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"There's just nothing to be concerned about or complain about," said Rob during conference call Q&A after one questioner brought up Nielsen numbers that show distribution plateauing and sales per point of distribution actually down for last few qtrs (CBN hasn't seen these numbers). "Business is up double-digits," it's up 54% in IRI for qtr, it "continues to be the fastest growing major craft brand in the category," and it's certainly "the most premium significantly sized brand in the category," he rebutted Then too, Rob and co still see plenty of distribution oppys "way beyond next year," he said. "We've got all kinds of programs to drive distribution," and are "increasing our support levels behind the brand," getting distributor support and "driving national accounts." So net-net, "nothing is going on," he insisted.
Gotta note, Ballast's IRI trend has been tracking well ahead of total reported depletions trend thruout the year and was up nearly 100% YTD thru Aug, suggesting on-premise and non-tracked biz not as strong. And lead brand Sculpin IPA did slow in foodstores throughout 2016. Brand $$ sales actually declined 5% for 4 wks thru Dec 25. But overall, it's still "not meaningfully contributing" to total Constellation results, in Rob's view. Indeed, Ballast revs make up just 3.6% of total Constellation beer revs for 9 mos (3.2% for Q3). "But it will one of these days . . . if it continues to grow well." Ballast is currently in 45 states + DC, CFO David Klein shared, so it didn't quite make it fully natl by end of 2016, as originally planned.
"Craft's a Tale of Two Cities"; "It's Really a Brand by Brand Phenomenon" Looking at craft category more broadly, "craft's a tale of two cities," said Rob, when asked to comment on overall segment slowdown during Q&A. Larger, long-established "major brands" such as Sam Adams, Sierra, Blue Moon, etc. "continue to be down big time," while "a bit of everything else...continues to be up significantly and is not being dragged down by these numbers." Then there's "the local effect," where smaller local players are "eating up many of those larger older brands." So "craft" is "sort of a meaningless term" in Rob's view. It's "really not something you can think of in terms of a total category," but rather should be looked at as "a brand by brand phenomenon."
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There are lots of factors that dragged craft trend, but the most apparent all year has been slowdown among larger craft cos. First, gotta remember that IRI includes Blue Moon, Leinenkugel and Shock Top in craft data set among other large co craft entries and acquisitions. Blue Moon ($$ down 2.5%), Leinie craft (-7%) and Shock Top (-18.5%) sales collectively down nearly $41 mil and drag craft trend down by more than 3 pts for the yr. But removing those brands also reduces size of total segment by nearly 2 full $$-share pts. Then too, each of the top-4 indie craft cos in scans declined this year. Sam Adams top-4 brands (Seasonal, Boston Lager, Rebel IPA and Variety Pk) down 13% and long list of innovations were unable to make up for drop; Sierra $$ down 3% and volume -5%; New Belgium eked out 1.6% $$ gain, but volume slipped 1%; and Gambrinus $$ down 4%, volume -6%. Craft Brew Alliance also saw 4-5% drop. And after huge incremental head start from alc sodas, Boston Beer's Alchemy & Science unit declined 3-4% for full year. This group of declining craft brand families (including Blue Moon, Shock Top, Leinie) still make up 44 share of total IRI craft $$, even after shedding 6 share for full year.
It's not all bad at the top, especially among those cos that've done deals in the last couple yrs. Lagunitas kept up strong and steady 20+% gain pace thruout the year, leaping past CBA and Gambrinus and now nearly as large as Leinenkugel in this data set. It gained just under 0.1 share of total beer, nearly reaching a half share of total beer $$. AB's Goose Island (+26%), Mahou San Miguel's (minority-owned) Founders (+54%) and Duvel's Firestone (+47%) all among top growth cos for the yr too (we don't see Ballast sales in this data set, since it's included with total Constellation number, but it's a top growth co too - see below). In fact, without including latest Karbach addition, AB craft acquisitions are already collectively about as large as Lagunitas and up 33%. If you start removing cos that were acquired and no longer meet Brewers Assn standards for "craft," that adds up to a fair amount of size and growth that BA craft is missin'. Bell's remains fastest growin' indie brewer among top cos, up 30% for the yr. Despite tuffer 2d half of the yr, Deschutes finished with $$ up 12%, Stone up 14%. And SweetWater (+11%), New Glarus (+11%) and Dogfish Head (+5%) each finished strong.
All in, it's been a tuff year for craft in scans, to say the least. Growth slowed as influx of acquisitions continue to muddy up the category and locals are takin' bigger bites out of large, established cos and brands. IPAs made up over 80% of total craft $$ gain for the year and reached 29 share of $$, while seasonals declined 8% and lost over 3 share of segment. Price gains starting to wane, up just $0.55/case in latest 12 wks vs $1/case for full yr. Even Assorted sales (mostly craft mixed 6pks) are declining in recent periods (see Dec 8 issue). It's becoming increasingly difficult to sort through the clutter and understand where craft is heading. But there are bright spots of growth thruout the segment and craft remains the most vibrant category for innovation. That's not going away. Stay tuned.
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01/04/2017
Side-Eye to City Investments into Small Breweries Served by WSJ Columnist, +1 Horror Story
That assumes a "bubble" exists in the first place, of course, which plenty of observers question. But his skepticism of these public-private relationships reads a touch more salient in the context of a truly scary story recently published by the LA Times. It chronicles ongoing drama between the City of Industry and small Skyscraper Brewing. That co is now suing the city for $32 mil, claiming it was lured by city officials to move operations to town but that the city later reneged on promised real estate deal and eventually locked the co out of its building. It isn't pretty. The city claims that Skyscraper "is victim to its own poor business management," in one filing. But City of Industry has also previously been investigated on corruption charges over relations with the former mayor's trash hauling company, which Skyscraper links to its problems with the city in its suit.
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01/04/2017
Summit in a Surly Mood? Sues Former Employees for Sharing Trade Secrets with "Direct Competitor"
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01/04/2017
Summit in a Surly Mood? Sues Former Employees for Sharing Trade Secrets with "Direct Competitor"
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01/04/2017
Near 1,000 Crowler Machines Out There 2 Yrs In as Kroger Dips a Toe; Package Sales Doubling
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It's "not a question of the quality of the beer," but rather "just a question of being honest," Dan contended. Harpoon's was "approached by all of them, and the private equity guys," tho ultimately chose to go ESOP route. Rob chimed in, stating "definitely it's a good time for us," and Night Shift "wouldn't exist" without founders like Dan and Steve. But it's self-distributed from the beginning and recently decided to start its own distribution operation (similar to Harpoon, which still does 20-22% of its biz in Boston area, Dan shared). There's "a pinch point" in terms of access to market, he said, since there are "fewer and fewer distributors and more and more brewers."
Access to raw materials "is a scary thing" for Night Shift and other brewers around the country as well. Not just hops and malt but cans and glass have been cause for concern too. For example, Crown and Ball are the only 2 main manufacturers of cans in the US. And almost immediately after Night Shift purchased a $250K canning machine, its can supplier at the time (Crown) called and said "[we don't] have the capacity to make cans for you anymore." So Rob and co "panicked" since Night Shift was "hinging our whole business on this can format," but "luckily we made the right sales pitch" to the other manufacturer (Ball). However, both Dan and Rob refuted the idea that there's any kind of hop shortage. Shortages can be caused by bad harvest years but hop growers are planning more and more for "newer hop varieties" and there are "still plenty of hops out there." Earlier on, that wasn't exactly the case for Night Shift, which had to order hops 5 years out immediately when it opened in 2012 and didn't really brew hoppy beer initially since it didn't have access to the hops it wanted to use. Actually, Sam Adams sold Night Shift some Citra hops early on to help 'em out. Another difficulty with hops is there's "a longer lead time" to grow new varieties, said Dan, but "now we're entering a pretty good phase."
Lobbyist Wish List: Even Playing Field Across States; More Gov't Incentives at Local Level After reviewing some of the stricter laws regarding alc sales thru 3 tier system (i.e. PA, UT, GA, AL, etc.), both Katie and Nancy were asked what one thing they would change if they could. Number one on Nancy's wish list is to create "a level playing field" in terms of regulation from state to state, since it's "wildly different" in each state currently and therefore "hard to compete" from state to state. Katie talked about taxes a bit and thought that small brewers should be incentivized more to continue to grow and invest in local communities. She would encourage local governments to "put more funding into" growing ingredients locally, 'cause "more ingredients equals better beer." There's still a perception that breweries are "dangerous" establishments while wineries have been able to play the "agriculture" angle more successfully to this point, Nancy added.
Unsurprisingly, the majority of this podcast generally had a negative tone toward 3 tier and "Big Beer," bringing up access to mkt issues thruout. When asked about stringent laws compared to overseas, no one acknowledged how underdeveloped craft is overseas comparatively. When asked about problems pre-Prohibition and current tied house laws, nobody acknowledged that craft brewers are getting some of those same privileges that initially caused problems that led to Prohibition. But an important distinction in Nancy's view is that craft brewers are "the best possible version" of allowing "local control" over alcohol, since craft is investing/contributing to local communities. And fact remains that brewery visits and options to buy beer directly from suppliers are increasingly what the consumer wants, both Nancy and Katie noted.
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