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Legislative Notes: KY Cap Not Big Enuf for Alltech; MI Social Media; LA Excise Tax Hike; ME, DE, NY
Figuring out how to manage social media posts by alc-bev industry members has emerged as relatively new theme among state-based legislative movements. Michigan took on the issue this year with a bill that would allow alcohol suppliers to share limited account-specific information with followers on social media. Bill passed state House last week, MLive reports, and goes on to Senate. If passed there, brewers and other alc bev suppliers could share info on where specific brands are sold and specific tastings or tap takeovers are being held, for example. It follows a handful of investigations by state Liquor Control Commission of breweries sharing availability at specific retail accounts on social media, a no-no prior to new law.
Taxes, Taproom Fees, Beer Gardens & More A rare alcohol excise tax hike passed through the Louisiana legislature this year, recently signed into law by the Governor. Wine hit with biggest %-increase, but both beer and spirits taxes increased by over 20%. Beer tax now $12.50/bbl, up from $10. Elsewhere, Maine legislature did not pass a bill to ease restrictions on brewpubs making sales for off-premise consumption, Bangor Daily News wrote. Yet it did pass one to allow brewery sales reps to provide samples to on-premise accts as part of their pitch. That's as city of Portland will require breweries to get licenses with the city to operate tasting rooms, per Portland Press Herald. Council members voted unanimously for the change, noting that taprooms often function like bars or restaurants, which currently must undergo city licensing process and pay $500 fee. Breweries will pay same fee for tasting rooms.
On same theme, Delaware is considering a new license to allow "pop-up" beer gardens to operate in outdoor spaces for 5+ months. It follows success of program in nearby Philly, pushed by folks with an eye toward "downtown development" and bringing "young professionals into Wilmington." A coupla small brewers cited in favor of the measure by the News Journal. But Delaware Restaurant Assn not so thrilled with a "really flawed" bill creating "really vague liquor license." Pair of restaurant/bar owners critique ease of acquiring license, adding competition to their bizzes while noting that if the bill does pass, they'll have to "get in the game, too." In NY, similar efforts to draw "young professionals" to move to Peekskill are behind development of marina space that could include small R&D-focused outpost for nearby Captain Lawrence Brewing (see CBN vol 6, no 79). But plans currently blocked because law bars brewery-owner Scott Vaccaro from holding interest in same entity as restauranteurs also planning to open in the marina. A bill to exempt these specific plans on "economic rejuvenation" grounds already filed in state legislature, the Journal News reports.
Yard House chain completed its annual "Beer Review" and after listening to input from its employees, beer distribs and brewers, it "will add a total of 1,581 new taps of draft beer to its curated lineup," co announced. "It's an intense - yet very thoughtful process we undergo each year," said Gregory Howard, bev mgr. "Ultimately we select from 20 to 30 new beers to replace the lowest selling beers at each restaurant," he noted. The entire process takes YH around 3 months to complete. This year YH found there to be "a huge call for us to focus on local brews," added Gregory. While IPAs "remain popular," YH review also took note that "sour beers are on the rise," with a "handful" being added to menu. New beers will be tapped Mar 28, same day Yard House will begin selling Sam Adams Utopias as well, at a mere $22 per 2-oz serving.
Meanwhile, plenty of other craft brand families growin' strong in San Diego. Craft Brew Alliance's Kona family (+24%) is one of the few top cos from out-of-state that's growin' double-digits. Gotta note, even tho Sam Adams and New Belgium strugglin' nationally, each up here. Then there's a long list of CA cos that continue to stand out as fastest growers here. Coronado (+37%), Firestone (+85%), Saint Archer (+35%), Green Flash (+24%), and Belching Beaver (+115%) are all in top-15 craft brand families. Green Flash trend shoots up to 100%+ YTD if you include Alpine brands which are still newer to scans and comin' on strong. Just beneath those, some more of the usual suspects still growin' solidly to start the yr: Mother Earth (+60%), Port (+77%), Mission (+66%), Modern Times (+300%), and AleSmith (+52%). And keep an eye out for GT's Kombucha brands (+84%) and AB's Goose Island (+83%).
Lead player Craft Brew Alliance slipped below 100,000 bbls in Oreg, down 2.1%; off slightly each of the last 3 years. The other big in-state player, Deschutes, took a near 6% hit in its home state in 2015 to 87K bbls, and lost ground vs CBA. Ninkasi regained the volume it had lost in 2014, however, shipping 46K bbls. So the top 3 in-state players in this key craft mkt collectively dropped 4,000 bbls in Oregon in 2015, just another sign o' the competitive times. 10 Barrel, purchased by AB in early 2015, had a big year at home: +8,000 bbls, 28% to 33K bbls and passed NAB's Portland Brewing as the #4 player among in-state brewers. Portland was down 5.5%. Hop Valley (30K bbls) came on strong, jumping 54% and edging past both Full Sail and Portland for the year (28K and 30K bbls respectively), even as Full Sail put up a solid 13% gain at home following an even 2014. BridgePort's volume continued to erode and slipped to 17K bbls, down from 25K as recently as 2012. Boneyard and Fort George each put up big double-digit gains, shipping 20K and 11K bbls respectively. But Hopworks Urban (10K) slowed considerably compared to its 2014 pace, and Rogue managed just a 1% gain, shipping 15K bbls each of last 3 yrs in its home state.
Note: the Oregon Liquor Control Commission (OLCC) only tracks in-state brewer shipments that stay in the state. We have obtained revised total figures for Craft Brew Alliance (CBA) that include shipments from neighboring Washington for 2012-2015. We also have a 10 Barrel figure for in-state sales not reported by the OLCC for 2015. So our Oregon total is higher than what the OLCC reported.
And then there are the numbers. Just a few months after Constellation paid a record $1 bil for Ballast Point, it's still growing great guns. Ballast Point screaming along reportedly at something like 80% in all channels, even as craft segment as a whole starts to slow. Its $$ sales up 89% in IRI thru Feb 21. And that's even while avg case price paid for Ballast Point is $56.67, almost triple the price of a case of leading premium or premium light beers. It is now the #2 $$ gainer among craft brewers (behind Alchemy & Science) and #9 $$ gainer overall. In home mkt, San Diego, Ballast Point is biggest $$ sales gainer of any beer co, period! Its $$ sales still up 33% in home mkt foodstores YTD. Got more growth than parent co Constellation with Modelo brands and double the amount of $$ sales growth as 2d biggest craft gainer, Green Flash.
Nationally several Ballast Point brands remain smokin' hot. Ballast Point Sculpin $$ still up 63% in IRI multi-outlet + convenience YTD thru Feb 28 (1 week later than #s above; different data set). Grapefruit Sculpin is 2/3 the size of Sculpin. And it's up 442%. Variety Packs are up 83%. But Big Eye and Yellowtail are flattish YTD in IRI. Ballast Point is "closing in on Sam Adams on sales per point of distribution," RBC's Nik Modi showed in a recent report. "Under Constellation," Ballast Point has "a significant expansion opportunity," added Nik, since its only at mid-teens ACV, compared to Boston Beer in the mid-60s.
Sometimes it's still hard to believe how fast Ballast Point rose up. In 2010, Ballast Point only shipped 20,000 bbls. Five years later, it shipped 277,000 bbls and this yr will perhaps be close to a half million. Wow! In just the last couple of years, Ballast Point's Miramar location transformed from 107,000 sq feet of empty space into a fully functioning big manufacturing facility, as well as a popular and expansive tasting room seating 575 (mostly full on the weekday afternoon we were there) plus warehouse, cooler and 25,000 sq feet of office space on a mezzanine above. Ballast Point has 570 employees in all, including restaurants, at all locations. Current brewing capacity is about 600,000 bbls, including its old brewery (around 100,000 bbls). Between all its facilities, capacity would max out eventually at 900,000 bbls, in its existing manufacturing footprint. Of course, it doesn't end there. Ballast Point well-along in exploring an East Coast facility.
Craft Volume Growth Slowed to +13%, Jumped Another 2.4 Mil Bbls in 2015, Brewers Assn Sez
Craft brewers grabbed another 1.2 share of US beer volume to 12.2 in 2015, Brewers Assn reported today, after the category put up another year of double-digit growth. But that growth slightly slower than in years prior. Craft volume up 13% to 24.5 mil bbls, BA's chief economist Bart Watson reports. Craft grew 17-18% each of previous 2 years. So tuffer times for some of BA's largest members, as we've been reporting, clearly put damper on overall growth trend. Still, craft gained another 2.4 mil bbls over US shipments in 2014, excluding exports. Retail $$ sales up 16% to $22.3 bil, 21 share, Bart estimates. (Recall, BA calculates craft volume and share slightly differently from Beer Marketer's; primary differences include their inclusion of Yuengling, exclusion of Craft Brew Alliance, non-independent/acquired small brewers. BA teases out cider and FMB volume when calculating share.)
As always, BA's count of current US breweries offers some of most impressive numbers. Number of US breweries now larger than anytime in the country's history and finished 2015 at 4,269. That's up 15% over 2014 count. But the 2014 number back-adjusted as BA found 300 more operating breweries for that year than previously reported. Once again, smallest brewers, microbreweries, a big part of growth. Almost 2400 operated by end of last year. That's about the same number as there were total breweries in 2012. A full 178 craft breweries produced more than 15K bbls in 2015, qualifying them as "regional breweries" for BA. About 1,650 brewpubs operated last year. In toto, BA counted 620 openings throughout the year and just 68 closings. That closing number higher than in years past, but not by much. Bart called out Southeast as region that saw some of largest upticks in brewery counts, including 20+ openings in Virginia, North Carolina, Florida and Texas.
"Aggressive" BrewDog USA "Set Up for Growth," Files for $50-Mil Stock Offering; $22.5 Mil on Pubs
"Everything about BrewDog USA is set up for growth," filing notes. Recall, BrewDog will offer over million shares of co to raise up to $50 mil from everyday citizens, under newly legal structure (read on for more). And the co's got big plans for what it'll do with that capital, including spending up to $22.5 mil to build array of brewpubs around US. Its under-construction, 100K sq-ft Columbus, OH brewery is already set up to take expansions. Big ones. Out the gate, new brewery scaled for 102K bbls per year. Brewhouse arriving in May could churn out 426K bbls per year when more tanks come on line over time. Canning line about to be ordered. Test brews should start in August. And BrewDog USA already has plans in place to add additional 200K sq-ft, put in second, larger brewhouse to bring the plant's annual capacity upwards of 1.5 mil bbls. No timeline put on how long it may take to get there beyond "long term," though.
"Huge" Midwest Oppy and 20 Initial States; Punk IPA the Top Craft Brand in UK Adding 85K new bbls in 1 year is a short-term goal only achieved by largest US craft cos and basically unheard of for a "new" one. Then again, BrewDog ain't "new." Assuming it hits that goal, where does it all come from? For starters, BrewDog USA sees "a huge opportunity in the Midwest," hence choice of Columbus, according to filing. The co currently has distrib deals "pending" in 20 states and plans to expand into remaining 30 plus Canada soon after. Note that the co's used to scaling up quickly. It's less than 10 years old and considers itself largest craft brewer in Europe. Lead brand Punk IPA, about 60% of its European biz, more than doubled during last 12 mos, +131% in UK off-premise biz, according to Neilsen data in filing. It hit £8.5 mil (about $12.3 mil today) in sales. That's over 3X larger than #2 craft brand there, Innis & Gunn Original, and almost 4X sales of next 2 (both US brands) Brooklyn Lager and Sam Adams Boston Lager. BrewDog's #2 brand, Dead Pony Club was #8 craft brand in UK, just behind Blue Moon. It also more than doubled there in last year.
Brewpubs to Get Big Chunk of Capital to "Shorten the Distance" to Drinkers BrewDog already operates 44 owned, branded bars across the world, most of 'em in UK with 11 in rest of Europe and 3 in China, Japan and Brazil. It's already working on opening 16 more. That doesn't count plans in US, where BrewDog's "combined brewing and retailing approach with a national ambition is a new business model," per filing. "This vertical integration" not only helps boost both growth and profitability, but helps co achieve goal "to shorten the distance as much as possible between ourselves and the people who enjoy our beers." In US, "American bars all have to be brew-pubs," so small amount of brewing planned for each. First US location will be Columbus brewery taproom, likely followed by a downtown Columbus spot. Co only expects about 5% of Columbus facility's volume to be sold across its owned retail locations, but thinks "they will contribute in excess of 25% to our overall turnover during the first five years." As of last June, co expected 5 brewpubs across US.
To that end, if BrewDog USA offering fully subscribed and it gets $50 mil, it plans to spend 45% on opening pubs. Detailed description of spending plans show that BDUSA won't drop a dime from offering on brewpubs unless proceeds top $10 mil. But at each of $10-, $25- and $50-mil levels, "Open BrewDog Pubs" is single largest line item on its allocation plans. At fully-subscribed $50-mil level, planned $22.5-mil investment is more than twice $10 mil the co plans to spend on equipment, over 3X construction costs and over 56X meager $400K it looks to spend on marketing.
"Mini-IPO" Offers 1 Mil Shares for $47.50 Each; Spending Plans The $50 mil BrewDog USA could raise in its stateside "Equity for Punks" offering is the most ambitious equity crowdfunding program ever by a private company here, BrewDog's lawyer Kendall Almerico told the Columbus Dispatch. It's allowed thanks to the new federal JOBS Act, though individual states have passed their own versions of the law earlier, allowing even some smaller US craft brewers to play with such a program (see CBN vol 4, no 16 and vol 6, no 43). The "mini-IPO," as Almerico called it, is both cheaper than and "comes with few of the downsides" of a traditional IPO. It'll cost the co $75K, SEC filing shows, plus commission for a placement agent (which stands to earn as much as $3.325 mil if offering fully subscribed). BrewDog can also advertise the offering. It allows individuals to buy at least 2 shares in the co for $95. The offering is similar to those that BrewDog has done in the UK, where it's raised over £20 mil ($29 mil) from over 35K investors.
Should interested parties pick up all 1,052,632 BDUSA shares that the co offers, they'll collectively own just over 14% of the company. UK-based co, BrewDog plc, already invested about $1.8 mil in US operations, financial docs submitted with SEC filing show. OH HQ comes with expected $30-mil price tag, the Dispatch notes. A sizeable portion of that could come from this stock offering, though allocation plans vary considerably depending on how much is raised. For example, if offering brings in just $2.5 mil, 80% of it will go towards construction and equipment. That shrinks to 35% if co raises $10 mil. Construction plans jump up considerably, from about $1 mil to $6mil, at the $25-mil level. The co expects to spend equal amounts on marketing and travel/entertainment, which top out at 2% of money raised in the $5-mil level. The co's allocating over twice its marketing budget towards product development. Net-net, BrewDog looks to American beer drinkers to put some skin in the game and help make it a serious player here. It's also likely to not only bring a new energy to the segment, but ramp up pressure on existing companies to perform.
Still early on in the yr, but hard to ignore these numbers: 14 of top-50 craft vendors' volume declined thru Feb 28 in IRI multi-outlet + convenience data, and another 5 vendors only up low-singles. That includes each of the top-5 craft vendors. Indeed, Boston Beer down 2% (including cider and tea, so beer down more), Sierra up 2% (against tuff Q1 comp), New Belgium down 2%, and both Gambrinus and CBA down 1.5%. Compare that to just 4 of the top-50 craft vendors in 2015 that saw volume decline along with Shock Top and NAB. This is a marked change.
Just a bit further down the list, SweetWater and Dogfish each slowed to 4% volume gains and Duvel USA up just 1% (tho $$ up 6%). And declines were steeper for several cos: Long Trail, Abita, Full Sail and Uinta each down 12%; Harpoon dipped 8%; Alaskan and Shipyard down 6%; Anchor and Saint Arnold down low-singles and Rogue flat-to-down slightly. Top-5 cos represent 1/3 of craft volume in IRI MULC and the other cos make up another 5.5 share, putting extra pressure on overall craft trend. Total craft volume has slowed to up 8% YTD. Gotta note, this list doesn't break out individual craft cos/brand families that're fully owned by large cos, so none of AB, MC, NAB or Constellation (Ballast) craft cos are included in the list: currently Leinie, Shock Top and NAB craft also down.
Meanwhile, many of the same top craft cos that were hot last yr are stayin' hot. Lagunitas trend slowed but volume still up 28% off large base. Alchemy & Science up a whopping 854% including incremental root beer and shandy sales. Firestone Walker (+93%) and Founders (+74%) are actually accelerating compared to last yr's trends. (Editor's note: tho Ballast Point sales are rolled into Constellation numbers, we got a peek at several of its top brands and most of 'em still soarin'). And Oskar Blues (+30%), Devil's Backbone (+50%), Karbach (+82%), Hop Valley (+95%), Rhinegeist (+112%), and 21st Amendment (+39%) all strong following great yrs. Interestingly, Deschutes (+17%), Southern Tier (+37%) and Green Flash (+70%) saw much improved trends out the gate this yr too. And not too much further down the list Switchback (+138%) really turned around trends vs last yr, while Lawson's (+1400%), Deep Ellum (+364%) and Frio Brewing (+681%) continue to absolutely fly in scans.
Half of Top-50 Craft Brands Slow or Down; Mostly from Top-3 Craft and Large Cos Similar story for top craft brands: 21 of top-50 craft brands volume down and another 4 only up low-singles in IRI thru Feb (this time including brands wholly owned by large brewers that IRI defines as craft). So half of the top-50 up low single-digits or down to start the yr. As you go down the list, almost all (19 of 21) declining top brands are either from top-3 craft cos (Boston, Sierra, New Belgium) or from brands partially or wholly owned by largest suppliers. Sierra and Boston have 3 each and NBB has 4 brands in top-50 that are declining. MC has 4 declining brands in top-50: two each from Blue Moon and Leinie. AB has 2 fully owned brands that're down, Shock Top Honeycrisp Apple (-29%) and Goose 312 Urban Wheat (-11%), along with CBA's Widmer Hefe (-7%) and Redhook Longhammer IPA (-5%). And NAB's Magic Hat #9 down another 20%. There are still plenty of craft brands growing solidly (or better), but it seems to be a lot tuffer to sustain growth toward the top.