Looking outside of beer, Dan said that the hi-end of wine continues to grow in IRI data; recall, premiumization in wine began at least 2 decades ago. This bodes well for beer premiumization, in its earlier days. Further, whiskey (arguably the closest spirits category to beer, flavor-wise) continues to gain share of spirits sales, +2.4 points to 27.4 in 2013. Pouches declined near 20% last yr after "exploding onto the scene a couple years ago," with prepped-cocktails, the vast majority of pouches, -25%; it seems consumers became less interested in these ready-made frozen treats, but more interested in purchasing the ingredients to make them themselves.  

Beer "lost buyers to spirits and wine in 2013," but experienced "no real net loss due to new beer buyers" coming to the category, Dan noted during Power Hour based on IRI household panel data. As about a quarter of 2012 beer buyers didn't buy beer in 2013, those buyers were replaced by about as many new beer buyers. Over 60% of buyers that didn't buy beer anymore bought spirits, another near 40% bought table wine. Buyers that chose beer in both 2012 and 2013 bought more cider, super-premium and craft brands, but less malt liquor, imports, premium and sub-premium brands. While sales data has supported shifts to the high-end, Dan added that now, "household panel data also supports it." Digging into average basket rings, buyers putting beer in their baskets spent an average of just below $54.50. That jumps up to near $66.50 when its craft beer that's in the basket; the stat is even higher for cider (over $68) and super-premiums (about $67). Dan also found that on over 1 in 10 trips buyers took to purchase any alc bev, they purchased a combo on beer, wine and spirits; these combo trips represented almost 16% of total basket rings. About 40% of trips to purchase any alc bev were used to purchase beer only.  

Colo-canner Oskar Blues will be distributed in Kansas entirely by Bud network, CBN hears, with agreements for increasingly-common high-per-case marketing fees. Kansas launch next month will be state #34 for Oskar Blues, with #s 35 and 36, Nev and Mo, already lined up. As March's lamb-like entrance is upon us, we've attached our monthly roundup of the distribution expansions that began during Feb, 2014. See that attachment for more.  

After beginning test brews last Oct, moving over its packaging line in Dec and getting moving pieces up and running last mo, Victory Brewing debuted its new Parkesburg, Pennsy brewery this week. The co has been shipping out of the new plant for a couple weeks now, cofounder/prexy Bill Covaleski told CBN, taking over all of Victory's bottling needs and freeing up plenty of space at Downingtown brewery. Tho Parkesburg more than doubles volume potential of Downingtown -- up to 225K bbls/yr on 140K sq ft itself, meaning both breweries eventually "situated for an output of 300,000 barrels" -- Bill and team seem much more interested in investments into maintaining quality, consistency at new plant. That starts with water. The "proximity of the brewery to Downingtown" (less than 20 miles) "allows it to draw from the west branch of the Brandywine Creek." Original brewery pulls from east branch and almost 8 months of research into water quality indicated essentially "identical" supplies, Bill said. Most equipment, including 200-bbl ROLEC brewhouse, supplied by same manufacturers as "2004 upgrade" to Downingtown plant.

New for Parkesburg: a "small plant...to naturally create lactic acid...not for flavor correction," but to "optimize pH" across various brewing stages, plus Victory's "dedicated an entire room to yeast propagation," Bill said. That's since Victory uses "over 40 yeasts" across its portfolio, even tho some "only get called up once a year" (like Christian Schmidt lager yeast Victory uses for pre-prohibition style Throwback Lager). The new capabilities represent a "huge hygienic step forward" for the co. Still under construction is 10K sq ft that will be dedicated to Victory's 3d brewpub: currently operates one at Downingtown, will be opening 2d this yr as standalone operation in nearby Kennett Square and Parkesburg restaurant/beer garden planned to open early next yr. Victory is looking at Missouri market as potential next distribution expansion, after already opening up 3 new states in early 2014: Ariz, Ida and Ky. Tho Bill promises Victory will enter those markets with "integrity and assertiveness," the co is "not counting on them" to fill up Parkesburg capacity, which Victory built "for regional growth where we are," considering continued "strong consumer interest in all things local." He reminds that Victory can, and already does "benefit from that and [be] victimized by that."  

Small and local may be nowhere more beautiful than they are in Oregon. State liquor board reports of beer shipments from in-state suppliers include 20 Oreg brewers that shipped over 4300 bbls in 2013. All told, over 150 smaller state brewers sold over 95K bbls (averaging about 636 bbls each) in Oreg last yr, up almost 48%. Small players grabbed over 19 share of all in-state brewer shipments, +4.5 pts. Oreg-brewed beer grew 12.8% in toto to near 501K bbls. That gain added another 2 share pts to in-state total, now almost 18 share of total beer sales in state, based on Beer Institute estimates. The state counted 173 in-state suppliers last yr, up 39 from 2012.

Three of top 6 in-state suppliers declined in 2013; that's half of just 6 decliners in top 20. Largest state brewer Deschutes down slightly, 1.3% in 2013 to over 90K bbls. That's almost 18% of all in-state shipments and over 3% of all beer sold in state, over 31% of Deschutes volume. In-state CBA shipments dropped over 9% to just over 80K bbls (11% of its volume), tho that does not include any beer CBA may have shipped into Oreg from any of its other breweries. Next-largest player Ninkasi posted 4th biggest bbl-gain in Oreg, +10.1% to over 46K bbls in home-state. The brand has more than doubled since 2010. Mac's Taproom/Portland Brewing jumped 14.3% last yr to near 29K bbls, after years of hovering around 25K bbls. Full Sail up 3.3% in home state, now over 24K bbls. Bridgeport was other decliner in top group, -4.1%, back below 24K bbls.

Biggest bbl-gainer in Oreg was #7 in-state supplier, 10 Barrel, +86% in 2013, adding almost 7500 bbls and now over 16K bbls sold in Oreg. 10 Barrel has grown from shipping just 2344 bbls in Oreg in 2010. Up near 600% in 3 yrs. And second-largest bbl-gainer? A brand new brewery of course: GoodLife, shipping near 7000 bbls in Oreg in its first yr. Third-largest gainer was Boneyard, +70% to near 13K bbls in Oreg, just behind Rogue, +3% to near 14,500 bbls. Other fast-growers include Oakshire, +36% to under 8000 bbls, and Hop Valley, +141% to under 7000 bbls in yr 3. Both Laurelwood and Edgefield posted slight declines in 2013, each down less than 1% and straddling 5000 bbls in Oreg; Terminal Gravity in-state sales down over 7% last yr to just over 4000 bbls.  

As total beer shipments to the state of Washington held about even in 2013 at 4 mil bbls, most of the top craft players posted solid or strong growth in the state, according to shipments reports from Wash Liquor Control Board. But there were a handful of notable exceptions, including a couple double-digit declines from top US craft suppliers. CBA's family of brands remains largest Wash craft supplier. Total CBA shipments in the state -0.5% to just under 120K bbls last yr. That's over 16% of CBA's volume; co now has over 3 share of total beer in the state. Next 6 top suppliers grew in 2013, half of them double-digits. This group is led by Oreg neighbor Deschutes, +5.3% and almost 3000 bbls to just below 60K bbls. That's almost 21% of its total biz. Georgetown (Manny's) added nearly 5000 bbls to craft shipments in Wash, +12.7% to 42,570 bbls. Another PacNW brewer Mac & Jacks and #5 craft supplier in the state Boston Beer each up 2-3% last yr. Alaskan Brewing shipped almost 31,500 bbls to its 2d largest-mkt (nearing 22% of Alaskan's biz). That's less than 300 bbls behind Boston and growing at over a 10% clip after 2 years of declines in the state.

Second-largest US craft brewer, Sierra Nevada, posted largest bbl-gain of any craft supplier in Wash in 2013, over 5000 bbls, +21.6% to almost 31K bbls, and #7 craft in state. Sierra has grown almost 47% since 2010 in Wash. That's striking difference from #8 Wash craft supplier, #3 US craft brewer, New Belgium: -11.5% to about 30,500 bbls in state in 2013. NBB is down almost 22% there since 2010. Remaining 7 of top 15 craft suppliers in Wash all based in PacNW and #9 and #10 both regional powerhouses. That's Elysian and Ninkasi, each up 25% in 2013 to between 25-26K bbls. Full Sail posted modest 2.1% gain to just below 19K bbls in Wash. Hale's Ales grew 4.6%, Pike +0.8%, but Bridgeport (part of Spoetzl/Shiner portfolio) -15.6%; all 3 brands shipped between 11-12K bbls in 2013. Rogue rounds out list of top 15 craft suppliers to Wash, +9% to just over 7000 bbls last yr.  

BJ's Restaurants Inc., finished 2013 up 9.4% to $775.1 mil total sales, tho "comparable restaurant sales decreased" 1.1%, co announced last week during. Oddly, not much talk about beer from one of nation's largest brewpub chains during conference call; sole beer talking point was in regard to settlement made with Texas Alcoholic Beverage Commission (TABC) to "brew our proprietary beers for our Texas restaurants in two Texas-based beer pub facilities to be constructed and opened by us no later than June 2015," Greg (Levin) stated. Also recall, BJ's is signed up with Brew Hub to have chunk of volume contract brewed at Brew Hub's Lakeland, Fla facility, set to open later this yr.

Co invested "approximately $80 million" to open 17 new restaurants in 2013 (now up to 147 total) and plans to open 15 more locations in "Mid-Atlantic, Florida, and Texas areas" in 2014. "We believe there is at least room for 425 plus BJ's domestically," but "if we do not see an improving sales environment…we have the flexibility to slow down our pace of development in the current year, and explore potential alternative uses of capital to create value for our shareholders," prexy/ceo Greg Trojan noted. "Fourth-quarter sales fell short of our expectations, with comparable restaurant sales coming in at negative 2.7%.," after experiencing "a meaningful slowdown" in the period after Black Friday weekend thru end of yr, Greg added. Total revs for quarter were still up 8.1% with six new restaurants opened in that time. Yet "2014 has started off slower than many expected…comparable restaurant sales through February 16 are down approximately 4.2%," noted CFO, Greg Levin.  

This week, Sierra Nevada shipped batches of Pale and Torpedo Extra IPA from its new Mills River, NC facility to Mims Distributing in Triangle area of the state for first time, the distrib announced. The new brewery will cut Mims' supply of Sierra from 17 to 10 days, allowing for much fresher beer in Raleigh-Durham-Chapel Hill.  

Volume growth in 20%+ range last yr, and a "staggering" +35% in Q1 2014 as analyst Judy Hong called it, comes with a serious cost. So does being a Rebel. "Sheer volume growth" has Boston Beer "racing to keep up…from a supply perspective and has not allowed us to get the efficiencies we would like," ceo Martin Roper told analysts on surprisingly brief conference call Tuesday. Spending to increase capacity, plus heavy sales/ad support are pressuring Boston's profit margins. That led to big earnings miss in Q4 and knocked back stock price about 5% in after-hours trading after Boston announcement. But share price recovered most of that loss yesterday. As Motley Fool analyst Bill Barker commented: "Not getting the beer out efficiently is not such a bad thing to have. You'd rather have demand which you then find a way to efficiently meet than not have the demand at all." Or, as RBS Capital's Nik Modi put it: "Having to increase spending to meet better than expected consumer demand is a great reason to miss on earnings-per-share expectations." (Note: some of the material in this article appeared in our INSIGHTS Express letter yesterday.)

How Heavy Are Pressures on Boston Margin? For 2013, Boston's gross profits up 22% to $385 mil - $100 mil more than just 2 yrs earlier. But gross margin thinned from 54.3 to 52.1 (and slipped from 55.5 in 2011). Similarly, while operating income up 18% in 2013, operating margin narrowed from 16.5 to 15.3. And this pressure not likely to ease soon, Martin acknowledged. Just 4 mos ago, Boston guided to 52-54% gross margin for 2014. That expectation dropped to 51-53% in Tuesday's announcement. Then too, Boston's pricing guidance for this yr slipped from expectation of 2-3% in Nov to 2% currently. But lower margin guidance "more relates to [fact that] we continue to struggle a little bit on the operational side to get the leverage that we anticipated from the volume," Martin said. Boston focused on "supporting the growth" of beer, cider and tea and "not so focused on the cost side right now." Some cost leverage from higher volume coming long term, "but we don't expect to see it this year."

Meanwhile, no change in expectation for $34-$42 mil increase in ad, promo selling expense this yr. But Boston did raise guidance for expected capex for this yr from $140-$180 mil to $160-$220 mil and that "could be significantly higher dependent on capital required to meet future growth." Upside of all this is that Boston now expects 2014 volume to be up 16-20%, higher than mid-teens guidance it gave in Nov. Early yr results "not that great an indicator for full year trends," Martin reminded. Helping to drive that big early 2014 number: pipeline fill and trial for seasonal Cold Snap and Rebel IPA.

Cider and IPAs Also Pressure Profits Angry Orchard and Rebel IPA are more expensive to make and thus have lower margins than other Boston products. Northwest hops in Rebel IPA "have been reasonably expensive over the last couple of years due to supply demand issues," said Martin. As result, from margin perspective, Rebel "probably not as exciting as we would like, but obviously we need to go where the drinker is going" and drinkers want "more unique or different flavors perhaps than…five years ago." (Cider has "some similar margin issues," Martin said too.) Net-net: "if Rebel was to be significant for us, that would probably have a negative impact on margin."

Martin on Mktg Plan, Can Biz; Jim on Retail Environment On how Boston approaches mktg spend, Martin said "strong sales organization" and adding "talented people" in "appropriate markets" remains "the number one priority." Second is promo support and point of sale at retail. Media is where there will be "biggest change" this yr as Boston plans to support Sam Adams, Twisted Tea and Angry Orchard "with media spend for the majority of the year," said Martin, following more limited spend in 2013. Also: Sam's can biz still pretty modest, in 3-8% of volume range, and has "met our expectations." Cans add occasions and venues and "contributed to the growth, but it hasn't perhaps been as big as some people were projecting it to be." Asked about changing retail environment, Jim said retailers remain "very positive about craft" as major source of volume/profits and double-digit growth. At same time "they are probably struggling a little bit with how to configure the SKUs" they carry and how much, or whether, to expand warm space and/or coolers. Merchandizing beer getting more like wine, Jim said, given number of SKUs, but at same time trying to "rationalize it around brands, which they don't do with wine."  

An "IPA has been the top new craft brand for 6 of the last 8 years," since Deschutes Inversion IPA was introduced in 2006, Dan noted during BA Power Hour. 2013 was no different, with New Belgium's Rampant Imperial IPA leading the pack at $3.9 mil dollar sales in IRI supers for 2013, followed by Sam Adams Double Agent IPL ($2.2 mil), Sam White Lantern Witbier (1.5), and Deschutes River Ale (1.3 mil). "Maybe Rebel IPA will be the next top new IPA" or new brand in 2014, Dan noted. All other top new BA defined craft brands were below $1 mil in sales, with styles ranging all across the board from Pale Ale (Alaskan & Elysian), to Lager (Anchor's "California"), to Saison (Karbach), to White (Cigar City), Pils (Real Ale), Variety Pk (Shorts, 10 Barrel, Stone) to good ol' fashion IPA (Waterfront and Sockeye). Total sales for top-15 new BA defined craft beer brand sales were $13.6 mil in IRI supers for 2013, and total new craft brand sales totaled to $42 mil. That's with 111 new craft vendors intro'd in supers in 2013 (up to 595 craft vendors total). And of the top-15 new vendors, 14 of them were from different states, so they're "literally coming from everywhere," noted Dan.