Craft Brewers Conference: Convergent, Caustic, Colossal

FILED MAY 2, 2018

Dear Client:

Quite a start to this year's Craft Brewers Conference, a confab of 14k beer industry folks converging on vibrant Nashville. Been attending this conference for two decades, and it's gone from being a scrappy little group of nerds (me included) to a hopeful little group of nerds to a downtrodden little group of nerds to an elated bigger group of nerds to, today, a huge group of nerds who don't know what to think, exactly, (again me included).

Sales have softened, but there are now over 6.5k breweries operating and more in planning. So while the pie grows a bit, the pieces are smaller, and that reality crept into the mood of this meeting.

GENERAL SESSION HIGHLIGHTS AND COMMENTARY, DAY 1

TAX BREAK: IT AIN'T OVER. Yes, make the tax breaks permanent. Perhaps the most helpful piece of advice was from not a brewer at all, but from a politician, as unlikely as that sounds. Rep. Peter DeFazio told the audience that it's going to "take a tremendous effort on your part" to extend the excise tax cuts beyond 2020. "Document where that money is being invested," Rep. DeFazio said, "it's absolutely critical." In other words, brewers need to demonstrate that they used the money to hire people rather than line their pockets.

THE INDIE SEAL. You know what I'm talking about, right? The BA's upside down bottle logo signifying that a member is an independent brewer. The BA wants it on everybody's labels.

And nobody drove that message home more than Left Hand co-founder Eric Wallace. He told the audience the logo "makes it abundantly clear whether a brewery meets the BA's definition of a craft brewer."

TAKING FOOD OUT OF CRAFT BREWERS' KIDS' MOUTHS. He did not stop there. He went after the big guys in a big way. "The many faux craft, crafty, captive, capitulated, acquired brands are weapons in the arsenal of the big breweries and used to control as much of the market as possible. Through clever and deceptive packaging design, omission of ownership statements on labels, intellectual property violations, denigrating, and expensive marketing campaigns, monopolistic practices choking off raw materials and distribution channels, rampant violations of trade practices and exclusionary tactics to defend their house in many markets, these guys are out to eat our collective lunch and take the kids' lunch money as well." At least we know where Eric stands, as we always do.

OUR TAKE: The indie seal is a good idea that was poorly executed. I get that the upside down bottle is supposed to be about craft turning the beer industry upside down, which only an industry insider would get. I get that the seal is a dog whistle to craft beer geeks that the beer is BA-defined. I get that it's a differentiator.

My question is, to whom? The average beer consumer has no idea what this ill-designed logo -- which to me invokes a thumb's down -- actually means. Next time you're at a bar, even a craft-centric bar, ask non-industry drinkers what the logo means. If you get more than one that does, I'll rotate your tires for free.

The BA has a good idea, but I feel they put the horse in front of the cart. As we've learned from the history of Corona in the '80s, create demand before providing supply. Instead of practically begging craft brewers to put a meaningless bottle logo (mostly on a can, btw), they should first create consumer demand for the logo so brewers would be begging for it and even paying for it. Give it broad awareness beyond the circle of industry people and beer geeks. Until then, it doesn't really mean that much, and just clutters precious real estate on labels.

SIDE NOTE: It's ironic that it's much more expensive to add the logo to bottle labels than to cans where you just need to change an image file, but who would put a bottle logo on a can? Surely not Oskar Blues.

STATE GUILDS STICK TOGETHER. Craft brewers are going through some of the same political growing pains that state distributor associations went through several years ago: splintering. New Jersey and Colorado brewing guilds come to mind, not to mention several other guilds experiencing infighting on priorities. The fact remains that taproom-based breweries have somewhat different agendas than packaging-based breweries. Some of the infighting is geographic if in big states, some is size or model-based, and some are both. But different priorities doesn't necessitate different guilds in a single state, Eric said. Indeed, Eric experienced "the turmoil and subsequent rebirth" of the guild firsthand in Colorado.

More incisive commentary tomorrow…..

MORE ON ABI'S LAWSUIT AGAINST HEINEKEN: BIG GREEN RESPONDS

As we wrote yesterday, ABI is suing Heineken here in the U.S. and in the Netherlands alleging that Heineken's BrewLock and Blade keg systems infringe on ABI's approved patents on "Bag-in-Bottle" technology which prevents gas from touching the beer in a keg.

HEINEKEN RESPONDS. Heineken said it will defend its draft systems in court. "HEINEKEN is aware of a lawsuit that ABI filed against us in the court of New York claiming that certain elements of PET kegs for Heineken's countertop Blade and Brewlock tap system for the on-trade are infringing on their patents for Bag-in-Bottle (BiB) products," said Heineken in a statement to BBD. "HEINEKEN does not agree with ABI's claims and we are confident in the merits of our case.”

One source close to Heineken thinks A-B "must be scared" of the BrewLock and Blade offerings to bring such an action. A distributor noted, "Harry, we have been selling Heineken Brewlock for two years now. Wonder why ABI sat on their hand till now?" However, one HUSA distributor quipped, "I hope they kill BrewLock, it's a tough program to implement."

WHAT IS THE TECHNOLOGY? As you know, in traditional two-way kegs, beer is forced out of the keg by pushing pressurized gas into it, usually CO2 or nitrogen, or even just plain air in pump systems. The "problem" with that is that not all gases are made equal, and sometimes tainted gas can make a beer taste "off".

The bag-in-a-bottle concept, as executed by Heineken's BrewLock (and now Blade countertop systems) one-way kegs, has a plastic PET keg on the outside, with the beer in a flexible plastic bag on the inside, so that when pressurized gas is applied, the gas never comes into contact with the beer, but still squeezes the bag and thus the beer out of the keg. In addition to claims of better and more consistent taste, it's also lighter and there are no deposits or cooperage returns, as the keg is disposable.

As our source noted, Heineken has been marketing this one-way keg on-premise for several years with BrewLock. However, ABI claims it has three patents on the technology and is suing in federal court to defend those patents, even though it has not marketed a one way "bag-in-bottle" keg to consumers in the U.S., they've marketed them elsewhere in hospitality and on cruise ships, where heavy cooperage is difficult to store.

It seems that Heineken's foray into direct consumer and counter-top applications with the Blade, announced in the U.S. in October (see BBD 10-31-2017) and holds a 24/12oz case equivalent of beer, have spurred ABI into legal action.


Until tomorrow,

Harry, Jenn, and Jordan


"Give people free markets and property rights, and you will be astonished by how much they will improve their lot - and ours." -William McGurn


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