Craft Brew Alliance had solid Q2 including positive depletions growth (+1%) for first time in recent memory. Shipments accelerated up 4%. And co achieved “record” beer margins. Depletions improved to -1% YTD and shipments grew 3.5% YTD thru Jun 30. “CBA’s second quarter results reflect a tangible return on the strategic investments we’ve made to fuel Kona’s momentum, realize the full value of our newly acquired brands, and unlock our future potential,” CEO Andy Thomas stated in release. Kona depletions accelerated to up 8%, shipments +11% for qtr amid natl ad campaign boost, including Kona Big Wave depletions up 25% in US for qtr (+22% YTD). Appalachian Mtn and Wynwood brands continue to add growth as well, tho slightly offset by declining Cisco shipments, co noted in 10-Q. Widmer shipments noticeably improved to -5% for qtr and -6% YTD, tho depletions are still down double-digits. And both Redhook and Omission continue to decline at double-digit rates on both shipments and depletions. New pH brands still too small to show material impact in volume, it seems.

Then too, second qtr gross margin expanded 270 basis points to 38.5%, including 220 bps improvement in beer gross margin to 41.6% and pub gross margin expansion of 710 bps to 10.1%. This reflects “positive impact of transitioning” recently acquired brewers from an alt prop to fully owned, “as well as the continued benefit of our rationalized footprint,” per release. Yet oddly, net sales decreased despite shipments and depletions growth in Q2, attributed to “change in ownership structure” of App Mtn, Cisco and Wynwood. And co’s net income slashed nearly in half to $2.6 mil for qtr as big boost to Kona marketing spend raised SG&A costs $3.5 mil to $19.4 mil total in Q2. Now up $14.3 mil to $44.9 mil YTD (also due to $4.7 mil class action settlement fee incurred in Q1). So CBA still has net loss of $4.75 mil YTD.

Also gotta note, CBA hurting in recent scan data; $$ down 9% and volume down 11% for 4 wks thru Jul 12. BREW stock is down 9% to $14.34 just in the last 5 days. And loomin’ large, deadline for AB to decide whether or not it will acquire rest of CBA for $24.50 per share is a little over 2 wks away. Unclear how, if at all, AB’s acquisition of Platform (see below) affects potential outcomes. But while CBA showed improvement in Q2, still plenty of uncertainty clouding CBA future. Indeed, co didn’t offer full year guidance, “deferring an update of our full-year outlook until early September,” after Aug 23 deadline. More deets after conference call tomorrow.

In Tuesday’s issue, last minute edits introduced a couple of typos, including one to Captain Lawrence founder Scott Vaccaro’s last name. Our apologies, Scott.

Beer and sports, a match made in seventh-inning-stretch heaven. While long dominated by major leagues and major players, on the field and in the marketplace, both worlds have seen some serious fragmentation, opening up oppys for smaller craft brewers. Those oppys follow the rise of minor league outfits, once-fringe sports/events and recreational/hobby groups alike. Tribute beers can make big local splashes. And for top craft players, major sponsorship deals aren’t out of the question.

Some recent highlights: to kick off August, Deschutes announced deal to be the 2020 presenting sponsor and official beer of the American Ultimate Disc League. The young league launched in just 2012 and this weekend will host its 8th championship events, with plenty of Deschutes beer flowing. During next season, Deschutes logos will appear on jerseys for all 21 teams, according to release. It’s a step-up for both the AUDL and the brewery, as it expands across the US. (Fun fact: did you know that Brewers Assn economist Bart Watson was a national championship ultimate player? A quick google search for “Bart Watson ultimate frisbee” will do the trick.)

In Cleveland, Great Lakes Brewing recently revived 73 Kolsch for a 2nd yr, a beer created last yr in collaboration with now-retired Cleveland Browns lineman Joe Thomas (#73). It launched this week in town as part of co’s limited-release 16oz can runs, with event featuring Joe at co’s brewpub last night. Recall, Great Lakes has been in Cleveland for over 30 yrs and has made inroads with multiple large sports orgs in town, including striking deal to be official beer sponsor of MLB’s Cleveland Indians early this yr. And down in Baltimore, tribute packages to honor NFL Hall of Fame induction of Ravens player Ed Reed sold out quickly at Union Craft Brewing, with all proceeds headed to Ed’s charitable foundation. Rather than brew up a new beer, Union packaged its Golden Ale in 4-pks of 16oz cans with special “GOAT” label honoring the local Hall of Famer, only available at the brewery and limited to 1-pk per person.

Consider too the parallel rise of lighter craft styles and beers specifically formulated as workout recovery bevs, both with and without alcohol. None of these plays may add up to the kind of volume aimed at by, say, Saint Archer Gold (see above). But they can provide a solid pop in a key market or help build brand loyalty with a key demographic.

Colorado’s Odell Brewing is on the move this summer. Just over a week after announcing plans for a brewpub in Denver, it returned with another notable new move: launch of The Odell Wine Project. Coming in 2020, Odell plans to produce wine, including build-out of wine cellar and tasting room on property adjacent to its Fort Collins brewery. Similar to strategy behind its 2nd Denver location/3rd in home state, Odell Wine expected to be distributed only in CO at first. Plans include selling wine on draft and in cans, tho, according to release, not the traditional 750ml glass. “Beer will always be at the heart of what we do, but our mindset of pragmatic innovation pushes us to explore new opportunities in fermentation,” Odell technical director Eli Kolodny said in statement.

The move represents a notable zag to wine, while many other US craft brewers zig toward seltzers or spirits. Indeed, while a number of established wineries throughout the US have ventured into the craft beer biz over the years, adding (mostly) small brewhouses to expand product offerings, far fewer brewers have gone the other way. And even fewer major US craft players, like Odell, which has slowly and steadily grown to well over 120K bbls over the last 30+ yrs. “It’s reminiscent of our very early days when we were introducing people to the world of craft beer,” said CEO Wynne Odell. “It’s about the never-ending game of exploring, experimenting and refining.”

After launching Saint Archer Gold in 4 test mkts this spring, MC officially takin’ Saint Archer Gold natl starting Jan 1 2020, co announced (as sibling pub INSIGHTS Express reported earlier today). While this move was seemingly inevitable, it is significant for a few key reasons: 1) this marks first time MC will launch any of its acquired craft brands nationally; 2) MC distribs finally get a Mich Ultra fighter; 3) this is one of several fresher approaches from MC lately as co looks to move faster with innovation and could signal more efforts to come from acquired craft brands lookin’ to scale. Recall, while tested in Austin, TX, Indianapolis, IN, Charlotte, NC and AZ statewide, Saint Archer Gold quickly became Saint Archer’s #3 brand YTD and #2 brand for latest 12 wks in IRI multi-outlet + convenience data thru Jul 14 (see Aug 1 issue). But compare Saint Archer Gold’s 23,500 cases in IRI to Mich Ultra at 43.3 mil cases and Corona Premier at 3.3 mil cases YTD. There’s still a long road ahead.

“For the past several months, we have been testing this brand and learning about what works and what we need to further refine when we take it national,” Tenth and Blake prexy Pete Marino wrote distribs. One learning from test: Saint Archer Gold needs to be line-priced with Ultra. “That’s when it performs,” Pete told CBN. Currently Saint Archer Gold avg price per case ($28.73) is over $2/case higher than Mich Ultra in IRI MULC. But also more than $9/case below total craft avg price. Memo to distribs said: “There’s no arguing the fact that Michelob Ultra has done an impressive job of creating a brand image that’s attractive to many people. But they haven’t had much competition.” Saint Archer Gold “will take us beyond the craft aisle to compete head-to-head with Michelob Ultra,” Pete wrote distribs. Saint Archer Gold will be a “big bet for us next year,” he added to CBN, with lotsa “marketing muscle,” including media weights roughly equivalent to Peroni. Ad campaign will be “similar in tone” to what MC showed in test, but with “enhancements.” Mktg plan includes natl tv, out-of-home, paid social, PR, “distribution at venues and special events,” merchandising and lots of sampling.

When people sample Gold, 53% follow up with purchase. That’s “23 points higher than the norm,” Pete wrote distribs. And “repeat rates are on par with those of Corona Premier at the same point in the launch.” Interestingly, while Ultra a “powerhouse,” a “significant portion of its drinker base is 50+ years old,” so Saint Archer Gold can “help recruit younger LDACs” (Legal Drinking Age Consumers) “into the category,” as Pete wrote. Pete acknowledged one hurdle to CBN: “much of America never heard” of Saint Archer, so building awareness will be critical. Another potential challenge going forward: introducing remainder of Saint Archer’s portfolio to new mkts at notably higher price points than Saint Archer Gold. So far, sales relatively modest, tho Pete said it’s “doing very well” in some chains, distribution “exceeding expectations” and its “meeting velocity hurdles.”

Boston Beer’s acquisition of Dogfish Head received extra praise from Macquarie Research analyst Caroline Levy in her latest report, upgrading SAM stock to “outperform” with a lofty $460 price target (up big again today to nearly $407/share at presstime). “We remain bullish on the acquisition of Dogfish Head,” she wrote, adding that Boston’s declining beer volumes expected to be “significantly mitigated” over next few yrs. Without Dogfish, Boston beer (mainly Sam Adams) expected to decline 9% per year from 2019-2021, according to Caroline. With Dogfish, projection improves to +2% per year. Deal viewed as “a top-line growth enhancement story” most of all, as Sam Calagione “will bring fuel to SAM’s growth story.” And “while neither founder seeks to grow profits by shrinking workforce, we believe 2020 will bring synergies in sales and distribution costs, as well as in brewing,” Caroline added.

With ABI deadline to make qualifying offer for remaining stake in Craft Brew Alliance clouding co’s outlook (see last issue), CBA is “preparing for a future with or without” ABI full ownership, CEO Andy Thomas stated during Q2 conference call this afternoon. Craft Brew Alliance exec team “readily acknowledge[s] that ABI’s qualifying offer would bring a value creation” and “management themselves are sizable shareholders,” with “tightly aligned shareholder interests,” Andy reminded. But CBA is “confident of its work to date” and is “staying focused on the business at hand…regardless of what’s done Aug 23.” Over the past 3 yrs since striking broader agreement with ABI including distribution, contract brewing and international biz, CBA continued to entirely reshape its portfolio behind Kona Plus strategy while notably improving financial metrics and “developing plans” for “more progressive portfolio” that goes “beyond traditional beer.” “No disrespect” to ABI, but Kona’s continued growth is “because of CBA, not because of ABI,” he added. It’s “our responsibility” and its “fate is in our hands.”

In absence of an offer, CBA “is well protected” and will receive $20 mil incentive payment from ABI, while all existing ABI agreements will remain intact thru 2030, Andy again reminded. And CBA entertaining “a host of strategic alternatives” as well (Midwood analyst who wrote critical letter to CBA mos ago commented that there are several other potential buyers with “big war chest[s],” and “encourage[d]” CBA “to put up a shiny for sale sign…in the absence” of an offer from ABI). Should the deal “not materialize,” CBA and ABI will both “promptly inform investors” and CBA management will host “off-cycle conference call” to discuss “initial reactions,” “other plans,” “addressing long term” prospects and updating guidance on remainder of the year. In either scenario, these are “remarkably exciting prospects” under “remarkably awkward circumstances for the coming weeks,” but Andy and co are “remarkably confident in our future.”

Big Kona Gains and More “Untapped” Potential ID’d; OOS at Retail Signal “Outdated” Models, Sez Andy Meanwhile, Kona increased distribution, built awareness and accelerated volume thruout its natl media push in Q2, CMO Ken Kunze detailed during call. Depletions improved 700 bps to 8% for qtr amid natl media campaign, as distribs and retailers “bought in,” and “brand health measures increased across the board.” Kona saw 25% increase in distribution, “doubling pace of historical distribution gains” and gaining nearly 20K points of dist overall. Similarly, Big Wave distribution up 24% and volume from feature ads grew 248%. Co saw “very high levels of repeat on Big Wave,” Andy added.

Yet even with shipments running ahead of depletions, several retailers had out of stocks in key mkts. Andy chalked that up to competitive retail landscape with overcrowded shelves. There’s always something that’s “getting too much attention” and others with “not enough attention” at retail. Andy even went as far as to question whether current model of “servicing consumer demand at retail” is “outdated” and needs “contemporizing.” Pallet drops and merchandising shelves a couple times a week doesn’t work as well these days, and industry “probably need[s] more merchandisers.” But solution of “who” pays for ’em and how they’re implemented “remains to be seen.” Yet overall, Kona saw “dramatic increase in consumer pull through,” said Andy. “On display numbers” were “phenomenal,” which went hand-in-hand with “enough product to satisfy demand.” So FL mkt saw greater increases than in SoCal due to more displays, he added. Gotta note, Kona Big Wave volume suddenly declined 2% for 4 wks thru Jul 14 following much stronger growth thruout the natl campaign run. But it’s still up double-digits YTD and altogether, all signs point to more “untapped potential,” according to co.

3 Hard Seltzers by Fall Including Kona HI-Only Brand; Omission Light IPA & More As part of CBA’s continued strategy to push “beyond” craft space, co will have 3 hard seltzers in the mkt by this fall, CMO Ken Kunze shared. That includes 2% ABV Pacer brand launched in Q2, as well as Omission hard seltzer (4% ABV, 90 cals, 1g carbs) announced in May and new Kona hard seltzer line solely for HI mkt that’s currently in development. Recall, Omission family is declining double-digits this year as volume shifts away from original core brands and toward better-for-you offerings such as Omission Ultra Light (+18% YTD). New hard seltzer “builds on” Omission brand equity as gluten free, low-calorie, low-carb offering, said Ken. But CBA “not satisfied” with Omission and will also launch new “light IPA” by end of the year. Several other upcoming innovations touted by COO Scott Mennan as well, including: Cisco Crantucket IPA, a cranberry brut rose IPA; AMB CREAM donut infused nitro milk stout and launching lager in cans; Wynwood partnership with Virgin Voyages cruise line for English pale ale on board.

Distribution Oppys In “Adjacent” Mkts for New Partners; La Rubia Potential is “Broader” Separately, fully acquired brands Wynwood, Appalachian Mtn and Cisco will look for “thoughtful expansion” oppys “adjacent” to their respective home mkts, said Andy. Recall, part of Cisco’s continued decline is pulling back distribution from mkts further afield. But “going deeper and getting bigger isn’t just increased distribution in home markets,” he said. So CBA will be “distribution-expansion minded” with these brands, albeit on “a very calculated basis.” Then too, Wynwood La Rubia blonde ale repeatedly touted for “broader” oppys again by Andy and team. La Rubia grew 48% in Q2, fueled in part by launch in Puerto Rico. That’s viewed only as “first leg of expansion,” said Ken, as La Rubia has potential “beyond” craft’s “narrow definition” and will expand to “key eastern seaboard markets by fall.” La Rubia has “much broader” potential “as a standalone brand,” Andy added.

Kona International Biz “Well Protected” and “Well Positioned” with AmBev Regardless of outcome for ABI’s potential qualifying offer, CBA feels “well protected” and “positioned to return value” on Kona’s international biz, Andy stated during Q&A. Kona’s international expansion has been “pretty methodical and deliberate over the last three years,” which has been “frustrating” to some observers who expected things to move faster, he acknowledged. But there’s “a lot of skin in the game on both sides” and “opportunity for both sides” with Kona. Local Kona production in Rio de Janeiro expected by end of Q3 and brand will expand further from there.

A Closer Look at Last 3 Yrs: Kona Approaching 500K Bbls, +25%; Several Financial Metrics Up; Total Volume, Stock Down Andy went into further detail looking back at several areas of improvement for CBA over last 3 yrs. Financial metrics notably improved since deal was struck in Aug 2016, including gross margin up 900 bps vs 3 years ago, revenue per bbl grew 10%, gross profits up 15%, he detailed. Kona now “approaching” 500K bbls on 12-mo basis, up 25% in the last 3 yrs and nearing 70% of total CBA mix, with more “untapped potential,” said Andy. Co also added “strong regional brands” in Wynwood, Appalachian Mtn and Cisco, developed broader prospects for Wynwood’s La Rubia Blonde and Omission Ultra Light, as well as several “unicorn offerings” via pH Experiment biz unit. New Chief Financial and Strategy Officer, Christine Perich, went as far as calling out a “total beverage strategy” going forward. Yet (unstated), CBA total shipments also declined each of the last 3 yrs and down nearly 10% from its peak in 2014. And CBA stock (BREW) ultimately fell from $19.85/share on Aug 1 2016, tho today BREW grew sizable 10% to $15.74/share.

The latest Beer INSIGHTS special report is now available and this trove of useful US beer info is truly one of a kind. Just take a gander at the table of contents and a few other preview pages. Industry totals? Sure. Top segments and brands? Of course. National, regional and state-level data for top suppliers? Triple-check. In-depth timelines of how strategy and messaging changed for top US brewers, alongside financial and volume results? Yup, that too. And this exclusive report takes a 10-yr look at the growth of craft too, tracking the appearance and expansion of numerous US craft portfolio plays since 2008.

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After almost 10 yrs, 34-yr old founder of Maine’s Baxter Brewing, Luke Livingston, is ready to move on. Come mid-Sep, Luke will step down from leading the near 20K-bbl brewery he founded in 2010 and appoint longtime ops mgr Jenn Lever as the co’s prexy, according to the Portland Press Herald. “I haven’t been as involved in the day-to-day here in a couple years; I’ve been in this founder role for a while and Jenn really has been running the show, and so it just felt like the right time to make that official and give her a clear fresh start,” he explained to the paper. Recall, Baxter got off to fast start before settling in to steadier growth that got the co near 20K bbls by end of last yr, according to Brewers Assn estimates. Luke did not comment about whether he will “remain Baxter’s owner,” as the paper wrote, or if he’ll look to start up another biz in or around beer. Ten Years After

By the end of this month, a number of small breweries will brew their last beers, according to a flurry of recent announcements on social media and local reports. At least 8 small breweries announced pending closures, while others announced the closing of separate outlets, like taprooms or restaurants. All of these companies are relatively small. Most were open for 5 yrs or less. None of that should surprise: with the huge number of brewery openings tracked over the last 5-10 yrs, the number of brewery closings was bound to start ramping up as closings continued to seriously lag openings thru 2018. Closings are still far more rare than openings, tho admittedly, closings often come with much less fanfare. An assortment of recent announcements follow.

In the southeast, Charlottesville-based Champion Brewing is closing its Richmond outpost, opened in 2017, the Richmond Times-Dispatch wrote. The co chose not to renew its lease and will be out at the end of this month. That’s as Conquest Brewing, the 1st craft brewery in Columbia, SC, is closing sometime in the next month or two after opening in 2013, the Post and Courier wrote. Owners cited a variety of issues publicly. “Sometimes the bear eats you,” one of its founders told the paper. “Due to recent events and negotiations,” Madison, AL’s Blue Pants Brewing announced it’ll close before the end of the month, owners wrote on social media, claiming they “are no longer able to continue doing business at our current location,” per AL.com. Thru some contract brewing, some of the co’s brands will remain available on shelves for a time. But after 9 yrs, owners will move on to other oppys, they said. Not too far away, Biloxi, MS’s namesake brewery, opened in just 2017, filed for Chapter 7 bankruptcy at the start of the month, WLOX reported. Those court proceedings will result in complete liquidation of the company, according to the outlet.

In the midwest, Kalamazoo’s Boatyard Brewing will close at the end of August, 5 yrs after opening, reported MLive, citing the co’s social media. “The investors have reviewed the recent financials and have made the decision not to keep Boatyard open,” the co wrote on Facebook before encouraging drinkers to support the city’s other local breweries. In Griffith, IN, Pokro Brewing, a brewpub specializing in Polish food opened in 2015, closed at the end of last month, NW Indiana Times reported. Outside Cincinnati, less than 3-yr old Queen City Brewery will close when its beer runs out, by end of Sep at the latest, owners announced, citing that the co’s beers and brands never really picked up traction in the market, according to the Cincy Business Courier. And in St Louis, Wellspent Brewing will close “indefinitely” less than a year and a half after opening, KDSK reported. Owner Kyle Kohlmorgen openly acknowledged in the co’s Facebook announcement that it simply could not pay down the debt taken on to open the brewery last March.

Finally, in Washington, Harmon Brewing operates a handful of restaurants in the Seattle/Tacoma area and will shut down in-house brewing as well as its Hub Tacoma and Tap Room in the Stadium District, per Tacoma News Tribune. Other restaurant locations will remain open as the co seeks some other brewery to produce house beer brands. It’s been looking for new investors, but so far hasn’t found a buyer for the locations and beer brands. Meanwhile, in Poulsbo, 3-yr old Sound Brewery announced it’ll close its restaurant this month and “the brewery’s fate remains unclear at this point but will likely be closing at the end of the month also,” WA Beer Blog shared.