Craft Beer By The Numbers…Very. Scary. Numbers.

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I don’t usually do much linking here, but my buddy Harry Schuhmacher over at the painfully expensive but excellent Beer Business Daily has put up a public post briefly pontificating on the amount of money it will take craft brewers to build the capacity necessary to achieve certain goals they have discussed in the past. As he says in the penultimate graf:

But even if craft brewers can drive demand to 20% of the market, how to pay for it? Dan Kopman at Schlafly points out that it takes about $100 a barrel to build additional capacity (on the low end). If craft brewers can drive consumer demand to sell 30 million extra barrels to gain 15 points in market share, that’s $3 billion in investment. That’s a lot of dough. It highlights the importance of the small brewer tax break. It also points out the advantage big brewers have, because they already have plenty of capacity, and even if they need to build more, they can squeeze quite a bit out of their current facilities.

About six years ago, Kim Jordan, co-founder of the New Belgium Brewing Company, talked about a goal of reaching ten-percent market share for the craft beer segment.

AC You are the keynote speaker at next year’s Craft Brewers’ Conference. What do you think is the state of the industry and how do you think craft brewers can grow?

KJ I was at the Brewers Association of America conference last month and I was really excited. I talked to a lot of people who were adding capacity or more fermenters or building warehouse space. It was my sense that people were feeling pretty upbeat about their future. It kind of reminded me of the early nineties, which is pretty exciting. So I think the small brewing industry is continuing to gain legitimacy. We have passed the point where people wonder if we are just a fad. I think we have a lot of possibility to make a niche for ourselves as small, regional breweries that are being highly engaged in our communities, good corporate citizens, brewing interesting beers, fulfilling peoples’ desires to want to buy something made locally that is more distinctive in taste.

I have also heard industry leaders, such as Jim Koch from Boston Beer and Greg Koch of Stone Brewing, talk about the possibility of craft brewers attaining 15 to 20-percent market share. To hit these numbers, Harry calculates craft brewers would have to produce an extra 30 million barrels of beer. I don’t have any solid numbers on the total capacity craft brewers maintain today, but they continue to build bigger facilities and will collectively produce approximately 8.5 to 9 million barrels this year.

So if my math is correct (and frankly it is not my strongest suit), I think this means the 538 craft production breweries (regional crafts, microbreweries, and contract operations), which comprise nearly 90-percent of the craft beer produced in the United States, would have to spend approximately $5.5 million each in order to reach this capacity point. To date, many regional craft players have spent equal to or exceeding this amount in order to build breweries with a couple hundred thousand barrels of capacity. Many are already servicing substantial debt loads, a whole other issue the industry will soon have to address (especially if growth ever slows), and likely will need a great deal of outside help (be it bankers, distributors, other breweries or beverage alcohol players, or other third parties) to achieve these numbers.

While discussing these goals, many brewers have just been happy to take market share in terms of dollars rather than volume so capacity building became a secondary priority to maintaining higher price points. These are some sobering numbers…

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Miller Lite Surpasses Budweiser As Second Most Popular American Beer Brand

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There are several interesting stories buried beneath the surface of the recent numbers release from Information Resources Inc. (IRI). Compiling statistics from a data set that includes more than 15,000 grocery and convenience store retailers around the United States, IRI’s releases offer a picture of how the larger industry players, including the biggest craft brewers, are performing at any given time. I’ll write a short piece in the near future about IRI’s 2007 stats on the craft beer industry, but it is the macro numbers that caught my eye.

According to the release, which documents sales in these outlets during 2007, the top 15 beer brands accounted for more than 63-percent of sales in the United States. Of these brands, Bud Light remains the dominant brand, with nearly $1.3 billion in sales in 2007, a 3.2-percent increase. The surprising part came with the revelation of the second best-selling brand (in terms of dollar sales): Miller Lite, which enjoyed more than $670 million in sales, a 3.4-percent increase. Rounding out the top three was the dethroned King of Beers, Budweiser, with $636 million in sales, a 3.7-percent decrease.

Now there are a lot of variables and unknowns (at least for me without access to further numbers) at play here, including volume totals and sales in other channels, but as grocery and convenience stores comprise a significant percentage of total beer sales (IRI’s website suggests that beer sales in package/liquor stores make up only 10-percent of its total sales), this is a big advancement for Miller ‘s rejuvenated Lite brand. It’s also a sign of the continued strength of the light beer segment.

IRI’s numbers for the industry’s largest craft beer players are also almost uniformly excellent (with the exception being A-B’s partner, Redhook).

All data is for the 52-week period ending December 30, 2007.

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Bell’s Beer Back In Chicago, Distributor’s Lawyers Smile…

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Bell’s Brewing of Kalamazoo, Michigan, has confirmed the recent rumors that it intends to return to the Chicagoland market with two ‘new’ brands as early as next week. The brewery is shipping its ‘new’ Kalamazoo Amber Ale to six bars in the Chicago area, including Brixies, the Clark Street Ale House, Lemmings, the Northside, the Handle Bar, the Silver Cloud, and the Twisted Spoke. The beer should be on tap at these locations, barring any foreseen circumstances, by Tuesday December 4.

Now I use ‘new’ and circumstances foreseen because Bell’s is using this limited release to test the waters of Illinois distribution and franchising law with these brands. The former Kalamazoo Brewing Company stopped shipping beer to Illinois a year ago because of a dispute with National Wine & Spirits, the company that has the rights to distribute Bell’s Beer in Illinois. The brewery’s brands, long a fixture in Chicago’s better beer scene, disappeared from the market after owner Larry Bell decided to end his relationship with a NWS which acquired the rights to the brand after Bell’s former distributor was bought out.

There has been much debate among Chicago beer lovers about the laws governing Bell’s possible return to the Chicago market. The dense Illinois franchise laws appear to restrict a brewery’s rights to switch distributors. Some argue that the laws should be interpreted to allow for a brand to return after a year’s absence from the market.

With this return, Larry Bell is trying another approach. He says that he has released three new beers specifically for the Chicago market that are not subject to the prior distribution agreement. The new beers, offered under the Bell’s Brewery name, will include the Kalamazoo Porter, the Kalamazoo IPA, and the Kalamazoo Royal Amber Ale. The labels read, “Brewed especially for the people of the great state of Illinois.?

To some, including the distributor’s lawyers, it may appear that these new releases look similar to the Bell’s Porter, IPA (or Two Hearted IPA), and Amber, all products that were popular in the Chicago market. Whether the new beers and their flavors bear any similarity to the old beers will likely be subject to many glass clinking debates.

On the Beer Advocate website, Bell posted his thoughts on the situation and the new beers.

Bell’s continues to work on a way to return to Illinois. NWS (owner of the distribution rights) won’t return my call. I have had discussions with other wholesalers and there is a possibility that we would return, but not with any brand we currently produce. However, we, and any new distributor we have, are likely to be sued at the point of reentry by NWS. Illinois franchise law is complex and not always favorable to breweries. Add in corruption and the bad guys at NWS and you’ve got a sticky situation. Chicago is my home town and I would love to sell beer there again. It IS being worked on, so please be patient.

In an interview with Crain’s Chicago Business, Bell said,

“This is a different beer,” he says. “These are not the beers that were assigned to them.”

Barring a court injunction order, Bell’s ‘new’ beers will certainly be welcomed by members of the Chicago better beer scene.

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The BeerScribe Interview with Jeff Becker of the Beer Institute…

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For more than two decades, the Beer Institute has served as the beer industry’s voice before legislatures and governmental agencies across the country. The group represents the diverse interests of breweries, importers, and industry suppliers on alcohol policy issues ranging from tax and trade to reducing underage drinking. As president of the Beer Institute since 1999, Jeff Becker has seen the face of the beer industry sustain some serious changes. In the face of the increasing popularity of the import and craft segments, the Beer Institute has broadened its focus to include the interests of new members. I recently had the opportunity to speak with Jeff Becker about the Beer Institute, federal labeling initiatives, and the rise of the smaller brewer.

Andy Crouch: How is the Beer Institute’s relationship with smaller brewers?

Jeff Becker: I like to that one of the things we’ve been able to do, at least over the last seven to eight years, is the policy stuff where there is interest among the smaller guys at getting involved. I think we’ve gotten them more involved and will continue to do so. The issues are usually not big versus small until somebody decides they want to change the definition of what a craft beer is. We have very few disagreements, certainly on the bigger issues. The three tier stuff is going to be something we continue to work with the Brewers Association on. We have the tax and labeling issues with them on as well. But on the big stuff, we do tend to be 90-percent in alignment. Across the smaller issues, I think there is a challenge and an opportunity to get together, say in keg loss or working to develop better draft standards. There is a variety of those things that in the development of the relationship over the last seven or eight years has made a conversation a whole lot easier. I think it’s been real helpful to get their perspective as well.

AC: Tell me about the Beer Institute and how you joined the organization.

JB: The Beer Institute was the outgrowth of the United States Brewers Association, which was out predecessor organization. It went out of business in 1985 and the brewers felt they needed a forum to deal with public policy issues. So the Beer Institute was formed in 1986 and at that time the major members, some of which are no longer in business, included Anheuser-Busch, Miller, Coors, Heileman, and Stroh. In 1986, the craft brewers were very small. I came in 1988 to run the Alcohol Issues Department, which dealt with advertising and tax policy issues. I was elevated the next year to vice-president and several years later to president.

AC: The Beer Institute has a lot of different responsibilities and plays many roles. Tell me about some of the group’s main areas of focus.

JB: Right now we are very focused on the Tax and Trade Bureau’s labeling issue because it is not only an important issue for our industry but for others as well. For example, the liquor industry is trying to use equalization in the labeling debate. Whether it is TTB labeling or the equalization stuff, it will always be something that we pay attention to. Advertising is always something that provides fodder for the critics or litigation. Advertising is consistently going to be an issue we focus on for two reasons. One, you have critic groups that try to use misinformation to create public policy. Our role is in the public policy vein is to be the spokesperson for the industry. For example, [the Center for Science in the Public Interest] came out the other day and said that we shouldn’t be advertising in the NFL. So we put together a statement and sent that out to the persons who are interested. So advertising is always going to be an interest of ours. Tax policy is another. We have a federal government right now with quite a deficit and I think you’re going to see some leadership changes in the next few years and people are going to have to come to grips with the deficit. The last time they did this, we got thrown into the mix and it’s something we are working on right now.

AC: The TTB’s proposed rulemaking on labeling is an important issue for the beer industry and one that began with a push from several consumer groups, including some that are considered to be neo-prohibitionist. Talk about how the Beer Institute is handling the proposed labeling issue.

JB: In the case of labeling, we actually have the liquor industry encouraging these consumer groups based upon their agenda, which was not about consumer information but equalization and the normalization of liquor products versus beer and wine products. My initial reaction to the National Consumer League and the CSPI was that they were shilling for certain members of the liquor industry instead of standing up for giving consumers more information. We’ve been putting a statement of average analysis on all light beers since light beer was born thirty years ago. That information has long been available for light beer, which is now about fifty-percent of the market. If it was all about providing information to consumers then there would have been a logical place for the industry to start. The illogical place to start is with the graphics that we believe are misinformed and could misinform the public. Our concern is that when there are issues like this or with advertising and tax policy, we first have to determine the motivation behind the move. Clearly with the labeling issue the motivation was on behalf of the liquor industry trying to get the consumer groups to promote their equalization agenda. That is why you saw us come out pretty strong right away in making sure that people understood the difference between providing consumers with information that is good for them to have and simply furthering the equalization campaign. I think you have to balance these things. When you look at what the CSPI did the other day in saying that we shouldn’t be advertising in the NFL and it’s ridiculous. Something like 88-percent of that audience is twenty-one years of age or older so what better audience is there for beer? We have to continue to be vigilant and I think smaller brewers are starting to play a role at their community level and are starting to be more concerned about what the advocacy groups are doing. I’m very happy they are as interested in the labeling issue. We cannot let groups like CSPI and others feel like they have an open field to play in where no one will rebut what they are saying. If you just leave it out there, people will believe it is true and we can’t do that.

AC: In the last year or two the Brewers Association has stepped up its legislative advocacy efforts. How do you think the Brewers Association has been doing?

JB: I think the small brewer caucus is a very good idea. It gives both them and us a different way to talk about the industry. In some instances, the beer industry is defined as the large brewers and we know there are many others. It’s been very good for all of us to have different beer styles when we are up on the Hill. It expands for people in Congress what they think about the beer industry. Not just to think about the large brewers but about the small brewers who are adding a lot of different flavor profiles, entrepreneurship, and domestic jobs that in this economy are very important. We want to continue to work with [BA President Charlie Papazian] and the folks at the Brewers Association. A lot of their board members are on our ex officio board as well. We think we’ve got a great story to tell about the strength and diversity of our industry today. It’s a very different story than it was even four or five years ago. They bring a lot to the table and certainly add some new sex appeal to the industry and that is always a good thing.

AC: What efforts have the Beer Institute undertaken to solicit new craft beer members?

JB: We’ve had quite a few of the smaller brewers on our ex officio board since I’ve been president. We have now people like Jim Koch, Steve Hindy, Gary Fish, Kim Jordan, Ken Grossman, and now Larry Bell. These people are leaders and will continue to be leaders in that industry. Our board voted at our annual meeting last week for the management committee to put together a proposal for them to add to our voting board a small brewer member who will have full voting rights. Our challenge is to continue to work on the level that we do, work with Charlie and the Brewers Association, and then to keep the conversation going and the relationship development between the larger and smaller companies through our organization. In terms of soliciting membership, we did sent out a mailing this year for the first time trying to get small brewer members. We haven’t sent one out to every small brewer but we will be doing that. We see the value in being able to identify to a particular member of Congress a person in their district who they can feel like they have a personal relationship with. Down the road we’ll be looking at how we can help with the Small Brewers Caucus and also how we can get some more small members into the Beer Institute so that they can appreciate what we are doing on a policy and political level because it’s important for their business as well.

AC: Has the internationalization of the beer industry in the last few years, including the mergers between SAB and Miller and Molson and Coors, changed the way the Beer Institute operates or its focus?

JB: It is clear that as soon as our members became more international and global, not only in selling their products but also in their relationships, that it was incumbent upon us to do more in the global policy arena. The World Health Organization has been contemplating for about two years whether to develop a global strategy on alcohol as it has with tobacco. Our concern is that alcohol and tobacco is not the same product and they are clearly different. We’ve been trying to get the beer side of things to be more cohesive around the globe so that we are looking at these things from a beer perspective. Generally how we’ve dealt with these issues is to deal with them on a beer, wine, and spirits perspective and not just from a beer perspective. As we look at developing countries and the development of policy of beer, wine, and spirits, we think it is important that people remain aware that beer is the most moderate of alcohol beverages. There are preferential opportunities for selling and marketing here because we are a more moderate beverage and these should be considered in other countries where they are developing policies. We firmly believe that we need to be diligent on the international and global levels then we are not doing the best we can. Clearly, our activities will continue to expand in that regard, particularly because the United States plays such an active role at the WHO.

AC: In looking long term, do you think that craft beer as part of the market is stable and something that is here to stay?

JB: I certainly do. In the last twenty-five years, you’ve seen a sustained growth in the craft brewing segment. You have a lot of individuals there who got into it because they thought it was fun and interesting but have turned it in to quite a business. It’s definitely here to stay. People are thinking about succession planning and getting their kids involved and that’s a wonderful thing. It is phenomenal to see the wealth of talent we have available to us, some of which got into this for fun. And now to see them as thriving businesses I think is terrific. The import segment is going to continue to grow and we hope the domestic segment will continue to grow. I think what we are starting to see now is slowly everybody is starting to come back and that is a very encouraging sign for everyone. I think imports and craft beers definitely have a place to stay and I think you see some of the larger brewers doing those same sorts of things. I’m very encouraged about the future and I think that anybody in the industry right now should be.

–Article appeared in the November 2007 issue of Beverage Magazine.

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The Ironic Timing of Fresh Hop Beers and the Great Hop Crunch of 2007

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The last few weeks have seen the release of the 2007 ‘fresh hop’ beers. Brewed in connection to the annual hop harvest, the beers are usually made with hops fresh from the field (hopefully within a few hours of picking). The resulting beers tend to have some greatly expressive hop aromas and often flavors. What started with only a handful of examples (with Sierra Nevada’s Harvest Ale being the earliest version I tried) has now grown to dozens of examples.

The fresh hop phenomenon has grown so popular that it even has its own festival. The 5th annual Fresh Hop Ale Festival will be held on Saturday October 6 in the heart of hop heaven in Yakima, Washington (a region that produces more than 75-percent of the American hops used in brewing). The following breweries are scheduled to pour beers and compete in the festival’s competition.

O’Brien’s Pub in San Diego will also sponsor the Wet Hop Beer Festival, where owner Tom Nickel plans to serve 35 beers this year, double the number at the inaugural event two years ago.

The fresh hop craze isn’t limited to the Pacific Northwest. The Boston-based Harpoon Brewery recently released Harpoon Glacier Harvest Wet Hop beer as the 20th installment of its Harpoon 100 Barrel Series. Of the beer, Harpoon’s media team reports:

Wet hop beers are brewed using fresh, wet (hops contain about 60% moisture when they are first picked) hops instead of traditional dried hops. Typically, when hops are picked they are quickly dried and refrigerated to make them more suitable and consistent for brewing. This process allows brewers to use hops that were harvested in the fall throughout the following year. Alternatively, wet hops need to be used within hours of their being harvested or they will begin to rapidly degrade. Wet hops retain some of their natural oils and volatile flavors that dissipate when dried. This yields an immersed, intense hop flavor in the beer.Harpoon brewer Ray Dobens, creator of the beer, harvested the Glacier hops in Seneca New York the morning of August 13th and immediately drove them back to Boston that very afternoon in a refrigerated truck. Ray added the newly harvested hops to the brew within hours after the harvest. The fresh hops were added to a malty, copper-colored ale. The combination is a pleasing blend of fresh hop flavor and sweet malt.

Hell, even Anheuser-Busch is jumping on the bandwagon with its Front Range Fresh Harvest Hop Ale.

All of this exciting innovation comes at a time when hop growers and traders are becoming increasingly concerned about the sorry state of the world’s hop supply. Despite the recent increases in American demand for hops, worldwide hop production is down significantly. The remaining stocks are subject to poor weather, fires, and other catastrophes. While larger breweries, which buy options on ingredients years in advance, and long-term customers will likely continue to receive their hop supplies, the smaller market players may find their access to specific hop varieties very limited.

Man, I hope this doesn’t mean we’ll have to suffer through a resurgence in gruit beers.

In addition to the hop problem, brewers are already starting to get hit with price increases for malt as well. The price of several varieties of base malt has increase 5 to 10 cents a pound. Expect to see the cost of doing business reflected in your pints and six-packs soon.

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