Paul Runs Down the Numbers Plus, Fritz Answers Questions from Ken

March 25, 2011

Paul Runs Down the Numbers
Plus, Fritz Answers Questions from Ken

Dear Client:

Brewpubs, microbreweries, regionals. Brewers Association director Paul Gatza broke ’em all down at yesterday’s epic opening session at the Craft Brewers Conference in San Francisco that ended with a fireside chat between Ken Grossman and the ever-eloquent Fritz Maytag, who ended with a zinger: “This whole thing about micro, regional and craft, I must say, I’ve just had enough of it.”

Those of you with another 20 years to retirement and no buyer prospects, however, may be interested in a couple of numbers and talking points. Overall category looking good: Last year craft grew 11% by volume; pricing was up 42 cents/case in scanned channels.

NUMBERS. First up: Brewpubs. The growth is up 6.9%. Trends in this sub-segment include multi-taps and guest taps for outside brewers, which provide a trial testing ground. Many brewpubs are also now packaging beer for off-premise sales where legal.

Microbreweries are a good harbinger of segment growth, with 12 times as many opening as closings last year. Segment grew 11.9%, although it really grew more like 28% if you include those brewers who graduated to being a regional brewer during the year. Trends include single-style beers (the advent of all lager breweries, single hop breweries et al.) and using tasting rooms to build sales (with obvious implications for leg. in pertinent states). Tasting rooms are becoming an increasingly large part of microbrewery sales, with many reporting a quarter of their sales coming from their tasting rooms. “Local has moved from a fad, to a trend, to mainstream,” said Paul. Local is hot. And so are cans, which represent about 3% of total craft sales now.

Skip past the 15K barrel mark, and we have stats on regional breweries. Better yet, there were only 41 closings last year, significant as the least since mid-’90s. Openings were the most since ’99, at 152. Other trends: According to Paul, 94% of this segment increased beer sales last year. Home territories are performing well. But private equity is getting more interested in the sector and allows for owners to realize equity, but will it work in craft, Paul asks? Also, contract is becoming less significant to the industry.

CONCERNS AND CONQUERINGS. Here we have the usual suspects: concerns include unparalleled wholesaler consolidation and growth; financing capacity expansions; aroma hop plantings down; overcrowding of marketplace (so many new microbreweries, so many new SKUs, so much “saturation”, so little time. Although we note that Paul contends that craft still has the support of retail). Also of concern: “Can existing wholesalers get all the brands to market effectively?” Paul says that may be an opportunity for new craft distributorship start-ups.

Another concern is the sheer number of new brewery startups — it’s starting to look a little like 1995 again, when beer quality suffered and turned many would-be craft drinkers back to imports, although most folks we talk to say today’s new brewers are making better beer, and for better reasons than a quick buck. “If you’re a start-up brewery, please think about quality first,” Paul implored. This reminds us of the first CBC we attended in the mid-1990s in Austin or maybe Boston, when Jim Koch begged new brewery start-ups to please code-date their beer and be honorable about pulling dated beer from the shelves, even if you have to eat part or all of the cost.

Winning? Tiger blood? Crafts got it. Wholesaler and retailer support is still at all-time high, craft is making deep customer connections, and Millennials are embracing it like never before, which is good, because they’re young and will presumably live and drink for a long time. Most importantly: 11.8% dollar growth of craft; share climbed one point over two years to 4.86. It’s a healthy segment.

KEN AND FRITZ. The fireside chat was touching, with Ken plying Fitz with questions about how it was in the beginning. Fitz was very dry and gracious, remembering the extreme spirit of brewer camaraderie when he started. One particular anecdote included Fritz’s childhood dream of being a chemist, so he bought a glass piece – and sat on and broke it on the way home. “Forty years later I realized (my crew’s) attention to detail overcame my propensity to sit on things.” Gracious man.

ATTENDANCE for this year’s event was at around 3,900. Interestingly, 10% of attendees at this conference came from outside of US, giving credence to the notion that the US has the most vibrant beer scene in the world.


Perhaps the most proprietary of the panel information thus far came in the form of Bump Williams’ panel with four different chain buyers and their approach to craft. Reps hailed from very different outlets: One from a small, Northeastern-based regional traditional grocer of 130 stores; one from a club retailer with over 600 locations; another from a larger, Midwestern-based grocery chain and one from a top c-store chain at 1,700 units (they did not wish to be identified).

CRAFT MATTERS. Most said beer was definitely important to the bottom line: C-store guy said big beer and cigarettes were over 50% of their business. Nobody in the world goes into a c-store looking for craft, but higher margins and opportunity for new consumers makes it attractive. Big grocer said total alcohol is the biggest category for the store, showing great growth; craft has been the star of late. Watch this channel: This specific retailer is up 16% organically via craft sales, and lots yet to tap.

Wholesale club guy admitted total alcohol is less than 1% of their biz – but still a large number, as they’re a huge company. The small grocer, which has doubled its scale in last two years, sees craft as a strategy to compete against a particular competitor, and are homing in on the category in the next half-year to drive business from loyals.

CHANCING LOCAL BRANDS VS. PERENNIAL TOP SELLERS. Asked by Bump how they each manage putting in hot or local new brands when shelf space contains great-selling established ones, the answers varied. Big grocer said carrying new and local brands is an “investment” for the company, but also that he’s seen 200 more SKUs per store in the last few years. Club guy: SKU rationalization and measurement sticks rule. If the volume for a product code isn’t there, it goes — though they also might change whatever occupies an allotted 4 feet with a mixture of SKUs.

TRENDS. C-store guy: Crafts are growing, but consumers are also buying on value; in that vein, PABs are up but driven by single serve sales. To that end, small grocer said he’s even looking at 2-packs.

HOT CRAFT MARKETS. Small grocer says college markets are highest craft indexing. Big grocer agreed that that’s the case even when you get into lower socio-eco areas where lots of Millenials have moved. C-store guy said coastlines, resorts and military bases are particularly hot for them: 800 of their stores are around military bases, and seeing growth.

WOMEN. One of the longest talking points in the trends part of the discussion was the emergence of the female craft drinker. We’ve known that women are the shoppers for a while, but this takes on a different hue. Small grocer says he sees frat guys’ girlfriends, in big college markets, buying differently – trial sizes, four packs. Beer that Millennials and especially women are picking up are different. So, they’ve been cross-merchandising heavily to point women toward sampling craft at many points of the store – produce, cheese, deli. Club guy’s system has a telling term: CEO Mom. They do 90% of shopping within the channel, buying all over the board.


That’s not our question, but rather, the name of a session that started with NBWA’s general counsel Paul Pisano guiding us through recent brewer relations and concerns and ending with a guy in a Sprecher shirt needling poor ol’ Paul on an apparently loaded statement about whether they supported self-distribution. “We put out a statement this morning: We support state laws. If they allow self-distribution, we support it. If (states are not) allowing it, we support that too,” Paul said.

The other significant part of this talk came in Paul’s answer to a question on pertinent upcoming issues in Congress. Paul expressed concern over Obama’s vow to cut agencies, which makes him worry about the future of TTB. “They produce the third most amount of revenue in the government, and no one has heard of them,” Paul says. “We have to be the messengers that talk about it, because they can’t lobby for themselves. If they need to cut $100 million, next thing we know the TTB could be gone.” He also expressed concern over how far a Food and Drug bill might try to reach.


Marc Sorini of McDermott Will & Emery LLC went over all the pertinent cases for the year, and did a bit of editorializing. Two main observations: First, beer is now the main theater of war instead of wine. CARE Act is the most controversial case this year, for the first time, not a wine shipping case. So now beer has “benefit” of being at the center of controversy.

Further, “paranoia will destroy ‘ya” – wine fights were driven by plaintiffs, says Marc. Now that the battleground has shifted to beer, the tone seems more reactive. Example: Louisiana, Nebraska passing laws to ban branch ownership, when it hasn’t been banned for a long time. Marc says it is perceived as reactionary. “CARE Act could be seen through the same lens,” he says. Finally, 2010 could be seen as low water mark for beer franchise laws. For perhaps the first time, a majority of bills on the subject aimed to roll back franchise laws; most bills to tighten the laws failed (though a few passed).

CORRECTION. We erroneously referred to homebrewing company Northern Brewer as North American Brewer in yesterday’s issue. Also, North American Breweries have “Alebassadors,” not “ale bastards.” We apologize to NAB on both accounts — our auto-correct got the best of us.

BREWPIC: A very handsome Paul Gatza laying the wisdom on his throng at the opening session of the CBC.

Publisher’s Note: Many thanks to all of you who’ve emailed about my little piece in All About Beer Magazine — the response has been stupendous. I personally thought it was offensive but apparently that’s what you like. If poor Julie Johnson asks me back, they will be more. Oh yes, there will be more. -Harry

Until Monday, Jenn

“It is easy to get everything you want, provided you first learn to do without the things you cannot get.”
-Elbert Hubbard

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