New Belgium Brewing originally planned to enter KY (along with HI) in May, then pushed back entry to fall 2014, and most recently delayed entry to "late 2015," co announced. Delay attributed to "robust sales and capacity constraints"; indeed, NBB cranked out 30%+ growth thru 1st half and capacity only about 20% above what it brewed last yr. So "dates for distribution will become firm closer to completion of New Belgium's Asheville facility," expected to be complete by late 2015. No word on whether HI entry also delayed yet seems unlikely for any more expansions anytime too soon.

Then too, NBB announced its KY wholesaler choices with perhaps the longest lead time ever. They are mostly AB distribs with 2 exceptions, River City in Louisville, a no-brainer since AB has a branch there, and Stagnaro, which also sells NBB in Oh. KY is a 2.5-mil-bbl state, so NBB probably not planning to do more than 15,000 bbls or so there in a full yr.  

Do AB distribs have a special knack for craft brewing? Just as ex-Mass distrib David Fields has helped Wormtown win and work on expansion (see Jul 25 CBN), SC's Palmetto Brewing has successfully built its biz in that state since ex-AB distribs Pearlstine family invested in biz a coupla yrs ago. Palmetto's also looking for bigger digs and to build new brewery.

Family patriarch Edwin Pearlstine no longer had ownership interest in big Charleston distrib with his family name when that biz sold in 2012 and he bought out one of Palmetto's founders (Louis Bruce) and half of co-founder Ed Falkenstein's 50% share. Brewery sold all of its beer thru Pearlstine distribs then, about 3500 bbls. Palmetto's volume up to 6K bbls last yr, according to BA, currently has 8K-capacity, Edwin's son-in-law Larry Lipov told CBN. Larry was prexy of Pearlstine Dist in 2012 when it sold 6-mil case AB/Heineken/Sam/Others distrib to Southern Eagle of Ga for over $100 mil. Indeed, while Pearlstine family was negotiating that sale, it was also negotiating to buy Palmetto stake. Now, Edwin, Larry and Larry's sister-in-law Susan all involved in Palmetto Brewing Co. They're making plans to build new brewery and expand retail sales, an option provided by "Stone Law" passed in SC this spring, originally intended to attract Stone's second brewery. Palmetto not "specifically involved" with Stone Bill efforts, said Larry, and it already had expansion plan. Stone's not building in SC, but in-state brewers like Palmetto will now be able to have restaurant and sell more of their own beers to patrons than previously. Palmetto's biz plan doesn't include extensive retail operation like those that Stone runs, Larry told us, but it wants to be able to offer patrons different beers and to be able to do more expansive food pairings.

Palmetto State's Hometown Beer Palmetto's current story goes back to 1993. Lipov friend Falkenstein and Bruce made annual treks to Hood River, Oreg to windsurf in early 90s. They used to hang out at Full Sail brewery there. Ed was a home brewer. Rest is familiar story. Ed cashed in his 401K, Louis sold his paving biz and Palmetto Brewing was (re)born. Turns out there had not been operating brewery in South Carolina since well before Prohibition. Original Palmetto brewing co survived Civil War, a huge hurricane and an 1888 earthquake (one of its current specialty offerings, Aftershock, a California Common, named for that event) and operated until 1913. When Ed Falkenstein started Palmetto Brewing, SC didn't even have a brewery license application. He had to work with state Dept of Revenue to create a new license. Now, there are 8-9 breweries/ brewpubs in Charleston alone, Larry points out. But Pearlstine Dist carried Palmetto from the beginning and "we could never get enough beer," said Larry. "I could have always sold more beer." At one time, Pearlstine sold more Palmetto than Sam Adams. Brands are sold only in Charleston, Columbia and Greenville, but Palmetto hopes to expand distribution throughout state and beyond, after new brewery up and running. Palmetto was "always a great brand" when Pearlstine was selling it and all along wanted it to "at least be South Carolina's beer." But current building can't handle expansion plan, so Palmetto looking for property in Charleston to build new facility. Larry doesn't have official title at Palmetto, but he's focused on learning brewing side of the biz, quality, equipment and "making processes better so we don't run [distribs] out of beer."

Distrib Background Helps; Herding Cats and Hootie While craft brewers have reputation for collaboration, and other craft brewers have "helped Palmetto do some things better," distribs more known for competitive natures. But Larry points out that as early non-exclusive AB distrib, he developed relationships among even non-AB distribs and wine/liquor houses over the years that he learned from and improved distribution skills. And he and other family members bring those to Palmetto. "Having that background will help make us be a better supplier when we're finally able to distribute more in South Carolina and outside the state." Then too, "we have some insight into what it takes to help make distributors successful" and the resources to help make Palmetto's brands grow. John Planty also brings distrib experience; he was gen mgr of Pearlstine Dist. He now bills himself as Palmetto's "Strategic Cat Herder" given challenge of keeping even small staff of "very independent people" on same page at same time. This task is "often futile, but it's working," he says. He admits to some "gaps" in "relevancy and diversity" in Palmetto's portfolio and aims to establish regular calendar of limited releases. In past, some of these went unannounced and put out with "no rhyme or reason." But again Lipov and Planty bring an "understanding of what distributors are looking for" and seek to create more consistency in plans moving forward. Last week, Palmetto released a collaboration with Fla brewers Cigar City and Rock Brothers Brewing: Hootie's Homegrown Ale, named after rock band Hootie and the Blowfish. Palmetto also has a new stout sitting in the tanks at the brewery that it will offer as a limited release, plus an Oktoberfest coming this fall. So far, Palmetto has mostly avoided extreme, high ABV beers, the "esoteric tip of the spear," as Larry call 'em, in favor of its flagship amber ale, a pale, a lager and espresso porter among main brands, plus another handful of special releases, including Aftershock. All in, the "adjustment" from distributor to brewer "has been great," said Larry, echoing David Fields: "It's been a fun partnership, learning and growing together."  

Craft shipments increased 12%, 13,300 bbls in Mo YTD thru Jun while total beer industry shipments slipped 1.5%. Craft held 6.1 share in Mo YTD, up from 5.6 share for full yr 2013. Purchase by Duvel Moortgat hasn't slowed Boulevard Brewing, which remains #1 craft player in state (by 2 to 1 margin) and #6 supplier in Mo overall. Boulevard up 7.4%, 2400 bbls to 34,500 bbls thru Jun. Boston Beer (+14%), New Belgium (+12%), Deschutes (+44%) and Sierra Nevada (+53%) each rolled up double-digit gain in Mo thru Jun. A couple of local Mo craft brewers stumbled a bit in first half as Schlafly slipped 4%, 670 bbls and Mother's Brewing dipped 9.5%, 350 bbls. Meanwhile, St Lou-based 4 Hands Brewing more than doubled shipments YTD, up 1240 bbls. Also hot: Urban Chestnut up 69%, 1700 bbls, Stone up 90.5% to 1640 bbls thru Jun and Lagunitas up 36% to 1425 bbls. 

Second qtr of 2014 likely to "go down as a record quarter" for CBA, ceo Andy Thomas told listeners of earnings call today, kicking off call describing Q2 as "a very good quarter." CBA execs repeatedly stressed strong gross margin performance of 32.8% for 3 mos, "the highest quarterly margin that we've ever generated," cfo Mark Moreland said. That brought gross margin thru first half up over 30%, about where CBA hopes to keep it for remainder of year. Planned focus on finding efficiency at breweries as well as better capacity utilization (up at 87% for quarter, 78% for half, both an improvement of 10 points), tighter supply chain and financial mgmt (including pricing), plus brewing initiated at Blues City in Memphis all helped gross margin improvements, as did stronger shipments trends across portfolio, no doubt. All in, the performance lifted CBA out of the red on operating line, turning around $222K deficit after Q1 to net income of $1.8 mil. Shipments remained ahead of depletions, tho by a smaller degree than reported for first qtr. Core shipments +13% in the 2nd qtr, just barely slowing down full-yr trend to +14%. Depletions accelerated slightly tho, +9% for both 3 and 6 mos. Net sales grew 16% in Q2 too, so growth in all 3 measures "far more synchronized," Andy explained on call.

CBA's largest brand family, Kona continued up double digits, shipments +22% for 3 mos thru Jun 30, just barely slowing yr-to-date trend to +22.5%. Kona shows widest shipments/depletions gap, but depletions no slouch: +14% for 6 mos, again a slight deceleration. Continued growth of top Kona brands, intro of new Castaway IPA, plus highlighted performance in home Hawaii market, per cmo Ken Kunze, led to further gains. Redhook keeps ticking up too, largely thanks to Buffalo Wild Wings partnership on Game Changer and theChive partnership on KCCO Black Lager. Redhook shipments +9% for quarter, still ahead of depletions, +5%. For 6 mos both numbers aligned nicely at +10%. Across all brands, exports out of US more than doubled, +130% for 3 mos, Mark said.

CBA reported the "strongest performance for the Widmer Brothers in the last 5 years," shipments +9% for 6 mos as depletions turned positive, +2%. The brand continues to celebrate its 30th anniversary, is seeing Upheaval IPA doing "remarkably well," per Andy, has launched numerous Oreg-focused partnerships with Portland's Major League Soccer team, local artists and smaller upcoming brewers. Widmer stats also boosted by inclusion of Omission and Square Mile Cider growth. Indeed, Omission still more than doubling, now has 44 share of gluten-free segment in IRI data thru Jul 22, per Ken. That's as lead brand Hefe declines "cut in half" during quarter, Ken said, tho Andy wouldn't put finer point to those losses than "in the single digits."

Recall, CBA has long discussed difficulty of turning Hefe trends around, particularly on draft. That could be part of total draft/package picture, which continues to be weighted more heavily to packaged product. Packaged shipments up near 22% during the first half of 2014, as draft shipments -3.6%. Andy recognized that "competition continues to intensify" in the segment, so "draft continues to be a drag on us." And comps will get tuffer as the co begins "cycling the monsoon" that was Game Changer load-in last yr. Across the board CBA anticipates headwinds to "intensify in the back half of the year," Andy said, noting that growth in second qtr "wasn't always easy." Back half will also include majority of CBA's planned capital expenditures of $15-20 mil for 2014. The co maintained full yr guidance for all metrics, most "prudent," Andy said, looking cautiously toward back half. "The year is pretty much progressing the way we thought it would," Andy said, but lots of moving pieces before 2014 can be called "a very good year" by Ol' Blue Eyes or otherwise.  

In case you lost track of all the new markets craft brewers launched in the last month, we've put 'em all together for you in one handy pdf. Organized by state, this list includes craft brewer distribution expansions with sales expected to begin by the end of July, 2014, as well as a handful of announced mkt entries coming soon. While it may not be comprehensive, this list includes announcements made by the largest craft brewers and many expansions by smaller players.  

In an ocean of craft trademark disputes, most recent one between Calif's Lost Coast Brewing and NC's Aviator Brewing really "bites." Calif's Lost Coast Brewing filed a complaint this Tues for trademark infringement on co's Great White Beer with NC's Aviator Brewing over similarly labelled, similarly flavored "Mad Beach" beer. Lost Coast goes on to list the similarities: "shark standing on a beach holding a beer mug," "pectoral fin," "upright surfboard positioned on the opposite side of the shark" with a "bite mark at the top," and "the shark's teeth…also prominently displayed." Both beers are American wheat with citrus notes. Then too, Lost Coast points out that Great White Beer has been distributed in NC since Aug 2000 (created in 1996), whereas Aviator's "Mad Beach" was created more recently (co's only been around since 2008). In filed complaint, Lost Coast argues that "defendant knows that Plaintiff is located in California, knows what products Plaintiff sells, knows what marks Plaintiff uses, and intentionally put its products on the market with the infringing mark on them." Lost Coast lookin' for Aviator to stop using the label completely, "be held liable for all damages," and "account to Lost Coast for any and all profits derived by Aviator," from use of "Mad Beach."  

Not every day a handful of minority shareholders in a small brewery, including ex-brewmaster, sue long-time majority owners alleging slew of misconduct. But Tuesday was such a day, when current Wisconsin Brewing brewmaster/former Capital Brewery brewmaster Kirby Nelson and 6 other petitioners (including one Suds Capital LLC) dealt suit to current owners of the 30-yr old Middleton brewery in local court, first reported by Wisc State Journal. Tracing story back multiple years, suit claims respondents and current owners "presided over a contraction of" Capital's Board of Directors "until they remained alone and unchallenged," allowing them to engage in "illegal, oppressive and/or fraudulent" activity. It's ugly. Among the allegations: "unanimous" two-person votes on Board membership and compensation wherein one director necessarily abstained from voting on matter related to his own position; leaving objections from minority stakeholders "routinely ignored and purposefully left out of shareholder meeting minutes"; forming a Board of Advisors "to appease and placate the minority shareholders" but then ignoring recommendations of that Board, which "effectively disbanded" after "most or all" members decided "to resign out of frustration" last Sept; and appointing themselves "sole brokers of stock sales/purchases," from which they "benefitted personally."

Recall that after Nelson and current partner at Wisconsin Brewing/former president of Capital, Carl Nolen left Capital, Nolen put bid in to buy Capital. That "bona fide offer," as described in suit, went ignored without consultation of all stakeholders: "the depth of this freeze-out," which "caused outrage among" group of minority owners. Capital's current groundbreaking on a new $11 mil brewery has further troubled petitioners that see the move as an attempt to "change the nature of corporate operations" and "move the brewery out of Middleton," tho owners told the State Journal the current plant will stay open. This "request for judicial divorce" seeks numerous potential outcomes, including financial damages, "the forced buyout or judicial dissolution" of Capital and "punitive damages personally against the individual defendants for their outrageous and egregious conduct."  

First Beverage's JB Shireman listed a number of top considerations for any craft cos potentially lookin' to sell, as craft M&A slower than many expected in last coupla yrs. Mostly JB reinforcing major topics typically discussed that could make or break deal including capacity and territory, footprints and trends at home. While brewers undoubtedly "love it when they are running near capacity and fully utilizing their assets," if they're lookin' to sell "this may actually devalue a buyer's offer," JB warns, since buyers will need to use extra capex for equipment and facility expansions on top of deal. Breweries also better off if they have more "open geography" to eventually expand footprint; more open geography means more "financial upside against their [buyers'] investment." And "if you hope to garner a premium price…no trends will be more important than those in your backyard," added JB. Gotta keep investing in your brand equity to ensure it's "an appreciating asset."

Distrib footprint "misalignments" can deter many M&A's from happening based on assessed costs (and headaches) of moving brands "post-acquisition," as Jim Koch and others have also stated. Almost every top craft co has mixed footprint of AB, MC, independent and wine & spirits wholesalers, which may be partial explanation for why less M&A is happening. "A thorough contract with a pre-negotiated multiple to be paid to the wholesaler in case of termination is a good place to begin," sez JB, tho "many of these clauses will be trumped by current franchise law." Lastly, "be open minded" to buyers finding "new ways of operating that you had not considered," sez JB. "The more conditions you place on a transaction, the harder it will be to find a buyer that will accept them all." JB frames these points as key for possible future sellers, perhaps indicating that these are the very considerations current sellers may not be taking.  

Hot canned craft brands no longer exclusive to larger brewers thanks to emergence of mobile canners making it easier for growing number of players to start and remain relatively small. Tho it's early days, these operations could be making a bigger impact than even those most closely involved recognize. By the end of the 2nd quarter, the 16 affiliate companies of Mobile Canning Systems (spread across the US with one in Canada currently) had canned 7.5 mil cans, co-founder of MCS Pat Hartman told CBN recently. His Colo-based mobile canning unit got up and running at the end of 2011 and the affiliate program started about a year later. That means the whole group has canned somewhere around 25K bbls in the last 2.5 yrs, the majority of the volume in 12 oz cans. But based on the current speed of a few of these operations, that number could grow quickly by the end of the year.

Pat's Colo biz runs 2 mobile canning trucks -- typically 26-foot box trucks packed with a 40-can per minute canning line from Wild Goose Canning Technologies, another Colo biz. The lines come off the trucks and into breweries, get hooked up to tanks and it's off to the races. Between the two lines, Mobile Canning Colorado will do 6-10 cannings per week. Its affiliate out in NC, Old Dominion Mobile Canning, averages about 45 bbls 4-5 times a week on each of its two lines, founder Mike Horn told us. Up in the Northeast, it's a similar story at less than a year old Iron Heart Mobile Canning. It's got a second canning line on the way and is canning 6-7 days a week in the meantime, at 30-80 bbls a run, co-founder Ann Stratton said. If all affiliates were running at the lower end of that range, say 200 bbls per wk, the whole group can take 2 weeks off and still fill over 2 mil CEs worth of 12 oz cans in a yr. Each affiliate we spoke to has anywhere from 15-20 breweries on its calendar at any one time. So sharing equipment and materials costs across affiliates and breweries means many more small companies can share in that growth too.

Affiliates, Not Franchises, Sharing Resources and Knowledge, Not Prices, Profits Mobile Canning Systems is "not a franchise," a choice Pat and co-founder Ron Popma made very much "on purpose" when they expanded their Mobile Canning Colorado biz at the end of 2012. Affiliates buy their canning line from Wild Goose but then pay MCS a "startup fee" to "build out their trucks" with the line, Pat explained. From there, folks running affiliate companies head out to Colo and spend a week using their equipment to can for Pat and Ron's local clients. After the hands-on training week, they drive the truck back home and start working with their own clients. Each affiliate co sets separate volume-based prices according to demand in their area. Affiliates can reach back out to the guys in Colo for troubleshooting, helping them get back up and running quicker if there's a hitch. They also have clearly-defined territories (with much of the US still left to cover) that won't be encroached-upon by new affiliates. And if the number of breweries using the service of an affiliate grows beyond one truck/canning line's capabilities, affiliates can choose to add multiple trucks/lines or carve out a piece of their territory if they "know a guy" who wants in, Pat said.

Not Just Startups: Turning to Mobile Canning for Seasonal Needs, Limited Runs Plenty of mobile canning clients are fairly young companies looking to "test the waters" on packaging generally or cans specifically, Pat said. "Not everyone is going to be that long-term customer," he acknowledges. Indeed, Mike Horn at Old Dominion fully acknowledges that "some breweries will graduate" to buying their own canning lines; it's already happened. But Ann at Iron Heart points out those kinds of arrangements aren't the only option. Both Long Trail and Shipyard gave her and co-founder/husband Tyler Wille a call when seeking to do seasonal runs for late Spring/Summer. Fellow-affiliate Toucan Canning (which trekked up from Tenn) joined Iron Heart for some of the bigger runs at Long Trail, working two days in a row to get the beer packaged at a slower speed than typical of such large breweries. The co canned Shipyard's Monkey Fist IPA and Summer Ale, its Seadog Blueberry Wheat and others as well as regularly working with KelSo Beer in Brooklyn, NY. More than anything else, these co's are maxed out on space, particularly KelSo at the cramped Greenpoint Beer Works facility. While breweries may eventually install their own lines, Ann notes that she and Tyler are "not positioning ourselves to be a short-term solution," instead looking to develop relationships, "be the canning infrastructure for the brewery" and "part of the team." For example, they've been making trips to Citizen Cider in Burlington, Vt "almost weekly."

Then too, some of the packaging runs the mobile canning operations do are too small for the minimum orders of printed cans. In these cases, breweries can order shrink-sleeve labels to send out to MCS in Colo, which puts them on blank cans and sends 'em back. (The shrink-sleeve sounds cheesier than it is when holding it, we found, and the package offers more flexibility in printing/label design to boot.) The service also works for breweries that already have canning lines, but want to do a limited one-time run of a beer well below custom can-ordering minimums: the Colo outfit just sent 36K cans down to SKA Brewing for this exact purpose.

New Biz Model Steering Folks Away from Planning Breweries Both Tyler of Iron Heart and Mike of Old Dominion had started writing business plans for small breweries before switching gears to launch their mobile canning operations. "I'm probably a little late to this party," Mike remembers saying to himself back in August 2012, seeing the number of startups already around. As the first MCS affiliate, he initially had 20 breweries in his sights as possible partners, but his territory in Virginia and parts of Northern NC is now home to about 70 breweries in planning alone and he's surpassed his 3-yr goal of canning 400 bbls a month. Up in the Northeast, Tyler left a career in finance, realizing the mobile canning co could be "first to market" with the service in the area, Ann told us. Rather than "be amongst the competition," (jokingly: "help" craft "rather than adding to its doom"), the couple chose to provide one of "so many services that the craft beer industry needs beyond just people making beer." Keep an eye on this and other similar biz models that pave the way for smooth transitions into the biz building an infrastructure to support smaller, locally-focused brands.  

Drought conditions in Calif have persisted and pressure is mounting, particularly for brewers in northern parts of the state, to consider scenarios in which that doesn't change for a while. "If this drought continues for two, three more years, that could greatly impact the production and growth of our breweries," Calif Craft Brewers Assn exec director Tom McCormick told the LA Times for long story printed this wk. So while Golden State brewers of all sizes may not be facing impending doom, they're certainly paying attention. Lagunitas has cut water use at its brewery 10% in 2 yrs, similar to stats shared by AB and MC, both of which brew in the state. Recall Bear Republic helped pay to improve water supply at home in Cloverdale, but that co has still been forced to lower growth plans from 35% to 15% this year, according to the Times. Bear Republic has considered building a new brewery, but "our river's mineral content creates really excellent beer, and we are afraid of losing that," Master Brewer Peter Kruger told the paper. Lagunitas too is thinking about effects of switching from using mostly river water (from the same Russian River, in fact) to entirely well water at its Petaluma plant, cfo Leon Sharyon said. That's as smaller breweries, aware of how much less efficient they are than larger ones, worry about current voluntary reductions in water use being made mandatory and at least one bar owner posits that continued dry weather will affect pricing. We'd note that while some brewers, like Brooklyn and Founders, have chosen to build bigger plants closer to home, at least a few Calif companies have sought space further afield, citing sustainability concerns that likely include water usage alongside oft-stated shipping costs.