Growing list of craft recalls getting longer and affecting bigger brands. Alltech Lexington Brewery announced voluntary recall of its flagship Kentucky Bourbon Barrel Ale and seasonal Pumpkin Barrel Ale over weekend, according to Lexington Herald Leader. As with other recent recalls, no health concerns, just quality that's not up to snuff. In this case though, Alltech recalled beers produced between July 1 and Sept 19. That'll wipe out Pumpkin supply til next year, though Bourbon Ale should be back in supply this week, spokesperson told paper. 

Oskar Blues already plans for 180K bbls of production outta Brevard, NC facility in 2017, brewery spokesman Aaron Baker told Greenville Online. And that'll include a portion of Cigar City's Jai Alai production (for starters) movin' over to Brevard starting sometime in Nov this year. Co just completed first phase of big $6.5 mil expansion that'll ultimately boost annual capacity over 200K bbls/yr there, including additional 14K sq-ft of cellar space for 24 new 300 bbl fermentation tanks and an expanded outdoor taproom patio. So Oskar in process of adding another 15 employees in NC to 87 total.

Brevard has progressively taken on more of Oskar's total production over the years, from 43K bbls in 2013 to 64K bbls in 2014 and 90K bbls in 2015. That was already nearly half of Oskar's total 192K bbls last yr. Oskar initially expected Longmont, CO facility to take on a bit more of this yr's total production, lookin' to grow to 243K bbls overall with 128K bbls from Longmont and 105K bbls from Brevard (see Jan 22 issue). Currently Brevard is "shipping to 25 states in the eastern US as well as Sweden, the United Kingdom, Norway, Canada, and Australia and by the end of the year, will add Puerto Rico, Japan, Spain, the Netherlands, Belgium and Brazil to the list," paper noted. 

Right off the bat, Tenth & Blake prexy Scott Whitley wanted to clear the air on why co made the move to transfer Blue Moon and Leinie mktg to David Kroll's team, "and why now," at MC fall distrib mtg during NBWA. "Late this Spring it became apparent that we might land not one, not two but three new craft partnerships over the summer." While "no rational person would plan 3 deals in 4 weeks," fact remains that "deals happen when they happen." So before Memorial Day, Scott "told [MC CEO] Gavin [Hattersley] that I strongly believed we needed to move Blue Moon and Leinie's to David Kroll's team." That way, "while focusing on new partners," co "also doing justice" to its "national crafts." Now Blue Moon and Leinie will "fully leverage" the marketing team's resources for yrs to come. So Blue Moon getting backed with a 40% increase in Q4 media, including more focus on Spanish and outdoor, as well as a "promotional toast" during Thanksgiving holiday to celebrate the brand's 21st birthday. And Leinie will get the "highest spend" in its 150 yr history, David Kroll shared.

Gotta note, Blue Moon and Leinie declines continue to steepen in back half of the year in natl scans. Blue Moon franchise volume down 5% YTD, -6.5% for latest 4 wks thru Sep 17 in Nielsen All Outlet and Leinie Shandy family down 2% YTD, -13% for latest 4 wks. Leinenkugel will refresh its packaging and add watermelon shandy 6pks next yr (previously only available in the variety pk). No new Blue Moon brands announced at this time as co is focusing on shoring up flagship Belgian White.

Not Shy About Mkt Expansions, But Gotta "Do Them Right"; Saint Archer to AZ, WA, OR Next Meanwhile, its 4 craft acquisition partners will be "strong growth engines in years to come," Scott assured. MC "not gonna be shy about [new market] expansions" but gotta "do them right." Saint Archer already sold 1000 CEs in just 5 days after entering Las Vegas mkt, with already 10 taps at MGM and will be available at the Cosmopolitan's Sports Book. It'll rollout in AZ, WA, and OR next. Revolver just "initiated the process" of moving into TX distribution network and co "really excited" about growth prospects "in the rest of the central region" too. And both Terrapin and Hop Valley are well positioned to expand going forward.  

Another interesting wrinkle in ongoing development of craft M&A, this time with a cider twist: Seattle-based Two Beers Brewing and Seattle Cider Co (two cos with same ownership) announced acquisition by Agrial, a "French farmer-run cooperative." Two Beers is about 10 yrs old, Seattle Cider about 4, but grew to be much bigger than the brewery. The co expects to produce about 21K bbls of cider this yr and about 8,000 bbls of beer, according to release. Deal allows the cos to expand international distribution as well as "needed capital expansion projects." Agrial, owned by a group of farmers, owns some of the largest cider apple orchards in Europe, Two Beers/Seattle Cider founder/CEO Joel VandenBrink wrote in letter to fans, re-posted by Washington Beer Blog. Agrial is also largest cider producer in France and plans to bring its Louis Raison brand of ciders to the US following the agreement.

The US companies grew quickly and currently occupy about 29K sq-ft in North Seattle, Joel wrote. But "keeping up with demand for a company our size can often be a challenge." So after "my desires for both companies far exceeded our ability to grow them sustainably," (his emphasis), and "a French cidery" (presumably Agrial) contacted him in March, he eventually came around to idea of entering "equity partnership" with the co. He expects Two Beers and Seattle Cider products to head to Europe, Asia and Africa as part of deal. In letter, Joel also pontificates a bit about craft M&A generally and "the disappointment of another 'sell out' of a local dream," felt by fans. "To many of us, it takes the thrill out of supporting them. We want to know our dollar matters. That our support in our local brewery makes a difference in the community we live and work in," he wrote. And while he doesn't specifically note that deal he's made is not quite the same as some others that have been out there, he emphasizes farmer ownership of Agrial and promise that leadership, staff, distribution agreements and products "will stay exactly the same."  

Both Great Lakes Brewing and Boston barred from terminating Southern Glazer's central Ohio biz, fed judge ruled last week. Recall, SG sells about 156K cases of Great Lakes, 475K cases of Boston. Those brands were 75% of SG's Columbus branches' beers revs in 2015, 12% of its total revs. Judge granted temporary restraining order halting Great Lakes from: 1) terminating SG; 2) withholding delivery; 3) changing SG's territory; 4) appointing replacement distrib (Great Lakes apparently intended to have Superior take over). Separately, judge ordered "standstill" of SG-Boston Beer relationship until Oct 7, as those parties agreed to continue settlement talks. If settlement not reached, court will schedule hearing. Meanwhile, status quo between Boston and SG. (A longer version of this article appeared in INSIGHTS Express earlier this week.)

On Great Lakes, judge agreed pretty much down the line with Southern Glazer's, at least for purposes of TRO/injunction. Most important, he agreed that SG "raised serious questions going to the merits of its claims as to whether Great Lakes' attempted termination violates the Ohio Franchise Act." Then too, judge agreed SG might suffer irreparable harm from termination. He seemed persuaded by SG that "no other available brands could replace" Great Lakes, which are "unique and comprise a significant part of" SG's sales. Judge also cited potential "damage to [SG's] goodwill by impairing [its] relationships with its retailers," hurt sales of its other brands, and "erode its customer base." Third, judge did not agree that Great Lakes would be harmed by injunction, since parties simply continue under current agreement.

Previous Kendall Jackson Case "Persuasive"; Sale of Biz is Not Sale of "Franchise" Southern Glazer's relied on earlier fed ct case in OH that involved vintner Kendall Jackson. KJ attempted to terminate distrib after it sold biz to another distrib (but they did not liquidate biz, rather "consolidated" it). KJ made same argument that Great Lakes makes here: distrib failed to get KJ's consent to sell. But court rejected termination. Great Lakes said facts and issues different here, but judge found case "persuasive." Briefly, court in that case ruled that distrib can sell it "business" without consent of manufacturer, but can't sell its "franchise" without consent. KJ consent not required for distrib to sell its stock, since "franchise" stayed in hands of original distrib. In this situation, Southern Glazer's did not sell assets or transfer franchise, so no just cause for termination.

No Change in Day-to-Day Biz; No Fraud on SG's Part Then too, transaction creating SG did not affect day-to-day biz at Columbus branch, judge added. Great Lakes' arguments that SG uses new website to process orders and decisions made in Fla by biz that does not include Glazer's other (separate) big beer biz, "not well taken" either. Add it all up and "present record does not persuade this Court that the Transaction [creating SG] constituted just cause for Great Lakes to terminate." Same record "sufficient to establish a risk of irreparable harm" to SG if no injunction. And, "while Great Lakes may be unhappy with Plaintiff as its distributor, Great Lakes' belief that another distributor is preferable does not demonstrate substantial harm." TRO granted.  

Goose Island up 31% yr-to-date in IRI and co expects Goose to reach almost 600K bbls for the yr, said High End prexy Felipe Szpigel at AB distrib reception following NBWA annual convention held in hometown Chicago. That makes Goose "a craft powerhouse," now top-6 among craft brewers, sez Felipe, coming a long way from when AB originally acquired Goose at 110K bbls 5 yrs ago. There's still "huge focus" on Goose IPA, which is still doubling this year and now the 4th largest IPA. But Goose also lookin' for Four Star Pils to become the biggest craft Pils in the US, said Felipe. And there's an oppy to "leverage Sofie" as a "gateway into the prestige" craft brands.  

While BA CEO Bob Pease and NBWA CEO Craig Purser mostly aligned during chat at NBWA convention earlier this week, especially on DOJ's ABI-SAB settlement issues, brewers' expanding retail rights likely to be discussion point going forward. As he did during main presentation, Craig cited brewers' sales "outside the [3-tier] system" and asked Bob for his take on taproom sales "at the expense of brand-building bars." Bob countered that "tasting rooms are the quintessential brand builders" and "it's not like a traditional beer bar." There are families, kids, pets and "from our perspective, that's real excitement and vitality" that brings "new people" into the category. Ultimately "it's what the drinkers want" and "can really benefit our distributor partners in the long run." Now that AB particularly has access to taproom and brewpub sales thru its new partners, "can't say that we love that," said Bob, "but it's difficult for us to argue." It will be a "state by state issue." Potentially that can provide "opportunities...to work together," said Craig, "because I do think there's a policy rationale that's put forward when some of those privileges are extended. And we need to be thinking long game, long term," about what it looks like when "those privileges are sought to be expanded or perhaps for a purpose that they weren't created." In previous comments, Craig pointed out that "3-tier exceptions," like retail privileges, "intended to help generate more competition and help startups and entrepreneurs, not to reduce market access or help global brewers sell outside the system."

DOJ Built "More Robust Knowledge" of Biz; "Wait and See" on Acquisitions Thru lengthy review of ABI-SAB and subsequently of ABI acquisition of Devils Backbone, the DOJ "gained such a more robust knowledge of the" US beer biz, said Bob. "It was an educational process" with ABI-Modelo deal but that's "not the case this time around. I feel they're committed to trying to preserve competition." But "at the same time, we worry about structure of the US beer market place," Bob admitted. The "current structure allows for the largest brewers to really leverage their scale and degrade competition" and "that's an issue for us." He acknowledged that both MC network and its primary supplier have traditionally been more open to allowing network to operate independently and support craft brands. But BA taking a "wait and see approach" as MC and other large brewers continue to acquire various craft brewers. "Access to market" remains BA's "biggest threat" and "that's why" it's been "so vocal" thruout the ABI-SAB merger process.

Craft Still "Very Healthy," Tho Largest BA Members Getting "Squeezed" Meanwhile, BA is "aware" of the craft segment growth slowdown, but Bob reminded that it's "hard to maintain that double-digit growth" once reaching 24-26 mil bbls and mid-year survey estimated total BA craft up 8%. Overall, "I would characterize the category as still very healthy." Particularly now there are "pressures for our largest members that are getting squeezed from a number of different ways," including local "as much as anything," he thought. But "beer drinkers' desires" for flavor, variety, etc. "aren't going anywhere."

BA and NBWA Relationship "Never Been Stronger" As noted above, Bob and Craig's orgs mostly aligned these days. Indeed, "relations between our two organizations have never been stronger," said Bob. After about 3-4 years, relationship's "reached this state" and now a "number of ways" he sees that relationship continuing to develop. Bob plugged CBMTRA tax bill, natch, which now has 52 co-sponsors on Senate side after pickin' up another Senator that morning. NBWA remains neutral on the bill to this point, tho it supports BA-BI unity on bill. Trade practice and tied house law issues are two topics Bob believes BA and NBWA could work well on together. Idea is "moving forward keeping those lines open and addressing those issues as they come." All in, two orgs lookin' to "build on those positive relationships," said Craig. "Doesn't mean we're always going to see eye to eye" but it'll help "better understand each other's perspective and move the ball forward." Ultimately it'll "help us educate our members about your members," and "it'll help everybody sell more beer," said Bob. 

Craft could only eke out 0.5% gain this Labor Day period in IRI multi-outlet + convenience for 2 wks thru Sep 11. But that's after jumping up 21%, +789K cases for comparable weeks in 2015. Closer look shows some exceptionally grim 2-week trends for top craft cos in scans thru the Labor Day holiday period. Eight of the top-19 IRI defined craft brewers down and six were down double-digits. MC craft brands volume down 12%, including Leinie Shandy Seasonal plummeting 37%. Boston Beer craft brands volume down 16% (including Alchemy & Science down 63%) and Sierra Nevada down 12%. Even AB craft volume down 3%, tho that doesn't yet include all acquisitions and declines mainly Shock Top. Then too, Gambrinus down 8%, Craft Brew Alliance down 10%, NAB craft down 23%, and Dogfish Head down 16%. And while Artisanal Brewing Ventures (Southern Tier and Victory) volume up 4%, $$ are down 4% for period. Each of these cos saw notably steeper declines compared to YTD.

Meanwhile, New Belgium (+2%), Lagunitas (+28%), Bell's (+33%), Stone (+18%), SweetWater (+18%) and New Glarus (+13%) actually improved trends, to varying degrees, during Labor Day vs YTD. Constellation craft (+57%, mostly Ballast plus tiny Tocayo), Founders (+57%), Firestone (+54%) still flyin' tho each slowed relative to YTD trends.  

Craft insights aplenty from wide-ranging presentation by Nielsen sr veep Danny Brager, at NBWA meeting, focused on theme that "Local Consumer Differences Really Matter." Danny drew direct line between stores that emphasize fresh foods (half of total sales are designated fresh) and overall sales success (+10% growth rate) and $$ sales of craft beer. (Less fresh correlates with stale sales.) Craft sales avg near $60K annually at stores that emphasize fresh the most and drop to below $10K among those that emphasize fresh the least. Wine shows similar relationship. Another aspect of craft-food connection: among regular craft drinkers (monthly) 46% say they always or often drink craft beer with food. That shoots up to 57% of weekly craft drinkers. About 2/3 of weekly craft drinkers always/sometimes/often select beer based on the food they're eating and 2/3 of millennial craft drinkers "go out of their way to eat organic food and beverages." Food-craft tie matters: while there are 12,309 fewer neighborhood bars, "traditional beer-drinking venues," in US compared to 10 yrs ago, there are 60,365 more restaurants. And 2/3 of Americans eat out once/wk vs 34% who "drink out" at least once/week. (Some of the following material appeared in INSIGHTS Express earlier this week.)

Echoing comments by IRI's Dan Wandel during recent Power Hour, Danny noted flavor oppys in beer and craft. While FMBs about 7 share of beer biz (including cider), and flavors about 7 share of craft (excluding seasonal/root beers), flavors now fully 21% of vodka, 14% of whiskey biz. And flavors "do better with women, Hispanics and African Americans," three demos that under-index for craft. Growth rates for flavored IPAs range from high double digits to 258% for lead flavor grapefruit and off the charts (4-digits) for other fruit/veggie beers, Danny noted. (By the way, Danny showed that not only have hard soda sales dipped in last few 4-wk periods, but even brand new hard seltzers down from previous 4-wk periods.)

Lastly, ain't anecdotal that craft drinkers gravitate to "local" and "new":

• 52% of regular craft drinkers say "locally made" very or somewhat important to their purchase decision.
• Local "more important" than a coupla yrs ago to 28% of craft drinkers, 35% of millennial craft drinkers.
• Weekly craft drinkers buy 4-5 different craft brands/month.
• 42% of millennial craft drinkers say they "always or often" buy craft brand they've not seen advertised or heard of.

Finally, Danny "busted some stereotypes" about craft. Common wisdom is that older men, African Americans, Hispanics and women don't drink craft. And that's true, "on average." Only 3.3% of African American adults say they drink craft (past 30 days). But 15%+ of black adults in Portland, OR, Albuquerque, Denver and Des Moines drink craft. And while 4.4% of Hispanic adults drink craft nationally, 13%+ of Hispanics in Milwaukee, Grand Rapids, Little Rock, New Orleans and Honolulu do. Over 43% of adult women drink craft in Austin, Greensboro, Pittsburgh and Birmingham, 10 pts more than US avg. How about those old men, age 55+? Only 6.1% drink craft nationally, but that more than doubles in craft meccas Seattle, Portland, San Diego and Denver.  

States where small brewers can self distribute had an average of over 20 breweries per million people (at least way back in 2013), whereas states without self-distribution average just 9, the Mercatus Center essay, titled "Trouble Brewing? Brewer and Wholesaler Laws Restrict Craft Breweries," points out. Analysis suggests "that approximately 58 to 76 percent of this difference can be explained by self-distribution laws," per report. And in states with self distribution, brewers produce 150-180% more than those in states that bar self distribution. Franchise laws don't have quite the same impact, according to this analysis, but still hinder new small brewing bizzes. "In 2013, states without beer franchise laws averaged 21.91 breweries per million people," the center wrote, compared to about 16 per million in states with franchise laws. Franchise laws do protect wholesalers from termination by large brewers, the paper acknowledges, but "it does not make sense to apply these laws to restrict craft brewers that are unlikely to be large enough to cause similar concerns." Confusion, Complaints in Louisiana Issue of on-site sales in Louisiana caused a couple of confusions for state brewers. More basic issue of whether taprooms legal there resolved by persistence of Andrew Godley at Parish Brewing who found old provision allowing sales of up to 10% of monthly production, according to Advertiser report. It took at least a couple nudges for it to be recognized though. Eventually, brewers asked for limit to be expanded to 10% or 250 bbls, allowing much smaller brewers to do a bigger portion of sales directly. But another brewer still can't get a straight answer out of state alc bev regulators over selling food at his taproom. An attorney for the state found "no provisions" barring brewers from serving food and the agency does not regulate "food service." But "as long as the brewery is not functioning as a retailer (i.e., bar or restaurant), it is not a violation of the three-tier system," he wrote. Complaints extend to distribution too, natch, where brewers can feel stuck by franchise laws. Report includes story from Nola Brewing's Kirk Coco, who "learned that some distributors won't distribute your product," he claims. "They'll just sign you and not distribute it, which ours ended up doing for a while." The brewery's distribution rights were eventually sold and Kirk understands "it's very advantageous to have this three-tier system if you have a good distributor." But that ain't always the case, in his view. He also points to difficulty of litigating franchise disputes, noting that it's "time-consuming" and "a great way to ruin a relationship." Of course, distribs and their advocates in the state not so convinced. "I personally don't believe that there is any downside," sales mgr/veep of Schilling Distributing, Buddy Schilling told the paper. "If they say that the system isn't working, why are craft breweries growing so fast then?" he asked. Craft is now about 3% of Schilling's biz. The co carries over 60 brands in addition to its core AB biz, per paper. Echoing Buddy's thoughts, exec director of Beer Industry League of Louisiana, John Williams told the paper that "I don't think there are any disadvantages" to 3-tier. He cites "accountability, transparency" and tax collection before raising specter of Prohibition. Further, "you start to limit your consumer choice if you break down the system," he said, insisting that "you're either going to have the three-tier system or you're not. It's all or nothing. There is no middle ground." Californian Reality Check: It Ain't Either/Or; Louisiana Excise Tax Hike All of these comments remind of call for balance between promoting economic development of small bizzes and thinking carefully about public policy behind alc bev regulation, including 3-tier, provided by Calif ABC general counsel Matt Botting (see Sep 16 CBN). In Calif, manufacturers can both distribute and retail their own beer. "But you can't do it in a way that allows you to take over the market," he noted. Plus, "distributors exist for a reason: because they add value." Indeed, his review of the kinds of pre-Prohibition activity that led to tied house laws demonstrated not only their value but also how much the country has changed in the last century. He offered plenty of advice for licensed brewers, distribs and retailers in the state, but expressed much more concern over third party unlicensed entities working their way into the system by satisfying younger adults' desires for alcohol delivered to their doorsteps. There's still room for plenty of disruption there as digital technology becomes even more important. Meanwhile, back in Louisiana, a quickly-passed increase to the state's excise tax is "something that everybody is dealing with," Benjamin Hart of Flying Heart Brewery told the Advertiser. But that's basically a footnote in lengthy article much more concerned with tensions between tiers than shared by 'em. Go fig.