Pair of Craft Brew Alliance announcements this week continue stream of new news from the co, ahead of releasing its first qtr results. First CBA announced appointment of Joe Vanderstelt to co’s CFO position, bringing Joe over from a dozen-plus years at MillerCoors/Miller Brewing. Then today, CBA said it’ll spend $15 mil to expand Kona facility in Hawaii to be able to produce about 100K bbls/yr, just a week after it announced it would spend $10 mil on Widmer Bros Portland plant.

CBA will start construction on Kona expansion later this year, hoping to finish it up in early 2017, around the same time the Widmer expansion wraps. So CBA will have two separate, fairly significant capex projects, totalling about $35 mil and 300K bbls per yr of capacity, running simultaneously. Hawaii expansion revamps original Kona Pub and improves capabilities to satisfy local demand. Kona shipped a million cases in HI for first time last yr, co said in release. It’s launching new Makana Series sold only in home Aloha State. As for new CFO, recall CBA announced just before Q3 earnings call in Nov that Mark Moreland would transition out of CFO role at end of 2014. Joe comes directly from heading up finance/biz strategy at MC’s Tenth and Blake craft/import unit as Senior Director, Finance & Planning since 2010. He spent 2001-2008 at various management and finance roles at Miller Brewing before taking on first mktg finance senior dir role when MC JV formed in 2008. 

Economic impact study of NY state brewers released last week pins in-state craft production at almost 860K bbls in 2013 and estimates 2014 total at around 1 mil bbls, +16%. Just over 200 brewers called the state home as of this January, up from less than 100 in 2012. They’re located in 49 of NY’s 62 counties, according to report prepared by Stonebridge Research. Recall, NY added second-largest number of breweries last yr, +67, according to Brewers Assn (see above). Study notes that NY craft brewers expanded production 54% in 2 yrs. Of total 860K bbls in 2013, researchers estimate 54%, or about 441K bbls, was sold in NY. (That’s 4 share of total state shipments.) “Producers estimate that these sales are split about 50/50” between on- and off-premise, according to report.

Further, the study pegs on-site taproom/brewpub sales at about 129K bbls, about 15% of production in 2013. According to our estimates, that’s almost exactly the total 2013 production of smaller NY brewers under 15K bbls. Just 9 NY brewers produced at least 15K bbls in 2013, shipping a total of about 730K bbls. The 2 largest, Brooklyn Brewery and FX Matt, shipped well over half that. So smaller brewers represented about 15% of in-state production in 2013. But that could have grown to as much as 20% last year, by our calculations. Total NY production grew about 140K bbls to 1 mil last yr, according to release. Top 9 larger NY brewers grew between 70-80K bbls last yr, we estimate. So almost 200 other smaller players collectively grew between 60-70K bbls, up over 50% to near 200K bbls, due to five dozen new entrants and faster-growth of smaller players.

Of course study focuses on the money brought into NY economy by brewers and pegs total economic impact at about $3.5 bil for 2013. Release notes that’s up almost 60% from year prior alone and judging by big growth experienced last yr, likely that the 2014 number is up significantly too. Of that number, study estimates over $450 mil spent on beer tourism in 2013 with 3.66 mil brewery visits. Breweries paid almost $750 mil in state and local taxes and another $210 mil in federal taxes. They also paid $554 mil in wages for almost 11,400 “full-time equivalent jobs.” Breweries only employ about 1000 of those, while tourism represents the biggest chunk, about 3,000. Indirect and induced employment represents another near 5,000. Importantly, the study pegs jobs from NY-based “agricultural inputs” at less than 20. And recall, expanding NY beer farming is big area of focus for state. “Hops production has grown tenfold in the last five years,” the report notes, but only up to about 130 acres last yr. About 2,000 acres of barley are planted in the state too. 

Five states that had most new breweries open in 2014 were Washington (+83), New York (+67), California (+59), Colorado (+55) and Florida (+42), Brewers Assn chief economist, Bart Watson revealed at CBC general session last week.  So Calif is now well over 400 operating breweries (a whopping 88.5% of CA breweries sold all of their beer in-state, and nearly 1/3 sell all of their beer only at their brewery as of 2013 data, Bart noted separately during seminar with NBWA chief economist Lester Jones).  Wash is close to 300 operating breweries, CO and NY both over 200 and Florida just under 100 breweries operating in state thru 2014, according to Brewers Assn data.  That’s “second straight year we have a state from the southeast on this list” (2013 was NC), and “another sign that the southeast is really starting to come on line,” he noted. 

Separately, Bart pointed to south and southeast regions where craft is still “very low-indexed” as key areas for craft segment growth if it’s to reach 20 share by 2020 during seminar with Lester.  In same presentation he also listed lowest per capita craft production among states: KS, SC, AL, NJ, OK, ND, SD, AS, MS, and WV (ranging from 0.6 - 0.2 gallons per 21+ adult).  Again, many of these states are in south/southeast regions, and provide big oppy for craft going forward.  And several of these states had highest state craft production trends (off much lower base), including North Dakota (+145%) and West Virginia (+54%) in top-3.  Then too, lookin’ at number of breweries per capita, Vermont “[took] back the top spot” from Oreg in 2014: VT (8.6), OR (6.7), CO (6.1), MT (5.9), WY (5.3).  “These rates are pretty incredible” and “are very similar to what we saw in the nation in the late 1880’s,” he noted.

There’re just under 100 breweries operating in San Diego county with another 43 currently in planning, CBN is told.  Now up to 115 tasting rooms there, where there’s a whole lotta untracked craft biz boosting total craft segment.

Beer sales in San Diego IRI-tracked foodstores have noticeably slowed to start yr: $$ still up 3.5% but volume down 1% YTD thru Mar 29, compared to $$ up 8% and volume up 3.5% in 2014.  Yet craft segment still sizzlin’ and actually accelerated thru Q1, suggesting that larger cos takin’ bigger hit there this yr.  Craft grew $$ 23%, gained 4.6 share to over 30 of total beer thru 3/29.  That’s led by fiery growth of Ballast Point which continued to widen gap as #1 craft co in San Diego scans after passing Stone last yr.  Co grew $$ 70%, up 2.1 share of total beer $$ to 5.4 (up 4.9 share of craft $$ to 17.9).  Ballast Point has 14 of top-100 craft brands here, nearly all up double-digits plus, and 5 brands in top-15.  Indeed, Ballast Point’s growth led by Sculpin IPA (+51%), top craft brand in San Diego, +0.6 share of beer thru Mar. Impressively, Grapefruit Sculpin IPA already is Ballast’s #2 brand and 6th best-selling craft brand in SD foodstores in its first yr (at 0.67 share of total beer $$).  That’s only slightly behind Sierra Nevada Torpedo (+2%).  And another offshoot, Habanero Sculpin IPA, gained incremental 0.2 share of beer $$ (to #39 top craft brand).  So Sculpin and two of its offshoots are Ballast’s top-3 share gaining brands and make up 70% of total co growth (over half of total sales).  

Other top local co, Stone (+24%) no slouch.  Now at 4 share of total beer $$, up over half a share, tho its craft share gains slowed.  So the two top local players made up more than half of craft segment gains to-date.  Two northern Calif cos together gained nearly a full share of total beer $$: Lagunitas (+38.5%) gained over half a share and Sierra (+23%) returned to solid double-digit growth (as it has thruout much of the country in Q1), up 0.4 share.   And two other local San Diego cos – Saint Archer (+115%) and Mother Earth (+158%) – stood out as other top share gainers, collectively snagged additional 0.6 share of beer.  Further down the list, among smaller volume players, Bell’s (all incremental) and Ninkasi (+185%) are already #29 and #30 top craft cos.  And just behind those two, Duvel USA (+161%) more than doubled to #31 craft supplier.     

Boston Beer & NBB Woes Out West; World Brews Plungin’; Coupla Notable Locals and Plenty of Non-Locals Down  Meanwhile tuff times for Boston Beer craft portfolio and New Belgium in several west coast mkts, at least in this channel, and San Diego’s no exception.  New Belgium down 5% and Boston Beer craft down 21% thru Mar 29.  World Brews private label biz continuing to fall almost entirely off the map, down 83%.  And a few notable local cos down in scans to start yr; Karl Strauss -3% vs up low-double-digits in 2014; Mission Brewery trends (-22.5%) flip-flopped after sales soared last couple yrs; and Hangar 24 (closer to LA) down 3%, yet trend improved from -20% in 2014. Unclear if relatively small, local brands having trouble in home market generally or just not focusing on or keeping up in tracked off-premise chains. There’s also plenty of out-of-state and non-local CA cos seein’ sales dip in San Diego foodstores.  In fact 39 cos in top-90 saw $$ decline, tho most of ’em were very small here.  North American Breweries craft portfolio (-20%), Dogfish Head (-16%), Rogue (-20%), Mendocino (-33%), Lost Coast (-19.5%) and Gambrinus (-33%) were other craft cos that saw $$ dip most.

MillerCoors board of directors just named Molson Coors cfo Gavin Hattersley “to the role of interim” CEO “to lead the business when” Tom Long retires on Jun 30.  He’ll serve “as interim CEO” for up to 6 mos, “until the Board completes its search for a permanent successor.”  That search has already gone on for a very long time (over 6 mos) and involved many, many candidates.  Gavin is highly regarded both now as Molson Coors cfo, a job which he’ll continue while he’s interim CEO of MillerCoors, and previously for a number of years as MillerCoors cfo.  So he knows the company well and is currently on MC board.  

The 2015 Beer INSIGHTS Spring Conference is just 3 weeks away.  So make your reservations now.  This unique conference focuses exclusively on the high end of the beer biz with lotsa insights from key craft players.  It takes place May 11-12 at the Ritz Carlton in Chicago.  The conference features an extended panel discussion with 3 of the longtime leaders of the high end:  Boston Beer’s Jim Koch,Constellation’s Bill Hackett and Heineken USA’s Dolf van den Brink.  Another panel features 3 hot craft brewers: Firestone Walker’s David Walker, Revolution’s Josh Deth and Cigar City’s Joey Redner.  AB’s high end veep Felipe Szpigel and Tenth and Blake’s prexy Scott Whitley will show how top 2 brewers aim to become much bigger players with their craft-competing brands.  New on the program: First Beverage Group founder/ceo Bill Anderson, who will provide perspective on the red-hot deal environment in craft right now.  

Also on tap: FMB pioneer, Mike’s Hard Lemonade founder Anthony von Mandl.  And you’ll get in-depth analysis and statistical insights on the high end from IRI’s Dan Wandel and GuestMetrics Bill Pecoriello, combining off-premise and on-premise data.  And BMI’s Benj Steinman will give an extensive industry overview.  Plenty of networking time includes a special event at Goose Island’s Chicago brewery Monday afternoon, two receptions and more.  Get up-to-date with the latest high-end trends and network with your peers at the Beer INSIGHTS Spring Conference. Click here for more information and click here to reserve your spot.

Intriguing peek into changes among top Deschutes brands, provided by mktg director Jeff Billingsley at CBC last week, shows just how tough it is to stay focused on flagships, especially when the new and shiny toy is particularly new and shiny. Deschutes launched Fresh Squeezed IPA last year as it continued to expand sales territory. Already it’s 19% of its biz, just behind Mirror Pond (22%) and ahead of Black Butte Porter (16%). In fact, Fresh Squeezed is the co’s top brand in 20 of the 28 states where Deschutes sells. Whoa.

When asked how to keep distribs focused on the flagship, Jeff put focus back on “our sales force,” since “we’re just as guilty” and have “got to get our own house in order.” When launching Fresh Squeezed, “execution dropped significantly on Mirror Pond,” he said. He also noted that a Deschutes packaging update will hit in July. New art will “get rid of all the noise” and “excess copy,” Jeff said, since current 6-pks “about as a bad as it gets,” like “camouflage” on crowded shelves these days. Re-brand re-focuses on Deschutes name, since the co has Mirror Pond and Black Butte drinkers who don’t know brewery name, Jeff reported.

In similar vein, “anytime we turn up the volume on Sierra Nevada, it helps Pale,” that co’s Eastern sales director Tommy Gannon explained. So Beer Camp Across America tour, work on Ovila brands and launch of cans all helped long-time flagship brand, still over half Sierra’s biz. The co’s been expanding more into “eventing,” while also being more “channel-specific,” bringing on 4-person c-store team. That work is “all really focused around Pale Ale,” he said. And while it’s still the co’s flagship “everywhere,” Tommy shared that “ultimately consumers decide what they want.” So “if Nooner Pilsner starts outselling Pale Ale,” so be it.

Views of Jeff and Tommy at pair of biggest craft brewers contrasted with plans and growth of Solemn Oath, from Chicago suburbs, explained by cofounder/CEO John Barley. Solemn Oath has no flagship, John said, and made 75 different styles in first 12-13 mos. The co did about 3000 bbls last yr and considers itself in craft’s “third wave,” which aligns closely with millennials. Solemn Oath’s lack of flagship makes it “easier for a third wave brewery to pivot.” But it’s also “incredibly inefficient.” So although providing many brands helped the co establish a reputation in what Tommy called the “rotation nation,” John and his team now “need to scale back” and “stabilize in that rotation as well.” For example, it balances 2 IPAs, each available for 6 months at a time. Then it “created storylines within,” expanding on 1 of those brands, Kidnapped by Vikings, with bigger specialty brand Ravaged by Vikings and even bigger Death by Viking. Instead of individual brands tho, local has become big driver for Solemn Oath, which flipped biz from 80% in Chicago proper when it opened, to more within 10-mile radius around suburban brewery.

In midst of over a dozen deals in last 15 mos, including 9 of the top 50 selling part or all of their co, and several more large ones being discussed and/or moving towards fruition, CBC included timely seminar on hot topic of Planning an Exit: How to prepare for an ownership transition.  Seminar moderated by New Belgium president/coo Christine Perich along with panel of experts including deal experts from all sides, such as Boulevard founder John McDonald, First Beverage Group’s JB Shireman, Eureka Capital Partners’ Mike Harden, and Constellation Wealth Advisors’ Michael Texido.  All panelists agreed, this is an extremely “emotional” process and you have to “surround yourself with the best team possible,” even if that means paying $600/hr vs $300/hr fees, said Michael.  You have to be “deep deep in love” with your “very qualified CPA, very qualified tax attorney, very qualified financial advisor,” because it’s “much too difficult to be in midst of all that personal turmoil” to figure out your best interests on your own.  John McDonald frequently referred to difficulty of process.  He reflected that “one of the worst mistakes we made” was trying to “keep it [the deal] quiet” to his 140 employees at first.  But once he made plans known “it was a big change and everybody was helpful.”  Now John’s “happy with our sale to Duvel” tho understands “it will take a considerable amount of time to make progress,” and “patience is the key.”  Mike of Eureka Capital Partners repeatedly pointed to ESOP ability to be “extremely flexible” and can be “extremely customizable” option to sell that’s “culturally complimentary” to craft biz, tho acknowledged it’s “not going to work for everybody.”

Several Small Brewery Owners Askin’ Questions Seminar seemed to spark curiosity of several smaller brewery owners that stepped up to ask questions during Q&A.  One asked how necessary it is to “clean up” ownership structure if “lots of friends and family” are involved.  Christine answered: “just buy them out,” ‘cause “an agreement among 20 people…that’s just complicated.” Indeed, in many cases “craft deals are a play to clean up the capitalization table,” so ownership “stays within the brewery” and “preserves your options to sell” down the road, added Mike Harden of Eureka Capital Partners.   One brewer was curious about tax benefits from an ESOP – ESOP has to own minimum of 30% or more to be a tax free sale, Mike noted.  Another asked “who are the people I need to talk to now” to plan exit much further down the road, perhaps not realizing that he was speaking to several of ’em on the panel.   

“This industry’s become pretty frothy lately,” First Beverage Group’s JB Shireman acknowledged during CBC seminar on exit strategies (see below for more). However, “we could perhaps be on a little bit of a valuation bubble for several reasons.”  One reason values may dip: once largest strategic buyer (referring to ABI) goes from “acquisition mode to execution mode with these brands,” it’ll stop doing deals as aggressively.  And once “others” (smaller strategic buyers and/or PE firms) “realize the highest bidder has left the table, why bid against themselves?” asked JB.  “The other thing” is that private equity strategy to “gather a bunch of [breweries] up and take them to the public market” is “going to be more difficult than they think.”  While that seems to be “succession plan du jour for a lot of the PE funds coming into this,” JB thinks “it will work for some” but “I don’t think 15 PE firms are all going to do that well.”  “So the ones that do it well on the front end may work out ok,” but “others may be left holding the bag,” realizing they’ve “overpaid thinking that’s what they need to do to get into the game” and eventually “throw their hands up…take a haircut and move on to other things.”  Indeed, “that could cause values to come down significantly.”