Craft jumped from 7.6 share of $$ in IRI foodstores in 2008 to 12.5 share in IRI supers yr-to-date thru Jul 14, showed IRI's Dan Wandel today on Brewers Assn's Craft Power Hour. Much of that gain hadda come from premiums, which dropped 5.3 share to 36.6. Subpremiums also fell 2.3 share to 12.8. And this year is more of the same, Dan showed. "Craft is on pace to achieve its eighth consecutive year" of double digit growth in its most developed channel. Craft $$ up 15.3% YTD thru Jul 14 in foodstores. "There is an abundance of evidence that craft beer is evolving into the Mainstream," concluded Dan.

By Diogenes

I have been thinking lately about the 1991 tax deal in Washington that resulted in a doubling of the federal beer excise tax for brewers selling more than 60,000 barrels annually. This was part of the package of excise taxes on "luxury" objects like yachts and jewelry that was approved by the Congress and President George H.W. Bush, despite his famous "Read my lips; no new taxes" pledge.

All those taxes have been rolled back, except the most regressive one, the beer excise tax that hits the working man right in the pocketbook. The large brewers say that most of their beer is consumed by people making less than $70,000 annually.

By all accounts, the beer industry was stabbed in the back by this deal. The leaders of the House and Senate and representatives of Bush huddled at Andrews Air Force Base outside Washington and approved the deal without listening to any of the industry's army of lobbyists.

Could it happen again? Yes. The Beer Institute reports that its research shows that leading policymakers in Washington do not buy the historic notion that beer is the "beverage of moderation" that should be taxed differently than spirits. The BI says key people in Washington are vulnerable to spirits industry's long campaign that puts forward the simple proposition that "A drink is a drink is a drink," that a 12-ounce beer has the same amount of alcohol as a cocktail or a 5-ounce glass of wine. Never mind that there is no standard pour of liquor for mixed drinks, that you can get an 8-ounce martini at many places.

The liquor industry's campaign for "equivalency"-the idea that beer should be taxed like liquor-is on the table.

"A drink is a drink is a drink" is a simple lie that has gotten traction. And the proliferation of media channels has enabled the spirits industry to infiltrate radio and television media with pervasive advertising, scrapping their long-time voluntary prohibition against ads on the Big Three networks. That may be the primary reason liquor is taking drinking occasions away from beer.

Many people believe, and some Congressmen have warned, that the division between craft brewers and large brewers makes the entire beer industry more vulnerable to this peril. Craft brewers are pushing their Small BREW Act, which would lower excise taxes for brewers under 6 million barrels of annual production. Large brewers are pushing their BEER Act, which would lower taxes for all brewers (and is really a defensive measure).

Some small brewers seem to believe that Congress might increase the excise on the large brewers but not on the small. I doubt that. How could they hike the tax on the working man, but not on the craft beer drinker, who, it is well known, is in a higher income bracket than the mainstream beer drinker?

More people believe that neither BEER nor BREW has a chance in the current climate in Washington. Let's assume that is true. Wouldn't the entire industry be better served if it was solidly behind a single bill? Why can't the Beer Institute and the Brewers Association agree on a third way: a bill that would reduce the federal excise tax for brewers from $18 to $16 for brewers over 1 million barrels, make it $9 for brewers under a million barrels and no tax for brewers under 60,000 barrels? Or something like that.

That would send a clear message to Congress, and reduce the chance of a tax increase.

Beer sales declined by almost 5% in the UK in the second qtr, according to the British Beer & Pub Assn cited by Bloomberg this week, but there's still lots of excitement about small brewers. A Euromonitor analyst has heard "industry whispers that craft is growing in the high single digits" in the UK, but labeled the validity of the figures "debatable." Meanwhile, swanky London restaurants are upping their craft offerings. An up-scale, 29-unit burger chain is selling "11,000 craft beers a week," according to the paper. Based on its online menu (a mix of British and American craft, for about £4.25, $6.60/pint), that's headed toward $300K/mo or $3.8 mil/yr on about 1600 bbls, the output of an avg US brewpub. Popular UK chefs/restaurateurs Gordon Ramsay and Jamie Oliver are among those who've added more craft beers to their menus. Currently, 40 small brewers operate in the greater London area, "a 13-fold increase in less than a decade." The Financial Times pegged the number closed to 50, in a separate article this week. The UK established a "progressive beer duty" tax system in 2003, which provides great tax relief to the smallest brewers and tapers off as output increases. But brewing companies are still figuring out how to best operate under the system, the article notes, especially as "the number of pubs in the UK has fallen rapidly," while "the number of breweries has grown sharply." With a number of fast-growing breweries in the city - including Meantime Brewing, now pumping out about 100K hls (85K bbls) and about 12 mil in revs ($18.8 mil) - the Times concludes that "London's beer boom is not over yet."

By adding tap rooms, brewpub extensions and plain-old restaurants (often in totally separate locations), small brewers seem to want bigger pieces of the restaurant biz. Meanwhile, restaurants want a bigger piece of the beer biz by bringing custom-made contract brands. Mad Fox Brewing, a Falls Church, Va brew pub churning out around 1600 bbls/yr, just signed a purchase agreement for a DC tap room, according to the Washington Post. The spot will mirror the Falls Church brewpub's "pizzas and pub grub," and "thanks to DC's famously permissive alcohol laws" (see above) Mad Fox can simply cart beer from the brewpub to the tap room without going through a distributor. Elsewhere, a Dayton, OH restaurant is expanding its contracted beer brands from 1 to 3, after Company 7 BBQ's namesake ale became its top seller, wrote the Dayton Biz Blog. The restaurant prices its proprietary brews on par with Smithwicks and Stella - rotating craft prices vary, according to its website.

>No detail on beer trends in just-out half-yr report from Granite City Food and Brewery Ltd, 5th largest brewpub group, per BA stats. Granite City has 29 restaurants in 13 states. Sold about 18K bbls each of last 3 yrs, sez BA. Chain also has 6 Cadillac Ranch restaurants in 5 states. Reported revs up 17% for 6 mos, but that includes new openings. Revs for operations open 18 mos+ up 2.5%. Sure ain't easy making money in this biz. Granite City booked $1.5 mil operating income on just below $69 mil revs, for margin of just 2.2, tho that was lots better than 0.4 operating margin for 1st 6 mos of 2012. But Granite City has huge interest expense: $2.5 mil for 6 mos. So it took net loss of $975K for 6 mos, tho again far better than $2.2 mil net loss for 1st half of 2012.

It's been a couple years now since the first hopeful startup breweries turned to crowdfunding sites like Kickstarter to help raise capital to get off the ground. Since then, dozens of breweries have raised hundreds of thousands of dollars on the site and sites like it, from friends, family, locals and beer-lovers near and far. By the end of 2013, two new crowdfunding sites will operate with focus specifically on breweries: CrowdBrewed and CraftFund, wrote USA Today. The former already hosts campaigns for 2 hopeful companies and looks a whole lot like Kickstarter, including videos and updates from the hopeful breweries, donation options and associated rewards (merch, exclusive party-invites, and discounts on future beer-purchases). CraftFund hopes to be up and running this fall, but is taking a different route by focusing on equity-based crowdfunding. This model depends on an expected SEC ruling that could allow independent companies to offer equity (rather than "rewards") to potential investors via portals like CraftFund. The site hopes to allow small brewers and other "craft" food and beverage companies to find new sources of capital thru fans and thoughtful investors. The site's blog has closely followed SEC moves, and provides detailed explanations of the kinds of companies and investors it hopes to attract. For those looking for a model of what such an offering might look like, CraftFund points to BrewDog's Equity for Punks offerings (now in round 3, which began by selling shares worth £1 mil, or about $1.55 mil in a single day, according to the Daily Mail, and could raise as much as $6 mil for the Scottish company).

Leading into this weekend's 4th annual Utah Beer Festival, Salt Lake City News detailed "how lucky" residents were to have a "strong community of local brewers, especially given our oft-maligned liquor laws." Today in Utah, "you can find locally made beer in almost every restaurant and bar in the state," touted City News. This year alone, 4 craft brewers have opened or are about to, joining group that was started by Wasatch Brewing back in 1986. Among newbies is Avenues Proper Restaurant & Publick House that opened in late April. Besides offering its own beers brewed with its 5-bbl system, gm/co-owner Andrew Tendick also "provides a curated selection of some of Utah's best beers," in both bottles and on tap. Bonneville Brewery, a 10-barrel which just opened in Mar is hoping to increase capacity and add a bottling line soon. Then there is soon-to-be opened Vernal Brewing Co, in Vernal City, which has cut through red tape with city board to become Uintah County's first brewery. Co-owners Ginger and Eric Bowden decided to take the plunge as brewers after owning a home-brewing supply store the past 3 yrs. They plan on offering 5 flagship beers to start.

There's plenty going on at Utah's established brewers too, with many expanding their operations and offerings. Wasatch Brewery (opened in 1986) was merged with Squatters (opened in 1989) via Fireman Capital Partners buyout just under a year ago. The two brewers, nicknamed "Squasatch" by Utah beer blogger Mike Reidel, are benefitting from $35 mil investment from Boston-based firm. Wasatch "plans to open breweries in other states," and is planning on canning in Utah while Squatters expanded production in May and again this month with new tanks and added new packaging equipment too. "Fireman Capital Partners was a good fit for Squatters because they love that we keep it local, and they want to keep it that way," said Dan Burick, dir of brewing oper. Meanwhile, Uinta Brewing Co, largest craft in state has been thinking beyond Utah borders for a good while and continuing to expand. Uinta "is now in Phase 3 of an expansion that will triple" its capacity, noted City Weekly. Uinta is avail in 26 states and while no new mkts were added in 2012, expansion was necessary since existing accts "simply wanted more of it." To read City Weekly's full roundup of Utah craft news click here.

Share Shift in Utah Beer Mkt Utah still has the lowest per capita beer consumption in US at 20.4 gals in 2012, but there is a definite shift towards beers from smaller brewers. While AB still holds 45.4 share of Utah mkt, it lost 8.5 share over last 4 yrs while "All Others" which includes craft, has grown from 11.8 to 19.3 share from 2008-12. While MillerCoors (+0.4) and Pabst (+2.0) added share over last 4 yrs, top importers Crown and Heineken lost 1.5 share combined during that period.

Ubiquitous beer weeks around US getting momentum and media galore. DC's City Paper ran full Beer Issue anticipating events in nation's capital this mo, with feature on DC's singular distribution law, plus deep dives into revival of Heurich brand and cask ales and review of numerous collabs celebrating DC Beer Week.

DC has permit system that allows retailers to get beer from local and out-of-state brewers direct, skipping middle tier completely. Just have to fill out "one-page importation permit" and pay 5-buck fee and tax on each shipment. Some retailers simply drive out of district and buy beer direct. Paper cited example of Pizzeria Paradiso proprietor who picked up a Portland, Me cider on recent trip to make his bar "look like a premiere place to go drink beer." Same system allows not only DC brewers to self-distribute, but "even breweries from other states that are too small to distribute through wholesalers or want more personal control over distribution, like Virginia's Mad Fox Brewing Compnay and Maryland's Franklin Brewery, take advantage of DC's unique 'gray laws' to make their products available exclusively in their home state and here, where they often have a better chance of gaining buzz." Of course, there is an assn of DC distribs and of course it's been trying to amend law, but so far unsuccessfully. Yet even that assn mostly focused on wine. Just a tiny percentage of beer sold in DC eludes distribs - 200 bbls vs over 37K that went thru wholesalers in June - City Paper reported. In fact, sales mgr from beer distrib Legends (an L. Knife entity) likes permit system, calling it a "blessing." Why? "It helps people stay excited. No one is going to make a living from buying beers off the shelves in other states and importing them." Indeed, in follow up article, City Paper pointed out that some of the beer bought in other states and brought to DC has actually gone thru 3-tier system. On other hand, more like 1 of 6 bottles of wine come into DC via permit system, according the distrib assn, and it's more focused on changing that. With on-premise scene so competitive in DC and more bars "reaching out to smaller and smaller breweries further and further away just for the novelty of it," it will be interesting to watch whether current system stays in place and/or possibly spreads.

Some licensed festival organizers and retailers are risking their licenses by inviting unlicensed beer suppliers to slip through the cracks. Last Saturday, a Fla homebrewer took "over the taps once again" at a Miami bar for a "donation-based event" to help the hopeful "brewing company" purchase a bottling line, according to the bar's Facebook page. The event was picked up in advance by a Miami News-Times blog that hoped to attract locals to the bar, noting that the co expects to be licensed soon and up and running by early next year. It wasn't the first time the not-yet Brewing Company's been written up by the paper's online bloggers.

Across the country, last week the California Craft Brewers Assn put a note in their monthly newsletter alerting readers that homebrewers have been "'donating' their beer and participating in beer festivals and other events." CCBA director Tom McCormick explained to CBN that he's been "seeing a lot of activity in the marketplace by individuals who are not licensed," including having a booth at a festival with a branded "Brewing Company" name, Facebook page, merchandise, etc, next to licensed companies. A talented homebrewer can "look and feel and taste like a brewing company," but isn't one.

In these cases, Tom reminds that it's the "license holder," the festival organizer, who's "not doing their due-diligence." Similarly, American Homebrewers Assn director Gary Glass, when asked about the Miami case above, expressed surprise that the retailer would put his "license at risk." Is the draw of having the hottest, newest, perhaps best beer available, even if it's unlicensed, worth losing a license? Gary suggests that, at least as far as the homebrewers themselves are concerned, most "are not trying to break the law." Indeed, the AHA posts homebrewing laws for each state on its website; however, since the growth of the hobby has been "so rapid," there's been a "lag…on the enforcement side" from state agencies.

Take beer-loving Oregon, which had a homebrew law "dating back to the repeal of Prohibition," Gary explained, that only provided "for consumption in the home." But the Oregon State Fair had run a homebrew competition for 22 years before it was "shut down." A more "comprehensive homebrew bill" was intro'd and "sailed through the legislature" to allow for the competition, but similar stories repeated in Wisconsin, Illinois and California when festival organizers sought more information from state agencies, who turned around and said no to sharing homebrew entirely. Tom explained that Calif's homebrew laws were particularly "restrictive" before the law change: homebrewed beer could not leave the home in which it was brewed for any reason. Now, as in Wisc and Ill, laws were revised to allow for competitions and festivals, which Gary noted "happened for years before there was any kind of enforcement." In that time, homebrewers have used those events as ways to gain visibility in the community, connect with beer lovers, gain brewing experience and test out brands and recipes before launching successful brewing bizzes. With increasing craft excitement, these activities are bound to continue, but they're also likely to receive greater scrutiny.

The danger, Tom notes, is that if these unlicensed brewers "do something wrong, policy can change very very quickly, in a kneejerk reaction." His assn's "greatest concern" is that an unlicensed company is "perceived to be a legitimate brewing company," as the CCBA's primary role is to protect its membership. While "part of our mission is to help people start breweries," Tom says, he's got enough work with the state's burgeoning licensed brewers, without worrying about the unlicensed ones. As such, Tom and his team are "starting an outreach program" to homebrewing clubs around Calif, to help them keep members in-line with state regs. Gary "would love to see more laws on the books" like those passed in Oregon and Wisconsin, which "allow for a vibrant homebrewing community" with less risk of unlicensed activity. The AHA, of course, is a branch of the Brewers Assn, so Gary and others are deeply invested in working to "foster those homebrewers that are going to go on to…starting their own breweries." But he also doesn't "think there needs to be tolerance for illegal behavior." It's safe to say though that more homebrew laws are low on the priority lists of many state legislatures, so in the meantime, it's up to local beer communities to keep their eyes open for risky behavior and work to correct it before that "one incident" that, as Tom says, could "change policy dramatically."

More upheaval on Chi distribution scene as much-in-demand cult brewer Three Floyds recently terminated local distrib Louis Glunz, tho not for cause. Under Ill law, supplier can move brands for FMV if under 10% of volume. "We're very disappointed," gen mgr Jerry Glunz told CBN. "We helped them from day one, when they were down and out" and Glunz steadily grew Three Floyds. "There's no loyalty," added Jerry. Word on street is that Three Floyds will be going to Windy City, the craft centric distrib purchased at the end of last yr by Reyes Bev Group, nation's largest beer distrib.

Recall, Glunz is about a 1.6 mil-case distrib with big craft/import book. Within the last 12 mos, it lost both Dogfish Head and Revolution. Each brand went to Chi cluster of MC distribs; Dogfish Head after attempted termination and brief, nasty legal battle and Revolution, settled for fair market value without litigation. Three Floyds is a bit less than 150,000 cases, CBN hears.

Glunz has lost several key pieces of its portfolio in last 12 mos. And now it is competing against both an awakened MC network that is determined to get more active in craft and a winning Windy City that has deep pockets of RBG behind it. Another RBG co, Chi Bev Systems, which is part of MC Chi cluster, has also just this week added 2 more up-and-coming local crafts, DESTIHL and BrickStone Brewery. CBS competes against Windy City up and down the street for craft tap handles. This is first time that Reyes Bev Group is competing against itself as well as going outside its MC territorial footprint (with Windy City) and competing against its MC brethren.

For those and many other reasons, Windy City bears watching. Recall, RBG paid in neighborhood of $70 mil for this craft centric distrib that was a little over 900,000 cases in 2012. It is reportedly up somewhere in the neighborhood of 40% this yr, led by Lagunitas, which is basically doubling. And that's before Lagunitas opens its Chi brewery, still slated for late this yr. With the addition of Three Floyds, if that's where the brands go, Windy City would be pushing close to 1.5 mil cases at end of yr 1. And have a solid shot at doubling in 2 yrs.

But that is only one of key threads in Chi mkt that is exploding with craft beer action. Recall too that Deschutes, Ballast Point and other brands recently entered the mkt and went with Wirtz Bevs, a leading local wine and spirits distrib. Wirtz has also significantly ramped up its investment in craft. And of course lead local craft Goose Island was purchased by AB only a little more than 2 yrs ago. Goose seeks to maintain its local relevance even as it expands rapidly around US. AB initially stated bold natl ambition of taking Goose to 1 mil bbls in 3 yrs. Chi craft scene is developing at warp speed with all kinds of distribution fallout.