Boston Beer no longer needs Sam Adams to grow to put up strong results. That fact was already abundantly clear thru 2018. But Boston’s first qtr results and exec commentary about them crystallized and confirmed it. “Sam Adams will always be at the heart and soul of the company,” chairman Jim Koch reiterated during Wednesday earnings call. But since co “evolved,” now over half hard tea, cider and seltzer, we estimate, co can “deliver nice double-digit growth without Sam Adams contributing to it.” That gives co a “big advantage over the rest of the craft category” too, Jim shared. For most craft cos, “they’ve only got one bet,” he said. “Their stool is only on one leg. And we’ve got four.”

Half a Mil Bbls of Seltzer Oppy in 2019? One leg, in particular, has gotten significantly stronger in last yr. Boston’s Truly Spiked and Sparkling hard seltzer brand is clear #2 in the sub-segment, behind Mike’s Hard Lemonade Co’s White Claw brand. Boston’s spending lots to keep that position, incurring increased production costs, for example (see yesterday’s issue of sibling-pub Insights Express). That’s in part because Truly specifically and seltzers more broadly all growing faster than Boston expected.

White Claw + Truly held in range of 75-80 share of seltzers for some time, both Jim and CEO Dave Burwick repeated on this week’s call. They’re also bullish on prospect that seltzers could double or more this yr. We estimate seltzer totaled about 2 mil bbls last yr. Suggests about 2+ mil bbls of growth on the table across 2019. Even if the two lead brands hold share, that’s upwards of 400K-500K bbls of potential seltzer growth up for grabs for others. So numerous small, more locally-focused craft brewers wouldn’t even need to make a dent in national seltzer picture to get meaningful growth from participating.

At What Cost? Seltzer “May Be” Taking Shelf Space from Craft, But “Shake Out” Slow, Jim Sez Seltzer growth won’t come free for anyone, natch. And even craft brewers that don’t jump in could end up paying with retailer and wholesaler attention and space. Asked directly about the amount of space (and aging bottles) on off-premise shelves and whether retailers are starting to clean that up, Jim responded that “we think that is where trends are going. Wholesalers are pruning their portfolios. And retailers are looking at doing the same thing. The growth of hard seltzers means they’ve got to get space from somewhere.” And that “may be” from slower-moving craft brands. But it’s a “trend happening in slow motion,” Jim thinks. “The consolidation in craft that we’re going through is going to be a slow process,” in his view. He also believes “strong, well-supported brands of high quality will eventually emerge from any consolidation and/or shakeout.”

And Boston hasn’t stopped supporting Sam. In fact, co has “maintained roughly the same level of support” behind Sam Adams even as volume declined over last 5 yrs (by about a half-million bbls, over 20%, we estimate). Co is still “losing share to the other 7,000 craft brewers,” Jim said, “losing to fragmentation,” since Sam Adams is “the category leader with the largest volume.” Yet the “vast majority of craft SKUs are selling less than they did last year because of that fragmentation,” he noted.

New News: Ad Campaign, Packaging, Summer Ale Boston is still “trying to bring enough energy back to the brand to make sure that we get the support from our customers,” or retailers, Dave said. Getting Sam Adams back to growth is “going to take us doing a few things well,” he said. Currently it’s trying to do “a number of things concurrently that reinforce the same idea.” Simply, it’s refocus on “product quality,” “heritage” and “authenticity,” kicked off by ad campaign at end of last yr. That campaign brought “four to five points of trajectory change” in 4th qtr, but that faded early in 2019, he acknowledged. It also “worked very well with our existing customers,” but co needs to find ways for it to “more broadly engage younger, say 21 to 25 year olds.” Recent addition of Lesya Lysyj as Boston CMO encouraging for Dave. She’s proven that “in tough categories, she can find ways to grow brands” and early on is already “pushing things in the right direction.”

New packaging just hitting shelves in last few weeks with Boston Lager and Summer Ale. Sam went “back to blue,” Dave said, believing brands are “much more highly visible” on craft shelves, a “sea of colors and sensory experience.” Existing drinkers also “preferred” new Summer Ale recipe “significantly” in extensive testing before launch, he shared. And that could help keep more folks with the brand. Apparently around 70% of customers who pick up Summer Ale in a given year are new to the brand. Meanwhile, New England IPA “still relatively small business, but growing rapidly,” he said. Co has “some work to do” on Sam ’76, tho.

Longtime New Belgium communications director Bryan Simpson is “moving on” after 21 years with NBB to start a digital media co, Bryan told CBN today. Bryan rose in the ranks as New Belgium did over the years, and was among longest standing communication directors CBN has had the pleasure of working with among craft brewers over the yrs. “When I started we were a small regional player distributing in five states with a smoking hot brand in Fat Tire Amber Ale,” and “today, we’re the fourth-largest craft brewer in the U.S. with a wildly diverse portfolio and we continue to be independent and proudly employee owned,” he said in released statement. His new company will look to create content for web and digital, and Bryan expects to continue working with beer cos, including perhaps New Belgium, on consulting side for communications. Now Bryan’s “moving on to pursue my long-deferred dream of creative film and media production,” tho “I will always be a passionate and vocal fan of NBB and the entire craft brewing industry,” he added. Bryan’s last day is May 10 – Leah Pilcer will be taking Bryan’s place.

Come Monday morning, May 13, Olde Main Brewing of Ames, IA and two other bars in same town owned by same folks will start 6-month suspension of its liquor license, filings by Iowa Alcoholic Beverages Division shows. After that, ABD will revoke licenses altogether and anyone listed as an owner on the licenses will not be able to get a new license for 2 yrs. Violations found by ABD run the gamut, including not paying taxes (of any kind, excise on beer production or sales tax), not keeping appropriate records, not cooperating with investigators, not maintaining dram shop liability insurance and not even maintaining “an actively registered corporation with the Iowa Secretary of State,” ABD wrote announcing agreement with licensee. Owners of the Ames brewpub will pay almost $9,500 in back excise taxes for last 3 yrs (based on state’s $0.19/gal excise tax rate, equivalent of just over 500 bbls/yr).

Leading up to cannabis bev legalization later this yr, Moosehead Breweries, one of the oldest breweries in Canada, has “entered into a definitive agreement” with Sproutly Canada Inc. “to form an exclusive joint venture to develop, produce, and market non-alcoholic cannabis-infused beverages in Canada,” cos announced. Deal is structured as 50/50 equity ownership to be run by Matthew Oland, “one of Moosehead’s senior executives” as CEO. Moosehead has exclusive rights to Sproutly’s “proprietary, naturally produced water soluble cannabinoids” for 5 yrs with ability to extend another 2 yrs. And Moosehead will provide “R&D, operations, procurement, finance and distribution,” looking to develop “a clear cannabis beverage that is much easier and faster to formulate than its competitors.”

Moosehead has been around for 150 plus years and 6 generations of family ownership (the Oland family), selling over 5.8 mil cases (over 420K bbls) of beer per yr thruout Canada, US, and 15 other countries, per release. Recall, Moosehead distributes Boston Beer products in Canada as well. But Moosehead lookin’ beyond beer in this next phase. Co feels it’s “uniquely positioned to be a leader in the cannabis beverage category,” said Andrew Oland, CEO of Moosehead. “We are very selective about new business opportunities,” yet “after a significant amount of due diligence on Sproutly’s APP technology…vs other competitive technologies, we are excited to announce this joint venture.”

Don’t send formulas or labels for beer containing CBD or other cannabis-derived (or adjacent) ingredients, cuz TTB won’t approve ’em. That’s basic sentiment of industry circular posted by fed agency late last week. Neither TTB nor FDA thinking on topic of CBD, whether it’s derived from hemp (cleared by Farm Act late last yr) or not, has changed. FDA has hearing on topic coming up at end of May. Things may move after that. But for now: TTB “will return for correcting any applications for formulas containing ‘hemp’ ingredients (other than ingredients derived from hemp seeds or hemp seed oil).” CBD remains a no-no for food items in part because it has been approved as an active ingredient in an FDA-approved drug. It isn’t yet “Generally Recognized as Safe” in food. So “it remains unlawful,” TTB wrote, “to introduce or deliver into interstate commerce any food to which CBD or THC has been added.” Furthermore, “alcohol beverages containing ‘hemp’ ingredients (including alcohol beverages sold exclusively in intrastate commerce) continue to require formula approval under TTB regulations.” (Our emphasis.) So, in sum: if it’s got anything hemp in it, other than from hemp seeds, it needs formula approval from TTB, even if it’s not going to be sold over state lines. But TTB won’t approve a formula with hemp-derived ingredients in it. Note, lots of breweries (and other food, bev makers) jumpin’ in anyway.

Fledgling bottle shop franchise based in Boston area, Craft Beer Cellar, faces combo of legal issues and dissatisfaction among franchisees, The Globe wrote in extensive front-page story over weekend. Founded in Belmont, outside Boston in 2010, Craft Beer Cellar expanded to what’s now 30 franchise locations in 12 states. But over 5 wks this spring, 5 separate locations announced closings. Recall, owners of Belmont shop and parent co, Suzanne Schalow and Kate Baker, tried to sue 20 anonymous franchisees for negative posts on Glassdoor employment website last year. But that suit dismissed. Owners faced their own suits from franchisees claiming the co allowed new outlets to open too close to existing stores. At least one was successful, according to the Globe. The co also owes federal back taxes and operated at a loss of $218K in 2017, allegedly due to legal expenses.

Franchisees complained to the Globe and in Glassdoor posts about first year sales projections that are too rosy by a long shot and startup expectations too low. Not all stores struggle, tho. The flagship Belmont location still pulls in over $2 mil in revs and other store owners praise the model. Schalow and Baker, a married couple, blame some of the franchise’s issues on their own missteps, at times going after franchisees when they shouldn’t have, other times saying “yes to some of the wrong people,” Schalow told the Globe. And the pair blames some of the vitriol from some franchisees on misogyny and homophobia.

Bottle Shops a Tough Model & Franchising a Tough Nut to Crack in Craft More broadly, “bottle shops may be somewhat a victim of craft’s broader success,” Brewers Assn economist Bart Watson told the paper. Indeed. Since 2010, craft’s availability expanded widely as grocery stores in particular added much more space for the segment. More recently, consumers gravitated heavily toward buying beer directly from breweries. So pressure on the bottle shop model used by Craft Beer Cellar has mounted significantly. At the same time, many craft-focused on-premise franchise models have also not met expectations, often expanding slower than initially hoped (see vol 9, no 107 from last Nov). Satisfying local particularities while meeting national mandates and models and using shared branding seems to be a particularly tough balancing act.

Just a handful of days into official launch of Modern Times crowdfunding campaign to raise $1 mil in exchange for tiny ownership stake (see Apr 19 issue), shares are already “almost sold out,” according to WeFunder page. Goal was to raise max of $1,069,832 with shares priced at $252.50 each. And co already raised more than its goal from just over 1,860 investors at presstime. Campaign began on Monday, Apr 22 and ends today (Apr 30) at 11:59 EST. So investors largely encouraged by Modern Times’ growth prospects and unfazed by financial net losses, it would seem.

Clarification on Vol: 51,468 Bbls Sold vs 68,365 Bbls Produced in 18; $593 Rev-Per-Bbl! Any way you look at it, Modern Times has kept up impressive volume growth pace thruout its short existence. Yet turns out Modern Times volume sold is actually a fair amount lower than volume produced. While Modern Times produced 40,600 bbls in 2016, 49,600 bbls in 2017 and 68,365 bbls in 2018 (as previously reported – see Apr 19 issue), co sold 29,363 bbls in 2016, 36,403 bbls in 2017 and 51,468 bbls in 2018, additional info from co’s WeFunder page details. That’s roughly 3/4 of total production sold each year, and % of production sold is improving each yr. So Modern Times projects it’ll produce 75k bbls in 2019, 83K bbls in 2020 and 100K bbls in 2021, while selling 57K bbls in ’19, 64K bbls in ’20 and 77K bbls in ’21, it shared.

Gotta note, Modern Times revenue per barrel is thru the roof for brewery of its size – talkin’ circa 2015 Ballast Point pricing and then some. Co made $30.5 mil in revs on 51,468 bbls sold, meaning rev-per-bbl reached $592. And co projects that’ll increase to $682 per bbl by 2021. Sheesh. That said, co still incurred net loss each of the last 2 yrs, and makes no promises that it’ll be able to profit for “the foreseeable future.”

$264 Mil Valuation Based on Ballast Multiples; 77K Bbls and $52 Mil in 2021 Plenty more detail to dig into via info shared by Modern Times on its crowdfunding page. One that stands out: Modern Times’ implied valuation of $264 mil specifically uses Ballast Point/Constellation deal (for $1 bil) as a benchmark for determining value as “barrels-sold multiplier” of $3,448 per bbl, based on 2021 projections (77K bbls sold and $52 mil in revs). Now that Constellation has taken nearly $200 mil of impairment charges on its acquisition of Ballast, that’s much more difficult to justify as viable multiple. Ballast was acquired in peak of craft growth in the go-go years. Tho perhaps another way to look at it – has strong growth become that much more valuable amid slower craft growth overall? Either way, much harder for anyone (including investors) to confidently forecast growth these days.

In many ways, it makes sense for New Glarus to join select few craft brewers launching 24pk cans, as highlighted in recent Green Bay Press Gazette article. Indeed, New Glarus is not only the largest craft brewer in-state, but represents the 3d largest supplier in Wisc, ahead of all but AB and MC, with 5 share of shipments and counting. So New Glarus competing in a whole different class than your typical craft brewer. Recall, New Glarus shipments grew 2.5% to 232K bbls in 2018, co shared with CBN. WI beer shipments declined 2% to 4.65 mil bbls according to Beer Inst stats. So co snagged another 0.3 share of WI beer to 5.1 in 2018.

New Glarus shifting further toward cans with Spotted Cow 24pks. After launching Moon Man cans first in 2016, followed by Spotted Cow 12-pks, cans are now over 20% of New Glarus mix. Two Women lager and seasonal lineup also sold in cans, paper notes. “We’re really happy about it because environmentally it’s friendly and they’re made close by,” co-founder and president Deb Carey told paper. New Glarus spends $9 mil per yr on packaging with Wisc-based cos including Menasha Packaging and Ball Corp. Launching cans “was scary” and “a big decision” initially, Deb explained, since the filler cost nearly $5 mil and co built separate area for cans that was $12 mil project. “That’s a big gamble that you wonder, ‘how is it going to go?’ It’s really taken off for us,” she added.

Perhaps now more than ever, in this age of constant innovation and intense competition, brewers have to find their “brewery religion” in order to determine “what you’re going to do and what you’re not going to do….Our religion as brewers is going to be challenged by all sorts of things” and it’s “different” for everyone, stated Brooklyn Brewery brewmaster Garrett Oliver on panel of craft brewers for Brewers of PA’s annual Meeting of the Malts event. As BA’s Bart Watson called upon craft brewers to seek new consumers, Garrett, along with Yuengling chief admin officer and 6th gen family member Wendy Yuengling, 21st Amendment brewmaster/co-founder Shaun O’Sullivan, Troegs brewmaster/co-founder John Trogner, and Rhinegeist co-founder/vp of sales & marketing Bryant Goulding each expressed different ways their breweries are experimenting and expanding within this context.

Brooklyn Bel Air Sour Could Be Brooklyn’s #2 Brand by Year-End; 51% of Brooklyn Sold Outside US Brooklyn Brewery’s Bel Air sour ale has quickly become #2 sour beer sold in the country and on track to become #2 best-selling beer for co, possibly by this year, Garrett shared. Recall, co launched Bel Air year round just last yr. Bel Air can be more suited for cocktail and wine drinkers, Garrett thought. But “I make beer,” he plainly stated. Then too, Brooklyn now sells 51% of its beer outside of US. Recall, Brooklyn shipments declined 3.5% to 282K bbls (tho depletions up 3%), suggesting roughly 144K bbls sold outside US. Brooklyn’s US biz down mid-singles while international sales grew low teens, CEO Eric Ottaway shared earlier this yr. Yet Brooklyn biz model entirely “by design,” Garrett noted, citing both geographic advantages to being in NYC for European biz and challenges of “no hometown advantage” in NYC. Brooklyn’s expansion out west to CA saw “beautiful reception” and co plans to “grow there as we have overseas…organically” and “hopefully through people liking the beer.”

Rhinegeist Truth IPA is 45% of Mix, ~45K Bbls in 2018; “Fruited Ales” are 15% and Growing Impressively, Rhinegeist Truth IPA makes up 45% of co’s sales and continues to drive growth for co, Bryant shared. Recall, Rhinegeist grew 17% to just over 100K bbls in 2018, just its 5th year in biz. So Truth IPA alone was roughly 45K bbls last yr! Truth was top-50 craft brand in natl scan data as well, with volume up 41.5%. Yet Bubbles and other “fruited ales” quickly became an important aspect of its growth in recent yrs. Bubbles rosé ale and Wowie fruited ale grew to become 15% of mix. And this yr co launched new Little Bubs, lower ABV sessionable variant of Bubbles. These brands came from testing in the taproom, and experimenting with cider/beer hybrid, Bryant explained. “Hops are not for everyone” and these are “unmistakably not hoppy.” Fruited ales are testament to Rhinegeist’s willingness to experiment and be “passionate” while pushing beer’s boundaries, yet “our passion stops us before entering markets like” hard seltzer or other similar segments, he noted. While some craft drinkers may be drinking hard seltzer, “craft drinkers drink for different reasons” and are primarily on “flavor journey,” he added. Seltzer doesn’t provide much variety in flavor in his view. Tho Bryant has “ton of respect” for their growth and acknowledges they’ve hit the nail on the head for drinkers lookin’ for healthier options while “getting a buzz on.”

Meanwhile, Rhinegeist may have been one of the fastest brewers to ever reach 100K bbls, but it’s done so in relatively tight 6-state footprint and plans to expand “very slowly” from here, Bryant said. Last yr co didn’t open any new mkts. This yr co opened metro Nashville, TN area, and that’s it. Co opened Pittsburgh metro area 2.5 yrs ago and has “no plans” to add rest of the state in near term. Indeed, days of opening up entire states all at once are gonna be fewer and further between for small brewers, he thought.

Brooklyn Deal Paves Way for New 21A Mkts; SparkAle Rosé Ale Showing Good Early Signs 21st Amendment is finding that Brooklyn deal (minority stake, sales platform partnership) “paved the way in a lot of ways” for expansion going forward, Shaun noted. 21A “not completely national yet” but mkts that Brooklyn are “already in” are natural alignment and “worked out really nice for us.” Indeed, this is “new model for craft brewers” and presents “very unique opportunity when we work with wholesalers,” Shaun expressed. It’s been “phenomenal for us” thus far, as 21A jumped from 25 sales people to 80 plus across the country. Plus, Brooklyn has “great ties overseas” with Kirin and Carlsberg, so 21A expects to “expand” in “those markets too.”

Then too, 21A’s new SparkAle rosé ale is also a blend between cider and beer, and in “a lot of ways” a nod to Rhinegeist Bubbles, Shaun said. Brand is geared toward “new craft drinkers” lookin’ for “lighter” and “refreshing,” he thought. Still early days, but “response has been fantastic” and “reorders” already comin’ in. But in some ways, co found there’s “different way to selling it” since it plays in both cider and beer arenas.

Notes on Yuengling Golden Pilsner, Troegs Sour Series and More Plans for Innovation Other notable mentions from the stage on new brands makin’ headway: launch of Yuengling Golden Pilsner was recognition from co as “an opportunity to get better” at building new core brands, said Wendy. Golden Pilsner has consistently been among top new brands in scans, and plays nicely in “sessionable” and “refreshing” styles. Co will “continue to load up on types of beers that people want to drink” and has done some “cool things with bourbon barrel beers” and will “continue to look at where we can play to attract new consumers” and “play in new arenas.” Separately, Troegs wasn’t “searching for non-beer consumer(s)” with latest tart and fruit series launches, “but we probably found some of those along the way,” John acknowledged. “All kinds of Troegs fans are willing to try things they haven’t before,” and Troegs continues to “try new things, expanding” and even “failing every once in a while” in order to “find something interesting and creative.” Gotta note, Troegs also dabbling in “slightly hazy” IPAs lately, with recent LolliHop double IPA and new Field Study IPA.

Top-tier execs, hot brands, provocative issues.  Beer INSIGHTS Spring Conference has all that and more on tap, coming up soon.  This year’s conference is at the Ritz Carlton in Chicago on the evening of May 15th and all day Thursday May 16th.  You’ll hear from an all-star lineup with execs from AB, MillerCoors, Constellation, Mike’s, Diageo Beer Co and CANarchy, plus insights from Nielsen and a panel of wise industry vets.  The conference provides plenty of time to network too.  Check out the agenda and register today.