Beer Marketer's Insights
Calif Craft $$ +13.5% in Supers, Near 15 Share; Lagunitas Still Flyin', Sierra Sluggish in Home Mkt
Six of top 10 craft brewers are Calif-based. Lagunitas still flyin', up 80%, $$ up 77.3%. It's now the #3 craft player in $$, passing Boston and New Belgium in food stores. Its IPA alone up 64.9%, $$ up 59.8%. Surpassed Sierra's Torpedo as #2 craft brand, and the #1 IPA. Meanwhile Sierra soft in home state in 2013; down 2.6%, $$ -0.9%. Pale Ale flat, Torpedo only up 2.9%, seasonals down 15.6%. Two other Calif brewers are #6 and 7: Stone up 29%, Firestone Walker, #7, up 7%. Lost Coast down 3.5% and Anchor Steam up 30%. Both in Calif top 10. Bear Republic IPA, +50.4%, now in top 15 Calif craft brands, even ahead of Stone IPA in volume, which is still growing strong +45.1%.
Unlike in total U.S, Boston Beer unable to grow beer in Calif market - down 1.4%, $$ -0.7%. Boston Lager -4.7%, $$ -3.2%. Seasonals up just 1%. Craft Brew Alliance is #2 in Calif, up 7.4% even tho Widmer Hefe down double digits there. New Belgium has improved Calif trend significantly, reducing dropoff to 1.1%.
The 29 busiest US airports, which collectively served almost 518 million boarding passengers last year, are home to 38 craft brewer-branded bars, pubs and restaurants. Passenger-sizes at these major US hubs ranged from the 45.8 mil flyers passing thru Atlanta's Hartsfield-Jackson airport to the 8.2 mil at Tampa Intl. And tho 11 of these hubs have no craft-branded spots, Logan in Boston has 5, both Denver and Atlanta have 4 and Washington National and O'Hare in Chicago have 3 each, according to the airports' websites. While most, if not all of these locations are operated by airport concessionaires, not brewers themselves, many of their menus skew towards licensed brands, if other beers are available at all. These locations represent intriguing marketing opportunities, whether exemplifying a brand's reach, reminding travelers of home or introducing visitors to local names.
Not surprisingly, there are more Sam Adams-branded outlets in these 29 airports than any other brewer. You can find 2 Sam Adams bars in Atlanta, plus more in LAX and Miami, 2 of the NYC hubs (Newark Liberty and LaGuardia) and 2 of the DC hubs (Baltimore-Washington and 2 in Washington National). CraftWorks has 6 Gordon Biersch spots and 2 more Rock Bottom locations at these 29 airports. Some local players have doubled-down on nearby hubs, including Atlanta's 2 SweetWater spots, Denver's 2 New Belgium bars, the brand-new pair of Stone World Bistro extensions in San Diego Intl and 3 separate Goose Island locations in each of O'Hare's 3 concourses. Other local choices include Anchor at SFO, DuClaw at Baltimore-Washington, Kona in Honolulu and Cigar City in Tampa.
Looking into a couple of key craft markets, it's no surprise that New Belgium isn't the only brewer represented in Denver Intl, where Boulder Beer and Rock Bottom are also present. Boston's Logan airport is an interesting case too: tho there are no Sam Adams locations there, Harpoon and local brewpub chain (Boston) Beer Works are each present. There are 2 Cisco spots, focused on flights to and from Nantucket Island, where Cisco Brewing is based. These outlets also serve products from Cisco's distillery and vineyard. San Diego Intl's introduction of the Stone locations came just a couple of months after the opening of Craft Brews on 30th Street, which attempts to bring "the craft brew experience from 30th Street to the airport," according to the airport's release. In fact, concessionaire HMSHost's restaurant development director said the goal for that concept was to have "the best beer program in any airport." Not that anyone's handing out that title (yet), but OTG, creators of new concepts at NYC's JFK and LaGuardia might have something to say about that. JFK's new BRKLYN Beer Garden pours 20+ craft-focused taps; Brooklyn Brewery's Garrett Oliver was enlisted to develop the tap list for LaGuardia's Biergarten. Concessionaires are clearly paying attention.
Craft brewers are taking branding opportunities outside of these 29 hubs too, of course. Recall, Bell's recently announced the opening of a branded location in the Grand Rapids airport. The 7.1 mil passengers who boarded in Portland, Oreg last year could have stopped at either Rogue's or Laurelwood's locations. Visitors to St Louis, the next-largest airport, can stop at Schlafly's tap room as well as a Beers of the World, a new St Louis Brewmasters Tap Room and of course the Budweiser Stadium Club Bar & Grill. While sifting thru these major airport dining options, we found few big-brewer branded locations outside of the Bud 29 Track Lounge in Las Vegas and Guinness pubs at Newark Liberty and Detroit, where there's also a Heineken Lounge. Notable exceptions include the largest Florida airports. Passengers passing by the Sam Adams location in Miami could choose the Budweiser Brewhouse, a Heineken bar or one of 3 Corona spots instead. Corona also has a location in Fort Lauderdale and there's a Stella Artois pub in Tampa. Interestingly, spirits-branded spots seem to be more common at these hubs, particularly Jose Cuervo Tequilerias.
The sheer size and ambition of the San Diego craft scene is currently epitomized by the enormous Stone Brewing World Bistro and Gardens at Liberty Station, on the site of a historic Naval training center very near the SD airport. This location just opened in May, seats about 800 people. And it was very close to full on 2 evenings last week. The World Bistro has 23,500 sq feet of indoor space and another 11,300 outdoors. It serves 30 beers on tap, mostly Stone and all craft. Not a BMC to be found. Asked why such an ambitious undertaking, Stone founder Greg Koch sez simply: "Go big or stay home."
Stone's Growing Empire Greg is the pioneering San Diego craft brewer who these days presides over a sprawling SD empire which grew to over $100 mil in revs last yr. It is growing revenues by 25%+ again in 2013. Stone has 860 employees, including 220 in World Bistro at Liberty Station alone. Stone's holdings encompass everything from its brewery, which will surpass 200,000 bbls this yr, to a distribution company that sold 1.6 million cases last year, including products of 35 other brewers, plus multiple retail outlets and even an organic farm. His retail outlets include the original restaurant location in Escondido (that one "only" seats about 400), Liberty Station, at least 3 other retail locations in Oceanside, Pasadena and San Diego, plus 2 newly opened San Diego airport locations.
Stone Plays in All 3 Tiers; Duplicate Licenses So Stone is a player in all 3 tiers and that increasingly vexes a number of distribs. But Greg shrugs it off saying he is playing by the rules. Calif has law allowing multiple duplicate licenses that some would like to change. Greg is also outspoken in his stance against mass-produced beer, which he has frequently labeled "fizzy yellow lager," an opposition that has in turn angered big brewers. But while his presentations and personae are iconoclastic and at times almost evangelical, the man who has a brand called Arrogant Bastard is genial and engaging in person.
As usual, Greg is spinning in many directions these days. He was featured in the first episode of BrewDog's tv show that debuted earlier this week, which focused on San Diego. Last week, Stone hosted a meeting of the San Diego tourist & convention committee on "how to leverage the industry's reputation to maximize its economic effect," reported Voice of San Diego. "The purpose of the meeting," Greg told CBN, "was to work towards more cohesion among the Tourism and Hospitality industries in San Diego in respect towards understanding and celebrating" San Diego's "craft beer culture…. We can use craft brewing to help take San Diego's attributes beyond the…surf/sunshine/palm trees/San Diego Zoo/Sea World/Legoland reputation that we already have…. There's a lot more depth in San Diego and making sure we highlight it is a real opportunity for the region." Koch "argues San Diego business should do more to lock in the city's reputation as the nation's premier craft beer destination, a designation that could bring more beer lovers and their money to the area," Voice of San Diego added. Also last week: Greg was a panelist at a legal conference, hosted a political fundraiser and much more. Luckily, others are running the day-to-day business, including co-founder Steve Wagner. Stone also hired chief operating officer Patrick Tiernan about a year ago.
Greg's Sabbatical Next year, Greg will take some time off. He will take a 6 month sabbatical. He will be traveling and not very reachable during that time. Asked why, Greg said: "To use a computer analogy, I've been operating a long time with a lot of programs running, a lot of windows and tabs open. It's time for me to shut everything down, and reboot my operating system. I am sure that I'll operate with new perspective once I return." And Stone will be "just fine" in his absence. "We'll continue to hurtle ahead as we've been doing for 17+ years."
Societe's Fast Start Societe Brewing has quickly become one of the best regarded of the newcomers on the San Diego scene ("in the upper echelon of San Diego brewers," said USA Today earlier this mo). Brewer/founders Doug Constantiner and Travis Smith just opened last year. The brewers have impressive pedigrees, including Travis's stint at Russian River. They met brewing at The Bruery. Their facility occupies 16,000 sq feet in a corporate park and could have a capacity of 15,000 bbls. Right now they are only available on premise in draft in about 70 accounts and in their tasting room. That was also jammed on the Friday afternoon we visited. They expect to sell about 3000 bbls this yr. Despite being one of San Diego's bright young lights, Societe was among the brewers that were closed out of the Great American Beer Festival, which they are taking in stride. Doug serves as vp of San Diego Brewers Guild.
Lost Abbey/Port Growing But "Running Out of Room"; Duck Duck Gooze Sold Out On Internet in 1 Day Lost Abbey and Port Brewing co-founder and director of brewing operations Tomme Arthur is a local legend. In a tip of the cap, Societe cofounder Doug Constantiner credited Tomme as "the one who evolved" the San Diego craft scene. Lost Abbey/Port Brewing are 2 very different breweries housed in the same facility; one a panoply of Belgian style beers, the other mainly a brewer of big, bold West Coast style beers. Together, they will sell about 16,000 bbls this yr. That's up around 20%. But Lost Abbey is especially influential with its crazily creative brews. And Tomme keeps pushing the envelope, as with his Boxed Set release last yr. The box set had a new special release beer every mo, mostly barrel aged and/or sour, each with its own original artwork. The entire boxed set ultimately sold about 500 copies for $450 apiece. This yr, Lost Abbey sold its Duck Duck Gooze for $45 per bottle (a gueuze beer that appeared this yr for just the 2d time and gets a 100 rating on Beer Advocate). And the entire allotment of 6800 bottles sold out in 1 day on the internet. That comes out to over $300,000 in 1 day. So Tomme has a very different model than even most craft brewers. Interestingly, volume is 70% Port, 30% Lost Abbey. But more like 50/50 in revs. With specialty items like Duck Duck Gooze, it's a given that the per bbl rev is far higher than say Boston Beer, or even Stone.
Lost Abbey/Port is located on the site of the original Stone Brewing facility. It was originally just 7500 square feet with a 30-bbl brewhouse. And Tomme is "running out of the room," busting at the seams. They've also added almost 33,000 sq ft for a packaging hall, barrel area and distribution center, with 4000 sq ft cold box. So the brewer is currently leasing over 40,000 sq feet. Tomme is "hoping to build new and own property longterm." But to build will cost $15-20 mil. And Tomme is wary. Why? With so many brewers already in San Diego and so many more coming, one "has to be concerned." To not be concerned, "would be foolish." Tomme also lamented that he is in a bit of "no man's land" at his present size, not as big as Stone, Green Flash, Ballast Point, which are expanding rapidly across US. But much bigger and more established than a lot of the newbies that are nipping at his heels. Tomme is currently with 13 distribs in 9 states, including Stone in So Cal, which is 40% of its biz and Wine Warehouse in Northern California. About 2/3 of the co's biz is in Calif, including the tasting room. But the question he faces is how much bigger he has to get to solidify his position, "to ensure our success."
This multi-faceted portrait of just 3 players in San Diego barely scratches the surface of everything that is going on in such a vibrant scene. While many craft brewers (including such leaders as Greg and Tomme) have expressed concern at times about overdevelopment, the scene keeps evolving. We will feature even more of what's going on there in future issues.
Join us for the 20th annual Beer Insights Seminar on Monday November 11th at the Waldorf=Astoria in NYC. It’s a premier industry event, jampacked with relevant content plus plenty of time for networking with industry leaders.
Our program includes presentations by AB sales veep David Almeida, Heineken USA prexy Dolf van den Brink, Pabst prexy Kevin McAdams and Harpoon ceo Rich Doyle. We also have two provocative and info-packed panels. One will be led by consultant Bump Williams on the evolving retail landscape. It includes MC chief customer officer Kevin Doyle, Crown evp sales Bruce Jacobson and Boston Beer’s sales veep John Geist. And a second panel, moderated by BMI’s Eric Shepard, will be a deep dive into data, including (for 1st time ever) all 3 leading beer info scanned data providers: IRI’s Dan Wandel, Nielsen’s Andrea Riberi and GuestMetrics ceo Bill Pecoriello. Ten Golden Rules ceo Jay Berkowitz will provide timely and actionable insights into the world of social media and internet marketing. And finally BMI publisher Benj Steinman will give an overview of industry trends. Seating is limited. Click here for more info. Click here to register.
So sez Bernstein’s Trevor Stirling this morn in extensive analysis (another recent analyst estimated global beer profits at $33 bil last yr, but what’s a couple bil between analysts?). North America is 20% of spirits profits or about $7 bil, with avg operating margins of 29%, sez Trevor. That’s above global avg of 22%. Why? “N. American margins benefit from the effective outsourcing of sales and distribution due to the 3 Tier Distribution system in the USA.” In North America, top 5 players “account for nearly 75% of total profits with Diageo as a market leader.” Spirits far less concentrated than beer but more concentrated in North America than other mkts. “What surprised us most? The massive scale of the of the profit generation of the premium baiju companies” in China. The top 2 made $5 bil in 2012, compared to $6.9 bil for Diageo and Pernod Ricard. Also, Trevor estimates Diageo’s North American margin at 48% “with Brown Forman not far behind at 41%.”
So sez Bernstein’s Trevor Stirling this morn in extensive analysis (another recent analyst estimated global beer profits at $33 bil last yr, but what’s a couple bil between analysts?). North America is 20% of spirits profits or about $7 bil, with avg operating margins of 29%, sez Trevor. That’s above global avg of 22%. Why? “N. American margins benefit from the effective outsourcing of sales and distribution due to the 3 Tier Distribution system in the USA.” In North America, top 5 players “account for nearly 75% of total profits with Diageo as a market leader.” Spirits far less concentrated than beer but more concentrated in North America than other mkts. “What surprised us most? The massive scale of the of the profit generation of the premium baiju companies” in China. The top 2 made $5 bil in 2012, compared to $6.9 bil for Diageo and Pernod Ricard. Also, Trevor estimates Diageo’s North American margin at 48% “with Brown Forman not far behind at 41%.”
Lotsa talk in beer biz about targeting “hard liquor” and regaining occasions lost to spirits. But wine volume up about 10% over last 5 yrs too, it has much smaller base to build on (still less than 16% of absolute alcohol consumed in US, up nearly 2 share in 10 yrs) and consumer pricing has been flat to down. Indeed, “there is nowhere to go but up” for wine in US, Stephanie Gallo told The Drinks Business recently (she’s daughter of CEO Joseph, granddaughter of founder Ernest and mktg veep of family biz). She cited 4 reasons why she’s bullish on US wine biz. First is Calif wine quality. Second is wine’s increasing visibility in US culture, i.e. tv/mags. Wine’s ubiquitous on-premise presence also a factor, she believes. Fourth reason may be most interesting and pose biggest challenge to beer: “Every morning we wake up there are 11,000 millennials that turn 21, and they don’t view wine as an elitist beverage.” To extent that’s true, it’s a real generational change compared to boomers and likely gen X.
Then too, millennials “not tied to traditions that have usually governed wine, and it’s because they are drinking wine at a social level,” Stephanie told Ad Age, not so much linked to special occasions/dinner. That opens up other innovations as well, like wine served over ice, from bottle with screw cap instead of cork and out of boxes. One of Gallo’s newest line extensions is lightly carbonated and made to drink over ice. Why? “The key insight here was that wine consumers were leaving the wine category to have their ‘refreshment’ needs met,” (by beer?) said Stephanie. Like all marketers, Gallo has also “moved away from television advertising and more toward target advertising,” including events and social media, natch. Similar sentiments expressed to FOX Business by wine biz execs. Millennials are “huge marketing opportunity,” said CEO of Naked Wines, noting “they don’t care about the pretentiousness of a wine, they want something that is authentic and speaks to them.” He and others echoed social media focus as well. Millennials’ “mistrust of institutions makes expert reviews useless” and he’s dropped them from mktg efforts. An importer points out her customers “want to know what their friends are saying about a wine over what Robert Parker is saying.” Also, “conventional wine-pairing rules have been set aside” as millennials “setting their own path.”
Stifel’s Mark Swartzberg initiated coverage of SABMiller earlier this week with interesting analysis that included usual rationales of emerging mkt strength and SAB’s #1 or 2 positions “in 90% of mkts in which it operates.” Almost ¾ of SAB profits (72%) come from emerging global mkts vs ABI (56%), Heineken (59%), sez Mark. But another of his reasons for rating SABMiller stock a “buy” is that he sees ABI buy of SABMiller as “likely.” He went a little deeper into some of the numbers and rationale in his view. Mark sees a potential takeover price of 39 pounds per share, a 30% premium to current prices. That’s about $114 bil enterprise value, but sale of SABMiller’s US biz (MC) for $8.9 bil (9x EBITDA) would be mandatory given antitrust concerns.
All in, deal “would lift ABI leverage from approximately 2.2x to 5.3x.” That’s high debt levels but no more than original AB takeover. Meanwhile, Mark also sees potential scenario where Altria, largest shareholder of SABMiller at 27%, “has a preference for ABI equity over cash, for tax reasons.” Then “ABI’s initial leverage would rise to less than 4x (3.8x).” Tho most other analysts have not thought there would be big synergies, Mark sees about $1.6 bil in synergistic cost savings. That’s approximately 20% of acquired EBITDA, that would be proportionately similar in yr one to other ABI acquisitions.” He also sez that “SAB represents an opportunity for ABI to gain market-leading exposure to Africa,” which is region that Stifel believes to be “highest growth region” over next 10 yrs. Deal would also “strengthen its exposure to Latin America by entering mkts in which it has minimal presence (e.g Columbia and Peru).” Other analysts and sources still push Pepsi as ABI’s most likely next acquisition. All we know for sure is that there will be a next acquisition.
Virginia Eagle has another deal in Va, this one to buy Guiffre Dist in Springfield, Va. Guiffre has already announced to employees and word of deal circulated around NBWA board meeting when board member Mike Guiffre wasn’t there. “After careful consideration and much thought,” wrote Mike to employees, “I have made a decision to enter into an agreement with Virginia Eagle… for their purchase of Guiffre Distributing Company. As you can imagine, this decision has not been an easy one.” Like Schatz’s Pat Scherzer (see Express #122), Mike is the 4th generation owner and his family has been in biz for 80 yrs. Mike had bought over half of King Dist in 2007, got the InBev brands and has added lotsa craft in intervening years. “Bittersweet,” Mike told INSIGHTS, but “I got an offer I couldn’t refuse.” Va Eagle is “the largest ABInBev distributor in the state,” said Mike in letter to employees. “They operate 5 warehouses, maintain a 20,000 square mile territory and sell to over 4,500 customers.” Guiffre around 3 mil cases. This will put Va Eagle around 11 mil cases in Va. It had previously bought Sieg, BJ Sager and L.E. Lichford. Owner Kenny Wheeler has another distrib in West Memphis, Ark. Deal expected to close next mo.
In “one of Orange County’s largest industrial transactions in recent years,” Harbor Dist “has acquired a large property in Huntington Beach for more than $50 million,” said Orange County Register yesterday How big? Almost 500,000 sq feet, including 94,000 sq feet of offices, sitting on 23.5 acres. Harbor is a unit of Reyes Beverage Group which said it will “create a sustainable state-of-the-art distribution center, complete with 50,000 square feet of cold storage area.” Building is currently vacant and following extensive renovations, Reyes expects to move there in summer 2014. Harbor “sells and delivers 21 million cases,” said Reyes. “The site will include a world-class training center and will function as Reyes Beverage Group’s West Coast shared service center.”