Lotsa media coverage of "Green Wednesday," as supporters dubbed first day of legal pot sales in Colo earlier this week. NY Times front-pager reports things went smoothly, with plenty of enforcement presence, long lines and happy customers, amid lingering skepticism of non-supporters. Those customers were reportedly paying $50-$60 per one-eighth ounce, which we're told is about what smokers pay on the illegal mkt in metro NY. Meanwhile, Brewers Assn economist Bart Watson took oppy to suggest states and regulators use example of pot legalization to re-think and re-examine beer regulation. Most beer laws/regs come from post-Prohibition/post-war business context - big brewers, small/local wholesalers - that's different than today's mkt structure, Bart reminds in blogpost on BA website.

"With breweries now outnumbering wholesalers - and the concentration of those two industries going in opposite directions - might some of these rules be due for a re-think?" Yes, Bart suggests, noting that current 3-tier system, tho it's been a "boon for market access for all brewers," needs to evolve. Like how? Like self-distribution and brewpub laws that provide access and promote consumer choice, Bart notes, as well as small brewer carve-outs to help brewers move brands more easily. These changes, like moves to legalize pot, "demonstrate the amazing ability of US states to act as policy laboratories, where successful experiments spread state-to-state." And so, Bart advises policymakers "take a page from marijuana" and "continuously re-think the way the marketplace provides beer choice and access to consumers."  

Two deals already, less than 48 hrs into 2014. Hawaii Nui Brewing and Mehana Brewery (merged in 2009) were acquired by DeMare Enterprises, it announced. Recall, CBN reported on the co filing for bankruptcy in early 2013, with a long list of debts to pay off (see vol 4, no 28). DeMare was the high bid, spending about $325,000 for the breweries' assets, reported Pacific Business News. The two breweries were closed as of January 1, 2014, until DeMare receives "new 'Brewers Permit' from the Federal Alcohol and Tobacco Bureau," noted press release. "This planned closing coincides with the brewery's primary initiatives to remodel the existing space, provide additional industry training for its employees, upgrade existing equipment and install new packaging equipment." Upgrades are expected to cost around $500K, noted PBN. They expect to be up and running by Mar 2014.

Then too, local Twin Cities breweries "Pour Decisions Brewing Company and newly launched Bent Brewstillery announced a merger Thursday morning," reported Twin Cities blog, Vitamin. Bent Brewstillery had been contract brewing at Pour Decision's facility for some time, and only just commercially released its first two brews in December, noted blog.  

Between its Colo facility and its year-old NC site, Oskar Blues "packaged" over 119K bbls last year, up over 35%, the co announced today. Last year the co entered Mich and Ind for the first time and filled out distribution elsewhere, helped by 46K bbls out of the Brevard, NC brewery in its first full calendar year. This year Oskar Blues will re-enter Idaho with Craig Stein Beverage (MC) and move into Minnesota with the Original Gravity group of wholesalers (AB network: Capitol Bev, Thorpe, College City, C&L), plus move into Kansas, Nev, Del and add more territory in Southern Alabama. The co hired Lou Romano as Natl Sales Director in Oct and promoted Chris Russell to Biz Dev Director.  

Just before the New Year, Lagunitas founder Tony Magee took to his Twitter account to blast Boston Beer after "learning" that Boston Beer/Samuel Adams' "marketing plans" for the Rebel IPA rollout include "specifically targeting our biz as well as other craft IPA." After calling those plans both "flattering & sad," Tony labeled any instruction to wholesalers on Boston's part to replace Lagunitas handles as "parasitism" rather than "competition." He compared Boston's modus operandi to "serial killer thinking," noted that "power so inevitably corrupts" and seemingly in Chicago tough guy "bring-it-on" mode said "F___ them. We're ready."

Boston has denied any such specific targeting, but if Rebel IPA is a "West Coast IPA" and Lagunitas is arguably the most successful example of the style, is it even the least bit surprising that Rebel is somehow aimed at Lagunitas (whether directly "targeted" at its tap handles or not)? Hello? It's called competition. Why do some in craft community still pretend that's a dirty word, instead of simply the reality of business? Actually, Tony's tweets recognize this and can also be viewed as his somewhat smashmouth competitive response. Too bad if you don't like this style, craft brewers may have to get used to it, because there's likely to be more battles coming. Indeed, one large craft distrib who sells both Lagunitas and Boston Beer suggested that he expects 2014 will be a year of "unprecedented" infighting within craft.

In the Twitterverse, Tony's comments infuriated some yet seemed to have further endeared Tony and Lagunitas to others. In recent days, this spilled over into a highly detailed exchange on the BeerAdvocate with more than 100 responses, including lengthy posts from Tony as well as Boston Beer founder/chairman Jim Koch. Initially Tony described his rationale by saying that he "wanted to push BB off of their intended kill." To Tony, "the world is slightly hipper to [Boston's] plans now and that is good for us and for our little industry." He also wrote that the longer format of a BeerAdvocate forum "is a better place for complex things like this but twitter is a sharper blade."

"More than anything, at Boston Beer, we compete against ourselves and our own ideal," Jim Koch said on BeerAdvocate earlier today. That is "to brew the best beer we can. We don't target other craft brewers," he insisted. Boston has brewed IPAs since the 90s, according to Jim, "nearly a dozen different IPAs." Rebel IPA is the latest, created over a period of yrs. "It's hard not take some offense to Tony's other jabs and misrepresentations," sez Jim, seemingly referring to some Tony shots at Boston Beer's aid to other craft brewers as a form of marketing. "I think there's a shared responsibility for all larger craft brewers to help those who are following the path we have worked hard to pave," Jim concluded.

Tony wasn't the only one sending zingers via social media, amplified by aggregators like BeerPulse, recently. Danish gypsy (aka serial-contract/collaboration) brewer Jeppe Jarnit-Bjergsø of Evil Twin Brewing kicked up a couple kerfuffles, one at the end of Nov over the Goose Island Bourbon County Stout release ("an Anheuser Busch release") and another over a sign in NYC's SingleCut Beersmith's that "contract brewing will be the death of craft beer." That Facebook exchange got Brooklyn Brewery brewmaster Garrett Oliver to chime in, opining that "all too often these days, instead of brewing their beer and doing the fun thing they came to do, you see too many angry arrivistes talking smack about their fellow brewers."

Still the home of many a craft love-fest, it seems social media has also become a very visible battlefield for intra-craft disputes. Some have taken to these outlets to share harsh words against companies, business practices and individuals alike, soliciting calls of "sick burns," particularly painful insults. Digital forums, particularly Twitter, have allowed individuals the world over to air grievances against companies and governments and even mount insurrections. We've seen similar strategies taken in craft trademark disputes, mostly against much-larger or non-craft entities, even if the latter had trademark law on its side (Starbucks has successfully fought any spelling of Frappuccino tooth-and-nail since its inception). But one wonders how commonplace this social media battle cum marketing strategy will become and how it may mar craftdom's peaceful reputation.  

As we usually do with first issue of new year, Beverage Business Insights offers some hopefully helpful resolutions for entrepreneurs trying to navigate around shoals of increasingly perilous bev biz. Once contrarian, these rules now seem well on way to becoming accepted wisdom, judging by similar advice proffered by experts at industry pow-wows like BevNet Live lately. As always we credit the insights to you, our readers, who've been so good about communicating your hard-won knowledge to us at BBI.

Better to be slightly starved of capital than over-endowed. Having not-quite-enough capital forces you to focus on key priorities and let distractions go. By contrast, too much capital almost inevitably fosters waste. Besides, once retailers, distributors and prospective new hires know you have the dough, their hands come out. So try to keep the round modest. Don't let the institutional guys talk you up by too many millions.

Make your mistakes off-Broadway. There's much to be said for foregoing the national landgrab and its concomitant capital raise in favor of starting small, in a market or two, preferably your backyard. Until the big Bev Bust of 08, not many paid it any mind, tho. By staying contained to a single region or channel, you can figure out what makes your brand tick, while staying out of the spotlight and not getting tarred as a failure while you work out the inevitable kinks. You'll burn through less capital and less credibility if you make your mistakes locally, not nationally.

Learn to say no. "Getting to Yes" may be the name of an evergreen negotiation handbook, but "getting to no" is a better ambition for bev entrepreneurs to harbor. Learn to say no to big distributors you won't be able to adequately support, and to retail chains (especially Walmart) where you'll get lost on a bottom shelf and endlessly chiseled for pricing concessions. Tho audacious moves into the likes of Walmart seem to have worked out well for some intrepid bevcos, such as Vita Coco, the recent annals of troubled bevcos are filled with those who outran their coverage. If you stay contained within your chosen channel or geography and still manage to show accelerating off-the-shelf velocity, those other distributors and retailers (and capital providers and strategics) will only want you more, on your timetable.

Don't be overawed by the big systems. The Coke, Pepsi, Dr Pepper Snapple and beer systems are finely tuned machines for moving high-volume, high-velocity products at affordable price points through the chains. That doesn't mean they're right for you. Big systems seem to work best for big brands. For smaller, premium brands, their default reflex, at the least sign of resistance, is to hit the 10-for-$10 button (or worse). Even if you do partner with one, maintain flexibility over what distribution option you employ in a given market until you're further along. As a corollary: don't be so dazzled by the resumes of big-company vets. Their credentials may be only remotely relevant to your own needs - unless your overarching strategic aim is to cook up those 10-for-$10 deals with large-format retailers.

It's better to underplay than overplay your nutritional claims. We're in an era of heightened regulatory scrutiny and class-action litigation and, given the excesses of the recent past, can't really claim it's undeserved. So you're better off underplaying your nutritional and functional claims than overplaying them - that can only increase the likelihood of unwanted attention from regulators and sleazy lawyers, and won't do as much as you think to impress jaundiced consumers.

Think strategically about the strategics. If your main game plan is to launch your product, fake it for a year or two, and get taken out by Coke, Pepsi or DPS at a nice premium, then you shouldn't be in this biz. Figure you're going to be in the game for a while, and think of strategics as cos that offer real help in staying in the game. That might mean less easily defined partners, from overseas firms like Tata to family funds like Verlinvest and Emil Capital to well-connected incubators like LA Libations and MetaBrand, not just KO, PEP and DPS.

Stop pounding on the DSD guys already. True, some DSD distributors are grasping, whining, endlessly finagling operatives. (That's what makes them so much fun to have a beer with!) Maybe they really aren't right for your brand, at least at the earliest stage of development or in the channels you're targeting. Fine. It's worth keeping in mind, tho, that there haven't been any shelf-stable brands that have achieved megasuccess without going through the DSD network during their prime growth phase. So pick a limited # of DSD partners - maybe just one - make sure you're on the same page, and see if it can work for you. Like democracy or America's Got Talent, it's sloppy and occasionally unsightly, but nobody's found a better way.

Stand for something, from the start. We don't buy that old saw that certain categories - tea, coconut water, energy - are tapped out, with no room for new entrants. Nor does innovation have to mean employing some earth-shattering new ingredient that sounds like a by-product from an oil refinery. As existing brands move through their life cycle, there's room for reasonably straightforward brands to emerge, even without a lot of bells and whistles. But that only works if your brand stands for something, right from the outset. Trying to add on values or personality down the line is way harder, and less likely to be convincing to consumers.  

Teas' Tea is adding a contemporary technology twist to consumers' penchant for new year's health resolutions by tying into surging consumer interest in electronic fitness-monitoring systems. A winter sweepstakes dubbed Get Your Bits Fit each day this month will give away 31 Fitbit Flex Activity Trackers, the wireless wearable devices that sync to users' smartphones or computers to track their physical activity . . . Oregon atty gen Ellen Rosenblum is seeking to force 5-Hour Energy marketer Living Essentials to reveal precise recipe for drink, as part of 33-state investigation into shot brands marketing practices, BeverageDaily.com reported. Co has provided redacted documents, arguing that precise recipe beyond caffeine level is unnecessary and would jeopardize a key trade secret.  

His brand may still be modest-sized, but by now Maurice Hakim must be counted as a bev survivor: after launching his Tea42 brand in mid-90s and beating a tactical retreat in recent years, the former tea merchant is embarked on a capital raising effort with a view to re-establishing his brand as a broadly available, mainstream-oriented gourmet tea. Fla-based Hakim, whose dad Clement was major tea importer, is looking to raise amount exceeding $1 mil - he wouldn't specific precise target - to fund expansion of tea beyond its small base in Northeast, as well as to grow its year-old Mr Mo's lemonade line and to continue to build private-label biz that numbers among its clients the Earth Fare chain. Maurice said he goes beyond flavor range of his branded line to meet retailers' requirements.

Tea42 (pronounced "tea for two") goes out in conventional Snapple-style widemouth 16-oz glass bottle in such organic-certified flavors as English Breakfast, with calorie range of 40 to 60 calories per 8-oz serving. Mr Mo's, which sports Hubert's- and Calypso-style whimsical cartoon imagery of lemons on label, goes out not just in Mo'st Apeeling and Half & Half flavors but blends such as Strawberry, Mango and Blackberry. (Maurice is the "Mo," of course.) Maurice's main DSD partner lately has been G Housen's North Country Naturals unit servicing parts of Vt, NH and western Mass. Co is now bringing aboard natural/organic specialist McMahon Foods to service NY metro. And it's close to landing unidentified major retailer on West Coast as a direct account as it seeks to build biz there.

Hakim said he couldn't discuss private-label biz in detail, except to confirm that Earth Fare - which knew him via Haddon House connection - is among key customers. He believes the teas' success on private-label side suggests that, perhaps with further branding and distribution tweaks, they should do well under Tea42 brand, too, once line attains broader availability.  

Bev banker and consultant Christopher Reynolds, who'd exited segment for a while to focus on alternative energy realm, has returned via role as vp sales and marketing for Summit Beverage Group, struggling copacker in western corner of Va that's been on recovery trail under new owner Geoff Soares (BBI, May 10). Former Pepsi plant had been acquired by partners Roger Catarino and Jack Tally, who under First Fruits name assembled roster of clients such as GNC LiveWell, Neuro, TeaNy and Function, with portion of proceeds going to Christian mission work. But many clients fled because of low yields and other continuing problems, and Catarino departed before Soares took over; by now, Tally has also left co. Newly arrived to post, Reynolds demurred on offering broader update for now. As reported, former RC Cola prexy John Carson has been offering bev newcomer Soares industry-specific advice as he navigates turnaround . . . After apparently flirting with coupla bevcos for next gig, former Honest Tea marketing chief Peter Kaye has opted for opportunity outside our biz, taking newly created post of cmo at Nu-Tek Food Science. Hopkins, Minn-based co aims to improve worldwide heart health through sodium reduction and healthier salt use by producing natural, potassium-based salt that tastes like familiar table salt but contains up to 70% less sodium. "Following my enjoyable experience as head of marketing at Honest Tea, focused on using lower sugar, organic, and fair trade ingredients, I am highly motivated to now focus my energy on salt reduction in food, given its fundamental connection to improving heart health," Peter explained to BBI in New Year's email.  

For the most part, bevcos once again put up solid gains in stock market for investors in 2013. Coca-Cola stock price rose 14% in 2013, improving upon the prior year's 3.6% gain, when its stock had a 2-for-1 split. Garnering new respect from Wall Street (amid anticipation of major structural realignment this year), PepsiCo shares surged 21% following much more modest gains of 3% in 2012 and 1% in 2011. DPS shares rose 10.3% last yr, just off slightly from 12% the previous yr. Monster Beverage Corp stock ended a tumultuous 2013 up 28.3% as it faced increased regulatory scrutiny and legal wrangles over its marketing to younger consumers. That was almost double its 14.7% gain in 2012 and left it with a market capitalization of $11 bil - perhaps too rich for those seen as likeliest strategic buyers. Cott Corp shares edged up just +0.4% in 2013 following a 28.3% runup in 2012 as aggressive promotions by branded CSD players put a hurt on its private-label biz and prompted an acceleration of its efforts to move into safer havens like energy drinks and teas. Reed's stock price managed to gain another 40.5% to $7.98 in 2013 after it had surged over 400% last yr when it rode wave of interest in its big bet on kombucha. Jones Soda, tho priced at just 48 cents per share, is still up a solid 60% over its 2012 performance close at 30 cents per share as a new ceo has squeezed out costs and now turned her attention to generating growth again.  

As reported in BBI last week, Coca-Cola Bottling Co Consolidated (COKE) has released details of its new "incidence pricing" contract with its core supplier Coca-Cola. As noted (BBI, Dec 27), incidence pricing is intended to be an equitable profit management mechanism for KO and COKE that realigns incentives so that, for example, COKE is not motivated to push low-velocity but high-margin brands and packages at the expense of KO's workhorse volume items. Care to know more? Until now, that's been difficult, because the mechanism has always been shrouded in a fair amount of secrecy. But last week's SEC filing from COKE offers in its crevices what seems to be the first detailed public description of a practice that may end up having a far-reaching impact on beverages and even other segments. Longtime soft drink participant Neil Kimberley, who grappled with similar issues while at Cadbury Schweppes North America and recently accepted an exec position at Essentia Water, offers this illuminating take for BBI readers on what the COKE filing suggests:

So, why is incidence pricing important? And why should you care?

Incidence pricing is a fundamental change in how brand-owning companies and their bottlers/distributors operate - and it could have a broad impact across the industry . . . if it is effective.

To understand the importance of incidence pricing, let's take a journey back to the world before Coke, Pepsi and Dr Pepper Snapple acquired their bottling systems. In those days - pre-2007 - the parent companies sold concentrate to bottlers to make finished products. The parent companies were channel-agnostic as to where the finished products were sold because they made the same amount of profit on each concentrate unit sold.

This contrasted with bottlers who sold their products in different package sizes to different channels, where each product had a different margin. The bottlers sold lots of low-margin product in high-volume takehome channels like grocery stores as well as lower-volume but higher-margin product in immediate-consumption channels such as convenience stores.

When in harmony, this created a synergistic business model. A high-margin, low-capital parent company could focus on brand marketing, while a high-capital bottling company could make good profit by being retailer-intimate and operationally efficient. As long as CSDs were growing, the model worked well. But as CSDs declined, and bottlers were forced to seek greater return from their assets, the system became misaligned.

The parent companies needed to focus on incremental volume to boost concentrate sales - which often came in the bottler's low-margin channels: for example, like those blowout loss leaders that BBI reported upon around Labor Day this past summer. By contrast, the bottlers wanted to focus on their higher-margin channels where finished goods (say, energy drinks) were becoming more popular, and where their parent companies did not have effective entries. As bottled water, noncarbs like Snapple, Fuze & Vitaminwater and energy drinks like Red Bull & Monster took that high-margin space, CSDs became ever more reliant on those low-margin channels.

It was in response to this dynamic that Coca-Cola began to look at incidence pricing. This is a mechanism that would allow the parent company and bottler to look at who made what money and where on a given package, by channel. In effect, it offers a Panavision look at the "full-system profit."

Profit = Price to Retailer minus: - Product Cost (Concentrate + Sweetener + Packaging + Manufacturing) - Delivery Cost (Freight + Warehousing + Delivery) - Plus Retailer Promotional Support

When two independent businesses look at this, it's daunting. What is the "right" amount of profit for each partner? Are both partners being transparent about their costs? Now imagine doing this by retailer by package across an entire portfolio comprising hundreds of sku's.

For goodness' sake, it would be simpler to simply acquire the bottler - which is precisely what Coke, Pepsi and Dr Pepper Snapple did between 2006 and 2010.

But Coke - who was last to this party, and seemingly the least whole-hearted about it (after all, all the while it kept attesting to the value of the franchise model) - appears to be the first to want out. And the company believes it has an incidence system that will work.

Take a look at the letter attached to the SEC filing at http://slidesha.re/JI6hfp and a high-level process is outlined. It seems quite abstract and head-spinning. So why does it matter?

If it works, it could provide a roadmap not just for how refranchising may play out in North America, in territories beyond COKE's Southeast footprint, but also become a model that other companies - even outside bevs - can use to better align the interests of manufacturers and distributors. The shell game that is too often played out between manufacturers, distributors and retailers creates dissonance - and a constant battle for who has the upper hand in the relationship.

If the distributor seeks too much margin, the manufacturer is unable to invest in the brand; if the manufacturer seeks too much margin, that reduces the ability of the distributor to invest in sales reps and delivery capability. Right now we rely on the competitive nature of the relationship to create a win-win scenario.

It may be that incidence pricing has lessons for us all. This is one story line that will be fascinating to follow as the new year unfolds.