Indiana separately joined the craft bubble/brewery count debate both nationally and in own state, via recent Indy Star article. Brewers Assn chief economist Bart Watson also quoted here, reiterating that "I do think we're going to see closings increase" since "right now we are in a little bit of a unique moment where openings outpace closings about 10 to one. That probably can't last long term, particularly because small businesses are hard." Indeed, "for small businesses in general, the majority of them don't make it past five to seven years, for a variety of reasons….Many of the new small breweries are still in that five- to seven-year window," said beer educator Ron Smith. Overall "we are seeing growth slow a little bit nationally," said Bart, but "because of the way things are growing everyone can stay in business and that probably isn't the case going forward."

Asked if Indianapolis' craft beer market is reaching a "saturation point," executive director of Brewers of Indiana Guild Rob Caputo responded: "there may be a saturation point, but right now it's about making good, sound decisions and figuring out what the market is missing." Indiana craft is only "maybe 5 percent of the total beer market share," said beer educator Ron Smith, so if IN craft "can get up to 15 percent as some states have done, then we've got a ways to go." Growth will be from a mix of established out-of-state craft brands, larger locals and new brewers that are coming in, and Ron believes "we have quite a ways to go" with "neighborhood" breweries. The author's takeaway was that "reaching a saturation point is possible, especially" for packaging brewers. But overwhelming response suggested that "not a single economist, brewer or owner" she talked to thought there was a craft "bubble" on the horizon.  

After Stone Brewing's longtime brewmaster Mitch Steele announced his departure in mid-June, at least his new project's location has now been revealed: Mitch is "coming to Atlanta to develop a new craft brewery and brewpub, which will be located on the Beltline and Ralph McGill Blvd," AJC.com reported. Mitch partnered "with industry veterans Carey Falcone and Bob Powers of American Beerworks" to open the "yet to be named project." It'll include "distinctive place to enjoy craft beer, great artisanal food, and an inviting atmosphere…in a state of the art facility that will feature a rooftop bar and a beer garden, with brewery tours and brewing classes for the home brewer," according to press release. "Now, I am looking forward to the opportunity to become part of the growing craft beer movement in Atlanta and the Southeast," said Mitch. The new project expected to debut sometime in 2017, according to What Now Atlanta article. Mitch's position on LinkedIn is listed as "Brewmaster, COO and Cofounder" at "Yet to be Named" co since July 2016.  

A little less than 2 years after Saint Arnold first entered Florida, it's decided to pull outta state entirely "effective October 2, 2016," prexy Brock Wagner wrote in letter to distribs last week. "Saint Arnold really did everything right when they entered Florida," one source wrote to CBN. However, co "could not get any off premise traction" in chain heavy state and while it got "some traction on premise with draft" initially, "proliferation of local Florida craft" and "hyper local introductions" made it difficult to "hold."

Altogether Saint Arnold havin' tuffer year, at least in scans. Sales up just 0.7% and volume down 0.3% in IRI multi-outlet + convenience data thru Aug 14. Its largest brand Seasonals ($$ up 4%), tiny Pumpkinator Imperial Pumpkin Stout (+300%) and tinier Christmas Ale (+40%) are only pre-existing brands that've grown YTD. So new scan intros Art Car IPA, 5 O'Clock Pils and Icon Coffee Porter are really providing bulk of whatever growth Saint Arnold can get. Remaining 15 scan brands are declining, including #2 brand overall Fancy Lawnmower Ale down 8%. Those numbers likely to take small but further hit after fully pulling out of FL. This isn't the first time an established craft co has decided to pull back distribution in order to protect mkts closer to home.  

Recent set of deals struck between Craft Brew Alliance and AB (see Aug 23 & 26 CBNs) adds to likelihood of an eventual acquisition of the former by the latter, a Seeking Alpha analyst wrote last week, but investors puzzling over CBA's BREW stock should remain cautious. "Even with the stock having soared" following Q2 results and M&A chatter, "I think there's still more upside ahead - though it may take some patience," Vince Martin wrote. Recall, he was one of two analysts writing about BREW after Q2 (see July 1 CBN). But without a position in the stock, "I would up missing on major upside." Indeed, "it does look like the easy money has been made, and there's still a way that this can go wrong for BREW." However, "CBA got itself a heckuva deal from A-B," which "clearly incentivizes A-B to buy out BREW over the next three years, at a minimum price that still wound drive double-digit returns from current levels." A deal this yr "seems highly, highly unlikely," and "2017 looks a bit early as well." Considering supply chain adjustments called for by group of agreements, 2017 "might prove a bit bumpy." So current price over $19 "looks good, but $18 would look better," considering $23-25 is "a likely range for a buyout," at least in view of this analyst.

Martin eyes 3 possible scenarios, including possibility that CBA outperforms for next couple years. But he's "a bit skeptical." True, Kona's rocking. But "this is a company that has struggled on the bottom line for years now," he wrote, reminding of "large divergence between asset-based and profit-based valuations." Since CBA execs "admitted" that getting to 35% gross margin in 2017 "might be off the table" following recent agreements, this analyst "skeptical that BREW can change its earnings profile within just two years." Agreements with AB likely to put off bids by outside parties, at least until Sept 2019. And if Kona tops 500K bbls and set of smaller regional brands CBA now working with takes off, "that should give CBA a pretty strong hand: ABI has agreed to a minimum offer price, but there is no maximum." Could be more likely the co's growth isn't quite that strong, Martin thinks, and a $25+ share buyout price is "based on comparisons in what [CBA CEO Andy] Thomas himself admitted was a 'frothy' market." He does lay out "potential downside," which requires Kona growth fading along with craft overall. While "not impossible," Martin doesn't think it's "likely." That's because Kona "appears to be strong enough to overcome the local bias the craft market has seen of late. Nor do I see craft beer as a fad," he wrote.  

Just 3 days after DOJ closed investigation of Devils Backbone deal with promises to "carefully scrutinize any further craft acquisition" (our emphasis), AB announced it bought SpikedSeltzer "the innovator and creator behind the hard seltzer category," as it said in release. Deal is already closed. And since spiked seltzers in general are not technically beer, even tho they're taxed the same, this deal seemingly a non-issue from regulatory perspective. SpikedSeltzer will operate within AB High End unit, marking "first non-malt flavored alcohol beverage to join the High End." Biz currently over 500K case equivalents in 14 almost entirely east coast states across New England, Mid-Atlantic, VA, NC and part of FL (as well as small part of Calif).

In between DBB and Spiked deals, global ABI also bought 200 yr-old Belgian craft brewer Bosteels, reported TheStreet. Up to this point the family brewery was "backed" by Dutch private equity firm Waterland. Both Heineken and Duvel Moortgat were reportedly interested in acquiring as well. "Bosteels family will remain involved with Antoine Bosteels continuing to run the business…within AB InBev's craft and specialty division."

Just to recap, Bosteels marks at least ABI's 5th overseas craft acquisition in the last yr and change, joining UK's Camden Town, Italy's Birra Del Borgo, Brazil's Cevejaria Colorado and Colombia's Bogota Beer. And Bosteels is actually the largest overseas craft acquisition yet. Co grew to approx 124K bbls last yr and sold for an estimated $225.4 mil, about 15X EBITDA, paper noted, citing KBC Securities analyst Wim Hoste. "The news comes as a bit of a surprise as AB InBev is currently still closing the transaction with SABMiller," Wim said in note. But he "doesn't foresee any issues with competition authorities in Belgium" since Bosteels not movin' the needle much.  

Lotsa lawsuits filed over the yrs in Ohio by distribs when "successor manufacturer" buys a brewer and then has window under OH law to terminate distribs, move brands if distrib losing brands gets "diminished value" for those brands. Pabst currently in litigation in OH over this issue. Here comes new suit by Southern Glazer's Dist of OH against craft brewer Great Lakes. Glazer's sez Great Lakes is attempting to terminate it unlawfully after Glazer's announced combination with Southern Wine & Spirits earlier this yr. So instead of successor brewer terminating distrib after new mgmt comes in, existing brewer is terminating distrib after that distrib made new deal. Great Lakes claims it can terminate since Glazer's did not get its prior consent, as specified in their contract. Glazer's claims OH law bars such a termination. (This article appeared in INSIGHTS Express earlier today.)

Glazer's of OH has sold Great Lakes brands since 1999 when it bought Robins Wine & Spirits distrib. Signed contract in 2006. It sells Great Lakes in 34 counties in central OH. Great Lakes brands represented 25% of its Columbus Branch's beer revs over past 12 mos, 4% of Branch's total revs. Distribution of Great Lakes brands, sez Glazer's, "an essential component of the overall operation of the Columbus Branch." And since 2011, Glazer's sales of Great Lakes up more than 43% in volume. In Southern-Glazer's deal, name changed and biz went from corporation to LLC. But sales of Great Lakes "still distributed today from the Columbus Branch by the same legal entity that was distributing the Great Lakes brands" prior to transaction. Day-to-day operations, equipment and employees haven't changed. Great Lakes termination effective Sep 25; it intended to stop taking order Sep 9, according to Glazer's. Glazer's filed suit Sep 8, insisting "a manufacturer's lack of consent to a change in ownership of a distributor is not just cause for termination" under OH law, even if contract "purports to require such consent." Glazer's seeks: 1) declaration from US Dist Ct that Great Lakes doesn't have just cause to terminate; 2) temporary restraining orders and preliminary injunctions to stop termination and bar Great Lakes from allowing another distrib to sell brands in its territory or "frustrate or otherwise prevent" delivery of Great Lakes beer to Glazer's. Not surprisingly, Glazer's using same attys that have represented lotsa terminated OH distribs under the successor-manufacturer law.

Meanwhile, Great Lakes represented by McDermott Will & Emery law firm in DC, which has done lotsa work for BA and craft brewers. In Jul 26 letter to Glazer's, atty Art DeCelle (ex-genl counsel for Beer Inst) wrote Great Lakes had "reached out" to Glazer's mgmt in good faith after the Southern-Glazer's deal made public to "negotiate an alternative arrangement to termination" and "attempted to work out a transition and sale of the distribution rights to a new distributor." But Glazer's "closed door to a negotiated transfer" of Great Lakes brands to another distrib. Art's letter asserts: 1) Southern-Glazer's deal "constitutes a change in ownership and/or an assignment" of brands; 2) Great Lakes contract with Glazer's requires prior written consent to any transfer by distrib; 3) lack of consent gives just cause to terminate.  

Beer Institute held its annual meeting in Portland, OR for first time in history. So BI board member, and resident Oregonian, Rogue's Brett Joyce gave briefing on various beer facts about city he and many refer to as "Beervana." First, Portland has "more breweries than any other city in the world," most recently counted at 69. There are 105 in Portland metro and statewide count is up to 263. Impressively, that's only behind MI (just passed OR this yr), CO, WA and CA and this is "not a big state," Brett reminded. That also puts OR #2 in breweries per capita, only behind VT. And "Vermont has a mathematical advantage" with far smaller population. Statewide craft share is over 40%, #1 in the country. Indeed, Oreg craft accounts for 63% of all beer consumed on-premise in-state, Brett noted, reiterating state Brewers Guild 2015 stats (see Jul 1 issue; 22% of total beer sales in-state were from local craft brewers). Oreg beer biz directly employs 8,500 people and has over $4.5 bil economic impact. You can find breweries focused on all kinds of styles and niches imaginable, including sours, lagers, gluten-free, barrel-aged, farmhouse, nano, not-for-profit, to name a bunch. It's also the #2 hop growing state in US. And altogether Portland and OR are "full of independence, entrepreneurship, creativity, experimentation." But don't expect to find a cab and don't honk at the typically slow drivers, those two things just don't happen here, Brett quipped. Gotta note, BI increasingly has ties to OR these days, not only thru Brett, but with Craft Brew Alliance, 10 Barrel and Hop Valley partners too. While it's true that Portland is a city that breeds independence, both AB and MC have made a point to get a piece of the Beervana action.  

It's "pretty amazing that we're apologizing for 8-9% growth this year," Tomme Arthur of Port Brewing/Lost Abbey said during closing session of Calif Craft Beer Summit over the weekend. Across his many years in the industry, he hasn't "seen anything like what we're seeing currently," in terms of last 5+ yrs of growth. So he likened increasing competition in the industry to traffic ramping up: "we're all on the same freeway, but we're not going the same speed that we used to." There's "a lot of cars" and so naturally there "will be a lot of collisions." He and many others at the Summit played the pragmatist, acknowledging the reality of more difficult times without mourning them in advance. Indeed, many small, young Calif brewers still goin' great guns, a number of them told Craft Brew News. And handful even acknowledged that they're cautious about expansion plans, even if they're still growing quickly. One pretty small player welcomed single-digit, "sustainable" growth with relief.

Indeed, over last few years, many new brewers have "been just trying to hold on with the upturn," David Walker of Firestone Walker responded to an audience question. True, many in the industry have never seen a "downturn" before. "We're mortal," he reminded. "If we don't make the finest beer in the world," keep it "fresh," and keep the stories behind them "interesting" and relevant, we'll "lose ground as quickly as we gained it," he warned. So "hasten slowly," he said, repeating a mantra he's heard and used several times over the years.

"The wildcard in all this is the current marketplace," Peter Zien of AleSmith said, kicking off his talk. With so many brewers, "it's no guarantee that you're going to sell all your beer now." Looking at craft volume growth in "absolute terms, the numbers don't look quite as scary," Bart Watson of Brewers Assn said. Of course, that absolute growth now being split among many more players. "For some people to grow, other people will have to shrink," he acknowledged. And that's when "shakeouts happen." Asked about closings though, he still can't point to many. "In the long-run, it has to change," he said, "it has to." But "if we're going to see a lot of closures, it's going to be" among the smallest breweries. And "honestly, I see more brewpubs close because of service quality and food than because of the beer."

Yet a number of Calif breweries have seen craft slow before and they've been around for other economic downturns too. Telling story of opening 21st Amendment as a brewpub in San Francisco, co-founder Nico Freccia recalled colleague Shaun O'Sullivan telling him "there's so much money out there" and "don't worry about the money." Of course, raising funds was still "the hardest thing we've ever done" and took 2 years. But during that time, after they already signed a lease on what would eventually become the brewpub, the pair kept open the coffee roastery and cafe that already occupied space, bringing in enough $$ to cover rent. Soon after they opened in August of 2000, the "bubble burst for the dot-com" industry. Sales at the brewpub were suddenly down 30% for one week. A year later, 9/11 happened. During that period something like a thousand restaurants closed in SF, according to Nico. But it was a "good lesson for us to learn" as the co spent 5 yrs working lean and "becoming profitable."

And don't forget, craft's late-90s slowdown created a lot of opportunity for brewers who were able to capitalize on it too. David Walker recounted a Chapter 11 auction of a brewery and brewery equipment, where he met now longtime friend Chris Cramer of Karl Strauss. The equipment came cheap. And Firestone Walker, looking for a larger space, picked up the brewery in Paso Robles with lots of space around it to expand and where brewer Matt Brynildson (now one of most decorated US brewers from his time at Firestone) was "in residence." Not bad.  

A bit contrary to conversations in Calif, pace of new brewery permits "has declined fairly significantly," with 2/3 fewer TTB permits issued this yr vs last yr, Beer Institute economist Michael Uhrich shared during annual mtg held last week (see below). "That's a huge reduction" and "obviously it looks like things are changing." And while Michael doesn't expect to see "a lot of brewery closures...a slowdown in the number of new breweries is important." It could also be a further signal of more M&A to come too, Michael thought. Keep in mind, as recently as May there were still 1,500 plus brewers with TTB permits that hadn't yet opened (see May 5 issue). Plus, lower number of processed applications likely "mostly because the TTB can't keep up with all the processing they have to do," according to Brewers Assn's Bart Watson, speaking from Calif Craft Beer Summit last week. As far as he understands, processed applications may be down sharply, but not so for submitted applications. Either way, not likely to see much of a slowdown in total count of new operating breweries quite yet (see above).  

By the end of last week, 729 breweries called California home, exec director of Calif Craft Brewers Assn Tom McCormick explained to gathered press at 2d annual Calif Craft Beer Summit in Sacramento. By the time you read this, the number could be higher. Between 4-5,000 attendees gathered for the event, which welcomed industry members and consumers alike with programming largely focused on education and knowledge-sharing. Couple days of seminars, trade show and more informal talks culminated in big beer fest in front of capitol building, featuring 165 brewers pouring over 450 beers. And major themes running throughout event included how far Calif craft biz has come and how quickly it continues to change.

Explosion of breweries in Calif and elsewhere represents considerable piece of that change. Calif neared 800 federal licenses by the end of 2015, with over 700 state licenses and about 600 active breweries tracked by Brewers Assn, that org's chief economist Bart Watson shared during Friday seminar. Just based on issued licenses, "we're gonna see another hundred or two hundred open," he said confidently. Almost 90% of Calif population lives within 10-mile radius of a brewery; almost 80% lives within 5 miles. Don't expect to see similar stat for 1-mile radius to ever get quite that high, he said, but it's already near 22% in Calif.

He and others throughout the event reminded of just how many wineries there are in the US: over 10K. Bart also revisited coffee comparison. The "shift toward higher quality, local roasting, specialty shops" in coffee has "a lot of similarities with a craft tap room." So number of specialty coffee locations expanded from closer to 3,000 in 1993 to 10X that by 2014-2015. Now, number of outlets "not growing anymore" and started to "flatten." But specialty coffee has also grown to about "50% of dollar sales." That still points towards possibility of "probably eight- to ten-thousand breweries" in US. Especially since so many still incredibly small.

Lots of Calif brewers agree. Current brewery count could just be a "drop in the bucket," AleSmith's Peter Zien said during talk. "Get used to it," Firestone Walker's David Walker said during another, "there's going to be 10,000 breweries" here. He made wine parallel too, noting "wineries are constrained by climate. Last time I checked, breweries are not."