Amidst widespread expansion, parade of positives for craft in recent yrs, some tough stories too. American Brewing Co formed in April 2010 in Edmonds, Wash, started issuing stock shares in Oct 2011. Sold 3100 bbls in 2013, according to BA, up from 3061 in 2012, 1538 in 2011 thru its taproom and distribs. American sells beer in Wash, NC and Canada, but intends to add half-dozen states soon "with a view to distribute nationwide in the near future," according to recent govt filing. But that filing also disclosed that after looking at end of year 2013 data, auditors "issued an opinion that raised substantial doubt about the ability to continue as a going concern." Turns out American has "history of recurring net losses and negative working capital." In fact, at end of 2013 it had accumulated deficit of $875K. That ballooned to $1.5 mil by end of Q1 2014. American booked net revs of $236K in Q1, up 7%. Gross profit was $123K, but operating expenses totaled whopping $781K, including gen/admin costs of $197K, ad/promo costs of $24K and huge $561K in "amortization of stock based compensation." So operating loss for quarter was $658K on what could not have been more than 1K bbls. American has also spent to expand brewery and it's sitting on $800K in hops purchase commitments thru 2017. Plans to raise additional funds thru public offering and believes it will have "sufficient cash to meet our operating requirements for the next 12 months," due to rising revs and expansion. But if revs fall short, it may have to sell more stock.  

We keep hearing more and more about new distribs "options" for craft in many, especially urban, mkts. But some distribs non-aligned with top suppliers have forged success for yrs, riding craft wave and other bevs. Case in point: Hayden Beverage Co. in Boise, ID. It's the 3d or "independent" distrib there without AB, MillerCoors or Crown, tho it does have Heineken and Pabst. Hayden's mkt share "hovered around 8-9%," back in 90s, recalled ceo Dodds Hayden in recent letter to craft-brewer partners. "Thanks to the success of craft," Hayden share "climbed from 11% to 16%" in the 2010s and in May this yr, "we achieved" 20.1 share. "I thought you would appreciate this accomplishment, as it is your accomplishment as well," wrote Dodds, who added he wanted to thank craft partners for creating "such interesting, attractive, and valuable beer," and for "maintaining your independence." Hayden Bev doesn't rely on just craft tho. With other beer brands, wines and Red Bull biz, "we have made ourselves a formidable presence in the market and its largest distributor," he noted. "I believe this model can play out in MANY more markets across the country," added Dodds.  

"Shortage" doesn't quite cover it, but change is afoot in the world of hops as pressure is mounting to supply growing craft segment. Hop growers in the PacNW have already responded to the demand of craft brewers, shifting acreage away from alpha hops and toward aroma hops, favored by brewers to derive flavor and aroma for hop-forward brands: aroma acreage could represent as much as 60% of total land devoted to hop growing in the PacNW, Ann George, administrator for Hop Growers of America, told CBN. That shift alone pushes average hop prices up because an acre of aroma hops brings a lower yield than an acre of alpha and so aroma varieties generally command a higher price-per-pound. The shift comes with slew of other consequences for growers and is just the first in "a number of different forces contributing to the situation," Ann said.

Popular Hops Closing the Harvest Window One of the consequences of moving alpha acreage over to aroma hops has everything to do with harvesting them. Growth of craft means "there's likely to be additional demand for acreage expansion" for aroma hops, Ann told us, but PacNW growers "have a very tight harvest window" that's been "condensed" due to the increase in aroma acreage. Aroma hops all must be picked and processed within a shorter timeframe than the wider variety of alpha and aroma used to afford. "You can only cram so many hops through those picking machines," Ann noted. So to switch more acreage over to aroma varieties, growers will need to invest in expensive equipment to process those hops in a timely manner. A grower might need to invest $5-6 mil to harvest another 150-300 acres, Ann estimated, and while she's heard from some members making that investment, others seem more wary of the risk.

Much More Acreage Necessary; Prices to Double? But adding 150-300 acres isn't quite gonna cut it. Much more acreage than that would be needed to supply continued double-digit growth of the craft segment. Indeed, in a blog post, hop merchant 47 Hops estimated a needed investment across the total US hop-growing industry of $500 mil to $1 bil over the next 5 years to supply sustained growth of craft. A large grower we spoke to has the land to add a few thousand acres, but that means a $60-70 mil investment. While bankers are willing to help finance, they're typically looking for farmers to have 20-30% of that ready to go and typically want to be paid back in 5 years, not 20. "Current prices are simply not high enough to pay for the continued growth of the industry," according to that 47 Hops post, and "will need to roughly double" to return growers' investments. And once that investment is made, it can lose value very quickly, the grower explained.

"Time Lag" and Further Complications While small brewers may be nimble and able to respond to consumer tastes quickly, remember that most of them have contracts for the majority of hop usage, usually 5-years out. Any needs beyond those contracts depend on the spot-market, where change in prices would be most acute. Farming changes much slower. Hops take about 2 growing seasons to mature to a full crop in ideal PacNW growing conditions, so decisions that would alleviate pressure in 2016 and after would need to be made now. "We can't turn this industry on a dime," Ann reminded us, as acreage takes time to expand. So the "time lag between demand and expansion" of acreage for certain popular varieties is a second major factor in current hop pricing. Adding to the complexity is demand for and acreage devoted to proprietary hop varieties: think Simcoe, Citra, Mosaic and more, all of which can only be grown by paying royalties to the breeding programs that created them. New proprietary varieties already make up around half of acreage, but expansion of that acreage is likely to remain "cautious," Ann said, as growers gauge the demand for these varieties. And there are plenty of other x-factors that could either alleviate some of the pressure on US hop supply or add to it. Import/export is a biggie: historically 60-70% of the US crop went overseas, Ann said, will that hold steady?; European growers have been experimenting with new varieties too, Southern Hemisphere hops have grown in popularity in the US, but demand for US hops from brewers throughout the rest of the world has also grown significantly. Don't forget about efforts to add hop fields elsewhere in the US too. And it is farming, so the possibility for devastating weather or a natural disaster can't ever come off the table completely.  

Bigfoot Bev and Summit Bev filed suit vs Hop Valley Brewing in Oreg county court, reports Register-Guard in Eugene. Hop Valley - which sold approx 9K bbls, 120K cases in Oreg last yr - sent letters to the distribs in May, seeking to terminate under its contract with them, apparently intending to move brands to huge Columbia Dist. Contract allows termination after 1 yr with payment of 3.5X GP for previous 12 mos sales. Termination letter asked distribs to provide sales data so Hop Valley could calculate payment. But distribs sued, claiming no "good cause" for termination. State law prevails, they insist, and they're due "fair market value of any and all assets, including ancillary businesses of the wholesaler [Bigfoot] used" in distributing Hop Valley beer. Also seeking goodwill. Bigfoot, which sold Hop Valley in 8+ counties, seeks $5.5 mil. Summit has Hop Valley in 4 counties and seeks $750K, reports Register Guard.

Another interesting tidbit: when Hop Valley signed on with Bigfoot in Oct 2012, "Bigfoot paid Hop Valley a $640,000 nonrefundable fee for signing up" and contract apparently detailed joint mktg payments. Hop Valley's relationship with Summit even shorter. That contract signed May 6 in 2013, so proposed termination came just after the 1-yr anniversary. Then too, Summit contract has additional line that the 3.5X GP formula is "both reasonable and fair" and that any compensation under Oreg statute would be "difficult to determine," paper points out. Bigfoot atty told paper parties talkin' to resolve differences; Hop Valley didn't comment.  

Spot-checks of July 4 pricing on craft brands across US show very few deep discounts at grocery. We found a handful of 6-pks for $6.99, including for Deschutes, Bridgeport, Boulevard and Shock Top at an Argonaut Wine & Liquor in Denver. For a dollar more, folks can grab Avery, Left Hand, Widmer and New Planet sixers. Plenty of $13.99 12-pks available there too, including for Sam Adams, Alaskan and Blue Moon; big locals New Belgium, Oskar Blues and Odell twelvers ran a buck higher, $3 above some big import 12-pks. Could also grab a craft 6-pack for just under $7 at a Portland, OR Fred Meyer that's offering New Belgium, Deschutes and Full Sail at that price. Also had $13.79 twelves of Widmer and Kona brands, 20 cents below Corona, Heineken and Blue Moon. Ninkasi and Stella cases will run Portlanders $15.99. Elsewhere, a DC Safeway's got craft/import sixers at $7.99 (Goose, Stella), $8.99 (Sierra Nevada, Devils Backbone) and $9.49 (Dogfish Head, Flying Dog).

Cheapest craft 12-pks we saw on special for the holiday were big local NorCal brands in San Fran Safeway: $12.88 for Sierra, Lagunitas and Bear Republic. Blue Moon, Dos Equis and Widmer prices 11 cents higher. Anchor, Kona, Stella and Redd's Apple for $13.99. Lots of $12.99 and $13.99 12-pks elsewhere too. Blue Moon, Kona plus Heineken and Corona just under $13 at a San Diego Vons, then Sierra, New Belgium, Lagunitas, Firestone Walker at a buck higher. At a Kappy's in Mass, split was Long Trail, Blue Moon, Goose and Mike's at $12.99; Sam, Harpoon, Wachusett, Sierra, Brooklyn, Smuttynose and a coupla imports at $1 more. But Sam, Sierra, Magic Hat, Southern Tier and Blue Moon 12-pks up at $14.99 at Buffalo, NY Tops. An Atlanta Kroger has local SweetWater and Terrapin at that price with Sam, Sierra, Blue Moon, Angry Orchard and some imports priced a buck less. Out in Akron, OH, a case of Fat Tire rings up at $15.99 this week. Premium and subpremium pricing much more widely spread, with plenty of mail-in-rebates dropping prices way low in some spots, shown in table below.

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While Boston Beer keeps catching occasional "espresso cups" from "leaky bucket" described by founder/chairman Jim Koch at our recent conference, (in addition to more common "thimbles"), plenty of folks in the beer world already looking to coffee for biz parallels and inspiration. Shortly after Jim referred to his filling of demi-tasses, MillerCoors innovation veep David Kroll told the audience that "coffee is a great example" of a category he considers "a muse for innovation" in the US. "Once deemed a very commoditized product," David said, "the customization of coffee," including the "brilliant piece of innovation" known as K-Cups, "has step-changed the coffee industry."

Later, BA economist Bart Watson said coffee was a "great parallel" to beer/craft beer because it represents change in value for consumers and has similar "distribution aspect." Coupla decades ago, almost all coffee bought in "Folgers tins." Not so, now, when specialty coffee at 37% of volume, 50% of dollars, Bart noted, and coffee biz today "looks nothing like it did 10 to 20 years ago." Those were exact stats shared by Tenth and Blake ceo Tom Cardella at joint Mich/Ill distrib mtg in Feb. Total $30-32 billion coffee mkt keeps growing 5-6% per yr, Tom shared, but Millennial consumers continue to drive growth, particularly of specialty segment. Illuminating graph shows that near 90% of "mature" and Boomer consumers drink coffee, but less than 60% of those consumers choose gourmet. Compare that to Millennials: just 78% drink coffee but 95% of them choose gourmet options when they do. Both specialty coffee and craft beer offer "a common emotional benefit" for drinkers, Tom said, besides quality focus and familiar affordable luxury status. Both segments also "utilize evangelists" in the form of "baristas and brewmasters" to convey stories and connect with drinkers. So both coffee and beer currently in "momentum" stage of developing specialty markets, having moved past "commodity" and initial "disruption." What's next? "Sustaining" stage, when overall growth rates might slow slightly to +8-10% but will continue upwards.

Quality, Education and Regional Focuses: Counter Culture Training Centers Riding the micro-roastery coffee wave, Counter Culture zeroes in on quality ingredients and educational efforts much like small brewers, founder/ceo Brett Smith shared during Craft Brewers Conference panel with Sierra Nevada's Joe Whitney, led by All About Beer editor John Holl earlier in the year. Since founding Counter Culture in 1995, Brett watched his local Chapel Hill, NC community go from having 1 coffee shop to at least 30, around the same timing of expanding availability of local and small-scale beer. He also noted that CBC is "almost a carbon copy" of annual micro-roaster confab, in terms of size and "vibe." Currently thousands of small batch coffee roasters operating in US focusing on specialty coffee, ranging from those roasting a few thousand pounds per year, past Counter Culture, at about 2 mil lbs, and up to Starbucks, "approaching a billion pounds," according to Brett. In fact, Starbucks is "so far ahead," the second-largest specialty roaster is about 10% as large, he said. But like small brewers, he still sees "a lot of room to play" and the larger players are simply bringing a "greater appreciation for coffee." He also thinks Counter Culture is primarily "competing against other micro-roasters," rather than Starbucks. Familiar?

As a small player, "getting to the next town over" initially challenged Counter Culture and still challenges other small roasters. Brett and co have solved that problem at least in part thru opening regional "training centers," soon to number 9 with addition of Calif location. "When you educate someone, you create a bond," Brett said, so these locations aren't retail coffee shops, but instead classrooms and training grounds for the co's Counter Intelligence curriculum. Initially geared toward coffee professionals like local retailers looking to improve coffee knowledge and service, the classes (ranging from $75 per 2-hr wkshop to near $300 for day-long training) have become increasingly popular with passionate consumers (and some competitors).

Bitter Brews: Flavor Links Found by Brewers, Roasters, Retailers During the conversation about building coffee and beer brands, Joe commented on the "vicious cycle" of rotator bars pouring brands akin to "Berry Banana Whizz Bang" (reminding that "we don't want to be wine coolers"), but "who can blame them?" They're just trying to satisfy variety-seeking consumers. But it's "going to start to be really critical to build brands rather than just throwing new beers out there," Joe concluded. While they spoke, the audience sipped Common Ground IPA, a coffee IPA out of Sierra's Beer Camp (similar industry-focused beer education getting more attention from consumers), brewed by Brett/Counter Culture and John/All About Beer folks. Yes, an IPA, not a stout, porter or other dark styles more commonly combined with coffee. Hop bitterness played off coffee bitterness in Common Ground, as in other examples popping up from brewers like Stone collab with Two Brothers and Aleman, and, on smaller-scale, Peekskill Brewery in NY. Indeed, Two Brothers also operates a small coffee roasting biz, a "completely selfish" project, Jason Ebel told us, but one that's grown into a viable, sustainable biz.

Plenty of other small brewers have found synergies with local roasters for specific brands or projects, as detailed in craftbeer.com post or recent All About Beer article. Plenty of local-roast coffee stouts now being joined by likes of hops-infused coffee blend from a Delaware roaster. Just as interest in hops has led to experimentation with new hop varietals, interest in coffee is leading roasters to seek out more of 10-15K varietals of Arabica coffee trees, a Counter Culture buyer/quality mgr told the magazine. Retailers get the overlap too. Austin foodies were aflutter this week with debut of new Radio Coffee & Beer spot, with clear focus on specialty options of both beverages. Similar cafe/bars have opened in metro areas like Raleigh and the Twin Cities. Starbucks has famously figured out that offering beer and wine can keep customers coming back later in the day and keeps expanding its Starbucks Evenings program.

Keg It: Iced Coffee Distribution Taking Beer Cues Coffee entrepreneurs keep looking to beer, particularly those investing in growing iced coffee trends. Nashville-based Switters has been bottling what they call "microbrewed iced coffee" for coffee shops and other retailers like Whole Foods, according to a local WTVF report. They're not just bottling it though, they're kegging too. Same goes for NYC-based Joyride Coffee, now focused on kegged cold brew (slower method of brewing coffee without heat, popular for those seeking an iced option, also often used by beer brewers doing infusions), according to the NY Post. The biz grew out of a food truck before founders "expanded the business to bring craft coffee to offices," initially packaged in growlers. Kegs, and now branded kegerators, came when some offices wanted more cold brew than they could fit in fridges. We've seen high-end NYC offices with beer kegerators too, of course, and more retailers are becoming interested in having taps devoted to beverages beyond beer as well. Wine, even spirits can now be seen on tap. As always, that's either a challenge (tougher fights for tap handles?) or an opportunity, depending on your view.