BMI Archives Entry
By Diogenes
At the dawn of 2017, the big brewers—ABI, MillerCoors, Heineken and Constellation—have gone all in on the craft beer segment. And many of the craft brands they have purchased are doing very well.
Lagunitas continues to grow after the Heineken investment, as does Founder's with the Mahou partnership. Constellation's Ballast Point is booming. Overall ABI's stable of nine American craft brewers is doing very well as are MillerCoors four. The megabrewers have leveraged their marketing assets to advance these brands.
(Interestingly, the "crafty" brands, like Blue Moon and Shock Top, are flagging.)
The growth of the big brewer-owned brands contrasts with the stagnation of most of the top 20 independent craft brewers.
The BA's Bart Watson thinks the craft segment, as defined by BA, will grow by seven or eight percent this year, breaking a chain of six years of double-digit growth. Most of that growth is coming from the bottom 95% of America's 4,938 craft brewers, the "long tail" of the segment. Craft brewer tasting and taproom sales are a big part of that growth.
The big brewer acquisitions have enriched a number of founders, Tony Magee of Lagunitas with his Heineken deal, the Ballast Point guys with their Constellation deal, ABI's craft brewer acquisitions, and those who have sold controlling interest to MillerCoors.
The Ballast Point founders bailed after selling to Constellation. But many of the big brewery-acquired founders still seem actively involved in their businesses. Many seem to have part of their payout conditioned on continued growth.
Less clear is the situation of the craft brewer founders who have taken advantage of private equity money like Cigar City and Oscar Blues with Fireman Capital money and Southern Tier and Victory with the Ulysses Group money. These founders sold the majority of their companies, so they likely took some money off the table. They also appear to still have skin in the game.
Dogfish sold a 15% stake to private equity. Brooklyn sold 24% to Japan's Kirin as part of a brewing and distribution agreement that includes Japan and Brazil. Both deals were structured to keep within the BA definition of a craft brewer. Neither gave up control and those deals seem more about raising money for expansions, and less about enriching founding partners.
Ballast Point got a billion dollar valuation; Lagunitas was not far behind. Those deals probably were a high water mark. While there were still a lot of deals in the 2d half of 2016, most of them were far smaller, less groundbreaking. First Beverage's Bill Anderson, who has brokered many acquisitions, is predicting many more deals to come in 2017.
Ninety-five percent of the 4,938 craft brewers in the USA brew and sell less than 15,000 barrels annually. It seems to me that few of them have the ambition that drove the first generation of craft brewers to challenge the domination of the US beer market by the megabrewers.
Many seem satisfied brewing dozens of new beers each year instead of building a flagship like Sam Adams Boston Lager, Sierra Nevada Pale Ale or New Belgium Fat Tire Ale. Many are happy with the cash gained by selling their beers at their brewery pubs and distributing their beer to local bars and restaurants.
Or maybe it is not a lack of ambition but rather an adjustment to the new realities of the US marketplace. By high-spotting in their local markets, these small brewers do not have to compete directly with ABI, MC, Heineken and Constellation craft brands in supermarkets, chain restaurants and sports venues.
Meanwhile, the top 20 independent craft brewers are getting hammered by competition from megabrewers in chain markets and sports venues, and sniped in independent bars, restaurants and stores by craft brewers playing the "local" card.
If you look at the history of beer in America, you find that most of the 4,000 brewers that existed in the United States in the 19th Century never grew much beyond 15,000 barrels. Few lasted much beyond the first generation, and they were replaced by brewers with similarly limited ambitions. Yet starting a brewery is just too wondrous a dream for many to resist.
Taking a long view, craft beer can be seen as the latest, and most promising new product development since light beer. Looking back a few decades, the megabrewers have absorbed many new trends, like malt liquor, ice beer, dry beer, nitro beer, FMBs and most recently, alcoholic water.
All those innovations were developed by the megabrewers. In contrast, the craft beer movement was developed by a band of passionate beer lovers, most of them homebrewers, who were dissatisfied with the sameness of megabrewer beer.
At the dawn of 2017, the sixth decade since Fritz Maytag sparked the craft movement, my big question is: Will craft beer be the latest trend to be co-opted by the megabrewers, or will it continue to transform and "revolutionize" the US beer industry, as many dreamed? Will independent craft brewers find a way to fight back?
exas Cases Still On the Table: TABC Appeals Distrib Rights Judgment; Crowler Exceptions Coming
KY craft brew scene generally has seen a boost since law passed this yr to raise production cap for microbrewery licenses from 25K bbls to 50K bbls, prexy of KY Guild of Brewers and owner of Against the Grain Brewery, Adam Watson explained to Pure Politics. In-state brewers can now expand "more confidently," he said, pointing to his brewery as well as Country Boy, West Sixth, Goodwood, Blue Stallion, roosters, Falls City, Ei8htball, Braxton, Great Flood and Lemons Mill, as specific examples. In toto, 11 new breweries will have opened their doors by yr-end, up to 40 total, and 16 "are expanding operations and/or investing capital to increase capacity and production," noted Country Boy Brewing owner, Daniel Harrison. In the past 5 yrs KY-based brewers are up 600%.
Old & New: Geary's Pushed Aside by Hip New Brewers; A Brewery Every 7 Miles Along Rte 131
Lots more breweries now operate in Portland, just like same-named city across the country and plenty of other communities. In fact, now (a very thirsty) beer lover (with a bunch of time and a designated driver) can hit 38 different breweries in 269 miles along US 131 in Michigan, the Muskegon Chronicle wrote. That's an average of a brewery every 7 miles or so. It includes brewery-heavy pockets in both Kalamazoo and Grand Rapids (homes of both "no introduction needed" entries, Bell's and Founders, respectively), but also plenty between. While list suggests the reader will hit 'em all, that clearly ain't practical. Folks will have to pick and choose.
Small Craft Deal in San Diego: Iron Fist Takes on Additional Investors, Connected to Padres
Sheehan Empire Strikes Back vs Shelton Bros; Seeks Dismissal; ABCC Orders Shelton to Continue Sales
Mass distrib Craft Brewers Guild, a Sheehan Family Co, fighting back hard against Shelton Brothers lawsuit filed against it earlier this mo, seeking $1.7 mil in allegedly lost sales (see Nov 8 CBN). First, CBG filed motion to dismiss suit. Second, it got ruling from Mass Alc Bev Control Comm (ABCC) ordering Shelton to continue to ship beer. Third, CBG issued its own fiery statement with blistering quotes against Shelton Brothers. For example, "given Shelton Brothers' history of nuisance and cut and paste litigation," CBG wrote, "it is more likely that Shelton Brothers brought this spurious litigation to drive its personal agenda." (This story appeared in our INSIGHTS Express yesterday.)
Shelton Bros Charges "Dead on Arrival," Sez CBG Shelton Bros has "no right of private action" for alleged violations of Mass alc bev laws and no right to seek damages from distrib Craft Brewers Guild. What's more, Shelton's breach of contract charges "dead on arrival" and it acted in "blatant violation" of law by specifying alleged damages in its complaint. So sez Craft Brewers Guild in motion to Mass state court seeking immediate dismissal of Shelton Bros suit filed earlier this mo. CBG also refutes many of Shelton's specific allegations, but even if they were true, suit should be dismissed, CBG insists.
Shelton's allegations about CBG's lack of efforts to sell its brands, pricing policies, pushing competitive brands and more "all essentially based on allegations that Craft violated provisions" of specific Mass alc bev law. But that law "grants Shelton Brothers neither an express nor an implied right of action," sez CBG. Mass ABCC has "sole authority" over such charges and any violations, CBG argues. So Shelton Bros has no right to sue, as courts have repeatedly ruled in similar cases. Mass Superior Ct "simply does not have jurisdiction over the specialized alcoholic beverages subject matter" here and Shelton "first required to exhaust its administrative remedies at the ABCC." Mass ABCC can hold hearing, require discovery and determine whether Shelton can terminate CBG for good cause and stop shipping beer. (That process already underway.) Even as Shelton Bros did file request with Mass ABCC to act on its complaints, lawsuit is "clear attempt to circumvent the appropriate administrative procedure." So again, "dismissal is entirely appropriate." Tho Shelton sought injunction barring CBG from trying to deter other distribs from carrying brands, CBG points out Shelton "failed to articulate any particular conduct" by CBG that's causing Shelton harm or "harassing or intimidating" CBG's competitors. In fact, Shelton has no exclusive agreement with CBG in first place and it is already "dualing" CBG and selling brands thru other distribs.
Shelton has statute of limitations problem too, CBG argues. Complaint alleges CBG "not making good on its promises" to build Shelton biz back in 2011. But Shelton waited over 5 yrs to file suit, so any breach of contract charges "barred by the four year statute of limitations." Finally, Shelton specifically barred from naming an amount of damages in such litigation under Mass law, sez CBG, since it "provided no verification" or any "ascertainable calculation used to reach" its allegation of $1.7 mil in damages. Shelton's claimed damages "served only as a mechanism to create sensationalism for the benefit of the press." At very least, court should strike the number and order Shelton to file "a legally compliant complaint, or, in the alternative, dismiss on this basis as well."
Shelton Creating "False Narrative" for Legislators and Press, Sez CBG While courts (and defendant) have to assume facts alleged by plaintiffs are true, CBG "vigorously disputes" many of those as well, it sez in footnote. CBG includes charge that Shelton's complaint is "just a vehicle to denigrate Craft's reputation in the industry, create a false narrative to further Shelton's lobbying agenda to attack existing alcoholic beverage law in Massachusetts, and to extort Craft to release its rights to continue to purchase beer from Shelton. Instead of first serving the Complaint upon Craft, Shelton Brothers immediately released it to the press and it was quickly reported on by the Boston Globe." CBG also notes Shelton's claim it did not file suit earlier because of "shaky finances." That claim, sez CBG, "almost certainly false" since Shelton "extremely litigious and has sued or been sued by many wholesalers (including other affiliates of Craft) on numerous occasions during the time it was allegedly" short of funds to litigate vs CBG, which then lists 7 similar cases Shelton involved in.
Mass ABCC Orders Shelton to Continue Sales to CBG; Spring 2017 Hearing In addition to motion seeking dismissal, CBG obtained order from Mass ABCC requiring Shelton Bros to "make sales of the Brand Items [75 of 'em] and continue to makes sales and deliver same" to CBG until a hearing is held and decision rendered. Shelton and CBG have to complete discovery by end of Mar, 2017, file pre-hearing memos a month later and hearing will follow within 60 days. Meanwhile, "the ABCC urges the parties to resolve their differences prior to the scheduled hearing."
With BrewDog's US crowdfunding campaign off to a much slower start than anticipated and US production facility project delayed, it seems co's turning to drastic measures in attempt to reignite interest from potential investors. So far, BrewDog Equity for Punks US raised less than $3 mil out of max $50 mil crowdfunding campaign that ends Feb 2017. And that's driven BrewDog to literally gamble with their crowdfunding $$.
"BrewDog's Big Bet" offers investors an oppy to "double their stake in the business...when founders James Watt and Martin Dickie place a bet on red or black in February 2017," co announced. Yes, you read that correctly. BrewDog plans to "gamble [potentially] millions of dollars on the roulette table," sez release. At presstime, it's unclear where they will be playing roulette, but co confirmed that it is making an actual bet at a roulette table. Investors that opt to gamble essentially "agree to the value of all or part of their investment being placed on the roulette table by Watt and Dickie," per release. Equity Punks will collectively vote for red or black and "majority vote" will be the color co-founders bet on while live broadcasting the event on its global Facebook page. BrewDog's positioned Big Bet like this: if co loses the bet, "investors still keep the benefits" of being an investor, i.e. lifetime 20% discount on its beers and other similarly constructed perks, tho they'd lose their respective shares in the biz. If they win the bet, "BrewDog doubles the capital it has raised from the investors that opt in, and the investors double their stake in the business."
It's entirely possible that a minimal amount of investors decide to gamble and "opt in" by Dec 28 cutoff date, and the bet placed ends up being altogether insignificant. Yet just the prospect of gambling with investor $$ raises lotsa questions, including about legality. But BrewDog clearly confident it's good to go: "Now with one crazy bet we are going to shake the yawn-inducing financial establishment to its foundation," said co-founder James Watt. "For too long Wall Street has gambled with your money. F%#& Wall Street. With Big Bet, we are putting you in the driver's seat," as far as choosing "red" or "black" constitutes driving. Previously, James stated that "if we needed the money we could just go to the bank," but Equity for Punks is about "building a community." Co's had great success with prior UK crowdfunding campaigns that've collectively raised over $32 mil since 2009. But following crowdfunding shortfalls here in the US, it seems BrewDog's still in need of capital in order to finance its US project.
500+ Investors from a Single City & You Get a Brewpub; Production Facility Pushed Back to Apr This came just two days after BrewDog announced another unorthodox attempt to draw interest from potential investors: new post from co-founders Martin Dickie and James Watt explains that "if 500 people or more invest from a single city anywhere in the states, we'll look to open a BrewDog bar in that city in the next 12 months." Co's already received investments from 181 folks in Canal Winchester, OH and 175 from Columbus, OH (where it already plans to build a brewpub by 2018). Yet all other top cities are much lower: 37 investors in Pickerton, OH; 16 in Cinci. Top cities from out-of-state include Houston, San Diego, New York, Seattle, and Chicago, ranging from 19-25 investors in each. BrewDog currently operates 50 brewpubs across the globe that "showcase not only our own beers but our favorite local beers as well as outstanding beers from all over the planet."
Meanwhile, BrewDog's US brewery project in Columbus, OH continues to get pushed back, tho it appears to be closing in on a firm start date. Now that "most of its fermentation tanks" have arrived, co expects to "start testing its system in February, and beer should roll out of its $30 million US headquarters in April," reported Columbus Dispatch. Recall, originally the brewery was planned to open in Aug 2016 and last we heard it was postponed until Feb-Mar 2017 (see Oct 5 issue). The 10K sq-ft taproom/restaurant at the brewery is now scheduled to open in Feb 2017 and the first brewpub location pushed back until sometime in 2018.
Admittedly, delays as well as Brexit vote that subsequently "caused the collapse of British pound against the dollar," raised "concern" for BrewDog, paper noted. "I wasn't sure we'd be able to do it," and "it's a hell of a gamble," co-founder James Watt told paper. Then too, "the (retail) channels are crowded" and BrewDog is entering an increasingly "competitive environment," Brewers Assn chief economist Bart Watson explained to paper. "I imagine they will find success in Ohio," he thought, but it'll likely be tuffer "as they move further away." James and co remain seemingly unfazed, adding that "we try to control what we can control," but "never get too nervous about big, macro-level things."
Similar to Firestone Walker's recent list of discontinued brews, many of these beers helped "build [Avery's] reputation," paper points out, so it's "surprising" to see them retired. Yet in their place, Avery will introduce year round barrel-aging series dubbed Botanicals and Barrels, starting with 6 variants available in 22oz bottles. Two of em, "Vanilla Bean Stout, aged in bourbon barrels, and raspberry Sour, aged in oak barrels, are already out," while Tangerine Quad "will debut in a few weeks" and Apricot Sour, Ginger Sour and Coconut Porter comin' in 2017. This ain't no small time project: Avery now owns "more than 3,300 barrels" mostly kept off site, and "the new series will keep them full," spokesman said. "The Demons and Dictators series were ahead of their time when they first came out, but that was over a decade ago," explained founder Adam Avery via release. So these barrel-aged brews now viewed as new way "to push the boundaries of our beer."
Expansions & New Brewery Notes: DC Brau Goes Bigger; Karl Strauss in DTLA; Lots Little and Littler
You want brand new breweries? We've got plenty. First note that contract concept Great Central Brewing in Chicago recently opened, brewing beers from contract partners including Begyle, Maplewood and Like Minds (see Sep 12 issue for more on big Great Central project). Wissahickon Brewing Co is about to join cadre of breweries opening up in Philly outskirts, outfitted with 15-bbl system in 5K sq-ft. Dystopian State Brewing has about twice that space with same size system in just-opened spot in Tacoma, WA. Weathered Souls Brewing opened up a brewpub with a 20-bbl system in San Antonio over the weekend. Round Town Brewery kicked off operations in 16K sq-ft space in Indianapolis last month. Copper Mine Brewing went for smaller 4-bbl outfit to open in Tucson, surrounded by handful of other small-batch brewers and distillers.
Folks in Albany, GA celebrated ground-breaking for long-awaited downtown brewery, seen by city as an important redevelopment project. Similarly, brewery coming to downtown Florence, SC, while gluten-free-focused facility opening in Middletown, OH and location set for new brewery in Goldendale, WA. Nearby brewer-rich Asheville, more rural Madison County just got its first brewery in Marshall, NC and small farm brewery coming in Franklin County, IN. Developers keep making space for small-scale breweries too, promising slew of benefits to communities. Councils and locals weigh plans by folks at Paragon Wholesale Beverage Co in Corolla, NC, and by developers in Abilene, TX and St Louis. Planned brewery location there included in much larger development project to rehabilitate old Armory building into tons of office space, a hotel and more. (Here's to Eater Chicago, Philly Biz Journal, Washington Beer Blog, San Antonio Current, Arizona Daily Star, Albany Herald, WMBF, Journal-News, Goldendale Sentinel, Asheville Citizen-Times, Franklin County Observer, Outer Banks Voice, Abilene Reporter-News and St Louis Post-Dispatch.)