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Boston Beer's longterm CEO Martin Roper will step down next yr; exec recruiting firm Korn Ferry searching for his replacement. "The Board has been discussing Martin's retirement plans for over a year," chairman Jim Koch said in statement. Martin will stay thru search "to assure a smooth transition. I remain fully engaged and committed." This is unusually long lead time. What's more, search already underway for a while, CBN hears. Martin's retirement another sign of changing times in craft; 9 of top 20 craft brewers have changed ceos in last couple of yrs amidst far more challenging environment. (This article just appeared in INSIGHTS Express.)
"Our performance under Martin's stewardship has been incredible," said Jim, citing 8-fold gain over last 22 yrs, since Martin joined (he was prexy for 17 yrs). Most impressive part of run: 5 yrs between 2010-2015 when Boston Beer more than doubled revs, and almost doubled volume and profits. Rode hot hand with Angry Orchard, Rebel, Twisted Tea and more. Revs jumped about $500 mil, from $464 mil to $960 mil, oper income grew from $81 mil to $156 mil. Volume nearly doubled from 2.3 mil bbls to 4.3 mil bbls. But game has changed. Boston Beer volume, revs and profits all down for 9 mos 2016 (Boston has only reported results thru Sep). Shipments down 7.7%, revs down 7%, oper inc down 20%. Q4 not great either.
Boston has continued to struggle in scan data in recent mos. Volume down 7.6% for 4 weeks thru Jan 22 in IRI multi-outlet + convenience, and 4.7% for 12 weeks (IRI does not include subsidiary Alchemy and Science in Boston total; that's way down in recent mos). Boston still getting good growth with Twisted Tea brands, but suffering severe short term drops (4-wk) in some craft brands, Seasonals (down 50%) and Rebel (-31%).
Boston Beer's stock also went on magnificent run, multiplying over 15X between 2009-2015 from $20 in early 2009 to $314 at beginning of 2015. Stock mkt capitalization peaked over $4 bil. But since then value of stock cut in half to $156 and mkt cap under $2 bil. Meanwhile, Martin realized $60+ mil in value of options in last 2-3 yrs (selling and buying); still has plenty of stock.
Then too, Boston overhauled sr mgt team in last 18 mos. Six of its top 10 exec officers are new since Aug 2015. That includes new CMO, CFO, Legal, HR and Supply Chain veeps and chief accounting officer. New CEO will make 7, leaving just Jim, chief sales officer John Geist and brewing veep Dave Grinnell as vets. All in period of its worst trends ever. So now chairman/founder Jim Koch looking to reinvigorate Boston with mostly new top mgt team amidst radically shifting and far more difficult craft landscape. "Recent management changes and continued challenges the business is facing, could raise some questions about whether bigger changes may be afoot at SAM," Goldman Sachs' Judy Hong suggested in report today.
Craft Up Low-Singles to Start Yr as Jan Better Than Dec, But Not By Much; Top 30 Brands Overhaul
Can't say craft kicked off the yr super strong in off-premise data, but first few wks of 2017 at least a little better than last few of 2016. Total craft $$ up 3.4% for 4 wks thru Jan 22 (so includes week between Christmas and New Year's) in IRI multi-outlet + convenience data. Volume up 2.2%. But total beer biz started the yr negative, cases -0.6%. So craft up 0.2 share of beer volume to 7.1. Growth slightly slower in food stores, where craft most developed: now at 14.3 share of volume, just behind imports, 21.2 share of $$, just ahead of imports. Total craft biz in off-premise now up just 7% by $$ for 52 wks, volume +4.2%.
New year presses reset button on top 30 craft brands listed by IRI and boy-oh-boy how things have changed. Recall, IRI includes Blue Moon, Leinenkugel's and Shock Top brands, as well as other acquired craft brands, within its craft stats. So Blue Moon Belgian White still far and away largest IRI craft brand, growing at almost identical pace to the segment. But #2, Sierra Pale, down mid-to-high single digits at start of the year; Shiner Bock, #3, up slightly faster than segment. Lagunitas IPA now 4th largest craft brand in IRI, still up double-digits. For first few wks of the yr, #5, New Belgium Fat Tire $$ -3%. So following big drop-offs throughout 2016, Boston Beer no longer has a brand in top 5. At this time last year, both Sam Adams Seasonal and Boston Lager were top-5 craft brands. Instead, Boston Lager $$ -9% at #6 and Seasonal sales cut in half for 4 wks, now #9. And recall that brand soft to start last yr too. Compare to two years ago, when during 1st 4 wks of 2015 Sam Seasonal sold over 240K cases in IRI MULC data. This yr, that's down to just 101K cases. Rest of big Sam brands no great shakes either: Variety Pk down about 8%, Rebel IPA $$ -26%.
Reshuffle of top brands includes plenty new to the list and a bunch of fast growers from last yr that moved way up. Goose Island IPA now #10, $$ +40% to start 2017. Firestone Walker 805 ain't that far behind now too, even in limited geography: #12 and $$ +46%. Lagunitas Little Sumpin' Sumpin' just behind that, +22%, followed by Bell's Two Hearted, +34%, which moved ahead of New Belgium Voodoo Ranger IPA. And that seems to be benefitting from rebrand/reformulation, up mid-teens for 4 wks. Three other IPAs joined these ranks: Deschutes Fresh Squeezed, Elysian Space Dust and Ballast Point Sculpin, in that order at #25-27. But trends vary widely: Fresh Squeezed up over 30%, Space Dust up 300%, while Sculpin up less than 9%. Ahead of all 3 of those: Kona Big Wave Golden Ale, $$ +70% and volume doubling. Those 4 brands, all new to this list, all clearly driving growth of hottest craft styles. IPAs started 2017 up 17%, +3.7 share to 31.8 of craft $$ for 4 wks to 1/22. Golden Ales only other craft style to gain over 1 share of segment $$, up 51% as a group, 1 share to 3.2.
Newest ZX Venture: October, Online Beer Publication, Review Site from Beer & Non-Beer Publishers
Even then, 'Gansett will still produce most of its beer at NAB's Rochester, NY facility for distribution up and down the Eastern seaboard. The co may add one small new state this yr, Mark said. But overall, it's working on "focus, simplicity and execution around those things" in 2017. "We understand that consumers want choice," he noted, but "everyone can agree at this point that it went a little too far" at retail. Looking at taps and shelves as "apartment complexes," some brands "aren't paying the rent," Mark thinks. So he's looking to communicate strength of 'Gansett as retailers potentially pare back space. He's also carefully watching the rise of craft lagers, blonde and golden ales. Many consumers still have "expectations of price and alcohol content and flavor and viscosity," which could make charging premium prices for beers that fit more mainstream consumption patterns and occasions a hard sell.
But opening of new brewery "allows us to get hyper local," Mark said, giving 'Gansett ability to work on a 10-bbl system for first time. Isle Brewers Guild site also has 100-bbl brewhouse, where Mark and team can brew some of core craft-aligned seasonals and specialty brands, like its LoveCraft series. It just launched Unnameable Black Lager in that series, which appeals to horror/sci-fi fans. "The horror genre is just so massive," he told us, with a very captive, passionate audience that has helped build LoveCraft beers further from New England home base. Note that IBG space to be shared with other breweries too; MA-based Newburyport Brewing already confirmed and a handful of others still to come. But for first time, Narragansett will be able to develop "a really deep partnership with craft beer bars" in area with creation of more small batch beers. "I want to break that thing," he said of 10-bbl system, saying he "can make 20 kegs disappear very quickly" after years of working at a much larger scale when launching new brands.
CBM-TRA Re-Intro'd for New Congress
Diageo to Build US Brewery in MD for $50 Mil: Focus on Barrel Aging, Craft, Not Core Stout Biz
Other new interesting twist: Diageo will need to change MD law to go thru with current plans. Currently, law limits sales for on-site consumption to 500 bbls for breweries producing over 22,500 bbls per yr in state. Providing limited samples on site allowed and can sell up to a case for off-premise consumption. Not clear exactly what changes Diageo seeks, tho any expansion of retail privileges for brewers likely to be backed by other small brewers in state. "Finalization of these plans are still contingent on reaching agreement on several considerations," Diageo wrote in release. But state government clearly on board with foreign co building new manufacturing facility and tourism destination, plus jobs associated with 'em in the state. The co wants to move quickly too: plans to begin construction this spring with hope to open in time for Guinness' 200th anniversary this fall. Last yr, Diageo Beer Co USA finished +2% by volume in IRI multi-outlet + convenience data thru Dec 25. Biggest brand Guinness Draught and Extra Stout up slightly, while Blonde -10%.
New Model: Brands Are Built In Taprooms?
Meanwhile, Karl Strauss sells about 15% of its volume on premise thru its 10 SoCal brewpub locations, founder Chris Cramer shared. Karl Strauss has very similar taproom brand building story with its "ultimate San Diego style IPA," Aurora Hoppyalis, that won GABF gold medal for IPA of the year in 2016 (now its #2 best-selling beer). While restaurant side of the biz is difficult, brewpub model is a "necessary evil that enabled us to grow" and ultimately help fund "our new distributing brewery," Chris added. Other panelist, Hamilton's Tavern owner Scott Blair, was a bit of an outlier, after "recently" starting a couple breweries that sell 75% on-site, he shared. But "most" taproom sales "are very very small" % of total biz, Bart contended. Largest breweries in California avg about 2% of their biz on-site.
Taprooms Approaching 2.5 Mil Bbls, Bart Estimates; "Might Be Higher" with On-Site Pkg Sales Still, taprooms collectively tally up to quite the total. "We're approaching 2.5" million bbls of beer sold in taprooms, said Bart, sticking to his estimate from earlier last yr. "Pretty soon" that'll hit 3 mil bbls and "might be higher" if you count on-site package sales, not included in some of premise-use estimates.
Some Retailer Pushback, But Sales Argument Usually Wins There was initially some pushback from distribs and retailers in local area after Jack's Abby opened its beer hall and production facility "a little over a year ago," Sam acknowledged. "About a dozen accounts cut us off, dropped us right away." But just 2 accounts left "that haven't brought us back yet." Sam understands how Jack's "could be interpreted" as "competition" but Jack's "epicenter is still in Framingham," where "largest account" is 1 mile away from the brewery and #2 and 3 are probably 1 and 1/4 miles away. "It will sell well on your taps" and "in the end" that's "usually the winning argument." (Yet not everyone can make quite as strong an argument as Jack's Abby).
A Few Mega Distribs Generally "Pro-Taproom," But Concern with AB Owning in All 3 Tiers There's "concern with AB ownership in all 3 tiers," senior vp of Columbia Dist, Jesse Ferber said on afternoon distrib panel with Hand Family's JR Hand and Crescent Crown's Joe Cotroneo. AB now owns 9-10 brewpubs in PacNW and "don't know how far it's going to go," he added. Recall, AB's 10 Barrel Idaho brewpub was ok'd by state regulators last yr after distribs petitioned state ABC to rule AB ownership meant 10 Barrel exceeded 30K bbl cap on retail rights. And High End prexy Felipe Szpigel recently stated that AB has "no major expansion plan" for retail outlets in the US (see last issue). But generally, Jesse and panel-mates agreed that they're "pro-taproom" as "huge" source of revenue for upstart brewers. Of course, "some brewers do a lot better than others," said Jesse; some "allow us to still do business with them" via guest taps, and Fremont has "really successful taproom" that doesn't serve food and closes at 9pm to not compete with nightlife.
Duplicate License Issue a "Big Problem" in CA; "Proliferation" of Breweries "Negatively Impacting" San Diego Scene Duplicate license issue specific to state of Calif came up numerous times thruout the panel discussion. Essentially, CA brewers are able "to have another facility in a different location" using "same license" with same "privileges." So "duplicate license tasting rooms in particular" are a "big problem," said both Chris and Scott. There used to be "no limit" to how many duplicate licenses you could have, but brewers and distribs in-state got together and "limited the number" down to 6. Both have "no problem" with tasting rooms "attached to production facilities." But "there is a proliferation" of breweries that are "negatively impacting" the mkt, said Chris. For example, 10 yrs ago there were 60 breweries in San Diego and "probably 50 of them were really good," but now there are 135 breweries in the city, and that ratio's declined, he suggested. "I could name 15 breweries right now that don't even sell beer outside their tasting rooms" that're licensed as manufacturing breweries, Scott added. And he's particularly worried about those breweries being capable of undercutting the mkt in terms of pricing. "It's not just price that's driving people to the breweries," Bart chimed in, i.e. "clean draft lines," "proper glassware," "more control" and quality product. But these two CA brewers clearly disturbed by some of the younger class of brewers in town.