Another unique craft transaction could be in the offing. Fully employee-owned Full Sail Brewing of Oregon expects to vote on possible merger with Oregon Craft Brewers Co, an investment group made up of local investors and SF-based Encore Consumer Capital, OregonLive reported this afternoon. Deal could be finalized as early as mid-March. “We’ve gotten a great offer from a group that honors the spirit of what we’ve created,” CEO Irene Firmat told the paper. “This is a way to spread the wealth among all our employees and carry on our legacy as an independent Oregon based craft brewery,” she added. Deal could represent first employee-owned craft company to make significant financial transaction, challenging critiques that such moves made more difficult by the ownership structure.

Encore Consumer Capital a key player here. It raised over $400 mil in investments by late last yr, according to release about another recent deal. It’s invested in about 17 consumer goods products so far, already exiting a handful of them. Tho some of those investments follow common quick private equity timeline, others buck trend. It invested in Zuke’s a pet food brand in 2010 and by the beginning of 2014 had sold it to Nestle Purina. It spent 7 years with Juice Tyme before selling to Highlander Partners, another investment group, in 2013.  And  Encore invested in Ciao Bella gelato brands back in 2008 and still works with that brand. Further, involvement of unspecified local folks and as yet unknown Oregon Craft Brewers Co adds to variables. But current Full Sail “employee shareholders will have more financial security, and will continue to be stock option holders going forward,” Irene wrote in letter to employee-owners. She insists transaction “strengthens Full Sail for the future in this highly competitive marketplace and enables us to honor our financial commitments to our employees and keep our company independent.” 

With just a 40,000-bbl, 4% shipments gain in Q4, Boston Beer shipments came in up 687,000 bbls, 20% for the yr to 4.1 mil bbls.  That’s strong but on the low end of guidance.  Sales-to-retailers continued to grow at a double digit pace, up 13% in Q4. Shipments slowdown “was anticipated” and “due to timing of shipments and a decrease in distributor inventories,” Boston said.  

Boston Beer depletions continued up 12% for the first 7 weeks of 2015.  But Boston lowered its volume guidance for 2015 from what it had announced after Q3.  Previously, it had expected STR growth of 10-15%.  Now it expects 8-12%.  That’s even while it upped amount it intends to spend on Alchemy & Science projects to $10-15 mil, from a previous $6-12 mil.  It’s getting tuffer out there. 

Boston Beer had a strong financial yr in 2014 as well.  Net revs jumped $164 mil, 22% to $903 mil in 2014.  And oper income jumped $33.5 mil, 30% to $146.6 mil, tho only up 10% in Q4.  But Boston Beer’s revenue per bbl only increased 1.7% for the yr.  Since its rev per bbl increased 2.2% in 1^st half, implies a 1.3% increase in rev per bbl in 2d half.    

Following a beer pro’s first win last yr, when Garrett Oliver of Brooklyn Brewery received James Beard Award for Outstanding Beer, Wine and Spirits Professional, number of beer-focused folks tapped as semifinalists this yr dipped down to 5. Most of those folks now on the list for 3 straight yrs (at least), including Sam Calagione of Dogfish Head, Mike, Nick and Simon Floyd of 3 Floyds and Tom Peters, proprietor of famous Belgian-beer focused Monk’s Cafe in Philly. Rob Tod of Allagash got nod last yr and back again among semifinalists announced today. Rounding out list of beer folks here: none other than Jim Koch, Boston Beer co-founder and chairman. Number of repeat-nominees smaller this yr than last and this yr’s list includes more folks associated with specific restaurants or restaurant groups, rather than those working at specific alc bev suppliers.

AB lookin’ to nudge production of Faust Pale Lager, an old St. Louis beer first brewed by AB in 1884, for further availability in local St Louis bar scene, reported Riverfront Times blog in extensive piece that includes an overview of the brand’s history.  This yr Faust Lager “will be on tap at about 100 local bars” after revitalized recipe was debuted last yr, “only available to those visiting the brewery or Ballpark Village.”  Faust still very small scale, as only 2,000 bbls have been brewed “so far,” and “no imminent plans to bottle it.”  Yet Faust represents another move by AB to emphasize “local” in various parts of the country.   Emphasis has been mostly thru acquisition, of course, but “we’ve got a lot of things in the background,” including “old things we’ve tried in the past or had in the past,” that AB has in its back pocket, St. Louis brewmaster Joel Boisselle told paper.  “It’s pretty hoppy, with a nice malty sweetness, maybe caramel undertones.  It’s a real full-bodied beer,” Joel said.  “This is actually the second time AB has tried to resurrect it,” after using it in a “short-lived series called American Originals” in mid-to-late 90’s before production halted, paper notes.  

Danish gypsy brewer Mikkeller and San Diego’s AleSmith “are finalizing an agreement for a creative partnership that will see the duo occupy AleSmith’s roughly 20,000 square foot facility” and give Mikkeller a US home for production, reported All About Beer Mag.  Recall, AleSmith is moving into new, 105K sq-ft facility in the Miramar area “expected to be completed by June 2015.”  Once AleSmith’s new brewery opens, plan is for Mikkeller to begin operating the old facility right away.  Also recall, this is Mikkeller’s 2nd partnership with a highly regarded US craft brewer, as it partnered 50/50 with Indiana’s Three Floyd’s Brewing to open a new brewpub in Copenhagen called “War Pigs” (see Jun 6 2014 issue).  Mikkeller owns “various bars throughout the world, including spots in Bangkok, Stockholm, and San Francisco,” and founder Mikkel Borg Bjergso “foresees opening other locations throughout California” too, mag notes. Mikkel and AleSmith owner Peter Zien are reportedly longstanding friends “for more than a decade,” and partnership between the two “involves Zien not only maintaining a stake in the business but also devoting a significant amount of his time to assisting in the management of his and Bjergso’s new interest and brewing operations.”

Meanwhile, on opposite coast, another acclaimed craft brewer, Mass’s Trillium Brewing plans to open a 2nd facility “just under 16,000 square feet” in Canton, MA by the end of this yr, co announced on its blog.  Trillium will keep its South Boston (Fort Point) brewery, which will “operate more like a pilot brewery,” bringing total capacity to “about 10,000 barrels a year.”

Lockport, NY Approves Property Tax Abatement for NY Beer Project;  Brewery Awaits Approval  Lockport, NY development board “voted unanimously in favor of a 10-year incentive package that included reduced property taxes and an exemption from having to pay sales tax on building materials and furnishings for the NY Beer Project,” reported The Buffalo News.  Ten-yr tax abatement plan will help Kevin M. Krupski and his wife Kelly to invest $3.7 mil in a new brewery “on a 4-acre site,” and would mark the third brewery in Niagara County.  Plan is to start construction in April or May, and “start operations Nov 1,” Kevin said.  “No concerns were aired at a public hearing held Tuesday by the Lockport town Planning Board,” tho board still has a few details to consider on Mar 6, reported Lockport Journal separately. 

Shipyard purchased distrib rights for Shipyard and Sea Dog brands “back from Brown Distributing” in Florida (except for Palm Beach County area), and will transfer to long list of AB distribs thruout state, co announced yesterday.  Transition comes after Shipyard had a particularly tuff 2014 in Fla.  Shipyard brands were down 19% and Sea Dog down 3% in IRI-tracked Fla foodstores statewide, tho both saw sales increase +6% and +7% respectively nation-wide.  Recall, Sea Dog operates two locations in Florida (including one just opened last yr), tho both Shipyard and Sea Dog main operations are in ME.  New distrib list includes: Bernie Little Dist, Burkhardt Sales & Service, Carroll Dist, City Bevs, Coastal Bev, Daytona Bevs, Double Eagle Dist, Eagle Brands, Gold Coast Eagle, Great Bay Dist, Lewis Bear Co, North Florida Sales, Peace River Dist, Pepin Dist, Southern Eagle Dist, Stephens Dist, Suncoast Beverage Sales, Tri-Eagle Services, and Wayne Densch. 

Meanwhile, a couple other craft cos recently made new distribution moves too.  Uinta will enter its 28th state, Kansas, via Kansas Beverage Alliance, it announced via social media late last week.  That’s Uinta’s 1st new state since selling stake to private equity co, Riverside.  Ironically the last new market Uinta entered was with Brown Dist in Fla early last yr.  Then too, this week Great Lakes will fill out the rest of Illinois, entering 44 counties in southern Ill with current distributor, Marketplace Selections, co announced.      

With neither debate nor any votes against it, a bill legalizing the sale of beer in 64oz growlers received favorable recommendation from the Florida House Business and Professions Subcommittee this morning (thanks to live feed from The Florida Channel). Industry-members in the room from both brewer and distributor tier supported the bill, almost entirely without comment. Instead, much time spent on Rep Greg Steube’s much-bigger bill, which also moves forward after a 9-4 vote (see Jan 13 CBN for explanation of original bill). Plenty of amendments added on to bill prior to vote, though few made major changes to section affecting small brewers and beer sales. Recall, large swath of bill deals with liquor sales and repealing current “barrier” requirement for grocery and big box stores. Majority of debate on bill focused on this measure and it moved forward only with promise that this section would be amended. But a number of legislators also put imperative on Steube to change one other section of the bill as it moves closer to the House floor: franchise reform.

Testimony from both distrib assn execs, Mitch Rubin of Florida Beer Wholesalers Assn and Eric Criss of Beer Industry of Florida, as well as handful of other Fla beer distributors pointed out importance of franchise protections. Both Mitch and Jay Martin of JJ Taylor brought out long lists of brands that have moved between distribs over last few years, Mitch promising that current bill would “set off a round of litigation” currently not seen. Lotsa talk (particularly on barrier issue) pointed to “free market” thinking, but “free market language and free market rhetoric doesn’t work with intoxicating substances,” Eric reminded. He and his members are “big believers in the free market,” he said, “but we’re not talking about cupcakes here.” Other distributors noted that current bill “scares us” and creates “uncertainty” in wholesaler tier. Just before the vote, one lawmaker said he’d just been “educated today on the franchise provision,” which is “a real problem” that has “got to be fixed,” a sentiment echoed by handful of others. Rep Steube promised to keep working on it. We’ll see where that goes.

Once again, St Louis Brewery, which runs Schlafly, looked to bigger beer to hire key exec.  James Pendegraft  just named CEO to succeed Dan Kopman.  Dan will become co-chairman of St Louis Brewery with Tom Schlafly.  James comes most recently from North American Breweries where he was prexy of sales/mktg.  But he was also prexy of Labatt USA and category mgmt director for InBev.  Recall, St Louis hired long-time AB exec Keith Moszczenski in 2013; he’s current COO/CFO.

James comes to Schlafly a few yrs after meeting Dan at Beer Inst mtg.  They hit it off and Dan went into a “long-term recruitment mode,” including hiring James for some consulting last fall.  Meanwhile, St Louis winds up a 3-yr period of getting its ownership structure resolved, working thru semi-crisis of its key Mo distrib (Major Brands) in huge legal battle with its spirits suppliers and having just lost its brewmaster Jim Ottolini (to Brew Hub).  Recall, co-chair Tom Schlafly owns 20% of St Louis Brewery, Dan owns 10%, having sold 60% stake to pvt equity co Sage Capital in 2012.  A group of employees have stake too.  Long-term goal is for Tom’s stake to be 10% and employee stake to be 20%.  So St Louis Brewery a hybrid of founders still closely involved, pvt equity partner and employee ownership.  It has two breweries in St Lou, seeks land for a 3d and contracts with other brewers when necessary. Building a brewing biz past certain size, Dan told CBN, takes combo of “finding really experienced people from outside if the skills are not in house” and “developing in-house talent, continuing to bring young, passionate people” into the biz.  Schlafly has done both, even while understanding “we will lose some good people,” as it also has.  Production side has always been “team project” at Schlafly, said Dan, and combo of his new role as co-chair with more time to devote to production issues and solid team in place means that replacement for Ottolini not necessary.     

Schlafly sold 60K bbls in 14 states/DC last yr, up about 7%.  Focus on ownership and mgmt issues may have slowed expansion a bit in recent yrs but Dan sez team now in place to move forward.  Schlafly’s goal has always been to “be a great local brewer” and has never felt need or desire to “chase volume.”  Dan “never wanted to worry about a big bank loan or investors pushing beyond what’s reasonable.”  Schlafly also faces unique challenge of operating in city where he sees “resurgence of AB wanting to put its stamp of authority” with much larger retail presence.  That includes huge Ballpark Village outlet across street from baseball stadium and its beer garden.  Schlafly just entered Chicago market with what Dan calls the “just-right network” of 5 distribs that mostly have Corona, Bell’s, NAB and Pabst.  The brewer is also opening Cincinnati/Dayton with Ohio Valley and Heidelberg.  

BI’s “Big Big Move” on Fed Excise Tax; Dan’s Principles for Reform  Dan has long had interest in policy matters, especially tax policy.  He’s got relationships with Beer Inst staff and members as well as fellow craft brewers and Brewers Assn.  He’s going on to the BA board as appointed member and expect him to work the tax issue, understanding perspective of big and small brewers.  He supports the BA Small BREW Act and not the Fair BEER Act.  But he also acknowledges that current version of BEER is “a very different bill” than previous versions, which were basically intended to prevent a tax increase.  But new fed tax formula proposed by BEER is a “big, big move by the Beer Institute.”  Recall, AB would get about a nickel per bbl tax break under current version instead of $9/bbl and total cost has dropped from over $2 bil to somewhere between $113 and $150 mil (different economists are calculating different numbers). 

Dan believes there is real chance for tax reform coming up.  Does there have to a “compromise” bill?  “I don’t know,” says Dan and he would not support current version of BEER specifically, but again he notes that BI bill was “very meaningful move” that includes key elements he’d personally like to see in any reform. (Dan’s not speaking for BA here.)  What are they?  First, a “graduated structure based on a sound economic model that maximizes job growth.”  Second, “every brewer in the US should have some skin in the game, in the form of excise tax,” since they all use TTB services, which need to be funded.  Third: “I’d like to see a bill that costs less than $100 million.”  Small BREW “does all of those things,” Dan points out.   At same time, up to Congress to pass any bill and “determine the final language,” Dan stresses, not BI or BA.  Indeed, it will likely be Congress (not brewers big or small) who will determine whether importers share any tax relief, in Dan’s view.   Recall, BEER includes importers, BREW does not and that’s been a key sticking point separating assns.      

One of our guest philosophers, Diogenes, peeks inside of the King’s head and suspects AB of engaging in a little disruption of its own. 

By Diogenes

It’s pretty clear that the giant of the world’s beer industry, AB InBev, has had enough of the “disruption” that 3400 American craft brewers have brought to the beer industry.  The giant has embarked on a “counter disruption” campaign using the vast resources at its command.

-You want to trumpet your “craft beer definition” and condemn our “crafty” beers?   OK, we’ll show you by buying one of the nation’s pioneer craft breweries, Goose Island.  Then we’ll buy Blue Point in New York; 10 Barrel, the darling of Bend, Oregon; and Elysian Brewery in Seattle, helmed by brewmaster Dick Cantwell, a former member of the Board of Directors of the Brewers Association, a writer and eloquent spokesman for craft beer. 

Now tell us these guys are not craft brewers.  Why is our investment in these breweries different than private equity dollars, or IPO dollars?  Craft brewing is a business, isn’t it?  (This effort seems to be bearing fruit.  Even the granddaddy of all beer magazines, “All About Beer,” is telling us in its latest issue, “Craft Beer is Dead.”  Editor John Holl makes the argument that “craft” has lost its meaning, announcing the magazine will focus on “beer.”)   

-You want to self-distribute?  Well, we’ve been doing that for decades in many markets and we want to acquire more distributors wherever possible.  And when we do buy a distributor, we will make sure its sales force focuses first and foremost on Bud, Bud Light, Shock Top, and the rest of our crafty portfolio.  

-You want to sell your beer in tasting rooms at your brewery?  You want to own brewpubs and other retail privileges?  So do we, and we will show you how to do it with the restaurants and bars of 10 Barrel, Elysian and others.  Of course we respect the three-tier system, just like you.

-You want to lobby for tasting room privileges, self-distribution, growlers and other privileges in the states where they are not currently allowed, mostly in the South?  Fine, but don’t expect help from us.   After all, those are the states where we still have the lion’s share of the business. 

-You want to pass a bill to reduce the federal excise tax for brewers making fewer than 6 million barrels a year?  No way.  We will fight you with our army of lobbyists in Washington and our many years of lavishing political donations on Congressmen across the nation.  There is already some World Trade Organization anger at the tax advantages you already enjoy as US small brewers.  Those are called “protective tariffs,” and they can be challenged by the WTO. 

Our “Fair” tax bill would abolish the beer excise tax for the smallest brewers, and offer some relief for all brewers, including us.  (Our real goal for many years has been to avoid a tax increase.  We’d love to have the small brewers’ support.)

-How about some good old-fashioned price and marketing competition?  We’ll make deep cuts in keg prices on Shock Top and Goose Island in some markets.  And we will put $10 million in marketing muscle behind Goose Island IPA.

AB InBev showed a bit of pique with a $9 million Super Bowl ad that skewered craft brewers making beer “brewed to be fussed over,” versus Budweiser, a beer “brewed for drinking.”  Brian Perkins, AB InBev’s VP of Marketing, denied the ad was an attack on craft beer.  He called the “pumpkin peach” beer that is mocked in the ad a “fabricated, ludicrous flavor combination,” heedless of the fact that Elysian, the brewery his company just bought, makes a beer exactly like that.

That ad was seen by 114 million households, and I think it was aimed at supporting the base of loyal Bud drinkers who disdain fussy, snobby craft beer drinkers with handlebar mustaches. 

It’s all part of the “counter-disruption” campaign.

No one expects all industry stakeholders to agree on policy issues all the time. But comments being made recently by handful of state legislators suggest they’d prefer if players played a little nicer. Rhetoric and name-calling ramped up in Kentucky this week with release of TV ads to support and push back against bill barring brewer-owned distrib branches there. That bill passed thru KY House committee after an hour of testimony yesterday, according to the Lexington Herald-Leader (as we reported in INSIGHTS Express yesterday). Bill passed committee, but some who voted for it “reserved the right” to switch vote in full House “and begged” Speaker Greg Stumbo, bill sponsor, “for a compromise.” That could include an amendment to grandfather in current AB branches over concern for near 200 jobs at those operations. But bill passed as is.

After vote, AB released toughly worded statement condemning it as “one of the worst votes you can take as a legislator” and the “terrible bill” as “the worst kind of policymaking.” Ouch. Bill “conflicts with free market principles,” AB Louisville branch’s sales/mktg director Damon Williams wrote in statement. Why the “worst” in AB’s view? Because it’s policy “done at the behest of a handful of wealthy political contributors who want nothing more than to put a competitor out of business” and a vote that put “everyday Kentuckians in jeopardy of losing their jobs.” So AB “will continue to fight” this “government-sanctioned elimination of competition.” That fight could go on even if bill’s signed into law, as AB promised “to take any and all actions to protect our business and our workers.”

But KY Brewers Guild “pleased” with committee action, as bill “creates an even playing field for Kentucky craft brewers,” according to assn’s statement. Bill closes “inequitable loophole,” in KGB’s view, “that allows mega brewers to distribute their own products to the detriment of independent beer distributors and local craft brewers.” Indeed, KY brewers “depend” on indie distribs, release re-states. AB finds argument that it’s restricting small brewer access to market “simply not true,” as Damon said during meeting. But “we cannot let the world’s largest beer makers squeeze our markets and deny us access to the people who want our products,” Country Boy Brewing’s Daniel Harrison countered. So far, legislators voting in favor of small brewers/distribs.

They don’t seem happy about the tone taken by either side though. One state rep “cautioned all witnesses to keep it respectful and chastised both sides for their rhetoric,” the Herald-Leader wrote. Referencing name-calling in TV ads about bill and now-common social media smearing, “these actions are without conscience,” Rep Ruth Ann Palumbo said. Folks on both sides of the debate “haven’t played well in the sandbox together,” Speaker Stumbo said, according to report. “As far as I know they’re still kicking sand at each other,” he added.

And KY ain’t the only place where sand’s flyin’. Recall comments from legislators in Ariz and Fla (see last issue). Now lack of consensus from industry members could lead to another year of inaction in Montana, according to KULR-Billings report. Duelling bills, one backed by Mont Tavern Assn/Mont Brewers Assn and one from Mont Beer Wholesalers Assn, amended during mtg yesterday, but neither passed and both tabled. So the “imperfect set of choices” brought to committee from industry advocates, one lawmaker said, are “likely dead,” Alan McCormick of Growler Fills blog wrote. Contention and debate over beer policy not happening everywhere. Progress in neighboring Wyoming and out in West Virginia counter these examples. So plenty more to come across US (and in DC) as legislative sessions continue.