No secret that casual dining chains have been casualties of economic downturn, continued squeeze on middle class consumers. GuestMetrics and other data suggest casual takin' harder hits than upscale dining, just as mainstream beer faring worse than high end in recent yrs. Even large brewpub chains have suffered, especially compared to craft biz overall, as BA data shows and we reported several issues back. On recent conference call, Julia Stewart, chief exec of DineEquity, owner of Applebee's, which is suffering from familiar traffic declines, gave some hints that craft beer may be one of cures to what ails the chain.

Julia didn't get too specific, but talked about trying to attract certain customers to come in "more often," according to Bloomberg Businessweek. One of those hints: a "tremendous opportunity," she said, to make its bars "more modern, more contemporary, more relevant" via beer offerings. "Think of us as really exploring what we could do in craft beer…. If people are drinking more craft beer, it would seem to make sense that offer[ing] this product would also boost restaurants' sales." This may seem like a bit of a no-brainer in 2014, but is another example of continued mainstreaming of and oppys for craft. (And of even more pressures on current mainstream beer.) Question remains about the fit of Applebee's-like natl chains that sell consistency, and craft which tends to appeal to local/unique/ever-changing. Incidentally, quick trip to our local Applebee's in NY 'burb shows taps offering Sam Summer/Boston Lager and Blue Moon, but otherwise all mainstream domestic/import: 3 top premium lights, Bud, PBR, Stella, Heineken and Yuengling. The 14 bottle selections mirrored most of those, plus Michelob Ultra, Rolling Rock, Corona/Light, Amstel Light, Bass and Beck's. Still, the logo on the drinks menu read: "Welcome to handcrafted bliss."  

Even the largest craft brewers can still create unique events that are true to their roots and add to their legacy, appealing to various constituencies including fellow craft brewers, consumers, retailers and even journalists. That was highlighted by a pair of events CBN attended in last 2 weeks, one hosted by Sierra Nevada, the other by Boston Beer.

Sierra Nevada had a Beer Camp Across America tasting and 5 course dinner at trendy restaurant DBGB last night in NYC attended by 140 people, including consumers, retailers, press, other industry folks as well as many of the key brewers who participated in its collaborative 12-pack and series of festivals going on right now. The festivals culminate in North Carolina brewery's grand opening this Sunday. Founder Ken Grossman said the festivals, collaborative 12-packs (and the bus and train rides between 'em) celebrate "the rising tide lifting all boats" in craft brewing in the US, which has become "the most vibrant brewing scene anywhere in the world" with over 3000 breweries. Beer Camp Across America is also "an amazing collaboration of friends," said Ken, adding that Sierra "picked people we really thought were innovative" and "part of this great renaissance." The brewers also went river rafting, to trapeze school, raced donkeys in Chicago and will be going up in hot air balloons. It's the "trip of a lifetime," crowed Ken's son Brian, who is NC plant's general mgr, and "nothing but a blast…. We want to brew with the people we like hanging out with." Today they will actually brew on the bus. With Beer Camp Across America, Sierra clearly following its own somewhat quixotic path as it has embarked on this celebration at considerable expense, much more for love than money.

A couple of weeks ago, Boston Beer hosted its own unique event for a couple of dozen beer journalists at its Boston brewery, celebrating its 30th anniversary. The Boston event offered a never-done-before tasting of all the versions of its ultra-rare Utopias line as well as predecessors Triple Bock, Millenium and the upcoming 62% ABV Sam Adams whiskey. Jim talked about how Boston had pioneered the concept of "extreme" beer, taking the term from extreme sports. Most craft brewers originally focused on making "classic European styles" but by the early 90s, Jim had concluded "there may be another pathway" in "inventing new styles." Nobody had ever fermented beer over 14% before Triple Bock, according to Jim. Since those beginnings, innovation has become "one of the pillars" of the whole craft movement, noted Jim. Journalists came in from all over the country to join Boston Beer in an educational and entertaining evening that offered a distinctive glimpse into the history of Boston Beer and its role in the evolution of craft brewing.  

"Chasing the growth" has left Boston Beer execs a little winded it seems, reporting volume and top-line growth broadly above analyst expectations but in a distinctly tempered tone on conference call yesterday. Even as second qtr depletions +23%, shipments +25% to 1.1 mil bbls including tea and cider, and net revs +28%, Boston excitement moderated (and earnings challenged) by "pretty significant freight increases," negative mix effects leading to gross margin "not being exactly where we thought it would be" and still "a lot of opportunity to run [its breweries] more efficiently," ceo Martin Roper said on call. The co continues to find itself "severely challenged by growth rates that are frankly ahead of what we thought we'd see," Martin continued, and is "trying to address that through aggressive expansion" of breweries. It's decided to "chase the volume and build the business...instead of taking the pressure off the brewery team." But execs "optimistic." As expected, "growth in the second quarter wasn't as strong as the first" for Sam Adams brands, Martin noted, considering early-yr launch of new Cold Snap seasonal and Rebel IPA. Sam Adams still "not growing as fast as craft category," (how could it?) both of which are experiencing "a lot of fragmentation."

Both Sam brands and total craft also experienced a slow-down in recent 4-wk scanner data (see July 25 issue). And a coupla analysts picked up that reported +27% depletions trends yr-to-date thru Jul 19 implies total Boston portfolio up about 18% for first 3 wks of month. Meanwhile, Angry Orchard still doubling for 3 mos thru mid-July ("slowed all the way to...low-triple digits," CLSA's Caroline Levy quipped). Boston doing "not as well as we would like in maintaining the strength of core SKUs," Martin said. But perhaps these tempered comments simply explain the co's "conservative" guidance, as RBC Capital's Nik Modi described in report, or respond to Goldman Sach's Judy Hong being "a little bit puzzled" by that guidance. Boston left horn-tooting to the analysts, with Goldman's Judy citing "best-in-class" growth and RBC's Nik "impressed." All 3 analysts anticipate Boston's earnings per share to finish out 2014 at least a dime above the co's $6-6.40 guidance. So each more bullish than the co's execs. This measured modus operandi most likely to continue thru 2014, shaping up to be another big growth year for the craft category-leader, whether the co's leaders choose to crow or just grow.  

Boston posted its 8th-straight double-digit depletion gain in Q2, +23%, including cider, tea and beer, following torrid 34% blast in Q1. That was also its 5th straight gain of 20% or more. And data thru Jul 19 shows depletions up 27% yr-to-date. Not surprisingly, Boston upped guidance for full-yr volume to +20-24% range, up from +16-20%. So Boston on track to ship over 4 mil bbls all in this yr. That's more than double what it shipped 5 yrs earlier.

Meanwhile, Boston profit margins holding fairly steady. Gross profit margin edged down 0.5 to 53.1 in Q2, off 0.6 for 6 mos. Operating margin narrowed 0.2 in Q2 (to 17.5) and for 6 mos (to 13.0). Chairman Jim cited record total depletions for qtr and understated: "Overall, our portfolio is healthy and we remain positive about the future of craft beer." Prexy/CEO Martin Roper not exactly jumpin' for joy either, noting growth a "reflection of our increased investments in media, local marketing and point of sale and the efforts of our increased sales force, even as we face a more competitive environment."

Boston's growth still straining resources and execution abilities. Supply chain performance improving "but still remains below our expectations," said Martin in release. Combo of high demand and expansions led to "higher operational costs that we originally expected." At same time, Boston feelin' "pressure from our transportation suppliers" and seeing higher freight costs to get performance and capacity Boston needs. Also: "some product shortages and service issues" popped in Q2. So no rest for the successful. Boston did complete some capital projects 45 days into qtr, but looks forward to "continued high level of brand and capital investments" to achieve growth/innovation. Tho Boston upped volume guidance, did not change earnings guidance. Also still expects 2% price increase for yr (no change), increased ad, promo selling expense of $37-$45 mil, up from $34-$42 mil. But further narrowed capital spending guidance for yr to $160-$185 from $160-$200 mil at end of Q1. More to follow after conference call.  

Another regional brewer introducing a craft play. Pittsburgh Brewing announced its new craft "line of beers under a new Block House Brewing label," reported Pitt Business Times. "We're going to the 'craft-like' side of it," ceo Brian Walsh told CBN. Brian and co felt there's "a bit of the void in the market," at that "price point above" premium, and want to "stay relevant with that core consumer." Co started out brewing 500 bbls of Pumpkin Ale, which it promptly sold out of. It will be available "from this point in August right through October," said ceo Brian Walsh. "We're a little late to the party but we wanted to take our time to do it right," he added. Next up, Block House will produce a chocolate double bock, which will be their winter seasonal as "other future flavors still being tested," sez paper.  

Sad news from handful of breweries across US this morning, including closing of Boston-area Watch City Brewing and fires at 2 separate brewing operations. Longtime brewpub in Waltham, Mass, Watch City Brewing, will not reopen and plans to auction off equipment this Weds after more than 20 yrs in biz, according to Waltham News Tribune. The brewery-restaurant closed early in the month with hopes to reopen, but the owner owed state Dept of Revs $120K in taxes, per report. Wet 'N Reckless Brewery, in San Diego County, suffered crippling fire last night, according to San Diego Reader, during planned repairs to the small brewery. Early reports point to "an errant welder's torch," and brewery owner Dave Hyndman "lost everything," according to report. A smaller, less-damaging fire flared up at Granite City Food and Brewery in Orland Park outside of Chicago on Friday too. The brewpub sustained minimal damage thanks to fire sprinklers, the Southtown Star reported.  

Goose Island Beer Co uses 50,000 gallons of Lake Michigan water a day, and an increasing number of intense rainstorms in the Midwest pose a threat to primary water source for it and other local breweries, assistant manager of Goose Island Beer Co, Ian Hughes explained to Washington Post. When there's a 5-inch storm within a 12 hr window, "the river is reversed away from the Mississippi Basin and into Lake Michigan, shutting down the area beaches for three days and tainting Goose Island's [and most other local breweries] most important resource," paper noted. Storms of that magnitude used to only occur every 10 yrs, but in the last 5 yrs "it's happened an unprecedented three times," and "National Climate Change Assessment, released by the Obama administration in May, claims the 'frequency and intensity' of these downpours could triple in the Midwest over the next century."

Then too, "sewage empties into the Chicago River when an inch of rain falls citywide, according to the Natural Resource Defense Council"; that happened 63 days last yr, and 36 days in 2014, sez Ian. Ian is the head of the Brewers for Clean Water Campaign, and speaks publicly at various conferences throughout the yr. He "hosts a water-testing panel" each week, and "if samples don't pass inspection, brewing must halt - and a delay that costs the company thousands of dollars," noted paper.  

With FDA's revised statement on spent grains due soon, here comes another round of press on the matter regarding potential cost/harm new regs could have on breweries. Recall, FDA released a statement after 1st comment period in which Deputy Commissioner of Foods and Veterinary Medicine said that making brewers comply with "additional redundant animal feed standards…would not make common sense, and we're not going to do it" (see CBN vol 5 no 32). Nonetheless, recent piece by Crain's New York Business highlights NYC breweries, and particularly Astoria, Queens-based SingleCut Beersmiths; the brewer plans to quadruple production to approx. 6000 bbls in 2014 which "would translate to nearly 400,000 pounds of wet grain for which it would pay New Jersey-based Wilenta Feed about $8,000 to haul to farmers," noted Crains. On an even smaller scale, owner of Bridge and Tunnel Brewing "loads the trunk of his car and drives 30 minutes to a compost pile at a petting zoo in eastern Queens." Rockaway Brewing sends most of its spent grains to landfill, the very thing majority of breweries are trying to avoid as an alternative to selling spent grains. "We're below the threshold where it's viable," sez co-founder Ethan Long. However co is currently in process of installing equipment that "dehydrates the oatmeal-like piles, spitting out a flaky plant fertilizer 18 hours later that is lighter and cheaper to haul and won't turn sour." In 3 yrs, the state's "issued 20 beer licenses in the five boroughs, increasing the number citywide to 23, according to July data by the Empire State Development Corp," added paper.  

Flying Dog Brewery had a hunch a beer brewed with Old Bay seasoning from fellow Maryland-based co, McCormick & Co, would do decent biz, but demand from local customers alone helped its Dead Rise brand blow thru all expectations and then some. Flying Dog produced "what we believed to be enough beer to sell to anyone who wanted it up and down the east coast for five months," ceo Jim Caruso told CNBC. Turns out, "in eight days, we sold that amount of beer in just Frederick and Baltimore" alone, he added. "People were ordering this beer before they even tried it," and some were trying to bribe distribs with $100 to get a case right of the truck, recalled Jim. Dead Rise was so hot that for 5 wks, Flying Dog made decision to shift "65 percent of its total production capacity to focus solely on meeting Maryland's demand for beer." "We're selling more Dead Rise in just the state of Maryland than we are with our other 40-plus beers combined everywhere else," said Jim. While he was happy to brew as much of season-spiced brand as possible, sacrifices like temporarily halting "all beer shipments to the 26 other states" it distributes had to be made. Jim said he was fine with that tho because, "that's one of the meanings in local…. Taking millions in profits from one part of the country and giving it to our local beer stores and bars because this is a Maryland beer, it's the right thing to do."  

Dispute over compensation for Hop Valley Brewing to terminate distribution with Bigfoot Beverages and Summit Beverage reportedly reached settlement for undisclosed amounts late last week, reported Oreg paper, The Register Guard. Recall, Hop Valley seeking termination with Bigfoot and Summit so it could switch to Columbia Dist statewide. Bigfoot was lookin' for $5.5 mil and Summit lookin for $750,000, yet both contracts allowed Hop Valley to terminate after 1 yr with payment of 3.5X GP for previous 12 mos sales (see CBN vol 5, no 48). Bigfoot and Summit will no longer carry Hop Valley brands as of Aug 1, and Columbia expected to pick up with Hop Valley in Aug. "We are satisfied with Bigfoot Beverage's settlement with Hop Valley Brewing Co., but are disappointed that after less than two years in helping Hop Valley climb in Oregon's brewery barrelage rankings from 27 to 8, we will no longer distribute its beer as of August 1, 2014," Bigfoot co-presidents Andy Moore and Eric Forrest said in issued statement. Summit owner, C.J Johnson was "happy with the outcome."

Hop Valley had 112 employees according to paper, sold an estimated 8700 bbls in 2013 according to Brewers Association, and currently has capacity to produce up to 12K bbls this yr, according to company website. It was one of fastest growing craft cos in Portland IRI foodstores last yr, sales up 500% plus, volume up 700% plus.