Brewbound Podcast: Anderson Valley’s Kevin McGee on Keeping a Legacy Brand Fresh; Full Circle’s Arthur Moye on Building a House of Brands

[00:00:00] Justin Kendall: Is it Mango's year? We'll talk about it next on the Brewbound Podcast. Hello and welcome to the Brewbound Podcast. I'm Justin Kendall.

[00:00:18] Jessica Infante: I'm Jessica Infante. And I'm Zoe Licata.

[00:00:22] Justin Kendall: And this week, we will be running two more interviews from our Brewbound Podcast On Location interviews at the California Craft Brewers Association's California Beer Summit. We'll talk with Kevin McGee from Anderson Valley and Arthur Moye from Full Circle Brewing. So stay tuned for that. But first, how y'all doing?

[00:00:46] Brewbound Podcast: We're all right. We're good. We're good. We're good. We're both at Brewmound WebNet Global HQ today, which is nice to be together in person. And we kind of, you know, DIY'd ourselves a little podcast recording here because our friend and coworker, Nate, who does all of this for us is sick. So Nate, extraordinarily important person to have around.

[00:01:14] Jessica Infante: We built a great appreciation for everything that Nate does.

[00:01:18] Brewbound Podcast: We always appreciated Nate.

[00:01:20] Justin Kendall: One person goes down in the office and the whole operation collapses, right?

[00:01:24] Brewbound Podcast: I think all three of us are Emerson grads. Yes.

[00:01:28] Justin Kendall: Yeah. Yeah.

[00:01:29] Jessica Infante: Fellow lion.

[00:01:33] Justin Kendall: Well, I am a cyclone. Let's be clear there. And headed to the sweet 16. Congratulations. Thank you. In Boston, no less.

[00:01:42] Jessica Infante: Oh, I know. Lawrence brought it up this morning. He said, I can't believe Justin left. And now the Cyclones are coming here.

[00:01:50] Justin Kendall: It had to be this way.

[00:01:51] Jessica Infante: It did. A sacrifice you were willing to make.

[00:01:55] Justin Kendall: This would be a good time to visit BevNET Global Headquarters. Have a free place to stay on the floor of BevNET Global Headquarters.

[00:02:05] Brewbound Podcast: I mean, look, I have a delightful queen-size memory foam pull-out sofa for you in Salem, Massachusetts, if you're interested.

[00:02:12] Justin Kendall: That's all right. I am not making the trip.

[00:02:14] Brewbound Podcast: The train line has been wild and unpredictable. So yeah, that's true. Well, best of luck to the Fighting Cyclones.

[00:02:20] Justin Kendall: Thank you.

[00:02:21] Brewbound Podcast: The Orange Fellows are out of both tournaments, so I will adopt your team as my own.

[00:02:27] Justin Kendall: I appreciate it. Thanks for coming along. You are welcome on the bandwagon.

[00:02:31] Brewbound Podcast: Oh, thank you. Spirit fingers.

[00:02:33] SPEAKER_??: Yeah.

[00:02:33] Justin Kendall: Well, let's get into the news of the week, and we have spirit fingers for this transaction, this acquisition that went down, and that is Sazerac is buying Buzzballs. We just had Marilee Kick, the founder of Buzzballs, at Brewbound Live, and here, just a few months later, Sazerac is buying the company.

[00:02:53] Jessica Infante: Yeah, I think we should commend ourselves that we had Buzzball's as one of the potential, like, we had rumors of there's a deal happening and Buzzball's was on our list of who it could be, and it was. So well done us.

[00:03:08] Justin Kendall: We had a short list of about five brands that we thought this could be, and they're all not beer companies.

[00:03:16] Brewbound Podcast: Yeah. Yeah. I mean, like, the clue that we were given was it's a brand, not a brewery. This certainly is that.

[00:03:24] Jessica Infante: And I think all of our brands that we named were on that list of, what is that list called?

[00:03:31] Brewbound Podcast: Bain and Company's insurgent brands. Yep. That's it.

[00:03:35] Jessica Infante: They were all on that list. But something interesting about this deal, I mean, well, Buzzball's insanely huge and we're talk about it, but Ryan Lake from Arlington Capital Advisors posted about this because they're the ones that helped make this deal happen. And he said that it's a new benchmark for RTD partnerships globally. So like this is a major deal that kind of sparks what could potentially be future deals of like, here's the kind of thing you're looking for. This is what the future of RTD M&A is going to look like is big deals like this.

[00:04:06] Justin Kendall: I mean, this is the way that the wind is blowing at this point, as far as M&A transactions go. We're seeing fewer craft breweries getting picked up by major strategics. We're seeing more closures, bankruptcies, auctions, all the above related to just breweries in general.

[00:04:26] Brewbound Podcast: I mean, I don't want to say anything too untoward, but Ryan was at Brewbound Live. Merrily was at Brewbound Live. I don't know. Maybe come to Brewbound Live and your brand will get bought. Who knows?

[00:04:38] Justin Kendall: There's hope.

[00:04:38] Brewbound Podcast: No promises. No promises, but stranger things have happened.

[00:04:43] Justin Kendall: Well, let's talk about another strategic that has been an acquirer, and that's Tilray Brands. I caught up with U.S. Beer Division President Ty Gilmore and new CMO Prince Panakot, and they ran me through their full slate of new innovations. And some of these are new-to-world brands, which is kind of wild to think about when you've just acquired a bunch of craft breweries from Anheuser-Busch. But they're going in a lot of different directions. This is one of the busiest innovation slates that I've seen. And it includes Baby Shock Top.

[00:05:21] Brewbound Podcast: Baby Shock Top. A lot of the moves they're making for Shock Top to me make a lot of sense. And I'm glad you kind of went down the rabbit hole on this. I do have one beef to pick with them, and that is Shock Top Lit, if you're gonna call something L-I-I-T. You gotta go stronger than 9% alcohol by volume, but we can get into all of that. If you're naming yourself after the Long Island Iced Tea, I expect more.

[00:05:47] Justin Kendall: So that's exactly it. They're releasing a hard tea, and that's gonna be a tough place to play, but that's where they're taking this Shock Top brand. They said that they wanna inject some life into it. Another way they're doing that is they're adding Shock Top mango as a year-round offering, and they're bringing back its seasonal program.

[00:06:10] Brewbound Podcast: Yeah, and one of those beers was the pretzel wheat too, which I believe got a lot of love when, this deal brought Shacktop back to the national consciousness. But I have to ask, and I think you guys would know, and I'll do a quick Google too, but Blue Moon's other offering is mango wheat. So, you know, I mean, of the few other, you know, I feel like the Blue Moon portfolio itself is pretty slimmed down lately and strategically so, but Blue Moon mango wheat, it's interesting to me that they're just going right after it with Shacktop mango.

[00:06:43] Jessica Infante: Yeah, there's a bit of a theme with a lot of these innovations coming out of Tilray of being very similar to a lot of existing products.

[00:06:54] Justin Kendall: Exactly. And that speaks to their non-alc plays. One of them is a non-alc beer, Runner's High, and they're going to have three different styles with that, including a dark chocolate, which I kind of an eyebrow razor, but Runner's High, athletic brewing, you know, see what we're doing here. liquid love, canned water, liquid death. Like I see what you're doing there. 10 barrel pub cerveza going after the Mexican import segment. Then you've got 10 barrel pub ice clearly going after Smirnoff and then they're bringing high ball back to life, which was an energy drink, non elk energy drink. And they're going to make it a 10% FMB that's going to be sold in 16.9 ounce resealable plastic bottles, which is essentially an energy drink or sports drink, Gatorade, body armor, that type of vessel.

[00:07:50] Brewbound Podcast: Yeah. And your story, they even told you that the strategy here is to appeal to legal drinking age men who grew up drinking sports drinks. And I feel like that is the kernel of insight that goes into a lot of different flavor innovations. But this, I mean, I think it's the first time we've seen it so brazen with the packaging.

[00:08:13] Justin Kendall: Yeah, and that's what Prince pretty much said was, it's not necessarily style or flavor that drives a surge, I guess. It's packaging, he said. So, I mean, that's where they're playing here, and they say that they want to help build a category with beatbox, which is in the Tetra Paks. So, there you go. That's a deep sigh.

[00:08:42] Jessica Infante: Yeah I'm curious to see what happens with like if they're gonna get any blowback from existing brands that are similar to this like if there's going to be any sort of legal trouble here. I don't know how that works if it's going to be worth it for some of those brands but it's interesting that all of their innovation is really just kind of copycat-ish. No like shade to Tilray, but it's just very, very similar to existing brands.

[00:09:16] Brewbound Podcast: And some companies do this really well. They are what they call fast followers. Like Boston Beer would say this for sure, fast follower. But like, there's fast following and then there's plagiarism? I don't know if that's the right word for it.

[00:09:30] Jessica Infante: I mean, I guess you couldn't call it fast following because it's not like a lot of these brands that they're similar to are ones that have been around for a minute now at this point. It reminds me a lot of not anything to do with beverage alcohol, but in like fast fashion and stuff where there's the trending products that are out there and then you have the kind of more affordable or quicker to produce companies, make very similar products, and they tend to be almost more popular because they're more accessible or they're just marketed in a way that speaks to more people. So it definitely works in other industries. And I'm curious if because this is a company that isn't directly from the BevElk world, if they're trying to bring a different strategy or approach there.

[00:10:13] Justin Kendall: I mean, look at the 10 barrel sort of catchphrase with the pub beer, it's cheap fun. And that's kind of what they're doing with cerveza and pub ice is they're trying to be value plays compared to the market leaders.

[00:10:28] Brewbound Podcast: Yeah. And that's absolutely a place to occupy.

[00:10:32] Justin Kendall: Yeah. It's almost like, uh, Like the private label.

[00:10:36] On Location: Yeah.

[00:10:36] Justin Kendall: You think about private label and how they do it. And it's like soda was so big in like the 90s. You would see it. It would be like, I'm going to butcher them. But it's like Dr. Rocket, which is like supposed to be Dr. Pepper or like just the knockoff brands like that.

[00:10:54] Jessica Infante: Right. The entirety of Trader Joe's, which is just Joe's puns on brands that are very similar to existing brands.

[00:11:04] Justin Kendall: I mean, all stores do it, Aldi, all of them.

[00:11:08] Brewbound Podcast: I bought at Costco last week the Kirkland brand Sauvignon Blanc. It is delicious. And it's $7.50 a bottle. I will go back for more.

[00:11:18] Jessica Infante: Yeah. I had a conversation with my sister about her wedding planning this weekend and a trip to get some Costco alcohol was added to our list.

[00:11:30] Brewbound Podcast: Because it's pretty good. Yeah. I mean, it's usually like major producers making it for them.

[00:11:36] Justin Kendall: Let's do one more news story. And the Sheehan family, they continue to sell off some of their Kraft distributors. And the latest one is Kraft Connecticut.

[00:11:47] Brewbound Podcast: Yeah. I mean, this has been going on for a while. You guys covered this while I was out recovering from Baby Shark Top's birth. Mancini, which is a, you know, wholesaler in Connecticut and Rhode Island, bought the portfolio of Kraft Rhode Island over the summer. And this is pretty much like a copy paste of that deal for Kraft Connecticut. So a lot of, you know, big regional players in that portfolio. Down East. Others.

[00:12:21] On Location: There's more.

[00:12:22] Brewbound Podcast: It's just down east and that's it. Down east fiddlehead. Yeah. Lots of, of local craft brands. So I don't know if this deal involves any infrastructure other than, you know, brand rates. I'd assume not because how many warehouses do you need in a small new England state? But yeah, and it's all part of the deal to dismantle the she and family companies as part of that multi-generational rather salacious family lawsuit.

[00:12:53] Justin Kendall: Mm hmm. And credit to our friends at Beer Marketers Insights who first reported this. And I think they said five hundred thousand cases just kind of sign of the times here on consolidation in the middle tier and where craft is at this point.

[00:13:09] Brewbound Podcast: So that's like the second New England middle tier craft centric consolidation in a month. Right. You know, a couple of weeks ago, we found out that homegrown and Craft Collective were combining forces in Mass and Rhode Island. And all of these players are very craft-centric. So you gotta assume they can't keep every brand in the book. So just another way that the routes market is getting narrower and narrower for small craft producers.

[00:13:38] Justin Kendall: And credit to both of you for breaking that story while I was in Vegas at the Constellation Brands Gold Network Summit. All right, let's play Another Round of tabbing out. And we talked about Mango. We talked about Shocktop making their Mango a year round offering next to Belgian White. You've got Voodoo Ranger Mango 1985 coming back. I didn't even realize that, you know, they'd taken 1985 to the Mango side. I've seen countless other Mango products. I will say that I looked at the data for white claw mango hard seltzer, the single flavor SKU, and it was down like 11% in dollars in volume. But is this the year of the mango? Are you buying around or tabbing out on mango?

[00:14:28] Brewbound Podcast: I will buy around on mango. I enjoy it. As you both know, I love 1985. I think it's always been mango. This is just maybe the first time they're calling it out. But this isn't the first time we've seen the year of the mango. I know in 2016, Sam Adams Rebel extended with what was called Rebel Juiced, but it was mango. I don't really know why we couldn't just call it that. And there were a bunch of other mango beers out at the time. So we've seen this before, like eight-ish years ago. I mean, the thing about mango is that it's a flavor that's really popular with the Hispanic community. This can be a way to introduce your brand to that group of drinkers if you don't have anything else that will get you in front of them. But lots of people also happen to like it.

[00:15:12] Jessica Infante: Yeah. I'm going to get Another Round on it, just because I think it speaks to two different things that were already kind of happening in bevel. The first was last year was the year of the peach, and I think that's a pretty similar flavor profile, and so it kind of feels like a natural evolution to go, okay, people are into peach. The sweetness of it made me want to just slightly different, let's do mango. The second is when we talked about some of those flavor predictions at the beginning of the year, one of the most popular ones was the mix of sweet and spicy, and mango is one of the most popular sweet fruit flavors that gets paired with spice a lot. I think if you're looking at some of those, consumers are probably trying some of those products, like maybe some of those micheladas and stuff that have the mango and the spice, but maybe they want something that's not spice all the time, and so they're going to reach for the just mango product.

[00:16:03] Brewbound Podcast: Mmm, that was really smart. You're so wise. Thank you. It's a heen rim on a pint of 1985 Mm-hmm. I go home and do that today.

[00:16:12] Justin Kendall: You're giving them ideas delicious. We get a step giving this shit away for free First ones free actually all of them are free because it's a free podcast. Yeah All right. Let's get to our featured interview with Anderson Valley's Kevin McGee and Full Circle Arthur Moye.

[00:16:29] SPEAKER_??: I

[00:16:32] Justin Kendall: Hello, we are live. We are not live. Hello, we are pre-recorded at the California Craft Beer Summit. This is Justin Kendall with Brewbound.

[00:16:42] Brewbound Podcast: This is Jessica Infante, also with Brewbond. I also feel as though we should clarify that we are Alive.

[00:16:47] Justin Kendall: We are Alive, barely, but we are living. And we're joined right now by Kevin McGee, president and CEO of Anderson Valley Brewing Company in Boonville, California. How are you doing, Kevin? I'm good. Thanks for having me. Yeah, thanks for being here.

[00:17:01] Brewbound Podcast: Yeah, thanks for joining us.

[00:17:02] California Craft: No problem.

[00:17:03] Brewbound Podcast: Yeah, well, this is an exciting summit for you. It's your first one as a CCBA board member.

[00:17:08] California Craft: It is. It is a totally different paradigm for me. I have like zero spare time and I had a bunch of stuff I wanted to do this week. And so it's like, oh, well, this is what I'm doing now. So but it's been it's been fantastic, actually, in my first board meeting. I've been on committees for CCBA for a while, but got the first board meeting and able to actually, you know, connect with people on that other kind of level and then also be part of the summit in ways I haven't been before. So it's been it's been nice.

[00:17:33] Brewbound Podcast: That's great.

[00:17:35] Justin Kendall: So how are you feeling about how things are going for California Brewers?

[00:17:39] California Craft: It's been a brutal couple of years. And actually, the summit here has been a good opportunity to kind of be reflective about it and getting together with people. It occurred to me, it's like, you know, craft is such a collegial and community-based concept that during, you know, pandemic and everything, a lot of that, I think, damaged craft in ways that we haven't quantified or really even kind of talked about that much, just because you hadn't had those opportunities. But it's been like, I mean, four years, I think this week, it's been brutal. I mean, it's been brutal for us in particular. For folks who don't know, my family bought Anderson in December of 2019. So I had about 40 days to put in place a business plan before everything just got caught on fire. And it's like, well, I guess we're not doing that. So I came up with a bunch of other ideas, but craft is interesting. There's a lot of different segments of the California Craft industry that have got their own challenges. Some have been able to rebound and find strategies. I mean, a lot of the direct-to-consumer stuff was really a lifeline for, you know, kind of the smaller and brewpub-based folks. The mid-tier, heavily distributed folks like us are still struggling. There's a lot of access to market issues that we're still working through. And then the larger folks, the folks that have the more established priorities with larger distributors, have been able to do a lot of really good work in some of the larger chain placements and that kind of thing. So there's a very different experience for everybody, but nobody's come out of this thing without scars. It's been crazy. I was thinking of an analogy. I came up with an analogy yesterday. I don't know if I'm original or not, but I was thinking about climbing a waterfall is basically what we're really doing because you're kind of like in the middle of it. You can't really let go, but you don't know where the top is. Right now, we have kind of found a little spot to breathe. We're executing a plan we came up with at the end of last year, and it's going really well for us in particular. So hopefully that's kind of close to the top. But I have a feeling that is way too optimistic, and I'm too realistic to think. I'm like, oh, yeah, we're good. No, but I've got a lot of work to do. But right now, for the first time in a while, we're seeing, at least since you know, mid 2022 was really good for a lot of folks. And then it tapered off and it was almost like, it's like being a Bills fan. It's like, like everything seems to go well. And then, you know, it just kind of, you know, it's the hope that kills you kind of concept. And so 2022 looked good for a lot of people. And then 2023 was just aberrant. And now, you know, no one can forecast, no one can really plan, you know, with any kind of certainty. There's a lot of lack of confidence out there. Actually, that's one of the reasons why this has been great here is that being able to talk to people and there's like an emotional and like a community support system that's always been part of craft that this is a part of. And so, I mean, it's helping, but I'm optimistic for 2024, but you know, you never know. I mean, every day is a different day.

[00:20:38] Brewbound Podcast: You mentioned that you guys have been working a plan and you feel good about it. Can you tell us a little bit about it? What's working for AVBC right now?

[00:20:45] California Craft: Sure. We're a little bit different. I mean, like I said, you know, we kind of took the reins and then everything got shut down. So we spent all the time just controlling the things that we could control. So we've been refining, you know, what our portfolio is. We've been, you know, fixing sort of our pricing structures. We did a complete package refresh. We changed the way a lot of things that we were doing, you know, in the brewery. Like right now, we take orders on 21-day timelines and ship fresh beer within three weeks of taking a PO.

[00:21:15] Brewbound Podcast: Wow.

[00:21:15] California Craft: We've got our supply chain down to where I can pretty much dial in packaging within the window of getting a P.O. We move to all cans and cardboard. So there's a big sustainability reason for doing that and some other things. But it helps our supply chain because I can order, you know, sticker labels, you know, on two week timelines and I'm taking orders on three week timelines. So I don't have to carry a huge inventory of packaging or printed cans. And that's helped a lot with cash flow. And like, like a lot of like totally unsexy, like, you know, back of house things at the brewery we've been able to fix. But then the brewery really didn't have much of a consumer facing marketing function for, you know, 10 plus years beforehand. So we've kind of built that up from scratch. and just kind of getting out and doing things. And then one of the bigger, more impactful, but also unsexy things is just, you know, good distributor relationship management and a lot of meetings, a lot of talking with people, getting across, you know, who my family is, you know, why we're doing what we're doing. And we've simplified what we're asking of them. We've got one beer that we're introducing this year, and then everything else is just execution on all the things we've locked and loaded for the last like three, four years. really kind of in October we got tired of getting our butt kicked by 2023 and it's like okay how do we align all of this stuff schedule it out and make it a cohesive plan for 2024 and start it in January and so far that's been working for us pretty good we've got some some good partners with chains too which for the first time in a while also last year was Kind of the first time we kind of got, we were sort of locked out of trying to fix the chain situation that we inherited with Anderson Valley, and having meetings and then getting some good results last year got us some data to come back and then get some other results. And so that's starting to pick up and take off, but there just weren't meetings. There weren't the opportunity to do that in the first two years of the pandemic. So it just kind of had to sit there and sort of listen to old music for two years until we could find those meetings.

[00:23:16] Justin Kendall: You mentioned pricing. How have you approached that?

[00:23:20] California Craft: We are simplifying a lot of our pricing. So the pricing structures that we inherited were a little bit, you know, kind of, there was a little bit of creep over a number of years. Prior ownership wanted to, you know, take a nickel here and a dime there. So we just rounded things and made it easier for people to order our product, frankly. We have been holding price and we've been kind of consolidating in line pricing things also to make us easier to understand. And we're actually taking our first price increase April 1 in the last four years. So there are a lot of reasons for that. I mean, some of it is that some of the changes we did, we were able to recapture a lot of margin. So we could absorb some cost increases without fighting with raising prices and fighting volume decreases based on that. But we also were able to hold price because we had a pretty consistent you know, plan and program and a good idea of where our transactional cost accounting, you know, results were. And we were, you know, within what we needed to do. So now we're at the point where, I mean, we've got, you know, our, you know, I think Keg prices, you know, our Keg service prices went up 35% in the last three years. And then just other supply chain things have gotten to the point where they're in place and now mature and sort of stuck there. And the likelihood of them going down is, you know, I mean, Newton's law of prices is what goes up stays there. So we are taking a minor price increase on some of our packaged items. So it's probably about half of our package portfolio is going to come up and be line priced with the rest of it.

[00:24:48] Justin Kendall: And then portfolio, you mentioned that you're taking another look at that. What are you tweaking?

[00:24:53] California Craft: Well, we took the portfolio from about 46 different items, and now we're down to about 24, 25. And really what we have been communicating is just the priorities of about four different items and things like, you know, no heavy rotation. I don't believe in kind of the rotation business model for a business this size. I think you need to get the fundamentals in place. And then if that works, you have permission to go out and do goofy stuff. We still need to be bringing new innovation and different things too, and we do do that, but we kind of think of it as like about of a 10% focus and the rest of it we need to execute on flagships and fundamentals. And Anderson is particularly well suited to that kind of thinking too. Amber was the first beer that Anderson brewed in 1987, and it's been the number one beer at the brewery for 35 years. So that's, you know, it kind of, it fits well with the ethos and the way that, you know, I kind of think about the business in general.

[00:25:48] Brewbound Podcast: I bet your distributors are psyched about this.

[00:25:50] California Craft: Oh, they're so happy. Oh my God. Yeah. So we've, we've been able to straighten out our distribution in California Craft effectively. Our distribution, you know, here in our home state is way happier and way more functional than it's been in a long time. So we've got a lot of good stuff kind of going on at the beginning of the year. and really good engagement from our distributors too. So they're coming to us with ideas. They're engaging with our people in the field really, really effectively. I mean, they're all friends out there and stuff like that too. So that's been, if there's been one kind of, you know, real big win for us, it's been, you know, California distribution relationships and effectiveness.

[00:26:27] Justin Kendall: I don't know if this is a great segue, but you know, speaking of distribution relationships or lack thereof, you're involved in a legal challenge with Reyes.

[00:26:36] California Craft: Yeah, we've been in a lawsuit with the Reyes group for three years now. So we exited them a couple months after we got the brand and they were pissed. And they've got a lot of money. So they filed a lawsuit. And really, my view is they're trying to get a judge to define a California statute in a way that basically turns California Craft a franchise state because they can't get that from the legislature. And we were unfortunately placed in the position of being a convenient test case for them. They can spend a couple million dollars on legal fees because if they win, it's worth, you know, tens if not hundreds of millions of dollars of value on their balance sheet that shifts from the brewing community to the distribution community. And so it's worth it to take a swing of the fence.

[00:27:26] Brewbound Podcast: What's interesting to me about that is that they have benefited from California's lax franchise situation by moving the portfolio of a popular Mexican importer.

[00:27:37] California Craft: Yeah.

[00:27:38] Brewbound Podcast: to their own network. So I guess now that they've lined that up as much as they can, now they want to lock everything in place, I guess.

[00:27:46] California Craft: Yeah. I think it's just what is in their interest at the moment is also the thing. I mean, California is probably, I think in my view, the most vibrant and effective craft market in the country for distributors and for breweries. And I think the Two big reasons for that is, you know, one, it's not a franchise state. And two, you have the ability to self-distribute as a brewery. So what ends up happening is, you know, all of the breweries that are out there are effectively doing brand building and R&D for the larger distributors that can then come along and kind of pick from the winners. And it, I think, short runs, you know, a lot of the, you know, evaluation and brand building and, you know, smaller brand long tail of, you know, distributors that don't necessarily want to spend the resources, you know, kind of trying to fight upstream for that and really would just kind of want to work with the larger volumes. And just in general, when you think about any kind of consumer products distribution, there is a wholesaler tier, whether it's mandated or not. There's just a level of efficiencies where I cannot effectively get my product to market without using some professionals who do this for a living and are very good at it. And the dynamics of a free market economy mandate that there is going to be some sort of a wholesale function out there. The idea that it's got to be protected with, you know, laws from the 50s and stuff. And, you know, it's just, I mean, it's way overdue for being, you know, sorted out. Thankfully, in California, we don't have to deal with most of that stuff. But I go to other markets, too. Like, I eventually, it took me nine months to get out of a distributor relationship on the East Coast. And it was basically a franchise state. They wanted fair market value. So I went to the new distributor. He says, well, we're not paying anything for brands. I'm like, well, fair market value is zero because, you know, definition of fair market value on, you know, arm's length, you know, transaction between willing buyer and seller. They said, yeah, but we still want to get paid. So nine months later, finally, I said, look, you know, I'll sign a confidentiality agreement, pay you a dollar, you know, if it's the principle of the thing. So eventually I said, OK, how about a hundred dollars? Like, like, fine, done. So they gave me the release letter. I sent them, you know, a document saying, here's a confidentiality thing. I'll pay you $100. And they never sent it back. So they didn't even care. And in the meantime, you know, I got nine months of my brand just sort of being a zombie and just sort of deteriorating, deteriorating. In the market, that was a really key market for us. And being able to actually, I mean, the first challenge is being able to find another distributor that is a good fit. Consolidation has really limited that category. And one of the nice things about California Craft least there's some movement that's available to breweries, and so that results in some competition. But with recent consolidation, Ray's Group in particular that's doing it, there's been a couple other transactions too. A lot of that is for mid-sized breweries, craft breweries that don't have a larger portfolio with them or a collection of brands and that kind of stuff. There's not a lot of options out there. I mean, there's some really, really good ones and having a distributor that you can work with well is absolutely key. It's worth its weight in gold and God bless them. I love them too, but having a bad one is... you know, a frustrating thing where you're just watching your brand die and trying to get engagement and trying to get people to care. And it's like relying on a shared economic interest doesn't work anymore.

[00:31:13] Justin Kendall: Well, glad to hear that things are sort of on the upswing there.

[00:31:16] California Craft: Yeah. Yeah. It's been, it's, it was a lot of work. I should mention, I've been a lawyer for almost 30 years. So, you know, I have, I have, I have a bit of a headstart. I've been working in alcoholic beverage law for 25. And so I, you know, kind of know the, the, the landscape a little bit. I'm kind of like, no, that doesn't sound right when they tell me that I can't do that type of thing. And so, That's helped a lot, but we've done a lot of, you know, I think what would be considered fairly aggressive moves with our distribution network. The network we got was kind of wide and in some places shallow and some places dysfunctional and a lot of places fragmented. And so that's been a big project over the last couple of years too.

[00:31:53] Brewbound Podcast: How many states was AVBC in when you came on board?

[00:31:57] California Craft: I think it was like 43. That's a lot. Yeah.

[00:32:01] Brewbound Podcast: Yeah. And how many are you in right now?

[00:32:02] California Craft: We're still in about 40.

[00:32:04] Brewbound Podcast: Oh, OK. Wow.

[00:32:05] California Craft: Yeah. I mean, we added like one or two. We found some good partners in some places. Mostly it's been just trying to improve either the existing relationships or find better relationships. And it's not a distribution network that I would have built if I had the choice. It is pretty broad. It's a lot of work, but it's in place and it gives us the ability to do things like get national programs and be able to pitch some broader chain, both, you know, on-prem and off-prem things. And that's one of the reasons that we're kind of maintaining it. We have, you know, over time been reallocating our resources from the East Coast to the West Coast. And really right now, California, Washington, and Oregon are kind of back where they need to be in terms of proportions of our business. And it's just about 80% of our business between those three states.

[00:32:50] Brewbound Podcast: Wow. Wow. I mean, that makes sense. I feel like when a brewery has new ownership, as you did, that, you know, like maybe the franchise situation shouldn't always apply. Like, you know how like NCAA athletes, when you get a new coach, you're allowed to transfer and it doesn't affect your status. Is that a thing? Yeah. Yeah. Right. Like, I think that's, you know, that should be how it works.

[00:33:12] California Craft: Yeah. I mean, it's actually interesting because what we're dealing with with the case with Ray is actually kind of related to that. There's a statute that says if you're a brewery, and you buy another brewery, there's a process that can force the distributors to arbitrate, you know, what the exit is. Really what it is, is it's a mechanism to help the brewery force those two groups into a room and give them a timeline for sorting it out. It's being tried to be used as like a, oh no, I needed to, you know, I need to go through arbitration and pay them something. And there's nothing in the statute that has anything to do with the breweries. It's how the distributor should go arbitrate. But short of that, you know, there really aren't that many kind of restrictions. The counter argument, which is meaningful, is that if you have this long-term relationship as a distributor with the supplier, and all of a sudden this new owner kind of comes in or has a new project or something like that, I mean, there are really, you know, there's a lot of time and energy and resources that are put into training your people and, you know, knowing the roots and things. And, you know, it results in, you know, if there isn't some sort of relationship recognition that goes on there, you get stuff like what, you know, kind of happened with the blue cloud situation where, you know, all of a sudden this caused a bunch of other complications. And then the other side of it is that there is a regulatory reason to make sure that this is orderly and it allows, you know, the states to figure out where the excise taxes are coming from and kind of make sure that, you know, they're not dealing with people saying, well, this is my territory now and you have kung fu fighting in the streets of, you know, wherever, you know, about who can sell Voodoo Ranger, which would be a big fight, actually.

[00:34:52] Justin Kendall: What's the timeline? For which part? For your lawsuit.

[00:34:56] California Craft: So we finished the, so we asked the court and then the court agreed over Ray's objection to just talk about whether the statute actually applies to us. And the issue is whether or not we were a brewer at the time that we bought Anderson. And we weren't, and it's clear we weren't. But still, they're coming up with creative ideas to try and retroactively apply some of these statutes. So that part is what was heard. We had trial in January, and then it's fully briefed. And I think the full briefs went in Friday, last Friday. So now the court has everything it needs to make the decision about whether or not, you know, the statute would determine that, you know, we do get defined as a operating commercial brewery before we bought Anderson Valley. And, you know, if that's the case, we've got a lot of other arguments, too. But if we win that one, then the whole case basically goes away.

[00:35:43] Justin Kendall: Well, we'll be watching. So thanks for doing this, Kevin.

[00:35:46] California Craft: No, I'll let you know.

[00:35:47] Justin Kendall: Yeah, please do.

[00:35:51] Brewbound Podcast: Welcome back to the Brewbound Podcast On Location studio here on the trade show floor at the California Craft Beer Summit. I'm Jessen Fonte, joined by my teammate, Justin Kendall. Hello. Hello. And we've got a guest with us, Arthur Moye, the president, CEO, owner, founder, head honcho, guy in charge. Am I leaving anything out?

[00:36:15] Beer Summit: I'll take it.

[00:36:17] Brewbound Podcast: All right. Of Full Circle Brewing in Fresno, California. How you doing?

[00:36:21] Beer Summit: Good. Yeah. This is a great event. There's a lot of good people out here, a lot of good vendors, and it's good to see people coming together a couple of years after the pandemic. So it's on its way back.

[00:36:34] Brewbound Podcast: When we were out here last year for the summit and we did all of this, and my teammate Zoe and I talked with Adam, your Director of Marketing, and that was right before you guys had a big announcement. I believe, if my memory serves correctly. So, you know, Full Circle acquired Speakeasy last year. Tell us a little bit about that, what the impetus behind it, you know, how the integration's going, what your plan is to keep these two brands, you know, distinct and unique this year.

[00:37:05] Beer Summit: You know, kind of the background is, you know, we were running out of space to brew in Full Circle. So, you know, we reached out to Speakeasy to brew our Illa Vanilla Milkshake IPA. And just, you know, interacting and seeing the tanks and it looked like they weren't using all that capacity. You know, I think we just inquired, hey, we need equipment and, you know, maybe we can do some partnership and bring equipment down to Fresno. And that was the original idea. And it just really wasn't the right time. So two years went by and we re-engaged and they were kind of ready to, you know, move on. And I think Seth's ready to, know, unburdened of himself and go retire, you know, so just the right time. And we ended up just chatting and working a deal where, you know, Seth is actually an owner of Full Circle Brewing, you know, so he's a great mentor. Oh, really? Yeah, yeah. And, you know, we saw that there was an opportunity to kind of reinvigorate the brand And where we are now on that is really just earning trust back from the distributors. It's similar to Full Circle as it's one of the longest running craft breweries out there. Full Circle was established in 2000. But it's different because the name recognition is so great. You know, so the consumer is down, right? People are wanting to, they want a brand that they can trust. They don't want to currently with the economics and everything, they don't want to risk their dollars in what they're buying. So I think there's a lot of room for legacy brands in that way. So the trust that we're gaining is not necessarily with the consumer, but it's with the retailers and the distributors to keep them in stock. So that's what we've been doing over the last year. It's just making sure that they have enough beer. It gets there timely and they're out of stocks. And that's been, we've been experiencing a lot of growth in that way. So we really haven't hit innovation, you know, but that's our thing. You know, we, we, breathe new life and create a new brand within the Full Circle space and we want to do the same in the Speakeasy space, but there's so much room to get the products that Speakeasy is already known for out there on the shelves. Primarily Big Daddy, Prohibition, Mystic Haze, but we're big push with Big Daddy and it's interesting because it's going on a lot of taps that are permanent handles. And it's like, oh, it's back. That's what we say, daddy's back. And people love that. So it's not the rotational space. But then it's also allowed us to connect with distributors to bring the Full Circle brand in the more crafty rotational space. So it's kind of a win-win.

[00:39:47] Justin Kendall: Yeah. Well, Cess Buttner, really, you know, it's because of him that Speakeasy still exists to this point. I mean, he rescued that brand out of receivership, I think it was in 2018. And, you know, he kind of shepherded it along for a while. And now, you know, you're guiding it forward. So, Is the strategy to, you know, you say it's like winning back the consumer, does it start on draft? Is that primarily where those efforts are at this point? Or are you doing it in package as well?

[00:40:22] Beer Summit: Draft and package, definitely there is a lot of, you know, mandates and authorizations out there that they just weren't fulfilling on at the time. So I'd say right now it's probably 60, 40, 60% draft. With our distributor up there being Montegrano, they're also heavy draft. So a lot of draft, but a lot of room for off-premise too. 19.2s doing really well.

[00:40:50] Justin Kendall: And then the other piece, and I'm sorry, we weren't up to speed on this. It was sort of left hanging what was going to happen with the taproom space and that. Did you maintain that or did you let that go?

[00:41:01] Beer Summit: So the taproom space is there. It does have a speakeasy beer, but it is operated more as like a tap room with multiple brands on tap, you know? So it's kind of like an unofficial taproom for speakeasy. We want to find a space in the city where the brand can call home.

[00:41:22] Justin Kendall: So far as you've shepherded this brand together with Full Circle, you've got about a year under your belt. How have you found that the two interact and what have you found as far as overlap is with the consumer if there is one at all?

[00:41:38] Beer Summit: There's not too much overlap with the consumer. You know, I think that the way we've been able to most effectively separate it is by territory, right? So in the Bay Area, especially in San Francisco, South Bay, San Jose, and even North, we're really focusing primarily on speakeasy. And we've experienced a lot of growth because of that. Full Circle's in those houses, right? But when we go up to our ABPs, we wanna go heavy there, because we feel that's like the quickest way to move the needle, because it's just, the accounts are already there. We just got to inform them what's going on and there's very little resistance there.

[00:42:14] Brewbound Podcast: Are you aligned in all your wholesalers?

[00:42:17] Beer Summit: No, we're not. That's another way that we keep the separation actually and that's probably one of the biggest benefits in some territories. I mean, even locally within Fresno, we're in alternating distributorships and that's not totally by choice, but just by historical and how Seth aligned the distributorships. So we carried over 85% of what came from the original guys.

[00:42:43] Brewbound Podcast: And how big is Full Circle's footprint these days?

[00:42:46] Beer Summit: We're all over the state. So we have distribution, every metropolitan area. We've got decent sales in Fresno. It is our home market, you know. But up here in Sacramento, you know, is probably our number one. And then the Bay Area, I'm an alumni of San Jose State, is our number two. So number three is actually Fresno. that grows every day. And I think that that grows at a similar rate of just craft beer adoption to the mass consumer within Fresno. So we have, you know, a million people, but we don't have a million craft beer drinkers.

[00:43:21] Brewbound Podcast: Interesting. What nuances do you see between all these markets? Is, you know, one more C store heavy, one more draft heavy? Are there separations like that?

[00:43:29] Beer Summit: Oh, for sure. The Montegrano Bay Area territory, way more draft heavy. You can move a lot of product through draft. Makes everybody still, makes me still nervous with the whole, what happened with COVID and all that. But I definitely say Bay Area more draft and I'd say like locally more off-premise. So overall, I think we're probably 50-50, you know, once you average everything out.

[00:43:52] Justin Kendall: And it wasn't long before you did the deal for Speakeasy that you did the deal for Sonoma Cider. Yes, yeah. So what's going on with that brand at this point?

[00:44:02] Beer Summit: I think Sonoma Cider was our biggest learning experience, frankly. The nice thing is there is a desire for a drier, not as sweet cider that has a big name that belongs on tap. So without a lot of effort, we sell a decent amount of cider, and we're going to continue to lean into that. But we bought that brand, and then the next thing we said was, we need to learn how to make cider. Which is not, I don't recommend that. I don't recommend that. And then the brewers were like, we hate making cider. We're not making cider. So it was literally me and Adam, our marketing director, late night, making cider. On YouTube, figuring out. Yeah, YouTube. And the previous owners, you know, we paid some consulting fees. We got all their vendors, same sourcing, everything the same. And we just really leaned in and learned how to make cider. But another thing we learned is like, we didn't have the whole team bought in. On the speakeasy thing, all those ducks were in a row. Everybody was excited. Everybody was bought in. The marketing department knew it was coming down the pike. So it was like a full court press. And I think most importantly is we retained some original sales staff. In fact, the original founder, Steve Bruce, is our sales guy in that territory.

[00:45:25] Brewbound Podcast: Wow.

[00:45:26] Beer Summit: Yeah. Yeah, so he could authentically talk about the brand and the history. And he's just excited because we also earned his trust. He's like, yeah, yeah, we've been saying we're going to make sure we keep the product in stock. But we have been. So he's super motivated and doing a phenomenal job and is a great partner up there. Couldn't have done it without him. I mean, he's one of the first home brew shop owners in San Francisco. So he's a big part of the story.

[00:45:54] Justin Kendall: You became a house of Brad Avery quickly.

[00:45:58] Beer Summit: Yeah, we did. Thinking outside the box and being at the right place at the right time. And it's a common mode of growth for the big boys. So why can't we do it if you're creative on how you structure it? We don't have all the money in the universe, but we're creative, we're scrappy, and we're entrepreneurs. And I think with that, you can be creative to how you merge brands.

[00:46:24] Justin Kendall: Was that part of the vision, though, or was it just opportunities kept presenting themselves and you took advantage of those opportunities?

[00:46:33] Beer Summit: The original vision was I was going to retire from accounting and pour beer. So, no, it's just opportunity and just, you know, I'm an entrepreneur at heart. I want to see things grow. But yeah, opportunities present themselves and I think sometimes we look at things in different ways. Some people, it's like, okay, it's black and white, and I'm going to do this or I'm not. But we're always willing to come to the table and have a conversation. But we got to learn how to say no, and we've said no a lot because after you guys had that great coverage on the merger, we got a lot of people interested. We hear that a lot. Yeah, a lot. We're like, we better hunker down and make work what we've gotten ourselves into.

[00:47:20] Brewbound Podcast: What are you seeing in California that you think brewers in other states could learn from?

[00:47:25] Beer Summit: Really good, good question. I mean, I think, you know, off the top of my head, I'd say collaboration. It is unique in California that we have so many breweries and with so many breweries, there's like a diversity of people that run those breweries. So we're afforded the advantage to like, you know, find your tribe, you know, and I feel like that was a big part of me doubling down on this industry is that, you know, finding the people who think and do like you and finding a support structure. I think that's unique in California because there are so many breweries.

[00:48:02] Justin Kendall: So when you're looking at the market right now, what do you think is the biggest opportunity for Full Circle, for Speakeasy, and for Sonoma Cider?

[00:48:11] Beer Summit: Right now, I think the biggest opportunity for us is in chains. Frankly, I think the barriers to entry are getting higher and higher for new brands to come in chains. The barriers of entry to getting distributors who are chain focus is getting higher and higher. And thanks to some good timing around the pandemic, we're over that hump. We deliver on what we say, we listen to the consumer, and very important, we listen to the retailer. you know, is what they're looking for and what they see in the market. And we try and be partners with them and we're not telling them, nah, that's not craft beer. Well, you think that's craft beer? We got you. It's your craft beer. But we keep the spirit alive because we used to produce so many different varieties of beers by still having the experimental piece and focusing that on the independence. but really like consistent beer at good pricing with good programming and a team that can communicate is really what's going to push us forward this year. We're in a position where we have a lot of holes to continue to fill in. So that's where our growth is going to come from, you know, despite any kind of headwinds, which I honestly don't, I think they are headwinds, but I don't think, they're as strong as the doom and gloom at the moment. It's almost like a self-fulfilling thing. Everybody's communicating, oh, no, no, no. And then people will say, oh, no, I don't want to go in that space. And there's less breweries and there's less creativity because people are hunkering down. And then, you know, so it's kind of like sometimes when you say the sky is falling, it just starts falling.

[00:49:47] Brewbound Podcast: Funny how that happens.

[00:49:49] Justin Kendall: Well, in those conversations with retailers, what are they telling you that they want? And then, you know, what are some of those holes that you're filling?

[00:49:59] Beer Summit: Yeah, I mean, they they're definitely it's value. You know, it is about value. The 19.2 package is good. The 19.2 package high ABV is good. And the 19.2 package, followed by some additional smaller format packaging. Once people know that they love the Brand is good, right? You go, you try the 19-2, it doesn't hurt your pocketbook, it's $3.99. Then you go back and you see, hey, $13.99, I can share with my friends. I love this beer. That's a big part of what they want. Value, value, value. And then understanding that consumers are less about taking a risk right now.

[00:50:34] Justin Kendall: Well, this has been awesome, Arthur. Thanks for doing this.

[00:50:37] Beer Summit: Thanks for having me.

[00:50:38] Justin Kendall: And that's our show for this week. Thanks to Jess and Zoe for soldiering through. Thanks to our audio team, especially Joe. And thanks to all of you for listening. We'll be back next week.