases, Colorado-based Root Shoot announces the launch of its first completely locally sourced spirit, Kenny Chesney’s Blue Chair Bay celebrates its 10th anniversary with a new LTO and Jack Daniel’s introduces the latest addition to its Single Barrel Special Release Collection. 

Check out the full story on BevNET.

Raise your glass to the New Hope Network’s inclusion of a dedicated zero-proof beverage pavilion for the first time at this year’s Natural Products Expo East. At this point the pavilion has 10 Adult Non-Alcoholic Beverage Association (ANBA) member brands signed on to present at this year’s food show. Let’s take a look at the NA beverage brands representing the “sober curious” category:

• Non-alcoholic wine makers: Noughty, Sovi Wine Co., Seraphim Social Beverage
• NA canned cocktail brands: Mingle Mocktails, Parch Spirits Co., Kul Mocks, Hella Cocktail Co., DRY Botanical Bubbly
• Zero-proof spirit companies: Abstinence Spirits, Caleño Spirits

The hope is that this will be the beginning of a longstanding partnership between ANBA and New Hope Network at future Natural Products Expos. Stop by ANBA’s booth at #1026 to learn more about the alcohol-free beverages and how the organization is “promoting, protecting and growing” the category.