At by far the biggest CBC event yet (11,000+, up 22%) in Portland, OR, the city with the most breweries in the world (58), the Brewers Assn justly celebrated craft’s continued remarkable record of growth (5 yrs of double digit gains in a row and counting). Recall, BA-defined craft grew 3.4 mil bbls, 18% to 22.2 mil bbls in 2014. And that’s almost as much growth in 1 yr as craft got for 10 yrs between 2000-2009, BA economist Bart Watson pointed out. Craft up 3.8 mil bbls those yrs.  

Last yr, 1412 brewpubs climbed 20% to 1.17 mil bbls, over 1 mil for 1st time. And 1871 microbrewers (smaller than 15,000 bbls) really sizzled. Up 33% to 3.17 mil bbls. There were 1464 microbrewers a yr earlier. Meanwhile, regional craft brewers (over 15,000 bbls) grew 17% to 17.6 mil bbls. There are now 135 of them, up from 119.

Craft Brewers Have 34.6 Mil Bbls of Capacity; Could Grow Into It in 3 Yrs Interestingly, craft brewers have 34.6 mil bbls of capacity, according to Bart, over 12 mil bbls more than they produced. That would be “a little scary” except that it’s also the same ratio of bbls produced to capacity as in last couple of yrs, 64%. And at current growth rates, small brewers will grow into that capacity in 3 yrs. Last yr, 615 craft brewers opened, compared to 502 in 2013 and 450 in 2012. Only 46 closed last yr, tho not all info in yet. There will be more closings, “it’s only natural” and “isn’t a sign of problems,” Bart assured. Meanwhile, there are over 2000 breweries still in planning.

Importance of Small Brewer Definitions; Govt Affairs Efforts BA president Charlie Papazian staked claim to the continued critical importance of self-definition of craft brewers as “small” and “independent” both for craft brewers themselves and the association that serves them. It’s a “cornerstone from which to build your brand,” Charlie added. “Capturing the spirit that defines” small and independent brewers “is extremely important.” Editor’s note: but that definition could still be a moving target with the influx of private equity deals. BA director Paul Gatza brought those deals up as a “concern” and bluntly said twice “I don’t know” how/if that will affect perception of craft movement, even amongst brewers themselves.

This yr, there was again considerable focus on govt affairs efforts, but with a shift in emphasis from the structures that small brewers found “unfair” or oppressive to the work that they are doing to improve their position. It was a thread woven through several speeches. Small brewers “are increasingly pressing for reforms without damaging the important frameworks that benefit them,” said Charlie Papazian. BA gave early speaking slot to new govt affairs manager Katie Marisic, who, tho highly optimistic overall, acknowledged Fed tax reform bill Small BREW will be “uphill battle.”  There’s a “barrage of opposition within the industry,” said BA chairman Gary Fish, but “we’re making progress,” he added. “Our efforts have already yielded success,” Gary said, with more to come. Several Congressmen who support the bill also gave brief taped speeches.

Far Less Talk About Franchise Reform But there was much less emphasis this yr on contentious issues with distribs, such as franchise reform. In fact, difficulties with distribs only glancingly referred to this yr. Chairman Gary Fish expressed his disappointment in the “unfortunate” stance of distribs against BA’s Small BREW act. “Why would they be against” a bill that helps small brewers grow, Gary asked, since craft growth helps distribs. And BA director Paul Gatza mentioned as “concern” difficulties for some small brewers who “can’t get out” of underperforming distribs, recognizing “by far ... more wholesaler relationships are in great shape.” Distribs are “getting beer out there,” and craft “wouldn’t have great growth we’re seeing without them.” That’s a markedly different tone than last yr.

At by far the biggest CBC event yet (11,000+, up 22%) in Portland, OR, the city with the most breweries in the world (58), the Brewers Assn justly celebrated craft’s continued remarkable record of growth (5 yrs of double digit gains in a row and counting). Recall, BA-defined craft grew 3.4 mil bbls, 18% to 22.2 mil bbls in 2014. And that’s almost as much growth in 1 yr as craft got for 10 yrs between 2000-2009, BA economist Bart Watson pointed out. Craft up 3.8 mil bbls those yrs.  

Last yr, 1412 brewpubs climbed 20% to 1.17 mil bbls, over 1 mil for 1st time. And 1871 microbrewers (smaller than 15,000 bbls) really sizzled. Up 33% to 3.17 mil bbls. There were 1464 microbrewers a yr earlier. Meanwhile, regional craft brewers (over 15,000 bbls) grew 17% to 17.6 mil bbls. There are now 135 of them, up from 119.

Craft Brewers Have 34.6 Mil Bbls of Capacity; Could Grow Into It in 3 Yrs Interestingly, craft brewers have 34.6 mil bbls of capacity, according to Bart, over 12 mil bbls more than they produced. That would be “a little scary” except that it’s also the same ratio of bbls produced to capacity as in last couple of yrs, 64%. And at current growth rates, small brewers will grow into that capacity in 3 yrs. Last yr, 615 craft brewers opened, compared to 502 in 2013 and 450 in 2012. Only 46 closed last yr, tho not all info in yet. There will be more closings, “it’s only natural” and “isn’t a sign of problems,” Bart assured. Meanwhile, there are over 2000 breweries still in planning.

Importance of Small Brewer Definitions; Govt Affairs Efforts BA president Charlie Papazian staked claim to the continued critical importance of self-definition of craft brewers as “small” and “independent” both for craft brewers themselves and the association that serves them. It’s a “cornerstone from which to build your brand,” Charlie added. “Capturing the spirit that defines” small and independent brewers “is extremely important.” Editor’s note: but that definition could still be a moving target with the influx of private equity deals. BA director Paul Gatza brought those deals up as a “concern” and bluntly said twice “I don’t know” how/if that will affect perception of craft movement, even amongst brewers themselves.

This yr, there was again considerable focus on govt affairs efforts, but with a shift in emphasis from the structures that small brewers found “unfair” or oppressive to the work that they are doing to improve their position. It was a thread woven through several speeches. Small brewers “are increasingly pressing for reforms without damaging the important frameworks that benefit them,” said Charlie Papazian. BA gave early speaking slot to new govt affairs manager Katie Marisic, who, tho highly optimistic overall, acknowledged Fed tax reform bill Small BREW will be “uphill battle.”  There’s a “barrage of opposition within the industry,” said BA chairman Gary Fish, but “we’re making progress,” he added. “Our efforts have already yielded success,” Gary said, with more to come. Several Congressmen who support the bill also gave brief taped speeches.

Far Less Talk About Franchise Reform But there was much less emphasis this yr on contentious issues with distribs, such as franchise reform. In fact, difficulties with distribs only glancingly referred to this yr. Chairman Gary Fish expressed his disappointment in the “unfortunate” stance of distribs against BA’s Small BREW act. “Why would they be against” a bill that helps small brewers grow, Gary asked, since craft growth helps distribs. And BA director Paul Gatza mentioned as “concern” difficulties for some small brewers who “can’t get out” of underperforming distribs, recognizing “by far ... more wholesaler relationships are in great shape.” Distribs are “getting beer out there,” and craft “wouldn’t have great growth we’re seeing without them.” That’s a markedly different tone than last yr.

Beer and alc bev policy make for strange bedfellows, we’ve found over the years.  Sometimes, you never really know who your friends will be.  Last yr, we reported a handful of free-mkt groups trying to latch on to craft momentum to advance their libertarian leanings.  Some of same groups have long lambasted beer distribs, indeed trying to take “middlemen” out of 3-tier equation. 

In privatization battles, while Repubs have generally been driving force for change in Pennsy, in Ala last week Repubs were majority of key committee vote to maintain Ala as control state.  Those Repubs praised by ABC spokesman on AL.com for defending govt-run system that protects “consumers, taxpayers and public safety.”  Recall too that in Ky, decision to toss AB branches stressed free-mkt supporters on both sides of the aisle, with free-mkt think tank Bluegrass Inst blasting Repub actions to pass bill.  And in Kans, very conservative Kans Gov Brownback is one of few Repub govs proposing a beer tax increase.  More predictable clash playing out in Colo.  Denver Post ran pro-and-con op-eds on Sunday over perennial issue of extending sale of full-strength beer to grocery stores and allowing liquor chains.  One perspective, siding with expanded consumer choice and retail options vs protecting “particular interest groups,” came from talk-show host/columnist Ross Kaminsky who declared “I’m for free markets. Period.”  On the other side: mom-and-pop liquor stores, in coalition with Colo Craft Brewers Guild.  They want to maintain status quo, because opening up mkt would be “recipe for economic disaster,” they believe, as sales in grocery and other chains would reduce employment, increase problems and prices and send profits out of state.                        

Fed excise tax issue continues to both unite and split Beer Inst and Brewers Assn.  Taxes don’t “deter problem drinkers,” BI prexy Jim McGreevy and BA chief exec Bob Pease wrote in joint letter to Wash Post last week.  “Instead, they hit the wallets of people who either work for the beer industry or look forward to the affordable luxury of a beer at the end of a workday,” Jim and Bob argued.  They were reacting to Wash Post blogpost that claimed “our booze is too cheap and its low price is literally killing us.”  Blogger made familiar public health arguments that: 1) inflation and rising incomes erode impact of fed excise tax; 2) “higher taxes save lives.”  Indeed, that pro-tax argument has popped into public view again in recent mos, most recently from study of Ill traffic fatality trends.   Authors argued that state tax hike caused “significant drop in drunk driving fatalities.”  DISCUS did good job dismantling study and Jim and Bob reminded that “drunken driving fatalities in Illinois were already on a downward trend before the tax increase in 2009.”  But Ill study got lotsa press and pro-tax argument has not disappeared.  Will it get more play as BI, BA, DISCUS and others seek separate tax breaks?

Meanwhile, no thaw in dueling BI vs BA tax bills, as each adds sponsors. Politico detailed some of the lobbying spend and background of Small BREW and Fair BEER over the weekend.  Quoted Brooklyn Brewery’s Steve Hindy that its plans to build new New York City brewery will cost “maybe $115 mil…a very heavy lift for us” even with some state and city help.   How much would altered fed tax ease the lift?  Under current fed tax structure, Brooklyn paid about $2.292 mil in fed tax last yr, we estimate, (teasing out its significant untaxed export biz).  Under BREW, at same volume Brooklyn would have paid $1.874 mil, a savings of $418K.  Under BEER, Brooklyn would save $443K on same US volume.

Politico put forward the public health tax argument that higher taxes reduce alcohol problems. Also noted that in addition to public health argument and gridlock in Congress’ as “hurdles” to a tax cut is “division among the brewers themselves.”  Craft brewers don’t support Fair BEER because “it’s not just a US tax issue.”  “The bottom line is their [AB and MC parent companies] corporate tax rate is lower than it is for American headquartered companies” Bob told Politico. An MC spokesman said MC pays “all applicable US federal and state taxes.”  Bob agreed that gridlock has “harmed” chance to pass BREW.  Jim points out “we’re in the first inning of the two year legislative cycle” so no one can predict when BEER would pass.  But it’s lookin’ like a long game, and not much fun to watch.

Trends still unclear for beer this year as numbers really bouncin’ around.  Latest Nielsen data for all outlets + convenience shows +3.1% volume pop, $$ +5.3% for 4 wks thru Apr 4.  Easter timing probably helped.  Recall that for 4 wks thru Mar 7, Nielsen scans showed flat volume, following strong start earlier in yr.  In latest 4 wks, premium light volume +2.4%, tho pricing still very weak in segment (up just 9 cents/case, 0.4% for 4 wks vs last yr).  Craft continued double-digit growth, imports too.  Cider growth dipped below 40%.  Foodstore trend doubled c-store gain, +4.2% vs +2% for 4 wks.

But on-premise trends worsened in Mar.  Traffic slowed significantly and beer took big hit after solid start to yr, according to GuestMetrics.  In fact, beer volume down near 6% in Mar, and off 3.3% in Q1.  That’s better than

-4.4% start to last yr Q1, but not much. Craft share gain still over 1 point, but down from near 2-share gain in calendar 2014; premium light share loss pared back from -1.9 last yr to -1.3 in Q1. 

How’s it lookin’ in beer vs spirits battle ?  A coupla data points suggest spirits still takin’ share from beer, despite more aggressive liquor pricing this yr.  While beer shipments whacked Jan-Feb, control state volume +1.4% for 2 mos, reports NABCA.  In Nielsen scans, a relatively small piece of the biz, Q1 volume up 3.7%, with price/mix pop of +3.2% for solid 6.9% $$ sales increase, lots better than beer #s.  On-premise, spirits trend sagged, just as it did for beer, going from +3% in Jan to -3% or so in Mar.   So up slightly for Q1, but much better than beer and gained 0.6 share yr-to-date, GuestMetrics reports.  

Per usual, Constellation conference call this morning provided more color on its fiscal yr and future prospects.  Gotta note too that Constellation execs not only celebrated numerous “achievements” in fiscal ’15, but also very optimistic about continued “growth opportunities” ahead, especially in beer.  That tone in marked contrast to more cautious comments by other big winner last yr, Boston Beer, even as Boston guided to better volume trend. While Constellation expects mid-single-digit shipments growth in fiscal 2016, as reported earlier, depletions expected to be up high single-digits, cfo Bob Ryder said.  That would be reversal of fiscal 2015, when shipments (+10.4%) were 2 pts ahead of 8.3% depletions gain. 

Asked whether goal stated to distribs at recent sales mtg of doubling Constellation beer biz over next decade was a “real target,” ceo Rob Sands said it’s “not pie in the sky.”  Rather, it’s based on “what we think is going to happen” in beer biz, how imports will continue to grow, and how Constellation portfolio can grow given what will happen with Hispanic demographics.  “Doubling over next 10 years is a doable number,” Rob believes.  Constellation will add new packages, products and SKUs, Rob suggested, has acquisition options and is “starting out ahead” of growth rate it needs to double in a decade. 

Constellation also expects beer revs/operating income growth to be ahead of volume gain this yr, with high single-digit rev increase and 10-12% pop in operating income.  So operating margin should expand by about a point to 33.  Most of increase will be driven by better gross profits as Constellation expects to invest in brands at rate ahead of net sales growth, Bob said.  He attributed slightly thinner operating margins for beer in last 2 qtrs to mktg spend “ramp up.”  Mktg increased from about 8% of revs in fiscal ’14 to 8.5% in fiscal ’15, he said.  On softer rev/bbl hike in Q4 vs fiscal yr, Rob noted price hike offset by costs involved with glass recall (“reimbursed by AB InBev”).  He advised to look toward fiscal yr rev/bbl increase (+1.7%) as being “more reflective of the price/volume relationship.”

On brand issues, cross merchandising for Corona and Casa Noble tequila will start with run up to Cinco de Mayo this yr.  Rob referred to Pacifico as a “real sleeper” brand, comparing its potential to how Modelo Especial “exploded.”   Victoria also a small brand, but up 60% in fiscal 2015.  It’s 3d largest brand in Mexico with 15 share, Rob reminded, and “very well known by Mexican-Hispanics.”  That “really gives it a huge leg up versus any other new products that could be introduced from Mexico to the US.”  Rob didn’t name names, but cited “one or two” recently intro’d brands here that are “made-up products that Hispanic consumers never heard of….  That’s a tuff sell” in Hispanic demo.  

Rob and Bob also reiterated again huge growth oppy for cans and draft, since so little of Constellation biz in those formats vs general mkt.  Tho cans used to be viewed as “sub-premium” package, growth of craft in cans has “opened the window to make cans a great premium package.”  Then too, Constellation “pretty much self-sufficient” in can production already, can “produce as much in cans as we can possibly need,” said Rob.  Constellation treading carefully with Corona Extra draft.  But it’s finding “when we put draft on, even in high share on-premise establishments, it tends to be market-expanding as opposed to purely cannibalistic,” said Rob, as off-premise sales actually pick up. 

Finally, what kind of scale is Constellation thinking about when it comes to potential acquisitions?  Mostly “tuck-in brands” of beer, wine and/or spirits, said Rob, with prices of “a couple hundred million [dollars] or less.”  There “just isn’t anything really big in any of the 3 categories that makes a lot of sense to us.”   

The 2015 Beer INSIGHTS Spring Conference is just 1 month away.  This unique conference will focus exclusively on the high end of the beer biz, It will take place May 11-12 at the Ritz Carlton in Chicago.  The conference will feature an extended panel discussion with 3 of the longtime leaders of the high end,  Constellation’s Bill Hackett, Boston Beer’s Jim Koch, Heineken USA’s Dolf van den Brink.  Another panel discussion will feature 3 hot craft brewers: Firestone Walker’s David Walker, Revolution’s Josh Deth and Cigar City’s Joey Redner.  We will also feature FMB pioneer, Mike’s Hard Lemonade founder Anthony von Mandl.  AB’s veep of high end Felipe Szpigel and Tenth and Blake’s new prexy Scott Whitley will show how top 2 brewers aim to become much bigger players in high end. You’ll also get in-depth analysis and statistical insights from IRI’s Dan Wandel and GuestMetrics Bill Pecoriello, in their first joint presentation since they formed partnership, combining off-premise and on-premise data.  And BMI’s Benj Steinman will give an extensive industry overview.  Get up-to-date with the latest high-end trends and network with your peers at the Beer INSIGHTS Spring Conference. Click here for more information and click here to reserve your spot.

Ironically, MillerCoors is 1 of only 2 top 10 suppliers declining in $$ sales yr-to-date thru Mar 22 in IRI, and yet it has the hottest new brand (launched last summer).  Redd’s Wicked has provided $13.9 mil on 437,000 cases in incremental sales so far in 2015.  Nothing else comes close, tho several new AB brands just getting started.  Montejo, also intro’d last summer but in just part of country; it sold 124,000 cases, $3.5 mil YTD. 

Modelo Especial Chelada was available last yr, but only in limited supply.  It is more than doubling so far this yr.  Up 123,000 cases, $4.5 mil.  Interestingly, it is primarily a c-store brand.  Over 80% of its volume in c-stores, where it is already #51 brand.  Believe it or not, Bud Light Chelada is a top 25 brand in c-stores; and it has slowed there to 1.6% growth, down from 8.4% in all of 2014. 

Another new brand that is making some noise is Guinness Blonde.  It is #71 brand in supers, tho it doesn’t show up in top 100 brands in multi-outlet.  Sold 116,000 cases, $4 mil incremental in IRI foodstores. Total DGUSA volume up 121,000 cases, 4.4% YTD in IRI multi-outlet + convenience.  So Guinness Blonde clearly all of DGUSA growth this yr and then some. 

Anyone who has spent time with Pabst ceo Eugene Kashper knows he’s got lots of ideas and there ain’t enuf time in day to execute on all of ‘em.  But INSIGHTS caught up with Eugene for just long enuf to get brief glimpse of 2 smaller deals Pabst has done already since he led buyout last fall.  Perhaps they give some hints of where Pabst might be going.  Total Pabst volume down 1% in IRI multi-outlet + convenience yr-to-date thru Mar 22. 

Pabst will import Tsingtao starting July 1, but “this is just a first step for us,” Eugene said.  Pabst will look to import a number of other brands.  Tsingtao about 750,000 cases in US.  Imports are 15% of US biz, and should be 10-15% of Pabst biz too, Eugene asserts (that would be 7-10 mil cases). There are lots of international “timeless iconic brands that aren’t getting any love” in US, according to Eugene.  Pabst can provide sales and distribution platform, tailored mktg approaches.  With Tsingtao, Pabst may take page from some other intl mkts where Tsingtao has had some branding success like UK, Australia, South Korea, by becoming more representative of “Asian cool” and more of a general mkt brand than just in Chinese restaurant box.  Tsingtao can be “cool exciting brand that crosses over,” maintains Eugene. Tsingtao had reportedly done much better in 2014 with dedicated Chinese-speaking sales reps and Pabst plans to add to that. 

Not Your Father’s Root Beer a Top 100 Craft Nationally  What about alliance with Small Town Brewery and small but sizzling brand Not Your Father’s Root Beer?  Production at City Brewery in La Crosse started in late March and the brand has begun to expand beyond its Chi origins, recently launching in OH and Milwaukee.   Expect it to expand to many more mkts, but “not too far too fast,” sez Eugene.  Yet Pabst does have big plans for this brand, Eugene acknowledges.  And you can see why in scan data.  Even tho it is predominantly in just 1 mkt, Not Your Father’s Root Beer already showing up nationally in IRI.  It is the #85 craft brand yr-to-date in IRI foodstores.  And bigger than the hot local fave in Chi, Revolution Anti-Hero IPA.  It is also reportedly 1 of top selling SKUs at leading local Chi retailer Binny’s.  

Constellation Brands Beer Division revs jumped 12%, $350 mil to $3.189 bil in fiscal yr ending Feb 28, 2014.  And it’s operating income up $245 mil, 32% to $1.018 bil.   Constellation CEO Rob Sands referred to “incredible momentum” in beer biz in this morn’s release.  For final fiscal qtr and full yr thru Feb 2015, Constellation Brands Beer Div posted 10%+ volume gains, 11-12% revenue gains and similar income pops.  Reported income gain for 12 mos much higher due to timing of when Constellation completed purchase of total US beer biz. 

Pricing Soft; Big Costs Comin’; Mid-Single Digit Volume Growth Guidance For 12 mos, CBBD rev/bbl up 1.8% to just over $218/bbl.  Recall AB got 1.7% rev/bbl gain in calendar 2014, MC got 2.9%.  But pricing tightened for CBBD too in latter part of period.  For final fiscal qtr, rev/bbl dipped about a dime.  For 6 mos thru Feb 2015, up just 0.8%.  At same time, operating income growth slightly behind rev growth for same 6 mos, so margins narrowed a bit.  Still, operating margin for 6 mos was 32.1.  As Constellation announced results ‒ wine softer than expected, spirits got good pop ‒ also announced dividend for first time.

Lookin’ forward, Constellation stickin’ to guidance of mid-single-digit volume gain for beer, tho it’s growin’ faster than that now.  (Depletions up 8% in 1^st qtr.)  Then too, distribs upped inventories in most recent qtr, Constellation noted.  That helps explain outsized Mexican shipments gain same period.  Also on horizon: biggest chunk of spending to build out Nava/glass plants in Mexico.  While Constellation spent about $600 mil in fiscal ’15 for beer cap ex, that zooms to $950-1,050 mil in current fiscal yr, then drops back to $250-$500 mil next 2 years.  So about half of total $1.9-2.3 bil planned expansion expenses will happen this yr, 70-80% of “remaining” investments, cfo Bob Ryder pointed out.