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Within stores, key morning daypart grew 13% thanks to consumer acceptance of Mobile Order & Pay, and strong sales of coffee and breakfast sandwiches. For first time, food repped more than 20% of US revenue, sign that latest effort to up game in food finally is paying off after many misfires over the years. Flat white and cold-brew coffee styles continued to gain traction and tea biz had strongest quarter in over a year, +17%, fueled by accelerating sales of Teavana handcrafted bevs in stores. (No specific word on how Teavana's standalone stores performed.) And taking another leaf from area of frenetic activity in indie coffeehouses, co is in early phase of bringing nitro-poured cold-brew into some stores.
On conference call last night, much of discussion was devoted to controversial changes to My Starbucks Rewards program and rollout of Mobile Order & Pay system. No mention at all of Evolution Fresh brand. Here are some highlights on matters more germane to most BBI readers:
Starbucks Sets Multiple Retail Tiers for Reserve Initiative Widely viewed as co's attempt to win back ground from so-called "third wave" roasters, Starbucks Reserve initiative will continue to proliferate via variety of retail formats as way to raise profile of ultrapremium, microlot, single-varietal Reserve coffees. At top end, original Roastery in Seattle's Capitol Hill nabe - the Willy Wonka of coffee, as Schultz memorably described it at its opening in Dec 2014 - continues to perform well ahead of expectations, he said. Current plan is ultimately to open 7-10 roasteries around world in key global cities, with 2d one just announced for NY's Meatpacking District, across street from foodie hub Chelsea Market and near Google hq and heavily trafficked Apple store. Third will be somewhere in China Asia Pacific region, he said.
But co also will be adding "coffee-forward" stores along lines of those recently opened in Williamsburg, Brooklyn, Chelsea in London and "across Asia." And tho no details were offered yet, SBUX plans to open "new class" of Reserve stores starting in fiscal 2017.
Channel Development: Pod Biz Set to Ignite Thanks to New Deals with Keurig, Nespresso SBUX brass shed more light on revamped deal with Keurig Green Mountain. New packaging for K-Cups already had reflected greater latitude on branding side, but roaster appears to have garnered extensive concessions beyond that. New deal improves economics and brings greater operating flexibility to drive more innovation into category, additional sku's and new packaging, enthused John Culver, group prexy for China/Asia-Pacific, Channel Development & Emerging Brands. Starbucks now has won right to sell its pods directly into office, foodservice, colleges & universities, hotels and c-stores, he said. Tho that's just kicking in now, overall co is on track to sell 1.5 bil K-Cups this year, for 20% growth rate.
Meanwhile, deal with Nespresso in Europe, breaking in UK and France later this year, brings Starbucks pods into market with similar installed base to US, about 25 mil machines, and consumer base that matches up tightly with Starbucks user demo. And pod push in China/Asia-Pacific will exploit co's extensive store footprint in place in Japan, Korea and China. "It's very hard for companies in the machine business to create national distribution," reminded chmn/ceo Howard Schultz. Biggest prize will be China "and our store base will give us a tremendous advantage," he said.
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03/14/2017
Top Craft Thinkers to Tackle Key Challenges During Beer Insights Spring Conference in May
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Wartega Brewing was founded by German-born, Arizona-raised Merlin U Ward and his Dominican Republic-born wife Mimi Ortega (brewery's name is portmanteau of their last names) in burgeoning foodie hub called Industry City in Bklyn's Sunset Park nabe, waterfront area now populated mainly by Latinos and Asians. Industry City lately has been luring such bev operations as distillery called Industry City, R&D lab for Ito En teas, production area for Fogdog's cold-brewed teas and coffee, and coffee extraction lab by Alpha Dominche. Indeed, Wartega is sited at Industry City Distillery, where it leases space and in turn sub-leases some of its own space to another brewing newcomer, Lineup Brewing, founded by a Denver-born Adobe software engineer named Katarina Martinez. Both breweries are traversing licensing process to get their taprooms open imminently.
On beer side Wartega's setting out to become first among city's scores of brewers to focus on beers brewed with fruits, spices and herbs, as with Prima 004, experimental beer brewed with lemon zest, honey and mint, all sourced in NY State. Brewery likes to explore beers that can be brewed from indigenous or ancient ingredients like yucca or Scandinavian juniper. They claim to be "style-agnostic" rather than trying to own particular style, and while all their beers are rooted in real styles, they prefer descriptors like "dark ale with cardamom" (low-IBU offering inspired by Nov trip to Dubai) or "hoppy ale."
Ward and Ortega, who've both kept their day jobs in marketing so far, are operating 1-bbl Blichmann system with plan to double that by year-end and seek out contract-brewing partners as needed. Later this year cans should be added to current mix that comprises kegs and 25-oz bottles. To date, they're not distributing to retail; rather, consumers sign up for Wartega Family Membership subscription program and pick up their beer at the facility. As Industry City revs up as foodie destination, taproom should also move a lot of beer.
On coffee side, the pair have taken to setting 50 lbs worth of green coffee beans in whiskey barrels procured from Brooklyn's Van Brunt Stillhouse. Green beans turn out to be extremely porous - "like sponges," Merlin said, during CBN visit this month - and readily absorb spirit aromas over period of several weeks. Beans then go out to Brooklyn's Pulley Collective for roasting, locking in complex but intense aroma. Ward noted that aging a dry substance like coffee beans rather than a liquid substance like beer allows the whiskey barrels to be used 3X to good effect.
Wartega's whole-bean coffee is currently being offered in 2 varieties, Whiskey Barrel Aged Kenya Bold and Ethiopian Bold, both packed in 4.8-oz jars priced at $15. They go out direct to consumer and are sold at events; addition of larger pkg will allow Wartega to go after foodservice prospects like indie cafes, Merlin indicated.
Wartega seems to be among just a handful of brewers pursuing this ancillary line. Ward said he was inspired in part by San Diego's Modern Times Brewing, which has offered a bourbon-barrel-aged coffee for a few years for use in versions of its Black House beer. (Modern Times also offers its own canned cold-brewed coffee.) Modern Times itself has credited Ceremony Coffee in Maryland for being first to barrel-age green beans. Tho Ortega was away on biz during visit, she helms the coffee operation while Ward takes the lead on the beers.
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Across the country, tiny Tugboat Brewing had to put cardboard sign on its downtown Portland, OR door that really explains it all: "CLOSED until further notice. The flea bag hotel above us had an arson fire Friday morning, that caused water damage in our pub." Stewart Apartments, where fire was, used to be Stewart Hotel, according to Willamette Week, and fire officials hadn't yet officially deemed it an arson. But Tugboat's small spot wedged between Mary's Club stripclub and Santeria Taqueria "suffered massive water damage after the roof collapsed into the brewery below," the paper wrote.
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03/14/2017
AB's Investments in Four Peaks Boosts Production, Staff, Quality Control; Camden Town Coming
AB's Camden Town Opening 400K hL/Yr UK Brewery; Boston Launch in 12-18 Mos Across the pond, AB's Camden Town getting an international shot in the arm from its parent co following deal for reported £85 mil, according to CityA.M. Camden Town will invest total of £30 mil into new UK facility, ultimately capable of producing 400K hL/yr (~341K bbls/yr). Currently, Camden Town only produces 19,500 hLs outta UK facility, while about 70% of its beer is made in Belgium. Editor's note: that suggests Camden Town produced ~65K hectos (over 55K bbls) in toto last yr. Plan is to open new facility by end of May, which will allow "all of that production" to "come back to the UK."
Then too, following co's first international launch in NYC last Dec, Camden Town did "soft launch" in Paris last mo and plans to launch Boston mkt "in the next 12 to 18 months." NYC sales are already "double what the firm expected," sez paper. Camden Town continues to "tap into new markets," and boosted employee count by 40% since deal.
Craft now 8-9% Share of UK Beer $$; 55% Surge in UK Breweries to 520 Total Craft reached 8-9% of total beer sales in UK last yr and number of UK breweries rose 55% to 520 total, paper noted, citing UHY Hacker Young report. "We're only just seeing the beginning of it," Camden Town founder Jasper Cuppaidge told paper. "So far the pricing discipline of cult beer brands has held steady. They have been largely untouched by the supermarket wars that have savaged margins elsewhere in the food and drinks sector," said partner at UHY Hacker Young, James Simmonds. "Both supermarkets and pubs realize they are going to lose sales if they do not make way for some 'craft' brands," he added.
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Separately, BrewDog sent out letter to stakeholders informing them that the co's "been undertaking discussion regarding a number of potential options to finance [its next stage of] growth." Those options include another round of equity crowdfunding or a public offering, letter explains. It's also talked with "a number of potential investors" and "is now in ongoing discussions" with one. Deal wouldn't involve selling more than 30% of the co's common stock, letter assures current shareholders. But the co does want to "ensure all necessary shareholder resolutions are passed" before details of deal finalized so it can "be in a position to move quickly" once they are. So with shareholder meeting set for end of the month, could be new-news for BrewDog as its US brewery inches toward completion.
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03/14/2017
Speakeasy Closed "Indefinitely," First Notable Recent Craft Closing; Valiant, Other Transitions
Other smaller brewing companies have also recently decided to close up shop. After opening in 2013, Calif's Valiant Brewing closed this week, founder Brian Schroepfer wrote in extensive letter to fans on the co's website. It details not only difficulty of decision to shut down (which involved holding fast to ideal of remaining independent and not bringing on additional investors), but tough time faced by many small, family-run businesses. It reminds of some fundamental challenges faced by the vast majority of US craft brewers. Of course, Brian and team found a buyer for Valiant's equipment, he wrote. And so another brewery, brand new or under another company's wing, will be born. Indeed, at same time, up in Washington, Flycaster Brewing seeks a buyer, according to Washington Beer Blog. Opened in 2014, the co needs to expand and its current owner has "family commitments." Turnkey brewery (plus Flycaster's brands) now available in Kirkland, WA. On exact same day last week, same blog announced closure of 26-yr old homebrew supply shop Larry's Brewing Supply.
Just a few days before, Yakima Craft Brewing, also of WA, announced it isn't closing entirely but will close its downtown Yakima taproom, per Yakima Herald. Recall, the co publicly announced a search for investors to help grow the brand back in 2015. Apparently no takers emerged. Yet. "We would entertain the right offer," founder Jeff Winn told the paper. But "the restaurant" downtown "was starting to be a distraction from the beer itself," he said. So it's time to refocus on goals to grow the brand from 3,000-3,500 bbls this yr to up to 20K bbls over the next 10 yrs. No plans laid out on how to get there, though. And so it goes.
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03/14/2017
Slight Improvement in Nielsen: Flat YTD Volume, $$ +2%; NBB Up Big, Brewers Below Top 6 Too
Almost all top US brewers lost share of craft in off-premise scans early in 2017. Boston down about 2 share of craft volume. Despite fast expansion of its acquired brands, AB down almost 1 full share of craft cases for 4 wks thru Mar 4. MC -0.2 share and NAB (mostly Magic Hat, Pyramid) -0.3. Tho Constellation gained 0.1 share of craft volume YTD, it's just holding share of segment with its Ballast Point brands for 4 wks. (And recall, segment volume -0.7% that period.) So "Remaining Domestic Brewers" (Sierra Nevada and all smaller) gained more than 3 share of craft so far this yr.
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Crown Bevs in Reno, Nev has deal to sell to Southern Wine and Spirits, including brands such as Sierra Nevada, Pabst, Deschutes. Recall, Sierra embroiled in nasty lawsuit with Crown owner Paul Bond that goes back to last yr. That lawsuit likely to go away, INSIGHTS understands, with deal expected to close next mo. Stay tuned.
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Previewing Constellation’s 1st fiscal qtr results thru May coming out next week, Goldman Sachs Judy Hong trimmed her estimate of quarterly depletions to up 9% (used to be 10%). She still expects 9% for full yr. So big deal you might say. But Constellation trends very closely watched by investors for any diminution in its rapid growth rate. And Judy has a couple of data points that suggest that to her, despite slight acceleration in 12 week Nielsen data thru Jun 3 from immediately preceding period. Like what? On premise biz slowed to 4.5% growth in recent mos, said Judy. And Ballast Point has become “the biggest drag” with sales down 4.6% in May. Huge difference in Ballast trend compared to last yr has become 30-basis-point “drag on volume” and 90- basis-point “drag on sales,” according to Judy.
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