Voices from many directions have weighed in on pair of excise tax reduction bills currently being considered on Capitol Hill. A number of industry and observer opinion pieces and newspaper editorials appeared in last week backing BREW, BEER or even both. Neither bill cooking with grease, tho BREW slower to gain co-sponsors than BEER in House, as we reported in INSIGHTS Express yesterday. Current co-sponsor count at 20 for BREW and 31 for BEER, which was intro’d later, recall. BREW’s done better in Senate, currently sitting with 26 co-sponsors there. Senate version of BEER likely to be intro’d soon. But number and size of BREW’s opponents mounts: glass companies wrote to Congress supporting BEER, NBWA increasing efforts and AB reinforcing lobbyist team, we hear.

Brewers of Europe Rails Against Small US Brewer Tax Break; Equal EU Treatment “All the More Galling” Comments from furthest afield don’t directly address BREW or BEER, but implications more than clear. “Unfair tax treatment for Europe’s smaller brewers when compared to their US counterparts” represents a “significant obstacle,” the Brewers of Europe Secretary General Pierre-Olivier Bergeron wrote in op-ed published by EuroActiv earlier this month. As talks between Europe and US over Transatlantic Trade and Investment Partnership (TTIP) continue, “it is imperative,” Bergeron writes, that “the US introduces a fair and balanced tax system whereby both European and US small brewers are eligible for the same tax relief in each other’s respective markets.” Recall, Small BREW maintains current provisions that prevent importers from enjoying lower tax rates and lobbying behind bill has focused much attention on keeping savings from bill in hands of relatively-small US brewers only.

Current reduction in US excise taxes provided to small US brewers not offered to “Europe’s smallest brewers,” which pay full $18/bbl rate, Bergeron continued. “All the more galling” for small Euro brewers is fact that both EU and US small brewers pay a reduced rate in “21 EU countries.” So Brewers of Europe hopes to see application of lower excise rates to small importers become part of bigger TTIP negotiations. Note that Brewers of Europe represents brewers of all sizes, so same big companies also on board there as in US. But focus of op-ed is clearly on the kind of small Euro cos after which small US brewers model themselves and with which they regularly collaborate and compete.

Tax-Focused Orgs Mixed; Impacts on Beer Drinker Missed  Yesterday, a new op-ed appeared stateside in Forbes, this time from US-based Tax Foundation, and it concurred with sentiment expressed by Brewers of Europe. “US brewers don’t need the protection; they can compete on a world stage,” indeed many already do. Further, “not extending the reduced rate to European small breweries is only hurting the US beer consumer.” But beer consumers so far not big part of debate over these bills. Separately, Grover G. Norquist and Patrick Gleason of Americans for Tax Reform laid out info on both bills (as well as smattering of state info) and concluded that “anything lawmakers can do to get government out of the way of industry growth is a good thing for all Americans,” in Reuters.

That op-ed and pair of pieces from either side of debate all happily use Beer Institute stat that taxes make up over 40% of price of average pint. Even op-ed from trio of small brewers in The Hill passes along that nugget,  tho math changes markedly as size of brewer decreases. Not many have challenged that math over the years (excepting a pretty memorable Joe Sixpack column a couple years back), but important to remember that it includes far more than just federal excise taxes. Assuming all 248 pints poured from a single bbl, per-pint excise tax only about 7 cents when $18/bbl rate paid, about 3 cents on $7 rate. Since that’s built into price to wholesalers, it gets marked up along the way. But rest of that 40% comes from plenty of other taxes.

In the meantime, industry members have weighed in too. Op-ed from Beer Institute CEO Jim McGreevey, appealing to beer drinkers of all kinds and touting benefits of BEER to smallest brewers, got published in a number of local newspapers around US recently. At same time, Hill op-ed from Scott Newman-Bale of Shorts Brewing, Bill Covaleski of Victory Brewing and Bill Butcher of Port City Brewing openly asked Congress to support BREW to help small brewers in marketplace. “Big brewers are actively engaged in a mission to slow our growth and stifle us competitively,” the trio wrote, adding later that “one way to level the playing field is through intelligent beer excise tax policy.” 

Boston stock took initial “nosedive” after report, wrote Seeking Alpha, and “‘SAM’ Gets Slammed,” Mad Money’s Jim Cramer headlined in quick CNBC video. Several analyst reports cite disappointment and Cowen and Co downgraded SAM to “market-perform” from “outperform.” So after closing yesterday at over $311 per share, Boston stock dropped 14%, opening at $268.50 and continuing down another $15 this morning. But it’s started coming back and moderated, -10% to near $280 at presstime. Recall, after strong Q3, SAM stock skyrocketed from around $220 per share in Oct to eventual high of $325 per share in Jan and mkt cap over $4 bil.

“Management’s warnings” of a low Q4 “seemed to be ignored by the market,” wrote Seeking Alpha.  And “now management is beating the warning drum louder than ever – make sure you’re listening.”  Boston could be “a victim of its own success,” Seeking Alpha suggested after noting that “expectations are quite high” for a co with a price-to-earnings ratio “often in the 50s.”

Boston gave EPS guidance of $7.10-$7.50 for full-yr 2015, “below most investor expectations,” sez Goldman Sachs. But even seeing recent “slowdown,” the analysts see +12% depletions trend “as encouraging given a 35% comp from 1Q14.”  Meanwhile margin upside is “likely to remain limited in the near term as SAM continues to focus on brand investment” with new Rebel brands, Traveler rollout, and increased A&S focus. And RBC found results “disappointing” but reminded, again, it’s “likely conservative.”

Shift from stellar to simply solid fourth quarter results led to relatively subdued tone of Boston Beer earnings call yesterday afternoon. Boston execs kept up consistently conservative outlook as they have in past. But considering clear slow-down since last call, analysts wondered about competition and market hit stock price hard (see below). “Since last we spoke to you, the level of competition in frankly all of the categories that we’re playing in is rising,” CEO Martin Roper kicked off his response to very first question about lower depletions guidance. Boston expects volume to grow 8-12% this yr, a bit lower than initial expectation of 10-15% (see last issue). And its company-wide depletions trend slowed to +12% for first 7 weeks of the yr, it reported. It was up 13% by $$ in IRI multi-outlet + convenience data for 4 wks thru Feb 15, reported by Morgan Stanley, with Angry Orchard +39% while Sam Adams Seasonals down 6% and Lager flat.

“We’ve got a lot of uncertainty,” Martin concluded, and “versus 10-weeks ago, we just think it feels tougher to do all these things, to deliver an end result.” Concerned with spending and share trends, Judy Hong of Goldman Sachs asked if “that makes you a little bit more nervous.” The “increasing levels of competition” should not be seen as “anything discontinuous or dramatically different,” Chairman Jim Koch responded. Rather than any differences from the outside, it’s Boston size and strength that’s grown and changed, he suggested. As “the base gets bigger, the attractiveness to competition gets higher,” Jim said. “Craft beer is kind of the darling of certainly the beer business, maybe the entire alcoholic beverage business,” so “everyone wants to play there. And we’re seeing some of that in cider, and certainly FMBs have wave after wave of innovation.”

Innovation Key in Craft; Boston “Building Franchises”  Martin filled listeners in on each of Boston’s major brands and their respective segments. Total craft category “remains very healthy,” he said, but it “continues to be challenging for brands that have been around for a while to maintain solid growth without very significant innovation.” It’s still “too early” to gauge impact of Rebel IPA extensions, Rider and Rouser, and original Rebel and spring seasonal Cold Snap are “going up against some interesting comparisons” after both launched last yr. Those intros particularly helped Boston’s on-premise biz. But Martin’s “not sure” if share gain that showed up for the co in tracked on-premise is “the reality.” Big push behind Rebel from sales force was key there last yr, but he’s also “not sure that’s going to continue,” particularly as on-premise “even more competitive than the off-premise.” So early focus for Sam will be on “trying to make the second-year of Rebel and Cold Snap as successful as the first-year,” Martin said, as the co works on “basically building franchises.”

Cider Growth Unclear; Tea Chugging  Meanwhile, Angry Orchard sees “increased competition primarily at the local level,” Martin said, from “a lot of small startups.” But again, “it’s just really hard to read that” and overall “it’s just a little unclear what the growth rate of cider will be this year.” Martin and team remain “optimistic” about Boston’s “small but chugging along” Twisted Tea brands.

Traveler Hits the Road  National launch of Traveler shandy brands, Boston’s first big effort behind concept originating in Alchemy & Science subsidiary, will be biggest question-mark for the co in 2015. “We really have literally no clue what the total volume may be,” Martin said. The co’s putting “significant TV media investment” behind it, coming in March, and believes “it’s a promising opportunity.” But it’s also “a little more uncertain.” It’s started shipping already and Boston’s received some “very nice support from retailers and wholesalers alike.” Still: “it’s really hard to tell what’s going to go on.” Pushed on distribution in year one, Martin said later that he’d “be happy” if 1st-yr Traveler distribution hit 1st-yr Angry Orchard levels. But don’t take that “to suggest” it’ll “burst on the scene like the cider category.” And it won’t be like Rebel either, Jim added; it will “take a little longer and be a little harder,” as it doesn’t have “Samuel Adams brand name on it” and isn’t in “very strong IPA style.”

Small breweries still enjoy darling-status, generally, but a pair of recent pieces put a couple chinks in the armor. A front page North Coast Journal article last week took local Lost Coast Brewing to task for a deal it struck with Eureka, Calif council to expand operations there. The day before, the Detroit Metro Times, an alt-weekly, printed a long questioning article about Arbor Brewing’s biz practices and recent kitchen expansion. Both rely heavily on limited or unnamed sources, but both are quite damning in their own ways. The former takes serious issue with about $700K in “site-specific improvements” Eureka made that helped Lost Coast build out new “state-of-the-art, $27 million mega-brewery” that would boost capacity up to 300K bbls. The latter rips to shreds Arbor’s recent IndieGoGo campaign and actions surrounding the use of the $75K the crowdfunding campaign garnered.

Neither piece takes typical laudatory tones in support of these local bizzes, nor includes direct comments about issues in questions from brewery founders/leaders. And both may not only be undeserved, but unfounded too. But in many ways, their very appearance does damage difficult to undo. Indeed, in response to Metro Times piece, Arbor founders Matt and Rene Greff took to company blog to lay out their point of view, challenging many of arguments laid out in initial piece. But among them is admission that the Greffs planned to pay back original investors in building out its brewery back in 2006, but have yet to do so, as Metro Times article notes. Not only that, but the Greffs themselves haven’t taken a paycheck from the brewery in the last 10 years either, they note, and operated at a loss of about $100K in 2014 and $200K in 2013. Many industry veterans have questioned the money-making ability of small brewing operations for years and many small brewers often warn that those looking to get in the biz for the money might do better to look elsewhere. The number of small breweries in the US keeps growing, but how many are still in the red?

Boulevard Brewing today announced it will enter NYC mkt in March with L Knife operations, Union Beer Distributors and Craft Beer Guild of NY.  That’ll mark Boulevard’s sixth new mkt since last September (OH in Jan, SC and FL in Oct, Northern NJ and Philly area in Sep). 

Houston’s Saint Arnold Brewing founder, Brock Wagner speaks to wide-ranging topics in an extensive interview with Culture Map magazine. 

Saint Arnold Focusin’ Local; “What We’re Doing Today” is Most Important; Market Disruption in Next 10 Yrs On competitionin local market, Brock said: “hopefully, people when they think of craft beer in Houston, the first thing that comes to mind will be Saint Arnold…but we also don’t believe that our being here for 20 years is particularly relevant to the craft beer drinker.  What’s important is what are we doing today?  How are we innovating? How relevant are our year round beers?”  Tying that in to themes of “the Jim Koch article in Boston Magazine” earlier this yr (see Jan 7 issue), where article questioned relevance of Sam Adams brand, particularly Boston Lager, in local craft scene going forward, Brock wondered “to some extent…what is the level of veracity?  How much did the reporter go in with an opinion, and they were looking to validate it?”   Yet he feels that his attitude towards less relevant styles now has to change.  Just ’cause his amber ale was “cutting edge in 1994” doesn’t mean “you owe me to have that on your tap wall.”  Instead, “we’ll periodically do…‘interesting experiments’” like dry hopping Amber Ale.  (Also, later in the interview Brock discusses various specialty brews such as Divine series that sells out “in two to three hours,” barrel aging series, and a rye IPA that’s being tested right now).  “Then I think it’s much more likely that regular old Amber Ale will be sitting on that tap wall.”  Taking a wider look at total beer industry, he added: “markets change.  There are market disruptions constantly,” and “I suspect that we are going to see a market disruption in craft beer sometime in the next 10 years.”

Main Concern is About “Culture” of Newcomers Gettin’ in Just for the Money Brock vocalized similar concern to that of New Belgium’s Kim Jordan (among other craft industry leaders) regarding the “culture” of newer breweries entering the biz.  Some are merely seizing opportunity to enter the beer biz as “a way to make money” opposed to those who got in the biz early and “all knew this was not a way to make money,” but did it anyway.  “There was a strong sense of community between us,” and “for craft beer to be as relevant 20 years from now and 50 years from now, I think the key will be, can we maintain the community of brewers?”  If not, “it will look completely different and more like any other business.”

Off-Premise Sales On-Site is “Biggest” Legislative Focus Right Now “We’d love to get off-premise sales” in upcoming legislative session, said Brock.  Recall, last yr law passed that allows on-premise sales on-site.  There’s other “little clean up items, more technical in nature” as well and “mistakes in how the brewpub bill was written that doesn’t affect us at all,” yet off-premise sales on-site is Brock’s biggest focus.  Recall, last yr Saint Arnold upped capacity to 100K bbls/yr and purchased adjacent land for future expansions and a future beer garden he aims to make “internationally known destination.” As craft in Texas continues to become more of a force, “there’s no question that it is easier” and “we’re much more relevant to the legislature than we were a few years ago,” he added.

Intriguing look at draft beer sales at EverBank Field in Jacksonville, Fla showed that share of craft/premium beer jumped from 16% to 39% when options at portable beer stations expanded, according to case study in SportsBusiness Journal this week. Folks from Ovations Food Services studied effects of increasing options with a bunch of mostly-local craft brands, plus SweetWater 420 and Blue Moon, at 8 of its draft stations during 2014 Jacksonville Jaguars season. Most stations still included same assortment of domestic brands. Across entire stadium, craft/premium brands (at $1 more per unit) represented about 16% of beers sold. But “when we look at a prime draft portable location that has domestic and craft/premium options, the mix changes drastically,” Ovations regional veep Tom Anastasia wrote. Craft share shot up to 39%, suggesting that “a very large segment of our consumers are willing to pay more for premium product.” Tom notes that “very often the focus on draft” at stadiums “is geared towards a sponsor product” for those stadiums. But Ovations did this analysis “to show our clients that there is financial benefit to straying outside the old exclusivity model.”

AsColo’s Breckenridge and Avery Brewing both move into their new multi-million $$ facilities in coming mos, both are “close to signing deals with potential buyers/lessees” for their old facilities, reported Westword magazine.  Recall Avery just had grand opening of its new brewery last week, tho it won’t fully switch over to new system “until March or April.”  Avery is “in negotiations with another brewery, but can’t comment yet on who that is,” founder Adam Avery told mag.  Avery “is unloading eight warehouses (two are for sale and six are for lease),” which “also includes a brewhouse, a lot of equipment and a fully functioning taproom.” 

Meanwhile “Breckenridge has been negotiating with Crazy Mountain Brewery in Edwards for more than eighteen months” to take over its Denver brewery, sez paper, and real estate development firm that owns the building “plans to lease the site to Crazy Mountain.”  Breckenridge is “basically leaving everything behind,” founder Todd Usry told mag, so even tho “it’s kind of landlocked in the city… it’s such a unique opportunity to roll in, turn on the lights and make 60,000 barrels of beer – that outweighs its limitations.”  Crazy Mountain reportedly brews more than 15,000 bbls per yr, “distributes to nineteen states and five other countries.”

Total on-premise biz might have just started to see slow climb back to overall health, but new locations and some easy comps lifted Q4 results for one of biggest US brewpub chains. BJ’s Restaurants booked total rev gain of 9.1% for fiscal yr 2014 after 4th qtr revs up 7%. But co got much bigger profit jump by shaving a little here and there off costs and getting added benefit of not incurring big one-off costs as it did during end of 2013. Full-yr net income popped 30% to about $27.4 mil. BJ’s went from operating at loss of about $2.2 mil in 4Q13 to operating income around $11 mil for final qtr of 2014. Fourth qtr net income zoomed from about half a million bucks in ’13 to almost $8.3 mil last yr.

BJ’s closed out 2014 with 156 restaurants, adding another 11 thruout the yr, 3 in the final qtr alone. That’s fewer new outlets than it opened the yr prior (helping lower costs). But the co has aggressive plans. It’s opened 2 more already in 2015 (including one near our office in the suburbs of NYC) and with “national capacity for at least 425 BJ’s Restaurants, we see many years of continued growth,” prexy/CEO Greg Trojan said presenting financial results. “Comparable restaurant sales” grew 1.2% in 4th qtr and slightly slower, +0.8%, for full yr. “Reigniting comparable restaurant sales” remains key focus for co, Greg said, along with “refining” operations and menu options and “launching a new higher return restaurant prototype” for most new outlets. BJ’s stock price shot up 17% in day after releasing these results, tho it’s since moderated to over $53/share, 13% higher than before release.

It’ll release full beer volume data with annual filing soon, but thru the end of the 3d qtr, BJ’s held on to target of 75K bbls for the full yr. It expected to contract 80% of that. In 2013, it contracted nearly 45K bbls and reported brewing about 15K bbls at restaurants with small in-house systems. So it upped contract production about 33% to support anticipated 25% increase in beer volume requirements at its restaurants. 

Since Craft Brew Alliance already faces onslaught of brands from mostly outside its distrib network in ultra-competitive home markets in PacNW, we wondered how recent AB acquisitions could impact the co (see Feb 6 issue). So CEO Andy Thomas shared his perspective on its unique position as the “only non-owned brewer” to enjoy “the same access” to AB’s network as AB. Beefing up the bigger co’s craft portfolio “adds more scale to the AB network,” making it “more of a formidable force within craft,” in Andy’s view. And “the stronger the wholesaler is the better the chances of our brands winning are,” he told CBN. Becoming a “bigger force in craft is good for all craft brands that are distributed through that network,” Andy said. And a more powerful network “can go out and take share from the local market.” Further, the “AB network has a long way to go to have the same amount of clutter” and “scale as the MillerCoors network,” he said.

He rolled out some familiar imagery to put a pretty positive spin on deals painted as nothing short of catastrophic in some craft corners. Hold your horses, Andy countered. “We are a chain,” he said of different tiers bringing beer to market, “and we are only as strong as our weakest link.” So a stronger link, in form of a stronger distrib network, bodes well for the other links, he argued. As AB wholesalers become a bigger fish in craft’s “small pond,” they’ll have “proportionally less attention to go around.” But “pick your poison,” he said, suggesting this is a preferable position to getting “more focus” from a “less formidable force,” or being a bigger focus of a “relatively small fish.”

Importantly, “10 Barrel was already in the AB network,” and it and CBA were “coexisting very nicely,” Andy told us, noting “a lot of the same parallels with Elysian.” And “one more brand” within the same distributorship is “not necessarily as impactful as all the other brands that are outside,” he said. Andy dismissed that distribs would “cannibalize their own business,” replacing a box of one brand for a box of another, a “zero sum game.” Instead, it’s “not about a different case,” to Andy, it’s about “an incremental case tomorrow.”

Further, working with a distrib that’s got a thick book of brands “requires” every brewer in the book to “raise their game,” Andy explained. It’s “up to us,” he said, “to make sure we’re getting our share of the attention,” and “be a little more buttoned up.” So he and his team at CBA ask themselves “how do I do a better job at planning with my wholesalers?” How can CBA make a “game plan” to “help them win” and in turn “help our brands win in the marketplace?” And as far as these efforts are concerned, CBA’s calling card as combo big and small brewer could prove particularly key, Andy reminded. An “uber-local brand” may not have all the pieces in place “to satisfy the wholesaler’s demands,” he said, from “really high quality consistent brews,” to supply chain and retail mgmt, “customer service,” down to “nuts and bolts” like “cooperage flow,” a key focus area for “increasingly draft sensitive and draft dependent” brewers.

Divergent Trends; “Local” Run-Room; “Red Thread” for Redhook  Andy made a handful of other noteworthy observations about the beer market generally and some recent CBA developments. He expects to see “seemingly contradictory trends” in craft: many, many small brewers that “pop up” and “grow at exponential rates” at the same time that “small-to-medium” brewers start “slowing down and stagnating.” Beer consumers are “willing to pay more, but we want those brands to increasingly stand for something,” he said. Sometimes, “local” is that something. And “local is real,” Andy commented, with “a lot of run room in some parts of the country,” including big markets like Florida and Texas.

CBA’s Redhook brand recently got picked up for new beer-battered fish offerings from Hardee’s and Carls Jr fast-food chains. Tho volume implication of deal probably not significant, “absolute exposure” in these outlets can make big impact, to Andy. It also ties to CBA’s efforts behind “increasing relevance of the Redhook brand” largely during sports occasions. The “red thread of sports” runs thru almost all of recent Redhook partnerships and marketing efforts, Andy noted, a key differentiator. A small exception could be seen in form of KCCO Black Lager, not exactly sports-only, but that will largely become “a standalone brand” moving forward, as Andy and co see “a lot of run-room for Resignation,” brand CBA created with TheChive to make KCCO.