ore private equity investors from across the globe have taken interest in craft brewers from India recently, reported Livemint.com. Just last mo Gateway Brewing announced it was "in advanced talks" to raise $3.3 mil from private equity investors; and earlier this yr Hong Kong-based firm TR Capital Partners, LLC was "close to investing about $10 million" into "maker of the popular Bira 91 craft beer," B9 Beverages. In fact, B9 already has a handful of angel investors and Calif-based VC firm Sequoia invested $6 mil in Jan (see Jan 15 issue).

Craft is still very much "at a nascent stage, but it will continue to grow," said managing partner at Dexter Capital Advisors Rohit Singh, noting that "in 2008 there were just 2-3 microbreweries across the country and now there are 50-60." Indeed, Gateway currently sells about 2K cases per mo and hopes to reach 10K cases per mo with $$ to invest into both capacity and distribution expansions. And Bira91 was selling about 20K cases per mo before taking on Sequoia investment. Overall, beer is on the rise in India as per capita consumption continues to grow within what's historically been more of a wine & spirits mkt country-wide. And "we feel that [craft] will be 10% of the size of the overall beer market in five years from now," said founder and CEO of The Beer Café, Rahul Singh. 

Don't miss a deep and insightful dive into issues around craft brewers selling to big brewers last Sunday in The Oregonian. Author Andre Meunier got perspectives from all sides. It's worth a full review, but here are coupla keeper quotes:

"I'll explain our deal and ask people 'OK, so what's wrong with our AB deal?' And people can't really explain their reasoning except emotionally." Rob Widmer, Widmer Bros

"You become part of a system that is very powerful and provides access to a lot of resources, but [big brewers] are not really aligned with the values of the craft industry…. I 100 percent believe in everyone's right to make their own decisions and do what's right for them. But I think historically some people got into [craft] to build a brewery, and more recently some people have gotten into it to build a business." Nikos Ridge, Ninkasi co-founder, who also said Ninkasi rejected overtures from AB and MC, before getting to sale price discussions.

"We wanted to get big fast, but it wasn't our goal to partner with a publicly traded partner. But we started to realize the ripple effect of how you get far away from home it gets harder to sell your beer." Charles Hare, co-founder of Hop Valley, who said Hop Valley approached MC, not the other way around, and deal enabled founders to grow, repay investors and pay off millions of debt after expansion project.

"We have the same core brew team that we had pre-partnership [with AB], our quality and consistency has only gotten better, and we are innovating like crazy." Garrett Wales co-founder 10 Barrel. Asked about being tagged a "sell-out" another 10 Barrel co-founder, Jeremy Cox, responded: "I personally can care less, because I made the right decision for my business and family. Our beers are better, our employees are happier and we are having more fun. That's all I care about."

"There's no right or wrong answer. As a straight-up businessman, I see its benefits. But it changes your soul." Tomas Sluiter, founder of Culmination Brewing  

WV-based Charleston Brewing sold its assets to owners of the restaurant next door for "their new startup, Bad Shepherd Brewing Co," reported Charleston Gazette-Mail. Ironically, Patrick Guthrie and Jessica Bright actually first purchased the space for its restaurant, Black Sheep Burrito and Brews, from Charleston Brewing in Jan 2014. And since, the brewery and restaurant have had "a mutually beneficial relationship" with "six out of the nine beers currently available on tap." So starting Jan 2017, new Bad Shepherd Brewing will instantly have access to Black Sheep Burrito right next door as well as three other "businesses" the owners operate in Charleston and Huntington, WV. "We're going to be serving most of our capacity to the businesses, and we'll have about 15 to 20 percent left over to self-distribute," Patrick told paper. "We don't want to make any major deals with distributors, we just want to keep it simple."

Charleston Brewing opened in Apr 2013 and produced 1K bbls each of the last 2 yrs, according to Brewers Assn stats. Yet "a combination of property taxes and distribution costs made it difficult for Charleston Brewing to stay afloat," said Charleston owner Ann Saville. So Charleston wasn't able to turn a profit. Bad Shepherd plans to offer "similar options to Charleston Brewing's most popular beers," and has access to use any of Charleston's recipes thru the deal, paper added, tho Patrick wants "to come in, change the structure and start a whole new company." Next step is for co to hire a new head brewer, since Charleston's current one is leaving for Fat Head's Brewery.  

Spokane, WA's No-Li Brewing expects to finish yr at just about 12K bbls, owner John Bryant told CBN, which would be up 25-30% vs last year. Co "quietly pulled" distribution from majority of states outside core this yr to focus almost solely on PacNW. And that's paid dividends, as No-Li's been able to keep up strong growth pace in some of the most craft-centric mkts. Package sales are up 46% in Spokane, 28% in Seattle and 43% thruout OR in IRI multi-outlet + convenience data, John shared. That's still led by flagship Born and Raised IPA up 65% across all 3 mkts, getting an extra boost from newer 6pk cans. And No-Li's Wrecking Ball Imperial Stout 22oz bottles up 75% in Seattle, 30% in Portland and 25% in Spokane, even as craft 22oz bottle sales have generally slowed nationally. John adamantly spoke to importance of 22s for both his biz and overall craft mkt, reminding that they're still "most profitable package" for retailers and distribs and "best way to get innovation swiftly." The difference now is that "you really have to pay attention and be flexible" to determine specific brands and styles that work in that format. But it's "lazy" to shy away from 22s just because it's "more competitive," John thought. Then too, newer Big Juicy IPA (launched in Apr) along with Crony Brown Ale, Slacker Ale and smaller Poser session IPA all comin' in 6pks now too, providing majority of the rest of No-Li's growth. And it's launching Red White and No-Li Pale ale in 6pk cans for limited mkts this Nov before it goes year round in 2017.

All in, even while avg price per case dropped this yr with new 6pk additions, No-Li is still the top avg gross profit per case in PacNW scans and getting pull. No-Li's model is built on "always trying to stay" around $400/bbl, since "we knew we had to be more profitable" in order to succeed as an "underfunded" brewer. Co has "very diverse portfolio of package sizes" and "not many of the brands overlap," which is "really unique for someone our size," said John. After pulling back distribution, now about 95% of No-Li's total biz is in WA, OR and northern ID, with the rest trickling out to parts of ID, western MT and Alaska. Staying within 400 mile radius of Spokane to have "more relevance" with "fewer distributors" and "fewer channels" allows sales team to "be more effective," he added. And No-Li has a "pretty strong sales team for a company our size" that helps No-Li stay locked in at the street level. 

There's a new indie distrib in Indianapolis, IN and there's a familiar name behind it all. Jim Schembre, who previously worked with Indy-based Monarch Dist for 19 yrs and managed its craft-centric arm, World Class Bev, is one of the co-founders of new Craftroads Beverage: a craft-focused distributor aiming to "help craft breweries further disseminate their brand and beer across Indiana," per release. Recall, Jim left Monarch in late 2014 to join Rogue Brewing as co's sales vp. But now he's back on the distrib-side and back in Indianapolis.

Craftroads, along with 3d party "local logistics firm, FitzMark," will open with 24K sq-ft of warehouse space including 3,900 sq-ft of cooler space. Partnering with FitzMark "gives Craftroads a strong cost & logistics advantage," according to co, allowing it to "offer local breweries warehousing…secure better buying price for commodities shipments," and "assist with inbound & outbound freight services," per release. "That tie in between being able to coordinate freight, coordinate kegs, coordinate distribution, it's unique in the industry," sez Jim.

Other founding partners, Chad Lewton and Scott Fitzgerald, also have extensive experience in the beer biz: Chad initially worked for Monarch before heading to Newcastle and eventually Heineken USA. There he worked his way up to natl accounts manager, before leaving last yr for Pabst key acct manager position and has been working for Craftroads for the last 6 mos, according to LinkedIn page. And Scott started Keg Logistics co five years ago, before selling majority stake last yr and starting FitzMark, per Indy Star.  

Oskar Blues "is forecasted to surpass 215,000 BBLS in 2016," it stated in latest press release about upcoming international expansion mkts (see Oct 7 issue). That would still be solid 12% growth. But gotta note, that's a fair amount behind where co initially thought it'd end up. Back in Jan, founder Dale Katechis told Denver Post about "lofty goals" to grow another 26.5% to 243K bbls in 2016 (see Jan 22 issue). Meanwhile, Oskar gearin' up for further focus internationally. It expects to double international biz in 2016 from 1K bbls to 2K bbls approximately, digital mktg manager Dan Wiersema told CBN. And with addition of several new intl mkts, it's likely to grow again in 2017 

Craft Brew Alliance BREW stock still "significantly undervalued" considering recent agreements with AB that "significantly reduce uncertainty and gain legitimacy for CBA," according to analysis headlining the co as "The Rodney Dangerfield of Small Caps" by familiar Seeking Alpha writer Mike Loughran. He keeps beating same drum: signs point to eventual AB purchase of Kona, which represents huge upside for BREW investors, in his view (see Jul 7, Aug 3 issues for previous reports). This time, Mike digs in hard, speculating on reasons for market miscalculations of recent CBA news and presenting multiple clauses from SEC filings about agreements with AB and beyond.

One of most interesting is highlight of so-called "Project Husky" clause in filing that lays out agreements between CBA and AB. Clause citing that project points out agreement to "continue to consider and discuss in good faith the implementation of the items set forth" in later clause in filing with list of 3 goals, including "Drive Kona Growth Domestically" and "CBA Contract Brewing Select High End Beers," Loughran writes. Third involves warehouse sharing and "eventual consolidation of wholesale inventory management and production planning information systems." That suggests not only will CBA migrate some production to AB facilities but also possibility that CBA will brew some of AB's High End brands.

Mike also makes much of ability for ABI to distribute CBA products globally, referring to this as essentially establishment of "'CBA Global' as a separate and distinct business within CBA that AB/I has the exclusive right to buy." He also posits that layoffs of production staff at Woodinville brewery more likely cleaning house to ease transition for Pabst to buy it than speculation that Pabst not actually interested in buying, which he thinks caused dip in BREW price back closer to current $18 level. All that (and much more) combined with what he deems deserved, huge valuations for Kona brand ($1500/bbl "at a minimum," up to $2000/bbl) all point to much higher prices for BREW. 

Beyond acquisitions that expand its core brewing business, AB InBev recently "partnered" with Northern Brewer, one of top online homebrew supply retailers, via ABI's global ZX Ventures "Disruptive Growth" group. Minnesota-based Northern Brewer is widely considered the largest online ingredient and equipment retailer for homebrewers across US, especially if considered in tandem with Midwest Supplies, with which it now shares ownership after each co took on separate private investors, according to multiple reports/sources. Both of those cos operate separate websites as well as brick and mortar shops in the upper Midwest, but do the majority of their sales online, we understand.

This deal just one more piece of largely secretive plans and activities of ABI's private equity subsidiary ZX Ventures. So far it invested in a number of cos with biz models tangential to brewing, including Owl's Brew tea-based mixers and radlers and Kombrewcha low-alc kombucha brands, as reported in sister-pubs Beverage Business Insights and Beer Marketer's Insights. The group "is pleased to share we have partnered with Northern Brewer. The team there shares our passion for brewing and commitment to the best ingredients," ZX's Global VP of Homebrewing Cassiano Hissnauer said in statement to Craft Brew News. "ZX Ventures is excited to enter the homebrew space to help Northern Brewer to grow," he added, as the 20-yr old homebrewing supply retailer "has built an extraordinary network and community of homebrewers." Terms of the "partnership" were not disclosed.

In fact, very little about deal being talked about. Note that AB has favored 100% acquisitions in all of its small brewer purchases within the US rather than partial stakes. But not much known about size or scale of previous investments made by ZX group or its overarching strategy other than "disruptive growth." For its part, Northern Brewer offering very little information too. It's "still a family-owned local business," according to its website, and isn't commenting on "any potential business partnerships" when asked by numerous interested hobbyists, hipped to possibility of a deal by a post to popular online forum Homebrew Talk. Unsurprisingly, reactions there vary from vitriolic conspiracy theories to what amount to shrugs and laughs: why would the world's largest brewer buy some homebrew shop in Minnesota?

Top Supply Retailer's Close Contact with Homebrewers, E-Commerce Platform As a leader in US sales of homebrew suppliers, Northern Brewer buys and ships a lot of grain, hops and yeast as well as equipment ranging from plastic tubs to multi-hundred-dollar high-tech brewing, fermentation and draft systems. It also operates its own online forum for homebrewers to discuss recipes, troubleshooting and more, and runs an extensive customer service platform to answer questions. All in, that's a whole lot of data on the homebrewing community, often pointed to by craft brewers as a major source of innovation in brewing.

Then too, Northern Brewer also runs a fairly significant e-commerce platform, taking, processing and shipping orders from all over the country. E-commerce is already a much-discussed topic in the beer industry, with many wondering when large scale online beer sales may emerge and just how disruptive it will be to the industry when it does. Recently, king of online retail Amazon has been testing new concepts to expand existing Amazon Fresh grocery biz, including plans to build brick-and-mortar convenience stores, as Wall St Journal reported this week. Many expect Amazon to test online alc bev sales thru its Prime service (see Oct 5 CBN) and now major retailers Wal-Mart and Kroger are working to compete by adding digital and/or delivery capabilities, per WSJ.

Homebrew Retail: Fewer Shops, Less Profitable Due to Changing Homebrewer Patterns Homebrewing itself has become an increasingly popular hobby in the US that has grown right along with craft brewing. There were about 1.2 mil homebrewers brewing an estimated 2 mil bbls per year back in 2013, according to American Homebrewers Assn, an arm of Brewers Assn. Currently, there are just over 800 homebrew retail shops in US, as tracked by AHA, director Gary Glass told CBN. But that's down slightly from peak of 815-820 at end of last yr and beginning of 2016. That's first time AHA has tracked a decrease in the number of outlets, Gary said. He also expects to see a slight overall decline in revenue reported by these retailers this yr.

Behind those overarching trends, Gary revealed a couple of interesting patterns that counter the notion that the hobby overall could be in decline. The sharpest declines in outlets have been among older (5+ yrs in biz) brick & mortar stores, but AHA has also tracked revenue declines among online retailers. The strongest growth has been among new brick & mortar neighborhood stores. Members tell the AHA they prefer to shop at local homebrew stores (often referred to as an LHBS by homebrewers) over online retailers. So as new shops open, they're either taking biz from online retailers (when they're the first LHBS in an area) or older shops not providing as strong a service. Further, many homebrewers report moving to more advanced "all-grain" brewing, which mirrors process at commercial brewers more closely and eliminates use of grain extracts, which tend to be both more expensive and have better margins for retailers, Gary reminded. That switch alone will hit a shop's bottom line. Homebrewers also seem to be brewing less frequently, Gary said, which could, in part, be because there are so many more local breweries around.

Long-time homebrewers often report turning to the hobby in order to just have access to the styles of beer they sought. They also tend to be some of the most fierce advocates for independence in the beer industry. "You make a choice, a vote, a statement every time you open a bottle of craft or homebrewed beer instead of a can from a factory with an advertising budget that could swallow your local microbrewery whole," founder of Northern Brewer Chris Farley wrote for post titled "Good Beer is Your Right," still on the co's website. And judging by the doomsday scenarios and jokes about assimilation ("resistance is futile") already splattered across the Homebrew Talk forum thread, many homebrewers won't take kindly to news of ZX's investment. In fact, even before confirmation, concerns about the deal echo those raised after AB's acquisitions of small brewers: access to raw materials and increased buying power of an industry leader or better-funded competitors that could dig deeper in targeted local markets. Whether or not these concerns are well-founded, this investment clearly a striking move that further embeds AB into the heart of craft.  

Long-term growth for Boston Beer depends on continued expansion of craft and cider to 23 share and 2 share of US beer, respectively, by 2020, according to report from Morningstar this week. That represents a ten-point share bump for craft and a doubling for cider compared to 2015 stats report uses (note that's a slightly higher share number than we had for craft last yr). Report's generally optimistic outlook for these segments extends to lead player in each, Boston Beer, which these analysts expect to return to top-line growth while expanding margins and improving earnings. Oddly though, Twisted Tea not even mentioned even tho it remains healthiest part of Boston portfolio by far this year. Boston volumes likely to finish out the yr down 3%, Morningstar thinks; revs projected down 2%. Boston Beer faces "stronger near-term headwinds to both the top line and profitability than we anticipated." That is, "increased competition has dented results, and further challenges seem inevitable." So Morningstar lowered operating margin target from 15% to 14.5% for 2016, down from 16.3% last yr. However, "long-term operating assumptions are largely unchanged." So analysts still think Boston's operating margin will hit 23% in 10 yrs. Morningstar projects free cash flow growth in mid-teens "past this year," which in its view justifies "relatively high" price-to-earnings multiple as well as "the firm's continued share-repurchase activity." Over next 5 yrs, it projects revs +4.5% per yr. Indeed, "we believe the worst is likely behind Sam Adams," in part due to easier comps going forward. Group also recently lowered target SAM stock price to $175, still a double-digit increase above current $158 price. In sum, Morningstar sees a "longer-term opportunity to reduce bloated costs, improve brewery efficiency, and reinvest in product and marketing initiatives" to help Boston dig out of 2016 hole.  

News broke overnight in Japan that Kirin will take a minority stake in Brooklyn Brewery. Wall St Jnl called stake 24.5%; Bloomberg labeled it "about 25%." Either way, Brooklyn will remain a BA-defined craft brewer. Tho large Japanese brewers looked at other US craft brewers (New Belgium), this "is one of the first investments by a Japanese company in a US craft brewer," said Wall St Jnl. (Editor's note: Sapporo owns Sleeman in Canada.)

Brooklyn, which sold 277,000 bbls last yr, is largest brewer that has announced a deal to sell stake in 2016 in an environment where craft slowing down. Rumblings of Brooklyn's interest in selling minority stake first surfaced over a yr ago in a Reuters article. Since then, it's had talks with Pabst, AB, and Carlsberg (at least) about different transactions, before arriving at this deal with Kirin.

No number officially released, but Nikkei Asian Review reported that Kirin's "acquisition, which will make the U.S. craft beer maker Kirin's equity-method affiliate, will be made through a third-party allotment amounting to several billion yen." That implies stake worth $30-40 mil; that's likely lower than actual valuation.

Kirin's stake will "help Brooklyn as it gears up for a major expansion," wrote WSJ. Recall, it signed 40-yr lease for 75,000 sq feet in Brooklyn's Navy Yard where it will have offices, beer garden and a small brewery. Brooklyn has also announced plans to build new larger brewery in Staten Island.

Brooklyn's US sales were down about 7% last yr, including 6% drop in its home metro NYC mkt. (Brooklyn up this yr in metro NYC.) All of its 2015 growth (+25K bbls, 10%) came from intl biz: up 37K bbls, 42%. Exports have grown to become huge chunk of its biz, about 45% in 2015. Brooklyn has partnered with Carlsberg in Europe, including a JV brewery in Stockholm. Now it is partnering with Kirin in Asia and Brazil. Kirin will make push on selling Brooklyn in Japan, forming a JV to rollout the Brooklyn brand there in Jan 2017, sez Bloomberg. In Japan, beer biz has declined by more than 25% in last generation and craft beers still only have small share but are growing. Here's more info from Brooklyn's blog.