Publix is the most powerful chain in Florida and reportedly is increasingly interested in promotions that are BOGO, buy-one, get one free. Coney Island Hard Root Beer did at least one last yr, soon after its intro. But still somewhat of a surprise to see Boston Beer go BOGO with its Rebel brand. Price is $11.69 per six, but you get another six free. So under a buck a bottle. Ad CBN saw sez "assorted varieties" and pictures brand-new Rebel Grapefruit as well as original Rebel IPA and Rebel Rouser Double IPA. Hopefully, this isn't beginning of a trend.  

Across many categories, craft segments may be riding "consumer mega-trends," and beer may be at the forefront of the movement, but growth will be tougher to get for big craft brewers during next phase, research team at Goldman Sachs, led by Judy Hong, wrote in report this week. They're digging deep into "The Rise of Craft" in a series of reports to helps investors "monetize this theme" and kick off "with the segment most roiled by the craft revolution: beer." Indeed, craft is "most advanced" in beer, according to Goldman Sachs, and "burgeoning" in spirits and sodas as well as restaurants and cosmetics. For instance, membership in the Handmade Soapmakers Guild more than doubled from just over 1200 in 2010 to over 3000. Sound familiar?

But food and drink seem to be particularly affected by the craft movement. Related trends topped the National Restaurant Assn's "What's Hot" lists early this year, as Goldman Sachs points out. That's true within alc bevs, where "craft/artisan spirits" is #1 trend and "craft beer" is still #5. But "locally produced" alc bevs is #2 and "house-brewed beer" is #3. Similarly, "house-made/artisan soft drinks" top the non-alc bevs list, followed by "gourmet lemonade" and "specialty iced tea." Finally, "locally grown" is #1 "produce" trend, while "heirloom apples" is #2. These analysts also point to upwards of a couple-hundred million dollars of private equity investment in small restaurant chains focused on high-end or specialty offerings. This train ain't stopping.

Craft "Transforming" US Beer Biz: Indie Craft to 16 Share by 2020, Broader Definition to 20 The folks at Goldman Sachs peg "independent craft" (close to the Brewers Assn's definition but without Yuengling) at about 10 share of volume currently, on its way toward 16 share by 2020. That estimate includes 14-15% growth in 2015 and 2016 before slowing to high-single digits only in 2019 and 2020. But throw in the big brewers' "craft-styled" brands and Yuengling, and Judy and team think a "more broadly defined" segment gets very close to 20 share in that time. Most of that share will come from "core domestics," which will dip below 60 share while FMBs and cider remain in low single-digits.

"Rising Tide Breaks," Bringing "Uneven" Growth; Previous Top 5 Could Cede 10 Share of Segment "We no longer view the craft beer industry as a 'rising tide' for all brewers," the Goldman Sachs analysts write. The continued entrance of new players, "both large and small," will put additional pressure on the largest players. So the top 5 (in 2014: Boston, Sierra, New Belgium, CBA and Shiner) could "cede over 10pts of craft share" in the next 5 yrs, dropping from 32% to 21% together. About half of that share-decline would come from Boston Beer, in Goldman Sachs estimates, falling from 14% in 2014 to 8.5 share by 2020. That would involve more than an 11-pt swing from Boston's near 20 share of the segment in 2010.

Analysts found that the number of top craft brewers gaining meaningful share dipped significantly in late 2015, while the number losing share of craft in Nielsen all-outlet data picked up. Goldman Sachs looked at the top 30 craft brewers in Nielsen stats and tracked their share gains and losses back to 2011. Between April of 2014 and July 2015, at least 8 of those top 30 brewers gained over 0.1 share of the segment, peaking at 11 in Nov, 2014. But during the last four 4-wk periods of 2015, just 4-5 brewers gained that much share, led by usual suspects Lagunitas, Ballast Point, Firestone Walker and Founders. At the same time, the number of top 30 brewers losing at 0.1 share of craft or more spiked at 11 in October of last year. Nine major craft brewers lost that much share during the final 2 periods of the year, too.

Distribution a Big Factor in Volume Growth; More M&A Coming, Natch Distribution is a big deal. So perhaps it's no surprise that Judy and team found "high correlation between" $$-sales growth and growth in top craft brewers' total points of distribution in Nielsen. The group also found a relatively close relationship between greater distribution and higher craft share. So, Goldman Sachs analysts "believe small- to mid-sized players with still-sizeable distribution ramp opportunities are likely to be the biggest winners over the next couple of years." Therefore, they expect Lagunitas, Ballast Point, Firestone, Founders and Stone to "be the biggest craft beneficiaries" in next year or two. Interestingly, the group pays little-to-no mind to growing local trend and huge numbers of even smaller players opening or expanding across US. Tho few of those players may affect these national trends, could they, in aggregate, make distribution gains tougher to come by?

Like many others, folks at Goldman Sachs "believe further consolidation within independent craft is likely, either via M&A or via joint venture/distribution partnerships." The country's largest beer cos "are stepping up their game" and spending heavily on advertising acquired craft brands and "craft-styled" brands alike. In all, lots more folks playing a much tougher game.  

Founders from 3 CA-based craft brewers that sold parts or all of their biz last yr: Lagunitas' Tony Magee, Firestone Walker's David Walker and Golden Road's Meg Gill sounded off on the state of craft beer at the Beer Industry Summit put on by Beer Business Daily. Here are some of the highlights:

Craft Won't Slow, Say Tony, David; "My Brewery Continues to Accelerate," Sez David, Despite More Breweries, Increased Competition Two of fastest growing craft brewers had notably rosy outlook for craft beer and their own growth. Asked if craft beer is likely to slow in aggregate in next few yrs, Lagunitas founder Tony Magee firmly said "no, it's not going to happen… The aspirational aspects of craft haven't even begun to express themselves right now. We have a long ways to go" and "a lot of runway." Firestone Walker co-founder David Walker chimed in: "Somehow my brewery continues to accelerate" even with all these new small breweries, whom he likened to "little beacons of noise," almost a kind of local siren song drawing more consumers to craft. Yet "ultimately we're going to be susceptible to the same forces" as wine category, said David. But "what we're going to see is an acceleration of craft beer." Any slowdown is "just a blip to essentially the larger forces." Then too, "if I were a distributor I would want another 5,000 breweries," thought Tony, since it would help "more people pay more for better beer." "The more amount of monkeys typing, the sooner they get to Shakespeare," he quipped. But it's a "more and more competitive environment" and "there's a lot of people more local than you" Meg acknowledged, talkin' generally.

"Ownership Change Won't Change Anything"; Those that Don't Do Deals Could be "Marooned" Separately asked if ownership changes within craft are good for category, Tony first answered it "doesn't really matter." To him, "Lagunitas would be exactly the same" if Heineken owned 1% more of the company (i.e. had control). And "ownership change won't change anything" since "nobody's investing in us because they want to change it." Yet that's seemingly specific to his biz. Could be that those who don't do deals may be "marooned" since it could be "harder to get the best hops, harder to get the best raw materials, harder to get distributors' attention," noted Tony.

Lagunitas Left Constellation "At the Altar"; David Walker "Still Owns" a Piece Asked about gigantic Ballast Point valuation, Tony acknowledged that "Constellation was a partner we left hanging at the altar." So "one of the consequences of that was that they continued on with their thinking," ultimately pulling the trigger with Ballast in a big way. Tony thinks "it's worth" $1 bil lookin' long term "trajectory" and that's just "price of admission."

Separately David Walker noted that he and his partner Adam Firestone "still own" a piece of Firestone Walker and they're "still very much engaged" in the biz. Previous info indicated that they sold 100%. However turns out that was not the case in the end.

Kroger Shelf Sets Proposition Is "So Far To The Dark Side"; "Good Attempt at A Test Case" Using a bit of Star Wars lingo, Tony described Kroger shelf sets proposition of "bring[ing] in a wine and spirits company to manage the beer set" as "so far to the dark side." In Tony's eyes, "you know that would have no legs," adding that even its home state (OH) sez it would be illegal. But ultimately it's "a good attempt to engender a test case," 'cause "you don't go to court to get a law made, you go to court to get an answer." Indeed, "everyone's trying to improve their situation" and "sometimes it's over the line," David chimed in. "So they'll find out "what is ok and what isn't" and "I hope it turns out good," but who knows, sez Tony, "could turn out dark."

AB Trying To Figure Out Brewpubs, Sez Meg Asked how important brewpubs were to ABI when lookin' at Golden Road deal and in general, Meg replied "they're trying to figure it out and they're doing a good job at it." And "once AB figures out that they need to invest in something they're going to invest in it wisely." In fact, AB has set up its own brewpub division, she pointed out. (And looks like they're planning a 10 Barrel brewpub in San Diego now, see below.) But "it's not like this Machiavellian 'we're trying to f*@$ up the tiers,'" but rather a "smart" investment.  

In neighboring states Kentucky and Tennessee, current caps for microbrewery permits may be amended upwards if current bills in each state become law. A bill in Ky would double the current cap from 25K bbls to 50K bbls. It already passed through the Senate, according to the Lexington State-Journal. Small brewers still under the cap can sell beer to consumers at taprooms; the bill also raises the production cap for wineries and increases the amount of spirits that distilleries may sell directly to visitors. A bill introduced in Tenn expands the current cap there from 25K bbls up to just 30K bbls. Similarly, breweries under this cap may sell beer directly for on- or off-site consumption.

Folks in Colorado and Mississippi are considering which types of retailers sell which types of alc bevs and how. Ongoing debate in Colo still seems to be headed toward a ballot measure vote this fall, seeking to allow grocery chains to sell full-strength beer (over 3.2% alc by weight) and wine. Proposed ballot language now looks like it will not include liquor, the Denver Post reports this week. Surprising no one, state Gov John Hickenlooper spoke in support of small brewers in the state, which oppose this change over concerns that chains will stock beer shelves with less diversity and fewer independent craft options than current independently owned liquor stores. A similar battle is being fought in Miss, but solely over wine, according to the Sun Herald. Currently, state-run ABC stores sell wine and liquor and chain grocers and big box stores would like to sell wine now too.

Elsewhere, NY Gov Cuomo continues to support small alc bev producers in the state and proposed further changes to state licensing, largely for retailers. Indiana may follow NY by providing some tax relief to brewers that use in-state grown ingredients. Oklahoma brewers are also angling for change, including being able to sell a six-pack of full-strength beer to visitors, according to reports from the first Oklahoma Craft Beer Summit earlier this month. But recall that any change to alc bev law in Okla must be voted on by the public, some legislators are still focused on legalizing sales of cold full-strength beer at grocery stores and other industry members may have bigger fish to fry (like the group of activists dead-set against AB owning a distrib branch in the state).  

A pair of GOP presidential candidates stopped in at two separate small breweries in New Hampshire this week and both of them promised they'd cut through some federal red tape, if elected, natch. "If I'm president, we will not be approving labels on bottled beer," Ohio Governor John Kasich said at Henniker Brewing after owner Dave Currier brought up the issue. "I'm going to cut right through the bureaucracy," Kasich added, according to Wall St Journal's political blog. Kasich had to backtrack a bit later though, via a spokesman, as the same WSJ blog noted that in 1988 he "helped enact the very law he was now promising to undermine." Kasich "voted with the overwhelming House majority" that passed a law mandating health warnings on alc bev labels. "Obviously he supports the health information that's being relayed on the label," a spokesman said later. Instead, it's "the micromanagement" of label appearances that Kasich opposes, he explained. At the same time, fellow Republican candidate Jeb Bush heard similar complaints at Kelsen Brewing and noted "the burden of federal regulation" on small alc bev makers, according to a WSJ opinion piece called "The Craft Beer Cops." The column, complete with typical Prohibition-linked snark, concludes that "this kind of nonsensical regulation," like government oversight of label language or expansion plans, "could drive anyone to drink, and it's one more reason we have a 2% growth economy."  

ID-based Haff Brewing sold its business just a little over one year after opening, reported Idaho Statesmen. Newfound owner, Tom Day, plans to rebrand the brewery as Bella Brewing by mid-Feb. But he plans to keep the beer lineup and the staff, according to paper. "My plan is just to kind of keep it going the way it's going right now and make some small improvements and see where we are financially," said Tom. "Down the road I want to start canning and bottling" too. Tom, a retired pilot who moved from Colorado to Boise in 2014, also is in the process of developing a vineyard in Ontario, OR, noted paper.  

Craft incubator/contract brewing concept, Brew Hub, had a strong first full yr in operation, as each of its brewing partners had impressive growth thru Brew Hub's Lakeland facility, ceo Tim Schoen shared with CBN. Most notably, IA-based Toppling Goliath did majority of its production at Lakeland last yr: 10,000 bbls in Lakeland and another 4-5K bbls (or more) at its IA facility, said Tim. So Toppling Goliath grew from just 3200 bbls in 2014 to regional status in just one year. Brew Hub also enabled its largest partner, Cigar City, to grow last yr even as it was capacity constrained at its own facility. And in turn, Cigar City was able "to focus more on the innovation and creative part of their brewery," said Tim. The two teams have "melded together" and Tim's consistent message to Cigar City is to "get your people to view us as your second brewery." "The fun part will be what's next," because "boy do they have the demand." All in, "the lowest growth we had for one partner was 50%," said Tim, albeit off small base that didn't start 'til late 2014.

"What's happened in the first 12 months" of operating is that "local, regional" has become "such a dominant force" in Fla (as well as across the country), with "emergence of new players in literally months," said Tim. Recall, Brew Hub just signed on two more Fla-based partners, JDub's and M.I.A. Brewing and plans to quickly multiply their production this yr. So there's a "new paradigm," sez Tim. And Brew Hub lookin' to help its partners tap into that, acting as "an enabler" for growth in production "and now in marketplace" too. Current focus is on "production side," building out capacity at Lakeland and getting ready to break ground on St Louis facility this March. Yet it's also developed "Smart Services" program to help sell and market brands "that want to come in to new geographies" (i.e. Green Man in Fla).

"Offering a Completely New Option" for Brewers Lookin' to Sell; St Louis by Early 2017 Then too, as Brew Hub looks to open 3 more incubator facilities across the US in fairly short order, co is very open to purchasing an already existing brewery, CEO Tim Schoen confirmed with CBN. However it's "offering a completely new option" for brewers lookin' to sell amid deal-heavy environment. Indeed, Brew Hub primarily interested in the facility and equipment, while brewers "keep their brands, their IP." Tho "we could plug you right into the system" too. And it's only interested in facilities that are eventually capable of producing at least 200K bbls/yr, which is right "in our sweet spot." Tim and co, in fact, did come close to striking a deal with two different breweries in the northeast, he confirmed, tho ultimately they couldn't come to "terms" and/or "timing" wasn't right.

Brew Hub pushed back St Louis facility opening date a bit, but hopes to break ground on St Louis brewery in March and have the brewery up and running by early 2017, said Tim. "Might have the tasting room open earlier than that." It has regional brewers that are already "lined up" tho co not going to make announcements "until I have an actual shovel in the ground," sez Tim. Either way, Tim and co are confident that "we'll fill it."  

Former Tenth & Blake prexy and 38-yr beer industry vet Tom Cardella joined board of directors of North American Breweries (this article appeared in yesterday's Express as well). It's just a little more than a yr since he left MillerCoors. And likely very shortly after Tom's non-compete expired. Tom spends lots of time and has a place in Costa Rica. That's where NAB's parent co FIFCO based. Last yr, Tom met ceo of parent co Ramon Mendiola in Costa Rica. And Ramon expressed interest in Tom joining board, tho Tom couldn't do so at time. Another connection: fellow board member Dick Strup also worked at Miller for many yrs. In fact, he was a mentor to Tom there. Then too, Tom expressed interest and admiration in FIFCO and NAB's business model and the "triple bottom line" approach, emphasizing social and environmental as well as financial bottom lines. And Tom also knew NAB's sales veep Doug Smith and mktg veep Glen Tibbetts from his days at Labatt USA. So Tom has relationships within NAB and FIFCO that go way back. "Along with" his board duties, Tom told INSIGHTS, he's "very much open to any projects that Kris [NAB ceo Kris Sirchio] would like me to be involved with." Interesting development.  

Just after Oskar Blues released its 2015 numbers, founder and ceo Dale Katechis spoke to "lofty goals" for 2016 via follow up report in Denver Post blog. Dale and co hope to grow another 26-27%, to reach 243K bbls this year - 128K bbls from Longmont, CO, 105K bbls from Brevard, NC and 10K bbls outta new Austin, Tex facility. Another 51K bbls of growth altogether. Oskar revs hit $55 mil in 2015 and "revenue should climb further" this yr, paper noted. Interestingly, Dale already talkin' about building a 4th location for Oskar too. "Maybe somewhere near Lake Tahoe," he told paper. But first things first, "we kind of want to confirm that Austin is what we think it's gonna be." They're hoping it'll be anything like Brevard, NC, which helped fuel 100% plus growth in NC "back to back years" while Oskar became "a big part of the community and really establish[ed] local roots," said Dale.  

This is what disruption looks like. Craft segment volume continued up at mid-teen pace in 2015. Our early estimate is +15% or so, 2.9 mil bbls. That's while overall beer biz flat, imports up solid 5% and domestic mainstream volume continued down about 2%. Since 2010, craft more than doubled, tacking on almost 12 mil bbls, while mainstream beers dropped over 13 mil.

But while craft growth remained robust overall in 2015, competitive pressures ratcheted up, and many long-time players really underperformed. That's especially true of a handful near the top of the rankings. Indeed, early reports and our estimates show 4 of top 6 craft brewers either down or up 1% or less last yr. That includes leader Boston Beer's beer biz, which we estimate down slightly for 1st time since 2009. Boston does not report a beer number. Its biz increasingly complex with tea, fast-changing cider trend and 2d half pop from Coney Island Root Beer. But both IRI and Nielsen report Sam Adams franchise down mid-to-high single-digits. GuestMetrics reports similar trend on-premise. Then too, New Belgium off slightly, Shiner up less than 1%, they told CBN. And Craft Brew Alliance guided to low-single digit shipments gain (flat depletions) in Nov.

Meanwhile, Sierra Nevada scored its biggest bbls growth ever and held share of craft for first time in a long time. Lagunitas kept on truckin' (and got some chips cashed in). Posted 30%+ growth for 7th time in last 8 yrs. Up nearly 200K bbls, 32%, blew past Shiner for #5 spot on our list and neared 800K-bbl mark. But even that's a slowdown from 825K bbls expected as recently as early Nov. Mixed bag for remaining top-10 players too. We've restored Goose Island to our craft list and will keep AB's other acquisitions in the total, and revised totals accordingly. Goose up estimated 20% in 2015 to 450K bbls. Bell's and Stone each up near segment pace. But Deschutes slowed to +3%.

Very mixed bag below top 10. Ballast Point more than doubled (and rocketed past almost 20 competitors). Harpoon, Rogue, Shipyard, others declined. Many others had modest gains. At least 6 of top 36 were down this yr, compared to none in 2015. Up to 10 more grew less than 5%. So there's increasingly a bifurcation. Many large craft brewers slowed, others rocked the joint. Three biggest gainers, Lagunitas, Sierra Nevada and Ballast Point, grew nearly half mil bbls, 28%. They represented about 10% of shipment volume, but got near 20% of growth in 2015. Interesting too that 4 of 5 fastest gainers (Lagunitas, Ballast Point, Founders and Firestone Walker) sold part or all of their biz in last yr or so.

But it was ever-widening craft tail that really took off last yr. Our list of brewers over 100K bbls collectively up about 1 mil bbls, 8% in 2015. Long tail of almost 4200 competitors gained nearly twice that. Up 1.9 mil bbls or so, nearly 25%, we estimate. So brewers representing about 40% of craft volume grabbed about 2/3 of the growth. Look at some share figures. Brewers below the listed 36 grew from 30 to over 40 share of segment just since 2010. Volume nearly tripled, while bigger players collectively up 73%, admittedly not too shabby. Meanwhile, top 10 brewers in 2015 had about 37 share of craft. Top 10 in 2010 - a different group of players - had just below 50 share. Did we say disruption?

Traffic Jam Just Below Top 10 Very tight race among players #11-14. Brooklyn and Ballast tied at 277K bbls, with Ballast afire in yr it got bought by Constellation for $1 bil. Brooklyn slowed tho; up 10% after 6 yrs of averaging 20%+ annual growth. And very possible that Brooklyn's US biz off slightly, as its exports still strong. Just behind Brooklyn: big gainers Founders and Firestone Walker, up 40% and 27% respectively. But Dogfish Head also slowed, up just 4%, SweetWater cooled way down from 30% gains in previous 2 yrs, Matt maintained slow-growth trend and Harpoon posted its first loss. Boulevard up 5%, missed joining 200K-bbl club. Founders, Ballast and SweetWater all joined that club last yr. Tho Duvel Moortgat isn't integrating Firestone Walker into its craft biz with Boulevard and Ommegang, the 3 together shipped about 500K bbls last year, we figure, among top 10.

New Glarus and Oskar put up big gains in 2015; each neared 200K-bbl mark. But much more modest gains among group of players between 140K and 170K bbls. None of them neared segment trend and a couple flat or down. Another half-dozen brewers between 100K and 115K bbls in 2015. Three of those shipped over 100K bbls for 1st time: Southern Tier, 21st Amendment (with big 45% jump) and Ninkasi. Rogue took a hit, Odell +10%, Full Sail even for 2d straight yr.

Five-Yr Trends All Over the Lot Craft biz more than doubled (+109%) since 2010. About half of the top players neared, matched or exceeded that pace. Growth champ percentage-wise was no doubt Ballast Point, screamin' almost 1300% from just 20K bbls to 277K. Founders up almost 1000% too, from similar base. Another handful tripled or better. But Lagunitas booked best bbls growth by far: up nearly 700K bbls, 674%. Boston Beer, tho it lost about 8 share of craft biz during this period, still gained over half-mil bbls, second to Lagunitas. And Sierra had 3d biggest bbls growth, +435K bbls. Take a peek back 10 yrs. A decade ago, there weren't a dozen craft brewers over 100K bbls and just 5 over 200K bbls. In 2015 there were 3 dozen brewers over 100K, 18 over 200K bbls. Note: in addition to Boston and CBA, we've estimated 3 brewers in table as even for the year, not having gotten input at presstime.