Alabama brewers shipped over 28K bbls in 2013, +47% over 2012, much less than anticipated, according to Alabama Brewers Guild report. Of course, the volume is almost 25X what it was in 2009; the state's brewing industry has been doubling or tripling for 3 years running and had hoped to again in 2013. Tho no details provided on exactly why in-state brewers didn't meet that goal, report notes that 5 largest of 17 total Alabama brewers produce about 90% of all in-state beer. So "if one or two of these large producers delay a planned expansion or otherwise do not grow at their originally estimated rate, it can have a significant impact on" total state stats. Number of production breweries in state nearly doubled from 7 to 13 last year, as number of brewpubs doubled to 4 and in-planning breweries jumped from 7 to 12. Vast majority, about 86% of Ala-brewer beer stays in state, +44% to about 24,400 bbls last year. Meanwhile, total shipments to Ala -2.6% to 3.3 mil bbls, according to Beer Institute. So in-state brewers just 0.7 share of total beer sold in Ala, up from under 0.5 share in 2012. Out-of-state shipments jumped 72% to almost 4000 bbls. A full 90% of volume shipped thru distribs, up slightly. Employment at breweries in the state grew 42% last year to 121.  

Fast-growing, CT-based Two Roads Brewing Co. announced its brands will be distributed throughout Mass exclusively by Mass Beverage Alliance beginning Apr 28. Recall that MBA, made up of 5 MillerCoors distribs that grouped together to compete with L. Knife entities, grew 97% to 186K cases last yr. Earlier this yr, Two Roads went with mammoth MC distrib Manhattan Beer for NYC, Long Island and neighboring counties.  

Founders of Two Brothers Brewing and Windy City Distributing in Chicago, Jason and Jim Ebel will pair with Cavalier Distributing founder George Fisher to launch new Cavalier craft-focused operation in Ariz, the group announced. Recall, the Ebels sold Windy City craft distrib to Reyes Bev Grp in 2012 for about $70 mil. Ariz will be 5th state with a Cavalier operation (founded in OH, expanded to Ind, Ky, and Fla). It'll also be 8th state for Two Brothers.  

Ain't too hard to find optimists about craft brews' near term potential. And for Todd Stevenson, chief operating officer of one of the category's fastest growers, Lagunitas, optimism has to be almost second nature. He gave plenty of reasons to be cheerful, but also some cautions about limits of current "fragmentation" (lots more brewers and lots more skus) during keynote speech to wholesaler mtg at Craft Brewers Conference.

First, the good news. Millenials are not only a huge generation, but there are millions more legal age drinkers to come from that group in coming yrs and they're more than twice as likely to drink craft (15% of their consumption is craft) than Gen X (6%). And with 35 mil hitting legal drinking age over next 7 yrs, that "spells a bright future for the craft category." How bright? Todd sees craft doubling over next 5 yrs to 31 mil bbls, a "very doable" 14% annual gain pace. Even at just 9% growth, craft gets to 25 mil bbls from last yr's 15 mil plus (Looks like Todd's using current defn, not including Yuengling.) With craft at 14 share of volume in 5 yrs, that would be 25% of industry profit, he calculates. If craft grows to 30 share, that's 55% of profits, Todd estimates.

Among challenges, especially if craft grows at that more aggressive rate: hop shortages, especially since craft brewers use much more hops than mainstream domestics. Could be a capacity issue too. There's now about 24 mil bbls of craft capacity, Todd figures, and would need additional 11 mil bbls to get to that aggressive 35 mil bbl goal. How many more breweries can there be? We're at 2,822 now, with 9,781 SKUs (up from 6,781 SKUs in 2009, in grocery channel alone). But while long tail healthy and providing lots of growth, sales per SKU have declined since 2009 from $1.7 mil per SKU to $1.5 mil per SKU.

That leads to question: How much more fragmentation - in number of breweries and number of SKUs - can mkt (and consumers) handle? Current "drinker interest" in new brands, plus relative ease of production (low start-up costs) would support more choice. 90% of millenials have tried new beer in last mo; 54% in last week. But "space is not infinite" at retail or wholesale, Todd reminds. Plus "moderate scale helps quality" and "excessive choice is confusing," which argue against much more fragmentation. So, while "consumers need and want choice, there has to be someplace where there is a limit." While companies like Amazon and Netflix can offer virtually unlimited choice, that's "not so in beer." "Finite space" will pressure against fragmentation. Todd noted that there were 4K distribs in 1970, about 900 now and projected to be 650 in 2020 (NBWA and others say there's a much higher number of current distribs, at least licenses.) And distribs now average 536 SKUs vs 190 not that long ago. One large distrib told Todd 25% of its SKUs are 94% of profit and for large craft distrib 24% of brands are 66% of profits. For some distribs, as many as 50% of drops "are not profitable." And "many brands would not be profitable" if distribs were to "allocate fully all costs." Finally, retail space is flattish and declining per capita.

Also: "smaller brewers are disadvantaged on consistent quality." Net-net: "I think 2800 breweries is great and 3500 is great." But "10K is not so great," since Todd's not sure that many breweries could put "quality beer on the shelf. Things can go wrong." When Lagunitas was selling 40K bbls it spent $1 per case on quality assurance. When it grew to 400K it added significantly more quality control, but because of scale, cost dipped to 50 cents/bbl. From consumer end, Lagunitas is getting some feedback that big beer lists, huge choice can be intimidating. He also cited some consumer research that showed limited choices can lead to higher sales.

What can suppliers do to best deal with fragmentation? "Build brands that connect emotionally with consumers," Todd advised, citing Harley Davidson, Red Bull and Apple as consumer co's that do that. Suppliers can also "work to add value" to distribs. Lagunitas has developed custom software to help distribs determine which brands should get more focus, which should be "de-emphasized" and which to be stabilized, based on monthly sales by supplier, brand, account. Like big brewer programs, it helps distribs with portfolio and category management.

What can distributors do? "Don't cut the long tail, but sell it in the right places," determined by neighborhood, by retailer, etc. Not all brands belong in all accounts, Todd suggested, echoing others (especially bigger craft brewers). Retailers need to "allocate fair share of space to craft." Todd pointed to articles in BA Insider that CBN has covered which make case that based on incremental gross profits and sales momentum, craft is actually under spaced at retail, contrary to big brewer claims. Big brewer category management "not always objective," Todd suggests. Finally, there's need for all to "simplify choice" for consumers, as companies like Amazon, Netflix, iTunes, Yelp, Google and Kayak do for their customers. There's similar "need to do that in beer," Todd believes, as "too much is overwhelming."  

Craft numbers continue to astound. Craft Brewer Conference, kicking off today, expected to attract about 9K attendees, BA reps told us yesterday. That's up 40% from last yr. Indeed, CBC program being held in massive Colorado Convention Center. And opening reception tonight will be at Sports Authority Field at Mile High Stadium.

Wholesaler symposium got under way yesterday with pointed remarks from Lagunitas' Todd Stevenson and interesting dialog with three craft brewers about what they expect from distribs and how they pick new ones when they expand to new mkts. This separate program has also grown significantly in recent yrs. Lots more to follow.  

All the craft data and analysis you need in one handy volume: Craft Brew Guide is available today. This easy-to-use reference guide gives you a 10-yr review of craft shipments and share trends, a 10-yr review of each of the top 30 craft players, key on-premise and off-premise craft trends for top brewers and brands, with new in-depth cuts of the data in several major metro mkts. CBG also includes profiles of top craft brewers, key financial data of publicly available craft brewers, exclusive numbers on big brewers efforts at selling in craft space, as well as an intriguing essay on the Long Tail (with more exclusive new numbers), and an analysis of craft M&A so far. Available digitally or in a portable 6"x9" volume, Craft Brew Guide gives you the best data and analysis on craft that you can find. It's published by Beer Marketer's INSIGHTS, the leading source for beer industry info and publisher of Craft Brew News. Click here for more information and to order this one-of-a-kind book.  

Our guest columnist Nestor returns with a thoughtful column based on a poem that is of more recent vintage than Ancient Greece (the original Nestor's era). The great Irish poet William Butler Yeats' wrote his seminal poem called "The Second Coming" after the end of World War I. It seemed to warn of a pending apocalypse. Nestor isn't going that far, but he takes a line from the poem as a springboard to deliver some cautionary notes for craft brewers caught in the middle.

"The centre cannot hold."

These, of course, were the words of the eminent Irish poet William Butler Yeats (yes, I know that they spell funny over there). While Yeats had no known connection to the US beer industry and died quite a few years ago, his words (from "The Second Coming") were, presciently, a very useful summary of today's craft beer business.

Let's talk about Big Guys and the Little Guys. And then the guys in the "centre."

The big guys would include AB and MC, of course. Both have developed crafts and AB has bought two small brewers, but they are going to have to step up their games considerably if their new craft volumes are to compensate for volume declines in their core mainstream brands. So we will see AB continuing to buy wholesalerships and develop a cadre of trusted wholesaler partners whom AB hopes will favor its brands. MC's distributorships sell the bulk of independent craft beer brands and volumes; so it was not surprising (especially if you subscribe to the better late than never school of business) that at their recent wholesaler meeting, they railed against wholesaler's foolhardy additions of many, many, far too many expensive-to-handle craft brewers and craft brands. Don't expect this rhetoric to cease. Also expect to see much more aggressive action on the part of both majors.

The big guys also include the bigger crafts (who won't, by the way, be the targets of AB and MC - the big crafts are just too strong to mess with). It's been hard to miss the fact that those that are not national (I use the term informally; you don't have to be in, say, Alaska) are adding states pell-mell and quite a few are building breweries on the other side of the country. They have likely concluded that, as time goes on, it will become harder and harder to get top-flight wholesaler representation in new states and harder and harder to successfully enter markets as the umpteenth big outsider. Some may not succeed. But the success rate is going to be much, much higher now than 5 or 10 years from now.

The little guys are the one-state (well, they may be in a couple of states or in just a portion of a large state) crafts and the very small local guys. Many of the former will make it because they can appeal to geographic pride and locavores and because they have efficient cost structures, including low shipping costs. Many can self-distribute or work with a single in-state wholesaler. The very small local guys are the brewpubs that are seemingly springing up on every street corner (and in some mid-blocks) and selling growlers as well as on-premise draft. There are a lot of these outlets; there will be more, probably a lot more.

That leaves a lot of crafts in the center. They probably have a home-area base, but get a lot of volume from far-flung distribution. Their remote distribution is going to be the target of MC and others in friendly chats with common wholesalers. Why are you carrying six SKU's of this stuff? Here's a new one of mine that will easily replace that volume and margin at lower operating costs. As SKU counts move into four figures, more and more wholesalers are going to listen to these arguments. In addition, the big guys (probably including big crafts) will be talking to their National Account contacts about allocation of space to such SKU's.

So what can these crafts in the center do? I suspect that there are four possibilities. First, they can join the rush to national status. As stated above, it is getting late. It is also quite expensive. Second, they can get smaller geographically, essentially joining the one-state group. This re-imagining may work, especially if that does not leave them with excessive excess capacity. Third, they can sell. To AB or MC. To one of the foreign buyers who have shown up recently. To a non-trade buyer. How long will this window of opportunity exist? Hard to tell… but probably not very long. AB and MC almost surely want just a few. The others are hard to gauge, but could become less intrigued once a craft's volumes start to flatten out on a same-state basis and even decline.