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12/06/2016
Texas Flood of Deals: Deep Ellum Sold Majority Stake to PE Project, Storied Craft Breweries
Deep Ellum is one of the fastest growing young brewers in the country after zippin' up to near 23K bbls in 2015, just its 4th year in biz. And this yr co expects to reach 33K bbls. No surprise, this deal was done for many of the same reasons we've heard come up thruout this span of M&A in the beer biz: to clean up investment structure and help fund further expansion. "Growth has been stunted by limited access to capital and a member pool that no longer met the needs of the brewery," co said in released statement. "Back when we were just trying to get our doors open, we'd take a check from just about anyone," founder and CEO John Reardon explained. So SCB will help provide capital for what John called "'long overdue' buyout of partners," as well as "some owner liquidity, and $8 million in growth capital." Co will expand capacity to 90K bbls/yr at its current facility and is lookin' at "possible additional breweries within Texas" too. "Now, I want to align myself with strategic partners who understand the long-term play of craft beer and can help me realize my goal of becoming a dominant brewery - not just in Texas, but also in the region."
SCB leadership team includes a couple alc bev veterans: Adam Lambert quickly (and quietly) left his position with AB's acquired Virtue Cider to join this venture as head of Operations. Previously, Adam ran sales for Rogue, Dogfish Head and New Holland. And Steven Berg is a 35+ yr vet who spent time as regional VP of sales for Coors, EVP sales & mktg-west for Heileman Brewing, EVP/GM of New York Seltzer Co and EVP/GM for Effen Vodka and Apostrophe Brands among other cos. SCB will continue to look at other breweries in the space. On its website, SCB touts willingness to allow "flexible ownership and exit strategy" structure with brewery management, as well as additional capital, distribution, quality control and marketing capabilities.
Deep Ellum Was Tripling in Scans thru Aug 14; Dallas Blonde and IPA Over 80% of Sales & Growth Deep Ellum has been one of the hottest brands in scans too, natch. It's $$ up 201% and volume up 196% thru Aug 14 in IRI multi-outlet + convenience channels, making it the 61st best-selling craft co in this data set. Dallas Blonde Ale and IPA are leading the way. Each up triple-digits and collectively made up over 80% of total sales and total growth. Several smaller brands were flying too, including Easy Peasy session IPA ($$ up 1081%), Neato Bandito Lager (+105%), Dream Crusher Double Rye IPA (+64%), Rye Pils and Oak Cliff Coffee Ale (197%).
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Meanwhile, he also underscored mounting volume outside of scanned channels and "traditional 3-Tier system," from taprooms and beyond. As he mentioned from stage at our Beer Insights Seminar last month. Bump questions whether craft segment is "really slowing down" based on this "unreported" volume. He estimates that's in range of 3-4 mil bbls or more. Recall, Bart Watson at Brewers Assn pegs craft taproom + brewpub volume at about 1.75 mil bbls in 2015, with possibility of adding as much as 900K bbls this yr. So Bump clearly even more bullish about size and growth of this piece of craft volume. Net-net, in his view, "the brands that have focused on the traditional route to market are taking the brunt of lost consumer sales and consequently the health of the industry is being under-reported."
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Localism and the expansion of small breweries, like that seen in Bend, in Oregon and across the US, helped fuel a similar rise in attention from economic development and tourism firms. They still work to attract downtown and main street bizzes, like those in Charlottesville, above. But they also encourage visitors to stay, eat and drink "like locals." Campaigns in New York, Michigan, North Carolina and many more places invite residents and tourists alike to learn about these locations and it's people by tasting its beer.
So local-love manifests both at home and away, among full-time residents and short-term visitors all over. In brewery-rich communities like Bend and Portland, but also in less-developed markets, bigger cities and small towns, locals and local-loving visitors fuel the booming brewery taproom business. Preferring to find products at their sources, stand in the places they're made and meet their makers, these consumers seem to keep moving further away from more traditional channels of trade. That's a challenge and an opportunity, natch.
On the other end of the spectrum, these are often the same consumers picking up smartphones to shop. They want groceries and dinner, clothes and beauty supplies personalized and curated just for them by online providers that offer services, products or prices unavailable at traditional retail outlets. Even if e-commerce doesn't upset beer's pricing structure in the same way companies like Warby Parker or Casper have for eyeglasses and mattresses, respectively, it still has the potential to compound the disruption to three-tier dynamics already happening due to consumer interest in visiting taprooms.
Undoubtedly, much of this challenges larger, national craft brands. And that's exactly what we're seeing. As attractive local options pop up, devoted craft consumers grab a six-pack of their old standbys less often. While folks raise questions about quality, competition breeds improvement. Just one quality-focused small local player is enough to make an impact. In many markets, there are many more than one. Fascination with variety and experimentation lowers the stakes even further, removing (or at least lessening the impact of) repeatable recipes and shipping from the equation. How much more volume can slip from easy-to-track, traditional channels out to the fringes, from larger players to small? Where does it end?
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12/01/2016
Downtown Charlottesville Banking on Pair of Brewery Investments, Including Three Notch'd Expansion
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12/01/2016
Rob Kreszwick Appointed New Head of Boston Beer's A&S Unit; Alchemy & Science Now "AS Beer"
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No question, Simon brings even more M&A experience to the table for Pabst; last yr Pabst hired former global Heineken exec Chris Barrow as "Strategic Advisor" to lead M&A efforts. In fact, one of two main strategic priorities going forward is "to build a best-in-class sales and supply chain platform that will allow us to expand our portfolio in the long term through collaboration with like-minded independent brewers," chairman Eugene wrote in note to distribs/partners.
Pabst Doesn't Need to "Own the Brewer"; "Plenty of Conversations"; Could Consider Imports, Spirits, Non-Alc Down the Road If the high end is 40% of the mkt now and could grow to 60% down the road, "we want to participate in those segments," Eugene stated during Brewbound Session San Diego talk, as he elaborated on Pabst's M&A aspirations. Yet Pabst has "quite a different strategy than some of the major brewers." Pabst wouldn't necessarily want to "own the brewer," 'cause "if we own it," regardless of definition, it's no longer "craft in the emotional sense." Rather, "we want to be a facilitator" for cos to utilize Pabst's chain teams, logistic teams, and other capabilities like mktg or consulting. And ultimately, "synergies that exist" will help get partners get higher margins while maintaining creative control. "Not saying we wouldn't consider something" in terms of ownership, he clarified. But "I don't think this is the right path for us."
Pabst has had "plenty of conversations" over last 2 yrs but only recently realized it's "not taking the right approach," Eugene explained. Mostly Pabst was "reacting to people who were sending us stuff" and now Pabst taking "more proactive" approach, actively seeking "ideal partner" and "ideal situation." The "right synergies for our platform." Part of the reason previous conversations "didn't feel right" was 'cause "we weren't totally ready," he admitted. But concerns arose via distribution footprint as well as long term prospects of the partner and/or its brand(s) too. There are "not a lot" of brands that can uphold national scale (maybe 10-15, he thought), so Pabst has "updated" strategy to look more into "specific geographies…where we have some capabilities" and can find "the right sort of local brand fit." Brands that "don't compete with each other" and are "complimentary" (editor's note: sounds similar to Craft Brew Alliance's distribution agreements with Appalachian Mountain and Cisco). It would even be open to joining into partnership with brands that have family office PE money, as long as the partner was "still in control."
Lastly, Eugene and co remain open to partnerships with other beverage segments as well. Beer, wine, spirits and non-alc are "coming together more and more" so "maybe you go and make a whiskey out of Lone Star," he thought. In non-alc space, "a lot more craft artisanal suppliers…also could use our kind of capabilities." Beer distribs already built Red Bull and Monster brands but "they got it taken away from them." Distribs "want to feel like it's a beverage that's not going to disappear."
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Then too, BrewDog's team of lawyers have looked into it, and determined that Big Bets is legal, James affirmed. Co's currently in talks with "a few" different casinos to determine where it'll ultimately place the roulette bet come Feb 2017, tho it's "still up in the air," said James. It's "too early to tell" how many investors will look to opt in, but co's hoping to head to the roulette table with "excess of a million [dollars]." Assuming the worst, if BrewDog loses the bet and/or doesn't raise enough capital, "we can finance [the $30 mil Columbus brewery project] through our UK company," he said.
Launching 7 States; Slowdown Doesn't Affect US Projections; Overseas Still Soarin' BrewDog hopes to be producing beer outta Columbus by Apr 2017 and intends to be in 7 states within first yr, sez James, including OH (of course), IL, NY, IN, KY, NJ, MI. And James is heading to Columbus this week to begin hiring process that'll "significantly build out our team" in the US. Co's getting distribs "all lined up" and plans to make those announcements at a later date. Stay tuned.
"It's definitely an interesting time for the US craft market," James acknowledged. The slowdown is "definitely happening" here, but co "not sure that affects" BrewDog's year one projection since it still sees "base level demand that we haven't been able to service" and co offers slightly different "UK spins" on American craft styles. So overall, "not too concerned." Recall, BrewDog's original plan called for aggressive 85K bbls in its first 12 mos once Columbus facility is up and running. That ain't gonna be easy to do. Yet biz still boomin' thruout its global footprint. In fact, BrewDog sales up over 100% again in the UK and up strong in all of its other mkts, said James. Craft's slowdown in US is "symptom" of "being the most established," since craft is "almost 15%" of the mkt compared to "almost 2%" in the UK.
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12/01/2016
Breweries Based in Bend Still Building Up In-State Biz; The Beercation Destination Effect?
Oregon is almost certainly the best place to start when trying to measure the impacts of beer tourism. Bend topped the list of Top Beer Destinations, among "Small Metro Areas," issued by Travelocity this fall as part of its new Beer Tourism Index, compiled with the help of Brewers Assn. Corvallis, OR was #4 on that list and, no surprise, Portland topped the list of Large Metro Areas. Travelocity used the amount of breweries in a metro area along with info about ride-sharing, air travel and hotel room prices to determine its list. But Bend's been on plenty of beer-focused must-visit lists for years. It was an early "Ale Trail" adopter, helping visitors find local breweries. That's now a go-to tactic to drive traffic for local and regional tourism agencies or brewery groups across the US. This past winter, the city surveyed visitors and found that a quarter of them stopped at a brewery while in town. Visiting breweries or taking the Bend Ale Trail was the 6th most popular activity listed by those tourists, behind such common vacation activities as dining, scenic drives, and shopping, the Bend Bulletin reported.
Wide-Spread Health Across Bend and Oreg Breweries While some of largest craft breweries nationally have struggled to post even modest growth this yr, many of the largest brewers in Bend and in Oreg generally continue to expand shipments in their home state. That includes Deschutes, which calls Bend home. Its shipments grew by a little less than 1% in Oreg thru Sep to about 67K bbls from its main facility and pub brewery combined. During same period in 2014, Deschutes shipped about 500 bbls less than that, which was over half the beer made in Bend and sold in Oreg. But now Deschutes represents just 40% of Bend-made beer sold in the state as a slew of smaller neighbors expand. Chief among 'em: 10 Barrel, about half the size of Deschutes in the state so far this yr. Its Oreg volume continues to grow by over 30% in 2016, now 2 yrs after its acquisition by AB. Boneyard is 3d largest Bend brewer, based on Oreg sales (about 17K bbls). Its home-state shipments are up over 15%. Worthy up solid 17% to near 9000 bbls too.
Just 4 of the 21 Bend-based breweries we tracked in OLCC reports sold less beer in Oreg thru 1st 9 mos of this yr compared to last yr. Most of those are very small and sell most or all of their beer on site. And of course, new breweries continue to open and more than make up for volume lost. Eleven breweries sold less than 1000 bbls thru Sep this yr; all-in, they're up about 11%, with 4 down, 4 up and 3 new. That suggests the super-small beer biz does function a bit like restaurants, with some taking business from others, but that overall interest in visiting these locations still continues to grow. A group of mid-sized brewers in town, like Crux, Three Creeks, Sunriver and Silver Moon, have expanded production and distribution, more than tripling their collective in-state volume since 2014 to about 17K bbls. Success of these small players led the Bend Bulletin to insist there's no "beer bubble" there early last month.
Notably, the story isn't so different across all of Oregon. We'll see how 2016 finishes up, but so far, almost all of the largest in-state brewers expanded home-state volume, even if modestly. Exceptions include NAB-owned Portland Brewing and Gambrinus' BridgePort. Like Deschutes, Ninkasi up less than 1% for 9 mos. Like 10 Barrel, MC's Hop Valley up 30+%. Both Full Sail and Rogue up 10%. Note, CBA stats not included in OLCC report this yr. Without 'em, balance of Oreg shipments by in-state brewers up 15% thru Sep, +30% over same period in 2014. During that time, brewers on OLCC report went from 204 to 214 to over 230 this yr.
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Driving people back to bars and restaurants, where traffic and beer sales have softened in recent yrs, probably not big oppy itself, tho, Bart suggested. Rather, "creating a different type of engagement" while they're there may be better option, he suggested. People still going out to drink, he added, but they're going to different places: taprooms, festivals, other events. Lester looked at demographic trends and sees oppys for beer there too. One is keeping huge number of baby boomers in beer vs switching to wine as they age. Second is moving millennials to more beer as they age, settle down more. "The story's not written" and occasions "up for grabs," he believes. Another oppy to take occasions from wine/spirits comes from expanding flavors, Bart suggested. He looked at 7 beer styles that women tend to prefer vs. men and 6 of those are growing in scan data. Those styles: sours/wild ales, fruit/veggie, herb/spice, shandy, hefes, blondes and saisons. A final oppy: growing importance of "local." In San Diego, local brands surpassed non-local in scanned dollar sales and that's starting to happen elsewhere. Net-net: "Plenty of opportunities for growth," said Bart, "they're just different than 5 years ago." Lester seconded that, seeing "good times ahead" for beer.
Top 10s; Wal-Mart Watch Out Lester and Bart brought some neat top-10 slides. One showed trends of top 10 brands for all beer vs top 10 craft brands in Nielsen all channel scans for 52 wks thru Nov 5. Five of top ten brands overall are down, but 6 of top 10 craft brands down. Another slide compared top-10 gainers in craft and non-craft. Founders All Day IPA is #9 gainer overall and #1 craft gainer. Another key point: of top 10 craft gainers, half are either AB, MC or Lagunitas. Also, tho IPAs dominate craft gainers, also includes Firestone 805, Leinie Grapefruit Shandy and Blue Moon Belgian White. That suggests broadening of favorite styles and "where the market needs to go," said Bart. Lookin' at "top new brands" for same period shows craft still leads in innovation. But lists also show "many different directions" and styles, including nitros, pilsner, gose, and even Wal-Mart's private label brand Trouble. That could pose "big challenge," i.e. trouble, if it sticks, Bart suggested.
While both economists focused on growth oppys, both acknowledged too that wine/sprits have taken occasions from beer over last decade and total drinking occasions haven't expanded much. Throw in big brewers' expansion into craft, and even taproom biz, and it will be highly competitive, Lester reminded.
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Todd Left in Mar; Lagunitas Will Hit Approx 920K Bbls in 2016 CBN confirmed that exec was former chief operating officer Todd Stevenson. Turns out Todd's been gone since Mar 2016. Since JV, Todd had moved on to intl role. Then too, in Jun 2015, Tony had appointed Maria Stipp as ceo. And Lagunitas has continued to roll, as perhaps biggest bbl gainer in all of craft in 2016. Up 17% yr-to-date, and expects to end yr at 920,000 bbls.
Heineken Didin't Want to "Seize" Control Talkin' briefly to Tony this morn, he praised Heineken, noting that "the opportunity to seize control was there" for them when Todd's shares became available, but "there was no interest." Rather Heineken "immediately" agreed to idea of voting trust, and agreement done "within a week" as it recognized the importance of continuing on as 50/50 JV.
Chi Brewery Produces 400K Bbls; Changes Could Push Capacity Over 1 Mil Bbls Meanwhile, Lagunitas "has major plans in store for its Chicago brewery," according to Chi Trib, "such as creating a small concert venue, opening a rooftop bar and more than doubling its brewing output." But it needs to change its zoning to accomplish those plans. "If approved by the city, most of the proposed changes would happen within the existing facility." Chi brewery currently "produces about 405,000 barrels a year," noted Trib, distributed east of Rockies and in Europe. But a 2d bottling line and additional fermenters "would enable the facility to max out at 1.2 million barrels a year."
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