November 21, 2019

What Does the Sale of New Belgium Brewing Mean for Employee Ownership?

Employees are expected to vote soon to approve the sale of New Belgium Brewing (maker of Fat Tire beer and other brands), the fourth-largest craft brewery in the U.S. and the largest ESOP-owned craft brewery, to Lion Little World Beverages, a subsidiary of the Japanese beverage giant Kirin. (See the NCEO blog post.) 

New Belgium was started in 1989 and set up an ESOP in 2000, becoming 100% ESOP-owned in 2012. From the time it started its ESOP until now, it has more than doubled employment to about 750 worker-owners, expanding from its roots in Fort Collins, Colorado, to a new brewery in Asheville, North Carolina. Over its time as an ESOP, it paid out more than $190 million to former participants. More than 300 current participants will get at least $100,000 each from the sale.

New Belgium was the first craft brewer to become an ESOP, and its success has been part of why at least 15 other craft brewers have become ESOP companies as well. Collectively (counting New Belgium), they account for over 15% of the total volume of craft beer. Well-known brands such as Harpoon, Modern Times, Great Lakes, Left Hand, and many others have learned from and built on the New Belgium experience. Craft brewing, in fact, has among the highest densities of ESOPs of any industry.

New Belgium also was a pioneer in environmental sustainability, becoming a certified B corporation, a designation focused on a company’s commitment to social goals beyond profitability. New Belgium Brewing was an iconic employee-owned company, one that convinced policy makers to open their minds about the virtues of employee ownership. The NCEO has used its name and logo as well as photos of New Belgium employee-owners in hundreds of presentations around the world.

New Belgium has been a leader in employee ownership culture. Its “POSSE” committee (the name, as they say, is “ESOP” spelled backward-ish), made up of volunteers elected by their peers, has played a major role in communicating the plan and providing ideas on how the company could perform better. It also has been a leader in open-book management and teaching people how to use the numbers. Employees are involved in multiple layers of the company in identifying problems and generating solutions.

So given all this, what are we to make of its sale? Obviously, losing a well-known and widely admired company like New Belgium as part of the ESOP community is painful. But ESOP companies face the same kinds of pressures and opportunities all companies do. The craft brewing industry has been undergoing rapid consolidation for several years, with multiple major acquisitions announced every year. Large brewers can add marketing, capital, and distribution advantages that even major players like New Belgium find hard to match. Because of that, they are often willing to pay substantial premiums for the stock. That doesn’t mean that a sale is inevitable for any successful craft brewer, but in any growing industry like craft brewing, consolidation is to be expected. There were, after all, 1,800 car companies in the early 1900s, and many of the iconic food brands that started out as independent (Kashi, Ben and Jerry’s, Annie’s, and many more) are now part of multinational companies.

New Belgium also had to balance the cash demands of buying shares back from retired employees with the need for growth capital. A common approach for companies with the market appeal of New Belgium is to attract private equity capital, but as cofounder Kim Jordan wrote in an open letter to employees, “we found that options to raise capital while being an independent brewer weren’t realistic for us. Some of the most widely used options by craft brewers were going to compromise a lot about what makes New Belgium great: environmental sustainability and a rich internal culture…Some of these were going to lead to cost-cutting or a lack of focus on sustainability.” Jordan thinks the sale to Little Lion can help New Belgium retain those values and grow. She said Little Lion is also committed to sharing the wealth through profit sharing, strong health care programs, and generous family leave.

In market economies companies are created, companies fail, and companies change ownership. ESOP companies outperform other companies on average, and this competitive advantage makes it less likely that they will experience a sale, but it cannot ensure that any particular ESOP company will last forever. The question is not whether companies will be sold, but what will happen to the stakeholders of companies that are sold. Employee are often the losers when the ownership of their employers changes hands. They almost never benefit from a transaction . . . unless the company has broad-based ownership by its employees. The existence of an ESOP means that the sale price is divided among many people, rather than a single person taking the entire profit from the sale.

All of us in the ESOP community should be grateful to all the people at New Belgium, especially its long-time leader and cofounder Kim Jordan, for creating a model ESOP company that has helped spread the concept of employee ownership in its very best sense. We wish them all the best in their new ownership structure.

The NPR program Marketplace ran a segment on New Belgium and employee ownership on November 20.