List of James Beard Award semifinalists for Outstanding Wine, Beer, or Spirits Professional includes another 5 familiar names from beer biz, same number as last yr. And handful of same guys nominated again, including Sam Calagione of Dogfish Head (for at least 4th-yr running), Rob Tod of Allagash (for 3d yr) and Jim Koch, Boston Beer founder/chairman (for 2d yr). This yr, they're joined by Russian River's Vinnie Cilurzo and Jeppe Jarnit-Bjergsø of Evil Twin. List includes 5 spirits-makers, 3 wine-focused folks, Diane Flynt of Foggy Ridge Cider, another group of professionals working at individual bars or restaurants and even a maltster at Skagit Valley Malting. Growth of nominees in this category behind non-wine alc bevs continues to be notable, tho awards also still given for Outstanding Wine Program. Interestingly, both Tired Hands, of PA, and Side Project Cellars, of MO, both nominated for Outstanding Bar Program. Finally, AB's Goose Island jumped on as sponsor for Outstanding Service award. Short-list of finalists announced next month and winners in May.  

Long expected, legislation currently moving through Oklahoma legislature that would make a number of major changes to alc bev laws there including provision banning "common ownership" of manufacturer, wholesaler and retailer operations. There's long way to go on this measure as any change to alc bev laws in OK requires a ballot measure put before voters and a change to state constitution. And top-of-mind for many consumers, as well as many small brewers there, is move to single-strength system (rather than separate, lower-alc 3.2 laws) and allowance of more retailers to sell cold beer. But current form of bill that passed out of first committee this week includes the anti-branch provision. AB currently operates 2 distrib branches in OK in Oklahoma City and Tulsa. If passed as is, AB could keep branches for 5 years (and get additional benefit of distributing brands of all strengths, rather than current restriction to only 3.2 beer). It would also be 2d state in 2 yrs to pass anti-branch legislation. Small brewers generally supportive of measure, posed as "modernization" of laws there. AB vehemently opposed, natch, and already taking out print and tv ads to convince citizens to nix bill.

Up in Oregon, brewers of all sizes, wholesalers, winegrowers and almost every state legislator got behind bill that cleans up brewery license structure in state, clarifying retail privileges. The bill, HB 4053, just unanimously passed Senate yesterday and heads to Gov Kate Brown's desk for signature. While brewery licensees currently need to pick up a winery license to sell their own products directly on site, following enactment of this measure their brewery licenses alone will do the trick. New license structure allows breweries to operate up to 3 retail locations in the state but no more, regardless of how many other licenses or brands it may acquire. Also clarifies that breweries not allowed to have winery license unless of course they are in fact producing wine or cider. (It also clarifies "common ownership" has to be over 50%, so AB's stake in CBA doesn't impact either co's ability to operate up to 3 retail locations.)

On-Site Sales Bills Intro'd Down South; VA Balancing "Public Safety" and "Economic Development" Brewers in Georgia still waiting on action from Dept of Revenue to update rules for facility tours and once again in press (editorial in Savannah Morning News this week asks state to "fix this 'convoluted mess,'" citing local brewery spokesperson, and Atlanta's 11Alive followed other coverage pointing to lobbying $$ spent by state wholesalers). But bill intro'd in Mississippi that would open up options for on-site sales at breweries for 1st time. It clarifies terms "large" and "small craft breweries," with demarcation at 225K bbls. Both would be allowed to sell beer for on- or off-site consumption, while small craft brewers could open up a single off-site "secondary location" for sales (but it must be in adjacent county). Bill would make other tweaks to alc bev laws in state, too, tho recall Miss brewers focused on not operating in only state to bar any form of on-site sales (one of 2, not counting Georgia's tour/"souvenir" beer workaround). At same time, progress of proposals in Alabama seem to be moving along just as expected. Matching House and Senate bills intro'd there last week "follow the recommendations" of study commission (see Jan 20 issue), AL Brewers Guild wrote.

Interesting note about those 'Bama bills: both were sent to Economic Development Committees in respective houses. And it's not only state where bills that would add privileges to brewer licenses being sent to similarly-focused committees rather than others examining regulated industries or licensure. For example, NJ bill to allow small brewer sales at farmers markets also in Senate Economic Growth Committee. We've observed much greater interest in the subject over last few years, particularly from state Econ Dev and/or Tourism agencies looking to the beer industry and alc bevs in general for growth. New York continues to push hard here: Gov Cuomo announced expansion of Taste NY program just today with addition of a Taste NY Bar at Brooklyn's Barclay's Center. It'll include all NY-made products.

At same time, distillers in Virginia now seek expanded sampling and retail privileges, but other industry members and observers not so thrilled about the idea. "Dozens" of bills intro'd there have "left lawmakers weighing public safety against economic development," Washington Post wrote last weekend. Recall, Gov Terry McAuliffe has been a big backer of brewers in state, awarding almost half a million dollars to 8 different craft brewing companies "in exchange for $30 million capital investment and 128 jobs." And the administration promises "more about economic development happenings in the distilled spirits sector during 2016." As WaPo highlights, the push and pull "poses a particular conundrum for some Republican lawmakers, who must balance the teetotaling tendencies of some of their socially conservative constituents with an ideological aversion to government regulation and interference."  

Pair of smaller brewpub deals close out week that began with first public craft transaction of the year. Here we go. AB will add the original Chicago Goose Island brewpub, which founder John Hall retained after 2011 deal for rest of biz, Chicago Tribune reported today. No details disclosed. Recall, AB barred from owning brewpub first time due to Illinois law. And apparently it "didn't have much interest," Trib wrote: "They didn't understand the value, which they do now," John Hall told paper. Law changed last year, so AB free and clear to operate the nearly 30-yr old Clybourn Ave pub. "It's been the best 30 years of my life," John said of "bittersweet" moment. "But it's kind of a natural progression." For those counting, that puts AB's currently-operating High End/acquired-craft retail outlets at 17, with 4 more known to be in works.

Then too, just days after Victory announced deal with Ulysses Group and new ABV entity, another PA-based craft brewery/brewpub struck a deal with a separate private equity firm. Iron Hill Brewery & Restaurants has partnered up with A&M Capital Opportunities (subdivision of A&M Capital "focusing on growth-oriented, lower middle market companies") to help expand its footprint "into new Mid-Atlantic markets," co announced. Iron Hill is a twenty year old brewpub concept with 11 locations thruout Delaware, Southeastern PA and NJ, with one more opening this summer in Huntingdon Valley, PA. It lists itself as 7th largest brewpub in US; all locations combined grew 1% to 7,805 bbls in 2014, according to Brewers Assn stats.

With new partner, Iron Hill looks to "double in size over the next three to five years" and extend reach "from North Carolina to New England" starting with NJ and MD, co-founder Kevin Finn told Philly.com. The deal "allows us to grow the company in a way we feel comfortable with," he added. Gotta note, PE money is a lot more common in restaurant biz and paper points out that several investors have backed restaurants in competitive Philly area. Meanwhile, co-founders from A&M Capital Opportunities (AMCO), Drew Baird and Paul Lattanzio, will join Iron Hill's board of directors. AMCO is also "associated with Alvarez & Marshal Holdings LLC, the New York-based consulting firm best known for its role in running Lehman Bros after the investment bank's collapse in 2008," paper added.  

Challenges faced by Boston Beer's biggest brands late in 2015 continued into new year. Company-wide depletions down 3% in 4th quarter and for first 6 wks of 2016, execs shared yesterday on Q4 earnings call. Shipments down 2.5% in Q4 too. Depletions decline slowed full-yr growth to low-end of guidance, +4%. Shipments up 148K bbls in 2015, 3.6%, to 4.241 mil bbls (excluding modest contract biz). So we adjust our early estimate for Boston's beer biz (excluding cider and tea, see Jan 22 issue) downwards slightly to about 2.51 mil bbls, -1.6% last yr. That still includes bump from Alchemy & Science brands like Traveler and Coney Island, so isolated Sam Adams trend certainly steeper. Sam Adams family volume down 11% YTD in Nielsen all-outlet data thru Feb 6. Indeed, the core beer brand is already less than half of Boston's volume in that data set. Without serious turnaround in Sam trends, possible the brand family slips below half of Boston's total volume sooner rather than later, particularly if the co grows overall.

"We believe we have lost share," founder/chairman Jim Koch said frankly on yesterday's call, as competition ain't letting up from new entrants and expanded distribution of existing brewers. But "we believe that craft beer will continue to grow and that we are well positioned to share in that growth," he continued. Still, both Sam Adams and Angry Orchard depletions down in Q4, CEO Martin Roper explained, tho Angry Orchard held share of cider. So it was Coney Island, Twisted Tea and Traveler shandy brands that kept Boston from dipping even further at end of 2015. And exec team doesn't expect difficulty to go away. It guided to continued declines for both Sam Adams and Angry Orchard for full-yr 2016. But intro of Sam Adams Nitro Project and rollout of Grapefruit Rebel bottles/cans should lessen decline in beer. Boston gets benefit of 53rd week this fiscal year, compared to 52 in 2015. Continued growth within tea, shandy and hard soda should keep 2016 depletions trend in mid-single-digit range, execs expect.

Yet analysts pressed this guidance. Achieving mid-singles growth "seems a little bit optimistic," Goldman Sachs' Judy Hong kicked off, followed immediately by question from Cowen & Co's Vivien Azer to "dimensionalize the pressures" on Boston volume. The co "knew that the first part of 2016 would be tough," Martin explained, especially since nitro intro doesn't kick in much til after 1st quarter. But since "trends softened" throughout 2015, as Jim said in prepared comments, comps get easier as 2016 goes on, Martin reminded. Boston up just 1.4% in 2d half of 2015. To help "stabilize," Boston investing in new "Know More. Love More," campaign behind Sam Adams. Asked about seasonals, Martin said the co will "highlight the beer" rather than the season, going forward, suggesting that Sam Seasonal "probably the best executing one" in terms of both "transition" and "ease-of-use" for distribs and retailers. He called out that last fall there was "probably too much pumpkin" and "wholesalers are a little overloaded." So look out for "how that plays out this year." Meanwhile, Martin and team "surprised and pleased with how many retailers have been excited by" Nitro Project and "opted for two or three of the styles." But don't expect to start seeing that til March or April.

At same time, Boston will "modify our messaging a little" behind Angry Orchard "to support the category." Getting cider back to growth crucial for biggest cider brand, but Boston leaders still bullish that category will do just that. It's "still miniscule" as 1% of beer volume and may be seeing "trial balloon bursting a little," but cider "in the American drinker's sweet spot," (literally?). Martin also reminded that with "so much going on, retailers and wholesalers changing level of execution" on cider. "Are you implying that cider is losing shelf space, potentially, to hard soda?" Vivien followed up. Maybe not "specifically," Martin said, adding that they did see "some potential loss of share of floors and ads." He's still cautiously optimistic about Coney Island Hard Root Beer, "a brand that can survive in that space," now much more crowded than just a couple months ago.

Financials Still Strong: Oppy to Improve Amid Slower Growth; SAM a "Leaky Bucket (for now)" Boston Beer revs finished 2015 just shy of a billion dollars, while operating income +6.7% to $156.2 mil. Echoing comments earlier this year from Jim, Martin explained on call that the co's "been through periods of slowing growth or flat growth" before and last time, between 1997-2003, it "uncovered a lot of opportunities" to operate more efficiently. So following last few years when Boston "chased the case," it'll seek efficiencies inside of pace that growth required. "Let me be clear, I would rather have growth," he noted. This morning, financial analysts largely lowered expectations for coming Boston earnings and neither Judy nor Vivien believe Boston volume growth will get to range execs guided to. Vivien at Cowen & Co expect shipments +3% in 2016; Judy thinks depletions will come in +1.7%, including 2-3 pts from innovation and not quite 2 pts from additional week. Tough craft competition "has been talked about for a long time," RBC's Nik Modi kicked off in his report, but "it is finally coming home for SAM." Indeed, flipping script on Jim's familiar comment about overall beer market, "we truly wonder if Sam Adams has become the leaky bucket for the craft category (at least for the foreseeable future)." Following report, SAM stock down less than 2% at presstime.  

Last year was the busiest year of change in the craft segment since INSIGHTS launched Craft Brew News in 2010. To help you keep track of this increasingly important segment, we're proud to offer you the third edition of Craft Brew Guide. The 2016 edition, available in April, provides perspective with the key shipments and retail data, analysis of select markets, profiles of top players and essays on important issues like M&A and legal/legislative changes. The 2016 Craft Brew Guide will also include deeper-dives into regional shipments and brewer data. Order this year's digital PDF edition for $210 or as an easy-reference soft-cover book with the PDF for $260.  

Even as several prominent craft brewers continue to sell their bizzes to "Big Beer" (among other buyers), "for most, the craft beer ethos is 'not for sale,'" Stone co-founder Greg Koch wrote in article for San Diego Union-Tribune. Now that "craft beer is officially a thing," large beer cos settled on "an age-old strategy" to "marginalize our segment": "Purchase. Control. Obfuscate." Indeed, "when a craft brewer sells out to Big Beer…their brand is transformed overnight from being a positive force for growing the craft segment into a tool fighting against the brewers who choose to remain solely dedicated to the craft category," sez Greg. He also cites Dogfish owner Sam Calagione quote that likens "once-craft brands" to "pawns in their [Big Beer's] game to knock the true indie breweries off the board." In Greg's analogy, large cos approach to business is like a hockey game - "score at all costs and don't hesitate to throw an elbow in the process" - whereas indie craft brewers like Stone treat business like a footrace: "Yes, we like to win, however, we don't knock down the other guy to do it." All in, Greg again affirmed his stance on remaining independent and "holding true to the craft beer ethos."  

Late last week's ruling against Massachusetts distrib Craft Brewers Guild, new FDA rule requiring alc bev nutrition info for chain restaurants and pending ABI-SAB merger each elicited handful of new comments that filtered in over weekend. Ruling against CBG (see Friday issue) "is unnecessary and unfortunate," Boston-area bar owner Marc Berkowitz told the Boston Globe for follow-up report. In his view, "pay-to-play bans are outdated," the Globe summarized, and alc bevs should operated more like other food and beverage sales where slotting fees the norm. But another Boston bar manager, Jamie Walsh, disagrees and thinks the case indicates the need for more enforcement to "make it fair so that it allows the independent craft brewers have a level playing field." The nature of the decision caught many by surprise: "Wow, I did not see a decision of that magniture coming down the pike," prexy of state's brewer trade assn, Massachusetts Brewers Guild, Rob Martin told the paper. "Consumer choice is hurt for sure," he added. Separately, Maine brewers and their guild are sitting tight to wait for CBG's next move. Practically, it would be hard for the 5 Maine brewers that CBG distributes, including Allagash and Maine Beer Co, to find a new distributor, Maine Brewers Guild exec director Sean Sullivan told the Press Herald. But still, "it's a little early to make a judgment."

Federally, lotsa brewers still thinking carefully about coming December deadline for chain restaurants with 20+ locations to include certain nutrition info on menus, including for alc bevs. Recall, rule allows restaurants to use average info from handful of standards FDA provides for various products, which would prevent testing individual products. But current list of beer styles or types in that database pretty thin. So Brewers Assn currently compiling required nutrition info on at least a dozen styles to submit to FDA to bolster its database, director Paul Gatza explained to USA Today. "We're going to submit that data and hopefully they will include that," he said. Brewers views of the new standards vary considerably, natch. "Point blank," the rule "hurts businesses like us," founder of Delaware's 16 Mile Brewery Brett McCrea said. While "not a fan" and still feeling "over-regulated and under-benefited," Heavy Seas founder Hugh Sisson gets "the ideological perspective of transparency for the consumer. That's as Yards Brewing quality assurance directors said his co is "happy to help our accounts comply with the new regulations."

Finally, House Small Brewers Caucus sent letter to Dept of Justice late last week urging "even more comprehensive" review of pending ABI-SABMiller deal than the DOJ did on ABI's Modelo. Focus for Caucus is on "ABI's increased leverage on all aspects of the United States beer industry" due to new co's expected near-60% share of "global beer profits." Letter hits all the issues brought up during Senate hearing last fall, including lotsa discussion of distribution and note about access to raw materials/commodities. "The prospective enhanced dominance of the global market by ABI should not increase its ability to control the pathway to an effective distribution system, nor should it suppress the growth of American craft beer," it concludes.  

Meet ABV, otherwise known as Artisanal Brewing Ventures (catchy name), the newly announced holding company that will contain both Southern Tier and Victory Brewing, two craft brewers that totaled 250,000 bbls in 2015. Combined they would be in the top 15 nationally and one of the top few craft players in their Northeast/Mid-Atlantic core. They collectively expect mid-teens growth in 2016, which, if achieved, would put ABV right up against 300,000 bbls in 2016. In 2015, Victory sold 142,000 bbls, up 12.7% and Southern Tier sold 107,000 bbls, up 8.3%. Bringing Victory into fold "elevates us" said ABV ceo John Coleman, and "puts us in a better position to deal with wholesalers and retailers" and "with future partners down the road."

Recall, Southern Tier sold a majority to Ulysses Group, a NY based family office (a type of private equity co that typically has much longer time horizons) back in 2014. That was one of the first in wave of private equity deals. And now Ulysses Group is first to strike again in a significant way. Deal has some intriguing wrinkles. "This union presents a new model for craft partnerships by preserving brewery independence while pooling deep collective resources," said release.

Importantly, Victory principals Bill Covaleski and Ron Barchet will not only stay on in exec roles at Victory but "become significant shareholders in ABV" and join its Board of Directors, which also includes Southern Tier founders Phin and Sara DeMink. Phin and Sara retain sizable stakes as well. As does Ulysses Management of course, which also has 2 seats on ABV board (Paul Barnett and Toby Rando). ABV ceo John and consultant Bump Willaims (only outside director) round out board. Interesting to note too that while Ulysses has over $1 bil under management, "Wells Fargo's Beverage Finance group provided capital to support the investment and continued growth" of ABV. Is that simply because borrowing rates are so attractive?

Surprisingly, ABV hq will be in Charlotte, NC, where it already has taken small 1,000 sq ft open office that will include ceo John, cfo Bill Wild and a chief marketing officer when they hire that person. One reason for that, according to John, is simply flight availability, which is very good to both Buffalo and Philly, the nearest major airports to Southern Tier and Victory respectively. Another: consumers in its core mkts are migrating South. Then too, unstated but Charlotte lower cost than NYC. And one can presume that ABV will someday expand with another acquisition somewhere beyond its core.

But for now those core mkts remain a significant strength. Southern Tier does about 70% of its biz in just 4 states--NY, NJ, PA, and OH. And Victory is "pretty much in the same boat," according to John. Southern Tier is in 33 states and Victory is in 37 states, according to release. While Southern Tier doesn't plan to enter new mkts in 2016, Victory will likely enter a couple of previously planned states. Will ABV consolidate distribution networks? "A combined wholesaler lends itself to a better relationship," acknowledges John. But "we're in no rush" and so "for the foreseeable future," expect "status quo."

The two companies first started talking about 6 months ago. But a Letter of Intent signed more like 6 weeks ago. And the deal is expected to close in the next 30-60 days. Each of Southern Tier and Victory will continue to run independently of each other, but report up through to John at ABV. Victory will be adding 7 sales folks this year and Southern Tier another 4 (after adding approx 25 last year). Combined they'll have a total of about 60. "This deal isn't about cost savings," said John. Rather, ABV looks to be a kind of strength multiplier as the segment is "only going to get more competitive." Under the "well-structured" ABV umbrella, added John, a craft brewer is allowed to "remain independent" and "stay innovative" while getting "benefit of our senior management team," shared admin and backroom costs, and collective sales and mktg strength.

"The craft beer community is at its most critical moment since its inception as larger brewing corporations have bought into our grassroots movement," said Victory founder Bill Covaleski in a statement. "Like minded brewers such as Victory and Southern Tier can preserve our character, culture and products by banding together." The two breweries combined will have a capacity of 800,000 bbls. "We can brew at their facilities. They can brew at ours," noted John. And they're "looking at opportunities" to do just that "in the short term. We're going to be a player," concluded John.  

Interaction between beer, wine and spirits only seems to be increasing and some "common answers" to craft flavor trends may encourage that, even if "the trend for 2016 is not a trend, rather it's diversity," as BA economist Bart Watson wrote recently. In that post Bart notes that "sometimes the variations outweigh the themes." True, generalizing movement across full craft spectrum basically impossible these days, but among largest small brewers getting national attention, Bart points to oft-cited trends like "sessionable styles," "sours" and "fruit or other infused takes on existing styles," particularly fruited IPAs. While session beers work in beer's long-time wheelhouse, easy-drinking refreshment, observers regularly point to the acidity of sour beers as an attraction for wine drinkers. Could the infused fruit flavors coming on in IPA attract drinkers currently seeking these flavors in spirits? Consider these notes from beyond beer.

Diageo's Flavor Trap Diageo has become highly reliant on new flavored spirits, particularly within Smirnoff vodka line. An Exane analyst noted that Regal Apple Crown Royal (whiskey) release was 85% of Diageo's growth in the US in 2015, Wall Street Journal wrote. The co's CFO acknowledged that "flavors are going to cause you to have more ups and downs by its nature," adding that "the right flavors...can really resonate." But the Exane analyst expects the brand to "leave a big hole to fill for Diageo in the next six to 12 months." . . . Vodka is to Mainstream Beer as Whiskey is to Craft? Recent growth of both craft beer and particularly bourbon "reflect a similar change in consumer preference," Cowen and Co's Vivien Azer told just-drinks. Both craft and whiskey growth driven by younger drinkers, following "30-year trend to less flavorful" beer and spirits, Vivien said. Turning point in spirits was 2010, she noted, same year craft kicked volume growth into high gear. She expects mainstream share losses to go on for 10+ more years. . . . Big Vodkas Battle "Craft" To compete against whiskey and legion of new small distillers, Diageo will spend $50 mil on "Activation Army" to host tastings at bars nationwide, largely behind Smirnoff, Bloomberg reported. Competing vodka brand Absolut from Pernod Ricard changed its bottle for the first time to include the word "craft," working to bring drinkers attention to the brand's origin and quality.

Beer Encroaching Wine Searches for specific beers sextupled since June 2013 on wine-searcher.com, it shared in recent post titled "The Unstoppable Rise of Beer." It was on occasion of Goose Island Bourbon County Stout appearing on its Most Searched-for Wines list, the first beer to do so. The monthly searches for any beer on the site more than doubled last Nov to 100K+. . . . Wine Encroaching Beer Parts of Virginia and Rhode Island are seeing shipments of an Australian Pale Ale from [yellow tail] maker Casella Family Brands, according to Aussie source TheShout. A lager and wheat beer will roll out come March. . . . Tragic Wine Snobbery "We all have very different palates, cultural histories, childhood memories and favorite meals. We are not the same. There is no perfect wine. There is no right wine," wrote Ryan Opaz for HuffPost recently. Outlining his view of "the greatest tragedy in the wine industry today," he argues that snobbishly encouraging consumers to believe a wine could be "right" or "wrong" inhibits selling wine more generally. That doesn't mean an "intellectual type" shouldn't immerse herself in story or science and hone her palate. But that doesn't mean it "is better than another's," and "please do not assume that your new found knowledge is somehow absolute."  

Lotsa changes, including expanding distribution, new beers and packaging, promised by new Anchor prexy Matt Davenport, "focused in the short term on shoring up key markets and key distributor relations," co announced yesterday. Matt comes with 20+ yrs of alc bev experience, mostly in wine and spirits and creates new role at Anchor Brewing (as Anchor also has distilling arm). He comes from exec veep of sales role at Gruppo Campari, following similar stint at Niebaum-Coppola Estate Winery. He plans to build on Anchor's history within craft movement "while seeking new ways to increase growth and maintain relevance," he said. Some of "exciting changes" he promises "in the next few years" include "new brews," to "expand sales in major metro cities across the country, south of the border and overseas," "freshen up Anchor's iconic look and feel," and "most importantly," "continue to honor Anchor's legacy and uphold that creative San Francisco spirit."