Beer Marketer's Insights
Carnival to Use Brew Hub to Expand In-House Beer Line; NBB Contracts Island Coastal Lager
A pair of interesting new moves in last week, both involving beer lineup at the largest cruise line, underscores the increasingly mainstream draw of both craft styles and smaller beer brands, while pointing to potential uses for existing craft capacity. First, New Belgium announced it would contract brew for Island Coastal Lager, a 2-yr old South Carolina-born lager brand launched across Carnival Cruise Line’s fleet last yr. Then, over the weekend, Carnival itself announced that it would partner with Brew Hub in FL to expand production of 3 craft-style brands originally produced by Carnival’s small on-board brewpubs, making the beers available on all Carnival ships on draft and to take home. Founders of Island Coastal Lager built the Southeast beach-living lifestyle lager brand in SC in 2017, expanding distribution to NC, GA, FL and AL last yr, while also getting placement across Carnival’s 26-ship fleet. NBB expects to brew around 10K bbls or a little more of the brand in year one, NBB spokesperson Jesse Claeys confirmed with CBN. NBB will package brand for draft and in 12- and 16-oz cans plus provide logistic services, co’s announced last week. That will allow ICL to start shipping its simply-branded lager, a “crossover between macro and craft,” per founders, to 16 more states up and down East Coast and “west through Texas.” Notably, the lager “was originally brewed in Lakeland, Fla,” according to Post and Courier. Recall, that’s home of Brew Hub. Of course, now Carnival will itself be contracting with Brew Hub to expand availability of pair of Parched Pig brands, an IPA and an amber ale, and ThirstyFrog Caribbean Wheat. Those 3 brands initially brewed at Carnival’s 2 on-ship breweries, which have served in neighborhood of just 1,000 bbls since opening in 2016. But move to put these private label brands on all 26 Carnival ships was an “obvious next step,” co’s bev ops veep Edward Allen said in release. And it won’t stop at draft, making 4-pks of 16oz cans available to take home. “My hope is that our guests will take a four-pack home with them to share with family and friends as a refreshing and memorable reminder of their cruise,” he added. At same time, co installing small brewery on a third ship that will set sail for first time in December. “We wanted to find a way to scale what we’re already doing,” Eddie told Travel Weekly. And Carnival brewmaster Colin Presby apparently regularly fields questions about why his beers aren’t more widely available and why they can’t be taken home. No longer. Note that Carnival is easily the largest individual cruise line brand by passengers, serving over 5.7 mil of them last yr, according to figures from Cruise Market Watch. It’s also by far the #1 brand by same metric for parent co Carnival Corp, tho its Princess line carries 1/3 the passengers but gets slightly higher revs. Parent co Carnival Corp is by far the market leader. It carried 12.3 mil passengers and got $18.3 bil in revs in total last yr. Royal Caribbean, #2, is about about half its size across its handful of cruise lines. From Collabs to Contracting: Can Tweaked Private Label Models Help Fill Available Capacity? The Carnival/Brew Hub project explicitly bills itself as private label, but it’s a slightly different version of the way private label evolved thus far in alc bevs. Private label is often seen as lower-priced in-house brands for off-premise retailers, like Costco or Trader Joe’s. Over last few years, various on-premise retailers, big and small, have partnered with brewers to create their own house brands. But here’s a very large travel co that’s also a big on-premise retailer, seeing oppy to sell its own brands over others. Pints of those brands will sell for about $6.50, on par with Heineken, according to Travel Weekly, so not exactly discounted. Offering house beer brands has become a differentiator. In fact, numerous brands well outside of alc bev retailing have turned to beer as a way to build their own reputations, from food retailers and lifestyle/apparel cos to musicians, tv shows, movies and more. For example, just this week, lifestyle apparel brand Salt Life (a subsidiary of Delta Apparel) announced expansion of Salt Life Lager across Georgia, after launching in Florida last yr. A COLA for the brand indicates that Abita is making the lager in Louisiana. When those brands appear as “partners” with individual breweries, they can help build an audience for the brewery that it might not have been able to access previously. But even if the relationship is largely for production and logistics, as with the projects above, it still helps fill capacity built out during years of faster growth. Recall, NBB expanded its Fort Collins facility during construction delays in Asheville in 2015-2016. It’s current capacity sits at around 1 mil bbls in CO and about half that in NC, Jesse confirmed. Recall, it shipped about 850K bbls last yr, about 100K bbls below both 2017 and 2014 totals. NBB is willing to take on additional contract partners, “but it has to be the right fit volume- and vibe-wise,” Jesse clarified. Brew Hub’s partners have varied over last few yrs, but it built up significant biz with Cigar City before that co did its deal with CANarchy and moved production to the Oskar Blues facility in NC, itself a brewery initially built for a growing brand that slowed and then declined more recently.
Last Wednesday, Anchor Brewing workers voted 31-16 to unionize via chapter of Intl Longshore and Warehouse Union (ILWU), numerous sources reported, including SF Chronicle. Two days later, small group of taproom workers voted in similar fashion, just over a month after a group of workers delivered letter to management stating intent to do just that (see Feb 8 issue). In that span, a number of workers cited what they viewed as “union-busting” tactics by management, including mandatory small-group and one-on-one meetings described as “intimidating” by an employee in lengthy HuffPost piece by Dave Infante, also author of initial coverage published by Splinter. The Sapporo-owned brewery can dispute the union vote. But workers now expect to form a group to negotiate with management to increase wages and benefits.
Short’s Depletions +11% in 2018, +16% YTD; Mosa Cider “Booming”; South FL with Cavalier & More
MI’s Short’s Brewing returned to solid double-digit growth in 2018, with depletions up 11% including home-state MI sales up 10% and remaining territories up “similar amount,” managing partner Scott Newman-Bale told CBN. Shipments trend ran a bit lower than depletions as co intentionally went into 2019 with lower inventories. So shipments grew around 7% to between 51-52K bbls, and nearing 40K bbls within home state. Short’s is nearly 0.7 share of total MI shipments, according to Beer Inst stats. And Short’s growth was without adding any new states last yr and after co pulled out of PA mkt in 2017, Scott reminded. Numbers include both Short’s beer brands and Starcut Cider brands – both were up at similar clips, and Starcut Cider represents roughly 10% of total sales, about 5K bbls in 2018. This year, Short’s depletions growth (both beer and cider) is accelerating, up 16% YTD. And that’s before co adds southern FL with Cavalier Dist this April following “a successful central Florida launch,” co announced. Indeed, “Western and Central Florida has already exceeded expectations and goals,” Scott said in released statement. But Short’s expects this to be “our only new” mkt for beer brands in 2019, he told CBN. Cider may be a different story. Its Starcut Cider brands are growing solidly and its Mosa (mimosa cider) in particular “is booming and getting a lot of interest,” Scott shared. In fact, Mosa’s velocity is running “similar to beer” and has even made inroads in tuff on-premise environment for ciders. So co expects to see “stronger cider growth” heading into next qtr, he added. Separately, Short’s consolidated WI distribution to include only General Bev and Kay Dist thruout the state. Co initially launched WI in May 2016 with the Wisconsin Bev Network of MC distribs thruout state and General Bev. But Kay Dist is the only Short’s distrib remaining from Wisc Bev Network.
“As an industry, if we keep trying to draw people away from their traditional ‘third spaces,’ we’ll be hurting our ultimate customers, the restaurants and bars that support us.” That unusual but apt comment from the leader of a craft brewery appears near the end of a long profile of the speaker, Linus Hall, founder and CEO of Yazoo Brewing in Nashville. The piece honors him as Nashville Post’s CEO of the Year and includes plenty of other fascinating stories and factoids about Linus and Yazoo, well worth the read. Linus’ co, opened in 2003, is getting ready for a move to its 3rd brewery location, this time on a 6-acre parcel about 6 miles outside of downtown Nashville, set to open this summer. It’ll allow co to boost production to about 80K bbls, up from closer to 30K bbls at current site in The Gulch, which grew into much busier nabe during the co’s time there over last 8-9 yrs. Indeed, Linus sold current property to a hotel developer for a reported $9.2 mil, paper wrote.
At same time, don’t let above quote mislead you into thinking Linus and Yazoo don’t know the value of taprooms as revenue drivers and marketing. The co’s 1st small brewery tasting room, opened in 2003, “turned into a hit. Without the extra cash flow from that, we might not have made it,” he told the Post. And “the taproom was the best marketing we could do.” Co quickly passed volume goals laid out in Linus’ MBA final biz plan (the “only plan for a brick-and-mortar business” in his Vanderbilt University class), hitting 5K bbls in its 3rd yr (instead of 3K in 5th yr). Yazoo, named after the river in Linus’ hometown in Mississippi, has remained regionally focused, only selling beer in TN, Charleston, SC and MS. “We were in Alabama for a while, but we decided we could spend that time doubling our Nashville market share where we were missing opportunities. If you’re not strong in your home market, you shouldn’t be shipping,” Linus said. He’s also seen his fair share of private equity investors come calling, but he and his wife Lila “still own it all.”
Meanwhile, CEO of another craft brewery (also named for a river in a small town and known for an iconic porter), Gary Fish of Deschutes profiled by AdWeek this week. Piece looks at plenty of hot craft topics, including efforts by the world’s largest brewers in the space, natch. “I don’t see this dynamic going away,” he told paper, so “we have got to be more diligent, and more creative.” Indeed, Deschutes in middle of rolling out new packaging for its core brands, a redesign done by Perspective Branding. “We joke that it’s a bit like the hipster movement. Everyone’s trying so hard to be differentiated that they all end up looking the same,” Perspective CEO Simon Thorneycroft said of craft beer branding these days. Among many changes in US craft landscape since Gary opened Deschutes in 1988: ease of permitting process. “You can [now] become a professional brewer by filling out a few forms, paying a small fee, and you’re in business,” Gary said. Finally, on effects of his co’s ESOP on 550 employees, Gary pointed out that “it’s a great way to keep everyone’s head in the game.” Perhaps an even more valuable asset when more ‘diligence’ and ‘creativity’ are necessary to compete in craft.
Minnesota will be the last state in the union with 3.2 beer laws, after Utah legislators voted to boost the allowable alcohol content in more broadly available beer last week. The slow death of 3.2 beer (alc by weight, about 4% ABV) has been a long time coming, hastened by changes in recent years in Oklahoma, Colorado and Kansas. But all of those states made bigger changes than Utah.
Recall, UT legislators early this yr moved forward a proposal to raise the alcohol limit on beers available in grocery, c-store and on tap at bars and restaurants from 3.2% ABW to 4.8% ABW (about 6% ABV; see Feb 26 issue). Opposition by the powerful Mormon church caused legislators to pull back the proposal to a more modest 4% ABW/5% ABV cap, allowing most major beer brands to enter Utah with formulations that match what’s sold in the rest of the country. That bill passed, so Utah will join most other states in many respects, while keeping its distinction of having the lowest alc content cap on widely-available beer in the nation. Of course, at the same time, across the country, West Virginia legislators approved a proposal to lift the allowable alc content in beer from 12% ABV to 15% ABV, among other changes that slightly loosen restriction on small brewers in the state, the Charleston Gazette-Mail wrote.
Nearby, Colorado is less than 3 months into grocery and c-stores selling strong beer and Kansas is just over a week away from initiating similar sales. Unlike CO, KS stores will be able to sell beer only up to 6% ABV. But those off-premise stores are still planning for much larger beer selections (and sales) following the change, as in CO. One outlet for c-store chain QuikTrip is going from 2 beer cooler doors to 5, 6 or 7, a spokesperson told Kansas City’s KSHB outlet. Liquor stores there are bracing for impact, even if they’ll still be the only locations allowed to sell stronger beer and they get added benefit of cigarette and soda sales.
Indeed, a couple months into strong beer sales in CO, a number of folks remain concerned about the impact on liquor stores there. Those concerns, including fear that up to 500 liquor stores could close over next 3 yrs, shared by Aspen Public Radio recently, while unintended consequence of law’s primary goal threw a single craft-focused delivery biz, Craft Alley, for a loop, as noted by the Denver Channel. Yet many industry members underscored that it’s still too early to tell precisely what the overall impacts will be in conversations with Craft Brew News. In fact, a number of brewers declined commenting at all. All along, brewers have been sensitive to their longtime customers, the indie liquor stores. At the outset, many grocery and c-store chains stocked top in-state craft brands, including some flagships or other large brands that had struggled (in- and out-of-state) in recent years. So a number of folks expect a bit of a pop for those brands in these new outlets. That said, chains are likely to move quickly, see what’s working, what’s not and adjust accordingly, a couple of sources expect. So stay tuned.
Proposals A-Go-Go: Satellite Bill Dies in SD; AL, GA, MN Bills Just Intro’d Surveying states, plenty of proposals intro’d so far this yr to change laws impacting small brewer ops. Some already unsuccessful, while many await action in respective legislative committees. In South Dakota, the legislature voted down a proposal to allow small brewers (<30K bbls) to open up to 5 satellite taproom locations. In neighboring Minnesota, a handful of brewer-backed bills were recently intro’d, including one that would remove current 20K-bbl cap on brewers allowed to sell beer for off-premise consumption, as the Duluth News Tribune wrote. Other proposals would allow guest taps in taprooms, open up sales of growlers and crowlers to other retailers and add a variety of package sizes to list of those that breweries can sell. But those bills haven’t moved since late-Feb intro.
Similarly, an Alabama proposal was recently put forward to, among other things, change the small brewer production cap to 250K bbls, change the tax structure (from % of wholesale price to $4/liter) for beer sold in a taproom and allow for transfers between locations owned by same co, according to AL.com. Next door in Georgia, just intro’d bills would eliminate the daily sales cap at breweries, double the self-distribution cap to 10K bbls/yr and allow sales of collaboration beers and guest taps in taprooms, per 11 Alive.
Craft Brew Alliance will officially debut Kona’s first-ever natl media campaign today, with three 30-second ads featuring Kona’s Hawaiian “Bruddahs” launching for this yr’s NCAA “March Madness” basketball tournament, co announced. Recall, Kona will double its mktg spend to $20 mil for calendar 2019, including nearly 1/3 of its spend on NCAA airtime alone coupled with “serious sales incentives” (see Feb 8 issue). Ads play up Kona’s easy-going “lifestyle” branding in each spot, whether taking a “Little Vacation” with every sip of Big Wave, considering your “To Don’t List,” or “disconnecting” your phone more frequently with “Kona Mode.” Each ad features flagship Kona Big Wave golden ale, which continues to fuel Kona’s growth, as well as Longboard Lager, which struggled more recently. Other than Blue Moon and Sam Adams, hard to think of any craft brands ever receiving this much media weight (MC’s Saint Archer Gold getting the equivalent of $30 mil natl media campaign in 4 test mkts too).
Coming off of a tuff year involving double-digit decline, multiple high-level personnel changes and more, Uinta has promoted Jeremy Ragonese from CMO to CEO role, Jeremy confirmed with CBN. Jeremy first joined Uinta 2.5 yrs ago, hired by then CEO Steve Mills, who had previous working relationship with Jeremy. When Steve took new job with Maine Beer Co last yr, Uinta board member and industry vet John Lennon stepped into CEO role and “really helped us get through this more difficult period,” Jeremy explained. But John will return to his sole role on Uinta’s board of directors, which he’s held since 2014 when PE firm Riverside acquired majority stake in Uinta. This was “natural progression” for John and simultaneously “opened up this opportunity,” which only came to fruition within the last month, said Jeremy. Prior to Uinta, Jeremy worked for Boulevard since 2006 and before that was partner at the largest ad agency in Kansas City.
Uinta Got Caught in “Perfect Storm” of Challenges in 2018 and Early 2019 Uinta faces tuff road ahead in 2019, Jeremy acknowledged. After record year in 2017, hitting 93K bbls, co declined double-digits to “just shy of” 80K bbls in 2018, falling below its 2015 volume. Uinta got caught in what Jeremy described as “a perfect storm” of challenges, including general industry trends, added “pressure on the eastern half of the US” with slew of new local players, “flagship challenges” with lead brand Hop Nosh IPA, new innovation that “flat out…didn’t meet expectations,” following relatively successful Lime Pilsner launch in 2017, and VP of sales leaving co. Innovation shortfall “sort of set the tone for the rest of the year,” said Jeremy. On top of that, Uinta conducted a voluntary recall of 16 separate packages for 10 different beers due to diastaticus infection earlier this year (see Feb 4 issue). Co rapidly addressed additional challenge and ultimately had to pull 20K cases, mostly in UT and mostly from wholesaler warehouses before entering the mkt. Uinta admittedly “started the year much more optimistic” prior to recall. So going forward, hiring new VP of sales among other “key” positions such as CA sales manager is “on the top of my list,” sez Jeremy. Uinta will look to disproportionately allocate more resources toward core mkts, and “realign our goals and strategies” within “next 90 days or so” to put Uinta in “better position to move forward.”
UT Still 40% of Mix; If/When ABV Caps “Normalize,” It “Will Help Us in the Long Run”; Airport Location in 2020 As is the case for many established brewers and brands, Uinta is performing “better at home” than further spread mkts. UT still represents 40% of its total sales, Jeremy shared. “It’s been a confusing time” with local UT laws and coming changes to allowable ABV strength (see below). But “ultimately” co would be “happy with any change that provides better access to beers that they’re looking for” and “it will help us in the long run” as ABV strength offerings “normalize,” said Jeremy. Uinta still essentially managing two different portfolios for in-state and out-of-state sales, he added. But on the plus side, Uinta is as well-suited as “probably anybody” to address trendy lower-ABV and more health-conscious brews while keeping “full flavor.” That’s “certainly our specialty,” Jeremy added. And coming in 2020, Uinta will be one of the “hospitality offerings” for Salt Lake City airport, with potential access to the roughly 24 mil passengers coming thru each year, he shared.
New Juicy IPA, Low-ABV Brut IPA, Crooked Line Cans & More Uinta added two new brands to its year-round line-up in 2019: a “haze-free” juicy IPA called Clear Daze and a low-ABV brut IPA dubbed Saddleback. Fortunately, Clear Daze wasn’t affected by the product recall, Jeremy noted. Flavor profile intentionally “quite different from Hop Nosh,” which continues to struggle. Saddleback Brut IPA clocks in at 4% ABV, described as “an easy-sipping, light-bodied, and effervescent brew, with hop forward aromas of gooseberries, white wine and passionfruit,” on cos website. Separately, co moving away from 750 ml format and into “more approachable” 12oz cans for Crooked Line specialty brews. Even tho flagship brands are struggling, “people remember” Hop Nosh and Baba Black Lager which contribute to brand’s heritage. Interestingly, 15pks continue to be in “the experiment” phase as co “continues to evaluate” that pack, which needs work on both velocity and margins “to get that pack where we want it to be,” he noted. But that’s just “a tiny piece of our business.” On the other hand, 18pks of core brands “do really quite well, especially in our grocery store segment” in UT.
CANarchy Pickin’ Up Pace; +30% in IRI; Cigar City +71%, 16 New States in ’19; Each Portfolio Up
After acquiring a couple new brewers and collectively reaching 421K bbls in 2018, Fireman Capital-backed CANarchy jumped off to another hot start in 2019, with $$ sales up 30% in IRI MULC thru Feb 24 2019. And while red hot Cigar City continues to pick up pace and fuel growth most of all, each of CANarchy’s six craft cos are growing in early IRI data, co shared in latest update.
Cigar City Up 71% YTD; Adding 16 New States to 42 Total in 2019 Cigar City sales grew 71% thru Feb 24 in IRI, led by flagship Jai Alai IPA up 78%. That’s an acceleration following Cigar City’s 63% growth in 2018 IRI multi-outlet + convenience data. It finished last year as 23d largest craft brand family in IRI (by $$), with flagship Jai Alai making up a whopping 3/4 of Cigar’s total sales. And Jai Alai now the 19th best-selling craft brand (by $$) nationally in IRI YTD thru Feb 24. Likely to add fuel to the fire, Cigar City plans to enter 16 states in 2019, including northern CA and OH launched in Jan and VT, NH, and ME in Feb (see Feb 6 issue), bringing Cigar City to a total of 42 states + Puerto Rico and a handful of European mkts, Chad Melis of newly formed communications co Turn It Up Media confirmed. Yet impressively, even as Cigar City continues to add new distribution, co still grew double-digits in FL last yr, and FL represented 2/3 of total Jai Alai volume in 2018 scans.
Oskar Blues, Perrin & UT Brewers Co-Op Early 2019 Rebounds; Seltzer Lifts & More Oskar Blues, Perrin and UT Brewers Co-Op sales are rebounding in early 2019 scans. Oskar Blues sales grew 6% in IRI thru Feb, after declining low-double-digits in 2018 IRI. Perrin up 6% and Utah Brewers Co-Op (Wasatch & Squatters) collectively up 1.4% following similar tuff declines last yr. Gotta note, each co is getting incremental lift from new hard seltzer launches this yr. Oskar’s Wild Basin Boozy Sparkling Water is currently in 9 states, and expects to be nationally distributed by May. Perrin’s Clear Coast Fresh Hard Seltzer and Utah Brewers Co-op’s Grandeur Peak Hard Seltzer are more locally focused in respective home-states, yet already makin’ inroads within local mkts. Tho Utah Brewers Co-Op hard seltzers don’t launch packages until later this mo, so IRI doesn’t reflect any additional seltzer growth yet. Other new beer brands and initiatives for each co are adding to growth prospects in other areas as well. Oskar’s CANundrum Variety 15pk “continues to have success,” and new Can-O-Bliss IPA series and Guns ‘N’ Rosé ale adding incremental growth. For Perrin, its Black Ale with new recyclable 6pk cartons is up 22%, and co plans to debut packaging rebrand this Apr. And Utah Brewers Co-Ops new Juicy NEIPA launched on draft and will rollout package sales later this mo. It secured new brewpub location at the new Salt Lake City Airport being constructed for next year (as did another long-standing UT brewer, see below).
Deep Ellum +12% in IRI, Flagship Dallas Blonde +11% in TX; Three Weavers Flyin’ +170% CANarchy’s most recent additions to the Collective each continue to post strong growth as well. Deep Ellum grew 12% in IRI YTD thru Feb 24, including flagship Dallas Blonde up 11% in statewide TX IRI, co shared. Deep Ellum also recently expanded to OK, its first state outside of TX, and opened its new brewpub, Funkytown Fermatorium, in Fort Worth, TX earlier this mo. And Three Weavers is flyin’ off small base in scans. Sales grew 170% YTD thru Feb 24, as co plans to expand distribution and renovate its taproom in Inglewood, CA this year.
Lots Cookin’ in 2019; Asheville Brewpub Opening in May All in, lots cookin’ for CANarchy in early 2019, and lots more to come. CANarchy growth rate in IRI is currently “second fastest” among top-50 craft brewers YTD, co shared. This yr will continue to bring “liquid innovation, collective-wide packaging updates, improved processes,” and “new collaborative brewpub, the CANarchy Collaboratory,” expected to open in Asheville this May.
2 Faces of Craft: Major Oppys vs Major Headaches; Tourism, Tailors & Beer Gardens, Oh My!
Panels at NABCA Legal Symposium laid out the cha-ching and the challenges that craft alc bev explosion creates in biz and regulatory landscapes. The Natl Alc Bev Control Assn represents control states, which retail and/or distribute liquor and sometimes wine. So perhaps natural that NABCA provided forum for Margie Lehrman, director of American Craft Spirits Assn (ACSA), atty Ryan Malkin and very-friendly-to-craft Vermont regulator Martin Prevost to celebrate this yr’s darlings: craft distillers. Yet while those small distillers pick up steam in the market, they’re also inheriting some of the same headaches faced and at least in part created by small brewers in state regulatory schemes. Some numbers from ACSA: in 2010 TTB counted 410 total distilled spirits plants in US, large and small; as of Aug 2018, 1,835 craft distillers and that’s over 1900 now. Over half of those distillers in 10 states, with 1/3 in CA, NY, WA, TX and CO alone. West (32% of active craft distilleries) and South (29.5%) more developed than Midwest and Northeast (19% each). Craft spirits biz even more local than craft beer: 92% of craft spirits sold in home state, 40% at the plant, another 52% in-state but outside premises. Just as craft brewers tout employment stats, craft distillers added 4,400 employees in 2017 to reach over 18,300. Craft distiller investment up nearly $200 mil to $590 mil. Margie’s takeaways: 1) “craft is growing, craft spirits are growing”; 2) tasting rooms are “heart and soul of craft distillers,” and determine whether they “make it or break it”; 3) craft spirits important to state economics on many different levels, from revs to taxes, employees to tourism. Margie’s asks of regulators: 1) states gotta allow mixers and tasting rooms to pour cocktails (“the way [consumers] want it”), not just pure spirits; 2) expanded sale for off-site consumption (“unconscionable” for consumers not to be able to buy bottles). So, retail caps a big issue in craft spirits too, just as in craft beer. We’re reminded of comment from prexy of American Bev Licensees that “one bottle is a souvenir; a case is provisions.”
When They Say They’re Not Challenging 3-Tier System, What Do They Really Mean? On a dicier issue, “I would not suggest looking for ways to remove the 3-tier system,” Margie said, since craft distillers “reliant on distributors” to grow biz. But: “I have had conversations that the 3-tier system is not built for craft producers.” Distrib consolidation makes it tuffer for craft distribs to get access, especially for their full portfolios, Margie said. Distillers “not owed success,” she acknowledged, but there’s need to get more product in mkt. That means more direct-to-consumer oppys for distillers, she suggested. “For those who don’t want to discuss it,” (Fed Ex still won’t ship booze or beer), “it’s a mistake,” she believes. Direct to consumer happenin’ in beer and wine and “will happen with spirits,” Margie insisted. Industry and regulators just need to work together to “ensure it’s done responsibly.”
“Craft Is Good for Your State” So proclaimed Ryan. Martin agreed. VT had 176 craft producers in 2018 (47 wineries/cideries, 86 brewers, 33 distillers), up from 25 in 2000, 91 in 2012. Martin also sounded pro-equivalence notes. Vermont trying to bring beer, wine and spirits “on an even playing field.... They’re not equal yet, but they’re getting there.” On similar issue, asked whether “advantageous tax rates” for in-state producers are justifiable or constitutional, Margie punted, but did say ACSA supports extension of CBMTRA (small distillers get perhaps best break of all in that bill). Increasing activity in spirits by brewers of all sizes unlikely to slow movement toward regulatory equivalence. Yet different regulatory treatment vs wine and spirits (especially on taxes) still seen by some as a beer biz benefit worth defending. Margie also had no response to complaint voiced by rep for Minn state-owned retailers that the “bar keeps changing” on defn of craft, i.e. cap size increases. “Somebody has to set what craft wants to be,” he said, because changing the bar is causing frustration “all over the country.” Martin sort of agreed that “someone has to draw a line,” but he had no specific advice. Ryan suggested that’s a “lobbying issue” for each state.
Evolution, Not Deregulation Separate panel on Alcohol Tourism mostly celebrated craft breweries, distilleries and wineries as destinations where consumers can meet the makers and experience the brands. Kevin Atticks, whose Grow & Fortify group represents craft producers in MD, said that while critics cite “scariness of deregulation” linked to craft, it’s really “evolution,” demanded not just by craft producers, but customers. Even biggest craft producers can’t compete with multiple minutes of Super Bowl ads, he said; they’re simply trying to find ways to connect with consumers. There are challenges, he acknowledged, to ensure responsible sales and “safe tastings.” But they can be worked out, he believes, via cooperation between industry members and regulators.
Unintended Consequences: Beer Gardens and Bespoke Tailors Speaking of challenges, yet another panel focused on “Unlimited License Problems” that have expanded with the craft biz. Those challenges/ problems and/or “unintended consequences,” as IA regulator Josh Happe put it, include “unfair privileges among different” manufacturers and products in IA, he said, where there’s “a push to get alignment” of beer, wine and liquor from legislators. (There’s that pesky equivalence theme again.) Also from Josh: “lack of fairness in the law” − allowing brewers to do something distillers can’t − leads to “less credibility” for regulations and regulators. (Ditto.) In Mass, there were 12 bills “picking away at the 3-tier system” last year, said Rob Mellion of MA Pkg Store Assn. This yr: 81 bills already, “mainly directed” to retail tier, “blurring lines” between tiers, extending retail privileges, etc. Rob tore into widely popular beer gardens set up by craft brewers who found loophole in law aimed to allow non-profit groups to obtain up to 30 1-day licenses/yr to hold events to raise money. Those permits now being “abused” by craft brewers to run unending beer gardens. Trillium Brewing discovered loophole in 2017, sez Rob, that allowed one employee to get 30-days-worth of permits, then another to get another 30 days, and so on. So, “couple-day festivals” have morphed into 4-month “sustained beer gardens.” Costs are low and brewers don’t have same requirements as restaurants. Problem is: “consumers love it.” And media “embraced the business model and that we’re the party spoilers” (see Feb 16 issue). Then too, these licenses being issued by local govts in MA, 350 of ’em, which enjoy the revenue. So far, public health groups haven’t been active in resisting this expansion of licenses, Rob said. But he plans “to work with them regularly” and enlist their support, i.e. for proposed law to tighten language and limit these special permits to 14 days per entity.
3-Tier Challengers “Smell Blood” Ain’t just beer gardens, but retailers also fighting efforts to allow coupons and discounting measures, more on-site sales, etc. Why so much action? Those who challenge 3-tier system “smell blood,” said Rob, citing Tenn case at Sup Ct. If residency law goes down, he added, “we don’t know where this is going to go.” Rob didn’t mention it, but one of those 81 bills includes latest attempt by craft brewers to tweak franchise law: allows brewers (up to 6 mil bbls) to terminate without cause and move brands. Distrib that gets brands solely responsible for paying distrib that loses ’em on sliding scale, from 50% of fair mkt value (for smallest brewers) up to 110% of FMV (for largest).
I’m A Licensee, You’re A Licensee, We’re All Licensees Finally, VA atty Tom Lisk provided ultimately comical list of special licenses granted via annual bills passed by VA legislature, starting with State Fair in 2014 and subsequently includes special licenses for: Art Education and Exhibition studios; a Cupcake Shop License; rehabbed concert halls and movie theaters; a dinner theater in an old high school; Confectionaries (gotta give candy makers same thing cupcakers get!); municipal golf courses and; best of all “Bespoke Clothier Establishments,” so that tailors can serve beer and wine to folks buying custom-made apparel. (Editor’s Note: we don’t think he made this up.) This explosion of licensees occurred separately from but alongside expansion of alc bev manufacturer retail privileges in many states. Taken together, they exacerbate concerns about the health of traditional on-premise retailers. Licenses raise questions of fairness, not to mention enforcement challenges, Lisk acknowledged, but ”it’s the legislature that created this.” After having created over 150 categories of licenses, legislature now wants state ABC to fix the problem, streamline the system, review fee structure, you name it. Big challenge is fairness to restaurant industry in VA, which operates under different rules, including required food: liquor rev ratio. And even that’s creating new complexity as customers now spending more and more for drinks with premiumization. There’s a draft proposal out, but many miles to go before current Jan 2020 deadline and many considerations, like whether to mandate server training, dram shop/liability, fee structures, enforcement issues and more.
Common Roots Brewing “Heavily Damaged” by Fire; IL Brewery Closes in 3 Mos; “Unusual” Aspects
Tuff news for Glens Falls, NY’s Common Roots Brewing – its facility caught fire last night “destroying a large portion of the building hours after the owners broke ground for an expansion of their business,” reported The Post Star. On top of $500K expansion of its taproom that was underway, co was planning for “a seven figure” expansion to “greatly” increase production capabilities, paper noted. “While this is a very difficult time, we are grateful everyone got out safely,” said co-owners Christian and Bert Weber in released statement. Cause of the fire is unknown at presstime.
Seer Athlone Brewing Abruptly Closes in IL; Warning from FDA for Separate Pharma Co, Shared Labs Odd circumstances surrounding closure of Seery Athlone Brewing Co, Paste Mag reported. Co announced closure just 84 days into operation, stating that “we made the decision to close our doors in February,” adding that “we will be back – but not for awhile,” and “we are currently restructuring our business model and plan,” via Twitter. While at first glance, this appeared to be a sign of tuffer times in craftland for upstart breweries, some “unusual aspects” surrounding the closure may tell otherwise. In Sep 2018, Seer Athlone owner James Stephen “was sent a publicly available warning letter from the FDA in reference to his other business, Pharmaceutical Laboratories and Consultants – where Stephen is listed as President,” paper noted. Warning notes “that Stephen was operating his brewery in the same building as his pharmaceutical testing facility, within feet of one another,” posing “unacceptable risks.”