BrewDog USA is cruisin’ in 2019 even amid “toughest environment I have seen in 23 years of selling craft beer,” Chief Rev Officer Adam Lambert shared in email update to his network (as he used to frequently do back in his Dogfish days). BrewDog depletions are up 114% YTD thru May, following co’s best month yet in May with 51K CEs. Recall, BrewDog USA initially expected to hit 25K bbls and $18+ mil in revs last yr, yet co ended up surpassing 36K bbls in 2018, according to Brewers Assn stats (unclear if any contract volume included in BA number).

Over Half of Biz in OH; Mid-Atlantic Growin’ Most; MD with Bond and Buck Dist Notably, 56% of its volume is in OH, growing 90% YTD. Midwest (IN, IL, MI) and Mid-Atlantic divisions are gaining ground, up 132% and 182% respectively, now representing 18% and 22% of total BrewDog biz. Then too, BrewDog added north central WV earlier this yr, as well as 8 new wholesalers in existing territories, DC mkt with Reyes’ Premium Bev in Mid-May, and this week is rolling out MD with Bond and Buck Dist, bringing total footprint to 11 states + DC total (OH, IN, IL, MI, TN, KY, PA, NJ, NY, MD, WV, DC). Co initially planned to add 4-5 states thruout 2019.

Mix Shift Toward Off-Prem, Chains; New Brands 7% of Biz; 12pk 16oz Cans Paying Off BrewDog mix shifting more toward off-prem channels, as total off-prem sales grew 127% YTD representing 60% of total biz, vs on-prem up 97%. Tho in chains, on-prem sales growth (+141%) currently outpacing off-prem (+114%), likely off small base. Natl accts now represent 45% of total biz.

Core portfolio – Elvis Juice, Hazy Jane, Punk IPA, Clockwork Tangerine and Lost Lager – are 86% of total sales, including new Lost Lager and Clockwork Tangerine reaching 7% of total biz YTD as sales accelerating. Lead brands in US, Elvis Juice (+119%) and Hazy Jane (+125%), are each more than doubling, receiving extra boost from new “multi-channel pack size” of 12pk 16oz cans. Recall, pkg is designed to serve on-prem, events and c-stores as well as chains, similarly priced to craft 15pks on cost-per-ounce basis (see Vol 9, #110). Collectively they’re 6% of total BrewDog USA biz YTD.

“Slightly Behind Our Ambitious Goal” Even with strong sales growth nearly halfway thru the year, BrewDog “still trail[s] slightly behind our ambitious 2019 goal,” Adam shared with distribs. Indeed, BrewDog will be going up against tuffer comps thruout rest of 2019, as co grew more than 400% last year per BA stats. Yet BrewDog has already carved out fairly sizable space for itself in US amid ultra-competitive craft mkt. And clearly, co’s sights set higher.

Cannabiniers/Two Roots is among most aggressive in cannabis bev space, talkin’ a big game about plans to expand all year long. But talk just got even bigger at recent Cannabis Forum hosted by BevNet (as our sibling pub Beverage Business Insights reported yesterday). Following acquisitions of CA’s Helm Brewing and CO’s Dad & Dudes Breweria, two pending letters of intent to acquire additional craft brewers, and plans to acquire 500K bbls/yr of brewing capacity by 2020, Cannabiniers now discussing JV with unnamed “top-10” craft brewery, Lighthouse Strategies CEO Michael Hayford shared at forum (Lighthouse is co that owns Cannabiniers/Two Roots). This discussion was one “that I didn’t see coming” and “depending on how that works out, we may add more breweries or may not need to,” he added. Editor’s note: Different definitions yield different top-10 lists, but excluding brewers that already have inked majority deals with large strategic brewers, possible names could include: Boston Beer, Sierra Nevada, New Belgium, Shiner/Gambrinus, Craft Brew Alliance, Founders, Bell’s, Firestone Walker/Duvel USA, Stone, CANarchy, Deschutes. You can probably eliminate a handful of names from realm of possibility pretty quickly, while zeroing in on more likely candidates. Yet once again, talk is just that…we’ll see.

Cannabiniers already owns 85K sq-ft of real-estate including space for cultivation, retail, and other activities, Michael shared. Recall, Two Roots brand quickly jumped to #1 THC-infused bev in NV and earlier this yr launched CA. Two Roots also plans to enter MA, MI, OR and CO later this yr, and goal is to have brand presence in 20 states, sez Michael. Cannabiniers already spoke with 3 of largest Canadian players who’ve signed JV’s with large alc bev cos. “It’s possible by end of year we could be in one of their portfolios” in Canada, he added. Indeed, Michael isn’t shy about broader ambitions, aiming to assemble portfolio comprised of $250 mil in cannabis biz and $500 mil in bev production, including conventional bevs, as well as CBD- and THC-infused bevs. Ultimately, Cannabiniers/Two Roots has multi-year head start on larger strategic cos in this space, and “as much as we want the federal laws to change, the big guys will be standing on the sidelines for some period,” Michael pointed out. “We’ve got time to move forward and capture market share.”

CT’s Two Roads Brewing is in midst of another solid year of growth, and expects to pick up pace with help from a couple new initiatives coming down the pike starting next mo, founder and CEO Brad Hittle shared with CBN during brewery visit yesterday. Recall, Two Roads brand family grew low-double-digits to 64K bbls in 2018, and reached 144K bbls including sizable contract biz (see Mar 8 issue). This yr, Two Roads brands are up 6% YTD and could accelerate to +9-10% by year end thruout 13 state + DC footprint, said Brad. So co expects to end up somewhere between 68-70K bbls for full yr. But these days it’s about “managed” sales growth, coupled with “efficiency growth,” said Brad. Three-pronged approach toward growth involves: 1) innovation; 2) ability to invest in sales and marketing; 3) quality and efficiency investments.

Two Roads Hard Seltzer w/ 100% Real Fruit, 4.5% ABV; Two Roads 2-Pks & Other Area Two Initiatives Lots happening on the innovation side. Two Roads is the latest craft brewer to make foray into booming hard seltzer space, launching this Jul, Brad told CBN. Its hard seltzer touts 100% real crushed fruit, no extracts, 4.5% ABV, and gluten-free attributes among others, and will be available on draft and in off-prem packaging. Co hopes to start with local push and branch out further from there. And distribs have been highly receptive to brand, Brad said.

Meanwhile, new Area Two brewery/taproom, with focus on barrel-aged and sour brews up and running since Mar, will begin packaging a handful of new brews for distribution starting next mo. Among several new beers created, rotating sour-fruited ale series, Synopsis, will be packaged in unique 2-pk cans for $10. Synopsis utilizes innovative brewing process to get Lambic-like attributes within 6-wk timetable (opposed to 18-24 mos for Lambics), brewmaster Phil Markowski and Brad explained. Otherwise, 3.7% ABV Table Terroir has been only consistent packaged Area Two brew up to this point. Area Two has 5-6K bbls of capacity currently with ability to expand to 10K bbls/yr. It’s sporting one of the largest coolships in the country, plus room full of aging barrels and foeders, and tasting room showcasing 15 different experimental brews on tap, plus cooler full of beers to-go. On top of new beers from Area Two, co could use facility to further explore adjacent bev categories, already thinkin’ about anything from spirits and cocktails to hard kombucha and beyond (particularly with new CT law passed by Senate to allow for dual distilling and brewing licenses). Also, co’s 7-bbl pilot system in its main brewing facility is hooked up to 10 fermenters currently. So Two Roads doing “ton of experimentation.”

Two Road CT Depletions +10%; 35-40% of Mix; Lil’ Heaven, Road to Ruin Lead Way; Juicy IPAs Bustling Even as Two Roads expanded distribution over last couple yrs, CT growing as % of Two Roads mix this yr. CT depletions up 10% and represents 35-40% of total volume. Taproom at Hartford’s Bradley Intl Airport has proven to be notable boost to local biz, run by separate restaurant operator trained by Two Roads staff. Its own taproom is typically around 10% of total revs but flattish these days, Brad explained. Tho brewery still gets wide variety of visitors on a regular basis, spanning all age groups, genders, ethnicities etc.

Lookin’ to Improve Juicy Shelf Life Hazy IPAs have made imprint on Two Roads’ portfolio as well, natch. Two Juicy double IPA and Lil Juicy IPA quickly grew to become sizable brands. But Lil Heaven IPA is still top brand, followed by Road to Ruin double IPA, collectively making up ~30% of mix, Brad shared. Shelf life of hazy IPAs is an area Two Roads is focused on. Two Juicy shelf life just 6 wks currently. But with help from new equipment investments (see below), Lil Juicy shelf life improved to 2 mos, and co aims to improve Two Juicy shelf life as well.

Lawson’s Still Crankin’, #1 Contract Partner; Montauk Added to the Mix; Reluctant to Add More Partners Lawson’s remains its largest contract brewing partner, still crankin’ out Sip of Sunshine and Super Session IPAs for co even after Lawson’s built new VT brewery last yr. (Separately, Lawson’s just announced expansion into NJ and central/upstate NY with Remarkable Liquids starting this July). 12% Imports brands, NY’s Evil Twin, MD’s Stillwater and Sweden’s Omnipollo, collectively considered another top partner. And more recently, fast-growing Montauk Brewing shifted some contract volume over to Two Roads as well, on top of its partnership with Wachusett Brewing. Yet Two Roads is more reluctant to add contract brewing partners at this point, despite still receiving several requests from brewers. In the past, co would buy a new tank for each new brewing partner, but it’s not lookin’ to add brewing capacity as much these days, Brad explained. Current annual capacity is anywhere from 165-170K bbls.

$3.5 Mil on Cap-Ex Last Yr; “Creative Engineering” and Efficiency Upgrades; ~170K Bbls Capacity Last yr, Two Roads made sizable $3.5-mil investment into cap-ex, that was largely paid outta cash flow, Brad shared. That involved traditional investments in new equipment such as high-speed canning line (450 cpm), new tanks, centrifuge, and larger grain silo. It also implemented new centralized/automated control system for brite beer tanks that reduces oxygen flow into beers and ultimately improves quality. But investments also include several instances of “creative engineering” from brewmaster Phil and brewing team. For example, co purchased 3 milk trucks to use as separate tanks for kettle-souring, since kettle-sour process renders tanks unusable for 48 hrs. Kettle-sour series now aptly called “Tanker Truck.” Co has a separate “surge tank” to brew hazy beers more efficiently and avoid quality issues, Brad added. And co built a pipeline from the main brewery to Area Two facility that allows co to send beer made in Area Two across to the main brewery for canning and kegging.

All told, Two Roads finding new ways to grow amid tuffer competition, while better managing complexities of its unique biz model. With hard seltzer, Area Two brews, hazy IPAs and more innovation coming down the pike, Two Roads has solidified itself among top new regional brewers that opened within the last decade.

The widely regarded ‘1st craft brewery in America’ lost almost half its volume in less than 5 yrs and is no longer ‘craft’ to some besides. Separately, a small group of brands that collectively sold over 100K bbls in Oregon two decades ago dipped below that mark in the last yr or two, suffering even larger declines. Names that once ruled craft, established it in markets that remain its most developed, no longer hold prior strength. Their glow faded or they feel “dated” in a marketplace where today’s brews are history tomorrow.

A pair of articles, both published in West Coast craft hotbeds last Friday, followed similar storylines, tracking the difficulties faced by iconic local breweries. It got us wondering just how far some of the brewers mentioned fell. Collectively, it equates to the loss of over a half-million bbls over the last decade, almost 90% of that over just the last 5 yrs. Recall, craft volume grew 16.7 mil bbls since 2008, with over half that growth since 2013.

Front-Page Portland “Problem” and “the Unanchoring of Anchor”  “The craft beer industry has a problem” and “increased competition is roiling a once steady landscape and claiming victims,” The Oregonian published in long, front-page piece last Friday. The same day, the San Francisco Chronicle explored “The unanchoring of Anchor Brewing,” as it headlined extensive review of the brewery’s path thus far. Both paint tough pictures of craft in 2019 with colorful quotes and troubling details. “With this many breweries, there’s not enough market, enough consumer purchase to sustain them all,” Deschutes founder Gary Fish told the Oregonian. “There’s just too many choices, too many brewpubs,” co-founder of Laurelwood Brewing said. “There’s just too much beer out there,” says former owner of now-closed Burnside Brewing, Jason Mcadam.

While Burnside closed suddenly and both Laurelwood and Deschutes have not kept up pace in the ultra-competitive Portland market, the article starts off highlighting 3 other “brands this beer town was built on: Portland Brewing, BridgePort, Widmer Brothers.” Like Anchor in SF or, even farther up the coast in Washington, Redhook and Pyramid (which share ownership with 2 of those OR brands). This half dozen breweries helped lead craft before it was “craft” as it’s measured and ranked now: they were all among 1998’s “Top Fifty Domestic Specialty Brewing Companies,” published by the Assn of Brewers (one of the Brewers Assn predecessor orgs). Redhook, Widmer Bros and Pyramid ranked #6-8, with Anchor at #10. (New Belgium, one of just 3 breweries in the top-10 that grew that yr, was #9.) Portland was #16. BridgePort, at about 23K bbls, was #33.

Anchor’s Drop: 40+% in 4 Yrs  Anchor peaked in 2014 at about 159K bbls. The Chronicle cites 90K bbls produced last yr, quite a bit lower than our initial estimate. That suggests a near 69K-bbl, 43% decline in just 4 yrs. It also suggests total Anchor volume dropped almost 10K bbls below its sales in 1998. At that time, US craft volume totaled less than 6 mil bbls, according to our estimates. Anchor didn’t follow a straight upwards pathway in the last 2 decades, dipping down between 80K and 90K bbls in the early aughts. But its recent decline represents a much steeper dropoff.

By the mid-2010s, under new ownership, “Anchor needed to change,” the Chronicle wrote. And longtime brewmaster Scott Ungermann “pushed for it,” he said, linking the legacy of Fritz Maytag, who bought the co in 1965, with the needed innovation, new beers and new brands. Then the Griffin Group, which bought the co in 2010, sold it to Sapporo in 2017. “Many of the changes that will come under the new ownership have not yet been implemented,” according to the paper, adding that “sales, for instance, remains to be integrated.” But “there has been turnover,” including the departure of “every position in senior management,” save brewmaster Scott, in the last yr.

PacNW Pioneers Fall Further, Down by 2/3-3/4  The combo of Widmer Bros, BridgePort and Portland (MacTarnahan’s) brands already totaled over 100K bbls just in their home state of Oregon by 1998. Through most of the next decade, these 3 top brands represented well over 40 share of in-state craft volume. Fellow OR leader Deschutes held a good chunk of the rest. All along, BridgePort represented the smallest slice of that, but it more than doubled between 1998 and its peak of 55K bbls in 2011. It lost all of that gain over the next 5 yrs. Then BridgePort fell by another 50+% to 10K bbls between 2017 and 2018. Owner Gambrinus shuttered the operation early this yr.

Widmer represented almost a quarter of Oregon in-state craft volume in 1998, 10 yrs before the deal that formed Craft Brew Alliance. Widmer peaked around the time of the formation of CBA, at 286K bbls in 2009. It slipped below 100K bbls last yr for the 1st time in well over 20 yrs. It was already 117K bbls by 1998. Portfolio-mate Redhook fell even further to 71K bbls last yr. It topped 200K bbls two decades ago, peaking just below 230K bbls in 2003. After slipping a bit before the deal that formed CBA, it climbed back above 220K bbls in 2014. So Redhook volume is down by almost 70% since its early-2000’s peak and down almost that much again in just the last 4 yrs. Taken together, (including Kona and other CBA brands) CBA sold less in Oregon in 2018 than just Widmer brands did in 2006. Total in-state craft volume in the state more than doubled in that time. CBA’s volume in Washington dropped 40% since 2013, according to state reports. Despite these drops, CBA remains a top US craft player, backed by sustained strong growth of Kona, its unique arrangements with part-owner AB and acquisition/development of other brands.

FIFCO USA, owner of Portland Brewing, Pyramid and Magic Hat, is in a different boat. Lumping Portland and Pyramid brands together, the pair peaked at 208K bbls in 2008. Five yrs later, they sold half that volume. After another 5 yrs, Portland/Pyramid sales fell by half again, hitting just 50K bbls last yr. A little less than half of that was brewed in Oregon, sold in Oregon, compared to the near 40K bbls Portland sold in the state back in the year 2000. Out on the East Coast, Magic Hat volume fell by almost as much. It topped 200K bbls a bit later, in 2011, and hit 205K bbls in 2012. So it’s 70+% decline to just 60K bbls by 2018 happened even more quickly.  

Defying Categorization and Sisyphean Tasks; Yet, Optimism?  It’s hard to ignore that all of these breweries did one or many deals over the years. While being bought may have contributed to these trends, it doesn’t explain away these trajectories on its own. Far from it. “Sure, it sold out, but Anchor had sold five times already by the time Maytag bought it in 1965,” the Chronicle noted: it’s “always been a little bit David and a little bit Goliath.” It doesn’t fit into the neat big/small narrative so often used to simplify craft’s story. Along that and other common craft binaries, “Anchor continues to defy categorization,” the paper wrote. Increasingly, it isn’t alone. A growing number of companies competing in craft don’t fit into one or another simple box. And it ain’t easy out there for anyone. National (or even broad regional) distribution without the support of AB or MillerCoors “is becoming a Sisyphean task,” according to the Chronicle. “But is selling beer locally when you lack the street cred of independent ownership any easier?”

These co’s and others aren’t giving up without a fight, either. This week alone Anchor announced two moves to improve its trajectory in its home market, launching specialty label art for flagship Steam and a Pride-month partnership with the SF LGBT Center. “At some point we have to behave like the company we are, not the company we want to be,” Deschutes’ Gary Fish told the Oregonian, acknowledging “some tough decisions that go along with that.” It too recently launched a new mktg campaign highlighting its home turf. Notably (and perhaps surprisingly), both the Oregonian and the Chronicle conclude in a more optimistic tone. Many small brewery owners in Oregon (and beyond) acknowledge the above struggles and plan to stay much smaller, the Oregonian points out. And the Chronicle fully expects a shift that some already think has started, a consumer pendulum swing away from new and different, back toward “the clean, the balanced, the refreshing.” For many brewers, such a shift could not come too quickly.

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The total alcohol market grew 14% to $198 bil over past 52 wks thru Aug 10, 2022, NielsenIQ's Drew Hummel and Jon Berg shared during recent webinar. That includes on-premise channel. Sales velocity ran ahead of previous 3 yrs "in nearly every week this year, though ticket count is down 3%," they noted. Beer sales totaled $89 bil for 52 wks to Aug 2022 in on/off premise, up 15%, per CGA by NielsenIQ data. Imports, "driven by Mexican lager" led category on-premise share growth over past 52 wks. Imports added 1.7 share to 22.5. That's behind 30 value share for domestic premiums which grew 0.3 over 52 wks. Those were only gainers in beer with craft losing most share, down 1.5 pts to 28.9 on-premise. Domestic super premium share off 0.2 to 6.4 while Seltzer down 0.1 to 3.2 for 52 wks.

Just after slew of complaints against makers of "ranch water hard seltzers" hit federal courts, next round of briefs in Topo Chico Margarita Hard Seltzer suit became public. Coca-Cola asked NY fed ct to drop the suit, filed in Aug, arguing "no reasonable consumer" would believe the product contains tequila. "Hard" on its own does not suggest use of spirits, co argues, and combo of price, place, ABV and ingredients should have dispelled any ambiguity. Plaintiff opposed by largely sticking to its guns, then Coke replied with a few extra arguments.

Beer bounced back in latest week of IRI multi-outlet + convenience data thru Dec 11. Dollar sales rebounded to +4.3% following slight 1.6% gain in previous wk (even with ~8% price hike). Volume sales declined 3.6%, improving from 6.3% drop in wk prior.

AB's making "modifications" to part of its Wholesaler Equity Agreement (EA) as co seeks to update contract language to account for "changes in consumer behaviors and key segments, as well as significant advances in technology," chief sales officer Simon Wuestenberg and biz wholesaler development veep Bob Tallett wrote to wholesaler network this morn. Changes involve Exhibit 9 of the equity agreement, "Operating, Sales and Merchandising standards," notably now incorporating its controversial BEES e-commerce platform. This section most recently updated in 2018 to "ensure compliance with terms of the Consent Decree," execs detailed, referring to agreement with US Dept of Justice when ABI bought SABMiller. Latest updates "primarily" fall in 3 categories: "evolving the document, updating to current verbiage, and reducing complexity."

As Monster prepares to roll out its much-anticipated Beast Unleashed product in first qtr to a number of states, it sent tuff contract to distribs that's getting lotsa buzz behind the scenes. Complex contract includes everything from hefty marketing investment, ability to give distribs some brands not others, or in part of territory not all of territory, plus more latitude in terminations. Also mandates that all disputes get resolved by arbitration in Southern Calif. Some suggest the provisions on brands may not pass muster in states with strong brand extension laws. "Think NA terms in a beer agreement," said one source. NBWA reportedly provided distribs and their state assns guidance on Monster's agreement. Assn has done that for lotsa other proposed distribution agreements for alcohol and non-alcohol products in recent yrs, including common recommendation that distribs consult their atty and state assn. It's almost a year since Monster bought CANarchy. It didn't make many waves in beer biz in yr 1, but that all could change in 2023.