In order filed earlier this week, US Dist Ct judge in NJ dismissed most of distrib Hunterdon's counterclaims vs AB and its complaint vs Elysian over AB moving Elysian brands to its distribs in NJ last yr. Recall, Hunterdon claimed AB did not "first pay" fair market value for Elysian and therefore termination not for good cause. AB sent check for $563K for approx 8500 cases, valuing brands at 5.5X gross profit of $12 per case. Hunterdon sought 12X GP. But Hunterdon also sought punitive damages, claiming tortious interference, breach of contract, conspiracy and other violations of NJ law. AB insisted all along that only matter to resolve was whether Hunterdon got fair mkt value. And that's what's left before the court.

As we reported in INSIGHTS Express, Hunterdon argued NJ law does not give AB "blanket protections" against its charges, that it alleged "coercive and unlawful conduct" by AB and Elysian. Distrib cites law that sez successor must "first pay a terminated wholesaler the fair market value" of terminated brands and if it does not, successor "liable for all reasonable damages" from a termination without good cause. What happened here, Hunterdon sez: AB made "unilateral determination" of FMV that Hunterdon disputes. What's more, Hunterdon pointed to "fraudulent, dishonest or illegal conduct" by AB/Elysian. Includes email from Elysian that it would not ship a new beer Hunterdon ordered "as you are on-hold per AB-InBev" when Hunterdon "still legally Elysian's" NJ distrib. AB also acted "maliciously," distrib sez, by terminating without proper compensation since AB knew at time that Hunterdon disputed valuation. Plus, AB "directed Elysian to not ship product to Hunterdon for" at least 2 mos before the termination. That was "dishonest and at-odds with socially accepted business standards." Refusal to ship also created damages by reducing Hunterdon's sales and AB's payment.

But AB maintained that only issue is FMV of Elysian brands and whether Hunterdon got it. No question here that AB is successor brewer and can move brands for FMV, argues AB. No malice here either, it insists, since original notice that AB intended to move brands under state law that specifically allows it to do so. Regarding e-mail from Elysian denying delivery, that e-mail "sent eight days after" AB closed deal, it emphasizes, and after AB and Hunterdon had already been negotiating FMV. So only question at that point was price. AB based its FMV calculation on 12 mos thru Mar 31 and Hunterdon could conceivably consider missed order in its thinking, AB acknowledges, but that ain't malice. Looks like judge mostly agrees with AB, at least so far.  

New year, new projects. A bunch of small and mid-sized breweries announced expansion projects to kick of 2016, all representing significant investments in future growth. Note that most of these breweries aren't just expanding capacity. They're also adding capabilities for specialty brewing operations, improving visitor experiences and adding retail. In this time of heightened competition and likely tougher growth, these breweries seem to be doubling down on becoming the bigger, more complex companies they envision themselves to be.

Regional Pennsy brewer Troegs Independent Brewing announced it'll greatly expand its wood-aging operations at its current facility. It's hoping to open up its new "Splinter Cellar" by mid-April, naming the space that'll house 3 large new foeders after existing small-scale Splinter series of beers. Those wood fermentation vessels will arrive late March/early April and be built in place, co-founder Chris Trogner explained to CBN. Once they're all set, a version of Troegs' winter specialty Mad Elf aged on Balaton cherries, dubbed Wild Elf, will kick off the expanded wood program. The new area will be front and center at the co's Hershey brewery, enclosing the space in a glass exterior wall. That little bit of "show and tell," Chris said, saying "here's what we do" to folks traveling along Hershey Park Drive, will become the "dedicated brewery tour entrance." Come spring the co will start working on the exterior, developing greenspace around the brewery, shifting and adding parking while separating visitor traffic from truck traffic. Executing that "long-term master site plan" will take a couple years, Chris said, but in the meantime Troegs keeps slowly expanding its capacity. He currently pegs the facility's fermentation capacity between 110-120K bbls. Expanding brewery operations also means Troegs has to expand its offices, so it's currently setting up a "whole new administrative section," making space for more employees. The co added 20 new workers in 2015, across brewing ops and sales/mktg, has about 100 working in its large tap room and about 190 employees total.

In Ohio, MadTree Brewing shared plans for a new $18 mil facility a mile away from its current brewery in Cincinnati. The spot will be outfitted with a 100-bbl brewhouse, quadrupling its production capacity, according to Queen City Fresh. Recall, MadTree ramped up quickly after opening in just 2013. The new facility won't just come with more brewing capacity but a much bigger taproom, a 10K sq-ft outdoor beer garden and also a bigger lab for quality control.

Down in Texas, Jester King just bought 58 acres of land around its Hill Country brewery. The company's founders looked at growth in Austin and its own goals of establishing itself as a fully functioning farm brewery and took the plunge, co-founder Jeffrey Stuffings wrote for the company's blog. They'll start planting this spring, but not only ingredients the co already uses for its beers: "we'll devote land to starting both a vineyard and orchard," Jeffrey wrote. "We often blur the lines between beer and wine with our fruit refermentations, so growing our own fruit at the brewery will be an exciting step forward for us." So future plans include both "wine making and distilling," as well as malting barley and wheat, plus any number of small-scale food operations, like establishing a farm-to-table restaurant, bread and cheese making, coffee roasting and more.

Santa Fe Brewing announced its purchase of an adjacent space that it's hoping to turn into a large concert venue nearby. The Bridge at Santa Fe Brewing in downtown Santa Fe should have space to hold 300 concert-goers inside plus an additional 1000 in an outdoor space. The city "needs more solid music venues," owner Brian Lock said in a statement. The new space, just "across the parking lot from the brewery," will be connected by a skywalk and should be operational by next month.

Finally, up in Oregon, small Ordnance Brewing is bringing in a much bigger system to seriously expand capacity at its north-central Oreg brewery. It's replacing its 7-bbl system with a 4-vessel, 50-bbl brewhouse, Brewpublic reported. The co expects that to give it the space to brew up to 50K bbls per year, though it plans to take its time before ramping up production.  

VT-based Lawson's Sip of Sunshine IPA "has the second highest sales velocity among ALL BRANDS within the beer category, second to only Bud Light," wrote Bump Williams in latest BWC monthly update. Sip of Sunshine - new to scans this yr - sales velocity growth topped all other brands, reaching $3.3 mil in total sales and $5,986.16 per $MM ACV in IRI all outlet data YTD thru Dec 13. (Editor's note: sales per $MM ACV is short for "sales per million dollars of market ACV" or "for every million dollars of total market sales, X amount of my product is sold," per cpgdatainsights.com; so in this case, Lawson's Sip of Sunshine accounts for $5,986.16 of every $1 mil in total IRI sales where Lawson's Sip of Sunshine is available). Lawson's Super Session 2 IPA also made top velocity growth brands list, at #7: $672.09 per $MM ACV. Gotta keep in mind Lawson's still has very small distribution coverage (Sip of Sunshine has under 2% ACV distribution). But it seems co notably ramped up chain biz this past yr, as well as production with its contract brewer, Two Roads and is gettin' impressive pull where it's available.

Remaining top-25 velocity growth brands list mostly includes other "small craft brands with minimal distribution coverage across the country" too: 19 of 25 top velocity growth brands were craft and only one of 'em - New Glarus Unplugged, #15 - from a "regional" sized brewer as of last yr. Also, 4 cider brands (two Island Orchard brands, two Citizen Cider brands), one sub-premium (Frio Light Pilsner) and one import (Zywiec EB Premium Pilsner) made the list. Interestingly, another VT company new to scans, 14th Star Brewing, has #2 and #23 top velocity growth brands: Tribute Double IPA and Valor Amber Ale. Red hot Rhinegeist has two new intros - Mosaic Pale Ale and Gramps American Barleywine Ale - that were #4 and #5 top velocity growth brands. Then too, not surprising to see over half of these craft brands are IPAs. Each of the top-3 velocity growth brands are IPAs, including #3, VA-based Parkway Get Bent Mountain IPA (others mentioned above). And other brands are from several craft hot spots around the country including: Lawson's Super Session 2 IPA and Foley Brothers Fair Maiden Double IPA in VT; Big Bay Long Weekend IPA and Rush River Double Bubble Imperial IPA in WI; and Laughing Dog IPA (ID), Icicle Boot Jack IPA (WA), Backwoods Log Yard IPA (WA), Figueroa Mountain Lizards Mouth Imperial IPA (CA) and Base Camp Ultra Gnar Gnar IPA (OR) in Pac/PacNW. All in, tho none of these brands have "a significant share" of total sales, "they DO represent a potential driver of continued growth in their respective local markets well beyond 2016 and to me are some of the future stars of the high-end beer business," sez Bump, listing Rhinegeist, Lawson's, 14th Star and New Glarus among others.  

Firestone Walker's largest and fastest growing brand, 805 Blonde Ale will officially begin distribution outside its home state Calif for first time. Starting this mo 805 will enter Phoenix and Tuscon metro areas in Ariz with Hensley Dist and Finley Dist; Las Vegas and Reno, NV with Southern Wine & Spirits; and Texas with Brown Dist in Austin, Andrews Dist in Dallas/Fort Worth/Corpus Christi and Silver Eagle Dist in Houston and San Antonio. While this is first official distribution out-of-state, co acknowledged that it's been "bootlegged" into several surrounding mkts thruout its short 3-yr history. "When 805 was available only on the Central Coast, people bootlegged it down to Los Angeles," and "now that we're in Los Angeles, people are bootlegging it to Nevada and Arizona," said co-founder David Walker in press release. "The beer is telling us where it wants to go." Recall, 805 already ranks among top national craft brands this yr while only available in Calif. It's slightly over half of Firestone's total sales and nearly 80% of total growth in IRI multi-outlet + convenience data. Firestone Walker expecting ~275K bbls in 2015.  

Amidst rapidly shifting ground in Calif craft scene, local fave Firestone Walker continues to rise and rise, driven by outsized success of its 805 brand. Firestone Walker up 148% last 13 weeks thru 11/29 in LA metro IRI multi-outlet + convenience. It grew more than any other vendor besides Constellation in period, tho it is still less than 1 share of LA beer (LA is largest IRI mkt in US). The 805 brand was the third fastest growing beer brand of any type behind only Modelo Especial and Corona (805 grew more than fast-growing general mkt imports like Stella and Tecate Light in period). It was the #4 gainer YTD in LA. At the same time, it had the 6th lowest distribution among the top 50 beer brands in the market, for both periods, in the mid-60s. So it's got more room to run at home still even as it prepares for shipments out of state for the first time (see below).

Like Firestone, Ballast Point also more than doubled in LA for 13 wks, up 136%. But Lagunitas put up almost twice the absolute $$ growth as Ballast, while still growing 63%. During that period, Lagunitas overtook both Craft Brew Alliance (-1%) and Sierra Nevada (+14%) to be #2 craft supplier in the market behind Boston Beer. And tho Lagunitas, Sierra and Ballast all slowed the slightest bit for 13 wks compared to yr-to-date, Stone and Firestone accelerated. Stone jumped 46%, the #4 overall $$ gainer in the mkt for 13 wks, +39% YTD. Firestone Walker surged 137% YTD. Both those in-state cos passed New Belgium for both that shorter period and YTD. A bunch of smaller Calif craft brewers also had a strong end of 2015 in LA, including Coronado and Bear Republic more than doubling and Mission close to doubling for 13 wks, Karl Strauss +21% and North Coast +16%.

But something seriously changed in the back half of 2015, these LA stats reveal. Sales for a number of craft brewers started falling, some sharply. Boston, 5th largest vendor in the mkt overall, eked out a small gain for 11 months, +0.2%. But by the end of November, Boston's 13-wk trend steepened to -12% overall. Contributing: both of its top brands in the market declined, Angry Orchard Crisp Apple -4% and Sam Adams Seasonal -20%. Throw in stronger Alchemy & Science (which IRI breaks out separately) and Boston still down 8% for 13 wks.

And it wasn't alone. New Belgium dipped 7.6% for 13 wks thru 11/29 in LA, just over a point steeper than its YTD trend. Lead brand Fat Tire also down 9%. A pair of SoCal brewers, Hangar 24 and Green Flash, held onto small YTD gains in LA, but slipped into negative territory for 13 wks, both -1%. And a lot more double-digit declines started appearing for craft vendors than we're typically used to, including some really steep ones. Alaskan, Gordon Biersch and Mendocino lost over 70% of their sales in LA scans for 13 wks. What happens in scans may not be indicative of overall trends. But looking at these numbers we're reminded of how "pivotal" the "next three shelf resets" will be, as Simon Thorpe, prexy of Duvel Moortgat USA, commented last summer (see CBN vol 5, no 63). Could some of these steep declines be at least in part result of all resets in chains? Meanwhile, in-state operator with wide-distribution Fireman's Brew declined in the mid-teens for both 13 wks and YTD; Anderson Valley (again not as focused on chains as others) declined in the mid-20s for 13 wks and Full Sail dropped 32% during the period. Note too, these trends came before closing of some of the recent blockbuster deals in the California craft world. How will they affect these trends going forward? Fasten your seatbelts folks. It's going to be a bumpy year.  

Join us May 16-17 at the Ritz Carlton in Chicago for one of our richest and deepest programs at expanded annual spring conference at the Ritz Carlton in Chicago. It features a panel with several of the leaders of beer's high end: Constellation Brands Beer Div chairman Bill Hackett, HUSA prexy Ronald den Elzen and Boston Beer chairman Jim Koch. We'll also feature two of the industry's leading dealmakers, consultant Joe Thompson (distribs) and First Bev Group founder Bill Anderson (craft brewers and more), plus partners Mark Hall and Randy Jozwiakowski of newly formed Paragon Bev Advisors. You'll also hear from two top execs from Sierra Nevada, Brian Grossman and Joe Whitney. The latest addition: a panel of the leading industry economists. That's Lester Jones (NBWA), Bart Watson (Brewers Assn) and Michael Uhrich (Beer Inst). Also recently added: a panel on shifting craft landscape, including some prominent founders; Dogfish Head's Sam Calagione, Stone's Greg Koch, Victory's Bill Covaleski. BMI publisher Benj Steinman will also give you his annual overview with key stats and developments. Click here for more info. Click here to register.  

As INSIGHTS went to press, TTB announced it accepted $300,000 offer in compromise from AB over alleged violations of consignment sales provisions of Fed Alcohol Admin Act. Violations involved 541,000 cases of Shock Top Wheat Ale and Lemon Shandy that TTB apparently believed were sold "with the privilege of return." Settlement also resolves "all alleged violations" by AB distribs with respect to Shock Top "Buy-Back Co-op" programs, TTB wrote. And just as it looked like Sheehan Co had put Boston situation behind it, at least temporarily, Boston Globe hit 'em with big Mar 4 story detailing past "pay to play" practices Sheehan's NYC distrib Union admitted to in unrelated lawsuit. Unsealed depositions with Union employees show Union provided draft equipment, wrote checks for charity golf, swiped credit cards, extended credit beyond what law allowed and provided other freebies. Union mgrs said money came from "a marketing budget set by Sheehan executives" in Mass and "substantially funded by its suppliers," including AB. AB "emphatically denied" it was aware of any such practices. Union's gen mgr said in 2011 "all wholesalers" were doing the same thing and what Union did was "in response to competition." Sheehan also sez any pay-to-play in NYC ended in 2011 after mtg where NY liquor authority threatened crackdown.  

Huge and complex Sheehan Family Cos, which operates 19 distribs in 13 states, plus nationwide importer St Killian, took steps to solve two ongoing issues. In Mass, its Craft Brewers Guild distrib paid record fine of reportedly $2.6 mil to Mass Alc Bev Control Comm over illegal "pay to play" monies to retailers for tap handles. Mass ABCC found over $120K in payments in scheme that "spanned at least" 5 yrs. It levied 90-day suspension. CBG had option of paying fine of 50% of 90 days gross profits. It took that option and ABCC "quickly accepted" it, Boston Globe reported. Still on tap: hearing for 5 Mass retailers who accepted CBG $$ and other ABCC pay-to-play investigations. Not sure what may shake outta that, for other distribs and/or suppliers. Gotta wonder too what other states will do. That's especially as industry members publicly acknowledged such practices are widespread. Indeed, Reyes Bev Group leaders sent letter to employees (and suppliers), before CBG paid fine. Urged employees to "honor the law." But they also said illegal mkt activities "prevalent in many of our territories." Lagunitas sent similar letter to distribs.....In NJ, Sheehan's craft distrib Hunterdon agreed to mediate dispute with AB over Hunterdon's loss of Elysian brands. Court proceedings on hold. Recall, Hunterdon claimed AB did not "first pay" fair market value for Elysian last yr: AB paid 5.5X GP, Hunterdon wanted 12X. Mediation means final price may never be public.

A coupla milestones in beer segment data for 2015: imports hit 15 share for 1st time, and craft passed 10-share for 1st time. Together, top 2 high end segments now over 1/4 of US volume. Toss in superpremiums/FMBs/cider and high end up 5.2 mil bbls, 7% in 2015 and grabbed 37.3 share. That was just 3 share behind total premium segment, we estimate. (Recall, high-end passed premium light segment in 2014.) Just 5 yrs ago, premiums had 20-share lead on high end. But high-end volume zoomed 43% over those 5 yrs, gaining 23.4 mil bbls. That's while premium segment shed nearly 14 mil bbls. At current pace, high end and premium lines will cross this yr or next. Each high-end segment built volume in 2015, but imports and crafts got over 85% of the 5.2-mil-bbl gain. Superpremiums and FMBs up 2-3% each; cider slowed significantly in back end of yr but still up, with import cider especially strong. Meanwhile, premium regular and light segments off 3-4% each in 2015, driven by low single-digit dropoffs in the leading brands: Bud Light, Bud, Coors Light and Miller Lite. Coors Banquet was outlier, up for 9th-straight yr. Subpremiums hit even harder: both light and full-calorie brands down 4-5%. Again, most lead brands down low- to mid-single-digits: Busch Light, Busch, Natty Light, Keystone Light, Miller High Life and Natty Ice. Outliers in subpremiums: Bud Ice and Rolling Rock. Since 2010, subpremium lights took much bigger hit than full-calorie, down 29% vs -3%, due to Bud Ice success and Pabst Blue Ribbon, tho PBR slipped in 2015. AB and MC workin' hard to shore up mainstream biz as premium/subpremiums combined lost nearly 23 mil bbls over last 5 yrs. How low can they go?

Just days before its celebratory Gold Network Summit, Constellation unloaded a 56-page update of its standards on distribs in 7 areas as listed by chief commercial officer Bruce Jacobson: "dedicated distrib resources, strategic planning, new product development support, distributor tactical funds, learning and development, Gold Network Awards and distributor transfers." To many, timing and tone seemed off before they even dove into the content. "Don't mess with the mojo," as one distrib said. So why do this now? Execs said they worked with distrib council on standards for over a yr, adjusted based on council's input. "Not that many changes" and "nothing significant has really changed," as Bruce said at GNS. Meeting did celebrate success and point to brighter future. Yet lotsa distribs angered, uneasy, even incredulous on standards (before and during meeting), especially timing and tone. Some hadn't looked at standards, others found them not so onerous, others objected strenuously to a few provisions. Most-often mentioned: mandatory 103.5% payment on any unresolved disagreement over mktg investments. "I don't think we'll ever have to use that," Bruce said at GNS. Timing right, Bruce maintained; such material should come out before GNS, so distribs can air out views and discuss in-depth one-on-one with mgt. Very possible that this brew-ha-ha will be just a blip on radar screen. But many distribs were already concerned about possible changes in Constellation culture with longtime prexy Bill Hackett in a reduced role. Last yr, Constellation wanted to change its contract, sources said. That didn't happen. So new standards perhaps fed some fears. One distrib told us: "Bill's foot isn't even out the door and they are changing the Gold Network from a fraternity into a bureaucracy." Told of distrib comment that Constellation becoming more bureaucratic, Bruce said: "Absolutely not. This is a one-time restatement." It would be bureaucratic if it was "ongoing. We're still going to be the same as we've always been," added Bruce. "We're very appreciative of what distributors do. But as we continue to grow we have to continue to evolve."