Massachusetts legislators are currently considering a pair of separate proposals to reform the state’s franchise laws. And the US beer industry looks on, seeing the very real possibility that MA will be the 3rd East Coast state to create a small brewer carve out to previously more strict regulations governing franchise agreements between brewers and distributors. Recall, Maryland and Maine already created new carve outs this yr, putting caps at 20K bbls and 30K bbls, respectively.

Lawmakers in MA have dealt with the issue for close to a decade. Brewers there, led by the largest in the state, Boston Beer, repeatedly backed proposals to create an exception to franchise laws, making it easier for small suppliers to change distributors. For years, no dice. Then last yr, distribs came forward with their own proposal, suggesting a carve out for brewers under 30K bbls/yr. This yr, the Beer Distributors of Mass upped that cap to 100K bbls, requiring 90 days notice and payment of fair market value (FMV) to move, according to a Boston Biz Journal report. The Mass Brewers Guild offered a tiered approach, BBJ wrote, with different terms of notice and payment at 3 different volume tiers: 1) if under 5K bbls, brewers would have to provide 30 days notice and would pay only 50% of FMV; 2) at 5K-350K bbls, it jumps to 45 days, full FMV payment; 3) 350K-6 mil bbls, 60 days notice, 110% of FMV.

Mass beer biz members headed to Beacon Hill to testify for/against one or the other bill yesterday. Unsurprisingly, Boston Beer founder/chairman Jim Koch offered some notably quotable, colorful commentary. Boston’s “never terminated” any of its (now) 400 distribs, Jim said, “because it’s so difficult,” according to a separate BBJ report. However, he recalled a time when one distrib shifted focus to wine & spirits over beer: “I didn’t terminate them. I knew the owner was going to die. You wait. You just wait. It’s easier,” he said, “because they can strangle you in the years this litigation takes.”

Citing that “99% of all breweries in the US [are] covered by” the distrib-backed bill, as BDM prexy Bill Kelley told BBJ, wholesalers referred to their bill as the “99 percent solution” at the hearing. “Building brands is not easy,” Atlas veep Jamie Salois said, according to write-up in The Republican (MassLive). “It takes a tremendous amount of teamwork, energy, resources and time.” And William Burke, prexy of Burke Dist, pointed out the 72 employees he had to lay off after Red Bull terminated the distrib since non-alc bevs are not subject to franchise laws. A number of distribs apparently “threatened widespread layoffs” if the brewer-supported bill passed, according to the Boston Biz Journal.

But Jim called that “fantasy.” He also commented that brewers are “willing to pay” to move. Even smaller brewers, which would be covered by distrib’s bill, pushed back, noting that it isn’t just the bbl threshold that matters to them. “We’d rather keep it as status quo than take that bill,” Night Shift founder Rob Burns said, adding that 90-day terms “make it a longer process for breweries to exit.” And for the smallest brewers, franchise laws are “paralyzing,” CraftRoots founder Maureen Fabry said. “Many” small brewers “hesitate to enter any agreements” because they know how difficult it will be to move later on.

Shortly after announcing launch in Utah, Founders Brewing followed up with news that’s it’s headed to Hawaii for the first time too. That officially fills out co’s national distribution footprint, making it one of just a very few craft brewers to finalize distribution in all 50 states. It tapped Odom Hawaii for sales in the Aloha State. Handful of brands (cans and draft only) shipping now, expected to be on sale in Hawaii before end of the month.

With two IPA’s flying and newer experiments clicking, Arizona’s SanTan feels pretty good about the 1st half of 2019. It finished last yr just north of 34K bbls, mostly sold in AZ, founder Anthony Canecchia told Craft Brew News. And so far this yr, “we’re at about 15%” growth, he said. Big part of that is flagship Moon Juice IPA, now about half its biz and trending up about 25% with plenty of distribution to fill in without expanding its footprint.

New hazy IPA Juicy Jack provides other big plus in early 2019 for SanTan, Anthony shared. It’s “blowing past our projections,” was quickly brought on by local Fry’s food stores, part of Kroger family and “a great partner for ten years now with our beer,” he said. Experimentation with hazy IPAs, driven by younger SanTan brewers, showed the founder that it “really is a whole new world” for IPAs. He finds Juicy Jack “very approachable” to both longtime hopheads and new IPA drinkers alike. Notably, it’s “picking up the slack for some of the more heritage brands” in SanTan’s profile, which are “seeing a little bit of loss.” But that’s “understandable” in Anthony’s view, and “kind of the environment that we’re in.”

Spirits Tasting Room Just Opened; Draft-Only Seltzer In Local Market for a Yr Outside SanTan’s core beer biz, the co’s getting additional boosts from experiments in spirits and burgeoning hard seltzer market. SanTan expanding its spirits line locally, recently getting its single malt whiskey into select Fry’s stores too. It just opened new spirits-focused tasting room, next to its original brewpub. Anthony’s encouraged that more brewers are starting to make spirits, noting that “the best beer makes world class whiskey,” in his view. Around 5% of SanTan’s production is a whiskey wash these days and co’s “laying down probably about eight to ten barrels a week” for aging. Then too, SanTan started making a draft-only seltzer for its own pubs and some local bars/restaurants about a year ago, Anthony explained. It’s experimented with a variety of flavors and “really quickly” found the draft option popular for local bars and taverns “that don’t have the full liquor license” and “can’t make the full vodka/sodas,” Anthony shared.

Employing about 30% barley malt for its seltzer, Anthony deems it clearly a “craft seltzer.” In fact, “if we don’t come and take this category and start doing what craft brewers do, which is innovate” and somehow “make it better,” he thinks, “then maybe you’re in this for the wrong reasons.” He’s encouraged by consumer interest in experimentation, not intimidated. “If the walls are collapsing between beverage categories, let’s just push them all the way down and see what flavors we can create.” He feels an “obligation to our consumers” to experiment and ask “where else can we go with this?” It’s “part of being a craft brewer,” in his view, to know that efforts are “not all going to be winners. But at least we tried.”

After finishing last yr as one of top craft bbl-gainers with volume at 454K bbls, over 3/4 in just CA(!), Firestone Walker is right on pace to reach goal of 500K bbls total in 2019, VP of sales and marketing Dave Macon shared with CBN. Firestone shipped 254K bbls thru Jun 30 2019 thruout its 33 state footprint (only 12 states with 805), and this year co expanded distribution only slightly to Pittsburgh, PA and UT, he pointed out. 805 continues to drive the boat and Mind Haze has been a strong addition to its portfolio, leading co toward another consecutive year of strong growth.

Firestone 805 “Continues to Grow” in CA; “Slower Burn” in New States; Surpassing Old Guard Flagships Nationally Firestone 805 still represents nearly 3/4 of co’s sales in scans, up 17% YTD thru Jun 16 in IRI multi-outlet + convenience data. In limited footprint, 805 $$ sales surpassed Boston Lager (-12%) to become #11 craft brand in IRI nationally yr-to-date thru Jun 16, and not too far behind New Belgium Fat Tire (-10%). Total volume already within top-10 and surpassed both Boston Lager and Fat Tire YTD. Recall, 805 expanded to several new states last year. In CA, where 805 is huge brand at this point, Firestone was expecting “more widespread” slowdown this year than has actually been the case, said Dave. It’s “resisting those trends to plateau” and “continues to grow” in CA. As for newer states, 805 is growing faster there off much smaller base, but it’s understandably “a slower burn” than skyrocket trajectory brand took in CA. These are “the states we’re sticking with for the time being” with 805; investing in existing mkts is “number one priority,” Dave added.

Mind Haze Eclipsed 200K Cases; New #2 Brand; #1 New Craft SKU in CA Scans; Other Initiatives Meanwhile, Mind Haze rapidly became Firestone’s #2 brand since launching this year. It’s already eclipsing 200K cases (all channel) a little over halfway thru the year, Dave shared. A testament to “how successful hazy beers have been” in general, he added. In fact, Mind Haze 6pk can SKU is #1 new craft SKU in CA statewide scans and #2 new craft brand overall, according to Nielsen All Outlet data. It’s already ranking within top-5 total craft 6pks in certain western mkts.

Other new initiatives this year such as Rosalie and reformulated lower-calorie Easy Jack session IPA are slower going thus far, Dave acknowledged. Rosalie “is going to take some time” and “biggest thing with it” is “making sure we educate” consumers thru sampling. Early signs show lift as weather improving and co’s “focused on the outdoors,” said Dave. Draft only launched 2 mos ago, so still altogether too early to tell. Then too, redesigned Union Jack IPA packaging just launched and represents “pretty radical transformation,” said Dave. Imagery nods toward London’s punk rock scene with “attitude of the Bear’s Califronia homeland” and “power of htre west coast style.” “Rather than stand down amid the onslaught of hazy and fruit IPAs, Union Jack is taking a stand: new look, new attitude, same intensely hopped IPA,” sell sheet reads.

The Exclusive 500K Bbls Club Net-net, Firestone Walker growth “continues to be defined by 805” and “the Mind Haze thing is unbelievable,” said Dave. Firestone Walker on route to becoming the next 500K bbl brewer in US if trends continue, a feat only accomplished by 7 individual US brewers previously, including Founders joining the club just last year (up 21% to 563K bbls in 2018). CBA’s Kona brand family and Bell’s are also in striking distance, after shipping 456K bbls and 478K bbls in 2018. Yet AB’s Goose Island and Gambrinus’ Shiner are each fighting to maintain volume levels above 500K bbls after dipping from recent peaks of 600K bbls. Others over 500K bbls: Sam Adams, Sierra Nevada, Lagunitas, New Belgium.

Brewers Assn continues to make its case that independence matters to craft consumers at the purchase level. Indeed, this year’s joint Nielsen/BA annual Craft Beer Insights Poll consumer survey found solid correlation between consumers who’ve seen the seal and purchased brands with the seal, Nielsen’s Caitlyn Battaglia shared during BA Power Hr earlier today. Notably, 42% of ~1,100 craft drinkers surveyed “have seen the seal” including 53% of “weekly” craft drinkers. And 24% of craft consumers, 31% of weekly drinkers surveyed, have purchased brands with the seal on packaging. That equates to 56-57% purchase rate as a % of awareness, Caitlin added. This is first year Nielsen added this question to the survey, and will be interesting to see how results change in coming years. But with 58% of craft drinkers and 47% of weekly craft drinkers who still haven’t seen the seal, that certainly suggests potential upside as BA and indie brewers continue to build awareness.

While beer industry growth increasingly shifts toward hard seltzers, and beer cos from top to bottom increasingly seek innovation outside of “traditional” beer, there are still several craft cos and brands makin’ notable headway in local mkt scans across the country, Consumer Edge deep dive report shows. Top craft gains increasingly comin’ from smaller cos, tho several large established craft cos continue to gain share as well. (More craft cos and brands are losing chunks of total beer share these days as well, no longer only losing ground within craft segment, but we’ll save that story for another time). Report looks at top-5 share gaining/losing beer cos and top-10 share gaining/losing brands in IRI data across 32 states. Here are some highlights.

WA’s Georgetown, VT’s Switchback, MI’s Bell’s, GA’s Creature Comforts Had Largest Gains at Home WA’s Georgetown (+0.6), VT’s Switchback (+0.6), MI’s Bell’s (+0.5) and GA’s Creature Comforts (+0.4) had largest share gains of total beer within their home states among craft cos in Q2 IRI data. Again, this is total beer share we’re talkin’ and these cos are significantly moving the needle in their home states. Impressively, WA’s Georgetown Brewing essentially doubled its share of total WA beer $$ to 1.4 for 52 wks. Its lead brand Bodhizafa IPA gained 0.4 share for both Q2 and latest 52 wks, making up more than half of Georgetown’s total scan biz in WA. Switchback is accelerating in VT scans, up 0.6 share of $$ in Q2 vs 0.3 share gain to 2.5 share of $$ for 52 wks. Flagship Switchback Ale and Switchback IPA (newer to scans) each gained 0.4 share in Q2, the #2 and #3 share gaining brands in-state. In GA, Creature Comforts fueled by flagship Tropicalia IPA, which made up 3/4 of total gain, up +0.3 share in Q2. And Bell’s is rebounding strong in home state MI after a tuffer year in 2018; it gained sizable 0.5 share of MI beer $$ for Q2. Now up 0.3 share to 4.6 of MI beer $$ for 52 wks. Its new brand, Official hazy IPA is driving growth with incremental 0.4 share of $$ in Q2. Bell’s flagship Two Hearted Ale continues to grow as well, up 0.2 share of $$. Tho gotta note, Bell’s also among top share losers in VA (-0.3) where co pulled out of state in midst of battle at state ABC with Reyes. VA having a notable effect on Bell’s overall biz, which slowed to $$ up 2% in Q2 IRI nationally.

Large Craft Cos Still Gaining Share at Home Bell’s isn’t the only large established craft co gaining ground in its home mkt. New Glarus gained 0.1 to a whopping 7.4 share of beer $$ in WI for 52 wks. That’s the largest share total for any craft co across the 32 states in Consumer Edge report. New Glarus well ahead of Mike’s (5.6) and Constellation (5.1) in WI, even as Mike’s gained full 2 share pts, Constellation +0.6 share for 52 wks. And flagship Spotted Cow still among top-10 share gainers in Q2, up 0.3 share of $$. Spotted Cow represents nearly half of New Glarus total sales in IRI, tho rest of its portfolio collectively losing share of WI beer.

Then too, Firestone Walker is top-5 share gaining beer co in home state CA in Q2, and gained 0.2 share to 1.7 of $$ in CA IRI data for latest 52 wks. Notably, it was also 5th best share gainer in AZ and NV scans; up 0.2 in Q2 and for latest 52 wks in both states. Firestone 805 blonde is among top share gaining brands in NV, reaching 0.5 share of total beer $$ there for latest 52 wks. IN’s Three Floyds gained 0.3 share of IN beer $$ in Q2, making it 4th best share gainer there for period. Its scan biz relatively underdeveloped in home state, but gaining ground with more recent shifts toward off-prem packaging. It has 0.5 share of total beer $$ for 52 wks. Flagship Gumballhead Wheat gained 0.2 share for both 52 wks and in Q2. In ME, Sebago (+0.3) and Allagash (+0.2) among top-5 share gainers in Maine scans. Both Allagash and Sebago now up to 1 share of beer $$ in ME for 52 wks. Allagash 4pk can launches of White and River Trip Ale are fueling off-prem growth. And Mass Bay Brewing (Harpoon) grew 0.3 share of beer $$ of VT in Q2 IRI, tho mostly driven by hard seltzers. (Editor’s note: Boston Beer is among top share gaining cos in nearly every one of these 32 states, driven by hard seltzer/FMBs.)

Some Top Gains Out-of-State A handful of sizable craft cos among top-5 share gainers in mkts away from home as well. Dogfish Head is #5 share gainer in VA, up 0.1 share in Q2 period and currently 0.6 share of VA beer $$ for latest 52 wks. Sierra Nevada was top-5 share gainer in TN scans (+0.1). SweetWater among top-5 share gaining cos in SC for Q2, up 0.1 share. CANarchy gained 0.1 share of $$ in OH for Q2, tho still relatively tiny in-state at 0.1 share of $$ for 52 wks. CBA is 5th largest share gainer in FL, as co’s marketing and promotional efforts on Kona coupled with Wynwood fast-paced growth off small base are paying off. But generally, notable gains from out-of-state craft cos are much harder to come by these days.

Growth isn’t just going to “new” or “small,” but “local.” All of craft’s growth these days is local, according to off-premise data shared by Nielsen alc bev veep Danelle Kosmal during today’s BA Power Hour. “Local craft,” defined as any brand with 85+% of its volume in one state or retailer, is up 5% by $$ in Nielsen’s broadest all outlet (with convenience, liquor and military) data for 52 wks thru 6/22. Such brands represent just over 10 share of total Nielsen craft $$ (including big brewer brands), but gained almost 1 full share pt in the last yr. And they tend to sell for about $5 more per six pack, with an avg price of $14.34/6-pk compared to craft avg of $9.26. Then too, pull “Local” out of craft and the rest of the segment is down 1.7%.  

So perhaps no surprise that “local” is important for most craft consumers. A “locally made” craft beer plays an important role in purchasing decisions for 59% of regular craft drinkers and 64% of weekly craft drinkers, according to poll results shared by Nielsen’s Caitlyn Battaglia. So “local” tracks within a point of interest in “Independent” for both casual and core craft consumers. A very similar 57% of regular craft drinkers and 62% of weekly craft drinkers say they “typically purchase” local beer that’s “only sold in my town or city.” Numbers increase for “regional” brands, which are purchased by closer to 70% of craft drinkers. But just 43% of craft drinkers of any kind say they “typically” buy national craft brands.

As a group, indie craft brewers that fit Brewers Assn def’n grew volume about 1.7% in IRI multi-outlet + convenience data yr-to-date thru June 30, BA economist Bart Watson showed in latest members-only post. That’s compared to 1.4% growth for IRI-defined craft (which includes big brewer acquired brands, CBA, Blue Moon, Shock Top, Leinenkugel’s, etc, but excludes Yuengling, other regionals). Notably, “BA craft within IRI craft” (our emphasis) grew 3.7%. So indie players in craft faring alright so far this yr, net-net.

Our own analysis of IRI trends over slightly shorter period (see July 2 issue) explains some of these differences, with a couple of larger BA-defined craft players improving, a couple of larger non-BA-defined players softening (even tho AB and MC acquired craft still strong, at least collectively). No matter how you look at it tho, “2019 is looking fairly similar, if not slightly stronger than 2018 in the first half,” Bart wrote. So “it’s looking like another year of mid single digit growth” to him. BA survey of members about 1st half going on now, so all-channel estimate coming later this month, Bart promises.

3 Patterns: Needing New, Smaller’s Better, Most Brands Down Some sobering patterns show up in Bart’s analysis tho, despite overall modest growth. These patterns ain’t necessarily new or surprising, but worth a reminder with some new numbers. First, “existing” BA-defined craft brands (sales in 1st half of both 2018 and 2019) collectively declined 2.5% by volume thru 6/30 in IRI MULC. New brands already 4.5 share of craft volume. So that incremental volume brings craft into positive territory, Bart shows. Second, only the smallest brands grew, while “brands that sold 1,001 cases or more in 2018 are collectively down in 2019.” Yup, everything over just 1,000 cases is down as a whole. Oof. Add in new brands, some of which are already quite large, and “things improve a bit,” according to Bart. But still, it ain’t easy for any brand with scale in craft.

Perhaps most sobering of all: “more brands are shrinking than growing.” In fact, a remarkable 38.3% of craft brands in IRI are down by 50% or more. And over half of craft brands down by 10% or more. Innovation and constant waves of new brands obviously plays its role in this. So does retailer culling, cutting space and placements in craft. On the flipside, 17.9% of BA-defined craft brands grew by 50% or more. Another 11% up by 10%-50%. And again, the gains still manage to outweigh the declines.

IPA, Duh; ABV, Huh? Plenty More Couple more notes from Bart. BA craft IPA grew 16% in the 1st half. Now “almost a third of BA craft volume” (our emphasis). Rest of BA craft collectively down 3.6%. “The runaway IPA freight train,” as Bart calls it, “is still barreling down the tracks” and showing remarkable strength. Still. Yet, for all the discussion of consumers cutting back and seeking low- and no-alcohol options, higher ABV craft brands continue to outperform, Bart shows. Brands over 7% ABV collectively up 10.5%, while brands under 5% ABV collectively down a little less than 1%. “The consumer data on ABV is split,” Bart sums up. But lots more here from Nielsen Power Hour today. Head over to Bart’s post for more details, numbers, explanation and commentary on these trends.

Slower, sure, but craft keeps growing in on- and off-premise retail as well as in the minds of consumers, according to Power Hour presentation by Nielsen bev alc team today, hosted by the Brewers Assn. Independent craft, as defined by BA, grew 2.4% by $$, 0.9% by volume for 52 wks thru June 15 in Nielsen all outlet data (ex-liquor stores) shared by bev alc veep Danelle Kosmal. Indie craft also growing in Nielsen CGA on-premise data, $$ up 2.8% and volume up 0.5%. Furthermore, 43% of 21+ adults now say they drink craft at least several times a year, according to results of recent Harris Poll. That’s up 3 pts from last yr’s survey and up from 35% in 2015. That 3-pt uptick in one yr is actually largest single-yr gain in % of 21+ adults who say they drink craft regularly.

Then too, many craft drinkers say they’re drinking more craft beer than they did a year ago. That’s according to results of annual Craft Beer Insights Poll conducted by Harris Poll/Nielsen for the BA, shared by Nielsen’s Caitlyn Battaglia during Power Hour. A full 30% of 1,100 regular craft drinkers say they’re drinking more craft than this time last yr. And 44% of weekly craft drinkers (all of which represent 45% of regular craft drinkers) say they’re drinking more craft this yr than last. Compare to just 13% of regular craft drinkers and 7% of weekly craft drinkers who say they’re drinking less. That’s a wider, more positive spread than similar results for the 2018 poll, too. Half the folks who say they’re drinking more also say they’re drinking “less” other alc bevs, led by “other” beer. Caitlyn also called out that craft drinkers also increasingly report hard seltzer consumption. (Then again, so is just about everyone.)

The vast majority of core craft consumers may be drinking the same or more craft beer, but other Nielsen survey results suggest they’re also drinking fewer brands per month and being less adventurous with their buying choices. Fewer craft drinkers and weekly craft drinkers purchase 5+ different craft brands in a month, Danelle explained. About 12-13% of craft drinkers say so now, down from over 20% in 2015-2016. The drop for core (weekly) craft drinkers was more precipitous: less than 20% said they purchased 5+ brands in a typical month in this yr’s poll, down from about 25% last yr and 30% in 2015-2016. Meanwhile, these days, 3/4 of craft drinkers purchase 1-3 brands/mo.

These drinkers also far less likely to constantly buy a brand they’ve never heard of. In this yr’s poll, 21% of craft drinkers “always” or “often” buy a brand they’ve never heard of, down from 26% last yr and 37% in 2015. Of course, over 2/3 “at least sometimes” buy a brand they’ve never heard of, and males and weekly craft drinkers are even more likely to try something different. But this shift suggests to Danelle that “now is the time for brewers to ramp up advertising efforts.”

Not too long after AB InBev acquired a leading position in Australia as part of massive ABI-SAB deal, it agreed to sell Australian biz unit, Carlton & United (CUB), to Asahi for $11.3 bil. And in the process of this shuffle among giants, ABI’s Australian acquired craft brewers just along for the ride. Recall, ABI acquired two emerging Australian craft cos, 4 Pines and Pirate Life, within mos of each other, in Sep and Nov 2017. Less than two years later, they’re under new ownership. At the time of Australian acquisitions, 4 Pines touted ambitious plans to “become locally famous in Australia and globally celebrated” (see vol 8, #83). And Pirate Life looked a lot like a brewery built to sell, opening in 2014 and quickly reaching about 25K bbls by 2017 with plans to nearly triple capacity to ~68K bbls post acquisition (vol 8, #102). Without ABI’s heft going forward, any ambitions outside of Australia may be scaled back.

This isn’t the first time this has happened to an acquired craft co overseas. Recall, UK’s Meantime Brewing was bought and sold 3 times in 12-18 mos, first to SABMiller, then to ABI, then to Asahi in 2015-2016. We’ve also seen this kind of thing happen within private equity world (see Jul 12 issue). Ultimately, once a deal is done, these decisions can become well outside of craft brewers’ control. Only a pawn in the game.

Then too, Asahi has long been perceived as potential strategic brewer lookin’ to enter US craft mkt over the years, but it continues to spend money elsewhere, including $330 mil on Fuller’s, Smith & Turner earlier this yr and about $10 bil in 2017 for European rights to Pilsner Urquell, Peroni, Grolsch and other brands from ABI-SAB deal. Gotta think that latest deal in Australia of this magnitude, funded largely by debt, would further postpone any interest Asahi may have in US.