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Two Seattle-based small breweries, each opened in 2010 or later, both facing difficulty keeping up, now will be one. Add another wrinkle to ongoing craft consolidation story. Northwest Peaks, opened as a nanobrewery in 2010 but down-sized to just a taproom after not renewing lease in 2014, just announced that it acquired assets held by Spinnaker Bay Brewing, founded in 2012 but recently rumored to be closing. "Unforeseen circumstances have not allowed" Spinnaker "to achieve the growth, vision, and ongoing operations for SBB," according to release on Washington Beer Blog. Deal "allows us to brew again," NW Peaks founder Kevin Klein said, which will end period of contract production at nearby Hilliard's, according to the co's Facebook page. (Recall, Odin acquired Hilliards earlier this yr, see Jun 24 issue, and Hilliard's location went to Lagunitas, see Aug 26 issue.) NWP will also expand production by installing larger brewing system, keep its existing taproom in the Ballard neighborhood as well as on-site tap room in Spinnaker's Hillman City spot. Note that release specifically highlights acquisition of SBB "assets, which includes its brewery and tap room." So looks like that brand unlikely to go on once deal closes.
Constellation just inked "its most comprehensive arena sponsorship" with Brooklyn, NY-based Barclays Center and the Brooklyn Nets in deal that showcases its $1 bil craft brand along with top-2 import brands, Corona Extra and Modelo Especial, co announced. Interestingly, Constellation "replaces" AB as "preeminent sponsor," noted Sports Biz Journal, which previously had "broad category rights since 2012." That perhaps implies Constellation outbid AB, and/or that AB less interested in keeping up its former partnership with Barclays Center. (A different version of this story appeared in INSIGHTS Express yesterday.)
Ballast Point gets the nod as "Official Craft Beer Sponsor" of the Barclays Center while Modelo Especial will be "Official and Exclusive" import of the Nets and Corona Extra the "Official and Exclusive" import of the Barclays Center. Editor's note: Ballast the only brand not getting "exclusive" language. Each brand also gets its own branded bar; Ballast and Corona in the main concourse and Modelo in the upper concourse. And Corona and Modelo will receive additional "marketing exposure" both during Nets games and "through digital platforms and in-arena signage," per release. Barclays Center is also used for large format concerts and Islanders hockey games among other events, and seats up to 17,732 fans for basketball, 15,795 fans for hockey and up to 19,000 for concerts, according to website.
Keep in mind, exclusion from stadium sales has been a persistent concern for Brewers Assn and its members in recent yrs. And recently AB and MC have used their relationships at different stadiums to secure partnerships for acquired brands, including MC securing a Terrapin taproom at Atlanta Braves stadium and AB helping Breckenridge get an exclusive Denver Broncos brew. There are stadiums that're expanding local craft selection, like Minnesota Vikings (see Jun 23 issue). But stadiums have always been more of a big brewer arena and as more craft brewers get acquired by larger brewers, it seems that these partnered brands are frontrunners to secure stadium space.
Legal challenges expanded again for Craft Brewers Guild, one distrib arm of Sheehan Family Cos in MA. As it still battles state over $2.6 mil fine levied for "pay-to-play" accusations, CBG now faces lawsuit from importer Shelton Brothers that folds pay-to-play charges into its allegations. Shelton Bros seeks $1.7 mil in lost sales, Boston Globe reported yesterday, sales lost in part because CBG paid accounts to carry other brands, Shelton sez. Importer also filed notice with state alc bev control commission (ABCC) that it "intends to stop selling beer to Craft Brewers Guild," based on law that allows termination if there's "unfair preferment in sales effort[s]" or failure to exercise best efforts. CBG sez claims "meritless" and it will "prevail." It can challenge Shelton before ABCC. (This is an expanded version of coverage that appeared in INSIGHTS Express yesterday.)
Shelton's Broad Charges; CBG "Suppresses Competition" CBG's pay-to-play practices to favor non-Shelton brands just one of its allegations. It also charges: 1) CBG priced "preferred" brands more competitively and gave them more focus, while "inflating markups on" Shelton brands; 2) CBG urged retailers to buy from St Killian, a Sheehan-owned import co, while charging higher prices for competing Shelton brands; 3) CBG reassigned sales people supposed to focus on Shelton. All of this made Shelton a "victim of Craft's unfair and illegal practices." Shelton, which has participated in other industry lawsuits, joins craft brewers in attacking Mass distribs generally for limiting access, controlling the mkt, sitting on brands and not allowing them to move (read on). CBG's "favoritism and unfair treatment of Shelton Brothers and other smaller suppliers is an abuse of Craft's legally protected middleman's position" in MA's "scheme of beer distribution," Shelton sez.
What's more, CBG "systematically gathered an extensive collection" of craft brands that allowed it to "dominate" craft biz and "determine which producers would flourish and which would languish and suppress competition in the market" for CBG's larger brands and preferred suppliers. Among those preferred suppliers, Shelton singles out Wachusett Brewing, in which "at least some owners of Craft and its associated companies have a direct or indirect financial and managerial interest." Shelton tried to "dual" its brands thru another distrib in 2011 but backed off, it sez, following "campaign of harassment and intimidation," by CBG vs competing distrib.
Pay to Play Admission Evidence of Good Cause to Terminate; Sales History In its letter to Mass ABCC, Shelton claims CBG's "pay-to-play" admissions are "prima facie evidence of good cause to discontinue" their relationship. (There is no written agreement.) What's more, CBG "continues to use predatory pricing" that advantages other suppliers. For example, CBG "underprices Wurzburger Hofbrau" (from St Killian) by "more than $30" compared to Shelton's Kulmbacher brands, which are brewed by same German brewer and "cost approximately the same amount." That tactic, plus CBG's "unreasonable margins," hurts other suppliers, Shelton sez. CBG also prefers other suppliers via a "Craft Barrel Accumulations" program that provides discounts up to $25 per keg with a mix and match program limited to "preferred suppliers," Shelton alleges.
It also details that CBG purchased $692K of beer from Shelton in 2010. That dropped to $404K in 2011, bounced back to $479K in 2012 and stayed about the same thru 2015. Purchases are down so far this yr, Shelton sez. As other proof of CBG not using best efforts, Shelton sez CBG "fails to regularly purchase any products," and buys tiny amounts of many brands. Finally, CBG "has been delinquent paying invoices more than 30 times over" last 2 years. In lawsuit, Shelton seeks damages from lost sales, punitive damages, affirmation it can move brands and order that CBG can't harass other distribs that get Shelton brands. Specific claims include breach of [oral] contract, unjust enrichment, unfair and deceptive practices and more.
CBG Confident it Will Prevail; Underscoring Broader Shifts? CBG said it "will vigorously defend itself against the meritless allegations made by Shelton Brothers" and is "confident it will prevail." Letter to ABCC concludes that Shelton will discontinue sales to CBG "effective no later than 120 days from [CBG's] receipt of this letter," dated Nov 3. Meanwhile, CBG's suit vs ABCC movin' slowly. Nothing expected before end of yr.
Recall, case made by ABCC against CBG after investigation into pay-to-play practices at Boston bars put spotlight on specific distributor activities perceived as anticompetitive or worse by many, including consumers. While their legality will be decided in CBG's suit against ABCC, the optics of defending activities that lots of folks just plain don't like sure ain't easy. And it isn't the only arena in Mass where middle tier having to run defense: suppliers have attacked franchise laws in the state for years. Now, like Nightshift Brewing's plan to open its own distributorship and the pay-to-play investigation that precipitated this particular inter-tier tussle, these stories add specific color to what's been a more general, if highly public, dispute. Visibility of these stories certainly boosted by often critical local press coverage, including from the Boston Globe in particular. So beyond legal questions, these moves contribute to ongoing attempts (across the US and in Mass) to shift perceptions of and perhaps even some political power held by the middle tier.
In the 6 years since its original Northeast Portland brewpub opened on Dekum Street in 2010, Breakside Brewery became a go-to source for IPAs in already hop-soaked PacNW. This year, it could join the top-10 Oregon brewers by in-state sales, while growing its top-selling 22-oz bombers by double-digits and prepping a new, much larger brewpub in its home city. In a lot of ways, recent growth felt "super-easy," dependent on making quality beer and having meaningful customer interactions to grow the biz "organically," founder Scott Lawrence explained to Craft Brew News. That ease matches Scott's tone and Breakside's laid-back branding, but probably belies the time he spent emptying his savings to build the original brewpub and the 3 yrs he spent serving as head bartender after it opened. Still, Breakside "could have grown faster," he said, even though it neared 15K bbls of production last yr, its 5th in existence. That kind of growth "can't happen forever," Scott acknowledged. But it hasn't stopped yet. Total volume will be up another 40+% this yr, Scott expects, likely topping 20K bbls, about 70% of that in Oregon.
Incremental volume outside its home state isn't driving that gain. Breakside sold over 9250 bbls in Oreg YTD thru August, according to Oreg Liquor Control Commission data. That's up 2800 bbls, 44% from same period last yr. It also put them at #10 Oreg brewer in the state report, ahead of growing Fort George and Worthy, as well as Hopworks Urban Brewery and BridgePort, each so far slipping in their home state in 2016. (Note that largest in-state brewer, CBA, not listed in Aug report.) Flagship Breakside IPA and Wanderlust IPA lead the co's portfolio, collectively representing 60-65% of its sales. Recently, Breakside IPA was the "top-selling 22" in Oreg and Washington Costco stores, Scott told us. Breakside has 3 of top-7 and 4 of top-20 bombers at Portland foodstores this yr, according to peek at IRI data we got. That includes #2, Breakside IPA, +21% by $$ YTD thru Oct 16. At about $5 per bottle, it sold for an average of about 2 bucks more than #1, Pyramid Outburst (+15%). Wanderlust 22s so far smaller, but up 57%, adding more absolute $$ growth than Breakside IPA. The brewery still doesn't make 6-pks and packages only in kegs and bombers.
Growth Without Salespeople, Even Further Afield; Distrib Touch So Breakside will hit 20K bbls this yr without 6-pks and without any dedicated salespeople. Scott knows he'll need to bring in a salesforce "eventually." But now, even in far flung markets, "once [people] try the beer, [it tends] to pull through pretty well." Breakside sells in NY and Arizona now, as well as Hawaii and Colorado, outside of the PacNW. This and coming launch in the Carolinas is mostly "because we want to," Scott says, or they're places "where I want to travel." For example, launch with Hensley in Ariz happened because distrib's CEO Bob Delgado is the "dad of one of our closest friends," and after trying some Breakside over dinner, he said "if you ever want to go to Arizona, these beers taste great," as Scott tells it.
So far, it's still mostly Scott "working with distributors," including doing "rep ride-alongs." That personal touch has been helpful. "Distributor relationships have been super-key for us," he told CBN. Even though he built the biz as a brewpub, he knows that wholesalers buy most of Breakside's beer: "Maletis is our largest customer. I should be catering to them," he said simply.
Expansion Within Portland: Searching for Land, "Hop-Focused" Brewpub in NW Even as Breakside makes little moves outside of its homebase, it's digging deeper too. The co's "already coming up against the limits of what we can do in" the production facility it opened in 2013. So Scott's "looking for some land where we can build a brewery from the ground up," he told CBN. He hopes to identify that location in the next 6 mos to a year, and open the brewery in 2.5-3 yrs. He'd also like "to add a full barrel production facility," to expand production of Breakside's barrel-aged and sour beers. But don't expect Breakside to take over the world with those breweries. "As we grow, we're going to put a cap on ourselves," at maybe 60- or 80-thousand bbls in perhaps 12 states, Scott estimated.
Breakside already pulled the trigger on a big new project in its hometown. It will open a 2nd, much larger brewpub in Portland's Northwest quadrant early next year. While the original brewpub seats about 85-90 inside, the new spot will have room for up to 350 diners on 3 levels. Scott and co want "a certain amount" of Breakside's beer to be served by the co "over the bar," he explained, "so we can have a conversation" with drinkers. But they "didn't want to just open a bar," and wanted another small brewery where employees could put new beers out there and "make whatever they feel like." The new location will be "hop-focused," Scott said, expanding on Breakside's reputation as a decorated IPA brewer.
Total Employees and Exec Team Expands; Plans to Sell Half to Staff Down the Line Opening that new location will boost Breakside's employee count to about 170 by year-end, up from just 40 three years ago. The co's also brought on about "three C-level people" over last yr and a half. But Scott takes treating those folks well very seriously. This yr, they'll "shut down" on Saturday, Dec 17 to throw a staff holiday party, rather than on a less lucrative Tuesday in January, he explained. That "puts the staff ahead of just making a dollar," in his view. Similarly, Scott wants to eventually "give at least half the company to our company." It would be "shameful of me to grow this company," as he said, "on the backs of this staff," and then "sell it so I could get a fat payday." That's something "I feel super passionate about," and gets him "fired up." In fact, he called "bullshit" on small brewery owners who say selling to larger breweries is about the "resources" and not the money. Like plenty of others, Scott "sold everything I had to get started," but now "I'm set," he said, and instead wants "to be able to take care of my staff."
Lots of interesting developments following AB's 9th acquisition of a US-based craft brewer, TX-based Karbach. Turns out Karbach "could mark the end of [AB's]...craft-beer buying spree," in the US, Houston Chronicle reported after speaking with AB High End prexy Felipe Spzigel. "Most of that effort, if not all of it, is behind us," he told paper. Recall, after lengthy review of Devils Backbone acquisition, DOJ promised to "carefully scrutinize any further craft acquisition" (our emphasis) by AB. And since, the co has closed SpikedSeltzer deal (technically not malt-based, tho still taxed similarly) and announced deal for Karbach, plus picked up largest homebrew supplier, Northern Brewer, thru global ZX Ventures outfit. Unclear if DOJ scrutiny had anything to do with Felipe's comment and will be interesting to see if Karbach deal gets approved by Q1 2017, as expected (see Nov 3 issue). But no doubt co's done its homework and expects approval.
Gotta note, TX is the only state (we know of thus far) where AB still has over 50 share within state and lookin' to buy. Finished with 52.3 share of TX shipments in 2015, even after losing 1.3 share from yr prior. So AB's Herfindahl-Hirschman Index (HHI) is over 2,500 threshold (that usually signals antitrust concern) by itself in-state, Brewers Assn chief economist Bart Watson pointed out via Twitter. But DOJ doesn't use that measure as an end-all, be-all. Nationally, AB continues to lose volume and share thruout the country; buying a couple ~80K-bbl breweries hardly makes up a sliver of the continued net-losses. For example, the co shed 144K bbls in Tex in 2015 alone, down 630K bbls since peak in 2012.
"Unintended Consequence" of TX Legislature Allows Major Brewers to Have Taproom Sales Unlike other recent craft acquisitions, some of response following Karbach deal pondered potential legislative impacts of a top state craft brewer now under a big brewer umbrella. "An unintended consequence of the law we passed in 2013 is that majors can acquire breweries that fall under the volume threshold (225K barrels) for having taproom sales, and those acquired brewers can keep their taprooms (since the volume limit is per brewery location, not aggregate volume of the parent company)," TX-based Freetail Brewing founder and Brewers Assn board member Scott Metzger explained to Craft Brew News. "I'd be curious if the state looks to rectify that," he added. Recall, Idaho District Ct recently cleared AB ownership of 10 Barrel brewpub due to interpretation of its law (see Oct 25 issue). And AB continues to build on collection of retail outlets with its various acquired brands. Similarly, Tex law change would open up limited self-distribution option to AB too, at least "in theory," Scott noted.
Local Consumer and Retail Backlash; But "People Get Over It" This is the first deal in some time that has received considerable backlash from local community and consumers. Karbach took to its Facebook page last week to announce the deal, only to receive thousands of almost entirely negative comments and replies, ranging anywhere from Star Wars "Dark Side" references, "sold their souls" charges, "take the money and run" lyrics, and claims that they'll "never" drink it again. Some were understanding and even congratulatory, but still vowed to switch focus to other locally owned brands. "It's hard to be mad at someone for their success," partner and COO of craft beer bars Liberty Station, Cottonwood and La Grange, Jake Rainey told Chronicle. "But as a business owner, I get to choose who to support and why. Part of our values is to support local." Another bar, Hay Merchant "immediately began a 'fire sale' of Karbach products" to "sell everything and move on," said owner Kevin Floyd.
Yet "the financial piece wasn't that important at the end of the day," Karbach co-founder Ken Goodman insisted. "It was the resources." After the initial stage of anxiety, "people get over it," said Felipe Spzigel, "once they see the same product on the shelves and see that it tastes the same." That seems to be the case with 10 Barrel in particular; after initial backlash, 10 Barrel in-state Oreg shipments up 32% to 30,201 bbls YTD thru Aug. "I look at this almost as a challenge," Karbach founding brewmaster Eric Warner told paper. "We have to make our beer even better."
John Fleming, 46, ceo of Superior Beverage, MillerCoors’s largest distrib in OH, flew his new plane with his family and friends
on a short hop from Columbus to Cleveland to go to a Cavaliers game on Friday night. On the return trip, their
plane disappeared shortly after takeoff. The plane has still not been recovered and officials fear the worst. This
unspeakable tragedy quickly became a national and international news story as the Coast Guard and others
scrambled to recover the plane carrying six passengers, amidst initially difficult weather conditions. Yesterday,
conditions improved and 7 vessels and 4 dive teams continued the search. “The operations so far has recovered
more than 120 pieces of debris, which authorities say ‘are consistent with what would be found on a Cessna 525
Citation,’” reported Youngstown’s Vindicator this morn.
We’ve received numerous texts and phone calls attesting to John’s great character and capabilities. John
recently became a member of MillerCoors distributor council. Superior is one of the best performing MC
distribs in entire US, said an MC source. John’s uncle, John Antonucci, is the owner of Superior Bev and
described John as a man of “great character and integrity.” Our thoughts go out to all the family, friends and
employees during this extraordinarily difficult time.
Major brewers’
stocks, both in US and globally, did not shine in 2016 like they did in 2015 and 2014. Constellation grew 7.6%
last year following gains of 45% and 39.5% previous 2 yrs. And don’t forget STZ shares doubled in 2013.
Molson Coors slowed to 3.6% gain in 2016 following gains of 26% and 33% previous 2 yrs. Anheuser-Busch
InBev shares fell 15.6% in US in 2016 on NYSE and down 12% (in euros) on Brussels exchange. Following
30% decline in 2015, Boston Beer shares fell another 16% in 2016. Much smaller Craft Brew Alliance
rebounded nicely as shares doubled to $16.90 in 2016 following double-digit declines previous 2 yrs.
Heineken momentum of past several years halted in 2016 with 16% stock drop. Heineken had gained 33.6%,
20% and 18.4% prior 3 years. Diageo posted its best performance in several yrs as stock gained 13.7% in 2016.
Major soft drink co’s, often mentioned as possible targets of ABI, underperformed in 2016 compared to Dow
Jones Avg (+13.4%) and S&P 500 (+9.5%). Coca-Cola stock price dipped 3.5% last year following gains of
around 2% in both 2015 and 2014. In first full calendar year with Coca-Cola bottlers, Monster Energy stock
slipped 10.7% in 2016, down from +37.5% in 2015, +59.9% in 2014. PepsiCo stock increased 4.7% last yr,
slower than 2015 (+ 5.7%) and 2014 (+14%).
Last city on that list is Baltimore, a city newer to local beer love than above PacNW hub. And coming Growler USA location will have plenty of competition for beer lovers, including another coming big-list franchise and a new standalone indie spot with much tighter menu. Brass Tap is one more on-premise beer-focused franchise concept expanding across US and Baltimore location to come with 60-beer tap list for location with just over 120 seats inside and out, per Baltimore Biz Journal. Add in 120 bottles, of course, and not exactly a location looking to help consumers that may be overwhelmed by choice. Half of draft list for expected Dec opening comes from local brewers. But that's still about 50% more than total taps at new Wet City, which recently opened with focused 20-beer rotating list alongside ever-changing cocktail menu, according to Baltimore Sun review. In sparse space to match, "if [owners] don't like it, they won't pour it," and apparently not afraid to turn down beer if it breaks that "simple but crucial rule." High-level curation seems to be name of the game here, a totally different answer to concerns about consumer confusion. And Wet City's sharpness clearly stood out to reviewer even more when compared to "classic Irish bar" it replaced. This may be just a tiny sampling of new on-premise locations, but clearly underscores constant flux within both bar/restaurant world and craft segment.