Supreme Court: No Certiorari

The Supreme Court has decided that they will not hear the Texas case of Wine Country Gift Baskets.com v. Steen, giving a sigh of relief to distributors. After postponing its order for two weeks, the US Supreme Court has denied cert for out-of-state retailers seeking to ship directly to Texas residents. You’ll recall that the Fifth Circuit Court ruled that Texas does not violate the Commerce Clause by allowing in-state retailers to ship direct to consumers but banning out-of-state retailers from doing the same. After three attempts before the 5th Circuit Court of Appeals (the initial appeal, and two petitions for rehearing), Kirkland and Ellis on behalf of Wine Country filed a petition in November asking the US Supreme Court to review the case. And, as we found out this morning, the Court has denied that request.

The National Beer Wholesalers Association’s (NBWA) president Craig Purser said: “The National Beer Wholesalers Association applauds the Supreme Court’s order to let stand Texas’ ability – and by extension, all states’ ability – to regulate alcohol distribution and sales as enshrined in the 21st Amendment.”

“In the midst of a soft economy and budget shortfalls, the plaintiffs’ multiple appeals cost the taxpayers of Texas significant resources simply to defend state law which requires an alcohol retailer to have a physical presence in the state in order to sell alcohol within the state’s borders – a law enacted by elected lawmakers who represent the concerns and wishes of Texas residents. The fact that this case reached the highest court in the land – after the plaintiffs lost multiple times during their relentless appeals process – clearly demonstrates that the plaintiffs in this case and others who have initiated more than two dozen lawsuits against state alcohol laws will spare no expense and go to any effort to remove time-tested, alcohol regulations and local controls in the pursuit of larger profits.”

For its part, the Beer Institute’s Jod McClain said in a statement that The BeerInstitute is
“pleased to hear that the United States Supreme Court today has declined to review the 2010 federal appeals court decision” and that “the courts have gotten it right, upholding state alcohol laws that are found to be an appropriate exercise of authority under the 21st Amendment.”

SMALL BREWER PROFILE: SHMALTZ “WE HAVE NO MARKET” BREWING CO.

If ever there were a niche craft brand, it would be 7,000-barrels-strong Shmaltz. The business, powered by Jeremy Cowan, is responsible for “Jewish celebration” HE’BREW and also Coney Island Craft Lagers brands, the latter created to honor and fundraise for the namesake Brooklyn landmark. In 2010, Shmaltz sold more than 100,000 cases of HE’BREW Beer and Coney Island Craft Lagers, and so grew 25%. Sales projections for 2011 are at $2.75 million.

Jeremy’s are niche brands catering to the Jewish experience: HE’BREW’s last Holiday Gift pack included eight different bottles of beer, a logoed glass, Hanukkah candles and instructions on building a beer Menorah. They sold 5,000 cases. This year they’ll do that and another variety pack with the Coney Island brand, which sold 10,000 cases last year; these sales are projected to be up 50% for 2011.

Not bad, considering Shmaltz’s nonexistent customer base. Paraphrasing “CraftBeer Bar Mitzvah,” Jeremy’s memoir due out this fall: “If you take the 2% of the country that is Jewish, and the percent of people too old or young to drink beeror that aren’t going to, and the percentage of craft beer drinkers are 5% of that — for brands like ours, we basically have no market,” he says.

Shmaltz’s rise is notable as a microcosm of the craft beer market in general. It’s an industry built on sweat equity, anything-goes formulations and seat-of-the-pants production and marketing. But the science of making the industry’s recent gains last will likely rest on more corporate-minded mores: Business, expansion and succession plans. Or will it? The evolution of a company like Shmaltz is thus a particular point of interest.

EMPIRE-BUILDING AND SUCCESSION PLANS. No market notwithstanding, Jeremy gained traction via his own worn car tread supporting distribution in their 25-state market and his practical live-in assistant. He comes up with the brand’s off-the-wall, award-winning packaging with his art director. The outlandish beer recipes are also largely from his noggin, like the current shelf-stocker, Vertical Jewbilation, a blend of their Jewbilation ale from seven different years that’s aged in Sazerac barrels. He employs a skeleton crew of 10, which he’ll admit is more than many of his smaller counterparts.

Of succession plans, Jeremy says, “I’m only 41, I figure in about 5 or 10 years, I’ll start thinking of deciding if I want to do this for the rest of my life.” It’s a half-comical observation that nonetheless rings true, like this other one: “I started at the beginning of the destruction of the growth of craft (’96), so I started at the wrong moment.”

’90s BOOM VS. TODAY. His statement begs the question: What are the salient differences between craft’s mid-’90s blip and the boom today? To Jeremy, a proliferation of styles, even extreme beer, has given a new customer something truly different, and created a “much more dynamic market.” Plus pricing power.

“Whatever we want to call it is less important than the fact that we’re finally getting pricing and margins on the special products,” he says, reflecting that people will now pay $20 for a bottle of good beer. He makes an analogy to the industry having built a better burger.

The other thing about the mid-’90s as opposed to now: different theories of regionality. “From the very beginning, craft beer was about a regional identify. You had to own your backyard. So Sierra Nevada and Anchor and New Belgium had different approaches to expanding [than me]. But I started out of my apartment in San Francisco [servicing] the Jewish community – I always knew I was going to have to rely on a little bit of business in a lot of places,” he says.

ON DISTRIBS AND NEW MARKETS. The way Jeremy sees it, Shmaltz’s extreme flavor profiles and packaging appeals to “any limited market of the best beerdrinkers in the country.” His latest is Louisiana. He vacillates about newer ones: “New Hampshire, Vermont; we’re not in Nevada, there are a couple of states in the Midwest we’re not in. … From Texas we get more e-mails from people looking for our beer than anyone else. But until the TABC gets sued by the right person at the right moment …”

The plan is to expand very slowly, building deeper relationships in existing markets. The company has minimal overhead, no tasting room. He reinvests gains instead to support his wholesalers, since he doesn’t travel like he used to. He also usually prefers independent distributors, but he’s been impressed by some bigger guys, like the MillerCoors house that disseminates his brand in The Big Easy. “[They] go from 100,000 barrels to 7,000 barrels [Shmaltz]. They’ve been really successful for us, and had a blast. …We need wholesalers who can appreciate [our] angle and niche, and who can communicate, with me, the special qualities of our brands and craft beer in general.”

FREAKTOBERFEST AND TERROIR-BUILDING. But the distinctive branding carries weight too. Besides owning their nonexistent niche, and the award-winning packaging, this year will mark Shmaltz’s fourth Coney Island Freaktoberfest. Like New Belgium’s Tour de Fat or Magic Hat’s Mardi Gras, this Brooklyn-based event helps recruit one craft brand aficionado at a time with signature style: Local bands and burlesque performers have made the beer and music fest a destination event. And destination events help build destination brands, an ongoing process for Coney Island beer. “We’re the kickoff of New York craft beer week, by the way,” Jeremy informs. This year’s will take place on Sept. 16.

Until tomorrow, Harry

“I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.”
-Thomas Jefferson

Make yourself heard, your opinions count. Anonymous feedback and tipster form: http://www.beernet.com/hotline.php

——— Sell Day Calendar ———-
Today’s Sell Day: 7
Sell days this month: 23
Sell days this month last year: 23
This month ends on a: Thurs
This month last year ended on a: Wed.
YTD sell days Over/Under: 0

-BrewPic of the Day on Facebook: http://www.facebook.com/pages/Beer-Business-Daily/189913234369698