Facing huge 30%+ depletions and shipments trends during first quarter last yr, Boston had tuff time keeping up pace of growth in Q1 2015. But depletions still up 8%, shipments up 6%. “As we laid out the year, we knew the first quarter was the tough one,” CEO Martin Roper said on earnings call yesterday. All in, depletions “benefited” from “strength” of Angry Orchard, Twisted Tea and Traveler brands, which offset “slight declines in some of our Samuel Adams styles,” the co reported.

Recall, Boston depletions up 12% thru mid Feb. So it slowed since. “March was the toughest comparable over last year,” Martin added. And “last year, Rebel launched earlier and bigger” than this year’s line extensions, and Traveler shandy brands “really hit April 1,” founder/chairman Jim Koch said. The co reported steady depletions trend even after those launches, still up 8% for 16 weeks thru April 18. But April “too murky” to explain why no acceleration yet. Indeed, Boston held its full-yr depletions guidance at +8-12%. “We don’t like to change guidance if we think that the guidance is still reasonable,” Martin commented, and “three months worth of data is not sufficient” to change it. Still, Boston has “some brands that have some seasonality to them and their growth rates help us more” in summer, Martin said, than during Q1.

Levers to Pull: Ad Spend, Packaging, Tap Handles  Looking out to balance of 2015, Boston has “a number of sort of levers, some of which we’ve already pulled,” Martin said, but more to come. “Still too early to tell how impactful” IPA extensions Rouser and Rider will be. Execs are looking to possibly “increase the investment” in “current advertising.” Boston Beer also has a “major packaging redesign in the works,” that could hit “sometime Q3,” as well as “some tap handle work” coming at about the same time.

Traveler Curiosity, But Details Elusive  Analysts repeatedly asked for more info about broader launch of Boston’s Traveler shandies, first major push behind Alchemy & Science subsidiary. Boston expects to increase spending behind A&S by $10-15 mil in 2015, a significant chunk of the co’s guidance of $25-35 mil on incremental ad, promo, selling spend for the yr. On call, Jim reminded that Rebel was biggest craft launch ever in 2014, and “we’re not going to be able to repeat that every year.” But “maybe Traveler this year will do it again,” he added. “We exist in a different world than the bigger brewers where they can get 85% distribution in two weeks,” he said. “We can’t do that.” Boston’s still waiting on “a lot of distribution to close” for Traveler brands, including original Curious Traveler lemon/lime version and Illusive Traveler grapefruit variety. “So far so good,” Jim summed up response from distributors, retailers and “pull.”

Familiar On-Premise Story: “Weak” Overall, “Flipping,” “Domestic Specialty” Discounting  “The on-premise piece of the business generally is still a little bit weak,” Jim said early in call, as “the increase in discretionary income” hasn’t so much kicked in here. He estimated about “ten percent more draft lines in the universe every year,” but many more players, brands. So “the pie keeps getting split up,” especially with increased popularity of “flipping lines.” Later, Jim noted “some significant price decreases on kegs in on-premise, primarily big brewers who are pricing their domestic specialty beers that compete with craft beers at significant discounts. We have resisted pressure to do that,” he said, as have other suppliers of “real craft beer.” So he sees “a divergence between craft brewers and the domestic specialty entries like Goose Island, et cetera, Shock Top, that come from big brewers.” That’s helped by “consumer awareness of real craft beers.”

Financial Picture Still Strong; Spend “Cadence,” Cider/Tea Margins, Freight, Stock  Boston got rev/bbl increase of about 2%. So revs +8.5%. Cost of goods sold up just 7%, boosting gross margins a point to 50%. Then too, gen and admin costs up 8.6%, but key (and much larger) ad, promo and selling costs dipped slightly. That’s again due to the “big activity around” new launches last yr “that didn’t occur this year,” Martin said on call. So greater spending could “drift into Q2 and Q3.” But lower spending really boosted operating income: up almost $9 mil to $22 mil.  And operating margin widened from 7.3% to just over 11%. Asked about cider and tea margins, Martin reminded that, for Angry Orchard, “each bottle has two apples in it, or close to it, and that’s a pretty expensive proposition.” Tea? No comment. Freight remains an “area of concern,” Martin said, as “reliability, predictability” of service to maintain a lower level of inventory at wholesalers is a “core part of our strategy.” So Boston is “paying, I won’t say ‘dearly’ for it, but sometimes it feels that way.” SAM stock’s had a bit of an up-and-down day. It’s dipped below $248/share, near 9% below recent high of about $270 on Tuesday. 

Can “craft beer” only come from a “craft brewer”? The Brewers Assn doesn’t explicitly say so, but we may finally find out now that class action suit against MillerCoors filed this week in Superior Court of Calif in San Diego. Complaint alleges MC violated Calif code “by representing that Blue Moon is a craft beer when Defendant does not qualify as a craft brewer,” using the BA’s definition. This is exact kind of suit predicted by atty Chris Cole at state alc bev regulators conference, NABCA, last month: “you have a target on your head,” now that plaintiffs “running out of targets” in food biz for perceived mislabeling or deceptive advertising suits. That’s exacerbated, Chris argued, due to increase of “taste plus” claims, like “natural,” “handmade,” “organic” and, as is clear from this case now, “craft.” (Note suits against Tito’s Handmade Vodka and Maker’s Mark bourbon for using “handmade.”) Combo of regulatory uncertainty and no clear definitions, alleged injuries from higher price points and a particularly permissive legal environment (especially in Calif) makes these cases much more likely, Chris and MC atty Shelly Watson explained during NABCA talk (reach out for more info).

All of that in play in this case. Plaintiff, a “beer aficionado and homebrewer,” bought Blue Moon starting in 2011, believing it “was a microbrew or ‘craft beer,’” by “relying on advertising, its placement among other craft beers, and the premium price it commanded,” according to suit. That ended in mid-2012, when “informed by friends that Blue Moon is not a craft beer, but rather a mass produced” one from MC. “Initially skeptical,” the Plaintiff “eventually verified the facts.” Citing BA stats and definition of “craft brewer,” Plaintiff argues that consumers “are willing to pay, and do pay, a premium for high quality, small batch, craft beers” that cost $2-3 more per 6-pk than “macrobrewed, or mass produced beer.”

Complaint points to MC’s total volume and history of Blue Moon, noting that “the Blue Moon beer that is sold in stores is not brewed at or by” smaller brewery at Coors Field in Denver, but at larger Colo and NC facilities, along with “all of Defendant’s other beers.” But “Defendant goes to great lengths to disassociate Blue Moon beer from the MillerCoors name” on bottles and Blue Moon Brewing Co website. So MC “gains the benefit of having a top selling beer included among its brands, while at the same time avoiding the loss of sales that would undoubtedly come with having Blue Moon branded as a macrobrew and/or a MillerCoors beer,” the complaint charges. It also takes issue with “Artfully Crafted” line used for Blue Moon products, which “further serves to further mislead consumers by implying that Blue Moon is a true craft beer brewed by an almost entirely fictitious brewery.”

The suit is “without merit,” MC spokesperson Jonathan Stern wrote in statement, expressing the co’s pride in the brand and its success. “There are countless definitions of ‘craft,’” he added, “none of which are legal definitions.” That does seem to be key here. Suit claims that MC “knows or should know” that it doesn’t fit BA’s definition of “craft” nor “as the term is generally understood by beer consumers.” Even if BA definition not deemed applicable by court on its face, question remains whether its notion of “craft” also held by “beer consumers.” Indeed, suit also notes importance of whether a “reasonable consumer would be deceived” by advertising. Are craft consumers (and their expectations of the use of “craft”) “reasonable”?

Sierra Nevada and Lagunitas continue to grow at impressive rates and gobble up share of craft in scans this yr.  Sierra $$ up 27% for 4 weeks, gained 0.6 share of craft, and Lagunitas $$ up 51%, gained full share of craft in latest 4 weeks thru Apr 19.  However three craft cos in top-12 were down during latest period.  Both New Belgium and Craft Brew Alliance volume slightly down, 0.2%, while $$ slightly up.  The two combined shed 2.3 share of both craft $$ and volume.  Similarly Deschutes volume down nearly 4%, tho $$ up 3% for 4 weeks.  It shed a half share of craft volume, and 0.4 share of craft $$.  Add these three cos’ share losses with Sam Adams top-4 beer brands (see above), and that’s about 5 share of segment lost between them.  Yet craft segment $$ kept up 20% growth pace for 4 weeks, +21% for yr.            

Not much change in total Boston Beer growth rates in latest scan data: $$ up 15%, volume +12% in IRI multi-outlet + convenience data for latest 4 weeks thru Apr 19, compared to $$ +16% and volume +13% YTD.  However that growth (again) ain’t comin’ from its top beer brands, as mentioned on its Q1 conference call (see below).  Each of its top-4 beer brands’ volume declined in latest 4 weeks, now including Rebel IPA, -1% (tho only 2 of 4 brands’ $$ declined).  Gotta note, new Rebel Rider and Rouser IPAs likely put Rebel franchise at positive growth in scans.  Together Sam Seasonal, Boston Lager, Rebel IPA and Sam Variety Pk shed 2.2 share of craft volume during period.  Each top brand, aside from Rebel IPA (+58%), remains down for the yr too.  So virtually all of Boston Beer’s growth comin’ from cider and tea brands.  Angry Orchard flagship brand volume is still up 30% for 4 weeks, growin’ at slightly slower rate than YTD (+35%).  And Twisted Tea Original trends improved a bit in latest 4 weeks to +27% vs +23% YTD.  

Concern that federal statutes provide models for state law, offered by NBWA as reasoning behind its opposition to Small BREW Act (see above), not likely helped by proposals in Alabama to peg cap for craft brewer license at 2 mil bbls. It doesn’t raise cap all the way to 6 mil bbls, cap for Small BREW. But in lobbying for bill, Ala brewers point to “the federal definition of a small brewer” when explaining choice of 2 mil bbls. Other bills on the table in the state seek to expand on-site sales for brewers and franchise reform, recall. And, as in other states and in national tax debate, wholesalers wrote letter against Alabama Brewers Guild’s asks on Friday. Echoing language used by atty Marc Sorini at recent CBC seminar, Ala Wholesale Beer Assn exec director Donna Alexander kicks off statement with claim that her group “welcomes evolutionary change to support the growth of the beer industry in Alabama,” later repeating its support of “evolutionary reform” and “evolutionary changes.” But AWBA claims that “the Alabama Brewers Guild has not included us in their processes and continues to introduce one-sided special interest bills.” So wholesaler assn “ready, willing and able to participate in a collaborative effort” and hopes ABG “will accept our continue [sic] offers to work together for the benefit of all.”

That release “was a surprising read” for ABG leaders who took to assn’s blog to share ASWA statement and counter that group’s assertion that ABG didn’t seek its input. For its part, ABG claims it met with ASWA leadership in late Sept and then met with individual wholesalers in Oct and Nov before being told to stop. Post also includes short chronicling of emails between assn execs and meetings with state regulatory officials about specific ABG bills, including invitation to ASWA to comment early in 2015. In follow-up entry, ABG leadership commented that “brewers and their wholesalers have more common interests than differences, but those few differences are the source of a lot of contention.” So “rather than argue about who said or did what,” entry asserts, “let’s start over” to find a solution “that we can all be happy with and pass in 2015.” ABG primarily interested in retail privileges and “from speaking with individual wholesalers and their lobbyists, everyone seems to agree that limited off-premise sales from the brewery is good for the beer industry in Alabama.” But path to getting on same page far from clear.

As long as Florida Governor Rick Scott doesn’t pull out a surprise veto, brewers and other beer vendors in the state can start filling 64-oz growlers on July 1. After a couple years of acrimony, state House unanimously passed Senate bill (also passed unanimously there) that allows the container in the state on Friday. Indeed, “this day has been a long time coming,” brewer-supportive Rep Dana Young said from that chamber’s floor, according to the Miami Herald. “It was a lot harder than it should have been, and a lot of you have gone through this craziness with me,” she added. Yes, bill legalizes 64-oz glass jugs, filled at brewery taprooms and other retailers as long as they’re labelled with brewer, brand and ABV and have “unbroken seal.” But “craziness” referenced by Rep Young largely due to much more than growlers.

And bill headed to gov’s desk now covers more too. Most importantly, it codifies new rules that beer manufacturers must follow when seeking vendor’s licenses in the state to operate taprooms at their breweries. In past, state regulators provided vendor’s licenses under so-called “tourism exemption,” which required site to have both “a brewery and such other structures which promote the brewery and the tourist industry of the state.” Recall, distrib and retailer groups filed suit (later dropped) to clarify state agency’s reading of this clause in its licensing of existing brewery taprooms. New law strikes everything after “brewery” and adds much more, seen as “clarity” by some, “restrictions” by others.

If Gov Scott signs the bill, brewers may apply for up to 8 taproom licenses. But each one must be on same site as an actual brewery. Manufacturers brewing at multiple sites can transfer beer between locations, but not more than they can produce at the receiving brewery. That limits amount of beer larger brewers could send to and sell from smaller taprooms. Beer sold at taprooms but made by other brewers must go thru distribs.

A couple individual brewers expressed dissatisfaction with this compromise, according to Broward-Palm Beach New Times report. On the other hand, the bill “gives us a legal footing to operate without ambiguity,” Cigar City founder Joey Redner told the AP, “but in return for that we gave up a lot of niggling minor restrictions.” He noted potential difficulty Cigar City may have transferring beer to new, smaller site. But all in all, brewers agree that new law is “not perfect but pretty darn good,” as brewer guild exec director Josh Aubuchon told Sarasota Herald-Tribune. That doesn’t mean there won’t be more debate in the state. “I think there’s a change happening in the industry that is going to create potentially some more battles,” Eric Criss of Beer Industry of Florida wholesaler group told the Orlando Sentinel. And it ain’t just Florida.

Brewers aren’t the only beer employers ’round these parts, so goes implied message of anonymously-backed ncbeerjobs.com, launched last week. After claiming that “North Carolina is the undisputed beer leader in the South,” website goes on to criticize bills supported by small brewers as “misguided attacks on North Carolina jobs and workers.” What jobs are those? A few hundred at MC brewery and 5,600 “directly employed by independent beer distributors” in the state, website claims. What attacks? Pair of NC House bills: 1) to increase bbl-limit for small brewers that can self-distribute and operate up to 3 on-site retail locations from 25K bbls to 100K bbls and 2) to “clarify that the self-distribution barrel-limit does not include malt beverages sold to consumers at the brewery,” according to bill summary, plus a couple other adjustments. But those “proposed changes would create an anti-competitive environment that is unnecessary, unfair and unconstitutional,” according to site. Further, they’re “designed to dismantle” current system, backed by “lobbyists representing the special interests of a handful of brewers.” Again, no info about who created site, but sides taken are pretty clear: this is from distribs.

You might recognize this tactic, just in reverse. Indeed, brewers assn in neighboring South Carolina originated idea with scbeerjobs.com. That site, like the NC one, invites visitors to provide info and email addresses, later used to encourage supporters to flood legislators with emails about the topic. (See Apr 17 issue for more info on strategy behind creating SC site, shared during CBC seminar.) Brewers in Georgia and Alabama followed suit with gabeerjobs.com and alabamabreweryjobs.com. Front page of SC site currently reads “Stand Up To Wealthy Special Interests,” compared to milder plea to “Help Us Pass the Beer Jobs Bill” at GA site. Recall, GA brewers didn’t get exactly what they sought in latest legislative session, while SC brewers did. Alabama site headline similar to Georgia, while recent email campaign urged supporters to “Tell Alabama Lawmakers… Jobs Before Politics,” noting that “an army of special interest lobbyists are working against us.” So NC site, flipping script written by other small brewers in region, reads like more official expression of “enough-is-enough” sentiment we’ve heard in grumblings about these issues for some time.

This week, NC Craft Brewers Guild returned favor with launch of ncbeerjobs.org. Simple “Craft Beer Generates Jobs” header followed by clarification: “jobs for breweries, retailers, the service industry. . .and beer distributors.” It goes on to question “anonymous, cryptic, and misleading website,” above, one “that no one will own up to creating,” while noting that “we’ll gladly share with you who we are,” the NCCBG board and exec director. “Like most folks, we dislike backdoor politics and false accusations, preferring instead to debate real issues in a clear, open, and honest format,” the group writes. The site goes on to lay out “issues” at stake in each of bills and then dispute 4 “fictional claims” from opposing website. Claim that self-distribution “would further reduce excise tax compliance” combated with reminder that small brewers already do pay multiple forms of taxes directly, with comment that this “straw man argument,” when coming “directly from some wholesalers,” is “baseless, offensive, and it erodes trust.” Guild also questions notion that bills at issue endanger jobs in state and after quoting opposing website’s description of “special interests,” simply writes “kettle, meet pot.” Guild site also points to big-time spending of wholesaler orgs in state. It concludes with the guild’s “hope to work with the wholesalers and its association to resume reasonable dialogue around this critical matter.”

Both Deschutes and Scotland-based BrewDog have hinted they’ve got big expansion plans, but press about where the companies may choose to build new breweries now hitting. Asheville Citizen-Times cites Deschutes visits to the area, scouting locations for an East Coast brewery. Nothing definitive, and plenty of other Eastern cities still in mix, Deschutes spokesman told paper, but choice of Asheville would mean 3 of top 10 craft brewers all opening big new facilities in the area within about 5 yrs. Meanwhile, BrewDog now in “advanced discussions” to build its first US brewery in Columbus, OH, according to the Columbus Dispatch. Recall, it just launched new round of Equity for Punks crowdfunding campaign, seeking £25 mil. The co already has pretty strong visibility and ties to US, including shared ownership with US importers at Anchor, multiple collaborations with US brewers and TV series Brew Dogs, now in its second season on Esquire Network. Stay tuned.

Brooklyn Brewery took next step expanding its biz abroad yesterday, announcing second joint project with Carlsberg in Scandinavia. The pair of cos opened New Carnegie Brewery complex in Stockholm, Sweden a year ago. Now Brooklyn joins Carlsberg’s investment in E.C. Dahls Brewery in Trondheim, Norway. Carlsberg announced a 110 mil Norwegian Kroner investment in E.C. Dahls site last fall ($14-15 mil, today) and now Brooklyn enters as a minority stakeholder, according to Norwegian paper Adresseavisen. New brewery for E.C. Dahls could do up to 100K HL (85K bbls), Brooklyn CEO Eric Ottaway told CBN, so “much bigger” than 10K-bbl annual capacity at New Carnegie. Facility will keep brewing co’s original pilsner plus “a whole new line of craft beers,” Eric explained. And Brooklyn’s biz in Norway is “growing explosively,” Eric shared, on its way “to almost double this year,” in “currently our 3rd biggest export market.”

Expansion plans also include broader brewery complex with restaurant for 80 diners, indoor and outdoor drinking and dining spaces and eventually “a conference center with a demo kitchen” for classes. As with New Carnegie project, work of Brooklyn Brewmaster Garrett Oliver in high-end dining world key here, as he builds on relationship with local restaurateur Roar Hildonen, who will run new restaurant at E.C. Dahls, Brooklyn’s blog entry notes. The cos hope to wrap up the Norway project next summer. A year after New Carnegie opened in Sweden, Brooklyn growing “nicely” there, Eric told us, as Carnegie “has complimented the Brooklyn brand well, with great synergies back and forth between our brewing teams.” 

Craft Brew Alliance now plans capex projects for each of its 3 primary brands, adding note that it’ll build new Redhook brewpub in Seattle to release on capex plans. Recall, CBA’s spending $10 mil on Portland, OR Widmer facility and $15 mil on Kona site in Hawaii. Co confirmed capex plans totalling $17-21 mil in 2015, followed by another $17-21 mil in 2016. It expects to complete Widmer and Kona projects by early 2017 and the new Redhook brewpub later that year.