by Timothy McQuiston Vermont Business Magazine In October 2012, an Irish cider maker and beverage distributor stunned the Vermont business world by paying $305 million for Vermont Hard Cider Company, the maker of the Woodchuck brand. By all accounts it did not go well. Within two years the owner enlisted the Pabst Brewing Company to distribute and market the brands as sales did not meet expectations. Pabst also had a $150 million option to buy VTHCC.
On Tuesday, C&C Group plc, owner of the Middlebury cidery, announced that VTHCC on April 1 will resume full responsibility for the sales and marketing of the Group’s portfolio of cider brands in the US, including Woodchuck, Wyders and Magners. By mutual agreement the Group will terminate its current arrangements with Pabst.
Woodchuck unveiled its sparking new $34 million Middlebury cidery in August 2014.
According to a press release issued February 20, both parties recognize that current market dynamics require a different approach that concentrates on VTHCC’s core markets.
In FY2017, C&C’s US business constituted about 4 percent of Group volumes and less than 1 percent of operating profits. According to its half-year financial report issued last September, North American sales plunged 28.3 percent year-over-year (H1 FY18 vs H1 FY17, or $11.2 million vs $15.6). Total fiscal year 2017 North American sales were $30.1 million, a 33 percent decline from 2016’s $45.3 million.
At the time of the sale, C&C was counting on continued and rapid growth of the hard cider market in the US.
For 2011, VTHCC had gross assets of $21 million, net assets of $18 million and profit before tax of $10 million. A generous valuation would use a multiple of 8 to 10 times pre-tax profits, or upwards of $100 million for VTHCC. C&C tripled that.
But C&C said at the time that it wasn’t Woodchuck’s sales alone it was buying, but VTHCC’s distribution and an anticipated growth in the North American cider market. Woodchuck and C&C's own popular cider brands in Ireland and the United Kingdom would take advantage of that growth.
Woodchuck revenue was expected to grow 28 percent in 2012 with profits of 27 percent. The US cider category grew 57 percent in the first six months of 2012.
At the time of the sale, hard cider was only 0.2 percent of the low-alcohol (beer, etc) US market, while it was 15 percent in the UK. C&C wasn’t expecting that, but if it grew to even 3 percent then C&C would have a vast market for Woodchuck and its sister brands: Wyder’s, Gumption, Bulmers, Magners, and Hornsby’s.
But several factors immediately conspired against the new enterprise. The owners of Budweiser, Miller and Sam Adams (Boston Beer Company) got into the game. Boston Beer’s Angry Orchard brand shot to the top and in 2015 sold 14.95 million cases.
But by then Woodchuck, which had been the top US brand, lost ground and fell in 2015 by 14.5 percent to 1.93 million cases. The entire category only grew to about 1 percent of the total beer market.
Another factor was the rise of craft ciders, which have sprouted up across Vermont and many of the northern states. Hard cider sales in apple growing states is stronger, including Vermont, Maine, Oregon and Washington, according to draftmag.com, with penetration reaching that 3 percent target.
In its 2017 financial statement issued last March, C&C was blunt: "In the US, the cider category remains in double-digit decline. Performance of the Magners brand improved considerably in the last quarter and returned to modest growth in the North Eastern states but our domestic US cider brands are lagging behind the category. The carrying value of the US assets will be reviewed as part of our full year end close process (in March)."
According to the online Irish Times from Tuesday, C&C took about $344 million in write-downs and impairment charges against Vermont Hard Cider’s assets in 2015 and 2016.
Woodchuck CEO Dan Rowell and Senator Patrick Leahy at the grand opening in August 2014.
Struggling to find a way forward, or a way out, C&C cut the marketing deal with Pabst that also gave the California independent brewer an option to buy Vermont Hard Cider for $150 million. Now Pabst is out and C&C is bringing Woodchuck and the other brands back in house.
The transition back to C&C will be effected by selected sales and marketing personnel returning from Pabst, supplemented by a small number of external hires. Changes to the distributor network are expected to be limited.
According to brewbound.com, Terry Hopper as vice president of sales, Ben E Calvi as general manager and Bridget Blacklock as vice president of marketing will be the executives coming back from Pabst.
Woodchuck was first crafted in a two-car garage in Proctorsville, Vermont, in 1991. Woodchuck moved to Middlebury in 2000. In 2007, Woodchuck became the first cider company to sell one million cases in a year. Woodchuck is sold in all 50 states.
C&C’s distribution partnership with Pabst in the UK will continue.
C&C said in its statement that it does not anticipate any material transitional costs or change to its financial performance, prospects or carrying values in the US arising out of these new arrangements.
C&C will provide its usual period end trading update for the Group as a whole in early March.
Source: Dublin C&C Group plc 2.20.2018