Speaking of the Brewers Assn, its founder and past prexy Charlie Papazian will officially retire tomorrow on his 70th birthday, right on schedule following his announcement one year ago. Charlie founded American Homebrewers Assn in Boulder, CO in 1978, just after President Carter legalized homebrewing across the US. And look just how far beer has since evolved in the US. “We would not be where we are today without Charlie Papazian,” BA CEO Bob Pease acknowledged in released statement today. “Armed with a vision, a mission, and the passion to succeed, Charlie turned his love of homebrewing into a community and culture that has had profound implications for so many, both personally and professionally. His contributions are indelible and innumerable, and his legacy lives on as the Brewers Association continues to serve the community Charlie helped to create. Cheers to Charlie as he takes the next steps on his never-ending path of living and learning.” Indeed, “this is a big change,” BA’s program director Julia Herz stated in “Thank You” post to Charlie earlier this mo. “A visionary, homebrewing advocate, author, speaker, beer historian, beer and food guru, and all-around beer sage,” Charlie’s “had a profound impact on beer.” Congrats and cheers Charlie! Time to relax, don’t worry and have a(nother) homebrew.

Dogfish Head continues to take a leadership role within the Brewers Assn community of craft cos, officially debuting its new packaging for flagship 60 Minute IPA that puts BA’s Independent Craft Brewers Seal “as big as we possibly can” on the package, co announced in letter written by founder/CEO Sam Calagione. Dogfish has “championed” the BA seal since it first launched, on packaging and at the entrance of each Dogfish establishment. And now “we are using our 60 Minute package as a soapbox on which we stand to amplify the dialogue and the expectation that brewers large and small be as transparent and authentic as possible with their marketing and packaging,” said Sam. Indeed, Sam has been vocal proponent of BA’s indie seal all along as well. After talking with “beer fans” at Dogfish breweries and across the country, “I believe the vast majority of Dogfish drinkers will support our decision to amplify the shield and its message on our 60 Minute packaging,” he added. Recall, top-3 IPAs in IRI data (by $$) are now Lagunitas IPA, Founders All Day IPA and Elysian Space Dust IPA, each owned (at least partially) by large, non-BA defined craft brewers, Sam and co pointed out at its distrib meeting last fall. Indie seal is being used as an attempt to further differentiate 60 Minute among a vast sea of IPAs.

A Slightly Mighty Correction: Cans, Not Bottles Turns out, Dogfish Head’s new low-calorie IPA, Slightly Mighty, will be released in cans-only rather than bottles and cans, as Esquire incorrectly stated in the article referenced last issue. Indeed, cans continue to grow within Dogfish’s mix, as canned SeaQuench became its #2 brand last yr, other core brands added more canned SKUs and several newer brands like SuperEIGHT summer seasonal will be released in cans too.

AB’s Karbach is teaming up with hometown Houston Astros this year for an Astros-branded beer, Crawford Bock, “a smooth, easy-drinking ballpark beer” clocking in at 4.5% ABV, cos announced last week. Crawford Bock will debut during “2019 Astros Fan Fest” on Jan 26, and will be available at the ballpark and thruout TX in 6pks and draft starting in Mar.  Karbach will donate “a portion of sales from every keg and case” to the Astros Foundation, which supports various local initiatives such as youth baseball and softball, military support, childhood cancer awareness and efforts to reduce homelessness. This is yet another example of big brewer craft cos teaming up with local sports teams for specialized products. And gotta note, Karbach’s seemingly taking aim at TX staple Shiner Bock in the process.

Riddle us this: are restaurants just the latest bizzes looking to get in on the lucrative taproom biz? That’s one way to read into “hot trend” recently cited by chefs, mentioned above, to do more “onsite beer brewing.” But who can blame them, especially as beer companies of all shapes and sizes plan and open additional on-premise retail concepts? That starts at the top, with largest US brewer AB kicking off a new project in Asheville for its last acquired craft player, Wicked Weed, as the Citizen-Times wrote this week. Co plans to open Cultura, a restaurant at its Funktatorium location on the brewery-dense South Slope of Asheville. Renovated location will also include 5-bbl R&D brewhouse as well as events space.

On the opposite coast, Craft Brew Alliance is going the opposite direction. It announced closure of the Widmer Brothers pub in North Portland, effective today. Recall, co pulled back from operating a full restaurant there to a scaled-down pub concept in late 2017. But, still experiencing “profitability challenges,” it decided to close the pub altogether, co wrote in Facebook post. Two full-time folks move to new positions; 7 other staffers lost jobs.

Decision to close a pub remains an outlier, tho. Constellation just opened the Ballast Point brewpub in Disneyland this week, as San Diego Union Tribune and plenty of others wrote. And recall, co has another in the works in the Mission District in San Francisco (see vol 9, no 76 from last August). Also in SF, small brewer Cellarmaker just opened a Detroit-style pizza restaurant called Cellarmaker House of Pizza elsewhere in the city, detailed by Eater SF. Farther north, Seattle up-and-comer Reuben’s Brews is moving toward a March 2 opening of its second taproom, which the Washington Beer Blog/Seattle Post Intelligencer pointed out this week too. In similar vein, Pennsylvania’s Pocono Brewing Co just opened its long-planned taproom/pizza restaurant in the Lehigh Valley Mall in Allentown, according to the Morning Call. The location serves 12 of co’s own beers plus 8 others in 2,200 sq-ft location with no on-site brewing.

Another week and another batch of craft cos getting into the hard seltzer game, of course.

 San Juan Seltzer Inc, a hard seltzer brand that debuted in WA just last May, announced it “merged” with Seattle’s Schooner Brewing “to become one entity.” Schooner already worked with San Juan to brew and can its hard seltzers beginning last spring as part of a “licensing relationship,” per release. Following the merger, Schooner opted to close its separate restaurant biz last Friday to “focus solely on what they do best, craft beer and spiked sparkling water.” Yet the taproom at Schooner brewery in SoDo neighborhood of Seattle will remain open and now serve “broader portfolio” including San Juan’s hard seltzers. Gotta note, Schooner is a small microbrewery that’s been around for 11+ yrs, and just came off a few tuff years of declines, according to Brewers Assn estimates and WA shipments data. So San Juan Seltzer is helping to mitigate declines and utilize capacity, it seems. At 85 calories, San Juan claims to have “the lowest calories of any hard or spiked seltzer on the market.” And co plans to grow distrib network thruout PacNW, Schooner CEO Ron Lloyd stated.

 MN’s Lift Bridge Wants to Be All-Encompassing Bev Co; Third Street’s HULA Spiked Seltzer

Meanwhile, two MN brewers recently announced broader launches of their hard seltzer offerings. Lift Bridge Brewing will begin selling four different variants of hard seltzers including “Northwoods Juice Box (cranberry-apple), St. Croix Berries, Voyageur Citrus and Island Time Tropical Blend,” reported Minneapolis / St. Paul Business Journal. Northwoods Juice Box will launch on draft “later this month” and cans expected by Apr in the Twin Cities. “It’s a trend that’s here to stay,” and “it’s important for us to get out in front of it,” co-founder Brad Glynn stated. Notably, Lift Bridge also launched sibling biz, “Lift Bridge Soda Co,” last year, to make non-alc soft drinks such as root beer and cream soda. “We really want to provide beverages to everyone, for every occasion,” Brad added. Hard seltzer certainly fits that bill. Recall, Lift Bridge is fresh off a sizable $10-mil brewery expansion that brought capacity to 70K bbls/yr. Co quickly grew to 20K bbls by 2017 and initially expected to reach 27K bbls of beer in 2018 (see vol 9, #3).

Third Street Brewhouse in Cold Spring, MN also announced new hard seltzer line, HULA Spiked Seltzer. (Coincidentally Lift Bridge has had alternating proprietorship at Third Street’s facility.) HULA will have Starfruit Dragon Fruit, Pineapple Guava, and Mango Papaya variants, each clockin’ in at 5% ABV, 110 calories, 4g of carbs and 2g of sugar. Tho co created a separate brand for its hard seltzer line, Third Street Brewing badge is depicted front and center on its can.

Mother Earth Brewing & Spirits (NC) Launching Sercy Spiked & Sparkling, “Nationwide” Plans Owners of Kinston, NC’s Mother Earth Brewing and Spirits (not to be confused with Calif/Idaho-based Mother Earth Brew Co), Stephen Hill and Trent Mooring, are launching Sercy Spiked & Sparkling brand with grand plans to distribute “nationwide,” co announced last week and Neuse News reported. Indeed, Trent went as far to say that “the ever-popular water libations…look to be the future of our great industry,” adding that “we hope it becomes a national brand and believe it has export potential.” Sercy will launch this spring in 12oz canned variety pks, including Cucumber Lime, Orange Raspberry, Peach Lychee and Mixed Berry flavors, with 5% ABV, 100 calories, and no carbs or sugars added. The HQ for Sercy hard seltzers will be a separately “restored warehouse” also in downtown Kinston, NC. Mother Earth beers had a couple up-and-down yrs recently, slipping to just under 7K bbls in 2017, according to Brewers Assn stats.

Books & Brews, a hybrid bookstore and brewery concept with 9 locations mostly in the Indianapolis area, acquired another local craft brewery, Flat12 Bierwerks, reported Indianapolis Business Journal (among others). Flat12 has been brewing for Books & Brews for the last 2 yrs, since Books & Brews devised concept in early 2017 “to open franchised and company-owned locations throughout Indiana,” paper noted. And Books & Brews will open its first out-of-state location “later this year” in Oxford, OH. Turns out, after opening in 2012, Flat12 “ran into financial trouble in 2016,” as “original shareholders lost their entire investment and a new investor recapitalized the business,” paper added, citing court documents. Andy Teed purchased the Indianapolis location in 2016 and one of the 3 original co-founders, Sean O’Conner, took over the Jeffersonville, IN taproom. Yet Flat12 brands will stay intact and Books & Brews will begin offering Flat12 growler fills at various locations, sez paper.

A little over 3 weeks into the new year, and already 3 separate small deals involving microbreweries have been announced in the US. First, R&D Brewing acquired Bull Durham Brewing in NC, which touts itself as the official brewery for “arguably the most famous minor league baseball team in the world” thanks to the classic movie from the late 80s. Then, WA’s Schooner Brewing “merged” with a local hard seltzer brand to diversify its portfolio amid recent beer brand’s struggles. And in IN, Books & Brews acquired Flat12 after Flat12 dug itself out of financial troubles. Recall, Arlington Capital Advisors’ JB Shireman predicted that craft-on-craft M&A would become more prevalent in 2019 as certain small cos look to double down “in their backyard” (see Jan 7 issue). Could be that 2019 already shaping up to be an active year for small-scale craft M&A. More on the latter two deals below.

Between 2012 and 2017, Minnesota upstart Surly Brewing more than quadrupled its total volume. It grew again last year, but at nowhere near the clip it had been running, finishing the yr at about 95K bbls, +3.9%. “The market slowdown affected us last year, like it did for so many,” marketing veep Bill Manley explained to CBN. A number of top craft players noted that the 2nd half of the yr was much better for them than the 1st half. Not so for Surly. It “came out of the gates in 2018 very strong,” Bill shared, growing in the 20% range. But then “cycling against some big numbers from the year before,” Surly slowed and “had a soft summer and fall,” Bill said. The co wasn’t alone, though, he suggested. “Many of our retail and wholesale partners are reporting some of the worst summer numbers they’ve seen,” he noted, alongside large snowfall last April that delayed the outdoor beer-drinking season “longer than anyone would have liked.” Surly finished strong, Bill pointed out, but not quite enough to push its total shipments past the 100K-bbl line.

Headed into 2019, co’s sales goals are “conservative but promising,” Bill shared. It’s aiming for “slow and steady growth” this yr. That may seem somehow un-Surly-ish, but after some staffing shifts (including replacing its sales director and adding some new sales positions) and “serious time planning strategy last fall,” the “tightened-up” co expects modest growth to continue.

Introduction of 6-pks of 12oz cans will play key role in Surly’s 2019. Co intro’d 12-pks of 12oz cans a couple yrs back, but 4-pks of 16oz cans remains “very dominant” in MN, Bill pointed out. “As Surly solidifies its chain business, the 6-pack package is the more attractive and viable package type for many buyers, and is already paying dividends with chain commitments going into the year,” he shared with us.

And don’t for a second think the co is backing away from 4-pks altogether. It’s launching Surly Rosé in that pack in April. Brand “was a runaway hit” at co’s on-site beer hall in Minneapolis, Bill shared, which blew thru 500 bbls of the beer on its own last summer. Also new for Surly is yr-round hazy IPA called One Man Mosh Pit (see last issue) as well as a yr-round American IPA called Sleek. And count Surly among the large craft players kicking off the year with a seasonal brut IPA. DAF Brut IPA is current offering in co’s rotating quarterly seasonal SKU, “very popular so far,” Bill shared.

No one needs to tell folks in the craft beer industry about consumer fascination with going more and more local. Recent observations from the broader grocery and restaurant bizzes suggest this is only the beginning. The food retailing industry is still “early in the cycle” of a “transformative shift,” a senior veep at IRI, Chris DuBois pointed out in an early-year webinar presented with Food Marketing Institute, a natl food retailer trade assn. The “ability to create a better, tighter connection of the consumer back to the producer and ultimately helping both sides win is where we see this going,” Chris said while concluding the presentation. He added that this movement toward hyperlocalization is something to “keep your eye on for every industry.”

Separately, “locally-sourced” and “house-made” everything is apparently top of mind for chefs surveyed for the National Restaurant Assn’s recent “What’s Hot 2019” report. In fact, behind cannabis/CBD-infused food (natch) and “zero-waste cooking,” hyper-local was the org’s #3 2019 trend in “culinary concepts.” The beer industry and especially the craft beer industry are already figuring out how to adjust to hyper-local interest. And that doesn’t look like it’s goin’ away anytime soon. So, how will continued movement this direction across food and beverage industries change the craft beer biz further?

Over 2/3 of Local Shoppers Do So to Support Local Economies, Farmers  “Food transparency” is a key piece of what’s driving this local-focus, Chris said during IRI/FMI webinar. But also consider that, among consumers who seek out local options when food shopping, 68% say they do so to “support farmers,” according to IRI survey data. A half-dozen consumers repeatedly underscored how it’s “incredibly important” (especially “these days”) to support small bizzes and local economies, in a series of clips shared by IRI and discussed by FMI’s Nick Stein.

Even more folks, 74% of respondents, noted “freshness” as a key reason why they shop local. Sustainability also comes into play. And interest is rising. “Almost 40% of consumers told us that local fruits and vegetables are more important to them than last year,” Nick said. In fact, when it comes to produce, “local is why they shop where they shop” for 30% of folks. And 21% said the same about choosing where to buy meat and poultry. “Local is table stakes” now, Chris said. “Consumers are shopping with a different mindset,” no longer thinking about food as a commodity and increasingly considering “the components of what’s in that food and what it means for them, personally.”

Over 9,000 Farmers Markets? Vertical Farms, On-Site Gardens & Harnessing Tech  In case any of the above rang familiar for folks focused on beer over food, try this one on for size: “increased competition.” That’s an easy one, we know. For food retailers, that’s in part coming from tech on one side and locally-focused bizzes on the other. Check out the dramatic rise in farmers markets in the US in the last couple decades. The USDA tracked less than 2,000 farmers markets in the year 2000. That more than doubled to about 4,400 in 2006 and ballooned to 7,200 in 2011. Growth has slowed since, but the count still neared 9,000 back in 2017.

How are some companies figuring out how to compete for hyperlocal dollars? “Vertical greenhouse farming” can bring produce closer to consumers, Chris noted, and “seafood farms don’t have to be in the ocean,” he pointed out. Some grocers in Europe have installed end-cap displays that are in fact small greenhouses where consumers can choose from live, growing greens and herbs. In Texas, HEB is “piloting a four-level vertical farm,” he shared. Others are looking to tech to connect consumers with farmers and fishermen, for example. Note that we’ve already seen food retailers like Whole Foods bring brewing on site. Bread, pastry and cheese-making add an aspect of “theater” to numerous food-stores already, Nick noted

Local-Sourcing and House-Made Options Run Deep in Top 2019 Restaurant Trends  And it isn’t just grocers and (mostly) off-premise food purveyors paying attention here. Local sourcing and in-house options are all over the Natl Restaurant Assn’s “What’s Hot 2019” report. Quick watchout tho: the top-cited alc bev trend was “craft/artisan/locally produced spirits,” our emphasis. “Locally produced spirits/wine/beer” still ranks, but lower, at #4 alc bev trend noted by surveyed chefs. Meanwhile, plenty of top trends across categories, from produce and protein to condiments and non-alcs, suggest many of these chefs want to get closer to production or even bring it in-house.

Local sourcing was the #2 produce trend and #3 protein trend (think local meats or seafood). House-made ice cream, pickles and condiments all ranked as top trends in certain categories. Adding in-house options appears twice among non-alc bev trends: #3, “craft/house-roasted coffee,” and #5, “house-made soda.” While we’re at it, throw in the report’s #2 trend in alc bevs too, “onsite barrel-aged drinks.” Aside from the #3 “culinary concept” trend (noted above), “hyper-local” ranked as the #6 trend across the board, including these intriguing ideas: “restaurant gardens, onsite beer brewing, house-made items.”

While AB reported shipments/depletions trends approx 2 pts better than MillerCoors, each reported similar, solid profit trends in Q1.  AB’s EBITDA +2.5%; EBITDA margin expanded 34 basis points to 39.6%.  MC’s underlying EBITDA up 3.4% and margin widened 60 bps to 24.2.  (Similarly, MC’s operating income +3.3% and margin expanded 40 bps.)

Each booked healthy rev/bbl increase, AB +2.6%, MC +3.7%.  AB attributed rev/bbl and EBITDA increases to premiumization, “revenue management initiatives” and “ongoing optimization of our cost base.”  MC credited “higher net pricing” and lower MGA costs.  MC got no bump from mix.  Indeed, MC ceo Gavin Hattersley said MC had negative mix impact of 0.3%, due to package mix; brand mix neutral.  So, MC’s actual front-line price increase was 4%.  Then too, including contract brewing for Pabst, Molson Coors reported 4.4% rev per bbl bump in Q1.  (Could a price hike have kicked in for Pabst too?)

Asked about gap between reported rev/bbl gain and modest 1% avg price hikes for MC in scan data, Gavin simply said a lot of different factors impact retail price.  Molson Coors ceo Mark Hunter added that “clearly our retailers themselves chose to invest in price activities” in Q1 (i.e. Walmart).  Recall too, MC’s 8.5-cent freight/fuel surcharge to distribs kicked in in Q1.  That’s $1.17 per bbl, and represented 0.7 of the 3.7% rev/bbl increase, calculates Consumer Edge analyst Brett Cooper.  Excluding that, 2.9% pricing is “a very good number and required to offset” cost of goods sold pressure, Brett wrote.  He expects the “freight benefit” to continue thru the yr.  Meanwhile, AB and MC each trimmed operating costs.  AB reduced reported (North American) selling, gen admin costs by $38 mil, 3.6%.  MC reduced mktg, gen admin costs by another $17.5 mil, 4.5%.  ABI didn’t comment on SGA in conference call or report.  MC attributed lower MGA to “lower employee-related expenses, including incremental cost reductions” linked to fall ’18 restructuring, along with “timing of innovation spend, partially offset” by higher mktg spend for Miller Lite and Coors Light.  MC execs have said mktg spend will increase in 2019. 

                                Best Wishes,