Recall Calif consumer Evan Parent relied heavily on Brewers Assn definition of "craft brewer" in his attempted class action suit vs MillerCoors in Calif fed court. He alleged that Blue Moon labeling/advertising fraudulently caused him and others to pay a "premium price" for a beer that's not really craft. He sought unspecified "restitution and disgorgement," injunctive relief via corrective advertising, attys fees and more. MillerCoors just filed motion to dismiss the suit, insisting Parent doesn't deserves any of this, since its labeling/advertising of Blue Moon "expressly authorized by state and federal law." And as in AB win in recent case alleging Rita brands mislead consumers, this authorization provides a "safe harbor from liability" sought by Parent, sez MC. 

Parent "relies on ever changing guidelines promulgated by BA, a trade group that has zero rulemaking authority," and defines craft brewers, "but not the term 'craft beer,'" MC argues. "A trade association's arbitrary definition of 'craft brewer' does not give" it "the power to abscond or control the use of the word 'craft' or 'crafted' by all beer industry participants." And in a 3d shot, MC sez BA's "arbitrary definition" does not give it "the authority to hijack the use of the word 'craft' or 'crafted' from" others in biz. Since there's no "legal definition" of craft, MC argues, the court has to interpret the word using its "ordinary and natural meaning: 'to make or produce (something) with care or skill.'" And since brewmaster Keith Villa uses "care and skill" to "craft" Blue Moon, MC's use of the term is "entirely consistent with its normal meaning." Tho Parent suggests he (and others) were "tricked ...into thinking Blue Moon" something different than an MC brand, "Blue Moon is plastered all over the MillerCoors website," MC points out, and Parent "nowhere alleges" that Blue Moon ads ever tout it as "microbrew" or that MC represented Blue Moon Brewing Co as "craft brewer" under BA definition. 

MC Motion lays out 5 specific reasons why Parent's complaint should be dismissed:

• Fed and state laws "expressly authorize" MC to use Blue Moon Brewing Company as a "trade name" or, under Calif law, a "fictitious business name" and that gives MC a "safe harbor from liability." That alone is "complete defense to all of Plaintiff's claims."
• MC's trademark registration "put Plaintiff on notice" that MC owns Blue Moon. That means "as a matter of law," Parent could not be "deceived" by MC.
• "No reasonable consumer could be misled" by MC use of words "craft beer" or "Artfully Crafted." Again, "ordinary meaning" of "craft" controls, just as Blue Moon uses it.
• Parent's complaint is not specific enough to survive or even be amended, MC insists, because he "does not allege when he purchased Blue Moon," how many times he bought it, which brands he chose or "what specific representations he saw before or during any alleged purchases." Without these specifics, complaint must be dismissed.
• Since Parent has not bought Blue Moon "for years" and has no intentions of buying it again, "there is nothing…that an injunction would do to help him."

MC motion cites recent wins by producers in similar cases against: 1) AB's Ritas for misleading about calories/carbs, where judge gave similar safe harbor to AB because it followed TTB labeling requirements, and 2) Maker's Mark bourbon, where judge ruled use of "handmade" was not deceptive. Indeed, MC sez its argument here stronger than AB's since both fed law and Calif law "expressly permit" use of Blue Moon Brewing Co trade name. Trade names common in many industries, MC points out, citing Jiffy Lube (owned by Shell), Haagen-Dazs (Nestle) and Ben & Jerry's (Unilever). Parent has oppy to respond, natch, and judge can grant motion to dismiss or continue case. 

Devils Backbone Entering NC This Fall w/ Mostly MC Distribs; $7 Mil Brewery Expansion Complete

Va's Devils Backbone announced it'll expand into NC this fall starting in August with 6 new distribs: RH Barringer Dist, Long Beverage, Craft Central (craft division of Carolina Premium Beverage), Coastal Beverage, Best of Beers and Healy Wholesale. Interestingly, Devils Backbone chose mostly MC distribs this time around, 4 of 6, including in most populous areas Charlotte and Raleigh/Durham. It previously went with mostly AB houses, including its largest by far, Virginia Eagle. North Carolina is just co's 3d state (+DC) and its first new market expansion in "over two years," according to release. 

And Devils Backbone is comin' in heavy; already hired five new employees for NC. "We highly expect that brand will translate there very well," and there's already lotsa existing "strong partnerships" with the "chain channel," including its #1 retailer, Kroger, sales director Scott Baver told CBN. Another mkt expansion "should be coming soon," he added. Thru Q1 Devils Backbone trends slowed a bit compared to last year, but $$ sales still flyin', up 58% in IRI MULC. So NC will likely give solid incremental boost to close out the yr. Co expects to grow around 44% to about 65,000 bbls in 2015, founder Steve Crandall told CBN earlier this yr. 

Addition of NC comes just after Devils Backbone completed $7 mil expansion to raise annual capacity to 90,000 bbls. Within next 12 mos, co will add another round of fermenters that'll boost cap to 150K bbls/yr. And recall, Devils Backbone expects to have 250K bbls/yr of capacity by 2020.

After a Beer Advocate forum post called Lagunitas announcement of 3d brewery in Azusa, CA a “head scratcher,” founder and chairman Tony Magee took it upon himself to respond and explain, copying the post to his Tumblr blog. He echoed many of points he shared with CBN: “Petaluma has run out of expansion room” and it’d be “stupid” to “diesel beer back west” from his Chicago plant; plenty of room to grow in the east and “I don’t want to make plans that sap LagunitasChicago’s potential either”; big oppy in Mexico; Azusa’s “pretty special” in context of Calif “water situation.” 

He also points to current “Quaffer-driven environment” and the “Beer Lovers” who “willed it into being.” Tony wants to “tell the story of the future thing that we are pointed toward…of which only the emanations of its penumbra are apparent to us.”  In said future, Tony sees US craft eventually reaching 60 share, which would be 120 mil bbls.  And in “global context” that “quickly becomes 500 million? 700 million? One billion…? I can only guess,” he says.  Tony “want[s] to present our beers in those distant places alongside those new brewers because they’re doing our thing, it’s cool and it’s exciting for beer lovers, but it is the thing that we [US craft brewers] do best, so I wanna be there doing it too.” Beer drinkers “have actually succeeded in bringing better beer to the whole world,” he wrote. Now “me and all the other forward-looking brewers want to live up to our end of the deal.”  

Oddly enuf, Wash based Yakima Craft Brewing owner, Jeff Winn, announced plans to sell his biz in an interview with local paper, Yakima Herald-Republic earlier this mo, the paper reported.  Its brewery currently has 3000-bbl annual capacity and an adjacent taproom in a leased 5K sq-ft facility, and has additional “taproom and restaurant in the Larson Building downtown.”  So Jeff figures he could get “something on the order of $3 million to $3.5 million,” he told paper.  “But there are dozens of ways it could shake out,” since “sales price obviously depends on the buyer to some degree.”  Main reason Yakima is for sale is “because family concerns have led him back to his hometown,” Boise, ID, reportedly.  “While he’s looking to relinquish the day-to-day operations…he’s amenable to a role of some sort,” if new owner wants to keep him involved. 

Regional Status Tuffer to Reach These Days; Iron Horse Expansion Could Put ’Em Past Mark Yakima’s “next challenge” is to reach regional status (15K bbls/yr), Jeff told paper.  Yet “it is getting much more difficult” to get there, sez Iron Horse Brewery owner and general manager, Greg Parker.  While there’s “a handful of examples in the last few years…all of them that I can think of came to market well-funded with a marketing plan that was well-developed, and they had a team of people who understand the distribution and retailers’ systems.”  Greg originally purchased Iron Horse Brewery in 2004 and now has it right on the cusp of reaching regional status after co grew about 34% to 13,000 bbls in 2014, according to Brewers Assn stats.  Most recent expansion project will “assume about $1.3 million in debt” in order to increase annual capacity to 28K bbls with possibility to reach 70K bbls.

Ask and ye shall receive? The Food and Drug Admin pushed back compliance date for the menu-labeling rules it published last December, after receiving multiple requests to do just that. New date, by which time chain restaurants and other similar establishments with 20+ locations will need to make changes, now delayed to December 1, 2016, a year after original effective date. Multiple groups urged FDA for the extension, noting that published rule required greater clarification and affected companies need more time to comply. Among them, individual establishments, Congresspeople, and both brewer trade groups: the Beer Institute and Brewers Assn. FDA’s “primary objective” in writing, publishing and now delaying compliance of rule is ensuring “accurate, clear, and consistent nutrition information” to consumers so they can “make informed and healthful dietary choices.” Providing requested time “helps accomplish” this, the FDA wrote in extending dates. Recall, the initial ruling surprised many alc bev suppliers and their trade groups by its inclusion of some alc bevs in list of products requiring calorie and other nutritional labeling info.

As in those stats we reported last issue from Brewers Assn benchmarking survey results, compiled by BA’s economist Bart Watson, a bunch of other numbers from the data set back up some conventional beer biz wisdom, even with small sample size. For example: when you’re small, stick to draught and sell on-site if you can. The margins are just too good to pass up.

That shows up clearest in revenue, cost of goods sold (COGS) and gross margin per bbl stats for smaller brewpubs, selling less than 1000 bbls in 2014. For these brewers, one bbl can bring in upwards of $1100, somewhere around $4.50 per 16-oz pint. But COGS averaged in just $175-190 range for this small group of respondents, leaving gross margin/bbl of at least $900, or over 80% of net price/bbl. In fact, at least half the brewpubs that took survey reported net prices of $1325 or more per bbl and gross margin of $1100/bbl. Group of brewpubs over 1001 bbls told BA that those stats can shrink pretty significantly, but for many, scale helped reduce COGS/bbl greater than net price/bbl. So tho gross margins/bbl were lower on absolute $$ basis, they still averaged over 80% (some close to 90%) of net price/bbl.

Production breweries didn’t pull in quite the same margin on draught, natch. While some smaller brewers achieved gross margins near 70% of net prices per bbl, most reported those stats at around 60%. Like with brewpubs, larger breweries tended to earn less per bbl on draught, but scale helped push COGS/bbl down too. Revs and COGS for packaged beer looks a bit different. But based on these results, packaging really hit gross margin/bbl hard for breweries under 1000 bbls last yr. In fact, packaged beer gross margin/bbl dropped 30-40% from draught stats for the small number of responding breweries this size, as COGS could be twice as high. Brewers between 1001-15K bbls saw greatest range here. Rev/bbl on packaged beer, compared to draught, varied anywhere from 15-60% higher, COGS/bbl +30-65% and gross margin/bbl from -8% to +55%.

Interestingly, scale didn’t seem to decrease average COGS/bbl on packaged beer for production breweries over 15K bbls. For all subsets of production brewers over 1001 bbls last yr, gross margin/bbl hovered between 50-60% of rev/bbl. For an added benchmark: Boston Beer’s gross profit/bbl was 51.5% of revs/bbl in 2014. Additionally, average EBITDA/bbl for production breweries decreased considerably as volume of the group increased: from closer to $200/bbl for the smallest brewers to $60-70/bbl for those over 15K bbls in 2014. Tho it’s not an identical measure, operating income/bbl is closest one provided by Boston Beer, at $35.72 in 2014.

On back of six packs, big Soul Style IPA launch and addition of new Natl Accts Mgr, Green Flash is trending up 26% in Calif in 2015, co-founder/CEO Mike Hinkley shared with CBN. That’s after growing 20% in the co’s home state last year. Note that doesn’t jibe with shipments numbers in last week’s issue, which were based on state tax reports and did include some kind of reporting error for the co.

Green Flash just recently brought on its first Natl Accts Mgr, so “before that we didn’t call on the chains,” Mike explained. In fact, Green Flash is “still about 60% draft on-premise.” Recall, GF also just released 6-pks for first time this yr, “so we didn’t really have a package that fit the channel.” Those 6-pks “just starting to get some chain placements.” Launch of new Soul Style IPA, “absolutely flying,” helped out too. It’s getting closer to the co’s biggest brand, West Coast IPA, as a piece of Green Flash’s total biz. “The two brands combine for 65% of our business in California,” Mike told us. Soul Style answered co’s call for “a strong #2,” and is “already about 25% of [GF’s biz] in its first year.”

So Green Flash has 2 IPAs as top-selling brands, ahead of a portfolio that’s packed with other riffs on the style. That means the co’s got front-row seats for sales phenom that is IPA. The style “is easy to love, from a flavor profile standpoint,” in Mike’s view. “Citrusy bitter is such a pleasant experience. I don’t think we’ll ever grow tired of exploring there.” They sure aren’t yet. The GF team keeps rolling with Hop Odyssey rotating set of hop-focused releases that’s “also doing very well.” That’s a place where Mike and co play with single hop beers that they’ll “take even further next year,” he hinted, as it’s “educational for us and our fans.”

Virginia Construction, Alpine Acquisition and Mike on M&A  Green Flash’s Virginia Beach brewery is “currently in construction,” Mike told us. Right now, he expects the taproom will open in Spring 2016, followed by bringing production on-line next summer. Virginia’s grown to be #2 market for GF, “up from #9 in 2014. Thanks Virginia!” Mike shared. Part of that could be VA thanking GF for offering San Diego pricing, recall. That’s helped GF “establish ourselves as local, one year ahead of time” and “is a strong signal to our new home town fans that we will indeed pass on the freight savings.”

Remember that Green Flash has also been unique participant in craft M&A. It acquired small fellow SoCal co Alpine Brewing last year, so far “a blast,” for Mike. “We may have found the needle in the haystack,” Mike said of the deal, “but if another amazing combination of beer and people comes along, we will not hesitate.” GF has done 6 draft brands for Alpine already, adding bottles “later this year.” The deal’s allowed GF to send Alpine beers throughout Calif as well as “spot shipments to our best distribution and retail partners across the Green Network,” Mike told CBN. As you might expect, he too has “been called” by folks behind “all of the roll-up strategies in the news, and a couple more -- not interested.” But M&A in the air does affect his thinking. “With consolidation in every tier and an overcrowded marketplace, partnerships are crucial,” Mike offered, calling out “distribution and retail partnerships” built by sales veep Jim Kenny and his team.

Growing Arizona craft market got its second craft-only distrib when the Ebel brothers Jason and Jim, of Two Brothers Brewing (and founders of Windy City operation in Chicago before sale to Reyes Bev Grp), opened up Arizona Beer & Cider last fall. Now the mkt’s back to one craft-only wholesaler after AB&C recently acquired small Pitcher of Nectar Distributing. And we’re talking small. It was basically a two-man operation, Jason told CBN, run by the founder/owner and one driver, with some “real good brands.” But AB&C was “pretty selective” and “did not take their whole portfolio,” Jason said, so some brands ended up elsewhere. The brands AB&C did pick up “added a nice depth to our portfolio and filled in a lot of the niches that we were looking for,” but not a huge amount of volume: just about 1500 CEs per month, Jason said. By end of 2015, he expects AB&C to hit about 65K CEs with the still pretty tight portfolio. Jason “can’t stress enough” the company’s focus on “having the right brands” and bringing a “quality book” to retailers that can expect excellence across the board, following the same approach as the brothers did with Windy City.

AB&C picked up Joseph James Brewing out of Nevada, plus the B. United import portfolio. “Being a craft-only wholesaler, we wanted to bring in that craft import” piece, Jason commented. Transaction also brought over the Marin and Moylan’s brands, “owned by the same people” and “nice complements to each other.” AB&C expands its cider offerings too, with JK Scrumpy joining Colorado Cider Co and Original Sin, familiar from days at Windy City. Existing AB&C portfolio includes Historic Brewing out of Flagstaff to provide “the local angle,” having developed a “really good following” with its flagship porter. And it’s still led by Two Brothers and Smuttynose. In the balance of 2015, the co is “bringing in a couple other brands,” Jason said, with “three more launches” scheduled. That includes Devil’s Canyon, from the Bay Area.

Two Brothers Up 22% Thru First Half; Rise of Wobble, Weiss; New Southwest “Home Base”  The distrib biz peppers in some complexity to Jason and Jim’s work at Two Brothers, based in Illinois, which shipped 35K bbls in 2014. The brewery’s having a “great year this year,” Jason told us, +22% with “no new markets.” That could change, as the co is “discussing one new market” that could be announced this quarter. The “timing seems to be right,” Jason said, after recent expansion in Illinois that included addition of a canning line to match speed of existing 300/min bottling line. But territory expansion still not nailed down.

Two Brothers recently intro’d a 2d full-time IPA, Wobble, that’s “doing extremely well.” After late-2014 launch, it’s already jumped up to #2 spot behind farmhouse-style Domaine DuPage, “still our lead dog.” Meanwhile, the first beer Two Brothers released, Ebel’s Weiss, is up 45% this yr and moved into #3 spot. It’s “always been a good solid beer,” Jason said, but has “never grown like this.” So he’s been asking himself “what is it?” So far, he’s thinking perhaps drinkers are adding “a little variety” and mixing in other styles with IPA.

Ariz is already Two Brothers’ 4th best market, of 10, after launch with AB&C last fall. The co’s still looking for a place to build “a production plant within the next couple years,” as it’s an “area where we want to make our next home base.” Recall, other family ties helped the Ebels decide on Ariz. The state’s “growing as a craft beer market,” Jason said, especially with a lot more out-of-state brands being intro’d there and in-state brewers “bringing a lot of creative beers to market that’s really needed here.” He sees “retailers wanting to get the right beers in,” something AB&C can help with, even tho the market’s still “several years behind.” Its proximity to southern US border means lots of Mexican imports, of course. But Jason’s starting to see beer drinkers grab “one of those and then branching out.” Two Brothers opened a restaurant in Old Town Scottsdale in February, so the team has been able to watch retail trends first hand. A new brewhouse is shipping to the restaurant soon and Jason expects in-house beer will hit taps around Oct 1. That’ll be in time for the many Ariz residents that seek cooler temps elsewhere in summer to come back home. That heat flips peak beer sales, Jason told us. So having one base of ops in Chi and one in Ariz provides a “nice, steady pull all year round” for the co, he said.

Rich deal flow lately has yielded coupla transactions of tangential interest to those involved in bevs.  One is deal in alcohol space that nevertheless signals continued rise in interest in all-natural adjuncts as consumers raise their standards in spirits they consume.  That was move by Constellation Brands, via recently created venture fund called Constellation Ventures, to acquire minority stake in Chicago-based Crafthouse Cocktails, which markets premixed cocktails made from natural ingredients in trendy Moscow Mule, Paloma and Southside recipes.  Brand is distributed in Ill, Ohio, Mich and Colo.  Recall that some years back spirits house Diageo acquired non-alc mixer line Stirrings, with flock of new entrants on both premixed alc side and NA side since joining fray . . . Meanwhile, on food side, Verlinvest family fund has taken small stake in Sir Kensington’s brand of condiments, which has been winning spots in high-end foodservice accounts vs condiment giant Heinz by virtue of its higher-quality ingredients, lower sugar and sodium content and non-GMO status.  Verlinvest is familiar to those in bev space for its past investment in Glaceau and current stakes in Vita Coco, Hint and Sambazon.  As family fund behind Stella Artois beer fortune, Verlinvest is heavily invested in Anheuser-Busch InBev shares and some commenters were quick to point out that controlling shareholder at both ABI and Heinz is Brazil’s 3G private equity group.  “My cousins and I, we pride ourselves on being daring investors in the food and beverage world, among other things,” chmn Frederic de Mevius told NY Times.  Sir Kensington’s boasts at least 1 familiar bev face in key role: field marketing dir Patrick Jammet, who’d long held similar role at Honest Tea. 

Coca-Cola Bottling Co Consolidated said William Elmore, a 20-year board vet, has elected to retire Nov 30, exiting also as officer of co and employee.  Also leaving on that date is an outside board member, HW McKay Belk, a consultant, also sitting since 94.  Neither decision was result of any disagreements with co, COKE noted . . . Hain Celestial has added former NY Police Commissioner Raymond Kelly to board, bringing it to 8 members.  Kelly currently serves as prexy of Risk Management Services for real estate firm Cushman & Wakefield.  

Most of the headlines today focused on pending contest between Panera Bread and Starbucks in pumpkin spice lattes but bakery café chain also has upgraded bottled bev line as it proceeds with mission to clean up ingredients by end of 2016.  And the winners are: Joia Soda, BluePrint juice and Harmless Harvest coconut water.

St Louis-based chain, now operating 1,926 units in 45 states and Ontario under Panera Bread, Saint Louis Bread Co or Paradise Bakery & Café marques, in May created a stir when it posted list of 150+ artificial ingredients it will phase out of all its recipes and 3d-party items by end of next year, including bev mainstays like HFCS.  That was bad news for stalwart CSD brands poured there such as Mountain Dew, Diet Pepsi, Sierra Mist and Dr Pepper.  Move came at time that emphasis is increasing on natural products not just at other fast-casual restaurants (including new generation of eateries like Dig Inn) but even at some mainstream fast-food chains, as with move by Arby’s chain to bring in Boylan sodas (BBI, Jun 15).

Today, co said it’s adding new version of seasonal pumpkin spice latte – even as Starbucks moved to employ real pumpkin for first time and drop caramel coloring, objects of derision of Food Babe blogger last year.  Panera also is offering “new line of ‘clean’ bottled beverages that are free of artificial colors, flavors, sweeteners and preservatives,” as laid out in so-called “No No List” published in May, period when chain commenced small test of newest bev menu additions.  They join roster of in-house-brewed teas, lemonades, smoothies, bottled milks and juices that are already free of these artificial ingredients, including such outside brands as Purity Organic juices and Horizon organic milk.  Throwing gauntlet down to Starbucks, co sampled new latte this morning in Seattle’s Victor Steinbrueck Park, not far from location of original Starbucks store near Pike Market.  It rolls out beginning Sep 9.  Chain is also testing clean versions of its vanilla, caramel and chocolate syrups used in drinks craft in-house like Caramel Latte.

“Our pumpkin spice latte has long been made with real pumpkin and without artificial caramel color -- and this year we’re taking ‘real’ a step further,” said Panera head chef Dan Kish.  “We’re offering a ‘Real Pumpkin Latte,’ made entirely without artificial colors, flavors, sweeteners or preservatives, and letting the goodness of real pumpkin, milk and spices do all the work.” 

On bottled side, it’s adding pair of HPP brands, BluePrint Beet Red and Green juices and Harmless Harvest Coconut Water, along with culinary soda from Joia, Grapefruit Chamomile & Cardamom Soda.