Nobody said operating an alc bev co was easy.  And while small brewing industry has boomed over last few years, regulators may just be starting to catch up. A series of recent citations in Western North Carolina, all connected to operations at festivals, as reported by Asheville-based Ashvegas publication, indicate a clear focus on part of this region’s Alcohol Law Enforcement (ALE) agents and different levels of understanding of applicable rules on the part licensees and employees. ALE, which enforces rules of state Alc Bev Control Commission, operates in 8 different regions across the state, according to NC’s Dept of Public Safety website. The Western district’s special agent in charge has been in place for about a year, according to Ashvegas.

A team of 4 district agents attended the Beer City Festival in downtown Asheville on May 30 and gave citations to 10 different breweries (Altamont, Boojum, Foothills, Green Man, Highland, Nantahala, Oskar Blues, Oyster House, Pisgah, and Southern Appalachian). All offenses were for designated employees consuming alcohol while providing alcohol service to festival attendees. Observations of agents varied from seeing employees drink “amber colored fluid,” while also serving, “numerous times” to seeing and speaking to “intoxicated” license-holders, according to violation reports. Server reactions to ALE interactions also varied from admitting wrong-doing to insistence that such activity was legal. Breath tests showed employee alcohol levels ranging from 0.00 to 0.24. So again, wide variation in understanding and activity, as festival hosted at least 20 breweries not cited. More recently, Oskar Blues decided to refund tickets to its Burning Can fest and make it a free event this past weekend, after being informed just hours before that many out-of-state breweries they’d invited didn’t have permits to serve in NC.

While this set of agents recently focused on festival misconduct (and took a more aggressive approach than some licensees may like to see), regulators elsewhere may look to other kinds of violations. Pay-to-play investigations continue, including in Massachusetts, and brewery taprooms are not immune from ongoing sting operations for service to underage visitors. Concern over cross-promotion between tiers has kept Calif agents looking at social media and that’s likely to get some attention in other places with burgeoning craft scenes, we hear. It’s also an area with wide variation in rules from state to state and even wider enforcement thus far. Indeed, that so-far lax enforcement could be a key difficulty. In Asheville, some brewers privately reported frustration with “‘gotcha’ tactics” to Ashvegas in the above incident. But it led directly to “unprecedented” meeting between industry members and both ALE and ABC participants. The state craft brewers guild plans to facilitate increased communication and understanding between regulators and the folks they’re regulating, NCCBG prexy Erik Lars Myers told CBN.

Odell Brewing’s future is in the hands of its employees, the co wrote last night announcing the establishment of a partial employee stock ownership plan (ESOP) and sale of a majority of the company to its core, longtime leadership team. The “newly formed” ESOP bought 19% of company stock, “in which all co-workers participate,” the co announced. Additionally, 3 top managers at Odell, Eric Smith (Chief Sales and Mktg Officer), Brendan McGivney (COO) and Chris Banks (CFO), now own 51% of the company, co-founder/CEO Wynne Odell explained to CBN this morning. She and her fellow founders and family members, Doug and Corkie Odell, each own 10% of the company now. The trio of new majority-owners brings a combined 52-yrs of work with Odell. Eric and Brendan started working at the company 21 and 20 yrs ago, respectively. Chris worked as a consultant with Odell for about 8 years before joining as an employee 3 yrs ago.

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.

Two plant announcements broke at presstime.  First, New Belgium Brewing (NBB) announced it will open a “10-barrel pilot brewery at The Source Hotel in Denver’s River North District (RiNo).”  That’s fast-growing nabe in Denver beer world and also where Blue Moon chose for new pilot brewery.  NBB plans to brew on ground floor, barrel-age on 8^th floor “in a rooftop lounge, dubbed ‘The Woods.’”   NBB beers brewed on-site will be sold to outlets in the hotel and market hall.  Also: “The fifty oak barrels for on-site aging will help expand New Belgium’s sour beer offerings,”  which NBB has been making since 1998, when “brewmaster Peter Bouckaert first introduced aging beer in wood barrels and blending to New Belgium,” co said.  “After 25 years in Ft. Collins, we’re really excited to get more deeply involved in Colorado’s cultural and political capital,” said Jenn Vervier, director of strategy and sustainability at NBB. “We’ve long considered creating a Denver location to bring the New Belgium experience to more of our Colorado fans and to the millions of travelers who visit Denver. RiNo is already a vivid scene with a rich art and craft beer culture, and will soon have great access for bikers and walkers. This small batch brewery will allow us to collaborate with The Woods’ chef and mixologists to create innovative beers, drinks, and pairings you can’t get anywhere else.”

Elsewhere, “as part of a larger effort to focus [our] capabilities on the west coast,” North American Breweries (NAB) closed Berkely brewery today and it “is being marketed for sale,” the co announced.  NAB will consolidate production in its Portland, Oreg plant “where the company has increased small batch innovation and production capabilities with the addition of a 20-barrel pilot brewing system. New storage tanks and fermenters have already helped to increase overall capacity by 20 percent.” NAB plans to expand equipment and personnel there to support west coast biz.  “We want to build on our legacy in the craft beer industry while creating more opportunities to innovate with our styles and packaging in order to grow,” said CEO Kris Sirchio. “The consolidation to Portland builds on our strengths there, and will allow us to become much more efficient and competitive….  This is an important milestone in our overall NAB growth strategy, which should open doors to new opportunities for our customers, partners and communities,” said Kris.  Recall that at sales mtg with distribs earlier this yr, Kris said NAB would take more of a “hybrid approach” to manufacturing, perhaps partnering with other producers, tho didn’t mention selling assets at that time.    

Tagging onto series of clips from issue earlier this week, story out of San Diego Union-Tribune hits on a number of key themes. The South Bay community of Chula Vista (almost 60% Hispanic or Latino back in 2010, according to Census Bureau) has upped ante in attracting craft brewers and craft-focused retailers to open up in area. A city economic development specialist spoke at a recent community meeting about big uptick in tours given to prospective beer biz-owners since developing a map that shows “where breweries are allowed in the city,” the paper wrote. Looking to other parts of San Diego County, Chula Vista’s “Third Avenue corridor is ripe for that type of revitalization,” the official said. Bar and restaurant owners pointed to growing on-premise biz from turning to craft, with one wanting more city residents to buy beer in town rather than heading elsewhere in the county. A craft-centric gastropub plans to open in “a 95-year-old former dry cleaner building” this fall. So Calif craft growth? Check. Hispanic and Latin American communities embracing craft? Check. City officials looking to craft beer for help reinvigorating historic buildings, especially in downtown areas, to increase both local dollars spent locally and tourism? Triple check.

Chasing growth in all directions, Pabst plans to open a small brewery and tasting room in of redeveloped former-Pabst plant, under leadership of new CEO Eugene Kashper. Recall, this is exactly what Eugene suggested the co sought after a January visit to The Brewery complex in Milwaukee, turned into a hotel, apartment, more since Pabst left the plant in 1996, according to the Journal Sentinel. The “micro-brewery,” an “innovation laboratory” for the co, Eugene told the paper, will brew classic Pabst brands as well as “new craft beers inspired by recipes from the Pabst archives,” the co announced. It plans to spend $3-5 mil to get the brewery open next summer, bringing taps back to a corner of the old plant that Pabst once used for an employee bar and training center through much of 1900s. It could also be just the first of such sites Pabst establishes. It still owns rights to many regional brands across US, including Lone Star and National Bohemian. Early in the year, Eugene visited Seattle to look for a site for a similar Rainier-branded concept too. And remember, it launched Ballantine IPA in mkts around that brands NJ home last yr. So even as lead brand PBR slows, Pabst rollin’ with root beer and lookin’ back to roots to get future growth, with a clear eye on aligning new work with craft segment.

Brewer of Flower Power IPA, Ithaca Brewing announced plans to greatly expand its brewery just a few years after its new facility opened. It completed 16K sq-ft brewery back in 2012, according to Syracuse Post Standard. It broke ground this week on new 24K sq-ft expansion that could make space for up to 90K bbls of capacity. Ithaca grew 30% to about 24K bbls last yr, according to the paper.

While several large suppliers have struggled in Calif this year (excluding Constellation, natch), craft segment is up 22% in Calif a little over halfway thru the yr in IRI multi-outlet + convenience thru Jul 5. Craft gained 2 share of $$ to 12.8 of total beer sales. And craft’s $40.7-mil growth thru early July made up most of $43-mil total beer $$-gain. So rest of industry up just 0.15% as some strong Mexican imports countered by big declines for 5 largest non-craft, non-Mexican brands (Bud Light, Coors Light, Bud, Heineken, Miller Lite collectively -4.1%, $25 mil).

But Calif craft brewers are increasingly driving the craft bus in Calif.  For some time, we’ve heard that Calif craft brewers are key to segment growth in largest beer mkt. And sure ’nuf, Calif craft brewers collectively gained more than total craft category YTD, +35% and $42.2 mil. So Calif craft tacked on near 2.3 share of beer $$ alone thru Independence Day weekend, led by largest in-state players.

Take out Calif brewers and craft actually down 2.4%, as some large out-of-state brands struggled. (Read on for more brewer, brand details.) That downturn steepened in last 13 wks. For that period, non-Calif craft down 5%, about $1.7 mil (a little more than YTD decline). Meanwhile, Calif craft kept up 32.6% growth and gained $20.9 mil, lifting total craft trends to +19.5%. While not all Calif brewers growing and not all non-Calif brewers declining, the state’s thirst for local brewers and those brewers’ abilities to quench it may be matched in only a couple other markets.

Top 5 Calif Craft Brewers +1.9 Share of Beer $$, Small Calif Cos Comin’ On  So what’s under those overall Calif craft trends? Big growth for some big cos. Indeed, 5 largest Calif cos collectively are 53 share of total craft sales in-state, gained 7 share of segment and were 86% of total craft $$ gained yr-to-date. Lagunitas (+57%), Sierra Nevada (+20%), Firestone Walker (+68%), Ballast Point (+107%), Stone (+29%) up $35 mil combined.  Together they gained 1.9 share to 6.8 of total beer $$.

Each of these cos have several of the fastest growin’ brands this yr.  Lagunitas alone gained 3.5 share of craft segment $$ to 15.8.  It has seven(!) brands (5 of ‘em are IPAs) among top-20 craft share gainers, all growing at rapid rate,  including: (now lookin’ at share of craft $$) Lagunitas IPA (+1.8), Little Sumpin’ Sumpin’ (+0.4), Maximus IPA, Seasonal (each +0.3), Pils, Daytime IPA and Hop Stoopid (each +0.2).  Then too, Sierra at 20.6 share of craft (but it lost 0.2 share of segment, even tho up 20%).  Yet Sierra’s Hop Hunter IPA (+$2.1 mil, 0.9 share of craft $$), Nooner Pilsner and Variety Pk (each +$1.6 mil) were #3, #5 and #7 top gainers, tho gotta note, Variety Pk slowed to +12% in latest 13 wks. 

Firestone Walker gained 1.7 share of craft $$ to 6.1.  Its 805 was 2d largest share gainer, only a sliver behind Lagunitas IPA (+1.79) and now 4th largest craft brand in Calif behind only Sierra Torpedo, Lagunitas IPA and Sierra Pale.  Also, its Brewery Select Pk sales doubled and its Easy Jack session IPA tacked on relatively small but all incremental $150K so far.  Ballast Point grew majority of its biz with Sculpin series – Sculpin IPA (+101%) and Grapefruit Sculpin (+$1.5 mil) together snagged 1.5 share of craft $$ – and received solid pops from smaller Variety Pk (+92%) and Dorado Double IPA (+689%).  And Stone Variety Pk (+113%), Go To IPA (+141%), Stone Seasonal (+133%) and Enjoy By IPA (+102%) all more than doubled sales YTD, while its flagship IPA grew solid 20%.

There’s also a whole bunch of smaller Calif cos that’re comin’ on strong in statewide scans too.  Plenty of longer-established cos still growin’ solidly: Bear Republic (+20%), Anchor (+11%), 21st Amendment (+39%), Green Flash (+11%), Speakeasy Ales (+19%) and Coronado (+56%), North Coast (+37%).  And a few standout fast-growin’ cos that’re doubling their bizzes in Calif scans: Drakes (+187.5%), Saint Archer (+113%) and Boston Beer subsidiary, Alchemy & Science (+448%), with big portion of growth comin’ from LA-based Angel City.  However, a handful of established Calif cos declined in scans: Mendocino and Lost Coast each shed about 0.45 share of craft $$, while Gordon Biersch, Anderson Valley and Mission collectively down another 0.45 share. Keep in mind, some of these cos pretty small in scans and/or focused on growth elsewhere. 

Sam Adams & NBB Each Slid Double-Digits YTD Some large out-of-state craft brewers taking hits so far in 2015, partially because of big growth of Calif brewers, but also because scanbacks are no longer allowed in Calif and these cos used scanbacks extensively last yr.  Total Boston Beer (excluding A&S) up 9% in Calif IRI YTD, but it got just 1% gain (volume down 3%) in latest 13 wks.  Slowdown was indeed driven by sharp Sam Adams decline here.  Total Sam Adams $$ down 15% YTD and down 21% in latest 13 wks.  It shed 0.2 share of total beer segment and 2.7 share of craft segment $$ in latest 13 weeks (YTD more like 0.1 share of total beer and 1.2 share of craft).  Boston Lager (-13%), Seasonal (-20%) and Variety Pk (-17%) each down double digits YTD.  And trends worsened across the board during latest 13 weeks, when even Rebel IPA sales down 25%. Rebel Rouser and Rider too small to make up for drop in ultra-competitive IPA mkt.  

Similarly, New Belgium trends were exacerbated in Q2; down 13% in latest 13 weeks and -8% YTD.  Lost 1.7 share of craft YTD.  Fat Tire is its largest brand by far here, and it’s down 10% YTD.  Ranger IPA and NBB Variety Pk are down 15% and 6% respectively.  All of its top brands down for latest 13 wks including last yr’s Snapshot Wheat (-73%). And new Slow Ride didn’t quite make up for Snapshot decline during period.  Gotta note, Craft Brew Alliance sales dipped 5% in latest 13 wks and 3% YTD.  Tho its trends not off quite as much as Boston or NBB, CBA actually lost most craft share of all in Calif: -2.2 yr-to-date.  Alaskan Brewing dipped 26% and Rogue down 4% too, tho only shed 0.3 share of craft $$ together. 

A few notable top craft cos from out-of-state did manage to grow their Calif bizzes.  Most notably, Deschutes up 17% to 12th largest craft supplier here.  Ninkasi (+71%) jumped up to 23d largest craft co after entering LA market with Craft Beer Guild to start 2015.  And off of relatively small bases: Dogfish Head (+17%) and DuvelUSA (+32%).

Big deals may get lots of attention, but don’t forget that thousands more very small private companies call craft home. So likelihood that they’ll sell to scale or team up to compete also pretty high. But you may not hear about them all. At least not with speed of last night’s news. Cases in point: a deal for majority stake in Colo’s Durango Brewing went down in January, but didn’t appear in press til a local story last week. And pair of small brewers announced a merger on San Diego radio FM 94/9 last week, according to the West Coaster. That’s San Diego-based Twisted Manzanita and Fat Cat Beer Co, a largely session-focused contracted brand, which plan to “form a holding company that owns both brands.” Details still in works, West Coaster reports. But sale of majority stake in Durango Brewing to Denver-based holding co Gold Buckle Brewing a done deal for almost half a year, according to Westword story this week. Gold Buckle already owns Nevada-based Joseph James Brewing (tho not clear when that happened) and “is run by the same investment group that owns Denver’s Miller International, a 97-year-old Western-wear clothing and boot manufacturer.” And that company owns a 185K sq-ft facility in eastern Colo it plans to turn into a brewery to “brew and package beers for” both brands “over the next few years” and even “contract-brew for other Colorado and surrounding-area breweries,” manager of both breweries Andrea Allison told the paper.

Duvel Moortgat, which has already made a big splash in craft m&a, has raised the bar.  Less than two years after buying Boulevard for $110-120 mil, Belgian brewer Duvel Moortgat will buy one of most explosively growing craft brewers, Firestone Walker, reportedly for about $250 mil; deal expected to close in the next  month or so.  Tho the 2 cos had conversations over last couple of years, and Firestone  talked to other potential partners as well, negotiations between Duvel Moortgat and Firestone really accelerated within just last couple of mos.  With Firestone, Duvel Moortgat USA will now have strong portfolio of East Coast, Midwest and West Coast brands selling well over a half mil bbls in US.  (This article a slight variation on article that appeared in INSIGHTS Express last evening.) 

Firestone Walker and Boulevard “will combine their two companies in the USA,” said release as deal announced tonight.  “The California brewery will continue to operate independently,” said release.  Importantly, that means separate sales forces and no changes to wholesaler network either.

Like Boulevard deal, this is not at all a synergy play.   It’s about “enabling capacity and enabling growth” for both companies, Duvel Moortgat USA president Simon Thorpe told INSIGHTS and is a “very important step” in creating “platform for both companies” to be able to grow over next 10 yrs.  Duvel will now reportedly both accelerate expansion of Boulevard brewery to over 400,000 bbls and make significant investment in Firestone Walker’s Paso Robles facility that will take it to 500,000 bbls at least.  And Boulevard will make some Firestone Walker beers for east, while Firestone will make some Boulevard/Ommegang beers for the West. “A pressing need for capacity” is actually what drove the deal, said a source.    

Indeed, combo driven by desire to “build out our brewery,” acknowledged David Walker.  At some point, David and co-founder Adam Firestone realized that to build brewery “we wanted a partner” and that had to be a brewery not a bank.  But that partner had to share a similar “culture,” an “insane passion for quality” and “needed to give us control,” David said. David talked about craft as “very human enterprise” built on “personal relationships,” stating that “beauty of this partnership” is that he and Adam “really feel simpatico” with Duvel Moortgat ceo Michel Moortgat as a fellow family-owned independent craft brewer. Their aim is “a brewery that will be built for the ages.... We are very much in our prime as crusty craft brewers,” said David and “we want to stay in the game.”  If the question was “how do we get to the next level as a craft brewer,” then this is an “elegant answer to that question.” 

Firestone Walker is on pace to sell near 300,000 bbls in 2015.  As recently as 2010, Firestone Walker sold just 80,000 bbls. It’s riding a big wave of growth, led by red hot 805 Blonde Ale, which has rapidly grown to become the #4 craft brand in Calif IRI (see below).  But Firestone Walker has wide-ranging portfolio of brands.  With this acquisition, Duvel will more than double size of its US craft biz, rising to number 8 craft brewer on our list.    

Recall, Duvel Moortgat did Boulevard deal in part to diversify away from reliance on Europe’s challenges and also because US craft an attractive area for investment, in an industry it knows well.  Duvel clearly likes what it sees so far in US craft, and is doubling down.  As craft globalizes, it is well-positioned for further growth in fast-evolving segment.

Craft $$ sales ticked up another 13.8% in Nielsen-tracked data for 52 wks thru June 20. That brought the segment (including Blue Moon, Shock Top, etc) to 11.9 share of $$, according to craft-focused release from Nielsen this week. A volume trend identical to Mexican imports, +10.2%, landed craft at 7.6 share of cases, just 0.2 pts behind Mexican brands (about 60% of total import volume). Total beer $$ got 3.3% gain during the period, cases up just 0.6%. Grocery channel sets the pace for craft growth overall in Nielsen: segment grew $$ 13.7% during the same period in grocery stores, taking it just over 20 share in the channel. That’s still well above 8.7 share craft has in drug stores and 4.6 share in c-stores, where it grew 21.4% from June to June.

Biggest Share Gains in Birmingham; Over 30 Share in West Coast Supers  No surprise: craft had 43.5 share of Portland, Oreg grocery $$ for 52 wks thru June 20. Big surprise: craft $$ grew over 63% and gained 5.6 share in Birmingham, Ala grocery, same period. That implies craft went from about 9 share to over 14 there. That’s a lotta share to tack on in 1 year and indicates  some serious shift away from other segments. The state did get an influx of big and/or fast-growing craft brands launching there over last couple years, including New Belgium, Lagunitas, Stone, Founders and Victory. And coupla homegrown Ala breweries, Good People and Back Forty, showed good overall growth over last few years and expanded packaged offerings too.

Other West Coast cities top list of mkts called out in Nielsen release for high craft-share in grocery, including Seattle at 38.2, San Diego and San Francisco both near 35 and Sacramento at 34. Craft had 25-30 share in 5 more mkts from June 2014 to June 2015: DC, Cleveland, Grand Rapids, Columbus and Hartford/New Haven. And craft is still getting outsized gains in some of those most-developed mkts. Craft $$ jumped 23.5% in Cleveland, adding another 3.7 share to 29.2, and grew 22.5% in San Diego, +4.2 share. The segment achieved 27.5% growth in Cincinnati, 20-22% gains in Charlotte and Greenville, and 18-20% gains in Des Moines, Minneapolis, Las Vegas and Detroit, where it took another 2.9 share of beer sales.

Why Craft, What’s Craft? Local, Small and Independent, Quality, Price  “The word ‘craft’ inspires consumers--particularly younger legal drinking age males--to purchase beer,” the folks at Nielsen wrote. Recent polls and studies of consumer sentiment bear that out. Indeed, over a third of 21+ adults said “they’re more interested in trying an adult beverage labeled craft.” And that shoots up to almost half for 21-24 yr-old men.

Overall, about 56% of respondents said they associate craft with products “coming from a small, independent company,” just a bit more than the half that think craft indicates small batch sizes and the 43% that believe it means “handcrafted.” Nielsen also found women are more likely to associate “craft” with “handcrafted” while men are more likely to think of small batches. Consumers aged 55-64 tended to point to small batch sizes and small, independents companies more than consumers aged 21-34, who more often associated “craft” with “handcrafted, artisanal, higher-priced and quality.” At the same time, “local is most important to the youngest group” of beer drinkers, 21-34 yr-olds. While 53% of all beer drinkers pointed to “local” as “very or somewhat important,” about 55% of craft beer drinkers said the same. Interestingly, female/male split among millennial craft beer drinkers varies quite a bit by market. In Denver, it’s pretty even, at 45/55. But in Grand Rapids, men make up 73% of younger craft drinkers and in Spokane, it’s 81%. And that’s the market where craft has “grown the most” overall, +182% since 2010.