Craft still has modest presence in c-stores, but continues to grow fast: $$ up 27%, +0.65 share to 3.5 share yr-to-date thru Nov 2 in IRI. In sharp contrast, craft has 14.9 share of $$ in grocery channel.  Craft sales in c-stores make up just 27% of total off-premise craft sales in IRI multi-outlet + conv (MULC) data, tho nearly all top cos growin’ faster off smaller base, and a handful of top craft cos do a large chunk of their IRI-tracked biz in c-stores, as channel becomes increasingly important for growth.  Long Trail (+15%) and Harpoon (+28%) each do over half of their scanned $$ sales in c-stores (Long Trail does more like 2/3), and are among top-10 craft cos in c-stores.  Indeed, Harpoon IPA (+23%) is the 5^th best-selling IPA in c-stores, behind New Belgium Ranger IPA and ahead of Redhook IPA, Stone IPA, Dogfish 60 Minute, Lagunitas Lil Sumpin’ Sumpin’. Its all outlet (MULC) sales only up low-singles in recent periods, suggesting tuffer trends in foodstores.  Long Trail Ale is top-30 brand in c-stores, yet its all-channel sales down double-digits yr-to-date, so co gettin’ growth from other newer brands.  

Then too, New Glarus does 45% of its total scanned $$ sales in c-stores, which make up over 2/3 of its total growth this yr.  Gambrinus and SweetWater each ahead of the avg at 37% and 33% of total sales in c-stores respectively.  Nearly half of Gambrinus growth this yr is from c-store sales.  Gotta note, total Boston Beer (including cider and tea) does over 37% of its scan biz in c-stores too, tho that’s mostly ‘cause Twisted Tea top brands do ¾ of sales in c-stores, and nearly 40% of Angry Orchard top brand sales are in c-stores.  C-stores represent about 30% of top Sam Adams brands sales.  Meanwhile, two Oreg-based cos, Deschutes and Craft Brew Alliance, have lowest % of biz in c-stores (both around 17%) of top craft cos.  Deschutes actually the only top co that’s down in c-stores yr-to-date, -1%, tho all outlet $$ up 10%.  One factor could be that it went with wine and spirits wholesalers in expanding markets. They traditionally don’t service c-stores as well. 

Devils Backbone Vienna Lager a Top-40 Craft Pkg; Other Standout Brands There’s another handful of top c-store brands that have more presence here compared to all outlet.  One of the more eye-popping is Va’s Devils Backbone Vienna Lager 6pk, already the 38^th best-selling craft package in c-stores nationwide thanks to blazing trends, up 150% yr-to-date.  It’s ahead of brands like New Belgium Snapshot Wheat 6pk, Victory Golden Monkey 6pk (+10%), Boulevard Wheat 6pk (-17%), Bell’s Seasonal 6pk (+40%) and Sam Adams Boston Lager 12pk (+6%).  Harpoon IPA (see above) a top-5 IPA and #11 top brand.  SweetWater 420 Pale Ale is #12 top brand and does 42% of total sales in c-stores.  Ninkasi Total Domination is a top-20 brand in c-stores, up 26%, tho foodstore trends aren’t as strong.  Stone Arrogant Bastard (+17.5%), Shipyard Seasonal (+1%) and Sam Adams Seasonal Overlay (+95%) are all top-30 brands in c-stores that aren’t top brands in all outlet.  Another Va brand, Flying Dog Raging Bitch 6pk, is #32 best-selling package.  And just behind it, VT’s Switchback has 2d best-selling 22oz bottle in c-stores, after Stone Arrogant Bastard.  However it’s only up 2% yr-to-date.        

Not too many state-based small brewer guilds have sought additional restrictions on their members, even while supporting new oppys for them.  And no other state guild has been serving craft brewers as long as the California Craft Brewers Assn (CCBA).  As the org celebrated its 25th anniversary this month, director Tom McCormick updated CBN on how regulations governing the state’s beer industry continue to evolve. Now home to 507 licensed breweries, Tom told us, Calif has seen a handful of new laws hit the books this year that affect his members.

While small brewers typically seek new exemptions from current law, Tom and the CCBA worked with other industry stakeholders (distribs, big brewers, retailers) to support a bill that adds limitations on all beer manufacturers in Calif. Recently signed into law, the measure restricts the number of duplicate licenses breweries can hold. This updates a Calif code dating back to the 1950s, Tom explained. Previously, breweries could hold unlimited duplicate licenses for additional locations, originally used for setting up off-site warehouses. But “as retail privileges got tacked on” to the primary brewer licenses, those privileges were extended to sites that held duplicate licenses. The new bill distinguishes between duplicate licenses used for retail sales and standard duplicate licenses, like those needed for warehouses as originally intended. It limits the number of duplicate retail licenses held by any brewer to six, of which “only two are allowed to have an eating establishment,” where brewers can sell other beer and wine. Those with more than 2 existing licenses, like Stone, are grandfathered in. Importantly, duplicate retail license applications will “go through the regular licensing process,” rather than be “issued forthwith” by the Dept of Alc Bev Control. So just like other alc bev retail license applications, locals can comment (as we briefly referenced in our Nov 5 issue).

Another piece of legislation supported by CCBA and recently signed into law permits packaged beer sales at farmers markets as well as on-site sales during private events. Breweries still cannot offer samples of product at farmers markets, but the assn may look into that during future legislative sessions too. And while Tom notes that current law allows wineries to offer samples at these venues, his org wouldn’t seek a change in law just based on this discrimination against beer. Instead, legislative asks are “driven by what our members are interested in” and which ones “make sense from a public policy perspective.” This bill also made way for breweries without restaurants (usually limited to selling only their own beer) to sell other beer and wine during private events held on their premises. It’s the result of more and more breweries hosting events like weddings, during which folks would also like to make other drinks like champagne available, Tom told us.

CCBA Would Draw Line in Sand on Any Threats to Self-Distribution, Tasting Rooms The CCBA also works hard to look out for perceived threats to its members’ bizzes. Those could come from any number of directions. While Tom hasn’t heard anything specific, he’s always watching out for possible threats to small brewers’ right to self-distribute and operate tasting rooms. Those rights are “draw-the-line-in-the-sand, important issues” for the org. He’s also keeping an eye on concerns generally held by wholesalers about larger brewers’ distributor branches. Currently allowed in Calif, the ability to operate a wholesale branch is “an important privilege for us as small brewers,” Tom said, “that we would not want to see removed.” If an anti-branch bill came along in Calif, the CCBA would want to see some form of carve out before supporting it. Tom also pays attention to ensure a “solid bright line” is maintained between licensed brewers and home brewers, noting that his org “would look very, very closely at any additional legislation” affecting hobbyists. 

Colo-based Brewers Assn seeks to put a pair of feet on DC streets to join other industry outfits in nation’s capital. It’s hiring a “Federal Affairs Manager” to be “lead figure” in org’s “presence on Capitol Hill,” according to job listing on BA website. Seeking a candidate with “excellent knowledge of Congressional and Legislative process” and “basic knowledge of craft brewing” biz,” So looks like BA looks to bring on DC insider to help guide org’s “grassroots and political advocacy efforts.”  While BA has had outside counsel/consultants in DC for yrs, this will be 1st full-time BA employee based in DC.

Deep-dive into craft beer consumers by Nielsen’s Danny Brager and Maria Monistere during Brewers Assn Power Hr today looked at who and where they are.  Craft $$ +17% in Nielsen so far this yr, volume up 12.5%, as overall volume flat, $$ +3%.  Late in his presentation tho, Danny showed some of craft’s most developed markets in the grocery channel, including 10 growing craft $$ between 21-45%.  Most-developed craft mkt is Portland, Oreg, natch, showing BA-defined craft at 32 share of all beer $$ at grocery. Other top-10 craft share mkts include, no surprise, San Fran (#2) and Seattle (#6). But pair of Ohio cities also makes list, Cleveland (#3) and Columbus (#7), as well as pair of upstate NY markets, Albany (#9) and Buffalo/Rochester (#10). Washington DC comes in at #4.  But none of those cities with highest craft share are still growing faster than 20%.  San Diego and Sacramento mkts are exceptions.  Not only is San Diego #5 most-developed craft mkt at grocery, it’s #2 fastest-growing market behind Memphis (+45%); (Danny only shared trends for #1 and #10 mkts). And Sacramento ain’t far behind, with eighth biggest craft share and fifth fastest growing mkt. Craft also growing at better than 20%-clip in trio of Southeast mkts, Birmingham, Miami and Tampa (#3, 4 and 10), plus Las Vegas (#6), Chicago (#7), Milwaukee (#8) and LA (#9).

More Beer Buyers Spending More on Craft; Hispanics “Critical” to Continued Growth  About 38% of beer buyers made at least one craft beer purchase during the last 52 wks, Danny reported, up from 29% in 2010 and 33% in 2012. And they’re spending more on craft too, averaging $14.81 on craft per trip over last 52 wks compared to $13.30 in 2010. Average annual trips for craft continues upwards along with the % of $$ craft drinkers are spending on craft. In a survey conducted just last wk, Nielsen found 42% of craft drinkers are buying more craft now than they were a couple years ago, including 17% saying they’re buying “a lot more.” About 44% of craft beer drinkers reported buying about the same amount, while just 14% are buying less, evenly split between those buying “a little less” and “a lot less.” Among Hispanic consumers, 57% are buying more craft than they did, while just 11% are buying less. That’s a good sign as Hispanics represent a “critical” oppy for craft beer with “a ton of potential,” both Danny and Maria highlighted.  Hispanics currently buy 15.1% of total beer in grocery stores tracked by Nielsen, but only 7.6% of total craft purchases in grocery. Millennial Hispanics are the “biggest opportunity” for craft, Maria continued, as Hispanic is “almost synonymous with youth.” Median age for Hispanic craft consumer is 28 vs 42 for non-Hispanic, Nielsen found.

Craft Consumers Still Mostly Young Men, Health-Conscious, High-Income, Urbanites & Asians  Even though some anecdotal evidence has shown that craft does better with female consumers than the overall beer category, Nielsen data shows the exact opposite.  Both total beer and craft significantly under-index among women, Danny showed.  But female drinkers represent less than 32% of total beer volume and only 28% of craft volume. Consumption of FMBs and cider is more evenly split.  Baby Boomers still represent the largest portion of legal drinking age adults, at around 37%, according to Nielsen. So even though they represent a smaller portion of beer and craft volume than they do of the population, they still account for a full third of beer volume and nearly 32% of craft volume.  And who says millennials don’t like beer?  Adults age 21-34 still account for just over 35% of total beer volume and 35.5% of craft volume.  It’s Gen X-ers, age 35-44, who slightly over-index on beer, but really over-index on craft.

In a survey of over 20K buyers from March, Nielsen found that 34% of beer buyers made at least one craft purchase on- or off-premise over the last 12 months.  But looking at smaller demographic groups, over half of beer buyers making over $100K/yr made at least one craft purchase during that time.  About 47% of both millennial and Asian beer buyers picked up at least one craft.  That’s as just over 40% of “affluent suburbanites” and those living in “cosmopolitan centers” chose craft at least once in a yr.  Craft buyers tend to be more health-conscious than other beer buyers too, Nielsen found in a separate analysis. The most health-conscious craft buyers spend 20% more on craft beer per household than the average craft buyer, while the least health-conscious beer drinkers spend 13% more on any beer per household than the average beer buyer.

After opening in Jan, Warped Wing Brewing of Dayton, OH has surpassed its first-yr plans and leased more warehouse space in Dayton to help it keep up. Working on 30-bbl system with its own canning line in place at original facility, co-founder Joe Waizmann told us, Warped Wing will take over 14K sq-ft warehouse, used until last yr by local Heidelberg Distributing, according to Dayton Biz Jounral. Warped Wing just moved into cans 3 mos ago, self-distributed to indie shops and now moving into local/regional chains, Joe said. So temp-controlled second warehouse (no longer owned by Heidelberg) will come in handy as shipments ramp up. The co, run by group of industry vets with supplier, wholesale and brewing experience, is in process of pushing product out to surrounding OH areas, hitting Cincinatti and “dipping our toe” in Columbus, per Joe.

Persistent droughts out west have kept worries about brewers’ water supply on minds of many this year. Meanwhile, the Widmer brothers Kurt and Rob weighed in on what they perceive to be positive movement for their home state Oregon’s ability to sustain its own energy needs via joint OregonLive op-ed with Citizen’s Utility Board exec director Bob Jenks. The trio voiced support for both President Obama’s Climate Action Plan and the EPA’s Clean Power Plan, noting Oreg’s own progress toward eliminating use of coal power plants. Focusing on renewable energy sources, Kurt, Rob and Bob suggest, these plans align with their own search “for healthier communities, good jobs and other ways that will grow the economy in the Northwest.” After encouraging state utility providers to work with the state on “a plan to end Oregon’s reliance on out of state coal and support innovation and investment in energy efficiency and renewable energy development,” the group concludes that “yes, the beer industry is threatened too.” Both water and barley “are threatened by climate change.” Since the plans represent a “vitally significant step to reduce carbon pollution,” the beer bros are all for ’em.

Already the darlings of the beer industry, craft brewers have found themselves turned into highly coveted prizes by economic development agencies associated with municipalities of all shapes and sizes. And for good reason: “It’s jobs. It’s taxable investments. It’s tourism,” CEO of the Virginia Economic Development Partnership told the Richmond Times-Dispatch in deep fascinating dive into the city’s “eight month courtship” of Stone Brewing. But as these relationships between politicians and breweries become more public and the public money politicians are using to woo new brewers hits local papers, so too will the words of nay-sayers. “The growing popularity of craft beer has made politicians eager to subsidize the industry, even as its success has rendered those subsidies unnecessary,” tees off Peter Fricke for the Daily Caller this week. Specifically criticizing Richmond’s deal with Stone and a handful of other recent relations between public entities and private brewing bizzes, Fricke argues “there is ample evidence that microbreweries are doing fine on their own, and do not need government handouts.”

Looking just west of Richmond, Fricke dings York County, Va for a $43K grant issued to Virginia Beer Co for a new brewing facility and notes that Sen Tom Coburn (R-Okla) included a $200K grant issued to Empire Brewing to open its upstate NY farm brewery in his “Wastebook” report. That project ranked #13 on Sen Coburn’s list of 100 examples of what he perceives as DC’s wastefulness. (Will the $3 mil NY Gov Andrew Cuomo carved out for promotional grants for state-made craft beverages with recently-signed law make the cut next yr?) Fricke also leans on a recent op-ed for US News by Mercatus Center research fellow Christopher Koopman specifically focused on Richmond and Stone. Rather than using money to help breweries, Koopman suggests politicians should “instead work to simplify the regulatory environment” for small brewers (recall, Mercatus Center is one of about a half-dozen free market orgs pushing to ease regulations for small brewers). He compares the development to the “explosion of public financing for stadiums across the country,” and points to concerns that all won’t turn out rosy for Richmond “just as many of the stadium deals go awry.”

Stone’s Path to Opening in Richmond Under Close Scrutiny Locally  But where are these concerns that Stone will leave Richmond in the lurch coming from? Richmond, natch. The Times-Dispatch has followed developments since the announcement in the city closely, noting “the potential to leave the city and taxpayers with ‘a long-term liability’” back on Oct 25, citing a consultant’s analysis of the deal. But that liability only comes into play if Stone doesn’t keep up its solid growth, and no one can point to any signs of slowing. Importantly, this and other Times-Dispatch articles note that the risks required to invest in Stone’s future growth is being taken on not just by the brewery but by the city and state too. The paper weighs worries about this risk against the insistence that “this is not just about Stone” by officers that helped work on the deal. “This is not a one-off project. This is an opportunity to catalyze projects,” one economic development officer told the paper, another adding that the project “can have an effect on the entire area.”

Since the end of Oct, Richmond City Council members have started passing the 15 needed pieces of legislature that pave the way for Stone to build its East Coast facility there. Just this week, the Council passed an agreement for how $31 mil in city-issued bonds will be turned over to the Richmond Economic Development Authority for “design and construction” of the brewery. Recall, the REDA will act as landlord for the brewery too. During this week’s meeting, council-members noted the likelihood of later modifying the agreement to ensure they have oversight of exactly how all the money will be used, according to the Times-Dispatch. While things seem to be on track now, a meeting at the end of last month included some tough words from Stone coo Pat Tiernan that some took as a threat that Stone would build in its “plan B location” if the Council didn’t get a move on. Further movement since seems to have waylaid any fears that Stone would go elsewhere.      

Two yrs ago Sierra Nevada sales director Tommy Gannon spoke to Beer Industry of Fla about what needed to be done to “make craft beer successful in Florida.” His main points then were “gain share,” get “correct space at retail,” “50% of handles in major markets,” become “integral part” of distribs annual business plan, and “craft suppliers being true partners.” Two yrs later, Fla’s accomplished all of those goals to an extent, he demonstrated to BIF mtg last week. Craft in Fla has grown 3 share in IRI supers to 8.7 thru Oct 5, noted Tommy. His goal was for Fla to reach 10 share of supers by 2017, which they’re currently on pace to do. “Absolutely, it’s happening.” Local scene continues to add to category, as “now 5 of the top 30 brands are local brands,” while 2 yrs ago it was “just Cigar City.” “Handles are working, but they’re also churnin’ and burnin’.” It used to be you got a line and had it for a year, but “nowadays you get it for 2 kegs,” said Tommy. Then too, SKU proliferation is “going to continue,” but everyone’s invested in craft specialty teams and training “in some way, shape or form” to better manage craft segment. Retailers now “looking to us” whereas 2 yrs ago they were still “looking at us.”

Tommy referenced NBWA convention in New Orleans where James Carville told audience “not to have an apocalyptic approach to any item,” of which some small amount of members on all sides are guilty. He used Craig Purser’s comments as an example: when Craig said “we need a strong independent middle tier to continue to strengthen our system in the US” some suppliers hear “once we get your brands they are ours not yours!” Or when the Brewers Assn sez “we need to reevaluate and discuss the franchise laws in certain states” some hear “we do not think the three tier system works.” Instead of having these issues go public, Tommy wants to “develop a work group between the tiers.” In NC, brewers guild and wholesaler association get together: 6 from each group meet once a qtr to “talk about whatever that issue is…behind closed doors.”

“At the end of the day we need to deliver volume [and dollars] to your houses,” sez Tommy, listing Sierra variety pks this yr and Pale Ale cans a couple yrs ago as big additions to the portfolio. In 2015 Sierra’s introducing new Hop Runner IPA, and Nooner Pilsner, Sierra’s take on session style. 

Seeking to keep his brands on tap in a Waltham, Mass bar, Chris Tkach, co-owner of Idle Hands Craft Ales, was told “No, this distributor bought all new [equipment] for us, and we have to dedicate those lines to them.”  So Chris told Boston Globe, which ran lengthy story today on Mass Alc Bev Control Comm launching investigation into pay to play.  Recall, that Pretty Things co-owner Dann Paquette accused two Boston bars last mo of ugly things and refusing to sell his beers.  Now, Mass ABC has subpoenaed brewers, distribs and retailers for financial and other records, Globe reports, that might indicate pay to play via free beer, gift cards, draft equipment, etc. Among those receiving subpoenas: Idle Hands, Harpoon, Yuengling and Night Shift.  Each denied any illegal practices.  AB and MC told paper they did not get requests from ABC, tho AB said it had “strict policies” against pay-to-play and said it had contacted the ABCC on its own last mo “to assure them of our position and offer our assistance.” 

Chief investigator said he’s looking for “any and all forms of inducements,” adding that “this is ongoing, and this may not stop here.”  Potential penalties for pay to play include warnings, suspensions or revocations.  A number of Mass distribs got requests, Beer Distribs of Mass prexy Bill Kelley told Globe, and “will continue to cooperate in a timely manner.”  In addition to Chris, story cited others pointing fingers and reported “many in the beer industry contend pay-to-play is widespread and complain regulators have done little to stop it.” 

Mass ABC hasn’t cited anyone for pay-to-play for at least 18 yrs, Globe found, and no records for earlier yrs.  Same investigator said agency has gotten few complaints and couldn’t obtain evidence.  Also, ABC more focused on sales to minors and intoxicated patrons.  Another possible reason for lack of action: ABC down to 14 inspectors, from 40 back in the 80s.  It only assigned 2 to investigate pay to play, part-time.  Not surprisingly, Stone’s Greg Koch chimed in: “The fact that there haven’t been any busts seems to suggest there isn’t a problem, but everyone knows it’s going on.”

Another week, another set of clips threatening doomsday scenarios for small brewers’ abilities to get the kinds of hops or quality of barley they seek. Fear that the craft industry will somehow collapse, contrary to all available evidence, remains a popular narrative for many media sources. Highly improbable it will as bad as all that, but based on the most recent data, the hop market does seem likely to tighten and the quality of North American barley will challenge brewers from a technical standpoint. A report presented to the Economic Commission of the International Hop Growers Convention this week from the German Hop Industry Assn (DHWV) expects “favourable” prices for growers but urges caution. Globally, hop acreage is up, but based on early estimates, the DHWV expects total alpha acid production to be about 5% behind anticipated demand. The report estimates a global hop crop +15% to 95,500 metric tons, with expected alpha acid yield +11% to 9,200 mt. But demand for alpha acids “is supposed to reach approximately 9,700 mt in the brewing year 2015,” so the current crop “will cause another deficit,” the assn expects. (Alpha acids are compounds in hops largely responsible for contributing bitterness to beer.)

Remember that US hop growers have been moving more and more acreage to aroma varieties because small US brewers tend to be interested in more than just the alpha acids. Indeed, estimates indicate that over 65% of US hop acreage was devoted to aroma varieties in 2014, up from less than 57% last yr and more than double the portion of 2011 acreage. The DHWV report recognizes that the growth of American craft brewers “does not only strongly influence the world alpha balance but also the variety structure in the hop growing countries.” So the expected “deficit does not affect all varieties, it hits particularly the ones that are sought after by American craft brewers.” Indeed, “especially US aroma varieties are affected,” as well as some European aroma varieties. Importantly, the DHWV’s crystal ball seems cloudy on craft: “the further development of the craft brewing sector cannot be foreseen clearly.” Therefore, global growers feel “insecurity” and “risk.” In fact, the assn warns “the consequence must be not to produce based on mere suspicion.” Even though the strong demand for hops creates a “good market situation,” the assn believes “it is even more important that all market participants are not over-enthusiastic but make decisions with sound optimism but also based on necessary risk evaluation and protection,” the report concludes.

Similar sentiments were expressed in the annual Barth Report, published by the Barth-Haas Group this spring. After acknowledging the importance of craft’s growth to US hop growers since 2008, the report notes that “although the US craft beer segment accounts for only 1% of world beer production, it requires more than 10% of the world crop for it.” Therefore, “the price for flavour hops is currently of purely secondary importance. Availability and quality are the priorities.” Back in the spring, the Barth Report stated that the 2014 US hop crop was entirely spoken for at “forward contract rates.” As of this week, the DHWV report states the same is true for the global 2014 crop “on the first stage of marketing,” while “this is not true for the second stage of marketing,” indicating there might be some flexibility in the spot market, but likely for limited quantities of limited varieties. Recall, that a vast majority of craft brewers have contracted for their 2015 hop needs, as Brewers Assn director Paul Gatza has said. An even larger majority of craft volume is likely to be unaffected by a global alpha deficit. However, smaller brewers could face steeper challenges, as creativity and kindness come in to play for those relying on the spot market. And none of this changes the reality that hop growers in the PacNW face a tough decision in the near future: whether to trust that the demand for more hops will continue to grow for 5, 10, 15 or more years and invest millions of dollars in new picking and processing equipment or to remain cautious. Of course, even if growers do choose to invest, questions remain about where hop growers will find the necessary capital to make these investments.

Barley Quality Concerns After “Very Poor Harvesting Conditions” in North America  On the malted barley front, concerns have much more to do with quality than quantity, as Brewers Supply Group’s Ian L. Ward indicated during recent Brewers Assn Power Hour. Media reports started appearing up to 2 months ago that bad weather in major barley-growing regions did not bode well for the malted barley market, with another such story appearing in Wall Street Daily just this week. Many of those stories focus on worries that small brewers will be particularly affected. But Ian’s Power Hr report was not all doom and gloom, noting the European crop was “good” and other positive macro influences on barley prices. Still, “flexibility in malt specs will be required” for brewers using North American barley, as “very poor harvesting conditions” will create quality of malted barley that’s not typically favored by brewers.