Craft brewery bills passed last yr in Tex have provided a "boost" to an already hot craft beer scene in Houston as craft "continues to cast a wider net across age and socioeconomic groups," reported Houston Business Journal. Saint Arnold Brewing is projected to sell up to 59,000 bbls by end of yr. Meanwhile, "all cylinders are flying" at local Karbach Brewing Co, said brewmaster Eric Warner, who left Flying Dog in Colo to join team. He said Karbach anticipates brewing 18,000 bbls this yr. Retailers in Houston area are putting full support behind craft too. "Both locations" of Flying Saucer Draught Emporium have "phased out mass-produced beers" entirely to focus on craft, noted report.

Out in Calif, Petaluma Hills Brewing Co, which has been well received by locals, has hit big snag in form of paperwork and has been temporarily shut down by city for failing to get proper permits, reported Petaluma360.com. Shutdown "came just days after" Petaluma Hills announced fellow Petaluma brewer HenHouse Brewing Co planned on leasing production equipment to more than double their output to 2,000 bbls annually. Turns out Petaluma Hills has technically been operating illegally since it started brewing in Sept. City was aware and assisting in getting all the safety and water permits in order, but after announcement that it was leasing out space, city decided "we can't just turn away from the safety and water issues" any longer, said Lt. Mike Cook. "I got ahead of myself," said owner JJ Jay.

Penrose Brewing Co will be next brewery to open up in Chicagoland "by beginning of 2014," reported Chicago Tribune. "Two former Goose Island employees," Eric Hobbs and Tom Korder, nailed down a 14K square-foot location in Geneva, IL that will produce "about 3,000 barrels" per yr with their 40-barrel brewhouse, to start. Recall CBN reported Penrose got OK to build from Geneva aldermen this past Jun. They've already "inked a deal with Windy City Distributing to place bottled Penrose beers in Binny's and SavWay stores, across eight Chicagoland counties by the spring, and on tap at dozens of locations throughout Chicagoland," noted paper.  

There is "no reason for less than double-digit growth anytime soon" for the craft beer category, Nielsen sr veep Danny Brager told Brewbound conference after reviewing both on and off-premise trends. In all outlets data, craft beer $$ sales were up 21.3% for 52 wks thru Nov 9, with avg price of $33.05/case, an increase of 1.7% vs yr ago as Danny noted it's higher priced beers driving growth while premium and below premium $ sales dipped 1.5% and 2.8% respectively. Ciders flying too: +93.9% with avg price of $34.80, tho that price on ciders is down 2.8% from yr ago. The "high end" of craft is contributing the most to segment growth based on Nielsen data. Tier 1 craft prices at avg $10.57 per 6-pk accounted for 35% of craft growth, while craft going for $9.24 avg contributed to 31% of growth for 52 wks thru Oct 12. Craft priced at $7.54 was just 9% of segment growth. Consumers are proving they are "willing and able" to spend lots on craft as brands, noted Danny.

Asking consumers why they buy a craft beer, Nielsen found "it's all about experimentation," with 50% giving that as primary reason they buy 'em. That jumps to 70% among millennial age group. The next most popular reason among 46% of all beer drinkers was they found craft simply "tastes better" while 40% said it was because of seasonal offerings. Among all beer drinkers, craft is still primarily purchased in grocery stores, 65% vs 24% at a bar and just 10% at c-stores. Millennial drinkers were slightly more likely to purchase craft at liquor stores. Currently there are approx 600,000 retail accts selling beer in US, and that's been growing 3% annually past 6-7 yrs, noted Danny, which should obviously provide more retail opportunities for craft. Looking at different retail channels, craft has ground to make up in c-stores, drug stores and value/club locations. Craft accts for 17% of beer $ in food stores, 24% in liquor stores but just 4% in c-stores, 7% in drug and 8% in value/club. The avg # of craft items available is just 6 at c-stores and drug stores vs 196 items at liquor and 63 at food stores.  

Brew Hub is likely to announce 2 new breweries "simultaneously" by the Craft Brewer Conference this April, said Brew Hub CEO Tim Schoen at yesterday's Brewbound conference, following news of its first partnerships earlier in day. Brew Hub production in Fla will start at +40,000 bbls, as reported in yesterday's CBN, yet co plans on adding "another 30,000 bbls in phase two…and that might be by the end of next year," Tim told St Louis Dispatch. Brew Hub will announce "more partners (brewers) down the road" for that additional volume.

"Missouri and St. Louis in particular is of high interest and strategic value," as well as unnamed mid-Atlantic/northeast location for new breweries, Tim told St Lou paper in interview out today. "Those are going to be our No 2 and 3 breweries," and Brew Hub likely to "do both at the same time," sez Tim. Biggest challenge with new locations is getting the "custom-made" equipment "in the queue," since there's a "12-month lead time" for equipment orders. "Architectural work is already done. This is all going to be replicated market to market," sez Tim.

Tim's interest in craft originally sparked in the 90s while he was in charge of innovations at AB, he told paper. "I proposed that my group secede from (A-B), and I had a whole plan, moving over to a whole separate building:" "I still to this day say that if we would have done it, there would be a different landscape out there, at least for my former employer," sez Tim.

Tim made bold prediction that it is "achievable" for craft to double by 2020 at Brewbound Conference. Right now craft segment is about 7 share, 14+ mil bbls of total beer segment. Contract-brewed craft is 12-15% of that, according to Tim. Brew Hub looks to play big role in contributing what he estimates to be an additional +2 mil bbls of contract-brewed craft in that time.

Brewbound Q&A Joey Redner of Cigar City joined in on the Q&A, listing "the 3 P's" - "proximity, possibility and Paul (Farnsworth, head brewer of Brew Hub)," as main reasons for partnering with Brew Hub. "When they brought Paul in that really increased the comfort level a lot." Another appeal was that he can now focus more of his time on brewing and mktg, without having to focus as much on operations. "I don't like operating plants or building breweries," tho that was 30% of his time over the last handful of yrs, he estimated. He also reiterated his hesitance to fall into too much debt as Cigar City starts process to grow "beyond regional," as a factor in partnership with Brew Hub. We'll be able to "grow into the demand for the first time," noted Joey.

Asked how Brew Hub assures its partners that quality of beer will not suffer, Joey chimed in saying he's more concerned about quality of beer brewed being better rather than worse than what Cigar City makes. "They have better equipment, and with Paul running the thing, they have knowledge that we've had to learn on the fly," added Joey. They're "building equipment out to accommodate the whacky stuff that guys like us at Cigar City" do.

Asked about risk of contract brewing for Cigar City, Joey felt there's "not much I can do about" certain % of customers that don't like the idea of Cigar City brews coming from somewhere else than the Cigar City brewery, sez Joey. "We can make our beer, and we can make it repeatable with the Lakeland brewery; it's effectively in the same area, we're using the same water." "I truly believe we could take our beer to Montana and make good beer" as long as we have the right ingredients, he added. "The liquid is the final arbiter."  

Target margins vary and "each distributor might tell you something different, but for craft we like to work at 28, north of 28 if we can." That's how distrib Joe Cotroneo sr veep of big Ariz distrib Crescent Crown answered question about his margin targets at Brewbound conference yesterday. "Obviously, we will negotiate and discuss with you guys on what your needs are and we'll work together on what's fair. But generally speaking, about 28 is what our mark is." Modern distribs "absolutely" view themselves as brand builders these days, said Joe, and distribs "can make a huge difference" in brand's or brewer's success. But brand building is "shared" responsibility, he stressed. "We love it when you guys have people in our market that are working or better yet live there and cultivating the account base along with us. That's fantastic," tho not absolutely necessary. Importantly, "your aspirations need to match what you're willing to do." Brewers who invest in mkts will get more attention, Joe acknowledged. "If you're there and throwing your wallet on the table, you're going to get your distributor to act in kind. We love to hear about investment coming to the market. We're always there willing to match that and meet up and develop plans to further the brands."

But "no magic number" when it comes to that investment, Joe noted, "just that we would expect your resources to match your ambition. So if you come to us and say 'I want to be 10,000 cases per month inside of 6 months and I haven't sold any beer in your market yet,' then we've got some work to do. And we're probably going to need some significant investment to break through to achieve that." Tho Crescent Crown may not have precise figure in mind, "you have to have a well thought out plan. You have to have a strategy." Given huge number of skus at Crescent Crown and constant battle for retail shelf space, "it's getting harder to break through…. The plan doesn't have to be ridiculously funded, but it's got to be well thought out." Again, there's shared responsibility to develop, communicate strategy between brewers and distribs. "That's the only way it works, when you're sitting down planning together," including annual planning, "check-in meetings," etc. Does Crescent Crown try to keep equal mix of local, regional and natl brands or focus on larger craft brands? "Both," answered Joe. "We think about our portfolio, we think about what's in it, each of the brands, each of the suppliers separately. So, yes to all that. We love big brands. Big brands that scale are good for us. But we also like small brands that fill niches. We like it all."

Asked about hot topic of franchise laws, Joe reminded that such laws not limited to beer and most require good cause for brewer to make a change. "I think sometimes" brewers "don't want to do the extra work to find the cause, so they just want to be exempt from it. It seems to me that we do a lot of different exceptions for smaller industries and start ups and I think that's okay." Ariz law "is fair and reasonable," said Joe. "It says 'you can leave, but you have to have cause and it has to be compensated.' I think that's fair…. and rational." But it's up to each state to make its own laws, he added. Joe didn't want to "wade into" issue of volume caps, carve outs being discussed in Mass, elsewhere.

CBN missed most of Joe's opening remarks, but near end he said: "We know what the sweet spot is in this business," and it's craft. "Without craft last 6 years we wouldn't have any growth. We're blessed to have growth. We'll grow another half-mil cases this year." So Crescent Crown "fortunate to be with many of you in the room here" and recognizes it's a "privilege to sell your beers, not a right."  

Some weeks back we wrote about AB’s coming big bet on aluminum bottles noting that AB “now believes it has competitive advantage to MC as its aluminum bottle tested higher on quality and refreshment cues and uses less aluminum.”  MC veep Pete Marino weighed in that MC’s bottle actually 32% lighter than AB’s.  But our report was incomplete.  In the prepared remarks from Investor’s Day, AB prexy Luiz Edmond said that its bottle “beats competition according to consumer research” and “uses a lot less metal than our earlier version.”  Not lighter than MC’s but lighter than AB’s previous aluminum bottle.

Here’s wishing you and yours a Happy New Year!  See you in 2014.   

Terry Nauslar had a long and distinguished career at Coors, including opening many mkts for the brands and he also ran Coors branch biz for yrs with notably open mind about necessity of carrying other suppliers’ brands.  Terry had an “insatiable desire and passion for the business,” said Kohler veep Frank Politano (NJ distrib).  Our condolences to the Nauslar family, including 2 brothers still in the biz, Dennis at Glazer’s and Deacon at Bay Area Bevs. 

As we noted back in Oct, one of staunchest beer distrib advocates and longtime prexy of Associated Beer Distribs of Illinois, Bill Olson, is retiring.  His last day is today.  Back in late Nov, Bill did a rare, deep dive talk with Chicago beer blogger posted on Guys Drinking Beer site.  Blogger was “struck by the candor of our discussion.”  So were we.  Highlights included big changes Bill has seen over last 3 decades, starting with consolidation.  The number of distribs in Ill fell from 178 to 62.   Then too, “when I first started [the state house] was a lot less partisan.”  Used to be parties where entire Assembly would show up and interact.  That “built a camaraderie and a rapport that is absolutely missing today.”   Tho many think lobbyists have great power, sez Bill, “lobbyists aren’t in control of almost anything.  They are constantly in reaction mode.”

Bill gave fascinating chapter and verse on lawsuit and ultimately successful legislative effort to ban brewer branches (specifically AB stake in City Bev) and compromise reached with small brewers for limited self-distribution.  Tho many small brewers view cap put on self-distribution in final legislation (7,500 bbls) as far too restrictive, Bill insists it was small Ill brewers who came up with the number.  Meanwhile, there remains dispute over craft brewers owning both brewery license and brewpub license.  Bill claims “accommodation” was made for one brewer (Revolution) to have both licenses until it hit 15K-bbl production cap.  Revolution “gave us every indication” that when it hit cap, it would give up brewpub license.  But, once accommodation on the books, “we found that they didn’t want to get rid of their brewpub.  They had no intention of stopping being in two licensed levels” of  3-tier system.  After this interview ran, Revolution’s Josh Deth told Guys Drinking Beer that he never had plans to sell his brewpub, that at time Goose Island had both brewpub and brewery under common ownership and wasn’t until ABDI added “screwy provisions” to the legislation that it became an issue.  Imagine that: a disagreement over legislation between distribs and brewers.  In any case, for all this and much more, check out the entire interview at www.guysdrinkingbeer.com/bill...    

AB hasn’t filed legal response yet to craft brewer Big Sky’s trademark infringement lawsuit over the phrase “hold my beer and watch this.”  (See Dec 26 Express.)   But AB sent this statement: “These humorous Bud Light videos explore the unexpected things that could happen when you ask someone to hold your beer.  There is no trademark use of the phrase ‘hold my beer and watch this,’ nor is there intent to create any association with Big Sky.  Countless other videos and jokes use the same or similar words as a punch line or hashtag.”   Big Sky’s atty told St Lou Post-Dispatch that “we are talking back and forth” with AB and “trying to reach a resolution,” but did not comment further. 

Distribs are betting big on their futures, with sometimes massive construction projects which seemingly run counter to sluggish or even declining overall industry volume trends.  Take a look at couple of the upcoming projects of HDA Architects, which has completed more than 100 beverage projects over the last 20 yrs.  Capitol Beverage in Austin is building a 327,000 sq foot facility, reportedly at a cost of $28 mil.   Making that especially notable is that Capitol is Coors/Crown/Shiner distrib in an unconsolidated MC mkt.  Recall, Keg One bought Miller/Heineken distrib there in early 2011, hoping to be buyer of much bigger Capitol Bev.  Doesn’t look like that’s happening anytime soon. 

HDA does many projects in Tex and it is embarking on its 9^th with Standard Sales (not all in Tex), headquartered in Odessa.  Recall, Standard has operations in Miss and Colo as well.   This one will cost over $20 mil, prexy Lanny Layman told Odessa American a couple of weeks back.   It will be more than 150,000 sq feet and house about 4 mil cases, ¼ of Standard’s overall volume, Lanny told the American.  With the oil economy booming again, beer sales are growing in area, up 800,000 cases, and that’s why it needed new facility.  “We’ve kind of outgrown our old one,” said Lanny.   The town offered $1 mil over 5 yrs to keep Standard in Odessa.  “The facility is going to be the showpiece to the new entrance of Odessa” as it expands eastwards, Odessa’s economic development director said. 

“I don’t see any hesitation” on the part of owners in embarking on such big construction projects, HDA prexy Jack Holleran told INSIGHTS.  “We used to plan” facilities for 5 years out, now “we are planning 10 years out,” he added.  Facilities are made taller and with ability to reconfigure warehouses, parking lots etc, as owners aim to accommodate plans for future growth vertically as well as horizontally.  Not an HDA project, but recall Reyes Holdings spent over $50 mil acquiring facility in SoCal this fall.  By the time it renovates could be as much as $70 mil all in.  Three projects for about $120 mil.  If total beer biz is declining, likely not these distribs, and not in these mkts. 

Class action atty Joe Alioto will get at least one more day in court to argue ABI-Modelo-Crown deal violates antitrust law.  Judge cancelled hearing scheduled for Dec 20, but subsequently granted motion to hold Jan 24 hearing.  Recall that tho judge tossed case back in Sep, Alioto argued that “substantial and massive price increases” this fall “affecting tens of millions of Americans every day,” plus alleged misrepresentations by defendants, justify another oral argument (see Dec 4 Express).  “Mere paper argument” via motions not enough, Alioto argued, tho judge had “deemed the matter suitable for decision on the papers.”   Looks like she changed her mind, and granted hearing for late Jan.