Mixed signals emerging about how to handle long tail of tiny craft brands, whether they contribute significantly to health/growth of segment or simply clog up the pipeline and confuse consumers. Either way, no sign that newbies are deterred and established craft brewers continue to churn out new brands.

Topic came up several times at Beer INSIGHTS Seminar last week. Crown's exec veep of sales Bruce Jacobson noted he's "hearing more than ever about a little SKU fatigue," that retailers like to have "all the new things coming out," but are concerned about "having to lap those every year." Some execs in grocery channel especially "have figured out they got ahead of the curve" with above premium offerings, now "starting to understand the long tail is not productive," MillerCoors chief customer officer Kevin Doyle said. He predicted "the lower part of the tail is probably going to get cut."

From Boston Beer's perspective, "we've done better offering direction [to retailers] on what to do about variety," said sales veep John Geist, and "where things have gone crazy with sku proliferation…the lead brand story is starting to click." Each agreed that "warm space" and its possible expansion at retail is best place for long tail brands, not cold box. Asked about whether biz is "confusing the consumer" with sku proliferation/ innovation, John said "absolutely," there's "a lot of shopper confusion" as even Boston has offered "innovative styles of Sam Adams." Boston's goal is to "drive more volume with less," even while continuing to innovate.

Separate panel of retail experts put some numbers to the tail and provided different perspectives. "New fuels growth," across beer, wine and spirits, including craft beer, Nielsen's Andrea Riberi said. But she also pointed out that even as beer skus continue to expand, beer "item productivity" - measured as $ sales per item - has declined. That's not the case in wine or spirits. Long tail of craft brands (2420 of 'em) provided growth of $6.4 mil across IRI multi-channel off premise outlet for 52 weeks thru Oct 6, a 12% increase, IRI's Dan Wandel showed. But the top 15 brands ("1st tier") alone provided an additional $37 mil (+10%). Meanwhile, "2d tier" craft brands (216) provided additional $82 mil (+19%) and the "3d tier" (629 brands) added $38 mil, (+27.4%). On a per-brand basis, top 15's contribution to overall dollars and growth "far exceed all other tiers," Dan noted. Those figures, at least on natl basis, support Boston's suggestion that retailers might best attend to big brands back thru the "middle" of the tail. But a "national view" may not be the best, Dan warned, given strength of "up and coming local brands" and mkt-by-mkt variance. "You almost have to go deep into the markets to see what's going on."

Slightly different story on-premise. "Craft explosion continues on-premise," said GuestMetrics' Bill Pecoriello, "if anything it's accelerating." The long tail and highest-priced crafts are driving on-premise craft growth, he added. In 3d qtr alone, GuestMetrics tracked 1200 craft suppliers with brands available on-premise (+26%) and they provided 6600 brands (+30%). Then too, while off-premise trends have improved recently for biggest craft brands, in the on-premise top 20 craft brands (40 share of craft volume in the channel) suffered a 2.1% volume drop yr-to-date thru Sep. But long tail (over 6K brands) volume grew almost 8%.

Yet, some mixed signals and signs of "fatigue" on-premise too. Volume per craft brand is down (echoing Andrea's point), which raises question of "sustainability" of adding brands, Bill suggested. And while the casual dining segment is "playing catch up" and adding lots of craft brands, "bars might have gone too far" with variety, Bill suggested. He sees "signs of peaking…some fatigue where there are too many brands, too much churn." A casual dining establishment may improve category performance by going from 5/10 craft brands to 15/20, Bill pointed out. But when a bar that already has 30/45 crafts jumps to 50/60 "we're not seeing any improvement in the overall category…too much churn can hurt performance."  

Nevada brewers want more availability at local sports venues and, coming off a successful law change in 2013, plan to seek removal of production caps altogether in 2015. Reps from Vegas-area Tenaya Creek and Joseph James Brewing Cos are pushing for placements in Cashman Field (minor league baseball) and the Thomas & Mack Center at the Univ of Nev Las Vegas, according to the Review Journal. While Cashman sells some out-of-town craft, managers at each venue say they're waiting to hear from beer drinkers before they "give it a shot." The Nevada Craft Brewers Association achieved a "small victory" this yr, according to a Vegas Seven write-up, by equalizing the "production cap" for brewpubs to 15K bbls across all operations for all counties (brewpubs, or brewpub groups, in rural counties used to be capped at 5K bbls). Robert Snyder, cfo of Big Dog Hospitality Group (a small brewpub chain), told the paper that "in 2015, the NCBA hopes to hire a lobbyist to ask, 'Why cap production at all?'" Interestingly, the article doesn't note that a bill passed in Nevada this year decreased the production cap for breweries able to move brands between wholesalers without cause from 2500 bbls to 2000 bbls.  

 Florida Brewers Guild expects additional "50 breweries over the next 3 yrs," exec director, gen counsel and lobbyist for Florida Brewers Guild, Josh Aubuchon told Fla distribs last week. Growlers are #1 on FBG's current agenda. Fla is one of 3 states remaining in US that doesn't allow 64oz growlers. AB distribs in Fla are against 64oz growlers and in turn "got a lot of bad press" in both Fla and Craft Brewer's Guild, sez Josh. Florida Brewer's Guild is pushing for 64oz growlers to be passed, and is ultimately looking for "removal of entire bottle sizing regulation," sez Josh. Scott Dick, lobbyist for Retail Beverage Council in Fla, also spoke at the mtg and chimed in separately stating Florida Retail Beverage Council supports growlers "as long as they are sanitized, sealed and labeled," noted RBC lobbyist. "Add that to the statute," he added.

Florida Brewers Guild also touched upon issues such as franchise laws/self-distribution, stating that below a certain "threshold" getting beer to mkt is the last thing guild wants to think about. But Josh didn't make a definitive statement regarding FBG's stance on self-distribution. Florida Retail Beverage Council, on the other hand, came right out and said RBC completely "oppose(s) selling directly to consumers," and is "opposed to brewers distributing their own product." "We don't need another tier," said RBC lobbyist Scott Dick, adding "brewers stick to brewing, distributors stick to distributing, and retailers stick to selling to consumers."

Then too, Josh brought up a couple other issues FBG is looking to address. In Florida it is illegal to do tastings for beer, however legal for wine and spirits. Josh sees tastings as beneficial for everyone in beer. He briefly touched upon "guest taps" - other breweries' beer being sold in a separate brewery's taproom. Brewers Guild is fine with breweries being able to put up "their friends'" (other breweries') beers in their own tap room if they'd like, and noted either way, still has to go through distribs.

CBN recently visited DeCrescente Distributing, the NBWA-BA craft distributor of the yr. Its headquarters are in what might be considered the unlikely locale of Mechanicville, NY, north of Albany. From there, DeCrescente covers a huge swath of upstate, 7500 square miles in 11 counties. Much of this is rural, not exactly the most craft-centric area in the US. But like most places, craft is growing rapidly here.

Last yr, DeCrescente celebrated selling 10 mil cases for the first time (on Dec 28th, according to a commemorative growler), including 3 million of soft drinks. DeCrescente's broad craft portfolio totals about 800,000 cases. That's led by Boston Beer. DeCrescente also carries an increasing concentration of local NY craft. Like everywhere else these days, local is hot. DeCrescente is planning for big craft growth in its territory, forseeing growth to 20 share of its biz by 2018 (from 12% now). That's big growth, especially in flat-to-down market overall.

NBWA/BA Craft Distrib of Yr Why was it named the craft distributor of the year? This wholesale business, while ostensibly just a "middleman," engages in a whole lot of consumer-facing activities. Many of its efforts are "more about consumers than retailers," acknowledged gen manager Russ Teplitzky. The company is always asking "how do we talk more to consumers and understand them?" That includes everything from its website and mobile app www.gotbeer.com, educational seminars for retailers and consumers, a Beer 101 Style Guide, monthly appearances and beer tastings on the most popular drive-time morning radio show in the region (country music, go figure), plus other weekly radio shows and podcasts, dinners, tastings and much, much more. All these were cited or alluded to in the joint NBWA-Brewers Assn release. "These awards recognize the creativity, innovation and specialized services independent beer distributors are providing on behalf of small and independent craft brewers," said BA president Charlie Papazian.

Sales and Mktg Center; Full Sized Bar; 4th Generation DeCrescente has over 300,000 sq ft of warehouse and office space and it currently carries around 1500 SKUs, including 15 pumpkin beers this fall. In 2012, it opened a sales and marketing center, which houses 90 sales/mktg folks, out of 350 total employees working for the company. That center includes a full sized bar, including a growler-fill system, which pushed all oxygen out and puts Co2 in so that beer stays fresh for 30 days if unopened. That same type of growler system is also used by leading grocery chain in area, Price Chopper. DeCrescente uses that system to sample beers that are not yet available in package.

In the bar, DeCrescente hosts numerous events, internal as well as with retailers and suppliers. Bar is named 39 Viall Avenue, after the company's original location at the home of Angelo DeCrescente, grandfather of current owner CJ Decrescente. The company was founded in 1948. CJ has 2 sons on board, representing the 4th generation. The company has been named one of the best places to work in NY state several yrs in a row.

DeCrescente is a big established operation that has often been recognized by its macro suppliers, regionally or even nationally, in a given yr (Coors Founder Award, Miller High Life Achievement, Heineken Red Star). Owner CJ DeCrescente is a member of the original Keg One and has served on many distributor councils. CJ is "not afraid to make big bets and invest back," said Russ, citing the bar and sales and marketing center. The center also houses a wellness center, including a nurse practitioner, PT, fitness center and much more.

Upstate NY Craft Examples While visiting, we saw that craft is really happening in a hip, nearby, more affluent upstate town such as Saratoga Springs. There CBN visited a hopping Belgian beer bar, called the Merry Monk, which is right next door to a new multi-tap craft-centric facility called the Tap Room. Both opened in just the last 12 months.  

Mass legislators heard testimony for and against proposed adjustment to state franchise law yesterday, setting up familiar "battle" of small brewers vs wholesalers in press. Recall, Mass Brewers Guild supports bill to allow suppliers to move brands between distributors without cause if brands are less than 20% of distrib's biz. At hearing, law-makers heard from craft brewers that want to "overhaul a 42-year-old law" that "binds brewers" to distributors, according to The Republican. Opa-Opa Brewing brewmaster Dennis Bates told the Committee on Consumer Protection and Professional Licensure that "our biggest competition has become our own distributor in Western Massachusetts," where Opa-Opa is based but has gone from 30K CEs to 3K over 4 years. During the same period its biz in Eastern Mass has increased from 10K CEs to 30K. During the hearing, Bill Kelley, prexy of the Beer Distributors of Mass, testified that the bill opens distribs up to "arbitrary and capricious" actions by suppliers, in Bill's words, through which "a brewer could enrich itself," the paper wrote. Bill said that 60 brands switched hands between 2008 and 2012. He told local WWLP the bill would be a "disincentive for any beer distributor to start to do business with any smaller start-up brewery." State wholesalers believe it "would also benefit and is being spearheaded by brewing giants, like Samuel Adams and Harpoon," according to the station. We'll likely have more on this hearing in future issues.  

Harpoon Brewery ceo Rich Doyle pulled out his beer industry scalpel at Monday's Beer Insights Seminar in NYC and dissected industry hot buttons, including the differentiation/commoditization of IPAs, the "craft vs crafty debate" and franchise laws. Rich closed his presentation ("5 beer marketer's insights," learned across 27 yrs in the biz) with an examination of the disconnect between small brewers and wholesalers on "franchise law carve outs." That divide, to Rich, stems from differing usage of the term "middle tier." Small brewers often talk about "an abstract entity" or "regulatory framework," but distribs typically refer to "existing wholesalers" that operate in that tier. Much of the press on the issue pits an economic or regulatory argument against "essentially a protectionist one." In his view, "resistance to carve outs is a mistake." Tho some worry about the "camel's nose under the tent," Rich advised the audience to "be careful of the head in the sand." He believes a "firebreak," such as NY's carve out, is "much better than a forest fire."

Keep Disunity "Out of the Paper"; Distrib Arguments "Small brewers are not strangers in the statehouse" any longer and carve outs have become a "rallying cry" for 48 state brewers guilds. Coverage in "editorial pages" is "never favorable" for distribs, according to Rich, so he recommends "keeping it out of the paper." He took issue with 2 arguments he's seen in press: 1) why change a system that's allowed small brewers to flourish; and 2) 6 mil bbls isn't small. Small brewers have flourished because consumers want their products, Rich claimed, not strictly because of the 3-tier system. In Q&A, one attendee pointed to comparative lack of small brewers in Mexico and Europe. Rich acknowledged that tied house laws in Europe have kept some brewers from getting to market, but reiterated that demand is primary reason for craft's success. Another attendee offered a "point of order" that there are in fact many craft brewers in Europe, "just a few years behind" the US.

As for defining "small," Rich compared the "smallness of the brewer" to the "largeness of the wholesaler." Rich wondered at what point "a billion-dollar-plus wholesaler" is "too big to get the protection they're looking for from some small brewer?" He's not a fan of laws with volume caps for brewers without talking "about size caps on the other side." He acknowledged that he "can't write off 5% of my business," (the % of Harpoon distribs that are underperforming) and a distributor can't either. But what of 20% cap in current bill proposed by small brewers in Mass (see below)? That's up for negotiation, Rich said. He has no problem with current blurring of 3-tier lines (as attendee noted, Harpoon operates across all 3 to some degree). But many distributors do have a problem with it, which they offer as argument against carve out bills. In Rich's view, that argument is undermined if distribs holds ownership stakes in brewers.

"Buy" Vs "Sell" Wholesalers About 5 yrs ago, Harpoon looked at its entire biz, including wholesaler partners, and rated them like stocks as either buy, hold or sell. About 5% of its 105 wholesalers at that point were rated "sell." Rich shared 2 instances where it took Harpoon 4 yrs to move brands in 2 of its established markets. One market went from 50K CEs to 85K in less than 2 yrs, the other from 10K CE to 35K in about a year and a half.

"Late Convert to Sizzle" Rich believes that the familiar "steak and sizzle" debate is the "underpinning of the craft vs crafty debate." He's a "late convert to sizzle," explaining that "being crafty is as important as crafting a good beer." Rich "used to think that authenticity alone would rule the day, but I believe that beyond a certain threshold of product quality, sizzle really rules." Part of that learning for Rich is what he calls the "Santa Claus principle." Early in his career he'd go into accounts and put down table tents calling Harpoon the "only beer brewed and bottled in Boston." But folks got upset because "they wanted to believe in Santa Claus," even if Rich was factually correct. "Don't assume the consumer cares about the same things you do, or should care about the same things you do," he said.

IPA Differentiation or Commoditization? Harpoon IPA was first developed as summer seasonal 20 yrs ago, when "people didn't know what it was" and often pronounced it "ippa." Calling it a "New England-style IPA," Rich claimed the liquid "harmonizes the ingredients instead of being a hop delivery system." Harpoon has found many consumers have "written off the style" because of widely varying flavor profiles, subcategories, and especially "hop-bombs." But Harpoon IPA makes some think "maybe I wrote off the wrong thing." In Rich's view, "any attempt at differentiation of IPAs runs the risk of commoditization," implying that the proliferation of IPAs has led to consumer confusion and lack of understanding of what those 3 letters mean in terms of flavor. But since all are labeled "IPA," some consumers believe they're all the same.

Questions About Bubbles; Spirit Worries; Q&A Notes Rich shared some provocative questions that he asks himself about the biz that have broad implications for himself and others. Comparing brewers' sales to retailers that talk about same-store sales, what are a brewery's "same-state sales" and "what happens...when they run out of states?" Perhaps rather than a brewery bubble there's a "brand bubble." How is a brewery financing expansion, equity or debt? Each implies different goals. What happens "when there's price pressure" due to overcapacity? What will he say to a wholesaler that takes on a new brewer but won't take on a new Harpoon SKU or that offers volume and/or $$ promises to new brands "when my brands suffer?" His "overall answer" was to "urge caution."

Rich also believes there's "too much fretting about" spirits and a "lack of leadership on this subject." Beer marketers "need to promote beer and not try to imitate spirits" by looking for opportunities to promote "beer qualities that spirits can't compete with." He offered a few mostly experiential opportunities, like "the last time you had a beer with your best friend," or Father's Day beers with dad. In Q&A, he said that the chain-less Mass retail environment can be good for small brewers getting started but that chains help larger brewers grow. He also reminded that Harpoon's numbers don't show up much in IRI data because of that. He has no succession plan at the moment and "nothing to announce" about adding to Harpoon's 26-state territory. Harpoon will become one of just a dozen or so small brewers over 200K bbls by yr-end.  

Almost a year since "craft vs crafty" first hit the wires, it's still making headlines. Last weekend, the Washington Post ran "Craft beer, or crafty pretenders?" examining new experimental entries from Blue Moon. The same day, Canadean, a global consulting firm, offered up its version of a "global definition" of "craft." A day later the Boston Globe noted that "the debate over what is a craft beer heats up," and the day after that a Detroit Free Press writer contributed that "pride, personal experience help define the craft-beer movement." Greg Kitsock in the Washington Post talked about Blue Moon's new/old "beer-wine hybrids," brands brewmaster Keith Villa said he created in 1995 before there was a market for them. Kitsock touched on the 2nd incarnation of the Budweiser Project 12, also the Boston Globe's impetus to take up the topic. While it's "refreshing" for Globe columnist Gary Dzen that the beers are branded Bud and "not some two-faced craft interloper," he writes that "I'm supposed to hate this stuff, right?" Earlier in that column, Dzen looks to Jim Koch for guidance. "If I try to compete with the big guys, they'll kill me," Jim said, but Dzen acknowledges that "by any metric, he's become plenty big himself."

"There will inevitably be areas where a subjective judgement is required," Canadean's Account Director acknowledged in the consultant's "redefining 'craft' beer." Discarding the BA's definition as "problematic" when looking at the global beer market, Canadean offers that "craft" is "a segment primarily made up of Premium and Superpremium priced specialty beers." Yet "from a consumer perspective the line between craft and specialty is extremely vague and porous," so the co will include brands made by large brewers. The Detroit Free Press brings the consumer perspective to the fore, noting that, to drinkers, craft is "about being part of something...supporting a brand considered worthy...the experience, not the status," and "pride." It's the consumer that USA Today returned to in its take on Project 12 and the rest last week. It gives space to Jim's diplomatic analogy "we all eat at really good restaurants and we all occasionally eat at Taco Bell. And they are both good," as well as the now repeatedly-printed Charlie Papazian column expressing concern that "craft beer made by craft brewers may soon be hijacked." But perhaps some of the worry could be spared by re-reading USA Today's first line: "beer makers, big and small, are tapping into consumer willingness to experiment beyond traditional brews." It comes back to the consumer.  

The North Carolina Brewers Guild just hired a new executive director and Louisiana brewers are looking at establishing self-distribution options. Margo Knight Metzger joins the NCBG as new exec dir, according to the News & Observer, after a stint working in the state's tourism office. Before that she worked for NC's Wine and Grape Council after time marketing for "a beer and wine wholesaler." The guild hopes to "play a more prominent role in promoting the state's craft beer industry" as well as "boost its lobbying presence," tho no word on exactly what legislative asks the group would have. Down in La, the goal is clear to Kirk Coco, ceo of NOLA Brewing, who told New Orleans City Business that he's hoping for some limited self-distribution laws in the state since "it gives the smaller guy more exposure." In his view, "no one brewery is going to dominate in the city. We should be a city with several operations and tremendous variety." The rest of the article chronicles the difficulties faced by a startup nanobrewery in New Orleans.  

Producer of highly-touted Heady Topper (a double IPA), The Alchemist announced this week that it will shut down retail sales at its brewery beginning Nov 15. Trekking to Waterbury, Vt to pick up a case of the beer known to online raters and traders as "HT" was a common occurrence since founders John and Jen Kimmich opened the facility 2 yrs ago just before the original Alchemist brewpub was badly damaged in Tropical Storm Irene. It brews 180 bbls of HT every week, all packaged in 16oz cans, sells 70% of it on-site, then distributes the rest of it to 150 accounts, according to the Burlington Free Press. (At a reported $70-80/case, our math pegs on-site sales at around $100K a week.) But after Nov 15, it'll be figuring out how to allocate production among those accounts to be sure they "handle and store it as the Alchemist expects, and don't hold on to inventory." The "difficult decision" should also alleviate "complaints from neighbors," John told AP, "before it turns into a large legal battle." One particularly prickly neighbor, "not a fan of any beer," has been especially frustrated with the traffic brought to the neighborhood by the brewery for well over a year at least. The Kimmichs are currently looking for another site to re-open retail sales in Waterbury.  

Craft shipments were up 10%, 15,200 bbls in Mo Jan-Sep as 8 of top-10 increased shipments. Boulevard picked up 4%, 2000 bbls and is #6 supplier in state. Boulevard accounted for just under 1/3 of total craft in Mo thru Q3. Schlafly up 4.3%, 1100 bbls, while Boston Beer up 8.3%, 1900 bbls and New Belgium up 10.5%, 1100 bbls. Mother's Brewing up 57% and Urban Chestnut more than doubled to 4100 bbls YTD. Craft held 5.4 share in Mo Jan-Sep. Meanwhile total state shipments were off 5%, 175,000 bbls as large brewers struggle. AB was down 6.4%, 135,000 bbls and lost 0.8 share to 61.4 in home state while MillerCoors off 5%, 43,000 bbls. Pabst and Crown off 5% and 3% respectively while Heineken up 9%.