Karl Strauss’ 8 SoCal brewpubs could be joined by a 2d production facility soon, CEO and co-founder, Chris Cramer told Los Angeles for article over the weekend.  Karl Strauss started in 1989 as one of the original craft breweries in SoCal.  The brewery was named after his distant cousin, who Chris referred to as “uncle Karl.”  Karl “happened to be one of the most renowned brewers in the U.S” who worked for Pabst for 44 years, noted paper.  Chris approached Karl with his idea to start a microbrewery, and as the story goes Karl replied, “you know, Chris, I think it’ll be the wave of the future.”  So Chris, Karl and friend from grad school, Matt Ratner, put together a business plan “as part of an entrepreneurship class,” and ultimately decided on a restaurant and brewery combo.  Then too, a few other local San Diego brewery folks got their start at Karl Strauss, paper notes: Ballast Point founder, Jack White started as a tour guide at Karl Strauss; “Gina Marsaglia, one of the original servers, founded the Pizza Port Brewing Co chain; and brewer Chuck Silva went on to become the brewmaster for Green Flash.”  Brewers Assn pinned ‘em as 45th largest craft co by volume; we estimate Karl Strauss up 10% to 67,500 bbls last yr.  Recall, Karl Strauss is only available in CA.

Aluminum plays a bigger role in changing craft landscape each year as more top craft brewers find homes for new canning lines, contract out canning and expand can offerings. No exception in 2015: another pair of brewers over 100K bbls have cans hitting shelves for the first time this month and many more announced they’ll be shipping more brands in the package this year. Just a quarter of 32 largest craft brewers do not can. And by our count, only 6 others packaged in cans prior to 2011. So 18 of the top 32 breweries, more than half of those that shipped 100K+ bbls last yr, started canning since the beginning of 2012. Another 4 slightly smaller breweries that make the Brewers Assn’s top 50 cut started canning in the last few years or will launch this year.

Top craft can packages remain less than 1 full share of craft $$ yr-to-date thru Mar 22 in IRI MULC data. Just 2 can packs make IRI’s top 50 craft packages list. Sierra Nevada Pale Ale can 12pks grew $$ 21% YTD and hit 0.59 share of craft $$. Six packs of the iconic canned craft beer, Oskar Blues Dale’s Pale, had 0.34 share of craft $$, +63%. Recall, total craft can $$ were 8% of total craft segment in IRI foodstores last yr (see Mar 5 issue).

Boulevard Cans Comin’ from Cold Spring; Other New Entries  This year, Boulevard, Victory and Saint Arnold, all among the 50 largest craft breweries, will launch cans for the first time. Boulevard’s flagship Unfiltered Wheat, plus its session Pop-Up IPA, summer seasonal Ginger Lemon Radler and new Heavy Lifting IPA hit shelves this month. Neither the Radler, which appeared last yr, nor Heavy Lifting will be bottled. Rather than springing for its own canning line, as Boulevard is in the midst of a $12-mil expansion, according to recent Kansas City Biz Journal article, it’s producing canned offerings at Cold Spring Brewing in Minn. “They’ve got the craft mindset,” prexy of parent-co Duvel Moortgat USA Simon Thorpe told the paper, adding “they think about things the same way we do.” Victory kicks off canning at its new brewery with seasonal Summer Love. Saint Arnold’s Lawnmower Beer hits shelves this month too, with Santo, Summer Pils following soon and Oktoberfest planned for fall. Firestone Walker jumped in with cans for its runaway hit 805 Blonde last year; it adds Union Jack, Pivo Pils and Easy Jack in cans this year, expanding Easy Jack’s availability to year-round. Anchor recently announced it’ll be canning its Anchor IPA, expanding from launch of California Lager last yr. Add in smaller breweries’ offerings, and craft cans are poised for their biggest summer selling season yet. 

It seems there’s always at least 10 craft cos of top-100 in scans that’re doubling sales or more, and this yr’s no different thru Mar 29 in IRI multi-outlet + convenience data.  Ballast Point (+124%) is largest of the bunch, and continues to post triple-digit gains in scans.  Now it’s #21 highest selling craft co (in $$) ahead of Founders (+71%), Ninkasi (+8%), Harpoon (+6%), and only just behind Great Lakes and Abita (each up 10%).  Chicago’s Revolution is next largest, up 120% to start the yr.  That puts Revolution into top-50 craft cos for first time at #46.  Impressively, Oreg’s Hop Valley is up more than triple (+265%) after boosting sales more than 5x in 2014 scans.  Fastest trending co of the bunch tho is Alchemy and Science, up a whopping 553% to #60 craft co (IRI separates it from Boston Beer Craft total, up just 2%).  Even if you include Alchemy & Science with Boston Beer Craft total it’s $$ only up 3.5% and shed over 2 share of craft segment.  That’s certainly a shift from low-double-digit pace it posted the last couple yrs.  A few cos just cracked the top-100 cos list with soarin’ trends: Oh’s Mad Tree up 508%, Oreg’s Worthy Brewing up 295%, and Calif’s Drake’s up 228%.  And another couple PacNW cos exactly doubled sales thru Mar 29 – Oreg’s Goodlife and Ida’s Payette.  All in, these 10 cos gained 1.3 share of craft $$ to 2.6 total.

Gotta note, some of the usual suspects that’ve posted highest growth rates in the last couple yrs have noticeably “slowed” in scans this yr, tho each still growin’ strong.  Devils Backbone up 58%, Cigar City up 75%, Karbach up 61% thru Mar 29, after growing 100% plus in scans last yr.  And Foothills (+23%) slowed from 88% growth rate in 2014.  Editor’s note: 10 Barrel also could be included in group, since it doubled in 2014, and was only up 33% thru Mar 22.  For each of these brewers, some of slowdown is due to capacity constraints while in midst of adding equipment or searching for 2d brewery location, but as base got bigger, these cos were bound to slow growth rate.  Other top-100 cos that’re keepin’ up impressive growth into 2015 include: Firestone Walker up 56%; Founders up 71%; Oskar Blues up 54%; Four Peaks up 55%; Odell up 59%; Fremont up 81%; Allagash up 60%; Laurelwood up 96%; San Tan up 77%.

Enjoy Beer LLC, an innovative new partnership between private equity firm Friedman, Fleisher and Lowe and Harpoon founder Rich Doyle, launched with news of its first deal, Abita.  FFL, Rich Doyle and Abita owners all own undisclosed stakes in Enjoy Beer.  Abita founder David Blossman will also remain Abita’s ceo.  Craft Brew News caught up with Rich at some length yesterday about this intriguing and ambitious new venture.  Rich makes no bones about it.  Enjoy Beer intends to do several more deals and eventually go public, he acknowledged.   This will likely take a period of years.  Rich had this idea for about a yr, but only met FFL folks late in 2014.  They hit it off and concept came together quickly. FFL has $4.5 bil under mgt, and so capability and resources for doing more deals.

Five Partners Would Be Ideal; “We Are Looking for Growth Companies”  While there is no set number of other partners Enjoy Beer seeks, five “would be a great number… Ideal,” according to Rich.  Enjoy Beer has already talked “to a variety of people” both larger and smaller than Abita.  But it’s not looking at “startups or really small breweries.” Enjoy Beer is most interested in top 50 craft brewers.  In each case, it envisions founders or leaders of co not completely cashing out, but also staying in and joining Rich and FFL to become partners in Enjoy Beer.  They want partners “who are invested” and “think they can build something.” Those who want to sell out 100% are probably “not a good fit for us.” It’s all about “attraction” and Enjoy Beer seeks to attract owners who are “actively engaged…. We are looking for growth companies,” added Rich.  “We’re here to grow the business,” emphasized Rich, “not extract cost savings.” 

Enjoy Beer Team Building Out to 6-7 Execs; Searching for Sales Veep; Ex Mattel CEO on Board The Enjoy Beer concept includes team of execs, led by Rich as founder and president, that will work with all their partner brewers and help them across various corporate functions, including sales, mktg, social media, finance, logistics.  The team already includes 2 other execs besides Rich, CMO and director of strategy Jessica Jones (formerly with Ninkasi, and a Harvard alum like Rich) and director of customer engagement Adam McQueen.  Enjoy Beer is actively recruiting a sales strategy and execution veep.  Ultimately, it will also have a CFO, “a very big job,” according to Rich, an admin and perhaps a logistics veep.  So 6-7 people.  But again this team is not about synergy/cost saving.  There will not be headcount reductions at its partner breweries.  As a testimony to corporate clout of FFL, one board member of Enjoy Beer is former Mattel and Kraft CEO Bob Eckhart.  Other board members are Rich, David Blossman and 3 FFL execs.  Go to www.enjoybeer.com to find out more. 

Incremental Investments Towards Sales and Mktg; Research, Natl Accounts; Collaborating  Enjoy Beer will provide incremental sales and mktg resources to Abita and its subsequent brewer partners.  Two areas where Rich envisions Enjoy Beer helping straightaway: 1) research and analytics and 2) natl accounts.   Rich has known David at Abita for a long time, and expresses respect for his capability as ceo and operator of big biz with near 125 people.  And David “embraces” concept of Enjoy Beer and “welcomes the collaboration.” 

Who’s Driving the Bus?  What Are Private Equity Objectives?  Tho David is the ceo of Abita, it is still quite possible, perhaps likely, that FFL is actually the controlling partner in Enjoy Beer.   Rich would not disclose any details of their agreement.  Yet private equity firms are typically looking to control the investments they make.  Even if they start out with a stake, there is a path to a majority.  And FFL would very likely be the principal beneficiary if there is an IPO down the line.  But from the Enjoy Beer press release and video Abita released, you would not have even known that anyting about Abita’s ownership has changed.   In fact, Abita had deal book, through Arlington Advisers, that circulated for quite some time. 

Arlington Advisers; Who’s Next? Is The “Soul of Craft” Slipping Away?  Arlington is quietly becoming a player in craft transactions.  SweetWater is another Arlington client and they sold stake to another private equity firm TSG Partners. And word is that Arlington has another client, an even bigger client that is selling a stake with a path to a majority.  Stay tuned.

After yesterday’s news about Abita, CBN got call from long-established craft brewer who noted that almost every week these days there is an announcement of another craft deal.  And each one, he noted, “takes a little bit of the soul out of the craft brew industry.”  Anyone care to comment on that?

Addendum on Craft’s “Value” Segment; “That’s Not What We’re Doing”  Recall, when Rich ran Harpoon, it famously acquired Catamount back in the mid-90s for peanuts.  More recently he also forecast a “train wreck” coming for some craft cos.  That hasn’t happened, but Rich does see there’s already a “value segment” emerging in craft of players who will sell for lower multiples because of fewer growth prospects, but he emphasized: “that’s not what we’re doing.” 

Latest distrib to announce a new craft division: “Caffey Distributing and Carolina Premium Beverage have created Craft Central, a new division dedicated to the sale, distribution and proliferation of craft beer,” serving the greater part of central NC, cos recently announced.  Recall, both distribs are run by president and ceo Chris Caffey.  “We added 7 positions to start with,” Chris told CBN, and since Craft Central formed last November it’s added Ballast Point, Epic Brewery, DuClaw, Olde Hickory Brewing Co, and Granite Falls to “portfolio of [now] 18 craft brands.”  This mo it’s adding another local NC craft company, Carolina Brewing Co, Chris added, and reportedly will add Mich brewer Atwater as well (plans to build an NC brewery by end of 2016), sez Triad Business Journal.  “Of course we want to attract more craft suppliers,” but “part of what drove us [to add a craft division]…was conversations with consumers” and “educating consumers.”  Chris also has “plans to expand its distribution network beyond its current footprint as it continues to add brands and grow its business,” he told Triad Business Journal in separate interview.  All in, “craft is now over 10%” of Caffey Dist/Carolina Premium Beverage total biz and “is growing at a double digit pace,” Chris told CBN.  “We expect our investment in Craft Central to double our growth rate in the craft category, both organically and through the addition of new brands.”

With so many American brewers getting further into sour beers  these days, it was instructive to spend an evening with Rodenbach’s longtime brewmaster Rudi Ghequire at a recent tasting at Belgium Beers in NYC.  Tho very small in the US (just 45,000 cases in 2014), Rodenbach has storied history as brewer of sour beers, still gets top ratings on the beer geek websites like Beer Advocate and the late beer scribe Michael Jackson no less called Rodenbach Grand Cru “the classic example of a Flemish red beer,” in his Great Beers of Belgium.  But will sour beer play in the US of A?

Sour is certainly trending upwards in the nearly 5 yrs since we started this publication, tho it’s still tiny volume and a specialty taste. Rodenbach has plan to grow to several times its size, to 250,000 cases in US by 2020.  Recall, Rodenbach is owned by Palm Breweries since 1998 and imported into the US by Latis Imports, which also imports Palm.  In all, Rodenbach sold about 45,000 hectolitres (about 38,000 bbls) in 2014, but has capacity for 180,000 hectolitres. At the NYC event, Latis prexy David van Wees noted approvingly that younger, hipper sales guys and gals from local distrib Manhattan Beer and even other distribs showed up in some force and drink the beer.  He called this “a harbinger of what’s to come.”  Noting the concern that millennials, with their craving for variety and flavor, may actually switch to wine and spirits quicker than previous generations, he touted the complexity and wine-like character of sour beers as potentially one way to keep millennials in beer. 

Brewmaster Rudi Ghequire is a passionate and articulate spokesperson for the traditions he upholds, always with an eye on the science of sour beers and technical know-how.  Rudi was named Rodenbach’s brewmaster in 1994, but he’s been with the company for 33 yrs and he learned from the prior brewmaster of Rodenbach, who learned from his father.  “The traditional elements are all intact,” said Rudi.  Rodenbach has 294 large oak barrels, which Palm sez is the largest storage of sour beers in the world and more than everyone in the US combined. It is the careful blending from this “vast” collection of vats, and how Rodenbach has done “positive selection” of the best cultures from them for over 200 years, that gives Rodenbach “perfect balance every time,” according to Rudi, that is “almost not duplicable.”  

Mich’s New Holland Brewing “hopes to accomplish its goal” of brewing all of its beers with “nothing but Michigan ingredients” by 2016, reported Holland Sentinel.  “We’ve always liked to use Michigan ingredients when we could but never have been able to say we would only use Michigan ingredients,” said vp of mktg Joel Peterson.  Plenty of cos have select brews with all locally sourced ingredients, but it seems a taller order for a mid-sized brewer such as New Holland to pull off 100% local ingredients; recall, New Holland grew 19% to 31,000 bbls last yr and started Q1 2015 up 52% (see last issue). Then too, New Holland just announced partnership with Andrews Distributing in Dallas/Fort Worth, TX that’ll begin in May.  Texas marks co’s 27th state plus D.C.

Long forecast, craft mergers and acquisitions finally took off in the last 12-15 months.  M&A now rapidly transforming craft landscape.  CBN tracked over a dozen transactions for part or all of a craft brewer between Jan 2014-Apr 2015.  That includes 9 of Brewers Assn’s top 50.  And with today’s Abita deal, that makes 5 of top 20.  These deals included everything from AB buying craft brewers outright, to ESOPs, to various private equity firms taking stakes, to craft buying craft or even a combo of craft and private equity as buyers.  Brewers who sold stakes included several of hottest of recent years, such as Founders, SweetWater, Oskar Blues and Southern Tier.  More transactions in the works.  (This article adapted and updated from one in latest issue of our flagship Beer Marketer’s INSIGHTS.)

AB by far most aggressive acquirer of craft assets so far.  It bought 3 craft brewers between Feb 2014 and Jan 2015.   And it’s shopping for several more.  And private equity also getting in game in much bigger way.  At least a half dozen private equity firms did deals in this period.  Recall, AB bought Blue Point 10 Barrel and Elysian.  Each of 10 Barrel and Elysian grew more bbls than any other BA-defined craft brewer in their respective states, Oreg and Wash.  AB has among its lowest shares and biggest challenges in those 2 states. Neither brewer widely available outside its region. So each can more readily be expanded to AB’s hungry distribution network. That can be accomplished with fewer footprint headaches (tho Elysian has some) than more developed brewers.  AB can replicate this model in other acquisitions. 

M&A pace definitely picked up even more since Nov.  CBN tracked 7 deals in less than 6 mos.  AB bought 10 Barrel in Nov and Elysian in Jan.  San Diego craft brewer Green Flash acquired another small San Diego brewer Alpine in Nov.  In Dec, Founders sold 30% of its company to leading Spanish brewer Mahou San Miguel, reportedly for $100 mil or more.  In Mar, Full Sail ESOP (Employee Stock Ownership Program) sold to private equity firm Encore Consumer Capital.  That’s first time that an ESOP decided to sell. And Oskar Blues acquired Mich craft brewer Perrin, with Fireman Capital Partners and ex-beer wholesaler Keith Klopcic.  Oskar also acknowledged it sold stake to Fireman Capital, which turned out to be majority. Valuation reportedly more than 15x EBITDA.  Fireman earlier bought majority of 2 Utah craft brewers, Wasatch and Squatters.  Fireman and Oskar Blues intend to make more craft acquisitions, apparently pursuing a rollup strategy.  Going public is endgame, say sources.  Other private equity cos pursuing variations on this strategy.

So private equity really emerged as a player in craft space in 2014-2015. In addition to Full Sail and Oskar Blues, Ulysses Group bought majority of upstate NY’s Southern Tier, Riverside Group bought a stake in Utah craft Uinta, TSG bought stake in hot Georgia brewer SweetWater and FFL took stake in Abita.  That’s at least 6 private equity cos that did deals in craft space in period.  Many other private equity firms still shopping.  At least 2 more ESOPs emerged or expanded too. Harpoon founder Rich Doyle sold his approx. 40% stake of Harpoon to employees in an ESOP.  New Glarus early shareholders sold voting stock to the company’s ESOP.

Beyond AB, there remain a number of potential strategic purchasers pursuing craft assets.  MillerCoors reportedly more actively considering craft deals.  Constellation currently has hands full, high debt and growing rapidly, but at some point it will get in game. Pabst cut deal to distribute Chi craft Small Town Brewery and a potential acquirer of craft down line.  So is NAB, owned by Costa Rican brewer/conglomerate FIFCO. Boston Beer bought 2 small craft brewers, Angel City and Coney Island.  Other craft brewers reportedly interested in acquiring. With so many potential buyers, will there be enough craft sellers?  Answer seems to be yes. But just a year ago, we noted paucity of deals and owners reluctance to sell.  That seems to have changed.  Dramatically. Some only want to sell a stake.  Some see the writing on the wall.  But there’s no shortage of craft sellers now.  Who owns craft beer?  That’s slated to become a more and more interesting question going forward.

Sierra Nevada hit its outsized target of 30% growth in 1st qtr depletions  “exactly,” sales and mktg director Joe Whitney and other sales execs wrote distribs yesterday.  That amounted to 64,000 bbls of growth.  “Despite launching two exciting new brands, every existing core brand in our portfolio showed solid growth.”  For example, Pale Ale up 3.1%, Torpedo up 13.5%, Seasonals up 34% and Variety Pack up 204% in 1st qtr.  Then too, “Both Hop Hunter and Nooner achieved stronger rollout numbers than Torpedo did in its first 90 days.  Nooner came in at 169% of Torpedo’s 90-day roll out numbers,” said Joe.  Hop Hunter “came in at 192% in spite of not being available to most of the East Coast until March.”  And finally, “we posted more growth in IRI food than any malt beverage or cider brand,” Joe notes (Editor’s note: food is most developed craft channel, but c-stores much bigger, so these results somewhat skewed).  Sierra brand family up 30%, $7.5 mil in sales, ahead of even Modelo Especial at least in this channel, where Modelo Especial gained $7 mil and 23%, Lagunitas brand family up $5.7 mil and 51% and Angry Orchard up $4.6 mil and 23%.  “None of these milestones could have been possible without the support and best-in-class execution of our distributor partners.” The letter concludes: “The investment we made to build our North Carolina brewery and customer experience was an investment in our future and yours. You’ve sent a clear signal how much that matters to you and, for that, we thank you and look forward to a great future together.”  

Yet another private equity firm is entering craft space in a big way, taking stake in Abita, with yet another new wrinkle on how to run ’em.  San Fran-based Friedman, Fleisher & Lowe (with $4.5 bil under mgt) has partnered with one of the savvier craft vets, Harpoon founder Rich Doyle, to buy piece of Abita and create new entity called Enjoy Beer LLC.  Founder David Blossman will stay on.  Recall, Rich sold his stake in Harpoon to an ESOP.  Yet Rich is getting back in game. And quickly.  New enterprise “will create partnerships with additional top craft brewers who wish to preserve their independence, while gaining shared resources in such areas as marketing, sales, purchasing, logistics and finance, in order to compete with large-scale corporate competitors.”  Rich will build out team of execs, which will help Abita and any subsequent craft partners run their craft bizzes better.  Already on board, former Ninkasi mktg and sales exec Jessica Jones.  Abita was the #20 craft brewer in 2014.  It sold 161,000 bbls, up just 2%, following 5% growth in 2013.  In recent yrs, Abita had huge $30 mil expansion project and was capacity constrained. Abita also had reportedly been on block for awhile with MillerCoors getting close to a deal last yr.