Shock Top family havin’ a tuff 2015 so far in scans.  All in, Shock Top franchise volume and $$ sales down 5-6% thru Apr 19 in IRI multi-outlet + convenience.  Aside from its Variety Pk ($$ up 25%), every other Shock Top brand tracked is currently declining YTD.  That includes flagship Belgian White down 2%, facing tuff comps against last yr’s 10% gain thru same period.  Gotta note, MillerCoors’ Blue Moon franchise $$ up healthy 9% yr-to-date, led by its flagship Belgian White up high-single-digits (up low-double-digits in latest 4 wks).  Then too, both of Shock Top’s intro brands from last yr have started to decline rapidly as they lap last yr’s launches; Shock Top Honeycrisp Apple Wheat down 24% YTD and Honey Bourbon Cask Wheat slightly down -0.4%, tho dipped 84% in latest 4 wks.  Both Seasonal (-16%) and Raspberry Wheat (-23%) continue to decline.

Two IPAs Doubling  Meanwhile AB’s acquired craft brands are providing solid if small pop in scans.  Goose Island (+10%) and Blue Point (+55%) $$ sales both accelerating in latest period, while 10 Barrel sales (+28%) have notably slowed compared to +88% for last 52 weeks in IRI MULC.  All three cos are ridin’ their hot trendin’ IPAs for majority of their growth.  Both Goose IPA and Blue Point Hoptical Illusion IPA up more than double YTD, each accelerating in latest 4 wks.  And 10 Barrel Apocalypse IPA up 48% yr-to-date.  Other brands contributing notable boosts: Goose Urban Pale (+82%) more than making up for 312 Urban Wheat 3% decline; Blue Point’s flagship Toasted Lager (+31.5%) is accelerating as yr continues, and smaller Mosaic Session IPA up over 400% YTD off tiny base; 10 Barrel Mix Pack up 18%, and small incremental pop from new Pub Lager.  Interestingly a coupla 10 Barrel brands declining in scans this yr; India Session Ale and Seasonal $$ down 24% and 3% respectively. All in, these 3 acquired craft cos didn’t quite make up for Shock Top decline in scans, tho perhaps came close (if not made up for Shock Top declines completely) if you include Elysian, just added in April, so numbers not yet available.  

Analysts asked CEO of largest brewing co in world, ABI’s Brito, about its craft strategy in US and elsewhere on this morning’s quarterly conference call.   Segment “more developed” in US, Brito noted, and here ABI looks for “more regional, relevant brands” thru acquisition. “A few… could be nationally expanded,” said Brito.  “Some will go national, others just stay regional,” Brito added. But AB also “developing our own,” like Shock Top. ABI also looking at different brands to lead its efforts in specific segments of craft and/or high end.  For example, Goose in IPA, Shock Top in Wheat and Stella Artois in Lager.   Read on to see how ABI doing with both brands it created like Shock Top and those it has acquired.  

Craft beer $$ sales up almost identical amount as import $$ sales so far in IRI.  Craft up $126.1 mil, 21% while import $$ sales up $126.6 mil, 9.8% yr-to-date thru Apr 19 in IRI multioutlet + convenience.  But while overall $$ growth so similar, way they got there couldn’t be more different. 

Lagunitas IPA Biggest Gainer; 6 of Top 10 Are IPAs About 1/3 of import growth came from 1 brand: Modelo Especial $$ sales up $41.8 mil, 23.4%.  That’s most $$ sales growth for any brand in entire industry.  In contrast, biggest gainer among craft brands, Lagunitas IPA, up $6.7 mil, 58% and got just 5-6% of craft segment growth.  So Lagunitas IPA still continues on its rapid rise, despite all the other IPAs that are shooting at it.  Actually, Sam Adams Rebel IPA is still 2d largest craft gainer, up $4.7 mil, 64%, tho it’s down slightly last 4 weeks.  In fact, 6 of top 10 biggest gainers among craft brands are IPAs.

New Brands Slow Ride and Hop Hunter Enter Quickly; Firestone Walker 805 in Top 10 Tho Only in 1 State   Other top craft gainers also include several new brands and other surprises.  Sierra Nevada’s variety pack is #3 craft gainer yr-to-date; $$ sales up $4.5 mil and 328%.  Recall, it was all incremental 1st 2 months of yr.  Two new brands, New Belgium’s Slow Ride Session IPA and and Sierra’s Hop Hunter IPA are #7 and #8 gainers respectively, each registering about $2.4 mil in sales so far this yr.  Most surprising top 10 gainer: Firestone Walker’s 805 Blonde Ale, up $2.25 mil, 149%.  Why is that surprising?  The brand is only sold in 1 state, Calif. Last time we saw Calif state data, 805 closing in on Fat Tire there as #4 craft brand.  It’s en fuego.

Other top 10 gainers include Sierra Pale at #4, Sierra Torpedo at #10. So Sierra has 4 of top 10 biggest gainers among craft brands so far this yr.  And #5 is Lagunitas’s L’il Sumpin Sumpin.  Rounding out the list is Shiner Bock, showing strong growth early in 2015, particularly in c-store channel. 

Craft Brew Alliance slow movin’ outta the gate thru Q1 2015.  It’s up slightly overall, depletions +1% in Q1, “primarily due to” strength in home mkts (depletions +8%) and “continued momentum for our core flagship brands,” like Kona Longboard, Widmer Hefe and Omission, co announced.  However net sales and total beer shipments down 5% and 8% respectively.  CBA attributes declines to tuff comps from “higher-than-average” sales early last yr, “as we adjusted for out-of-stocks that challenged us in 2013.”  (Q1 2014 shipments were up 17% and net sales +20%.) Meanwhile gross margin rate up 0.5 pts to 29.7% “due to increased pricing” (avg price up 1-2%) and “lower distribution costs on a per barrel basis.” Tho restaurant gross margin rate dropped 350 basis points to 9.7% primarily due to closures during bad weather and closure of Koko pub “for a full remodel.”  All in, despite tuff results CBA insists “net sales and shipments are in line with our internal plan and put us on track to deliver our full year guidance of 6% to 8% growth in shipment volume.” 

Total CBA shipments down 8%, almost 14,000 bbls to 158,500 bbls in Q1. And breakout of brand family shipments and depletions trends showin’ lotsa declines too. Even Kona shipments down for the period, -0.9%, tho depletions up 9%. Both Widmer and Redhook shipments down double-digits, -12% and -16%, respectively. Redhook depletions took 10% hit too; Widmer depletions -3%. And CBA separated Omission biz for first time in quarterly report: shipments up 9%, 900 bbls to just under 11,000 bbls in qtr (so about 7% of CBA’s total shipments). Omission’s depletions trend up a much bigger 33%. The co’s draft biz continues to decline too, down 13% in Q1, and dipped below a quarter of CBA’s total shipments. So over 75% of CBA shipments now packaged, but those shipments still down over 6%. 

Our anonymous columnist Diogenes, who takes his name from the ancient Greek philosopher, returns to opine on the dramatic changes in the still rapidly-growing craft landscape, with the infusion of big money and so many deals that have either happened already or are on the horizon. 

By Diogenes

The craft beer revolution has just entered the most exciting, and perilous, period of its 50-year life span, dating back to when Fritz Maytag bought Anchor Brewing in 1965. 

Much of the discussion at the Craft Brewers Conference in Portland was about deals and rumors of deals.  It is very clear that private equity money, and big brewer money, means that the next decade is going to be very different than the decades before.

For starters, the segment is more confident and ambitious.  The BA has set a goal of 20% market share by 2020. Audacious, yes.  But so was the 10% share projected by Kim Jordan at the Brewers Association or America conference in New Orleans in 2003.  We’re there. OK, partly because we changed the definition of craft brewer to allow Yuengling and others into the number.  The BA counted 11% market share in 2014.  And if you add in all the breweries and brands that the BA does not count because of its craft brewery definition, the number is closer to 15% market share for domestic beers that are not mainstream lager or light lager beers.

The big difference between 2005 and 2015 is the tsunami of private equity money gushing into the craft beer movement.  As reported in Craft Brew News, there have been over a dozen deals  for part or all of a craft brewer in the past 15-16 months.  Many more are rumored.  And of course AB InBev has acquired four craft breweries and is still shopping.

The craft brewing industry will be shaped by the way those deals play out.  New investors in craft will push the boundaries of the craft brewer definition and threaten the unity of the segment and the BA.  Will AB InBev’s craft players flourish or decline?  Will a private equity-charged Oskar Blues become the consolidator that has long eluded the craft beer segment? 

Will a private-equity driven Southern Tier, SweetWater, or Oskar Blues continue their strong growth?  And if they do, will they still be the underdogs, the Davids challenging the Goliaths, the beer- and community-focused companies that celebrate their craft and not their quarterly profit?

People invest in private equity companies because they believe they will get a better return than they get through the stock market.  They invest to make money.  I’ve met private equity people who most certainly are fans of craft beer.  But their first duty is to make money for their investors.  Private equity companies do not invest in craft breweries because they love craft beer, or because they like craft brewers’ ability to revive languishing urban neighborhoods, or because they like craft brewers’ support for local charities or arts organizations. 

Yet those non-economic qualities and a local focus are often the hallmarks of the craft brewing business.  They are the qualities that can differentiate craft breweries from profit-driven multinational conglomerates.  They are the soul of the craft brewing revolution.  But those non-economic qualities only indirectly contribute to the bottom line. 

Up to now, the craft brewing industry has had a relatively stable group of breweries in the core of the Top 50.

If you look at the Top 50 of 2005, you will find that about 30 of them are still in today’s Top 50.  Six in today’s Top 50 are heritage brewers like Yuengling who were not counted until the BA changed its definition to allow brewers with adjunct flagships.  Some others, like Goose Island, have been booted out because of the BA definition.  But all in all, the list has been fairly static. 

New to the Top 50 since 2005 are 14 craft brewers, a fairly significant indicator of the dynamism of the craft segment.  Among them are Oskar Blues, Founders, Uinta, Ballast Point, Ninkasi, Southern Tier, Bear Republic, Karl Strauss, Left Hand, 21st Amendment, Allagash, Troeg’s, Green Flash, and St. Arnold.  Interestingly, several of the private equity and other deals of the past year involve these breweries.

Two other notable private equity deals:  Abita Brewing Co, acquired by the roll-up enterprise Enjoy Beer, run by Harpoon cofounder Rich Doyle (with Abita owners retaining a stake in Enjoy Beer), and Full Sail Brewing whose employee-owners recently voted to sell to a private equity venture.  Private equity money is a relatively new thing to the craft segment.  Not much is known about the specific details of each deal.  Long Trail got private equity money some years ago and seems to be maintaining its independence.  Magic Hat used private equity money to acquire Pyramid in a deal that did not work out very well for either company.  Both are now owned by North American Breweries, which was formed by a private equity company and then flipped a few years later to a Costa Rican brewery. 

It will be interesting to see how the private equity-fueled companies fare compared to the 30 breweries that have been anchoring the Top 50 for the past decade.  The growth of some of those First Generation craft brewers has slowed.  It seems that the founders/managers of most of the private equity funded companies are still involved, though some have taken a back seat to more professional management.

In 2014, much of the growth in the craft segment came not from the venerable 30 but from the incredible proliferation of breweries, the long tail.  The BA says there now are about 3,500 craft breweries in America.  Six hundred started up in 2014.  And they are all contributing to craft’s rise.  And many newcomers seem to be looking for money. 

Will the new generation of craft brewers value independence, or opt for private equity funding or big brewer acquisition?  Are we witnessing the auctioning off of the craft beer revolution? 

Someday, the craft beer revolution will be a business school case study, and I have no doubt the next few years will be a key to the story

Reserve your spot at the 2015 Beer INSIGHTS Spring Conference, May 11-12 at the Ritz-Carlton in Chicago. The program’s high-end focus hits all the sweet-spots of recent growth and coming shifts in the beer industry. Scorching hot topic of craft deals to be taken on by First Beverage Group founder/ceo Bill Anderson. A panel of leaders from 3 fast-growing craft brewers – Firestone Walker’s David Walker, Revolution’s Josh Deth and Cigar City’s Joey Redner – will key into how they’re growing and where that growth is taking them. And an extended panel discussion will dig deep into beer’s high end with 3 of its longtime leaders: Boston Beer’s Jim Koch, Constellation’s Bill Hackett and Heineken USA’s Dolf van den Brink. We’ll visit with AB’s high end veep Felipe Szpigel, Tenth and Blake’s prexy Scott Whitley and FMB pioneer, Mike’s Hard Lemonade founder Anthony von Mandl. You’ll get xclusive off- and on-premise data insights from IRI’s Dan Wandel and GuestMetrics Bill Pecoriello, plus an extensive industry overview from BMI’s Benj Steinman.  Don’t miss the chance to come and network with other high-powered attendees, including at a special event at Goose Island’s Chicago brewery Monday afternoon, two receptions and more. Get more information about the Beer INSIGHTS Spring Conference and reserve your spot now.

Deadline for bills in North Carolina to pass first chamber and crossover to second passed yesterday without either of brewer backed bills making cut. Recall, brewers sought to raise cap, under which brewers can self-distribute and operate up to 3 retail locations, from 25K bbls to 100K bbls. They also sought law change that clarified that all beer sold in taprooms exempted from barrel-cap. Neither will happen this session. Last yr NC Wholesaler Assn and NC Brewers Guild together formed a workgroup to discuss various issues once a qtr “behind closed doors,” Sierra Nevada sales director Tommy Gannon referenced last yr at Beer Industry of Fla mtg. However it appears the work group was unable to sort out differences in opinion on these particular issues.  Decision was made just over a week after ncbeerjobs.com was created (anonymously) to tell story of “misguided attacks on North Carolina jobs and workers” from (then) pending bills, followed by NC Craft Brewers Guild retort via ncbeerjobs.org (see last issue).  

“While we remain opposed to barrel limit expansion, we are always willing and open to consider other beverage issues in a spirit of true cooperation with all of our industry partners---retailers, regulators, community groups and brewers, both large and small,” exec director of NC Beer and Wine Wholesalers Assn Tim Kent wrote in release. Mirroring language of distrib-supportive ncbeerjobs.com, he added that “North Carolina already has the most permissive craft beer laws of any Southern state.” Mixed success of craft brewers in legislatures across Southeast and elsewhere, even in places where they’ve had more success in past, perhaps indicates a certain fatigue from dealing with these issues on part of wholesalers and some legislators.

As talk of M&A and other deals in craft segment heatin’ up, “current climate,” “regulatory considerations” and “key points” about deals environment were mapped out by atty Marc Sorini thru published letter in National Law Review.  There’re 3 main reasons that number of deals are “likely to increase” to Marc: 1) the age of the first generation of craft beer founders and owners will force them to consider succession planning,” and “not all owners will have interested or qualified family members ready to take over the business”; 2) “smaller and/or passive investors may want or need to monetize their investment after years of patience,” especially “if the value of the other investors’ equity exceeds what the founding owner can afford and borrow”; 3) “increasing growth may require additional capital beyond the reach of the original owners.”

Then too, main regulatory considerations buyers and sellers need to be wary of are: “permits and licenses,” “tied-house rules,” “tax” and “distribution” laws.  The “license transition process” and “licensing process itself may influence transaction structuring,” sez Marc.  He used example that generally “ownership change by way of a stock/equity sale is much easier to accomplish in most jurisdictions than a change achieved through an asset sale.”  Separately, “tied-house rules present a formidable obstacle to many private equity investors with vast holdings across the country or the world that, quite often, will include hotels, restaurants, grocery stores or other businesses licensed to sell alcohol beverages at retail.”  Also, the acquired brewery is no longer eligible for small brewery tax benefits if larger brewery or PE firm acquires a brewery “that results in all brewers within the same ‘controlled group’ producing more than two million barrels,” Marc noted.  And lastly, “franchise laws enacted by many states do not permit easy consolidation” tho “in the typical transaction, an acquirer of a business wants to quickly consolidate distribution networks.”  

Six months into ongoing investigation in Mass over “pay to play” complaints from small brewers, Craft Beer Guild LLC, a Sheehan Family Cos subsidiary,  has been charged by state ABCC for violating state rules by “offering inducements” to retailers to stock its brands, reported Boston Globe.  “The alleged wrongdoing… is serious,” said state Treasurer Deborah Goldberg.  “We’ll continue the work to ensure license holders across the state are acting in a proper manner,” she added.  Not clear at this point what specific charges are against Craft Beer Guild, as state hasn’t released a “detailed report by investigators” ahead of Jun 23 hearing, noted Globe.  Also unclear if there are more shoes to drop.  While small brewers said pay to play practice “is rampant in Boston area,” Mass has “fifth lowest ratio of liquor enforcement agents to licensees” in US, so hard to tell where slow investigation stands at this point. 

Craft Beer Guild did not respond to charges,  but Beer Distributors of Mass defended all its members in statement: “Beer Distributors have an established record of working collaboratively with brewers and retailers to ensure the new brands are able to enter into and achieve success,” in state.  Pay to play charges can be tough for states to win given that it’s  “difficult to prove definitively that a payment was made in exchange for favoring one product over another,” noted report.  CBG could face a license suspension or even revocation but “often” co’s pay a fine instead, noted Globe.   

Several analysts had mixed takes on Boston Beer’s Q1.  While Boston Beer’s “new initiatives” still expected to help co “deliver in line with its guidance range for the year,” and co “ended the Q with highest cash balance in its history ($122M),” RBC Capital’s Nik Modi sees its “upside as limited.”  Indeed, “difficult comps and weakness in the on premise channel” were main factors that drove Q1 slowdown (see above). Along with execs’ comments about on-premise, Nik points to softer Buffalo Wild Wings trends thru first 4 weeks of April (just reported Q1 results), which “suggest that total on premise (~35% of SAM’s business) trends remain challenging through April.”  And “slowing cider growth and proliferation of flavored beer also limit upside.”

Meanwhile, Seeking Alpha analyst thought Q1 results “suggested a far worse rest of 2015 than analysts had expected.”  However several other analysts looked at Q1 report as an overall positive.  “Despite tough comps” and “severe snowstorm in its home market of Boston,” co was able to grow depletions 8%, sez CSLA’s Caroline Levy.  She lists Traveler rollout (“just getting underway”), “margin opportunity,” and “sticking to its strategy” on pricing as other main reasons for optimism.  Cowen & Company’s Vivien Azer raised her estimates for full yr, since revenue growth “slightly better than we expected” and “comps will ease over the course of the year.”  And “newsflow should start to improve” sez Nomura’s Edward Mundy.  Current target price is $310/share but Nomura sees oppy for $390/share target price “from margin recovery, international expansion and a normalized capital structure.” 

Then too, coupla analysts noted that Boston Beer would be an “attractive asset” for larger beverage cos.   In RBC’s “upside scenario” it “would imply an EV/EBITDA multiple of 19x on 2016 numbers, which is in line with levels seen for leading spirits brands.”  Tho Nomura “doesn’t regard the controlling shareholder as a seller at present,” it could be attractive “in medium term.”