Pair of airlines announced expanded availability of craft brands this week, though at very different scales. Just today, Delta wrote that SweetWater flagship 420 Extra Pale Ale is now the airline's "national craft beer offering," making available on most domestic flights, plus trips to Canada, Europe, Latin America and the Caribbean. Delta's served SweetWater beer since 2014. The airline also serves 30+ "local and regional beers" from brewers including Sam Adams, Lagunitas, Stone, Ballast Point, Brooklyn, Blue Point, Newburyport and Fremont on select domestic flights. But it's going with fellow-Atlantan SweetWater in much bigger way. Separately, smaller Maine-based Elite Airways started serving handful of offerings from largest in-state brewer Shipyard. Like the brewer, Elite's based in Maine but often heads to Florida. Now, the brewer's Export Ale, Island Time Session IPA, Pumpkinhead and pair of Sea Dog brands will appear on all of Elite's US flights (and schedule just expanded significantly). Plus, one of Elite's jets now sports Shipyard's logo too.  

Sure, cider is broadly declining in 2016, but that doesn't mean there aren't still some great growth stories within cider, especially on the local and craftier side of segment. Look no further than Bold Rock, which has previously "flown under the radar," said sr veep of sales and mktg Jeff Liebhardt. But Bold Rock has decided to "let people know we're out there" and that there are still "some true winners" in the segment. Bold Rock on pace to sell 45,000 bbls in 2016, up 80%. Surprisingly, it's already the sixth largest cider co nationally in IRI. All those ahead of it are national brands, mostly in decline. What's more, Bold Rock only sold in 9 states, with almost 2/3 of its biz in home state VA.

Bold Rock $$ sales are more than doubling, up 102% in natl cider segment in IRI multi-outlet + convenience yr-to-date thru 9/25. Bold Rock blew past Crispin, which is down 19%. Angry Orchard still has 57 share of segment, but $$ down double digits yr-to-date. Woodchuck and Smith & Forge each down 25-30%. Sure, Strongbow up 14.5%, gained 1.4 share to 7.3 and became #2 player, plus Stella Cidre up 38% and gained 1.4 share to 4 share. But believe it or not, Bold Rock gained virtually as much share of segment as they did nationally; up 1.4 share of segment to 2.6. In home state VA, Bold Rock is the #2 cider, with a bullet. It's 35.5 share of the segment. And it's up 108%. Angry Orchard at 45 share, down 13%. Lost 10 share of segment, while Bold Rock gained 17. Also in contrast to natl trend, cider segment still up in VA IRI. Cider still also gaining in other mkts like Austin (Austin East Cider) and Seattle (Seattle Cider Co, acquired earlier this yr) where there's strong entrenched local player, according to Jeff.

Bold Rock's original cidery is in Nellysford, just a 1/4 mile from Devils Backbone in the Blue Ridge Mountains. Bold Rock co-founder John Washburn owned some land in area, and originally thought he'd do another craft brewery, before having vision to do cidery instead. He then landed "Master Cider Maker" Brian Shanks from New Zealand as co-founder. Cidery only opened in 2012, but since spent $6 mil to build "state of the art production and tasting room" overlooking a river. John hired Jeff Liebhardt in 2014 (Jeff has Boston Beer and Gallo sales background). Since then, it's grown from 3 sales employees to 20. And it's up to 75 employees overall. Bold Rock also opened a 2d cidery in Mills River, North Carolina in Nov 2015, just a few miles from Sierra Nevada's brewery. Bold Rock has quickly leaped into 2d place in NC cider mkt too. Up 140%. Already grabbed 12 share of cider mkt there, up 7 share.

Bold Rock just expanded to Athens and Atlanta, Ga, its only expansion mkts in 2016. Next yr, it hopes to sell 65,000 bbls, another 45% growth pace. So far, its distribution is almost entirely thru AB network. It currently can produce about 150,000 bbls of cider, with possibility for "additional future capacity" in Mills River.  

Craft Brew Alliance management viewed (barely) positive depletions growth for 2d consecutive qtr as "positive progression" of the Kona Plus strategy. Indeed, in Q3, Kona over half of total CBA shipments. But CEO Andy Thomas equated CBA's 4.5% shipments decline (not including contract volume, which further softens trend) to grounding out into a "frustrating double play," with baseball fresh in mind post-World Series. Combo of "lower contract volumes" and "wholesaler inventory pressures" across CBA's footprint "effectively wiped out tangible benefits."

But Kona keepin' up consecutive double-digit growth pace across the board, including in core mkts and both on and off premise. It's led by 50% growth from Big Wave Golden Ale, CMO Ken Kunze shared. In HI homeland, Kona up 12% in Q3. In Calif, where in-state brewers still drive growth, Kona depletions up 14% in Q3 and 12% YTD. That proves brand's "ability to transcend craft localness," said Ken. In fact, in another craft savvy mkt, Seattle, Kona conducted mkt test that effectively accelerated trend from +4.9% in Q1 to +39% in Q3 (off small base) and grew brand awareness to 73%. Kona grew "deliberately and methodically," said Andy during Q&A, "not just getting the superficial growth." So CBA's likely to see "more of the same" from Kona going forward. "Double-digit growth on Kona is an expectation," and there's even "possibility" it could accelerate with international mkt boost starting in 2017 thru ABI agreement, he added. Also briefly mentioned on the call, Kona will launch new "fruit-forward" IPA with notes of "passion fruit, orange and guava," next yr.

Yet while Kona and partner brands Cisco and Appalachian Mtn provided growth, both Widmer and Redhook depletions (and shipments) dropped at hastening double-digit paces; each down 20+% for qtr, -17% and -22% YTD, respectively (see CBN vol 7, no 92). Asked about the evolution of CBA's strategy for the two legacy craft brands, Andy thought "we're getting to core volume" on Widmer in particular and in 2017 could even see Widmer "behave as a brand that's not in retrenchment mode." He and Ken pointed to "encouraging" 5% growth in Q3 from flagship Widmer Hefe in home-state Oreg, where it's still the #1 craft brand. And co "seeing tangible evidence" and a "pattern that's emerging" toward overall brand health, sez Andy. But gotta note, Widmer Hefe brand volume down 13% nationally for qtr in IRI multi-outlet + convenience data, so it seems there's still a good amount that's being pulled back into PacNW. Meanwhile, Redhook should expect "more of the same…if not an acceleration downward." There's still "a lot of places we don't think we'll be able to defend" Redhook, so CBA is "retrenching that on our terms…either to the benefit of new partner brands or players to be added," or to the benefit of Kona "as we harvest some of that volume," said Andy. CBA's long term view is for Redhook to re-establish itself as "a vibrant brand in the Northwest," but in the meantime it'll continue takin' "significant double-digit declines as we go forward."

CBA Expects "Additional Partners" in "Very Short Term" to Fill in Cap; Cisco & AMB Continued Success Several times thruout the call, CBA execs talked about the prospect of adding new partner brands into its portfolio alongside Cisco Brewing and Appalachian Mountain. In fact, Andy went as far as to say we will "definitely see activity...in the very short term," in regard to "additional partners." Indeed, as CBA shifts production of "key SKUs" to AB (up to 300K bbls) thru new agreement, those new partner brands can help "fill capacity hole" and be a "wingman" to Kona in select mkts. Meanwhile, Cisco and AMB each driving growth in their respective regions, collectively representing over 5% of CBA's Q3 mix and offsetting tuffer trends from smaller Square Mile Cider and Resignation brands. Cisco is already CBA's largest brand within co's New England division and CBA's total New England depletions up 40%. And in NC, CBA total portfolio up 30% YTD and AMB was measured 8th largest local NC brand in Nielsen all outlet data, Ken noted.

Contract Volume Up to 60K Bbls Short; Penalty Payments Could Benefit Q4 and More; $5-7 Mil Cost Reduction Planned Next Yr CBA "expected to have contract volumes of up to 60,000 barrels that isn't going to be there," Andy acknowledged during Q&A. It "wasn't until we had really good visibility that we took the action we took" to rightsize staff at Woodinville brewery. That took a toll in Q3, but the way contract with Pabst (and other partners) is constructed, if certain volume expectations are not met, CBA receives a penalty payment that can only be realized at yr-end. So CBA will get "a little bit of relief" there that will "pump up in Q4." CBA's "long term strategy" doesn't include Woodinville facility, Andy plainly stated. But CBA has to fulfill agreement with Pabst in the meantime. Under said agreement, if Pabst decides it no longer wants to purchase the facility after 3 yrs, it's forced to pay a $4 mil penalty fee. And each year could have to pay penalty fee if volume expectations aren't met. All in, CBA "exploring new opportunities" with new AB agreement in mind, and expect to reduce costs by $5-7 mil in 2017 while improving overall biz performance, said CFO Joe Vanderstelt.

Clarification: In Wednesday's coverage of CBA's Q3 results, we grouped Square Mile and Resignation with Appalachian Mountain and Cisco, implying that all are "partner brands" that "boosted" CBA volume. But Square Mile is an owned brand. Further, it was really the latter two (AMB and Cisco), with which CBA has brewing and distribution agreements, that contributed volume gains, as explained above.  

After 3+ years of working with various breweries to create some of most sought-after beers in Brooklyn, NY and beyond, Grimm Artisanal Ales will build its own facility in north part of NYC boro quickly becoming a hotspot for small-scale brewing. Grimm plans a $4.5-mil brewery with tasting room in East Williamsburg nabe, reports New York YIMBY, and seeks additional funding from NYC's Economic Development Corp. Husband and wife team behind the co rose to beer geek stardom after starting up their gypsy brewer operation in 2013, making highly respected IPAs, saisons and sour ales out of a number of breweries in NYC and beyond. The co notably placed two of its beers at #1 and #4 in blind tasting of 115 double IPAs done by Paste Magazine last summer, ahead of some of the country's biggest and most decorated beers (your Plinys, your Headys, your 90s, Double Jacks and Sucks, for instance). And unlike many other fast-rising, much-discussed young breweries, Grimm hasn't had its own location to sell its wide array of one-off beers to thirsty local fans and online traders. Instead, those folks have been known to line up at area retailers to grab what they can when Grimm's beer shows up.  

NYC's Bronx Brewery will work with Northeast region of big nat'l retailer Whole Foods Market on naming and release of a new IPA, co's announced yesterday. Consumer contest to name the beer launched yesterday, 10 finalists to be voted on early next yr. That's about a year after Jan 2016 launch of No Resolutions IPA. Indeed, Whole Foods' Northeast region alone "has launched several exclusive partnerships with small beer brands," according to release. The chain's long supported craft segment and local suppliers generally. It continues to do so "specifically by highlighting unique collaborations with breweries to create top-notch and one-of-a-kind beers for our shoppers," region's Specialty Coordinator and Beer Buyer Christopher Manca said in statement.

That fits with Whole Foods' broader goals, discussed by top-level execs on co's quarterly earnings call just yesterday. "Food retail is evolving at an incredibly fast pace," Co-CEO John P. Mackey said in prepared remarks. "Consumers have many more options for how and where they buy their food than ever before." Though Whole Foods sales up slightly, it reported tougher traffic trends alongside more encouraging basket-ring numbers. Inside the "very tough market out there," John noted "strong conventional supermarkets," plus "discount natural food operators" and "more delivery fresh stuff like Amazon" and "meal kit operators like Blue Apron" and others. Though no talk of beer or beverages specifically, Whole Foods continues to encourage a "race to the top in terms of a differentiated consumer experience," holding strong to values of "personalization" when marketing itself. Collabs with small local brewers clearly in-line with providing individualized experiences, but not necessarily in direct contrast to simplifying choice overall.  

Craft got 33% of total on-premise $$ in Nielsen CGA On-Premise data, just behind domestic premium brands at 34%. Yet in "tap data" collected by Nielsen in "rolling field audit program" in Sep-Oct, Nielsen CGA found that craft got 58% of tap handles vs just 17% for Domestic premium. Meanwhile, craft got 48% of draft $$ and premium 27%. This data paints invaluable and still surprising picture of craft dominance of draft on-premise. (This article also appeared in INSIGHTS Express).

From these numbers, Nielsen extrapolates that "draft domestic premium brands are under-tapped given their contribution to sales compared to space occupied." Then it jumps to conclusion: "In general, the evidence would suggest that many outlets could benefit from a revised draft beer assortment strategy." This debate is not new; big brewers have argued this for years. "Striking a better balance between rotational variety and a decent choice of high velocity domestic brands," Nielsen continues, "could well offer the optimum combination of customer choice and velocity." So add Nielsen to the growing chorus of industry voices (AB, MC, Boston, etc), saying that maybe this choice thing has gotten somewhat out of hand. Clearly, not everyone would agree, as comments from Brewers Assn prexy Bob Pease on BA website would indicate (see above). Many retailers still view variety as an imperative, not a "choice," i.e. that craft variety drives traffic, has strong image/cred and oh-by-the-way provides better margin.

Other interesting data from Nielsen: almost half of Americans (47%) "drink beer when out of home," sez Nielsen, and they very often drink craft. Craft "the best performing sub-category" since Nielsen CGA started with its "On Premise Measurement" in Jan 2014. Meanwhile premiums still have 3 of 5 beers with highest velocity per outlet. Then too, craft drinkers mostly don't drink just craft; 61% drink imports, 49% drink domestic premiums, only 28% just drink craft on-premise.  

"Big Beer Doesn't Think Choice Matters. They're Wrong." That shot across beer bow came courtesy of Brewers Assn prexy Bob Pease on BA website yesterday. Bob quoted AB InBev CEO Brito's recent comment on conference call that "consumers are a bit tired of choice" in response to question about current craft trends. That made Bob "ask myself what he's been drinking." Bob pointed to the 60K "beer lovers" who just attended Great American Beer Festival, which is all about choice. And "freedom of choice " is "core tenant of 'being American.'" Then Bob speculates that Brito's comment is "a hypothesis being willed into existence for the greater good of one brewery." Why? Bob cited ABI's "shopping spree" of buying craft brewers in US (which continued today) and suggested that while "a growing corporate 'craft' portfolio of once independent brands benefits" from AB mktg "muscle," the "truly small and independent brands" get "pushed off the shelves" and lose on-premise placements. That reduces choice in bad way to Bob, since it's not consumers making the decision. Craft brewers have "strength" with indie distribs, retailers and beer drinkers "who want choices," in styles and "from a plethora of high quality brewers." Shelves and taps "belong" to retailers and consumers and "if one mega company tries to manufacture or force demand, consumers will rebel." Craft brewers face "real" competitive pressures, Bob acknowledges. But answer to that is to make best beer to "win over fans-not to limit supply and reduce those fans' options."

What Brito (and Others) Actually Said, What Does It All Mean? Here's what Brito actually said about choice when asked whether craft at an "inflection point" with current slowdown in growth. "In terms of craft, I think it's too early to call. What we see in some customers is some kind of thinking at this point about 'how much more of an assortment can you carry?' Customers began to realize, some time ago, that there's really a large assortment. There's only so much shelf space that you can share and cold box that you can split…. Like anything, at some point consumers also get a bit tired of so much choice and they start going for fewer brands. But again, this is all speculation on our side. It's too early to call." First, there's a big difference between "choice" and "so much choice." Second, Brito is making the exact same points that have been made in recent weeks by craft brewer Jim Koch, consultant Bump Williams and Molson Coors CEO Mark Hunter about consumer "confusion" over "plethora" of choice and retailers responding to shelf space concerns. True, "going for fewer brands" might be in the interests of those 3 brewers. But Brito, Mark, Jim (and everyone else) continue to pour new choices into the mkt. Third, Brito sez he's speculating. Gotta keep in mind context that Bob advocated early and often against ABI-SAB deal, including seeking restrictions on self-distribution and further craft buys. Even earlier, he co-authored famous "craft or crafty" op-ed ripping "large international conglomerates" AB InBev and SABMiller who "have controlled the market for so long." That op-ed piece dates almost 4 years now, when craft had 6 share of US biz. It subsequently doubled, according to BA, despite the threat of "faux craft" beers and AB acquiring (now 9) craft brewers.

Our Take: It Ain't "Or" Some folks seem to operate in an either/or world. Either global brewers. Or indie craft brewers. Either celebrating vast choice. Or seeking some simplicity as result of too many choices. Either "selling out" to mega brewers. Or making a wise business decision. Either good guys. Or bad guys. But it's really a both/and world, folks, with bizzes and consumers of all sizes, shapes and motivations. Many folks seek choice. Others seek simplicity. And on any given occasion that could be the very same consumer. Macro brews and micro brews. Right now, in the US, it's clearly a "golden age" for beer and beer consumers, as some speakers at recent NBWA convention noted. It's also a time of increased competition among brewers. Both/and. Get used to it.  

AB announced agreement to acquire Karbach Brewing in Houston, hottest craft brewer of last several yrs in Tex. Karbach slated to surpass 80,000 bbls this yr, in just its 5th yr of existence. It will grow at least 25,000 bbls this yr, 45%. That's all in 1 state. And Karbach is just filling out Tex this yr; only hit Dallas/Fort Worth last yr. Houston still 60%+ of its sales. With those #s, Karbach could easily jump past similarly-sized Saint Arnold and Real Ale in 2016 to become 2d biggest craft in Tex after Shiner, but it's only got 0.4 share of this giant mkt. So there's room to run.

Karbach Will Stay in Just Tex in 2017 Indeed, Karbach still has no plan to expand beyond Tex in 2017, even after joining with the High End, said co-founder and brewmaster Eric Warner. The plan is to "dive deeper" in its home state, where it's already had "tremendous success" and yet there are "still so many opportunities." Karbach "trying to get over 100,000 barrels" just in Tex in 2017, "a nice round number." High End prexy Felipe Szpigel agreed, but also said it's "too early to say." (For those who don't get reference in headline, it refers to oft-repeated phrase "Number 9" in Beatles "Revolution 9" from the White Album. Seemed appropriate here.)

The High End Has Filled in Most US Regions Karbach will mark the 9th acquisition for AB and its unit, The High End. By now its buying spree extends to most major regions of US. Insofar as AB is pursuing regional strategy, it may be close to done, one source sez. Felipe said that the High End started from "a different place," i.e. finding right partners, who are "unique and different from each other" but he acknowledged "where you end" is with geographically diverse group of brewer partners, including in Tex. Deal still needs to get DOJ approval; given that should close by Q1 2017.

With Karbach, AB will own well over 1 mil bbls of acquired craft brewers all over the country. Started with Chicago's Goose Island in 2011, then AB acquired Blue Point in northeast, 10 Barrel and Elysian in craft hotbed of Pac NW, Golden Road in Calif, Breckenridge in Colo and Four Peaks in Ariz, covering Southwest, west and Mountain regions. And more recently, AB got Devils Backbone in Southeast. (AB also bought adjacencies like Virtue Cider and Spiked Seltzer.) Its various craft brewers are performing very well even as craft slows down. Recall, AB's acquired craft brands up 35% yr-to-date in IRI multi-outlet + convenience.

AB Needed to Play in Craft in Tex But long-rumored Karbach acquisition fills an essential hole for AB's collection of craft assets: Tex. Tex is 2d biggest US mkt and AB's biggest mkt, where it sold 10.4 mil bbls last yr and got 52.3 share. It has held volume/share much better in Tex than in Calif, where it is down to 1/3 of biz as craft and especially Mexican imports made huge inroads in AB's former dominance. Craft undershared in Tex, but growing rapidly, up to high singles. No surprise that Craft M&A heated up in Tex this yr, even before this deal; recall, MC purchased Revolver and Lagunitas bought stake in Independence. Given all these factors, it was especially important for AB to participate in growth of segment in its most critical mkt.

Enter Karbach. Karbach started by serial entrepreneurs (and highly successful sellers) Ken Goodman and Chuck Robinson, who have built several strong bizzes. They have scored several times, including sale of 700,000-case statewide craft distrib in Tex, C.R. Goodman, to Ben E. Keith back in 2008. That got BEK started down craft road nearly a decade ago. This yr, Ken and Chuck also sold 1-mil-case craft distrib C.R. Goodman in Colo to Breakthru Bev. The 2 also own importer Belukus Bevs and sold Bitburger brand to St Killian's (US importer that is a Sheehan Family Co).

AB "plans to invest" in Karbach to "realize" brewing capacity of 150,000 bbls by 2019. "We have maxed out our potential to grow on our own," said Karbach co-founder Chuck Robertson in by now familiar statements, but Karbach "will retain a high level of independence" as "existing management and brewing teams will continue to drive culture and strategy." Karbach co-founders Chuck Robertson, Ken Goodman and Eric Warner all stay on. Chuck and Ken's sons are each part of "active daily management" of co, as is Eric. This deal announced just 3 weeks after ABI closed "Megabrew," its $100+ bil deal to purchase SABMiller.

Karbach Trends Even Stronger in Scans: Up 68% thru Aug 14 Last we saw, Karbach trends were even stronger in scans than co projected for 2016. Its $$ and volume each up 68% to nearly 308K cases and $11.3 mil thru Aug 14 in IRI multi-outlet + convenience data. That puts Karbach sales just below a top-30 craft vendor nationally. Only in chain-heavy state of TX. So $$ already larger than Devils Backbone, 21st Amendment, Uinta, Anchor and Bear Republic (to name a handful) in these channels. And more than $4 mil in sales ahead of other Houston-based craft mainstay, Saint Arnold, which was flat to up 1% YTD.

Three brands make up over 2/3 of Karbach's total sales and 3/4 of total growth: Hopadillo IPA (+72%), Love Street Kolsch (+225%) and Barn Burner Saison (+59%) all kept up strong growth pace so far this yr. And co's gettin' notable lift from several smaller brands including a trio of double IPAs - Hop Delusion Imperial IPA (+193%), Rodeo Clown Double IPA (+34%), and Bodacious Double IPA (+6863% off intro base) - its Variety Pk (+56%), Bourbon Barrel Hellfighter Series (+271%) and Seasonal (+112%). All in, 11 of 14 brands up and most up strong double-digits in Karbach's IRI portfolio.  

Six year old, Minneapolis, MN-based Harriet Brewing will close after Jan 31, 2017, co announced via Facebook, due to "development plans for our property" that "do not align with Harriet." This isn't the first time we've heard of this issue in an urban area. Recall, Brooklyn Brewery got out ahead of the potential issue by signing long-term lease for new headquarters, brewery and beer garden space at the Brooklyn Navy Yard before its current lease in Williamsburg is up in 2025. But not everybody has the size or resources of Brooklyn, pre-or-post deal. And Harriet happens to be tiny, brewing just over 200 bbls in 2015, according to Brewers Assn estimate. So "after much contemplation, it has become apparent that Harriet can only exist in its current location," co wrote. "Attempting to relocate and repeat would be lame. Relocating would require a new brand and business plan, and frankly, starting another brewery now seems unoriginal and risky in this saturated market." (Editor's note: no mention of profitability, or lack thereof, as a potential factor). Harriet was the first brewery/taproom to open in Minneapolis and the 2d in state, Eater Minneapolis noted, after state law changed in 2011 to allow on-site sales. Since then, Minneapolis in particular has seen a huge surge in brewery openings and now has nearly 50 breweries in the metro area alone, sez paper.  

After retiring earlier this yr, MC's longtime VP of Brewing, Dr. David Ryder, joined new Milwaukee-based craft project, City Lights Brewing as its "Chief Innovation Officer," co announced. City Lights is a 2d brewery project opened by 4 Brothers Blended Beer Co that specializes in blending beer styles together. 4 Brothers brewed just 500 bbls in 2015, according to BA estimates, but it seems this new project is expected to be a fair amount larger. Co expects to begin operations next yr in two of the five old Milwaukee Gas Company buildings originally constructed in 1902, including a 30-bbl brewhouse, canning line, logistics center, tasting room and beer garden, per release. While 4 Brothers initially was entirely funded by the family, in 2014 co "realized that to fully maximize future opportunities, the business would have to transition from a family operation and partner with individuals who could provide additional resources skill sets and industry experience," per co website. And it's been able to do so with David Ryder as well as other "former brewing industry executives, local business and civic leaders, experienced entrepreneurs and successful investors - many with strong local ties."

David was lured by City Lights "to make some beers that we really hadn't seen before," he told Milwaukee Journal Sentinel, tho "obviously we're going to have session IPAs and full-strength IPAs," he added. Its first brew will be 300-year-old English recipe for a brown ale known as Stitch. Among other accolades, David has "23 patents related to brewing and hops," according to release, and was "part of the innovation of Citra hops," paper noted separately. He'll also be asked to "further educational outreach on all things beer related," per release, i.e. educational seminars for public, training for distribs, beer dinners/food pairings at the brewery, etc., noted paper. The brewhouse is expected to arrive this week. The co looks to be brewing by mid-Dec.