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.

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 Craft Brew News for that

coverage). 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.

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 5 th 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 9 th 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

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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.

Recall that assns representing Conn beer, wine and liquor distribs, plus on-/off-premise retailers made bids to

intervene on side of CT state officials to defend pricing laws there challenged by mega-retailer Total Wine. But

Total filed motion to keep ’em out. In addition to technical legal arguments, Total sez beer distrib assn should

be denied since Total only challenged laws “to the extent they regulate the pricing of wine and spirits,” not beer.

Then too, Total “deliberately did not name” any wholesaler or retailer as defendant, knowing state laws would

likely shield them from antitrust liability. (Recall, Total sez CT’s post-and- hold law, ban of selling below

cost/volume discounts, plus uniform pricing amount to price fixing among suppliers, distribs and retailers.)

Then too, other distribs and retailers haven’t pled their case with enough specificity “to argue substantial

interests,” (as in how or how much profits will suffer), Total argues. Also, allowing them as intervenors would

create delay/complexity/repetition and any interests they have would be “adequately represented” by CT AG,

which has already filed motion to dismiss. Plenty of snark in Total’s pleading, natch. Wine and spirits distribs

claim an interest because laws protect their “profitability.” Retailers “say the same thing with a bit less candor.”

And while beer distribs “have more difficulty articulating an interest,” according to Total, “doubtless” they “are

also worried about their excessive profit margins. But Total has filed this action to protect consumers, not

sellers.” If judge allows assns to intervene, Total asks for “conditions” to speed up process.

Four assns filed joint reply to support their bid to intervene. Statutes “directly regulate” members of each of

their assns, Total seeks to “radically alter” distribution in CT “to its own financial benefit” and alleged distribs

and retailers “violated the law, illegally fixed prices and conspired to restrain trade.” Without intervening,

distribs and retailers could not respond to such charges. As far as beer distribs concerned, same law covers

them too and Total’s trying to get that law tossed. So beer distribs’ interest “equally substantial as those of

wine and spirits wholesalers.” Total has already indicated, assns add, that “discovery will focus on information

requests directly from (or about)” distrib and retailer actions, more reason to include them as intervenors.

Distribs and retailers also have “economic and legal interests not represented by” the AG. That includes

prevention of “predatory tactics of large box retailers” and maintaining a “broad and diversified customer base

of retailers” in order to keep sales and prevent “undue influence in a highly concentrated marketplace.” Those

interests “distinct and different” from the AG’s interest in “protecting the consuming public policy, which may

invoke a variety of other public policy concerns” like temperance or consumer choice.

Recall that assns representing Conn beer, wine and liquor distribs, plus on-/off-premise retailers made bids to

intervene on side of CT state officials to defend pricing laws there challenged by mega-retailer Total Wine. But

Total filed motion to keep ’em out. In addition to technical legal arguments, Total sez beer distrib assn should

be denied since Total only challenged laws “to the extent they regulate the pricing of wine and spirits,” not beer.

Then too, Total “deliberately did not name” any wholesaler or retailer as defendant, knowing state laws would

likely shield them from antitrust liability. (Recall, Total sez CT’s post-and- hold law, ban of selling below

cost/volume discounts, plus uniform pricing amount to price fixing among suppliers, distribs and retailers.)

Then too, other distribs and retailers haven’t pled their case with enough specificity “to argue substantial

interests,” (as in how or how much profits will suffer), Total argues. Also, allowing them as intervenors would

create delay/complexity/repetition and any interests they have would be “adequately represented” by CT AG,

which has already filed motion to dismiss. Plenty of snark in Total’s pleading, natch. Wine and spirits distribs

claim an interest because laws protect their “profitability.” Retailers “say the same thing with a bit less candor.”

And while beer distribs “have more difficulty articulating an interest,” according to Total, “doubtless” they “are

also worried about their excessive profit margins. But Total has filed this action to protect consumers, not

sellers.” If judge allows assns to intervene, Total asks for “conditions” to speed up process.

Four assns filed joint reply to support their bid to intervene. Statutes “directly regulate” members of each of

their assns, Total seeks to “radically alter” distribution in CT “to its own financial benefit” and alleged distribs

and retailers “violated the law, illegally fixed prices and conspired to restrain trade.” Without intervening,

distribs and retailers could not respond to such charges. As far as beer distribs concerned, same law covers

them too and Total’s trying to get that law tossed. So beer distribs’ interest “equally substantial as those of

wine and spirits wholesalers.” Total has already indicated, assns add, that “discovery will focus on information

requests directly from (or about)” distrib and retailer actions, more reason to include them as intervenors.

Distribs and retailers also have “economic and legal interests not represented by” the AG. That includes

prevention of “predatory tactics of large box retailers” and maintaining a “broad and diversified customer base

of retailers” in order to keep sales and prevent “undue influence in a highly concentrated marketplace.” Those

interests “distinct and different” from the AG’s interest in “protecting the consuming public policy, which may

invoke a variety of other public policy concerns” like temperance or consumer choice.

Heineken

staked out brand new ground with its new responsibility message. Key aspect of its Formula 1 sponsorship:

new TV ad featuring legendary driver Sir Jackie Stewart. Tagline: “When You Drive, Never Drink.” Ad

features vintage footage of Stewart racing and declining offered Heinekens. This is 1st time we’ve seen any alc

bev producer adopt zero tolerance for drinking and driving, tho some govt agencies use “don’t drink and drive”

message. Industry previously focused on “don’t drive drunk,” like AB’s 2016 Super Bowl ad. Oddly,

Heineken taking a public stance that’s stricter than Mothers Against Drunk Driving. MADD’s website focuses

specifically on ending drunk driving. And MADD has repeatedly stated it does not even support lowering the

legal BAC level to .05, a much more common limit in Europe, where Heineken has much more of its biz. Much

of Eastern Europe is reportedly already .00 BAC. (This article appeared in different form in our Oct issue of

Alcohol Issues INSIGHTS.)

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Heineken has “an obligation and opportunity to promote responsible behavior…. We are the only brewer to

show people rejecting our product,” an exec told Ad Age in Sep. Ad will run in the US next year, HUSA’s sr

VP/corporate relations officer Tara Rush Tripp told us. “We are advocating that when you drive, you should

not drink, essentially the same message as ‘don’t drink and drive.’ But the… ‘When You Drive, Never Drink’

campaign is saying it in a new inspirational and creative way that we hope influences and ultimately changes

consumer behaviour.” Heineken supports legal limits everywhere it does biz, but maintains “the best approach

is zero alcohol when behind the wheel.” Does HUSA expect pushback from on-premise retailers, who will

likely see message as a threat to their bizzes? “We’d be surprised if any of our partners would be against

advocating for responsibility as it protects the future of our industry,” said Tara. “We know they are very

committed to responsibility efforts as well.” One alcohol policy vet said Heineken ad is example of how some

responsibility responses that may seem appropriate for global players to adopt in Europe just don’t align with

the US mkt or habits. Another example: increased emphasis on low-/no-alc products. ABI announced goal of

20% of its total volume in such products by 2025. But no-alcohol beer has never gotten traction in US. Nor

have low-alcohol products. Indeed, 3.2 beer may disappear here if Okla changes its laws next week.

No easier to tease out most

pertinent performance measures for Molson Coors now that it owns MillerCoors, given special charges,

currency moves and reported “US GAAP” vs “underlying” performance, etc. But Q3 softer than yr-to- date in

volume, revs and EBITDA and 9-mo trends down slightly for each. Worldwide volume off 1.4% for 9 mos to

37.2 mil bbls. Coors Light had soft Q3 globally (-3.3%), but still up 1.2% for 9 mos. Reported revenues down

near 5% for 9 mos, but flattish in constant currency. Underlying EBITDA off slightly to $1.1 bil for 9 mos.

CEO Mark Hunter focused on: 1) net rev per bbl up in each mkt (constant currency) yr-to- date; 2) brand

investments up across the board as well; 3) Coors Light and Miller Lite continue to gain share of premium

lights in US with Coors Light scoring “highest segment share gain in 3 years” in Q3; 4) Coors Light up over

14% outside North America yr-to- date. Mark noted “this is a historic time in the evolution of Molson Coors,”

given recent closing of acquisition of SAB’s 58% stake in MC and Miller brands’ intl portfolio. Adding all of

MC creates “bigger better organization” and with “expanded portfolio of iconic brands.” Molson Coors aims to

“leverage our increased scale, resources, synergies and combined commercial experience to accelerate our First

Choice agenda and deliver long term shareholder value.”

MillerCoors sales-to- retailers

declined 4% in Q3, just slightly steeper than AB’s -3.8%. But it shipped way ahead of depletions in 3d qtr and

so its sales-to- wholesalers down just 0.6%. STRs down “reflecting industry trends,” said MillerCoors ceo

Gavin Hattersley, “but we remain steadfast in our drive to achieve flat volume in 2018 and growth in 2019.”

That over 3-point differential between shipments and depletions in qtr amounts to about 450,000 bbls which

MC will have to account for, presumably in 4 th qtr. For 9 mos, MC shipments down about 1.4%, while

depletions down more like 2.4% (MC didn’t give those numbers). But with 1.6% rev per bbl increase

(excluding contract production), slight shipments drop, revs inched ahead. Plus cost of goods sold down almost

1% per bbl and mktg, gen and admin costs flat in qtr, so it had solid financial qtr; oper income up 9.6%.

Miller Lite Down Mid-Singles, Coors Light Low Singles; Above Premium Down Mid Singles There’s not a lot

of good brand news in MC’s latest quarterly report. Miller Lite down mid-single digits and Coors Light down

low single digits in qtr; but both gained share of premium lights, sez MC. MillerCoors above premium volume

down mid-single digits in qtr, even with all incremental Henry’s Hard Soda volume (#1 soda, proclaims MC).

Tenth & Blake down high single digits, as Blue Moon down high singles and Leinie down mid-teens, “partially

caused by Summer Shandy demand outselling production a month earlier than planned,” said MC. Redd’s

down high single digits, tho Wicked up low singles. Meanwhile, MC’s economy brands also down mid-singles,

with High Life down low singles, Keystone mid-singles and Mil Best down high singles. A bit of good news

with Coors Banquet up low single digits (10 th yr in a row of growth), but Gen Draft down low double digits.

And so MC premium volume declined mid-singles.

MillerCoors sales-to- retailers

declined 4% in Q3, just slightly steeper than AB’s -3.8%. But it shipped way ahead of depletions in 3d qtr and

so its sales-to- wholesalers down just 0.6%. STRs down “reflecting industry trends,” said MillerCoors ceo

Gavin Hattersley, “but we remain steadfast in our drive to achieve flat volume in 2018 and growth in 2019.”

That over 3-point differential between shipments and depletions in qtr amounts to about 450,000 bbls which

MC will have to account for, presumably in 4 th qtr. For 9 mos, MC shipments down about 1.4%, while

depletions down more like 2.4% (MC didn’t give those numbers). But with 1.6% rev per bbl increase

(excluding contract production), slight shipments drop, revs inched ahead. Plus cost of goods sold down almost

1% per bbl and mktg, gen and admin costs flat in qtr, so it had solid financial qtr; oper income up 9.6%.

Miller Lite Down Mid-Singles, Coors Light Low Singles; Above Premium Down Mid Singles There’s not a lot

of good brand news in MC’s latest quarterly report. Miller Lite down mid-single digits and Coors Light down

low single digits in qtr; but both gained share of premium lights, sez MC. MillerCoors above premium volume

down mid-single digits in qtr, even with all incremental Henry’s Hard Soda volume (#1 soda, proclaims MC).

Tenth & Blake down high single digits, as Blue Moon down high singles and Leinie down mid-teens, “partially

caused by Summer Shandy demand outselling production a month earlier than planned,” said MC. Redd’s

down high single digits, tho Wicked up low singles. Meanwhile, MC’s economy brands also down mid-singles,

with High Life down low singles, Keystone mid-singles and Mil Best down high singles. A bit of good news

with Coors Banquet up low single digits (10 th yr in a row of growth), but Gen Draft down low double digits.

And so MC premium volume declined mid-singles.

Cherry juice marketer Cheribundi has landed Food Lion chain, which has picked up its 32-

oz bottles of Tart Cherry Juice and Black Cherry Juice . . . Whole Foods has picked up 3 flavors of Avitae

Caffeine Water – Blackberry, Tangerine and Pomegranate Acai – for 49 stores in Mid-Atlantic, via DPI Specialty

Foods. The new sku’s join retailer’s existing unflavored entries from Cleveland-based Avitae in 45-mg, 90-mg

and 125-mg dosages of caffeine . . . Just Water, “ethically sourced” water offered in paper-based bottle, has

landed beer houses Ace Beverage and Mission Beverage in LA metro.

It

wasn’t hard for the cold-brewed coffee geeks to spot one another in halls of Columbia Biz School: each ambled

around toting mason jars of their homebrew. In less than a year, Matt Bachmann and Ben Gordon were biz

partners, launching Wandering Bear Coffee, intriguing play that’s using bag-in- box format to reach cold-brew

“deserts” like finance and tech offices around NY. Effort, tho currently reaching just 100 accounts, has been

viewed as intriguing enough to win investment and mentorship from NY accelerator AccelFoods recently.

BBI met recently with Matt and Ben at WeWork space shared by several enterprises launched by Columbia Univ

grads, where they offered rundown on strategy behind brand sold in cardboard box containing 96-oz bag that’s

good for 12 servings and is emblemized by icon of silhouetted bear figure intended to be viewed by customers as

playful, intriguing, curious. In earliest days, new partners proved out concept at foodie mecca Murray’s Cheese

Shop in Greenwich Village, validating bag-in- box RTD concept, viewed as superior on freshness grounds to more

conventional option, bottled concentrate. Thanks to burgeoning bag-in- box biz on wine side, they had ready-

made supply chain to tap into.

After producing coffee at Queens commercial kitchen while still in school, partners set up own nearby plant that

should carry them thru anticipated 2016 production needs. In increasingly crowded market, partners sought

points of consumption that were “cold-brewed deserts,” as they like to say. Undergrad friend led them to first

account, hedge fund Hutchin Hill Capital (on Jun 23, 2014, both partners vividly recall), but a lot of biz was

garnered knocking on doors and sending out cold emails. Mix of 100 live accounts to date comprises finance

firms, hedge funds, real estate investment trusts, tech startups, digital agencies and professional services cos.

They’ve stayed out of restaurants and cafes targeted by many cold-brew players, feeling there are few barriers to

those accounts making the coffee themselves. They’ve gotten word out working events from Governor’s Ball

Music Fest to tastings at Soul Cycle locations. They also tap into young-boys network of Columbia alums thru

such means as tapping data science team to analyze their sales data. Bachmann and Gordon have been agnostic

about distribution – if online grocer FreshDirect reaches attractive accounts, they’ll suffer its lower margin, but

they deliver to many accounts themselves. They landed unidentified investors last year, some with experience in

consumer space, and more recently drew investment from AccelFoods, which cited co for “disrupting home and

office coffee options by putting uniquely bold, smooth, ready-to- drink cold-brew iced coffee on tap in any

refrigerator.” Bricktown Group’s Eric Skae has been helping team with strategy, cold distribution, sales and

fund-raising. So far they’re keeping sights fixed firmly on NY, where they and concentrate player Grady’s Cold

Brew are the only 2 homegrown brands, so far charting different paths.