Boston Beer is back on a multi-dimensional tear or "back in a rising tide" as ceo Martin Roper said on recent conference call. The evidence of it is pretty much everywhere; its own qtrly report, on and off premise data, anecdotes from distribs, stock mkt jump (Boston mkt cap now at $2.6 bil). Boston surprised on upside with 24% depletions growth in Q2; STRs up 22% yr-to-date thru Jul 20. Its scan trends in recent periods are much better than that. For example, up 37.7% for 4 weeks thru Aug 3 in Nielsen all-outlet. And yr-to-date it is biggest $$ share gainer in IRI multi outlet data. Up 0.4 share. Boston raised its 2013 volume growth guidance to 17-22% (from a prior 10-15%). At that rate, Boston will gain 1/2 mil bbls or more and reach 3.3-4 mil bbls, easily taking back #6 supplier slot from Yuengling, tho that # includes its Angry Orchard sales (a phenom unto itself).

Why has Boston taken off at such a rapid rate recently? After all, only last yr Boston Lager declined and entire Sam Adams franchise appeared to be struggling amidst onslaught of craft competition. But between Boston's continued ramping up of investment in sales, mktg, innovation, cap ex - you name it - plus softness of top 2 and confusion created by so many craft competitors, Boston is back in driver's seat, at least for now. It is lead player in craft with wide-ranging portfolio, that includes red hot #1 cider brand and thriving FMBs. In other words, that's a pretty good hand to play at retail.

Success with national accounts is fueling some of Boston's recent growth, chairman Jim Koch acknowledged to INSIGHTS. Boston is getting more authorizations, more mandates, but typically these have taken "a decade of work." Boston started its natl accounts effort back in 1999. Then too, Boston started a sampling program last fall, sampling thousands of consumers every mo on Boston Lager, and that already appears to be reaping some dividends, according to Jim. (More details from our conversation with Jim in upcoming Craft Brew News.) On Boston's conference call Aug 1, Jim cited "some payoff" from Boston's "long-term investment" and changing landscape at retail with "a few retailers realizing that strong stable brands that consumers know are what they need to sell."

Big brewers have created "void so massive" with "all the volume they are shedding" that Boston is simply in best position to pick up pieces, said 1 large Sam distrib as explanation. So the "whole brewery is on fire" and big retailers are saying that "this guy knows what the heck he's doing" with Boston's successes in beer, FMBs and cider. Boston Beer had lots of out-of-stocks on Summer Ale and had to ship Octoberfest early. Now Octoberfest is already experiencing tight inventories and even some OOS, INSIGHTS hears.

Its portfolio strength is surely key to Boston's recent run. Beer is only 59% of Boston's volume in IRI multichannel data thru Jul 14, with Twisted Tea at 26% and Angry Orchard at 15%. While beer is up strong 13% yr-to-date (and even better 21% for 13 weeks, Twisted Tea is up solid 10%. But it's Angry Orchard that is really Boston's key growth driver. Up over 1 mil cases and 568% YTD in IRI. It captured 58% of Boston's 1.8 mil cases of growth in IRI. Comps will be much tuffer in 2d half. But here's what's most striking about success of Angry Orchard: cider category more than doubled in IRI, up 110%, 1.37 mil cases YTD. But Boston has captured over 75% of the growth, going up against little cos like Heineken, MillerCoors and Anheuser Busch as well as C&C.

This success is magnified on-premise, where Angry Orchard alone was top share gainer on premise in 1st half, according to GuestMetrics' Peter Reidhead. Up 0.4 points, more than offsetting slight share loss by other Boston brands. Total Boston Beer on-premise volume up 9% in 1st half in GuestMetrics, considerably slower than near 30% growth off premise. But blended growth rate very similar to what Boston reported, GuestMetrics notes.

Meanwhile, also interesting to note that Boston has so much in pipeline. So far it refers to all the Alchemy & Science projects (subsidiary Jim formed with Magic Hat founder Alan Newman) only in terms of the $8-13 mil it has invested and sales that are "not significant." But several A&S projects are off to good starts and perhaps at least 1 will prove scalable. In all, Boston is once again in a very sweet spot.

>The 20th annual Beer Insights Seminar, Monday November 11 at the Waldorf=Astoria in NYC will be a premier beer biz event. You won't want to miss this one. Just added: a new panel called "National Retail Strategies: Challenges and Opportunities in the Growing Chain Retail Environment." Consultant Bump Williams will moderate a distinguished panel of domestic brewer, import, craft and retail execs. They'll discuss the rapidly evolving retail environment and how to address the growing influence/power of national chain accounts. Panelists include MillerCoors chief customer officer Kevin Doyle, Crown exec vp sales Bruce Jacobson and Boston Beer sales vp John Geist.

The seminar will also feature 2 fast-rising young industry leaders, AB sales vp David Almeida and Heineken USA president Dolf van den Brink, as well as outspoken Harpoon ceo Rich Doyle. As always, BMI's Benj Steinman will present an overview of industry trends. More speakers will be announced in coming weeks. The seminar is $1150 per person. Sign up for what's sure to be a jampacked and insightful day. Seating is limited. Click here for more info. Click here to register.

Calif Ct of Appeals will consider Crown request that it reverse lower ct decision to allow trial to go forward in lawsuit filed by Classic Dist over deal it did not get to purchase Haralambos Dist biz in 2010. (See Vol 44, No 11 for details.) Trial that was on tap for early Aug now at least pushed back. That's rare move. Appeals Ct denies over 90% of such requests, we understand. Still, some interesting charges popped in Classic's unsuccessful attempt to get Appeals Ct to deny Crown's petition. Industry vets will remember that part of epic termination battle between AB and Fla distrib Maris back in 2000-2005 was charge by Maris that AB had developed internal consolidation strategy ("Adkins Plan") to eliminate 150 or so AB distribs. Maris wasn't part of plan and that was one reason it got terminated, it argued. Now, Classic is making similar charge about Crown.

"Unbeknownst to Classic, [Haralambos] and any of Crown's 700+ distributors nationwide, Crown was secretly planning consolidation moves throughout the US, including in [Haralambos'] territory," Classic charges. "Crown had a national 'Wholesaler Consolidation Initiative' to reduce the number of distributors selling Crown brands in metro markets including Los Angeles." Classic points to communications between top Crown execs (Bill Hackett, Bruce Jacobson) and top AB execs at time (Dave Peacock, Tony Short) that it claims show they worked behind scenes to assure Haralambos biz went to AB distrib, cutting out Classic. Classic charges too that Crown ignored its own "12-step procedure" for evaluating transfers, again to Classic's detriment. Recall that Classic argues here that Crown never intended to allow it to buy other Crown volume, regardless of performance issues and that Crown "fraudulently concealed" those intentions, in violation of Calif law.

In response, Crown again insists key Calif law does not protect disgruntled buyers, but sellers, and law never kicked in since Haralambos/Classic didn't have deal in 2010. Allegations of activity back in 2008-2009 barred by statutes of limitations, Crown argues, and aren't true in any case. Crown disputes Classic's "wild theories… alleged 'secret' consolidation plan" and "supposed efforts to manufacture evidence and other pre-2010 acts complained about by Classic." None of these, in Crown's view, are "essential" to decide whether Crown should get a summary judgment. Based on "what actually occurred in 2010," the "innocuous" mtg between Crown's Stash Rowley and Classic execs, eventual sale of Haralambos biz to AB distrib, no laws Classic relies on for its claim "were triggered or violated." So Appeals Ct should dismiss case, Crown concludes.

There is a seeming disconnect between ABI's ongoing US volume softness and its increasingly formidable earnings strength. Despite STRs down 3.6% in 2d qtr (see above), ABI increased North American EBITDA by $70 mil, 4% to $1.8 bil. For reference, that's more than MillerCoors makes in 1 yr. And ABI's global EBITDA up $143 mil, 5.8% to $3.9 bil in Q2, reaching $7.3 bil for half. That's roughly size of entire US profit pool for 1 yr, before ABI adds Modelo's earnings (used to be $2 bil including US earnings stream) or saves an additional $1 bil on Modelo over next 3-4 yrs. Does anyone doubt that will happen? So far, ABI delivers on its synergy targets like clockwork.

ABI remains a financial engine never before seen in beer and only rarely in consumer products. And that's even while it lost 8 mil bbls in US in last 4 yrs, and lost another 1.7 mil bbls in 1st half of this yr. Another apparent disconnect: ABI still somehow has strained relations with many of its distribs, even tho they are making more money as well. While they respect ABI's financial acumen and appreciate some of its innovations, many also continue to distrust ABI, don't feel it communicates well with them and are often overwhelmed by the minutiae of its measurements and processes. They also continue to think ABI wants to either own them or reach in their pockets (that's why the spate of anti-branch bills). At least publicly, ABI usually has nothing but good things to say about the strength of its distribution network (except perhaps in Oh).

ABI once again looked like an earnings machine in Q2. After 4 straight qtrs of decreasing margins in US, EBITDA margin increased by 80 basis points here in Q2 and climbed over 100 basis points to 43% in North America. Brazil improved too. Stock mkt reacted accordingly, sending stock up 7% in 1 day, for a gain in stock mkt capitalization of about $10 bil to almost $155 bil. Up 2% the day after too.

This qtr illustrated ABI's financial flexibility; i.e. how many levers it can pull to grow earnings in a given qtr. How did ABI grow North American margin/earnings? Shipments were 2 points ahead of depletions, pricing remained healthy, lower distribution costs, and mktg spend will increase more in 2d half. That shipments/depletion differential alone amounts to roughly ½ mil bbls, or over $75 mil in additional sales ABI recorded in Q2. That alone would account for over $30 mil in EBITDA (assuming normal margin). Distribs often say they have much higher inventories, particularly on some packages. In select mkts on select brands, no doubt that's so. But overall, ABI shipments and depletions not that far apart (less than half a point). Some of differential is because of timing of Jul 4 holiday, plus shipments and depletions will "converge" by yrend as they always do, said ceo Brito on conference call.

Meanwhile, AB rev per bbl up 3.9% in qtr, about 140 basis points from mix shift, i.e. growth and intro of higher priced brands. The Ritas alone at 1.1 share (more Ritas coming, we hear). Price hikes of 4% or approx $6 per bbl added another $150+ mil in revs in Q2. Plus with ABI now having 3 breweries to make its Rita brands, distribution costs were $19 mil, 5.6% lower in North America in Q2. Then too, ABI sales and mktg expenses up just $5 mil, 1% in 2d qtr in North America. This was a "matter of calendarization," cfo Felipe Dutra said on call, since ABI gave guidance for mktg/sales increases in mid-to-high single digits. That's at least another $20-30 mil pushed into 2d half.

Pull all these levers together and AB achieved earnings growth in US in 2d qtr, even with sales drop. EBITDA now even for 6 mos in North America, following 2% growth last yr. But remember that ABI already saved over $2 bil here. And it now earns that additional income each yr. So it fiercely protects that earnings stream and spends more heavily against better growth oppys elsewhere, like the $1.4 bil it will spend in China, according to recent WSJ article. ABI reportedly groups countries based on earnings potential, and the US is dubbed a "protect and maintain" market. Indeed.

As hot as craft is, these are softest trends yet for US beer's biggest 3 light beer brands. Bud Light sales-to-retailers dropped 4.7% in 2d qtr, said ABI. Coors Light down mid-single digits and Miller Lite down high single digits, said SABMiller. OUCH. MC's trends got even worse since 1st qtr when Coors Light down low singles and Lite down hi-singles; Bud Light looks about same in scan (ABI didn't give 1st qtr all-channel trend). Tho light beers declined in recent yrs, decline typically very modest, in 1% range. So such historic softness in their largest brands has to raise alarm bells for AB and MC.

Yet ABI ceo Brito maintained on conference call that light beer the "key category" in US and MC has long said that premium lights need to grow for US beer biz to be healthy. Each of those arguments can be made based on sheer size of light beer, but the "power of premium lights," as MC calls it, is undeniably dimming. Earlier this yr, INSIGHTS explored this issue in depth as consultant Mike Mazzoni called light beer softness "a real sore spot" in the industry. Nothing has altered that assessment. Indeed, if anything, the situation has gotten more acute.

Lately, INSIGHTS has wondered if cumulative effect of growing craft beer "coolness" is to make light beer "uncool" to an increasing number of millennial drinkers. Light beer used to be about 50% of 21-34 yr olds' consumption, according to an ex-brewer mktg exec, as seen in tracking studies a few yrs back. We doubt the number stayed that high. Most recently, almost 20% of beer drinkers said they are drinking less premium light beer in Consumer Edge's Alc Bev Demand Tracker (quarterly sampling of 2000 alc bev drinkers, nationally representative). Why? Most frequently given reason is "getting tired of the taste." Over ¼ of beer drinkers drinking less light beer said that. And key demos even more likely to say they are "getting tired" of light beer's taste. Fully 40% of 21-34 yr olds who say they are drinking less light beer and 38% of Hispanics drinking less light beer said that they are "getting tired of the taste." That's "serious warning sign" for AB and MC, according to Consumer Edge's David Decker.

So no wonder light beers losing share. Premium lights alone down about 2 share of $$ for latest 4 wk periods in Nielsen all outlet. Top 4 light beers alone (Bud Light, Coors Light, Lite and Natty Light) collectively lost almost 1.5 share of $$ YTD thru Jul 14 in IRI. The 4 biggest light beers were about 81 mil bbls, 40% of beer last yr. A 5% drop would be 4 mil bbls. All the big brewers' new products combined won't make up for that.

In the decades since craft beer movement started in US, INSIGHTS has long resisted notion that what's happening amounted to a revolution. But craft movement is now reaching a critical mass that resembles a revolution, upending established beer biz order in myriad ways. Ain't just sales trends, but extends from flavors/styles and branding to retail and distribs, legislative/legal issues and even to urban renewal and beyond. In some mkts, craft became full-fledged consumer revolution yrs ago, against mainstream beers. And that movement still spreading. Big brewers have to be concerned if there is any way to put genie back in bottle or they must figure out how make revolution more their own.

As noted above, craft beer up 900,000 bbls, 13% in 1st half to 7.3 mil bbls, said BA, even amidst another industry decline. If segment holds anything near this growth rate, craft will be up double digits for 4th yr in a row while total beer biz will be down for 4th yr out of 5. Craft will pass 7 share of volume. How high is up? No sign of let up. So far in 2013, craft volume up even faster in scan data: up 15% in IRI all-outlet + convenience thru Jul 14, including an 18% gain last 4 weeks. Even amidst intense competition, an unbelievable number of new entrants (446 new breweries in last yr, 1600 in planning) and widespread expectations of a correction coming, for now craft is still picking up speed.

Some individual players have slowed in more difficult environment, but others gained steam and some show extraordinary growth, highlighting robust health of segment overall. For example, segment leader Boston Beer markedly accelerated in latest qtr, including in its core beer brands for a change. Its depletions were up 24% in qtr and 21% for 6 mos. Boston raised guidance for full yr to depletions growth of 17-21%. But no brewer has grown more rapidly in recent years than Lagunitas. Lagunitas shipments up 88% in 1st half, depletions up 75%, sez coo Todd Stevenson. Lagunitas still playing catch up with previous shipments shortfall. If it hits expected 400,000 bbls+, should account for around 10% of craft growth, even tho it's less than 3% of craft volume.

Presuming that sustains, Lagunitas growth over the past 5 yrs will likely be over 350,000 bbls and quite possibly surpass that of Sierra and New Belgium from 2008-2013. Each of Lagunitas, Sierra, and NBB will have gained between 300-400,000 bbls in 5 yrs. Boston will have gained more than 1 mil bbls, but less than half craft beer. Total craft beer will be up about 6.5 mil bbls, 3 share in same period. Many, many players have grown rapidly during period. And now there are a lot of sizable enterprises with local strength. Believe it or not, there are a couple dozen craft brewers with $30 mil in revs or more. They have some heft. And they're aiming at mainstream beer in a local mkt near you. Not to mention all the newbies and up-and-comers.

Second qtr trends not quite as soft as Q1 in US beer biz, but not much better. And 6-mo trends much more like tuff 2010-2011 than 2012, which increasingly looks like an outlier. AB and MC combined lost near 3-mil-bbls and down over 1 share to 72.2 in 1st 6 mos 2013.

Domestic brewers' taxpaid shipments down over 800,000 bbls, 1.7% Apr-Jun, estimates Lester Jones at Beer Inst. Imports flat, we estimate, tho Jun number not yet reported. For 6 mos, US shipments down about 2.2%, but recall that depletions off more like 3%, with AB and MC selling-day adjusted depletions each off near 4%. Innovation not really driving improved overall numbers for AB or MC so far this yr. AB shipments down another 440,000 bbls, -1.7% in Q2. That's better than expected but also well ahead of depletions trend of -3.6%. Pushed AB's yr-to-date shipments dropoff to 1.7 mil bbls, -3.4%, just slightly ahead of -3.8% depletions trend. And AB now down 700,000 bbls, 0.7% for 12 mos, after having gained 0.7% in calendar 2012. MillerCoors posted its weakest shipments and depletions trends since the advent of MC JV in 2008. Shipments off nearly 900,000 bbls, 5.3%, and depletions down 4.4% in Q2. For 6 mos, MC shipments off 1.2 mil bbls, 4%, and 12-mo trend is -3%, back to its 2010 and 2011 calendar-yr trends.

Crown continues to outperform overall and import mkt, driven by outsized growth of Modelo Especial. Crown also doing much better in its biggest states, up 6-9% yr-to-date in Tex, Calif and Fla, than overall. Q2 shipments up about 125,000 bbls, 3.3%, putting Crown's 6-mo gain just below 200,000 bbls, 3%. Crown was only top 5 brewer up for 6 mos, we estimate, and it has passed 6 share mark. Gotta go back to 1999 to find last time supplier other than AB, Miller or Coors had over 6 share of US beer biz. That was Pabst right after it bought most of Stroh. HUSA shipments dipped slightly in Q2, closer to depletions trend than in tuff-comp Q1. Pabst hangin' in around even yr-to-date. As we noted a few issues back, most 2d-tier brewers havin' tuffer time in 2013 than last yr. Yuengling down about 5% for 6 mos. Diageo reported its US malt bev biz down 7% for 12 mos thru Jun; beer -2%, FMBs -10%. Mike's up 6% thru Jul following double-digit gain in Jul. Meanwhile craft volume +13% for 6 mos, estimates Brewers Assn. That's +900,000 bbls and easily passed 7 share of US biz. Boston reported 20-21% shipments gains in Q2 and 6 mos, tho a lot of that is cider. Some craft brewers have slowed, others rockin'. Among biggest craft brewers, trends all over the lot. Up low-mid single digits: Sierra Nevada, New Belgium, Shiner and Harpoon. FX Matt about even. But Deschutes up low double-digits; Brooklyn, Stone and Bell's up in 17-22% range. Then too, Lagunitas flyin' at +88%, and on road to sell over 400,000 bbls in 2013 (see below). A handful of others up 30%+: Founders, Sweetwater, Firestone Walker and Oskar Blues.

Once again, Beer Inst leadership repeatedly voiced need for brewers and allies to speak with “one voice” to drive both public policy and commercial success, and targeted hard liquor in both realms, at this yr’s BI mtg. Biz has been tuff this yr, chairman and MC ceo Tom Long acknowledged, and “we are losing to hard liquor,” he added bluntly. In remarks seemingly aimed at craft brewers, Tom warned against high ABV beers that threaten beer’s tax advantage and to “stop denigrating competitors. It is bad form…. Be for beer.”

No doubt, beer has to “step up our game in the commercial arena. Because right now we are getting beat by hard liquor. It’s just a fact.” While brewers “can fight like cats and dogs” in mkt, “wasting time on intramural fights undermines the togetherness that got us this far.” Only folks that infighting helps are the “liquor guys.” More references than usual at mtg from Tom and others to hard liquor as foe on tax battles and in mkt over “occasions.” Tom noted again BI’s “disturbing discovery” that among policymakers beer no longer viewed as “beverage of moderation” as it had been for decades. Change in image was result of “concerted long term work” by DISCUS. So BI and members started communicating to policymakers that beer is the “better choice, the more sociable choice, the more responsible choice.”

BI working up new response to equivalence argument that will be ready for expected tax fights later in yr, tho details not disclosed. Beer’s moderate ABV levels and pre-set serving sizes, Tom pointed out, are “foundational” to tax policy. Beer remains “powerful economic engine in US” and thus “earned the right to be treated differently.” Policymakers listened to message and at least so far, no tax increase at fed level. But beer has to “be careful.” With some “outliers” pushing ABV to wine levels, that could “threaten the entire regime” as “man on the street will not see the logic of different tax levels” if beer ABVs go there.

How to ensure beer’s status? Tom shared 3 specific recommendations: 1) focus on growing size/value of beer category when talking to retailers -- not simply taking share from competitors -- including message that beer turns faster than liquor; 2) drive innovation; 3) build brands, not styles, which “opens the door” to private label and will “kill value of beer industry.” While beer biz will remain competitive and “slug it out” in private, in public all brewers need to stand together to “protect the beer trading environment.”

AB North American prexy Luiz Edmond echoed Tom’s major points, noted 2013 tax threats so far defeated, distribs’ efforts to pass care CARE “over finally,” and that producers “not trying to change [3-tier] system. The status quo is good for us.” BI Prexy Joe McClain focused too on “moving the category forward” as BI engaged to “promote and project beer.” DC remains volatile, taxes a “constant focus” and “everyone is on table” if/when Congress gets around to comprehensive tax reform/deficit reduction. Political pros made same point, again stressing need for unified industry response on The Hill. Noted one Senator who said he “loves the industry but they have to stay together.” If beer biz not united, “they’ll get slaughtered.” In DC, confusion “viewed as weakness, vulnerability.”

Join us for the 20th annual Beer Insights Seminar, Monday November 11 at the Waldorf=Astoria in NYC. The Seminar is a premier annual beer biz event you won't want to miss. This year, we've already lined up an impressive array of industry leaders. The program includes 2 fast-rising young execs, AB sales vp David Almeida and Heineken USA president Dolf van den Brink, as well as outspoken Harpoon ceo Rich Doyle. As usual, BMI's Benj Steinman will present an overview of industry trends. More speakers will be announced in coming weeks. The seminar is $1150 per person. Sign up for what's sure to be a jampacked and insightful day. Seating is limited. Click here for more info. Click here to register.