Craft is “becoming more than just a small little curiosity in the industry. It’s becoming the industry,” Craft Brew Alliance ceo Andy Thomas told attendees at Brewbound Session in San Diego today. Building on Brewers Assn’s 20-share by 2020 goal while simultaneously discarding its definition of “craft,” Andy refocused goal to 50 mil bbls of craft and questioned not only how the category gets there but what happens when it does. “‘Craft’ can’t continue to be cool if ‘beer’ isn’t cool,” he suggested, and “fifty-million barrels means that ‘we’ are ‘they’ and we have to start worrying about ‘beer.’” Andy raised as challenges going forward: capacity and its effect on pricing, issues with raw materials and quality ingredient supply and the burden of taxes and advertising. Though “bullish as Hell about where the consumer will take craft beer,” Andy believes “the leaders of craft today also need to think more like the stewards of the beer industry tomorrow.”

“We’ve got everything going for us” at the moment, Andy said of current tailwinds behind craft brewers. The segment’s “got momentum” from “a generation of transformed palates” and “homebrewers,” plus a “margin-rich value chain.” Indeed, “the consumer’s voting for us,” he said later. And their view of “craft” may not be quite the same as those inside the industry, Andy showed, using Demeter Group stats from a report earlier this year (see Jun 3 issue of CBN). But the “three main drivers” of craft, in his view, won’t be enough to reach 50 mil bbls. The first, “small and local,” could only bring in 4 mil bbls: currently 70% of breweries produce 0.3% of beer, so “doubling” the number of small players doesn’t make much of a dent. What of the other 2 drivers “draught” and “on-premise”? Not there either, Andy showed, as the former is only 20 mil bbls and total on-premise is just 36 mil bbls. So craft must focus more on off-premise, particularly chains, Andy said, to get to 50 mil bbls.

More off-premise means more packaging and distribution expenses, cutting a brewer’s margins from upwards of 75% for a small, local, draft-focused operation to 30% or less for a larger packaging brewer with broader distribution. That requires a different kind of investment than expanding capacity. And “not all capacity is created equal,” he noted: if craft grows to 50 mil bbls, that leaves 30 mil bbls “of overcapacity in these large breweries” that were built for different styles of beer. Further, Andy asked about supply of ingredients, particularly hops, noting issues with labor as well as processing equipment (see July 3 CBN). Finally, 90% of federal excise taxes paid by just a coupla largest brewers in US.  So Andy wondered: “what happens” when that’s no longer true, and more of tax burden is taken on by smaller players paying less? Similar story for national advertising behind beer: who takes on that responsibility of keeping beer in minds of consumers, if bigger players sell less so probably spend less? So money coming into the industry needs to be “deployed” to address these issues to reach 50-mil-bbls, Andy argued.

In case you lost track of all the new markets craft brewers launched in the last mo, we've put 'em all together for you inone handy pdf.  Organized by state, this list includes craft brewer distribution expansions with sales expected to begin in Nov 2014.  While it may not be comprehensive, this list includes announcements made by the largest craft brewers and many expansions by smaller players.  

At least 60% of over 5600 European breweries produced less than 1000 hectoliters (hl, about 852 bbls) in 2013, according to a recent Brewers of Europe report. The assn counts over 3600 “microbreweries” (less than 1000 hl) operating in 28 European countries (mostly EU) last yr, more than double the number of similarly-sized breweries in 2008. That’s also more than the total number of operating breweries of any size in 2008, according to the org. That total number of active breweries grew near 73% during a 5-yr period when beer consumption dropped over 8% in Europe: “astonishing,” the org’s prexy Demetrio Carcellor told the Financial Times. This yr, he hopes total consumption will be “more or less flat,” but the number of breweries continues to rise.

Brewers there explain the trend in part by pointing to US craft or at least picking out some of parallel changes in beer drinker behaviors. Europeans “tend to drink less but better,” particularly in mature beer markets, Michel Moortgat, ceo of Duvel Moortgat, told the paper, as “the consumer realizes there’s more to beer than just thirst-quenching.” Larger companies have picked up on this change as well: “As a beer industry, we can do a better job in creating a better experience for the consumer,” Carlsberg ceo Jorgen Buhl Rasmussen told the Financial Times. Small brewers “can help create that experience,” in his view.

The assn counted 522 new microbreweries in 2013 alone, +17% since 2012. Much of that growth is centered in Western Europe, where the UK and Germany are home to half of all active breweries in Europe. Near 1500 breweries operated in the UK in 2013, all but 50 of them producing less than 1000 hl. By contrast, less than half of the 1349 breweries in Germany are considered micros. France had the third-largest number of breweries in Europe last yr with 580, up near 340% since 2008. About 60% of them are microbreweries, down from over 90%, indicating these very small companies are growing. Italy’s 509 breweries, puts it just behind, up 131% since 2008.  The number of breweries in Spain quintupled to 221 in 5 yrs. Almost a thousand new breweries have opened in these 3 countries since 2008, most of them producing small quantities of beer. With total beer consumption dipping below 350 mil hl (<300 mil bbls) last yr, European microbreweries could have just 1 share of the European market only if every single one produced the full 1000 hl. For comparison’s sake, we estimate up to 1600 US breweries produced less than 852 bbls (1000 hl) in 2013, based on Brewers Assn stats, or just under 60% of the near 2800 companies tracked by the org.

The bourbon boom’s been a boon for Kentucky, leading to 77% job growth, state officials told the NY Times for a front page story this weekend. And it ain’t just Kentucky: “other states have enjoyed the spoils of craft beer.” Pointing to tourism, real estate/property and excise taxes, not to mention licensing fees, the article notes that “changing consumer tastes and changes to state regulatory and tax policies have created a bull market in booze-related businesses.

After launch of new craft distrib operation on Maui this Spring with 9 brands, Maui | Stone Craft Beverages now handles 20 craft beer and cider brands on second-largest Hawaiian island, the co announced this week. Consistent refrigeration remains top priority for the new distrib co, formed by Maui Brewing and Stone Brewing, ensuring all brands “treated with the tender love and care” it insists the brand require. MSCB refrigerates from mainland to Maui retail accounts. Joining original crew of Calif and Colo brands come another slew from same states and pair of small-scale cideries. Larger brands include Great Divide and SKA of Colo, plus plenty of smaller Calif breweries: Black Market, Eel River, Lightning, Modern Times, Mother Earth (Vista, CA), Pizza Port (just dipping toes in distribution), and Refuge. Julian Hard Cider of Calif and Oreg’ Wandering Aengus Ciderworks now available too.

Diving headlong into growing complexity and hop obsession of beer biz, Port Brewing/The Lost Abbey will intro a 3d identity under same roof as it brings elaborately conceived new line of hop-focused beers under The Hop Concept (THC) moniker early next year. First releases will be in Hop Freshener Series of quarterly (not “seasonal”) limited-run IPAs named for “the flavors and aroma of the beer.” All will be about 8.5% ABV. 

Designed to be easy-to-describe/easy-to-sell for distribs, brands have names like Dank and Sticky IPA which will hit first in Feb, followed by Citrus and Piney (May), Lemon and Grassy (Aug) and Tropical and Juicy (Nov), all using experimental hop varieties or “hop combinations that we’ve never tried before,” lead brewer Matt Webster said. “With so many [IPAs] hitting the market, it’s been difficult to know how they taste and smell,” co-founder/coo Tomme Arthur said in release, so his co wondered how to “go about simplifying it for the consumer.” The “limited bottle run and even more limited draft” will be available throughout the co’s distribution territory (9 states scattered across US, 3 of which only in metro areas) next yr. With names like THC and brand name like “Dank and Sticky,” hard to miss the marijuana connotations, but co-founder Tomme Arthur told CBN that’s “more tongue in cheek than anything.” 

Port Brewing/Lost Abbey will hit about 16.5 K bbls in 2014, Tomme sid, up 10-12%.  It’s running about 85% of capacity.  But next yr, it will add 3 tanks, which could add 3-5,000 bbls of capacity, depending how it’s configured.  The Hop Concept represents “predictable amount of capacity,” added Tomme, somewhere in neighborhood of 1500 bbls of beer.  That should be a nice shot in arm for company next yr.  But still looming: its present facility (Stone’s original brewery) would max out around 25,000 bbls, so Tomme, like many others, faces big decisions about expansion.  Then too, Tomme is taking first price increase ever on Lost Abbey line (not Port) next yr, as his hop prices have gone up 30%+.  Speaking of Stone, they’re easily Tomme’s largest distrib and he’s part of their new distribution venture in Hawaii (see below).  “It’s a nice tax write-off,” sez Tomme, “I’ve got to go visit our market.”    

A bunch of Boston Beer execs exercised stock options in recent mos, adding to shares held, then selling shares on open mkt as stock price moved up from $220 range in mid-Oct to over $260 just before Thanksgiving.  Chairman Jim Koch and CEO/prexy Martin Roper exercised vigorously.  Jim swapped 110K class B shares on Nov 4 for same number of class A shares.  Looks like he gifted 6100 shares.  And between then and Nov 17, Jim sold 84K shares for approx $22.3 mil.  He still has 69K Class A shares, plus over 200K more owned by other family members, in trusts, etc.  During same period, Martin exercised options on 8 occasions at 5K shares per, with conversion price of $22.45.  Sold same amounts at market price, for total sales of approx. $9.8 mil.  Other top execs made similar moves, tho far fewer shares involved.    

Calif Craft Brewers Assn exec director Tom McCormick teed up his panel discussion of craft brewers at distrib assn meeting (CBBD) by noting the “complexity craft has brought to the modern wholesaler portfolio.”  Nowhere more so than in Calif, where there are now over 500 craft brewers and still 1 opening every week.  For those who are expanding, craft brewers seek distribs who “are embracing that complexity with the right amount of investment,” noted Tom.  John Martin, owner of fast-rising Drake’s said he seeks “craft all the way through the organization” in his search for the right distributors.  But even if you’ve got right distribs, things are getting a bit more challenging out there.

“Only a Handful of Permanent Handles”  For example, new bars “all rotate” and it’s “very hard to get a permanent handle,” added John.  Of 300 draft accounts Drake’s has in SF, “only a handful are permanent handles” because “every bar down the street wants something the other bar doesn’t have.”   And yet even with this challenging environment, Drake’s is flying.  “Our most mature market is up 60% this year…. We’re moving as fast as we can to build more capacity.”  Drake’s will sell about 30,000 bbls in 2014.  A lot of the one-offs “don’t even stay on your floor more than 2-3 days,” noted Mammoth owner Sean Turner (a brewer in the mountains near Yosemite), also thanking distribs for working with craft brewers on such fleeting packages, as they are “very important” and craft brewers have to “be out there in the pubs” with special offerings.

Scanback “Artificially Depressed Price”; Could Be Higher; Craft As “Poor Man’s Luxury”?  “The big elephant in the room is the scan issue,” said Firestone Walker sales and mktg veep Dave Macon.  It’s “artificially depressed price for quite a long time.”   Recall, Calif legislature passed AB 1928 which prohibits scanbacks and instant redeemable coupons going forward.  (Editor’s note: both big brewer craft-like brands and several leading craft players have made extensive use of scans in recent yrs.)  So it’s an “opportunity to get back to a more appropriate level” especially since craft is “an amazingly affordable product even at a higher price.”  Craft beer is “the poor man’s luxury,” agreed Sean. Mammoth hasn’t “done a postoff in years.  I’m fine with that,” Sean added.  In Dave’s view, “craft brewers have to resist the temptation to pull the price lever” but there’s “this mishmash of hypercompetitive behavior.”  Dave didn’t provide specifics, but with passage of AB 1928, what Dave calls “hypercompetitive” behavior will more likely mutate than disappear. But as Dave also pointed out, with IRCs gone, it will “even things out a bit” with “a little bit more of a level playing field.” 

Smaller Accounts “Get Left in the Dust” After Consolidation; “Filtering” Already Going On  Another “reocurring issue” that Dave sees: “wild inconsistencies” in merchandising and service levels at distribs. “As consolidation continues,” he noted, distribs “get bigger” and “smaller accounts we think are viable get left in the dust…. That’s a hot button issue,” emphasized Dave. Often it’s because an account “doesn’t meet certain criteria.”  But Dave asked: “How can we look at that account a little differently?”  And “make it good for both” brewer and distributor.  Dave also pointed to “new wrinkle” in evolution of craft distributors; that distribs are “filtering” and “turning down brands,” asking more pointed questions about their “growth model…. You’re already doing it,” Dave noted approvingly.  “You are an important filter.”

Calif Craft Assn’s #1 Challenge: Keeping Up With Growth, Educating Members on Law  Even CCBA exec director Tom seems somewhat taken aback by the helter skelter pace of craft growth. “My number one challenge is to keep up with the growth of our industry.”  A “very big part of our mission statement” is “to educate our members” and that wasn’t always as paramount.  But with so many newbies, “we need to be good stewards of our licenses.”  With smaller craft brewers, “they don’t know the regulations in many instances,” Tom acknowledged.  “Sometimes they don’t care,” not to mention that it’s become “very competitive” out there, and therefore a “challenge.”  

On back of recent UK Parliament vote paving way for breaking “tie” between large pub companies and tenant operators, Australian craft brewers find themselves asking questions about international trade in addition to relationships between brewers or importers and hotels. The Australian Real Craft Brewers Assn appealed to the World Trade Organization “to take action against countries that provide subsidies to microbreweries,” like the US, according to an Australian Broadcasting Co report. Small brewers have “substantial reduced tax rates” in 22 of 33 member-countries of the Organisation for Economic Cooperation and Development, the org’s chairman said, adding  that “quite a few members say they’ve lost taps at hotels or fridge space to Sierra Nevada products.” Meanwhile, the Australian Competition and Consumer Commission had already launched investigations into contracts hotel/pub owners sign with major brewers “to monopolise their taps in exchange for tens of thousands of dollars worth of rebates and equipment.” As the small brewer org’s chairman pointed to the US, where “it is illegal to have one tap contracted,” the ABC report pointed to Australian hotel pub operators seeing “big dividends” from turning down contracts with big brewers and instead focusing on providing a variety of craft brands.

Brewers “native” to Iowa shipped almost 7500 bbls in the state between July, 2013 and June, 2014, according to the Iowa Alcoholic Beverages Division fiscal yr 2014 report. That’s up over 82% over FY13, but it’s still only 0.3 share of the 2.4 mil bbl Iowa market, which grew 2.5% in FY14. The agency counts 32 companies that hold a Native Wholesale Beer Manufacturer and Distributor license, up from 21 during FY13. For comparison’s sake, total wine volume was down 0.7% in Iowa, with “native wine” down 3.2% to 3.3 share. Spirits volume grew 1.4%; micro distillers from the state had just under 1 share during FY14, but down 24%.