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What the Montucky Cold Snacks Investment Says About Gallo’s RTD Ambitions

As a rule, I try not to spend too much time praising enormous alcohol conglomerates. For one thing, they pay publicists for that sort of thing, and for another, it’s boring. I don’t want to write it, and you don’t want to read it.

Imagine my horror then, reader, upon learning earlier this week that High Noon’s parent company, which is also the world’s largest wine company, is buying a stake in one of the most fascinating beer brands in the country. I tried to get out of writing this column, really I did. I had a whole other thing planned! But news is news, and much like George Washington, I cannot be left alone with an axe tell a lie. I regret to inform you that I think Gallo’s investment in Montucky Cold Snacks (MCS) is a smart move, and today, we’re going to talk about why.

The basics are, well, basic, and that’s by design. The press release from Gallo hit inboxes yesterday morning with only a little more substance than “hey, this is happening.” The firm has made a “strategic investment” into Montana’s favorite fauxstalgia lager brand in exchange for a stake of unknown size; financial terms were not disclosed. Leaders from both companies offered boilerplate quotes about the “exciting new opportunity to reach consumers in different usage occasions” (Gallo executive vice president and general manager Britt West) and “celebrating our consumers for who they are” (Jeremy Gregory, MCS co-founder), and that’s about it. I warned you: press releases from multinational alcohol firms worth billions of dollars make for pretty dull reading.

The implications of this deal, on the other hand, are worth your attention. First of all, the inter-category dynamics are unusual, both because it’s a wine-on-beer acquisition, and because the firms involved both hold positions of strength relative to their respective categories. (The brewing industry isn’t doing particularly hot at the moment, but wine sales are much chillier.)

To wit: Gallo rose to its present perch atop the global wine business on alleged Prohibition-era chicanery and a voluminous tide of plonk (Carlo Rossi, Thunderbird, etc.) As the sort of person who reads a weekly beer column, you might have assumed it was facing trouble given the collapse of the bottom-shelf in that category. Except, no you mightn’t have, because you, as the sort of smart person who reads Hop Take, surely already knew that in 2019, the mammoth in Modesto launched a little ready-to-drink vodka-soda brand called High Noon. It might be a little strong to say everything is coming up Gallo these days, but the firm has been aggressively expanding and strengthening its core portfolio, and its diversification outside the category has it on solid footing compared to much of its ilk in the wine business. (An exception is Constellation Brands, which has ridden Modelo to the moon while scrambling to shore up the low end of its own wine portfolio by acquiring higher-end brands like Sea Smoke and offloading a bunch of its budget wines to — wait for it — Gallo. The wine business is really weird right now, man.)

MCS, on the other hand, is a fairly small operation, and until recently made just one product: Cold Snacks. The flagship beer, a light lager, hit Montana’s shelves in 2012, and it’s… fine. (The brand also introduced its second product, a hard seltzer in 2023.) “Fine” isn’t what turned it into “one of those once-in-a-decade type brands,” as one wholesaler put it to Kate Bernot in a January 2020 profile of MCS. The company — which contract-brews in Wisconsin — is as much agency as brewery, and it brilliantly positioned its beer to hammer a sweet spot of post-hipsters seeking a post-Pabst Blue Ribbon, price-sensitive ski bums (and white-collar millennials LARPing as such), and retvrn-pilled Gen X-ers hankering for the retro aesthetics of yesteryear’s macrobrews. Hammer, it did, posting double-digit percentage growth (or more!) year over year through the increasingly difficult Teens on an increasingly broad base. MCS closed out 2023 as the 46th-largest craft brewer in the U.S. as measured by the Brewers Association; Gallo’s release put it just shy of a million cases that year.

With respect to Team ‘Tucky, it’s Gallo’s involvement in this deal that has your humble Hop Take columnist more intrigued, and it ain’t close. The famously well-disciplined, (in)famously aggressive company has never made a direct move into the American beer business, though it has kicked the tires with single-serve drink-alikes in the past. For example, Gallo launched Bartles & Jaymes wine coolers in the early ‘80s to respond to the red-hot California Cooler brand, which got hot in part because Coors distributors needed something new, exciting, and beer-like to pitch retailers as the boycott against the Colorado brewer hamstrung the Silver Bullet’s early rollout.

More recently, though, High Noon has emerged as the Golden State outfit’s RTD juggernaut, and its runaway, multibillion dollar success has preceded a string of deals in what you could call the “bougie bodega brand” segment. Gallo has struck partnerships to bring VMC (tequila-sodas out of Mexico) and Soonhari Soju (South Korea) to the U.S., and bought Fischer’s Island (liquor-spiked lemonades), Salt Point (canned cocktails), and Waterbird (ditto). It also launched a BeatBox wannabe in ViBE by Vendange, acquired a perceived-better-for-you canned wine in Bev, and… well, you get the idea. It has moved hard into single-serve products to meet drinkers where they are in the packages they want and backfill dollars lost to the American wine market’s ongoing “premiumize or die” cataclysm.

Its investment in MCS is at once a logical continuation of this thesis, and a savvy departure from it. The beer brand has emphatically nailed the kind of millennial/Gen Z lifestyle brand-building that Gallo has struggled to triangulate in-house. (High Noon got a colossal boost in this regard from its partnership with the Pied Piper of jabronis, publisher Barstool Sports, but that scheme comes with potential pitfalls and diminishing returns.) The MCS investment gives the parent company a piece of a growth brand with a big personality that overlaps with its most-important single-serve product without threatening to cannibalize it. That means more drinkers, more occasions, and more breadth for Gallo. Its enterprise-scale logistics, wholesaler relationships, and money will help MCS keep on hammering towards national distribution and well past the million-case mark.

As for that “savvy departure” — absent the financial particulars, it’s impossible to say how much Gallo stands to benefit from that growth. But I don’t think Cold Snacks represents a cash windfall for the firm so much as an opportunity to learn what’s still working in the American beer business at a time when said business is more up for grabs than it has been since the ‘60s. Even in the era of “total beverage” and single-serve everything, selling beer is different from selling wine or spirits in so many regards: shelf life, retail footprint, drinker expectations… and on and on. Its stake in MCS buys House High Noon a front-row seat from which to take notes on how to scale a beer brand in the modern market without going whole hog.

Whether it’ll use that intel to eventually try to buy MCS outright down the road, or other beer-like brands (or both! or neither!) remains to be seen. I doubt this is a deal done for its own sake, though. Fools rush in, and as much as I hate to admit it, Gallo’s execs are anything but.

🤯 Hop-ocalypse Now

Say what you will about Jim Koch, the Boston Beer Co. co-founder and board chairman, but he’s what newsrooms call “good copy” — i.e., always good for a colorful quote, and sometimes even a candid one, too. The craft brewing elder statesman was full of ‘em in a chat with Goldman Sachs’ longtime beverage whiz Bonnie Herzog the other day, particularly when he casually announced that BBC had “abandoned” national expansion plans for Hard Mtn. Dew after licensee PepsiCo bailed on its middle-tier ambitions with Blue Cloud in the face of a legal defeat in Virginia and industry opposition from the National Beer Wholesalers Association. “We’re not gonna see much [for the FMB brand] in the first half of the year,” Koch said. Ouch, man. Ouch.

📈 Ups…

Brewers, breathe a small sigh of relief, because spirits sales are finally in the red (albeit a smidge), per the latest data from SipSourceAnheuser-Busch InBev beat Wall Street’s earnings projections for Q1 as its comeback-trail slog continues… An investor in Athletic Brewing Co. scooped up Chicago’s erstwhile boug-dega chain Foxtrot for a song at auction last week…

📉 …and downs

ACE Cider parent company Vintage Wine Estates slashed a bunch more of the brand’s workforce… Kroger is testing a “what about Costo?!” appeal in yet another bid to get Washington State’s merger blockade dismissed…

The article What the Montucky Cold Snacks Investment Says About Gallo’s RTD Ambitions appeared first on VinePair.

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