BEER WITH A SOCIALIST: Three closely related and completely unrelated news items about craft beer growth — or not.

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The first sentence in a Brewbound report from the recent Craft Brewers Conference strikes me as accurate. At some point, “slower growth and increased competition” simply had to become new norms. With 7,000 American breweries in existence and 2,500 more in the planning stages, it would seem the time is now. Obviously, preconceived notions on the part of beer sales strategists are the first to be mangled.

CBC: Slowing Growth in 2018 was ‘Not a Blip’, by Justin Kendall (Brewbound)

Slower growth and increased competition are the “new normal,” Brewers Association (BA) leaders hammered home on the second day of the trade group’s annual Craft Brewers Conference (CBC).

“This is not a blip,” BA chief economist Bart Watson said during Wednesday’s State of the Industry presentation. “This is the new normal.”

Watson and senior vice president of the professional brewing division Paul Gatza took a deeper dive into craft beer growth numbers released earlier this month. According to Watson, craft’s 4 percent volume growth — about 1 million barrels — last year was the lowest per brewer growth rate since the late 1990s and early 2000s.

“This is where the pain point really is,” he said. “That’s not a lot of growth and many companies built brands and business models that built in the idea that there would be more growth than this.”

Watson suggested that brewery owners look beyond craft’s existing 13 percent share of the market to capture the other 87 percent of non-craft consumers. If they don’t, the per brewer growth rate will continue to decline, he added.

“If we can get 1 million new craft drinkers to drink one pint a week, that’s 200,000 incremental barrels,” he added. “Five million new drinkers drinking just one pint a week of small and independent brewed beer is a million barrels.”

Future growth is likely to be sliced up even more thinly as an increasing number of breweries open up shop. Last year, 1,049 breweries opened and an estimated 2,500 breweries are in planning, Watson said.

“This is a trend that’s not going away,” he said. “It’s a reality that everyone should be prepared for.”

Nevertheless, the 219 brewery closures in 2018 were an all-time high, Watson said. However, the three percent closure rate is still “shockingly low,” even if the number of closures are expected to rise as the industry becomes more competitive and new breweries open.

Over the last three years, 3,194 new breweries have opened. Much of craft’s growth is coming from those breweries that opened between 2015 and 2018. Last year, those companies grew by a collective 872,000 barrels.

As for breweries that opened in 2014 or earlier, those companies grew by just 105,000 barrels, Watson said.

Microbreweries (breweries making fewer than 15,000 barrels) continued to be the fastest growing set of breweries, Watson said. Those companies increased production 16 percent last year, to more than 5.8 million barrels. Meanwhile, brewpubs have maintained steady growth, increasing production 13 percent, to 1.6 million barrels.

The BA’s newly created taproom brewery class (companies that sell more than 25 percent of their volume on-site and do not offer significant food service) grew 40.2 percent — to 809,000 barrels in 2018 — and represented 24 percent of total craft growth.

Growth was flat for regional breweries (companies producing more than 15,000 barrels) last year, as those companies produced more than 18.1 million barrels. Watson called 2018 the “slowest growth for distribution of craft in a long time,” which he attributed to retailers not expanding shelf space and bars and restaurants not adding tap handles.

According to Watson, established brewers need to think about building “flagships of today and tomorrow, not of yesterday” in an effort to meet consumer desires …

The more breweries there are, the less sensible for them to try selling beer via the clogged three-tier distribution system, itself a concept mutating rapidly amid brewery self-distribution and tap room sales models.

In short, it quickly gets weird, because previously absent regulatory pushback begins emanating from the lobbies representing other alcohol sales venues.

In this article, a “craft beer store” franchise is beset with charges and countercharges. Is it a faulty franchise setup? Inept franchisee performance? Backlash against lesbian corporate ownership?

Maybe its the ongoing three-tier mutation itself. Recall that a century ago, blacksmithing no longer was a growth industry.

First, the introduction.

For some Craft Beer Cellar franchisees, it’s a bitter taste after jumping in, by Janelle Nanos (Boston Globe)

For nearly a decade, the Craft Beer Cellar in Belmont has been a beer lover’s paradise. Its founders, Suzanne Schalow and Kate Baker, placed a shrewd bet on craft beer just as it hit the mainstream and set about creating the country’s first national chain of specialty beer stores. They now boast 30 locations across the country.

“Our trinity,” Schalow said, is “amazing beer, hospitality, and education.”

But that early business acumen hasn’t translated into success for many of the franchise owners who were persuaded to buy into their brand. A number of franchisees say they raised money from friends and family, gave up a job, or sold a house to cover the costs of opening their own stores — only to now find themselves facing mounting financial pressures that may cause them to fail.

Aggravated relationships between the founders and some of their franchisees have boiled over into sharply worded e-mails and online screeds. The aggrieved franchisees accuse the owners of providing them with overly rosy financial projections, and of belittling them instead of offering guidance when the numbers didn’t pan out.

Last spring, the owners went so far as to sue 20 unnamed franchisees in US District Court for defamation for posting anonymous complaints on the website Glassdoor.

“The best advice I can give prospective franchise owners is to run,” said one of the postings, according to the federal court filing. “Most franchises are not profitable, and the majority wish they had never signed on.”

The Glassdoor lawsuit was dismissed, and in December, after a second attempt in court to stop franchisees from criticizing them online, Schalow and Baker, who are married, asked members of the Massachusetts Brewers Guild to contribute to a GoFundMe campaign to raise a $125,000 legal fund. Their request implied that some of their detractors were motivated by homophobia …

Then the passage that strikes me as most relevant.

“Bottle shops may be somewhat a victim of craft’s broader success,” said Bart Watson, chief economist of the Brewers Association.

Grocery stores now carry pallets of craft brews, and brewery taprooms are siphoning off bottle sales.

“Taprooms are changing the beer industry in an enormous way right now,” Schalow said. “Between breweries and taprooms, how does a store survive?”

At times it gets even weirder.

I’d missed the following controversy at Schlafly (thanks, J), but as usual Bryan Roth has it covered. It seems that the guy from the venture capital company that bought controlling interest in Schlafly melted down, went rogue and began distributing a paper newsletter maligning fellow brewers.

Old school paper, but new school slimy.

I’m told that original owner Tom Schlafly is putting together a package of investment to regain control of the brewery. He’s a classy man and I wish him well.

In keeping with the theme of preceding thoughts, perhaps the major factor in the Schlafly episode is stress: more expense, less volume.

So, why is this happening now? Things have not been good for Schlalfy, which had declines in barrel production of 13% in both 2016 and 2017, according to estimates by the Brewers Association. After reaching a high of 60,000 barrels three years ago, it was down to 45,000 last year. In fact, 2018 will be a third straight year of declines in IRI-tracked off-premise sales for the brewery. Through Nov. 25, Schlalfy had sold only 73% of the volume it moved in all of 2017.

Brewing always was a business. For a few years, we pretended it wasn’t. This column wouldn’t be called BEER WITH A SOCIALIST if not for the author’s classic disclaimer: “I’m a reluctant capitalist at best.”

It’s not a bad thing to wake up one morning and find yourself older, with something approximating perspective, and harboring far less pure adrenalin. More power and good luck to those of you still in the trenches, but I’ve no regrets for pole-vaulting out of them.

Schlafly’s Parent Company Apologizes After Executive Attempts to Sabotage 4 Hands, by Bryan Roth (Good Beer Hunting; December 9, 2018)

THE GIST

In a surprise announcement late Friday, The Saint Louis Brewery—the parent company that produces the Schlafly line of beers—issued a public apology to fellow St. Louis business 4 Hands Brewing. The apology was released in a press release that also revealed a former Schlafly executive made secretive attempts to sabotage the reputation of 4 Hands.

While not confirmed as the specific source of a print newsletter called Brew IQ in the Lou, James Pendegraft resigned as CEO on Wednesday, two days before the apology was issued. In a statement to the St. Louis Post-Dispatch, the company confirmed Pendegraft’s departure, but offered no additional information. In its public apology, Saint Louis Brewery wrote that the executive responsible had resigned, but didn’t name the person.

The anonymous newsletter was mailed to an unknown number of bars and restaurants and also included “deceptive online postings and a phone survey to local bars and restaurants in the first half of the year,” according to the statement.

In a column that has been identified by media outlets as specifically meant to call out 4 Hands, an anonymous Brew IQ writer tries to connect the brewery to the Me Too movement in a derogatory way, claiming with no evidence that “a certain large brewery’s dilemma of how to reposition itself continues to grow” because “[n]aming your brewery after a sex act provided at a massage parlor no longer feels as good.” It also claims that a beer made by the then-mystery company, now recognized as 4 Hands, was named “after the lube needed for such a service.”

“Leave glamorizing a pimp’s wad of dollars to The Deuce,” the column reads, referencing the hit HBO series. “Maybe it was all that gin? The ladies are becoming woke and are starting to ask questions. We’d like to give them a hand, but think the four are proving to be too many.”

These kinds of innuendos are not new to the beer industry, but still present an unfortunate side that is continuously being addressed by the Brewers Association and private companies alike.

“We were embarrassed to learn of these actions and sincerely apologize to 4 Hands Brewing Company,” Tom Schlafly, chairman of Saint Louis Brewery, said in a statement. “Such actions are inconsistent with the core values on which we were founded and which have defined Schlafly for 27 years. The craft brewing industry in St. Louis was built by a closely-knit group of breweries that mutually respect one another. There’s no question that 4 Hands has earned its reputation for community involvement, civic pride, corporate responsibility, and inclusiveness” …

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