The Craft Train Rolls On

FILED MARCH 18, 2013

Dear Client:

Craft continues to accelerate. In 2012 it gained even more ground than 2011, with volumes up 15% and dollars up 17%, according to Brewers Association estimates. That puts BA-defined brewers at a 6.5 market share, up from 5.7% share the previous year. You extrapolate that out ten years, and you're looking at craft at 15 share unless it slows down.

But those numbers don't really tell the true story. Boston Beer, Sierra Nevada, and New Belgium are so big that they in large part dictate what the BA-craft trend will be. And while 15% is a big number, many smaller brewers under the big three are growing at higher rates. Not only that, but many of them would've grown even faster in 2012 if they had the brewing capacity to do so. But don't worry, there is well over a million barrels of capacity being built as this is written which will come online this year and next. While there's been a lot of focus on Sierra, New Belgium, and Lagunitas building big new breweries, plenty of others are adding capacity, or just trying to keep up. Just take a look at these craft stories in the last few weeks:

Green Flash is building a 58,000 sq ft brewery in Virginia Beach which will have 100,000 annual barrel capacity.

Oskar Blues Brewery continues to build on its 52% growth in 2012 by launching the state of Michigan in the first week of March and is thinking of adding a high speed alumitech line.

Ninkasi has expanded to their capacity. They finished last year at almost 70,000 barrels and just broken into SIG's top beer vendors in grocery list despite a small, Northwestern-based footprint. May be looking to expand markets if they can brew the beer.

Allagash has been growing at a clip of 40% every year despite having not opened any new territories for the last 4-5 years. Rob Tod said they'll strive to optimize existing markets markets before they expand into any of the 20-something states left to fill out their footprint.

Dogfish Head has taken a break from rolling out new markets (and pulling out of some) until they can get their current markets ample beer. They grew 20% last year to 20% to 172,617 barrels and won't roll out any new markets in 2013, and they are prioritizing "strong growth over fast growth," said Sam Calagione.

Over the past few years, Left Hand pulled out of Iowa, Nebraska, Alaska and parts of Alabama, but capacity expansion has helped alleviate the crunch and will allow them to re-enter Alabama this year with their existing distributor - and consider some new territories, including Maryland, Pittsburg, and Southern Illinois. They're rolling into upstate New York with Sheehan in May. The brewer finished just shy of 50,000 barrels last year, up 35%.

Ballast Point is opening new markets this year, finishing close to 50k barrels and planning for close to 80,000 in 2013. They're looking for space for the new brewhouse they ordered from Germany to round out their third facility.

Anchor Brewing is breaking ground on a new brewery in San Francisco. The $35 million facility will bring them to 680k capacity total, including the existing facility; they hope to be pouring beer at the new location in Q3 2015.

SweetWater sold roughly 110,000-barrels in 2012, a 15% increase over 2011, after adding capacity. Most of that was organic growth -- they entered new Southeastern markets in South Carolina, Tennessee and Florida, but not until Q4. They just announced more markets opening up in Florida.

Abita in New Orleans is building out to 900k capacity after blowing through 150k barrels, up 21%.

And the list goes on..... I can't include them all here, sorry, it would go on for another 10 pages. But you catch my drift. While the beer industry at large may have a flattish year, it seems to me that as more capacity comes online that craft supply will catch up with demand, and we don't even really know what demand is because, A). we haven't been able to supply it, and B). it keeps growing. I don't want to sound irrationally exuberant, (and there's always the real risk of over-capacity at some point), but at least in the near term the craft train looks as if it ain't slowing down and in fact will likely accelerate. And that's just BA-defined craft. Throw in Yuengling, CBA, Shock Top, Blue Moon, Leine's, et al, and the number is even bigger.

When you look at it that way, the beer industry is a great place to do business these days, whether you're a brewer, distributor, or retailer.

NOT JUST CAPACITY, BUT NEWS ... Lots of breweries adding canning and 12 pack lines. And lots of breweries coming out with new brands and seasonals. In fact, there's hardly a day when we don't see five or ten press releases of a new seasonal, one-off, collaboration, or style being released. New Belgium just released their new imperial IPA, Rampant, which is already creating online buzz with their online video of pretty girls burping. (Curious? Thought so: http://www.youtube.com/watch?v=5C-rzCngv1M )

AND DATA. Remember when craft brewers just smoked dope and weaved baskets in their spare time? Now they crunch numbers. We've covered how several craft brewers are ramping up their category management capabilities, but now they're even getting into Big Data. Example: AdAge reports how Sierra Nevada is using consumer data to pinpoint accounts to target. At convenience stores Sierra uses demographic data by ZIP code to only target locations that have plenty of its core consumers: men ages 22 to 44 with incomes of $75,000-plus.

LOTS MORE BREWERS. Paul Gatza of the BA reports that there was an 18% increase in the number of breweries out there, reaching 2,403 last year. That's 1.7 new breweries per sell day, "and we anticipate even more in the coming year," says Paul. Look for more analysis at the Craft Brewers Conference next week. We'll see you there.

BEER BRIEFS:

ST. PATRICK'S DAY WEEKEND UP. GuestMetrics reports that St. Patrick's Day weekend food and beverage sales in their scanned on-premise accounts were up. St. Paddy's fell on a Sunday this year and a Saturday last year, so going for apples-to-apples here. This year's Friday alcohol beverage sales were up 2.5%, Saturday bev-alc sales were down 4.9%, and Sunday bev-alc sales were up 24%, driving the 3-day period up 3.2%.


WE REGRET TO REPORT that our good friend Jim Burma, former owner of Carlson Distributing in Sioux Falls, SD, died last week. Jim was a classic good humored cigar-chomping beer man of the old school. I enjoyed spending many evenings with Jim, including those pheasant hunting in his beloved South Dakota. He will be sorely missed.

Until tomorrow, Harry

"People who have no weaknesses are terrible; there is no way of taking advantage of them."
-Anatole France

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