In joint project with Brewers Assn, Nielsen surveyed 1,014 “regular” craft beer drinkers (defined as those who consume craft “at least several times a year”) and found more than half (58%) drink craft beer “at least weekly,” senior VP of Nielsen bev alc practice division, Danny Brager revealed during BA Power Hour, dubbed Getting Inside the Mind of the Craft Beer Consumer.  Lookin’ closer, nearly half of those weekly craft drinkers said they drink “several times a week” and about 6% of all respondents said they drink “daily.”  The rest of respondents mostly drank “at least once a month” or “several times a month.”  

Millennial males in particular skewed higher than average on most survey questions, as you’d expect.  That included higher avg number of brands purchased per mo (5 vs 3.6), more likely (47% vs 37%) to “always/often” purchase a brand that they’ve never heard of, and more visit local breweries, attend beer festivals etc.  However survey also shows that all millennials (male and female) also “regularly” drink more of every other bev alc category than the average craft beer drinker: 93% of millennials vs 90% of all surveyed said they regularly drink imported beer; spirits (89% vs 81%); wine (86% vs 80%); domestic non-craft beer (85% vs 78%); hard cider (60% vs 41%) and flavored malt bevs (55% vs 41%).  So most craft drinkers also drink imports regularly regardless of age.  There’s a more noticeable gap between millennials and all regular craft beer drinkers who also drink spirits, wine and domestic beer regularly.  And largest discrepancies were between millennials who regularly drink hard cider and flavored malt beverage. 

Importance of Craft, Local & Quality Growin’ Among these craft consumers, the words “craft” and “local” are “inextricably linked” to beer industry in comparison to other food & alc bev segments, Danny noted, as we showed in recent CBN (see Jul 15 issue) that cited similar Nielsen consumer findings.  Indeed, more than half (52%) felt “craft” has a strong association with “beer” compared to just 25% of respondents for next closest category, spirits.  And “over half” of craft beer buyers said that “local” was “important” to them, compared to just 34% of wine drinkers and 23% of spirits drinkers.  So “craft and local are key purchase triggers and certainly increasingly so,” Danny said.  Survey found that importance of being “locally made” has either stayed the same (58%) or increased (28%) “over the last couple years” for majority of craft beer drinkers surveyed.  Again, millennials (both men and women, age 21-34) were more likely to consider “locally made” of increasing importance to them over the last couple years.  And 3/4 of those surveyed say that craft beer quality has gotten either “somewhat better” (+41%) or “much better” (35%) compared to 20% that say “no change” and only 4% that say quality got worse. 

Midwestern (and Western) Consumers Stand Out Thruout Too Another subset of craft drinkers that stood out thruout survey were those from the Midwest and westerners.  Both were right alongside with millennial males, ranking above average for many of the categories questioned thruout the survey: both were more likely to visit breweries 3+ times a year and visit more breweries per year.  Midwesterners purchased the highest average number of brands per month (5.7), and had highest % that say they purchase 10 or more brands per month (15%).  That’s compared to an average of 4.4 brands per week among weekly craft drinkers, 9% of which bought 10+ brands per mo.  And Westerners were nearly 10% more likely to pair food with craft beer than the average craft beer drinker. 

Atlanta-based SweetWater is “making preparations for an initial public offering, according to people familiar with the matter,” Reuters reported yesterday.  Recall, Craft Brew News floated that last week (see CBN vol 6, #53), noting that “there have been rumblings about a potential IPO for SweetWater.”  If IPO materializes, one interesting component of SweetWater’s financials, which may not prove visible, is the literally millions of $$ in upfront fees it continues to ask for and frequently gets from distribs as it expands, including reportedly 7 figures in Ill, Oh and asking price near $2 mil in NY metro alone, tho some distribs reportedly balk at paying 4.5x GP. 

Even as craft segment puts up double digit gains yr after yr, Pyramid has declined precipitously for years and years to less than half its peak volume. Back in 2007, its last full yr as an independent co, Pyramid was easily a top 10 craft brewer.  It sold over 200,000 bbls (201 K).  Last yr, Pyramid sold 92,000 bbls. To give you an idea of how much times have changed, back then that was 5x as much as Lagunitas.  This yr Lagunitas likely will sell over 10x as much as Pyramid. 

Pyramid dropped another 38,000 bbls 29% in just last 2 yrs, down from 132,000 bbls to 92,000.  And its dropoff pace accelerating in scan data so far in in 2015.  Tho NAB sales trends are improving on a national basis (led by double digit growth for Seagram Coolers), total NAB biz down 49% in Calif IRI multioutlet + convenience yr-to-date (IRI doesn’t include Seagram biz).  And Pyramid remains especially soft.   Pyramid Apricot Ale down over 40% and Pyramid Haywire Hefeweizen down over 50%.  There are many reasons for the decline, going back to even before Pyramid’s sale to Magic Hat, to the aftermath of the sale, the subsequent rebranding, a financial crisis, 4 owners in 5 yrs and much, much more. A cautionary tale to be sure.

All that brings us to announcement this week that Pyramid closed and will sell its Pyramid Alehouse and Brewery in Berkeley, which has been “a local gathering spot, restaurant, watering hole and brewery for 18 years and harbinger of a booming Gilman Street corridor,” wrote Contra Costa Times.  But it hasn’t been a production brewery for some time.  Asked by paper if “booming real estate values drove the company’s decision,” spokeswoman Mary Beth Popp said it had to do with “consolidation of the supply chain” to Portland and Seattle, echoing NAB announcement.  Pyramid built capacity by 20% in last 6 mos, she reiterated to Craft Brew News, “positioned itself to brew small, medium and large batch beers,” “innovated” with several new beers, began adding sales/staff  to Pac NW and “invested in Seattle and Portland locations.” 

Yet the proceeds from the real estate sale will likely provide a boost.  Yrs ago, CBN had heard that value of Berkeley real estate alone over half of what Magic Hat paid for Pyramid in 2008.  Presumably it’s gone up from there.  Unfortunately, as NAB abruptly closed the facility, many people lost their jobs overnight. NAB offered 60 part and full time employees at Pyramid in Berkeley “a generous severance and benefits package that went beyond any legal requirement,” MaryBeth told Contra Costa Times.  

Whoever’s it is and whatever you call it, Not Your Father’s Root Beer phenom can’t be ignored. Included in IRI’s craft numbers, it jumped way up to #11 craft brand yr-to-date by $$ sales thru July 12 in IRI multi-outlet + convenience data.  Snagged over 1 share of craft $$.  Still, over half of the brand’s YTD sales occurred within last 4 wks. All of it in 6-pks. Grabbed a massive 3.3 share of craft $$ during period.  So that package was handily #1 craft pack for 4 wks. Its $8 mil in sales flew past 3 other top 6-pks: Sam Seasonal ($5.2 mil), Sierra Pale ($4.3 mil) and Fat Tire ($3.8 mil). Only Sierra Pale and Sam Seasonal sold more overall in IRI craft stats for 4 wks.  Indeed, NYFRB was #43 beer brand by $$ overall for 4 wks.  Finally, year-to-date its entirely incremental $15.3 mil in sales is over $2 mil more than top brand Bud Light has grown this yr.  

Its inclusion in craft (questioned by some media reports recently and hotly contested by some industry members we’ve spoken to) also enriches recent total craft trends.  Not by a lot, but enough. Without Not Your Father’s, craft still gained 18.3% for 4 wks. That’s a bit slower than +20% craft trend without NYFRB yr-to-date but faster than previous 4-wk period. It’s also making clear impact on the only craft style it can really fit into: fruit, veggie and spiced beers. The style’s now more than doubling YTD, almost quadrupling for 4 wks. Like craft overall, the style would still be up 20% YTD without NYFRB, but just +5% for 4 wks. 

Many top craft suppliers tacked on gains ahead of segment YTD, while others continued slowdown we’ve seen earlier in year. And again, that’s especially noticeable in a number of lead brands and flagships. Not that growth’s out of the question. Largest craft brand Sierra Nevada Pale $$ still up 8% YTD thru Jul 12 in IRI MULC data. So total Sierra sales +24% including new intros and continued variety pk strength. But like many other big craft brands, it’s still losing share of the segment. Lagunitas IPA remains outlier here, +53% and +0.5 share of craft $$ YTD.

Firestone Walker 805 remains on tear, +140-150% for 4 wks and YTD. Stone and SweetWater $$ still up 30-40% YTD and New Glarus +27% and accelerated last 4 wks. Bell’s slowed a touch for 4 wks, but still up in mid-teens thru the first half in IRI MULC data. But 3 of top 5 craft brands now down yr-to-date. Another 5 of remaining 25 also down thru first half in MULC (and most posted steeper decline for 4 wks as well as in more developed food stores). Sam Adams Seasonal and Boston Lager $$ declined 12% and 9% respectively for 4 wks; still down about 4% YTD in MULC channel. Sam Variety fared a little better for 4 wks but still off near 7% YTD.  New Belgium Fat Tire turned negative thru Jun and now $$ -0.8% YTD.  Ranger IPA off less than 1% as well and NBB Seasonal now -17% (slightly better for 4 wks, -8%). Redhook Long Hammer down less than 1% YTD, but up slightly for 4 wks. But Goose Island 312 Urban Wheat $$ down about 5% both periods and Magic Hat #9 off 10% YTD, steeper recently.

During 4-wk period around July 4 holiday, craft $$ kept growing above 20% pace, slightly faster than prior 4 wks. So total craft $$ +21.2% yr-to-date thru Jul 12 in IRI multi-outlet + convenience data (MULC). Segment gained near 1.2 share of total beer $$ to 8.1 in that broadest view. It added another 2 share in grocery channel to over 16.5 and 0.8 of c-store beer $$ to over 4. And craft prices still healthiest of the bunch, average price/case up almost $1.20 to near $36.20, +3.4%. Not bad at all. 

Alltech Inc., parent co of Alltech’s Lexington Brewing & Distilling Co that brews Kentucky Bourbon Barrel Ale, has purchased two breweries in United Kingdom from Northern Irish businessman Edward Haughey: The Station Works Brewery in Newery, County Down, Northern Ireland and Cumberland Breweries in Great Corby, Cumbria, England, reported Sunday Business Post.  The Station Works and Cumberland have 40,000 hectoliters (approx 33,500 bbls) of annual capacity, noted paper.  Recall, Alltech’s primary biz is an internationally run animal nutrition co based in KY that trades in 128 countries worldwide, which reached over $1.6 bil in annual sales, according to co release.  Alltech’s beer and whiskey biz reached $45 mil last yr, noted Sunday Biz Journal. 

These acquisitions have implications for Alltech’s acclaimed Kentucky Bourbon Barrel Ale as well.  “We are interested in buying 1, 2, 4 [1-4?] breweries in different markets and promoting their local brands while introducing our Kentucky range to new markets,” owner Pearce Lyons told paper.  Indeed, Pearce and co view Kentucky Bourbon Ale as an “international brand” that can sell alongside various local brands overseas.  And “we want to be one of the top 50 craft brewers in the world.”

Meanwhile, in the US Alltech is in the process of expanding its downtown Lexington, KY facilities to have annual capacity of 140,000 bbls per yr by the end of 2015, and is building a separate brewery in Pikeville, KY called Dueling Barrels Brewing & Distilling Co (see CBN vol 5 no 80).  Just in the latter half of last yr, co expanded to several new markets, including 9 new states, switched distribs in another, and entered five new countries overseas.  Stay tuned.  

Over the past coupla yrs we’ve heard various craft brewers quip that they’ve received many calls and/or offers from potential buyers, particularly PE firms, on a very regular basis.  Here’s one example of what that can look like: a proposal letter from an unnamed PE firm to “one of Washington State’s well known, small-to-medium-sized, and beloved breweries” surfaced via Beer News and now via Washington Beer Blog.  The brewery owner forwarded this letter explaining that he “did not invite this kind of offer” and “is not shopping itself around,” yet still received an offer letter.  “This is the kind of stuff that’s floating around the industry now, so we should expect to see quite a few more acquisitions,” he said. 

The letter is written very generally, never addressing its client or the actual brewer, and opens right off with intention to “determine your level of interest in selling all or a portion of your business.”  It notes client’s interest in “acquiring craft breweries with revenues between $10 million and $150 million (although companies outside this range may be considered),” that demonstrate various desired “attributes” such as: “leading, defensible market positions,” “excellent customer relationships,” “strong brand recognition,” “demonstrated track record of execution and revenue growth,” and “strong leadership.”  Then letter goes on to list several thoughts on where the craft beer industry is heading, as well as “tremendous money” that’s “eager to get in the craft beer space,” various deals that’ve already gone down, and “very high multiples” that craft brewers are getting.  It cites “challenges in distribution, capital expenditure and marketing and sales,” as “main reasons breweries are seeking capital partners,” and notes that “some PE experts” believe that craft beer “bubble” will pop “and leave behind losers to be picked up on the cheap.”  Letter closes explaining that firm “prefers to purchase a majority portion of a business” and letter intended to “introduce you to this opportunity.” 

Announced during quarterly company meeting yesterday, the succession plan has been a long time coming. Wynne recalls the founders talking about ESOPs as a possible part of Odell’s future “years ago.” They attended a conference on ESOPs last April and were “pretty much cemented” on this path for the last 6 months. “We worked this thing so hard,” Wynne shared, to find an answer that satisfied the founders’ “three primary requirements” for the structure. The Odells sought to maintain first its company culture and the capabilities it’s built to make great beer, second its independent control over that culture and finally its financial stability.

Note that through-line across each of those considerations is “continuance,” in language from release. A sale to a private equity firm may have also kept leadership team intact while offering founders a bigger payout, but such a transaction “adds some uncertainty” to the craft landscape, in Wynne’s view. Indeed, while decisions to sell “to major brewers and private equity firms” certainly “are more lucrative than the one we chose, we believe that the people who built OBC are the best ones to lead us successfully into the future,” Doug said in company statement. Wynne told us she’s found the deals Doug alludes to “fascinating to watch” and expects to continue to see “a rash of the final people taking advantage of the opportunities” they currently have. But “give us another year,” she said, “then results” of these transactions will start to come in. Amid all this change, the Odells and their employees “feel very comfortable” in the “niche that we’ve identified and we know how to operate inside it,” Wynne said. Now, she feels confident the company is set to “absolutely stay the course.”

More “Methodical” Growth: +15% and “Right On Target”; Cans Coming in Nov  So far in 2015, Odell’s up 15% over last year, Wynne shared, “right on target.” Recall, last yr the co grew at about twice that pace (to 100K bbls) due to intro in big Texas mkt, its first distribution expansion in a couple years. So the co anticipated slowing back down to much more familiar growth pace in mid-teens. Odell will start shipping “cans at the end of this year,” Wynne told us, in Nov after its new canning line comes in next couple months. It will start with 12 pks of lead brands 90 Shilling and IPA, “both growing” this year. The co’s still deciding on specifics of rollout with “a million plans and no conclusions,” but after much research about how it will affect current biz, the new pkg addition “looks really promising,” Wynne said. The co is still “very Colorado-centric,” with 61% of its biz in its home state and “growing at a great pace.” Those 2 lead brands plus Odell’s seasonals and Montage variety pack “absolutely float our boat,” Wynne told us, and carry most of its current growth.

Future participation of Elysian co-founder Dick Cantwell in craft industry (or at least one aspect of it) now clear: Dick will join the Brewers Assn to fill newly-created Quality Ambassador position. He’ll work closely with the quality subcommittee, which the BA’s technical committee formed just last year to promote and support activities that continue to raise the quality bar for the BA’s members. Recall, quality has been a major watchout offered by BA director Paul Gatza numerous times over last couple years. Dick’s been involved with BA for years, participating on the board, authoring books from BA’s Brewers Publications arm and supporting (and receiving) the group’s beer and brewer recognition/awards programs. As Quality Ambassador, Dick will travel the country making presentations “to instill the culture of quality in beer and in business,” he said in statement.

Richmond, Virginia-based Hardywood Park Craft Brewery announced plans to build a 2d brewery in West Creek office park located in Goochland County, various local papers reported, including Richmond BizSense and Richmond Times Dispatch.  The new brewery, set to be completed by Spring 2017, will be 60,000 sq-ft, have initial annual capacity of more than 40,000 bbls, employ additional 56 people, and include a taproom, beer garden, orchard and amphitheater, president and co-founder Eric McKay detailed.  Hardywood reportedly looked at as many as 150 different locations and visited 12 (including in Raleigh-Durham area, NC) before settling on Goochland.  In the end, Va offered “a package of $1.15 million in incentives” and Goochland county “committed up to $1 million in matching incentives in tax credits” over next 10 yrs to ensure that Hardywood would pick Va for its new facility, reported Richmond Times-Dispatch.  “I don’t think we could’ve done it otherwise,” Eric told Richmond BizSense.  “In return,” Hardywood expects to invest $28 mil over next 5 yrs in new facility and spend approx $1.4 mil on 300,000 pounds of state-grown farm ingredients. 

Hardywood started in 2011 and has gone through a series of capacity expansions to quickly become one of Va’s larger craft brewers among approx 120 total in-state; Hardywood grew 86% to 8,000 bbls in 2014, according to Brewers Assn. This yr it’s on pace to produce “about 15,000 barrels,” and is “rapidly nearing capacity” at original Richmond brewery, noted Times-Dispatch. Co will likely reach 18K-bbl/yr capacity within the next year and a half, noted BizSense, so new facility is necessary for continued growth (Editor’s note: seems like they’ll be capacity constrained in 2016 with current construction timetable unless co also expands Richmond facility in meantime).  Once the new brewery is completed, Hardywood will gradually be able to expand distribution into nearby markets like “Maryland, the Carolinas, Georgia and Florida,” Eric noted.  Currently co distributes to Virginia, DC and parts of eastern PA.