Not exactly a craft-on-craft deal like those we’ve been writing about all year. But Big Lake, MN-based Lupulin Brewing announced it’ll take over brewery and taproom currently occupied by Hydra Beer Co in Sioux Falls, SD, the Argus Leader reported today. Hydra confirmed its plans to sell the biz last month, about 4 yrs after opening. Big Lake, northwest of the Twin Cities, is some 230 miles northeast of Sioux Falls, but is a much smaller community with a population of just about 10K. Co is “excited to become a part of this growing community,” co-founder and operations veep of Lupulin Matt Schiller told paper.

Indeed, South Dakota saw a record number of breweries open last yr, shooting up from 16 craft breweries to 28, according to Brewers Assn stats. Few breweries opened since Hydra started brewing in 2015, when state hit just 14 breweries. And Sioux Falls is by far the state’s largest city, estimated as home to around 180K folks, or about 20% of South Dakotans. Hydra had ceased brewing operations a few months back, it told paper, as owners “moved on to different careers” and sought a buyer for its location and equipment. Lupulin, now in its 7th yr in operation, started distributing in SD recently as well, per paper. Co doubled production to about 3,200 bbls last yr, according to BA stats, after installing 30-bbl brewhouse last spring.

Heineken Adds to Craft Roster, Picks Up Hometown Brewer Oedipus Second-largest global brewer Heineken didn’t look far for its latest addition to its craft arsenal. Not even beyond its home city’s limits. Co took a minority stake in Amsterdam-based Oedipus Brewing, cos announced this wk. Exact size of stake and details of deal not disclosed, De Telegraaf wrote. The 8-yr old small brewer didn’t build out its own brewery in the city til 2015. But it will need to build a new location within a couple of years, local RTLZ publication reported, a process in which new part-owners will surely participate.

Capacity expansion may be risky as it’s ever been and capacity utilization continues to worsen among craft brewers. So perhaps it’s no surprise that craft cos are increasingly turning to contract brewing to solve capacity issues these days. In fact, craft contract brewing growth outpaced all other classes of BA-defined craft breweries last yr, up 27% to 328K bbls in 2018, Brewers Assn estimated. (Tho that’s off much smaller base than 5.8 mil bbls of microbrewery volume or 1.6 mil bbls from brewpubs.) In several cases, established brewers in need of extra volume as their own trends slow or decline, and smaller brewers in need of capacity make for an easy match. Philadelphia’s Yards Brewing is latest co to go down that road after opening its new 100K-bbl capacity brewery in the city this Spring.

Building from 40K Bbls in 2018, Yards Takes on Cape May as 1^st Contract Partner  Yards finished last yr at just over 40K bbls, according to Brewers Assn stats. That’s about where co’s volume hovered for last few yrs and also approximate capacity of its prior Philly brewery, opened in 2008. Yards took 6-7 yrs to ramp up to that production level from about 7K bbls, during period of fast craft growth across US. Now it’s got even bigger facility to fill. And last yr, it dipped by a little less than 1,000 bbls, about 2% from its 2017 volume, according to BA. So it looked to fast-growing South Jersey brewery, Cape May Brewing, to fill some of that excess capacity. Shiny new toys at Yards facility certainly an attraction. The brewery is outfitted with Ziemann Holvrieka brewhouse, Alfa Laval tanks and 220 can-per-minute KHS canning line. It’s also expandable to 200K bbls too, on 70K sq-ft footprint not far from downtown.

Not many brewers opening up facilities of this scale these days. But Yards has maintained pretty tight 4-state distribution area. And it “will continue to seek out partner brewers to keep our state-of-the-art facility churning out great beer around the clock,” CEO Trevor Pritchett said in release. “We built a brewery that we could grow into over the long run, so this is the perfect opportunity for us to diversify our business while we continue our strategy of increasing depth within our existing markets,” he confirmed  

Cape May Eyes 22-23K Bbls in 2019, Makin’ IPA at Yards  For its part, Cape May has been one of the fastest growing small breweries in the region over last few yrs. It sold just north of 16K bbls last yr, co-founder/CEO Ryan Krill told CBN. It’s targeting in range of 22-23K bbls by end of this yr. Or up 25-30%. So far, everything’s “lining up as planned.” First batch of Cape May IPA out of Yards facility should hit the mkt soon. Cape May only available in NJ (not yet in full state) thru distrib arm Cape May Beverage (see vol 9, no 105) and in small corner of PA in and around Philly thru Origlio, Ryan explained. It launched 4 counties in suburban Philly earlier this yr, but isn’t looking much further. Expects to finish filling out homestate by end of 2019.

Its facility at Cape May Airport could potentially pump out 20K bbls spread evenly across the yr, Ryan told us. But NJ in general “is very seasonal with beer” and since co located down the shore, that “seasonality’s really compounded.” Therefore, co tapped Yards to produce Cape May IPA, currently about 20% of its mix, as a “pressure relief for us, especially in the summer months,” Ryan said. Cape May already producing seasonal cranberry shandy called The Bog at FX Matt facility in upstate NY, mktg director Alicia Grasso reminded. This is “first year we’ve been able to put that out in package” and “for distribution,” she noted, so it’s “been really big for us this summer.” Then too, co has invested in its own facility, installing million-dollar rotary canning line for first time and hiring Brandon Greenwood as brewery operations veep, with experience at Lagunitas and Mike’s and more recently at Yee Haw Brewing in TN. Co currently boasts about 90 employees across brewery and distrib biz, Ryan and Alicia shared.

Yards in Good Company as Regional Contract Concepts Expand  Yards joins New Belgium, Abita, O’Fallon, Wachussett, Lazy Magnolia, Avery, Green Flash and Weyerbacher among several other established brands that’ve turned to contract partners (in varying degrees) to help fill excess capacity at newer and/or expanded facilities. Then too, BrewDog USA quickly pivoted to contract brewing with fast-growing Scofflaw after building sizable production brewery in OH. Separate from BA data, Craft Brew Alliance expects to brew around 300K bbls of contract volume this year out of AB’s Ft Collins brewery. Meanwhile, some experienced contract brewers in upper Midwest, like Cold Spring, remain active in the space. And in NY, Utica’s FX Matt brews for numerous contract partners, beyond longtime large client Brooklyn Brewery. Other established craft brewers taking it one step further, with full-on acquisitions, in part to help fill capacity, i.e. Sierra Nevada/Sufferfest, Wisconsin/Lake Louie, Oskar Blues (CANarchy)/Cigar City, Harpoon/Clown Shoes. 

At same time, regional breweries with focused contract programs have become go-to partners for many small brewers over the last few years, especially if outfitted with high-end equipment and/or helmed by respected brewers. In some cases they’re solely focused on contract brewing for small suppliers, such as Denver-based Sleeping Giant. Others have launched successful brands of their own, while taking on extra contract partners at same time, i.e. CT’s Two Roads and more recently WI’s Octopi. (Recall, Octopi listed as one of the fastest growing new regional brewers by BA last yr, at 15K bbls basically outta nowhere – see May 29 issue.)

Classic Contract Challenges  There are built-in challenges with contract brewing concepts across the board, of course; namely, the margins aren’t as good for either party, and supplier partners tend to come and go over time. Brew Hub perhaps is best example this, as its previous biggest partner, Cigar City, shifted contract volume to Oskar Blues’ NC brewery following deal with CANarchy. In other cases, smaller partners save enough $$ to more comfortably expand capacity of their own. Brew Hub’s initial ambition to open 5 different 100K-bbl contract facilities across the country has greatly scaled back; currently including one production brewery in Lakeland, FL and pilot brewpub in St Louis.

At the same time, many small breweries continue to open and/or expand on their own. A US market with 10K active breweries gets closer every day. Yet contract brewing has clearly entered a new era, mostly shedding prior perceptions of lower quality and somehow growing up alongside consumer fascination with all things local. So craft contract brewing operates at the nexus of a number of crucial craft trends: slowing segment growth; larger regional brewers with excess capacity, built out during years of faster growth; very many small breweries opening with very modest capacity. An important x factor that could come into play here: pricing.

Here’s a taste of a handful of notable stories worth dipping into this week. … When Sacramento’s original brewpub Rubicon shuttered in 2017, it took its iconic flagship Monkey Knife Fight pale ale with it. But the beer is back, revived by local Tower Brewing, which bought all of the Rubicon’s intellectual property (and employs one of the co’s ex-brewers). Now, “we’re chasing our tails to keep up with demand for it,” that brewer, Evan Rosatelli told the Sac Bee. It’s now Tower’s largest brand, canning and kegging 30-bbl batches every week and a half or so (in ballpark of 1,000 bbls/yr). Go fig. … Down in Anaheim, among Disney’s plans for just-approved Marvel-focused park: another brewpub, according to Los Angeles Times. Recall, co tapped Ballast Point for brewpub in separate CA park, plus numerous heavy craft hitters to make beer for pub in just-opened Star Wars park. … Up in Portland, OR, the pop-up pub opened by Mikkeller and local restaurant group Chefstable in space vacated by Burnside Brewing was hoppin’ over the weekend, with a line around the block for opening day, Oregon Live wrote. The pop-up Mikkeller location will remain open thru this yr, with the hopes of becoming a permanent member of PDX beer scene. …

Eastern PA’s Sly Fox is moving in a number of directions, launching standalone retro Reading Premium brand near its home market (see last issue) as well as opening a taproom in Pittsburgh, on opposite side of state. It started serving beers temporarily during city’s Three Rivers Arts Fest recently, with plans to operate similar temporary location for July 4, ahead of co’s permanent taproom+brewhouse opening this fall, according to Pittsburgh Next’s roundup of 8 new breweries opening soon in the city. … Finally, like a number of other Southeastern states, Alabama remains a bit behind the curve when it comes to extending privileges like retail sales and self distribution to small brewers. But the state has seen its fair share of legislative change over the last decade, initially driven (and still backed) by consumer group Free the Hops. Feel-good piece from Birmingham Magazine this week lays out just how far the state’s beer laws have come, opening oppys for 30 more breweries since 2009, up from about a half-dozen.

Each week features a few more announcements about breweries closing, or expecting to, tho they remain far fewer and further between than the stories about new brewery openings in many corners of the US. First, outside Detroit, Axle Brewing announced expectation to close at end of this month, according to Detroit Free Press. While current owners want out, the 2-yr old co is looking for a buyer willing to keep a brewery open in community of Ferndale, in metro Detroit. Out in San Diego, small Benchmark Brewing served its last pint over the weekend, it announced via social media. Open for 6 yrs with a couple of GABF medals to its name, Benchmark stuck to its guns making a variety of classic styles. But couldn’t make ’em stick in ultra competitive SD beer scene, as Westcoaster SD explained. Then in Indiana, new owners of Scotty’s Brewhouse restaurant chain decided to close its Thr3e Wise Men brewery, Indianapolis Biz Journal reported. Recall, co filed for bankruptcy at end of last yr (see vol 9, no 112), then later closed 7 of its 17 restaurants. Now it’s getting out of brewing biz altogether, keeping one Wise Men taproom and some Scotty’s restaurants. Finally, Rubber Soul opened in Salisbury, MD in 2012, but filed for bankruptcy in January, according to a PennLive report from earlier in the yr. But an LLC called Ghost Brewing recently acquired the co with plans to move it to a town outside Hershey, PA, PennLive wrote late last week.

Steady stream of craft brewers heading beyond beer into the likes of hard seltzer ain’t slowin’ anytime soon. But Maryland craft stalwart Heavy Seas took a different tack, announcing launch of E.Krispers Cider brand this week. And particular route it’s taking even more unique, as E.Krispers a partnership with owner and cidermaker at England’s Sandford Orchards, which will even produce cider across the pond. Decision will allow co “to ensure access to” 34 “traitional cider apple varietals that are not readily available in the US.” Co focused squarely on building US cider category, with unique take on both beverage itself and price. Targeted at $8.99/sixer. Progress of cider demand in US “exciting,” said Heavy Seas CEO Dan Kopman, but “to add fuel to the fire, we need to establish a new price point that reflects both the quality and approachability of cider as an alternative to other alcoholic beverages.” Price point just shy of cider avg, according to IRI foodstore data YTD, should help “attract new cider drinkers, critical to category growth,” Dan continued.

Watching share continue to shift to other alc bev categories, for yrs beer biz members toyed with idea of a unified pro-beer campaign. Close to the finish line early in 2019, plans for an industry-wide project blew up in the wake of Corngate, when #2 US brewer MillerCoors backed out in response to #1 AB’s Super Bowl ads. But folks are picking up pieces and moving forward. Beer Institute, NBWA and Brewers Assn will launch a “shared industry campaign this summer to grow beer,” BI prexy Jim McGreevy announced this wk at org’s annual mtg in St Louis. Simultaneously, MillerCoors issued statement that it won’t participate in funding til AB “stops their category denigration campaign,” as co views AB’s corn syrup marketing. Heineken USA also not funding for now, will wait until everyone is on board, it said. But even if all major BI members not prepared to fund campaign, AB and Constellation on board, as is BA and NBWA. “First phase” hits this summer, AB CEO Michel Doukeris explained, starting with a “pilot” that can be tweaked, scaled. (Note this article highlights deeper coverage of the BI meeting published this wk in sibling-pub INSIGHTS Express.)

Separately, beer and other alc bev manufacturers comin’ together to support Craft Beverage Modernization and Tax Reform Act (CBMTRA) in US Congress, recall, another topic top-of-mind at BI mtg. Less than a month after more than half of US Senate signed on to co-sponsor bill, over half the House now supports reducing alc bev excise taxes too. Bill sports 218 US Rep co-sponsors and 65 Senate co-sponsors, coalition of alc bev supplier orgs announced in joint release last wk. And orgs have “identified another 6 or 7” Senators “we think can go on the bill,” Jim noted at BI mtg. Again, bill seeks to make 2-yr reductions in fed excise tax rates, passed as part of broad tax bill at end of 2017, permanent. Those measures expire end of this yr, so orgs across industry, from BI and BA to Distilled Spirits Council, American Craft Spirits Assn, Wine Inst, Wine America and US Assn of Cider Makers all pushing to get bill passed. As in the past, key question remains whether CBMTRA provisions can be attached to a larger legislative vehicle and passed.

August III Rails Against Cannabis; New KnowYourDrink Site; BI Seats Craft Bd Members Also at BI mtg this wk, longtime ex-AB CEO August Busch III took oppy of receiving Jeff Becker Beer Industry Service Award to press brewers to “work hard against marijuana.” He believes legalized cannabis “will reduce the consumption of alcohol” and is “a bad influence in the marketplace” that will “get many people in trouble.” Of course, each of 4 biggest brewers/importers in US all already have a toe, at least, in legal cannabis. Those co’s represent 4 of 5 BI board seats and BI welcomed 3 new individuals to sit on bd of directors at mtg Monday, including Heavy Seas CEO Dan Kopman as official Craft Brewer Member. But org also added 4 more craft leaders as ex-officio reps to its bd: Jeff Hamilton (prexy at Sprecher in Wisc), Brad Hittle (CEO of CT’s Two Roads), Ryan Krill (CEO of Cape May in NJ) and Dharma Tamm (Rogue prexy). Finally, BI more formally working against other forms of alc bevs. It recently launched KnowYourDrink.org to include a drink calculator to further emphasize differences in alcohol content in beer, wine and spirits.

After solidifying itself among top MO brewers with a sizable presence in hometown, St Louis-based Urban Chestnut Brewing is moving at strong yet steady pace in 2019 and beyond while also beginning to seek potential oppys in new spaces, co-founder David Wolfe told CBN during visit earlier this week. Recall, Urban Chestnut opened in 2011 by ex-AB exec David Wolfe and brewer Florian Kuplent, and co quickly grew to regional status (15K bbls or higher) by 2015. Growth since settled down and last year slowed to mid-single-digits, up 1K bbls to 22K bbls in 2018, according to Brewers Assn stats. But this year co expects to pick up pace and reach 25K bbls, David shared.

Urban Chestnut has ample room to grow if needed, after expanding into 70K sq-ft production facility and bier hall location in 2014, set up to be its home for the future, David explained. Currently capacity is around 30K bbls/yr with ample space for new tanks and equipment, ultimately capable of reaching upwards of 80K bbls/yr. Even as canned packages have taken off and pulling away as its leading package, co still operating 40 cpm canning line that’s proven to be a notable “pinch point” in production. But as times getting tuffer within craft, Urban Chestnut’s in no rush, focused most on further capturing local mkt oppys. Urban Chestnut has distribution in MO, KS, IA and IL, as well as Nashville, TN and Indianapolis, IN, yet vast majority is still sold in St Louis metro area. In fact, Urban Chestnut is vying for #1 craft brand family in city scan data (read on).

Just Behind Schlafly at #2 Craft Brand Family in St Louis Scans, Up 30%; Urban Underdog Boosts Urban Chestnut’s prominence in St Lou shows up in spades when lookin’ at latest scan data. Urban Chestnut volume grew 31% and gained 0.3 share to 1.3 of total beer YTD thru May 26 in St Lou IRI data. It’s just 1700 cases behind Schlafly brand family (-13%) in St Lou scans. And lookin’ at $$ sales, both 4 Hands (+1.5%) and Urban Chestnut (+24%) are ahead of Schlafly YTD. Gotta note, key reason Urban Chestnut avg price per case is lower in scans is due to strong growth of Urban Underdog lager, which is priced lower than its core lineup in order to be more “competitive” with premium lager category, David pointed out: suggested retail prices are $14.99 per 16oz 8pk cans and $8.99 per 16oz 4pk. That brand rapidly became its second largest, representing 14% of its overall YTD shipments, David shared. New Urban Underdog pale ale adding incremental growth this yr as well, quickly becoming 6% of total shipments since launching this Mar. So collectively Urban Underdog brands are main growth drivers this yr. Flagship Zwickel Bavarian Lager still represents 34% of total volume, followed by Urban Underdog lager, seasonals (13%, primarily due to newer Grapefruit and Lemon radlers), Shnickelfritz Bavarian Weissbier (12%), its two year-round IPAs (12%) and Urban Underdog pale making up most of the portfolio.

3K Bbls Outta Germany Locale; “Self-Sustaining” Yet Lower Margins There Separately, Urban Chestnut’s small brewery in Hallertau region of Germany continues to grow steadily as well. It reached 3500 hectoliters (just under 3K bbls) last yr and has become “self-sustaining” since launch in 2015. But there’s not much traffic coming thru that part of the country, so most of the sales are locally based, and German prices tend to yield lower margins, he acknowledged.

New Avenues to Explore, Starting with Sparkling Hop Water Urban Chestnut also utilizing pilot brewery, URB, directly across the street from the production facility, aimed at piloting new brand styles, gaining on-site consumer feedback digitally and even expanding outside of traditional beer. Recall, earlier this yr co announced plan to launch non-alc Hop Sparkling Water in 16oz 4pk cans this summer, also promising to “explore” CBD-infusions among other “natural ingredient” infusions (see Mar 29 issue). Leading up to launch, the brand continues to be a hit at its taproom, difficult to keep in stock, David noted, adding that Urban Chestnut could look further in ancillary products down the road.

Fun fact: just 3 US breweries appeared on the Brewers Assn’s list of the 50 fastest growing for both 2018 and 2017 production years. Biggest of the 3 by far was Louisiana’s Gnarly Barley Brewing, based northwest of New Orleans, east of Baton Rouge in Hammond, LA. It sold just under 9K bbls last yr, up from 3,700 bbls the yr prior, according to recent profile in the Times-Picayune. Opened in 2014 for “less than half a million (dollars),” co-founder Zac Caramonta said, the brewery now employs 20. It’s taken on little debt, according to the paper, and opened its taproom in 2016. On-site sales now represent about 10% of the co’s profits but just 1.5% of its beer volume.

Flagship Jucifer, a hazy IPA (natch; “we spend a fortune on hops,” per Zac), accounts for almost 2/3 of the co’s volume, which isn’t even sold across state of Louisiana. Just in key markets, New Orleans, Baton Rouge, the North Shore and Lafayette. “I do want to be statewide,” Zac told the paper. “Outside of Louisiana? Time will tell. But if we can do everything we want to do and be a Louisiana-only brewery, I’m OK with that.” It’s already outfitted with its own canning line inside 14K sq-ft facility, currently being reorganized to move the taproom bar and create more production space. Correction: Alfa Laval supplied cellar operations equipment for Yards’ new Philly brewery, not its “tanks,” as we wrote last issue.

Brewers in Pennsylvania continue to push back against the prospect that, come July 1, they’ll need to start charging the full 6% state sales tax on every pint sold in their taprooms. A bill passed by state House late last week would allow breweries to charge the sales tax on just 1/4 of the retail price of beer sold in taprooms. It’s supported by the Brewers of PA state trade assn, according to Philly Inquirer report this wk. Bill provisions track argument that some brewers have made all along: since restaurants and bars pay the 6% tax when they buy kegs from wholesalers, brewers charging the tax by the pint would equate to paying about 4X the tax other retailers pay on a single keg. Bill headed to Senate Finance committee on Friday. Formulas for calculating sales tax on alc bevs remains “complex, and probably can be simplified across the board with all licenses having the same formula,” exec director of PA Licensed Beverage and Tavern Assn told paper. So his org hoping that’ll be “a next step...just to clear the muddiness.” Speaking of muddiness, turns out that some brewers were already paying the sales tax and have been all along, the Inquirer notes. That, along with lack of precise parity (not to mention lack of clarity) could create some hard feelings along with more muddiness. So stay tuned.

Elsewhere, a couple more governors signed off on legislation that passed earlier this session. That includes bill in Delaware that re-sets bbl cap on a “craft brewery” in the state to 6 mil bbls, under which brewers can keep certain license privileges. Recall, that’s bill we first wrote about ahead of largest brewer in state, Dogfish Head’s deal with Boston Beer (see April 19 issue). Since that issue, bill was amended and no longer references Brewers Assn, instead sets cap at 6 mil bbls. Then, over the weekend, Texas Gov Greg Abbott turned his signing of TABC Sunset Bill, including much-discussed amendment allowing production breweries to sell up to a case per day “to-go,” into quite the photo opp. Ceremony at Austin Beerworks (co-founder of which, Adam DeBower, acts as gov’t affairs chair for Tex Craft Brewers Guild and was major force behind passing bill this yr) captured on video for gov’s Twitter handle, called “jovial” by Austin American Statesman.

While Pabst’s craft efforts have quieted in recent yrs, co still lookin’ to partake in new ways. Pabst partnered with KY’s Against the Grain to “support AtG with sales, marketing and distribution of only AtG beer and specifically in Kentucky,” reported LeoWeekly. Recall, Pabst made similar agreement with MI’s New Holland in late 2016, for natl sales, marketing, and distribution support, helping the brand expand thruout the country (without its own brewery, Pabst doesn’t have as easy access to capacity solutions for craft partners). But this deal is far more localized. “The partnership with PBC only applies to Kentucky,” AtG’s “marketing and media maven,” Katie Molck told paper. “We’re in phase 1 right now…testing things out” and “taking advantage of their distribution network,” she added. Gotta note, AtG switched distribs late last yr to River City Dist in Louisville and surrounding counties, which also distributes Pabst.

Against the Grain grew about 5% to 6,100 bbls in 2018, according to Brewers Assn stats. But a lot of that volume is scattered. Indeed, when AtG opened 8 yrs ago, co added distribution in several mkts with larger cities across the country “because that’s where craft beer was most popular at the time,” Katie explained. And co even began focusing more overseas thru partnership with Brahaus Binkert in Germany for Europe production/distribution and branded brewpub in Okinawa with local Japanese entrepreneur. But now that KY craft mkt is more developed, AtG wants to “reintroduce itself into its home market in the most efficient way possible,” paper wrote. “Expanding distribution in Kentucky is our main goal,” Katie added. First move under new partnership is to bolster AtG’s rebranded lager, “A Beer” to become the “lager for Kentuckians.” At 4.5% ABV, A Beer is labeled as a “Super American Premium Lager,” sporting red white and blue bald eagle and USA pilot imagery on its can.

Pabst Down Double-Digits in Latest Scans Meanwhile, against the backdrop of Against the Grain partnership, Pabst is havin’ a tuff 2019, scan data shows. As co plans to transform, thru transitions to higher prices and new brands across spectrum of segments, total Pabst volume down 11% YTD thru Jun 8 in Nielsen All Outlet. Dollar sales a bit better, tho still down 8% YTD. And trend softened in latest 4 wks: volume down 14%, $$ down 10%. Flagship Pabst Blue Ribbon volume down 13.5% YTD thru Jun 8, $$ down 8%, with avg price per case up 5% to $18.11 per case in Nielsen All Outlet data. Ambitious plan to transform Pabst into “lifestyle business” that can be “profitable engine” for distribs co taking fairly sizable backward step in year one.