Mark Anthony Group Inc hung up the “For Sale” sign for its 14-year-old RTD beverage subsidiary Mike’s Hard Lemonade Co earlier this month. In 2013, the Mike’s Hard Lemonade brand alone sold 140 million litres, contributing to sales revenue of US$500 million. Now it is being offered up at a price tag of US$1 billion, but will it find a buyer at that value?
Over the 2008-2012 period the company recorded a volume sales CAGR of 8%, and it had managed that on the back of its classic positioning, innovative product development and unique marketing. The product played on the nostalgic image of 1950s Americana, evoking the image of street lemonade stands. The company’s marketing team managed to identify areas of drink product groups or “white space” that have the minimum market overlap with other products, such as with the cider-based RTD Mike’s Hard Smashed Apple. It built on its innovativeness via a series of idiosyncratic TV advertisements, as seen with its 2014 Mike Hack series that speaks to the YouTube/hash-tag generation.
The malt-based RTDs category is US-centric, as 85% of volume sales in 2013 took place in the US alone, and Mike’s Hard Lemonade’s beverages are almost solely sold in the US. Relative to annual beer sales, the malt-based RTDs category is miniscule and has a relatively narrow consumer base to attract. Mike’s Hard Lemonade is typically consumed by female drinkers or young adults who are disposed towards sweet-tasting tipples when compared to beer. This category is also the most dynamic RTDs category in the US, especially since 2012, following the entry of A-B InBev’s Lime-A-Rita range and other competing brands such as Heineken's Dos-A-Rita in 2014. Mike’s Hard Lemonade faced competitive pressure from these brands as consumers were offered a wider range of malt-based beverages that resulted in it suffering from a stagnant performance in volume sales in 2013.
Mark Anthony Group is likely to have few options with regard to potential buyers. Regarding its top competitors, which are the top global brewers such as A-B InBev, SABMiller or Heineken NV, the Mike’s Hard Lemonade range does not add to their portfolio category diversity and is likely to cannibalise their newly established brands. However, for other major brewers, such as Molson Coors Brewing Co or Constellation Brands Inc, its acquisition could be a positive move to diversify their still narrow beer portfolios and for the Mike’s Hard Lemonade brand to take advantage of their nationwide distribution networks. The former could even export the brand to its Eastern European operations, where the category is expected to grow by 2% over 2013-2018, second only to North America. Regarding Constellation brands, this would be a relatively big investment when compared to its earnings of US$4.9 billion in 2014.
The greatest synergies with Mike’s Hard Lemonade would seem to be with the craft beer companies, as they both utilise quirky and innovative products, brands and promotions. However, with Boston Beer Co being the highest-earning craft beer maker in the US, generating net revenues US$790 million in 2013, a US$1 billion price tag would be an extremely risky venture. It would seem that the price tag and significant market overlap might make it a hard sell for Mike’s Hard Lemonade.
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