Own-Premise Growth Tapering Off?

FILED NOVEMBER 1, 2018

Dear Client:

The Beer Institute updated their National Packaging Report earlier this afternoon to account for the second quarter of this year, and much of the findings were what you would expect, as "aluminum cans continue to be the industry's strongest performing package" and "glass bottles continue to lose share." But one thing that caught us by surprise was BI chief economist Michael Uhrich's comment that recent data from the TTB suggests that "own-premise" growth rate is falling off.

Yes, you heard that right: "the rate of growth in 'own-premise' volume [taprooms and brewpubs] dropped from 18% during the first quarter to only 10% during the second quarter," according to Michael, citing recent TTB data.

Whaaa? We reached out to Michael to see if he had any guesses as to why the own-premise channel was slowing down. Here's what he had to say:

Michael believes those numbers will be revised up, "but the final numbers will likely still show a slowdown."

"Diminishing marginal returns are a real and powerful thing," he said.

It appears the law of big numbers are in play now, even in the own premise channel.

"'Own-Premise' has been growing volume quickly for the last few years," Michael said, "and the growth rate has just been slowing down, as the graph below shows."

"It certainly doesn't mean that taprooms and brewpubs can't grow anymore," he said, "but it implies that growth will be slower and harder to maintain now that 'own-premise' has grown so large."

BUMP: CRAFT BREWERS THAT HAVE TEAMED UP WITH THE BIG DOGS FEELING "MINIMAL" IMPACT AT RETAIL

Bump Williams of Bump Williams Consulting said they've just wrapped up their joint business plans with 114 retailers for 2019/2020, and one question that popped up throughout the majority of these meetings was this: "When macro-brewers buy independent brewers, is that the kiss of death for them in their home state and local market?" per Bump in their recent BWC newsletter.

Having heard the question over and over, Bump and company decided to investigate the craft brewers who opted to team up with the big brewers and take a close look at a handful of these brewers' sales trends post acquisition.

They looked at ten, specifically:

Four that partnered with A-B:

Elysian

Karbach

Devils Backbone

Wicked Weed

Three that are now at MillerCoors:

Terrapin

Hop Valley

Revolver

Two, now owned by Constellation:

Ballast Point

Funky Buddha

And last but not least, Heineken's purchase of Lagunitas.

ON A NATIONAL LEVEL THEY FOUND THAT … All but three of these brewers "continued along a path of strong, double-digit growth in the year(s) following their date of purchase."

The only three that haven't?

Lagunitas, the largest of the bunch, is up 0.9% YTD in national IRI multi-outlet and convenience data;

Ballast Point, who found themselves in the red last year, is down 7.9%, and even deeper this year, down 12% YTD;

And Devils Backbone is down 2.2% YTD.

(Now, these three could be down for different reasons. For example, in keeping with the theme of 'law of large numbers' from the previous story, Lagunitas is doing pretty well for a millionish-barrel brewery that's been around for quite some time. By our estimates, they're much larger than the other breweries on this list.)

Of course, for the seven brewers that enjoyed sustained growth, a chunk of that is owed to "the simultaneous growth in national distribution coverage," with category weighted distribution levels for nearly all of the brewers above "increasing by a factor of 2x or higher since CY 2016."

As Bump tells it, "share of mind and focused execution in chains by distributors and having a ‽voice” with chain retailer buyers have allowed sales trends for these brands to continue trending UP on a national level."

AND IN THESE BREWERS' BACKYARDS THEY DISCOVERED … That this "story of sustained growth remains more or less the same as we drill down deeper into each of the brewer's home states." All but one of the acquired breweries, continues to "grow both its portfolio dollar sales and distribution coverage in the years following the initial acquisition." The one exception? Ballast Point, who saw dollar sales decline 3.3% in 2017, and even further this year, down 11.7% YTD.

"Although this is a high-level look," Bump said, "it would appear that any backlash felt from consumer opposition over each brewer's new parent company has been minimal, at least when it comes to their performance at retail."

------ ------- summit update ------- ---------

BREAKING: TV ADVERTISING IS BROOKS 'N DONE

A beer distributor texted me lamenting that during a baseball playoff game, there were 15 liquor ads and only one beer ad (Modelo Especial, at the end of the game). I responded back, "So what?"

A common refrain I hear is, "live sports is the last bastion of watched TV ads." I'd beg to differ. Even on live sports, people either delay it to skip ads or they go to the bathroom or get a beer. People are even delay-taping Good Morning America so they don't have to watch ads. And Saturday Night Live? No, people watch the most popular clips on Sunday on their phones. Okay, so people still watch Fox News and MSNBC ads for old people drugs. Other than that, TV ads are dead for reaching a young audience.

This is why all North American Brewers new FMB products will be focused on Instagram. And why A-B's Swish Brands (Babe and White Girl Rose canned wines which are killing it on the East Coast we hear) are completely marketed via the Fat Jew and White Girl Problems' Instagram feeds. This isn't a trend, it's a new reality. The content comes before the brand, not the other way around.

The beer industry is slow to get this. Which is why we've invited a former Disney and Ford digital marketer to speak at our Beer Summit this year on what it means, how it affects brand marketing today, and what it means tomorrow.

Call Jessica at 210-805-8006 or go to beernet.com to register.



Until tomorrow,

Jenn, Jordan, and Harry

"Is sloppiness in speech caused by ignorance or apathy? I don't know and I don't care." - William Safire

BEER SUMMIT 2019 REGISTRATION OPEN. Join us for the 16th Annual Beer Industry Summit, January 27 - 28, 2019 at The Hotel del Coronado in San Diego, CA. Speakers TBA.

Register here: https://www.beernet.com/beer_summit.php

Or give Jessica a ring at 210-805-8006. Looking forward to seeing you there.

---------- Sell Day Calendar ----------

Today's Sell Day: 1

Sell days this month: 22

Sell days this month last year: 22

This month ends on a: Fri.

This month last year ended on a: Thurs.

YTD sell days Over/Under: +1

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