Big brewers and craft brewers continue to intermingle in interesting ways. This week, iconic Scottish crafties BrewDog hired "industry big hitter" Andrew Hatherall, as The Herald noted, to run its growing export biz. Hatherall worked with AB InBev for 16 yrs, coming from Whitbread and most recently was an intl regional director, developing strategy for Asia and "responsible for all export and license contracts." Irony here is BrewDog's often vicious attacks on specifically AB InBev and its brands over the yrs. That included promotional video where founder destroyed bottles of Stella and Beck's with a golf club (which drew lawsuit from ABI) and f-bomb laden twitter post from James Watt on April Fool's Day last yr announcing ABI had bought BrewDog.

Hatherall sees no conflict, telling Herald he has "huge amount of respect for what the guys have done and their ambition, and how disruptive they have been." He respects their beers and commitment to quality: "The fact that I used to work for a mega brewer that is the opposite end of the scale from BrewDog sits comfortably with me. Fundamentally I'm all about consumer choice. Beer - and anything that brings excitement to a product category that I love - is good for me." Andrew's "first task": building out an intl sales team that "has a bigger geographical footprint than perhaps BrewDog has been used to in the past. "BrewDog currently exports to 55 countries.  

As of Memorial Day weekend, Genesee Brewing is now regionally offering 6pks and kegs of an Imperial Black IPA and Scotch Ale "under the Genesee Brew House name," reported Buffalo Business First. The brands were created under Genesee's "Brew House Pilot Batch Series" at its Rochester, NY restaurant/brewery, and "people were drinking it faster than I could make it," brewmaster Dean Jones told paper. Co took "the two most requested products" in "last two years" and scaled 'em up. They're currently distributed in NY, OH, PA and other parts of the northeast, and lookin' to stay regional, Genesee brand manager, Carrie Duggan told paper. Recall, parent company FIFCO also owns Magic Hat and Pyramid craft brands.

This marks yet another legacy brewer/large company looking to get more involved in craft segment; recall, Yuengling will offer an India Pale Lager starting this November, Pabst re-introduced Ballantine IPA, has distribution agreement with Small Town Brewery's Not Your Father's Root Beer (see above) and has expressed interest partnerships with other craft cos, and Diageo Guinness USA released Thump Keg Brewing series of "spirit-inspired" Rye IPA and Agave Amber Ale earlier this year. Not to mention AB's various craft acquisitions and MC, Constellation, potentially others reportedly sniffin' around too.  

As of Memorial Day weekend, Genesee Brewing is now regionally offering 6pks and kegs of an Imperial Black IPA and Scotch Ale "under the Genesee Brew House name," reported Buffalo Business First. The brands were created under Genesee's "Brew House Pilot Batch Series" at its Rochester, NY restaurant/brewery, and "people were drinking it faster than I could make it," brewmaster Dean Jones told paper. Co took "the two most requested products" in "last two years" and scaled 'em up. They're currently distributed in NY, OH, PA and other parts of the northeast, and lookin' to stay regional, Genesee brand manager, Carrie Duggan told paper. Recall, parent company FIFCO also owns Magic Hat and Pyramid craft brands.

This marks yet another legacy brewer/large company looking to get more involved in craft segment; recall, Yuengling will offer an India Pale Lager starting this November, Pabst re-introduced Ballantine IPA, has distribution agreement with Small Town Brewery's Not Your Father's Root Beer (see above) and has expressed interest partnerships with other craft cos, and Diageo Guinness USA released Thump Keg Brewing series of "spirit-inspired" Rye IPA and Agave Amber Ale earlier this year. Not to mention AB's various craft acquisitions and MC, Constellation, potentially others reportedly sniffin' around too.  

States that allow self distribution are generally home to about 8-8.5 more breweries per mil residents than those that ban the practice, a new working paper from a graduate student at Clemson University in SC finds. Though the study's still being finalized, the analysis is done and the results aren't terribly surprising: looser laws leads to more breweries. Clemson economics student Jacob Burgdorf paired his own research of state laws with TTB stats for operating breweries to identify the "impacts of mandated vertical restraints" on brewery openings. Of the trio of focus policies, self distribution showed the greatest net impact between 1984 and 2013. He found "that states that did not restrict breweries from acting as wholesalers" in that time, "had 7.85 to 8.70 more breweries per million than other states," based on various models used in draft of paper shared with CBN. Further, "this accounts for approximately 70-75% of the number of breweries in those states." States that allow self-distribution average 23.76 breweries per mil, compared to just 12.42 mil in states that bar breweries from the wholesale tier. Burgdorf's analysis of state laws show that 16 states, including DC, barred self distribution altogether still in 2013, half of which are in the southeast and most of the others are in the midwest.

Research also examined effects of mandated exclusive territories for wholesalers and strong franchise laws. In each case, states with greater restriction tended to have about 0.2 fewer new breweries per mil people per year. Additional analysis showed that "franchise laws are estimated to have a much larger impact in" states that do not allow self distribution and that their impact in states that do allow it "is nearly zero." Indeed, putting results for self distribution and the other 2 policies together, research shows franchise laws to be significantly more impactful than mandated exclusive territories. This study, another product of the increased attention on small brewers over recent years, is also example of the growing number of tools industry members can use to make their cases to lawmakers.  

Small Town Brewery Not Your Father's Root Beer, based in Chicago, has been quickly expanding its distribution in recent mos. Recall, it entered OH in Mar with Superior, PA with Goshen and WI with Beer Capital in Apr. However brand rollout goes much further than that. It's also available in select areas of CA, CO, MN, MI, GA, FL, SC, MD, IN, MD, PA, NJ, RI, MA and NH (many of those very recently added), according to company website. Recent article about alcoholic root beers in Chicago Tribune pinned rollouts in 17 new states to 25 total just in last couple mos, tho didn't specify which ones. It's also recently been spotted in CT, NY, ME, OR, Southwest WA and LA via Twitter. Remember, Pabst partnered with Small Town for distribution rights earlier this yr, with potential path to full ownership, CBN understands.

All these new states help partially explain how Not Your Father's Root Beer 6pk was able to become top-50 pkg YTD and #18 best-selling pkg in natl IRI multi-outlet + convenience data (see last issue of CBN). Yet there's more to it than the big rollout. Not Your Father's Root Beer is "a craft-brewed proposition" rather than an FMB that's "creating kind of a new category," mainly sourcing consumers that're "not beer drinkers," Pabst ceo Eugene Kashper told CBN. That's partly the "reason why it goes so much wider," he added. Article in Chicago Tribune figured alcoholic root beer as more of a niche product in the market and doesn't believe it's "about to start a trend." However it seems Not Your Father's Root Beer is owning the niche, and is growing rapidly. Also gotta note, separately an alcoholic (tho not malt-based) Ginger Ale called Ginger's Revenge is getting recognition in Asheville, NC, via recent Citizen-Times article. Stay tuned.

May Craft Brewer Distribution Territory Expansions In case you lost track of all the new markets craft brewers launched in the last mo, we've put 'em all together for you in one handy pdf. Organized by state, this list includes craft brewer distribution expansions with sales expected to begin in May 2015, as well as a preview for June 2015 expansions. While it may not be comprehensive, this list includes announcements made by the largest craft brewers and many expansions by smaller players.  

Interesting controversy in Houston, TX regarding increased keg deposit prices. After Silver Eagle Dist "instituted an unannounced 20 percent hike in the deposit it charges retailers," a $10 increase to $60/keg, a coupla local bars "said they will stop purchasing kegged beer from Silver Eagle," reported Houston Chronicle. The increase is "double what it was just a few years ago," Kevin Floyd of the Montrose craft beer bar Hay Merchant told paper, and while each deposit is technically refunded when the keg is returned, "deposits could tie up thousands of dollars" at a time, paper notes. Another bar, Petrol Station usually has "70 to 100 kegs on hand from various distributors," owner Ben Fullelove told paper.

Silver Eagle "acknowledged" that reason for hike is 'cause it's paying increased rates for deposit fees on its end as well, in released statement from executive vice president of sales & mktg, John Johnson. Yet bar owners argue that Silver Eagle is largest distrib in the city, and doesn't need the money as much as bars. Indeed, it reportedly "generated $1.04 billion in revenue," over 2.5X "its next two competitors combined," paper noted. Whereas another local bar, Flying Saucer Draught Emporium "maintains a draft beer inventory valued at around $40,000." Meanwhile, next largest distrib, Ben E. Keith has "no immediate plans to match the deposit increase," tho previously raised fee to $50 in Feb this yr "in response to previous Silver Eagle increases," Houston division manager, David Cordill told paper. However, potential problem with deposit discrepancy between distribs is that a bar owner could technically "take a keg purchased from Ben E. Keith and return it empty to Silver Eagle to receive the higher credit amount," since "most kegs are interchangeable."

Local craft brewer, 8th Wonder (distributed by Silver Eagle) sees "both perspectives," since it decided to increase deposit fee to $50 earlier this yr, which still doesn't cover "even half the cost" of buying a keg, co-founder Ryan Soroka told paper. And kegs "have a way of disappearing," since its "easy money," he added. "How does it end?" asked Ben Fullelove. "Suddenly I'm paying $100 a keg? $200 a keg after a year?" Silver Eagle distributes several craft brands including red hot local brand Karbach, St Arnold, 8th Wonder Brewing and larger out of state craft brands like Firestone Walker and Sierra Nevada, paper noted.  

Just as the community of brewers continues to get larger in Oregon, a faction of smaller ones seems to be see room for another lobbying group to satisfy their needs. Not that these brewers are revolting against current Oregon Brewers Guild. Indeed, the first meeting of potential members of new Oregon Small Brewers Coalition was "supportive and positive on the OBG," according to a report from The New School. But "there are some feelings that a separate group is needed to represent small brewers as well as the guild supports large craft brewers," the paper wrote. The first OSBC meeting was called to order by Art Larrance, longtime Oreg beer biz member, founder/owner of Cascade Brewing and the Oregon Brewers Fest. Indeed, proceeds from that event (one of, if not the largest consumer beer event in the US) will help fund OSBC's operations in its first year.

That first meeting included definitional discussions as well as conversation about focus issues for the group. But nothing's official yet. OSBC plans to allow brewers under 15K bbls in. It'll allow membership for companies that make more than that at all of their breweries combined, but not over 15K bbls at any single brewery (like the McMenamins brewpub chain). Interest in expanding current brewpub cap and finding legal route for breweries to sell direct-to-consumer comes from Art's leadership and Cascade's biz. The group also seems to be interested in franchise reform. "If you're under a certain amount you should be able to jump from distributor to distributor to create some competition," owner of Lucky Lab, Gary Geist said. Considering the state's growing group of brewers of that fit the OSBC's cap, the group "could claim 100 members in a short time," according to New School's report.

Tensions that typically remain behind-the-scenes in regulatory and legislative debates took center stage, even spilling into audience early in the day at our Beer Insights Spring Conference last month. General agreement about big upsides that high-end beer segments have in front of them turned to passionate disagreement when panelists Jim Koch, chairman of Boston Beer, Bill Hackett, prexy of Constellation Brands Beer Division, and Dolf van den Brink, prexy of Heineken USA, were asked about proposed tax bills currently considered by Congress. "I didn't realize we were not part of the industry," Bill said of importers, specifically excluded from break provided by Small BREW Act. He insisted on necessity of beer industry unity on this front. Jim lamented "bad mouthing" and insisted brewers should "not be pissing on each other." Instead, tell legislators to support both bills and let legislators decide on compromise, he said. When he suggested Fair BEER is defensive and that Beer Institute doesn't actually want it to pass, Bill called on BI prexy Jim McGreevy to confirm the org's intent from the audience. The moment offered a rare glimpse of the emotion that often simmers underneath even cordial discussions over these complex issues.

Across the Southeast, some of the most heated beer policy battles rage on. Frustrations abound. Faced with roadblocks in state legislatures, brewers across the south see green. They point to political contributions from distributors, their associations and their major suppliers when talking to local press and posting to social media. That follows a broader narrative that challenges historic political mechanisms, keeps unfolding even outside the beer industry and attracts allies that may or may not see benefits to any current regulatory structures. At same time, distributors report tiring of the steady stream of small brewer requests for accommodations and law changes, wondering when and where they'll end. And one side's expression of pride from recent success only encourages the other side to push back harder. Increasingly, we're seeing these pushes and pulls lead to questions about the line traditionally kept between regulatory debates and professional relationships. These questions and aggrivations come privately and in personal missives, but above the surface, the game goes on.

Georgia brewers started laying groundwork for future change early. Op-eds from Georgia Craft Brewers Guild exec director Nancy Palmer and small brewer supportive Senator Hunter Hill appeared in Atlanta Journal Constitution late last week, focusing on recently-passed bill there. Recall, new law allows breweries to sell tours to visitors and then give away limited amounts of beer for on- and off-premise consumption. Both columns note that the new opportunities represent "a marked improvement for Georgia's breweries," as Nancy and atty Brooks W. Binder described. But the passed bill still "doubles down on the current regulatory absurdity," according to the pair, "all for fear of alienating the richest and most powerful political lobbies in our state," referring to beer wholesalers.

Sen Hill reminds that bringing branded beer home from breweries could cause "sales of these products to increase in our retail stores." He also insists that "we should not disassemble" the 3-tier system, but "should look at making common-sense changes that will allow small-businesses to adequately compete and grow." Indeed, in researching beer laws, Sen Hill found Georgia brewers "were at a competitive disadvantage compared to their industry peers in other states. This disadvantage trickles into other industries," he wrote, including "tourism, restaurants, hospitality." GA, like many of its southeastern neighbors and other states/cities across the US (and world, by the way), has linked tourism and marketing itself as a destination with economic development, attracting both tourists and businesses that seek new homes.

Virginia is one of those states spending much time and energy specifically trying to attract small brewer bizzes. It's also not seen the same kind of policy debates that states further south have. Virginia's secretary of agriculture and forestry, Todd P. Haymore, recently penned a piece for the Richmond Times-Dispatch about "Virginia's thriving craft beer industry." With the Virginia Economic Development Partnership, folks from the governor's office and other state officials, he attended CBC this year as "the only state with an official presence" on the trade show floor and a reception. Recall, VA and Richmond officials attracted Stone to build a new facility in the city, currently under construction. The same paper has closely followed the project's progress, scheduled to be complete next January. Stone will spend an additional $2 mil on "tweaks" to plans, including making way for bigger tanks and readying the roof for solar panels, a recent article notes. But city and state officials aren't done. The current "administration has made growing this sector a key component of our economic development strategic plan," Haymore wrote, not only to help create new jobs and investments but to provide "new markets and revenue streams for local producers," like farmers.

North Carolina too has been successful in attracting brewing bizzes, particularly to Asheville. But that hasn't precluded strained relationships between brewers and wholesalers, nor has it ensured legislative support for brewer-backed bills. Recall, brewers sought raising the state self-distribution cap to 100K bbls from 25K bbls and codifying contract brewing and alternating proprietorship relationships. An alc bev omnibus bill passed through the NC legislature this week and includes some provisions covering contract and alt props, as helpful primer from Williams Muller law firm explains. The bill does not expand self-distribution rights, though. Instead it specifically aims to ensure that contract/alt prop relationships do not keep small brewers from hitting the 25K-bbl self-distribution cap, the report suggests.

Throughout last month, opinion pieces on these possible beer laws hit NC papers from all directions. A non-industry writer included raising the self-distribution cap in an opinion piece focused on "21st century reforms that privatize our licensing, control and sale of alcohol," for the Henderson Daily Dispatch. A mid-month editorial took increasingly common tack asking why bills to ease restrictions on small brewers aren't passing in a "GOP-dominated legislature [that] talks a lot about the importance of creating jobs, reducing government regulation and helping small businesses," per Star News. But that piece was "off the mark," according to late-month op-ed from NC Beer & Wine Wholesalers Assn exec director Tim Kent. Again citing NC's "most permissive craft beer laws and regulations of any state in this region," Tim argued 8 separate self-distribution bills haven't left committee because "they are geared to give an unfair competitive advantage to a handful of brewers at the expense of all others, both small and large."

South Carolina Standing out for some recent diplomacy, a handful of small South Carolina brewers spoke highly of current distributor partners, while pointing to a couple of legal changes they'd like to focus on in coming years. Brewery 85's Will McCameron called work with distribs "pretty much win-win," Quest Brewing's Don Richardson hopes for a "tax break" that "would be passed along," and RJ Rockers' John Bauknight would like to see brewpubs allowed "to distribute through wholesalers" and grow beyond current 2000-bbl cap, according to the Greenvile News. SC Brewers Guild exec director Brook Bristow agrees about excise taxes and brewpub distribution, the article notes. He also points to changes to state law that may be necessary to attract brewers from out of state, like Deschutes or Cigar City, which may seek the ability to operate both a production brewery and a brewpub and transfer beer between 'em, currently barred by SC law.  

Shipment data paints a stark backdrop behind the sometimes dramatic policy debates that beer industry members are participating in across the South Eastern US (see below). Top two brewers collectively lost 6.6 share of shipments across 7 reporting Southeast states between 2009 and 2014 (SE region includes AL, FL, GA, MS, SC, TE, WV). The total industry lost over a mil bbls from 2009-2013, down almost 3%. But a solid 1% increase in 2014 cut the 5-yr decline to 660K bbls, -1.9% to 33.6 mil bbls. But any growth has come from Constellation Brands Beer Division and All Other suppliers below the top 5 (AB, MC, Pabst, CBBD and Heineken). All Others went from very low 5 share in 2009 to 9.6 share of shipments last yr. Together, AB & MC shed near 2.8 mil bbls in that time, -9.5% in this region.

Yet the pair still held almost 79 share of total shipments in the SE last yr. It's as low as 74.6 in biggest state by far, Florida. But that's down from almost 82 share in 2009. Both Constellation and All Others have 9.1 share there; the former gained almost 3 pts and the latter over 4. Total biz off just 0.7% in Fla for 5 yrs, significantly better than some other states in the region. Shipments down near 5% overall in Mississippi since 2009. Share held there by top 2 dipped below 90 just last yr, down over 3 pts in 5 yrs. The total biz declined about 1% in Alabama in the last 5 yrs, almost 2% in South Carolina, 2.4% in Tennessee, 2.8% in Georgia, and 6% in West Virginia. The two largest suppliers took the brunt of the hit in each of these markets. So across this whole corner of the country, growth has been tough to come by, raising the stakes for individual bizzes even higher.  

"The whole focus" of AB's high end unit "is elevating beer and topline growth," high end veep Felipe Szpigel told our Spring Conference a few weeks back. "We're putting our beer out there for more people to drink and telling our stories in a better way," said Felipe and "consumers are reacting." And while ABI is known for its cost cutting prowess, that's not the role of AB's high end unit or many investments in craft. AB has already committed to investing $10 mil to expand 10Barrel brewery, Felipe reminded, and 10 Barrel just got 6 new 400-bbl tanks. At time of conference, AB also invited our conference attendees, including many competitors, to visit Goose Island's massive 135,000 sq ft barrel aging warehouse and brand new taproom tied to brewery. More significant expenditures by AB. Just after that, Goose held an event including many other local craft brewers. It's almost as if AB embracing elements of craft's (perhaps waning?) collegiality, while also attempting to win competitively. "We're using the word competition less," Felipe said. In growing high end, "everyone has an opportunity" to grow, said Felipe and to further grow the category.

And yet at the same time, there are those much discussed low, low Shock Top and Goose Island draft prices. Felipe got many questions about that at our conference, including if AB was attempting to play the role of disruptor. He countered that there are "multiple ways of investing in the market," adding that "our goal" is to sell hi-end beers on "more occasions" to more consumers, which he called a "relevant role" and not disruption. But at same time, here he did acknowledge that mkt "very competitive." Actually Shock Top ain't doing so well at least off premise these days. Shock Top franchise down 6.5% in IRI multi-outlet + convenience yr-to-date thru May 17. But Felipe praised AB and distribs for building 800,000 bbl brand from scratch.

AB's craft acquisitions are doing just fine. Goose Island growth accelerated to 20% in 2015, Felipe said at our conference, citing IRI with Goose Island IPA up 100%. Goose Island accelerated even further, up 29% for latest 4 weeks thru May 17 in IRI multi-outlet + convenience. Goose Island IPA up 255% last 4 weeks and became #1 Goose Island brand, representing 1/3 of its sales. Recall, Goose Island IPA will get about $10 mil in mktg support in 2015, according to deck AB shared with retailers.

Other craft acquisitions also "performing very well," said Felipe, and Blue Point "is on a roll as well," he said. AB's 10 Barrel up 29% in IRI yr-to-date, 23% for last 13 weeks, even as 10 Barrel has expanded to Colo. But Blue Point really picking up steam; up 65% yr-to-date, 79% for 13 weeks as it too expanded to new states. Too soon to say much about Elysian, tho Felipe did express admiration for departing founder Dick Cantwell. "I was fortunate enough to spend a couple of months" and "maybe have a dozen meetings with Dick" who was "definitely a key person. I really respect his decision and wish him all the best," said Felipe. "I really admire him and I'm thankful for the time I spent with him." Felipe also noted that, in its acquisitions, AB looks at the "dreams and visions" of "team that was already there" and "takes them to the next level." He specifically contrasted AB's brewing history and longterm ownership with private equity. "What happens in 5 years when they decide to sell?" asked Felipe. Who will the next owners be? "We have been doing the right stewardship of brands for hundreds of years," he asserted.