Brewbound Podcast: Brewers Association’s Bob Pease on the Treasury’s Competition Report

[00:00:00] Jessica Infante: Heading to CBC? Kick things off the day before at Brewbound's meetup at Love City Brewing in Philly, Sunday, April 19th from 5 to 7 p.m. Connect with beer industry leaders, grab a drink, and catch up with the Brewbound team. It's free to attend and walking distance from the convention center. Head to Brewbound.com slash lovecity.rsvp. And don't forget to catch the Brewbound team at booth 956 during CBC. Next on the Brewbound podcast, the Brewers Association's Bob Pease drops by to discuss the treasury report on competition in the alcohol industry. Hello and welcome to the Brewbound podcast. My name is Justin Kendall and I am the editor of Brewbound and I am joined by Brewbound managing editor, Jessica Infante. What is up, Jess?

[00:00:57] Treasury Department: Not a whole lot. Actually, that's a lie. A lot of things are up. A lot going on this week. How are you?

[00:01:02] Jessica Infante: Very glad that I don't live in Utah if I want to drink some hard seltzers. Oh my God.

[00:01:07] Treasury Department: I'm like really glad I don't live in Utah for a few reasons, but that's definitely up there.

[00:01:11] Jessica Infante: I've heard it's lovely, but these alcohol laws, which we'll talk about here very shortly, not great. Also joining us is Brewbound reporter Zoe Licata. How you doing, Zoe?

[00:01:22] Brewers Association: I am doing great. How's it going?

[00:01:25] Jessica Infante: Good. Has spot paid you a visit yet?

[00:01:29] SPEAKER_??: Not yet.

[00:01:31] Brewers Association: I'm still always every time there's knock on the door. I'm always a little hesitant now, but he has yet to appear.

[00:01:37] Jessica Infante: You gotta be on your toes just in case exactly. Well, we talked about it a little bit up front, and Jess, you wrote about the story that hit on Utah hard seltzers and how the state legislature is thinking about considering taking away half and making them only sold, only available in the liquor stores, taking them out of the grocery and C stores.

[00:02:01] Treasury Department: Yeah, so as you can probably imagine, the state of Utah has some pretty wild laws regarding the sale of alcohol. And in a new bill that is making its way through their statehouse, this bill would make hard seltzers that use flavorings. I mean, I think, you know, we all know that hard seltzers use flavoring agents. Nobody's crushing real fruits to make these things happen. Flavoring agents can be made a couple of different ways, but some of them are made with something called ethyl alcohol, which is obviously alcohol, and Utah finds this abhorrent. Even though the use of ethyl alcohol in flavorings does not drive up the 5% ABV of the overall hard seltzer, it's just like a quirk in the production process of these flavors. There are other hard seltzers that don't use these flavors. They use, I believe, propylene glycol. So Utah would make all of the ethyl alcohol hard seltzers be sold in their state-run liquor stores. They would not be able to be sold in grocery and convenience stores the way they currently are right now. So that would be about half the hard seltzers available in the state. Notably, Truly's entire iced tea flavored line, those have the ethyl alcohol flavors. and 13 of Vizzy's 16 flavors. I went through the list that we found in the Salt Lake Tribune, checked it against Vizzy's variety packs. Their two, variety pack one, variety pack two, their fruit flavored seltzers, those would both be gone. All eight of those flavors do not meet the standard in Utah. And their watermelon lemonade, peach lemonade, and passion fruit watermelon flavors from their lemonade and watermelon, two separate variety packs, those get to stay. So we'll see what happens. I mean, if you're a hard sell tearmaker and the only option you have in the state of Utah is to sell at one of their state run liquor stores, which there aren't a whole lot, you know, maybe you pull out, who knows? We'll see.

[00:03:57] Jessica Infante: Yeah, this isn't great for variety packs. And you can almost imagine the reaction from the lobbyists for Molson Coors and Anheuser-Busch just saying, what now? Like, what we got going on here? And yeah, this is a new one. It's like, oh, these flavors in your variety pack are fine. But you know, we got to can't sell you these, at least not in grocery and C stores. I mean, it's just one thing after another in some of these states

[00:04:25] Treasury Department: And apparently their state run stores can't sell variety packs. They have to sell all items individually. So they break the packs down and then you can go in and mix your own is what somebody was telling me on Twitter yesterday. So who knows?

[00:04:37] Jessica Infante: You just get rid of 3-2 beer. Finally able to sell beer with an ABV of what 5% up to 5% in grocery and convenience stores. And here we go again.

[00:04:50] Treasury Department: Right. Well, the other thing I found was that they couldn't sell FMBs in grocery and sea stores until 2016. They called them Alcapops. Yeah. I don't know. I hear it's a lovely state to echo what you said at the top of this. It looks beautiful on the Real Housewives of Salt Lake City. I just, I couldn't be that far from an ocean. I'm not an outdoorsy snowy person and the liquor laws just sound like a hot mess. So I will stay over here in a state that has its own quirks.

[00:05:17] Jessica Infante: We know all states have their quirks and also it sounds like Alaska is trying to implement its own bit of quirk into its alcohol laws, which was apparently part of some type of compromise on a larger alcohol bill. But tell us what they're doing.

[00:05:33] Treasury Department: Yeah, I would love to know how they started that they landed on this is their compromise Alaska's got another omnibus alcohol bill working with sway through the state legislature. And as part of it, they would put a cap on the number of taproom licenses that breweries and distilleries can have. And it would be one license for every 12,000 people. Right now it's one license, one brewery, one distillery. So it's not like one or the other. It's like one license of each type for every 3,000 people. So this quadruples that cap. But the kicker here is that if you look at a list of Alaska's municipalities by population, there's only five that have more than 12,000 people living in them. So basically Alaska's going to have to become a one brewery per town kind of place.

[00:06:19] Jessica Infante: And I don't know, they've got 51 craft breweries right now, according to the VA. Yeah, that's what I was just curious about is how many craft breweries there are. And it sounds like if you're there, you're fine. But you know, if you're looking to open a brewery in Alaska, and you know, how many people are actually looking to open a brewery in Alaska? I don't know.

[00:06:39] Treasury Department: unsure.

[00:06:40] Jessica Infante: Probably not that many.

[00:06:41] Treasury Department: Well, yeah, yeah, there would be no cap on the number of breweries that can open, but there's a cap on the number of taprooms that can open and that, like, I don't know, if you're in a place like Alaska, I gotta assume the best model that would make you the most money with the least headache is taproom model.

[00:06:57] Jessica Infante: And that's what we know from Arrived, right Zoe?

[00:07:00] Brewers Association: Yeah, and majority of breweries in that survey that arrived in which they shared on the be a collab hour last week was tap rooms are the most profitable place for them for their sales. So that was skewed particularly for small breweries.

[00:07:16] Jessica Infante: Yeah, we should be clear. These are just bills that are in the legislatures in Utah and Alaska right now. They haven't passed yet, but they seem to be gaining a little bit of steam or at least getting news coverage. So things that we'll be keeping an eye on. Zoe, you also wrote about, speaking of hard seltzer and the issues that some of those are having, you wrote about one brand in particular, and that's Mass Bay Brewing Harpoons Arctic Chill. Tell us what's going on with that brand.

[00:07:47] Brewers Association: Yeah, so I spoke with MassBay's CMO, John London, and we talked about a lot of things happening with them. And one of that was Arctic Chill. In 2021, overall, MassBay's shipments declined 10%, and he credited the majority of that to struggles with Arctic Chill. They declined 50% last year compared to 2020. The issue that he credited those struggles with is that the hard seltzer space is all about what's new and whatever new brands are coming out or is what consumers are looking for. Artichill has been around since 2019. And so they just weren't standing out as much on the shelf. And so going into this year, They're going to try to put more focus on the partnership that MassBay has with Polar Seltzer, which is what created this Arctic Chill brand and focus on the local nature of it. They're going to try to bring in more flavors that are inspired by the beloved polar flavors, as London put it, and that's the innovation that they have is trying to focus more on that. No word if they're going to try to do any sort of like lemonades or teas or anything, but it's been a tough spot to try to make any sort of impact in that seltzer space.

[00:09:05] Treasury Department: But John told you they're really focusing on beer, like core traditional beer is really a big focus for them this year.

[00:09:11] Brewers Association: Yeah. So they're really going in particularly with like the Rec League brand from Harpoon is their big growth leader this year is what they want to be. They have two beers in that brand family right now. They have Rec League and Big League, but they're just trying to have that core beer focus is their goal for this year and getting away from some of those less traditional styles as they try to get some growth after a few years of struggles.

[00:09:41] Jessica Infante: Yeah, they pulled back on their cider brand too, right? They're making that just a taproom only offering.

[00:09:47] Brewers Association: Yeah. City Roots is no longer going to, is no longer distributed. So that's going to be only at their two taprooms, the one in Boston and one in Vermont.

[00:09:56] Jessica Infante: And they've got a non-ALC beer coming, which just about everybody does these days. So we'll see how that's going. Our last bit of news that we'll hit before we get to our first of two featured interviews is Heineken reported its full year in Q4 earnings last week. And sort of buried in the report in an SEC filing is that they took a $231 million impairment charge on the Lagunitas brand. And this is the second impairment charge that Heineken has taken on Loganitas. Last year, it was $279 million. An impairment charge is essentially a write-off on the value of a brand. We saw this before with Constellation's purchase of Ballast Point, which is no longer in the Constellation portfolio anymore. And I mean, this amounts to about half of that. $1 billion purchase price that Heineken paid, or a little more than half, I should say, of that purchase price. We're going to talk about competition and probably M&A in a little bit with Bob Pease from the Brewers Association. But you can see where some of these major craft acquisitions didn't really pan out the way that some of these companies thought that they would, and you end up you know, writing down the value of a brand. And Loganitas, we covered it. They've really revamped their portfolio. They've taken it back to IPAs and Disorderly Tea House. They're a hard tea brand that they've got coming and non-alcohol offerings. So that's what's going on there.

[00:11:32] Treasury Department: Wow. Like what a devaluation.

[00:11:34] Jessica Infante: Yeah.

[00:11:36] Treasury Department: Can I make a shameless self plug?

[00:11:38] Jessica Infante: Yeah.

[00:11:39] Treasury Department: So on the topic of our friends at Mass Bay Brewing and Harpoon, I will be making an appearance at their taproom on International Women's Day, March 8th, in a panel to talk about what it's like to be a lady in the beer industry, hosted by their digital director, Megan Wilson. And we'll also have Katie Stinchin, the Mass Brewers Guild Executive Director, and a few other women from Massachusetts talking about that. My speaker fee is a pretzel. A good pretzel.

[00:12:06] Jessica Infante: You need to raise your rates.

[00:12:08] Treasury Department: It should be a good time.

[00:12:10] Jessica Infante: So. So let's get to our first of two interviews. Joining us now is Jordan Breslauer, VP of Data Analytics and Customer Experience at Social Standards, a social media monitoring and marketing firm. Jordan, thanks for joining us.

[00:12:29] Bob Pease: Thanks so much, Justin Kendall appreciate it.

[00:12:32] Jessica Infante: So Jordan, you're here today. We wanted to talk to you a little bit about the conversations that were going on around the Super Bowl on social media. And it takes a little bit for that data to come in. And here we are a couple of weeks or a week or two later. I can't even remember when the Super Bowl was at this point. But you've been tracking the social conversations around the Super Bowl for several years. Looking at this year, what's your big takeaways from the conversations that you saw on social media?

[00:13:01] Bob Pease: Yeah, I mean, other than it being a great game, I think there's a number of interesting insights that you can gain from a social perspective. So first of all, at a high level, a lot of what I'm going to be talking about today crosses both Twitter data and Instagram data. A majority of the conversations, though, around the Super Bowl are going to take place on Twitter. related to beverage alcohol. So what we saw is in terms of volume on Instagram, we saw stability year over year in terms of the number of Super Bowl related posts. On Twitter, we saw a small drop of around 10% in conversation volume. Now, what I think is one of the most interesting insights that came out of this is in terms of what are the different types of alcoholic products that were spoken about alongside the Super Bowl. This year relative to last year and one of the categories that we saw rise in prominence within the conversations was beer both craft and regular like pale bloggers and light loggers. They both rose in volume within Super Bowl conversation. In addition, a smaller category that we saw rise up relative to last year within Super Bowl conversations is prepared cocktails. And that's really interesting when you consider the other side of this diagram, which is that hard seltzer conversations within Super Bowl are down about 30%. In addition, we also saw wine and spirits also dropping off a bit within the conversation as well. So certainly an interesting shift we're seeing from wine and spirits towards an increase in beer and a shift away a bit from hard seltzer towards prepowered cocktails. That's pretty interesting to note within some of the general Super Bowl conversation we saw this year.

[00:14:55] Treasury Department: You know, Super Bowl campaigns come with huge price tags, and sometimes that plays out and sometimes it doesn't. So how do you define success from the campaigns from a social listening standpoint?

[00:15:06] Bob Pease: Yeah, you know, it's funny because I think back to some of my previous days at Nielsen, where I led a product initiative around Super Bowl ad measurement. And simply put, one measure alone is not sufficient in measuring Super Bowl ad success. There's a number of factors one needs to take into account from ad memorability to brand recall to likeability. And then also the social metrics, both volume of conversation, but also views on YouTube and Facebook, et cetera, that contribute to success. And so the rising price of these ads, of course, means that the bar for success has been raised. So when it comes down to social, which is one element of it, I think it's not only important to consider the number of conversations that are generated around these brands, but also what is the lift in conversation relative to normal times. So if I took all of the average posts per days that these brands generate from consumers during the last 365 days, and I compared that relative to what they generate on the day of the Super Bowl or on the week of the Super Bowl, those lift measurements are core for measuring the success of a brand. You also want to outdo your competition, right? Of course, Anheuser-Busch contractually dominates the landscape of Super Bowl advertising from a beverage alcohol perspective, but there's even competition within those brands. And so when you're measuring the success of one of these brands, they want to outdo the others, particularly within the beer category or in the beyond beer category in terms of metrics like total conversations.

[00:16:51] Brewers Association: While you're looking at how these changes are happening with the Super Bowl, does it matter necessarily if these are positive conversations? Like the idea of any publicity is good publicity. When you're looking at these metrics, does it factor in at all like how people are taking in those advertisements and their responses? Or is it just generally if they're talking about them at all?

[00:17:16] Bob Pease: It's a really interesting question, and I think over the last probably about 10 years, the dynamic, even about the last five years as well, the dynamic of publicity is a bit different in terms of where it occurs and when it occurs. So back, if you think about when people didn't used to post the ads in advance of the Super Bowl, so much of the reaction would happen on the day of the event. We were being exposed to these ads in real time, and then we would react on the spot. We'd react within our social groups in the social setting that we were in at that moment. But now, The advertising landscape in the Super Bowl is expanded, goes over the course of a week, even in the days after the event itself. And much of that conversation reaction often happens on YouTube and Facebook in the comment section. And so, In those places where the dialogue is very concentrated and in reference to that specific video, you will see people go back and forth and there are certain ads that can get more positive publicity versus negative publicity. In the Bev-Al category, at least this year, you didn't really have much controversy. A lot of these ads went in the humor direction. There wasn't ads that were really making a more politicized statement, which are ones that generally get the greater polarization. That said, of course, people could find things more funny than other things, find other things not as funny, but the majority of the time, I would say. People are going to be posting more often about the things that they find funnier, which is why you can look, I think, at more at the lift metric than even some of the sentiment-related metrics. But in my opinion, here for Social Standards, we're analyzing Instagram and Twitter conversations. We also have the ability to analyze Reddit and soon-to-be TikTok conversations as well. A lot of the publicity related topics, in my opinion, are very much Facebook and YouTube comment driven. And that's when you can get at whether the reaction to an ad carries a greater degree of positivity or a greater degree of negativity within those particular conversations. And to me, Sometimes it comes down to just looking at that up versus downward thumb indicator on YouTube of gauging whether people's reaction to the ad was positive or negative. It's generally a pretty decent indicator.

[00:19:56] Treasury Department: So Jordan, you mentioned how things have changed in recent years where we're no longer seeing commercials for the first time during the game. They've often been released in the weeks leading up to it. How has that changed conversations? Do people talk about them more? Do we talk about them less? What does the social landscape look like in a world where Super Bowl commercials get like the movie trailer treatment?

[00:20:19] Bob Pease: Yeah, so our database is 26 months rolling. So in terms of looking back here, we really have about three Super Bowl that we can look at in order to gauge that. And I would say, in terms of the advertising landscape over that period of time, there's been some consistency, right? This idea of early release has been going on for some time. So I can't actually comment on that from this data. But going back in years of experience of measuring Super Bowl advertising back to my Nielsen days, one of the things that I've noticed is that the longer the period, the more conversations there are across that period around the ad. But it takes away the importance of that specific day. In terms of seeing a huge, huge bump in the conversations relative to the rest of that week, you might not see that same sort of lift relative to all other time periods. Of course, you might see a big lift on the day of. I think that actually connects back. I'm sure you guys are curious about hearing some of the winners and losers in this year's Super Bowl. And I use that term, of course, lightly. Let's start off with the winners. The ones that we saw generating the biggest lift relative to the Super Bowl time were Michelob Ultra and Cutwater Spirits. And the big theme amongst those two ads is that both of them ran contests with hashtags that directly related to calls to action. And those calls to action kind of differed between the two. Cutwaters was, I believe the hashtag was called hashtag how do you cut water, and that was asking people to describe things using just emojis. And that drove a decent amount of conversation, particularly above what they normally would expect. And then for Mikkel of Ultra, they use the hashtag Ultra Bowl. And even in certain points in the giveaway, they quiz people on certain aspects of what appeared in the commercial. So what flavor of Michelob Ultra was Alex Morrigan holding. And those questions that were part of this contest really helped to drive day of conversations, which was different from conversations around those brand throughout the Super Bowl week, because the contest only ran on the day of, as opposed to in the days leading up. So I think in terms of social strategy for these brands in terms of what's going to drive a socially successful campaign, there has to be something beyond just the lead up that really helps people to focus on the call to action on the day of and helps to drive that additional conversation during the actual game as opposed to just during the lead up.

[00:23:17] Jessica Infante: You mentioned the performance of Kraft during the Super Bowl and, you know, we had a regional ad for Boston Beer's Samuel Adams brand. But other than that, there wasn't really a Kraft focus during the commercials. So how much of that conversation is organically driven?

[00:23:37] Bob Pease: Yeah, great question. So let me just address the point around Boston Beer first. What we can measure is what percentage of conversations mention particular topics. So all Boston Beer conversation in the month of February, only 2% made some sort of reference to robots or the ad itself. So it's not a huge percentage of the conversations within the month of February. But let's kind of take a step back. And one of the initial insights I talked about was what are some of the general types of alcohol products that are talked about alongside the Super Bowl. And I was really focused on Instagram conversations, because what's really interesting about Instagram is it gives an understanding of the moment of consumption, the moment of experience, as opposed to Twitter, which is sometimes more reaction to news and events, which makes it a good place for looking at the ads. Instagram might just be like, hey, this is what I'm drinking and eating while I'm watching the Super Bowl. And so seeing an increase in craft beer conversation and seeing craft have a decent percentage of those conversations is an indication of people potentially consuming those products at the same time as they're watching the Super Bowl. And that isn't in a very much in and of itself organic, particularly if those brands aren't doing much advertising. It just shows that there is an increase in beer interest and potentially consumption around the Super Bowl. And that seemed to extend itself not only to the mass market beers, but also to the craft category as well.

[00:25:10] Treasury Department: Where does the Super Bowl rank in terms of social conversations around alcohol compared to other key drivers throughout the rest of the year?

[00:25:17] Bob Pease: In terms of The percentage of total alcohol conversation that the Super Bowl takes up on that day and week of it gets to around five to ten percent of total alcohol conversation on social and Twitter and Instagram. Certainly a large event, there's no doubt about it, but when we think about in comparison to other things, you know, Christmas is a huge one that we see as an event, you know, it's much more of an extended holiday where we see the presence of Christmas within social conversations out clips out of something like the Super Bowl. And then there's other holidays that do also get large bumps, something like Father's Day, July 4th, Memorial Day. Some of those different holidays are ones that we see big increases. One of the interesting things, of course, is it's very category dependent. You know, of course, with something like whiskey, you'll see huge, huge increases around St. Paddy's Day. Or for beer, you'll see huge, huge increases around July 4th. In terms of every category, they have their different holidays where things spike and where things don't spike as much. But in general, the Super Bowl is certainly a big day. There are other holidays that have similar, if not higher, percentages of the alcohol conversation on social when they happen.

[00:26:50] Jessica Infante: So one last question for you, Jordan, moving beyond the Super Bowl, looking ahead to the rest of the year, what are some of the signpost moments, the signature timeframes that you'll be tracking in the coming months?

[00:27:04] Bob Pease: Yeah, I think a topic that's really on a lot of people's mind is this blurring of the hard seltzer category and the beyond beer space. I think one of the big things that we're looking at right now is how prepared cocktails is eating into both the beer category and the hard seltzer category. In particular, you're seeing all these new entrants into prepared cocktails that are non-alcoholic brands. All of these different partnerships between Constellation and Coca-Cola bringing new products like Fresca prepared cocktails in the market or even the new partnership with Mountain Dew, where Mountain Dew is bringing hard Mountain Dew onto the market. So seeing what are going to be the success of some of these different new entrants relative to the mainstays in the category like a Cutwater Spirits or like some of the other hard seltzer mainstays like White Claw. How are these brands going to eat into those share and are they even going to be successful? Topo Chico hard seltzer has been quite successful so far because people thought of Topo Chico as something that mixed with alcohol. Before Topo Chico became a hard seltzer, people were making cocktails with Topo Chico. In contrast, what would be really interesting is to examine some of these other new entrants to the category that maybe people don't have that same association between that non-alcoholic beverage product and the alcohol category. Do people associate Mountain Dew with cocktails to the same degree that they associated Topo Chico with cocktails? I think the relational answer to that question that can come through social media is going to be really important for the consideration of future success of these brands within the marketplace.

[00:29:08] Jessica Infante: Awesome. So that's something that you'll be tracking the rest of this year and that we should be watching out for reports on?

[00:29:16] Bob Pease: Absolutely. Absolutely. Definitely something we're going to be exploring in a lot of detail.

[00:29:21] Jessica Infante: Thanks for the time today, Jordan, and stick around for our second interview with Brewers Association President and CEO Bob Pease on competition in the brewing industry. The Treasury Department released its long-awaited report on competition within the alcohol industry earlier this month. Among the groups that praised its findings was the Brewers Association. Joining us today to discuss the report and where we go from here is Brewers Association President and CEO, Bob Pease. Thanks for joining us, Bob.

[00:29:54] Jordan Breslauer: My pleasure, Justin. Always good to be with you and the team here at Brewbound.

[00:29:58] Jessica Infante: Now, we're happy to have you back. And now we've got this report in our hands about what, six, eight months after the Biden administration released that executive order calling for a review of competition. So I'm curious to get your takeaways on this. because I read through the 62, 64 pages of it. And there was a lot of citing of what the Brewers Association put out there. I was reading all the little footnotes that reference back to the BA. So not surprisingly, you're pretty, I imagine you're pretty happy with the results here.

[00:30:37] Jordan Breslauer: Well, in short, yes, but guardedly so, right? You know, we certainly would have preferred more definitive statements. coming out of the report, but for us, the report reflects the marketplace realities for small brewers. The content that was in our comments, we did two rounds of comments, one in August, one in September. It was great. It was very heartening to see that a lot of those comments were included in the report, but this is not anything new for us. And you can go back to my testimony in front of the Senate Judiciary Committee in 2015. And a lot of what I said there has come to pass. And some of that was recognized in the report. This is the U.S. Department of Treasury saying this, man. This isn't, you know, it's not a media outlet. It's not an association. This is the federal government. So Yeah, we think it's a fairly big deal, and we're pleased, and we also think it recognizes the growing political influence and stature of the Brewers Association.

[00:31:54] Jessica Infante: You mentioned those 2015 comments, and here we sit in 2022, we have this report in front of us. What are your expectations for what's ultimately going to come of this? Are we going to see some action actually take place? Like, how hopeful are you that something will change coming out of this?

[00:32:15] Jordan Breslauer: Guardedly optimistic would be how I would characterize my sentiments as to what's going to happen. Recognize there's a lot of work, a lot of work to be done. A lot of this work is going to have to happen at the state level, right? So we're going to try to work with the guilds and make sure they understand the contents of the report, which we've already pushed out to them, and then how they might be able to use it to work with their state legislators to impact change. Because if Congress had said, make this a rule or make this a law, that would have been subject to probably legal challenges down the road. So, you know, they kicked some of it down to their friends at the state level. We'll be, you know, through the years, we, you know, through this administration, we have developed allies and advocates within the administration. So we're going to work with them to, you know, see if we can put some, you know, maybe some finer, finer edges, finer points to the report, and maybe make some of these things actually actionable.

[00:33:28] Brewers Association: A lot of this has to do with things that are going to be on the state level. What kind of challenges does the BAC with that? And how much weight does this report have when those things aren't necessarily a federal decision, but more of a state decision?

[00:33:43] Jordan Breslauer: I mean, it's somewhat where you could say, Zoe, this is a little bit like letting the policymakers, letting the genie out of the bottle. You know, it's these anti-competitive practices in the marketplace seep into public consciousness and particularly among policymakers. I think there will be incremental change. The wheels of justice and the wheels of federal and state government turn slowly. But in my opinion, yeah, we will start to see some incremental change from this. The issues that were called out about state franchise laws or direct-to-consumer sales, clearly all has to be done at the state level. But again, for us to be pointing out what we feel are the anti-competitive aspects of existing laws around those two subjects. That's not anything new for us. This is something we've been pointing to for years. And all of a sudden, you got, I would like to think that Treasury Department of Treasury is an independent arbiter, right? And now you've got them saying, hey, we should be taking a closer look at this stuff.

[00:34:47] Treasury Department: Let's stick on the state level for a little bit here. One of the things that struck Justin and me quite a bit when the report first came out a few weeks ago was this particular quote where the report recommended that state legislatures, quote, consider if the benefits of the three-tier system outweigh its cost to competition and study markets without a three-tier system. Now, has that ever come up before? What could be the pros and cons for craft brewers if some states went that route? But that's, to me, that red is a big deal.

[00:35:17] Jordan Breslauer: I can tell you that comment was not from us. I mean, you guys, the same old refrain from us, right? We support the three-tier system, but we don't think it should be a straightjacket. It should be an evolving doctrine. And that's why people get so upset, so frustrated with the three-tier system because there's never any give. Take direct consumer shipping. It is 2022. If wine can deliver their product to the consumer in 46 states safely and responsibly, don't tell me that beer can't. Don't hide behind, oh, it's, you know, we're acting in the interest of public health. Give me a break. We're at what, 11 states and DC? Yes. Yeah. And you know, we go up against the wholesalers in every state where there's a direct consumer piece of legislation introduced into a state legislature, they come out and force against it. Now, if they were a bit more reasonable and accommodating or flexible, then I think that frustration with the three tier system where this question originated, I think would be dissipated. But Yeah, there are members of ours, you know, because you guys know the comments weren't just with trade associates. I mean, there were hundreds of comments submitted. Yeah, we have members that want to blow up the three-tier system. We don't agree with that. But it is frustrating when there is absolutely no flexibility. And I think everybody on this call knows that the amount of beer that would be moved through direct-to-consumer shipping if it was legalized in all 50 states, is minuscule, right? It's not going to be people, you know, for the most part, purchasing the flagship IPA from Jess's or Justin's brewery. It's going to be people trying to get the one-offs, you know, the 750 mils, the seasonals, the ones that, and in many cases, the SKUs now that are not getting picked up by distributors that would benefit from direct consumership.

[00:37:30] Treasury Department: I think we could all agree craft beer would not exist the way that it exists today without the three-tier system. So it's not that anybody wants to destroy it, but yeah, you're right. It shouldn't be a straitjacket.

[00:37:39] Jordan Breslauer: I think some people that submitted comments wanted to, but that is not our position. I've said it many times publicly. I'll say it again here. The VA supports the three-tier system. We think it should not be a straitjacket. It should be an evolving doctrine that adjusts to the marketplace realities of the times.

[00:37:57] Treasury Department: So one more, you know, nitty gritty thing that came out of the report, and then we can zoom out a little bit and get to the bigger picture here, but something that came up in a lot of comments was category management. And, you know, we've seen increased trade practice enforcements by the TTV in recent years. And this report really talked about category management quite a bit. How do you see this ultimately playing out on retailer shelves?

[00:38:19] Jordan Breslauer: You can make the case that category management provides a valuable service. I don't necessarily believe this, but some would say, you know, it'd be worse for craft if there was not category management and category captains. There needs to be a level of independence injected into category management. And when the category captains are usually from the top two largest suppliers, that just doesn't pass the smell test when it comes to independence. Do you really need a 30-pack, a 24-pack, an 18-pack, a 12-pack, and a 6-pack of the same brewery's brand at the expense, potentially, of the small independent local producer. For us, that is quintessential supplier push. And we think the most competitive landscape and what really the consumer, the beer drinker wants is consumer pull. Now, let's stand on the merits. And if 30-pack outsells the You know, the suitcase outsells the six-pack of the high-end craft beer, and so be it. Our members are not afraid to compete, but when they get squeezed out of even competing on, you know, off-premise shelf or on-premise tap handles, that's when we cry foul.

[00:39:38] Jessica Infante: It's also interesting that they brought up tying as well. That seemed to be something, you know, saying you have to buy X product to get this more desirable product. So you gotta take something that you essentially are gonna struggle to sell to have this more, I guess, you know, sometimes it would be like limited release stuff that you know is gonna move quickly, stuff that consumers line up for. So it seemed like they were also mentioning a lot of practices that are almost unspoken agreements out there.

[00:40:15] Jordan Breslauer: If my colleague Mark Serrini were on this call, he's more familiar with, say, some of the TTB investigations and the offers in compromise. I know there have been breweries that have received fines. for that type of practice of tying the poor seller to the strong performer. We want more in trade practice enforcement. We want TTB to really focus on where trade practice should be focused. We don't want them going after small wineries for consignment sales. We want them looking at the big stadium deals, breweries, big and small, paying for cap handles or draft systems and you know, then leveling fines that are commensurate with a business's size, so they act as a real deterrent.

[00:41:07] Jessica Infante: Right now, that's not happening. Well, and that's something that's stuck out as well in this report is there's a note from the treasury that said the TTB should use discretion to temper enforcement against entities lacking market power. And that would seemingly say to back off on enforcement actions against potentially smaller brewers. In some situations, you mentioned smaller wineries in consignment sales. That's how I read it. But how did you read it?

[00:41:38] Jordan Breslauer: Yeah, I read it the same way, Justin, but we don't think small independent brewers should get a pass if they're not following the law. Label the rules, follow the law. It starts there. Every craft brewery I've ever worked with, our board of directors will tell you tales of competitive brewery reps going into an on-premise account and doing the credit card swipe where they buy a dollar, leave a $200 tip, and then all of a sudden their beer gets on draft the next day. That's not cool. And we should do what it takes to put an end to that practice, large or small. Everyone's got to play by the same rules. We don't have any quarrel necessarily with the rules as they exist. We want them more consistently enforced.

[00:42:23] Brewers Association: Well, with that comment of them seemingly wanting to focus more on these entities that have more market power, do you think that could lead into them wanting to maybe go more against certain mergers and acquisitions that we've seen in the possible future? Are they going to be a bit more stringent or looking more cautiously at these combinations of brands that we've been seeing?

[00:42:47] Jordan Breslauer: We would certainly hope so. It's possible that if this current administration were running antitrust in 2015, that ABI acquisition of SAB Miller would look a whole lot different. Did the acquisition itself not really alter ABI's market share? No, it did not. But we pleaded and pleaded with Treasury Department of Justice. We met with them many times in person in DC, and we pleaded with them to take a look at the impacts the acquisition was going to have on distribution, that beverage alcohol is different than pick your industry, high tech, meatpacking, what have you. And by and large, those predictions have come to pass. But do I think, Zoe, they're going to go back and unravel ABI's acquisition of SAV Miller? No, I do not. Do I think they're going to go back and unravel ABI or Molson Coors' acquisition of formerly small and independent craft brewers? No, I do not. Will they take a closer look? hopefully at not only large brewer acquisitions of small brewers, but the horizontal acquisition that's running rampant in the distribution tier. That is not good for anybody in the beer business. I guess unless you own one of those large acquiring beer distributors, but it's certainly not good for my members.

[00:44:08] Jessica Infante: We've seen this convergence between non-alcoholic and alcoholic players begin to play out, and it's played out with one of your members, Monster, is acquiring Canarchy, and with it several craft breweries there. How do you see that sort of playing out in the future with increased scrutiny of M&A activity in, we say the alcohol industry, but everything's sort of blurred now where you've got major CPG coming in. You've got major cannabis firms coming in.

[00:44:45] Jordan Breslauer: Good question. Don't have a good answer. You are certainly internally looking at the monster deal. certainly taking a look at how that, you know, potentially would impact craft brewer definition. You know, when we started on this journey of differentiating between small and independent producers and larger producers, we could not have imagined a company like Monster would want to buy into the fuller flavored beer space, right? I guess to me, somewhat that's a testament to how successful small brewers have been on changing the U.S. and the global beer landscape. We still think the craft brewer definition does a really good job in the vast majority of cases, separating small and independent craft brewers from non. And if we're arguing over one or two cases, that means it's working 99.9% of the time. But certainly, the definitions evolved over time, whether this means a new change into the craft brew definition. I don't know. I have trouble personally coming up with a change that would address this situation. I'm open to ideas if you guys have any, have any thoughts. I just might. As the definition has evolved, it's always evolved in the area of inclusivity, right? It's always been a way we've always tried to, changes have always been to make the tent broader, not narrower. This deal may require us to consider the possibilities of going in the opposite direction.

[00:46:28] Treasury Department: Do you see any changes happening that would allow certain brands that no longer fall under the definition to come back in, say something like New Belgium and Bells? Could that ever happen?

[00:46:40] Jordan Breslauer: I'll never say never, right? Two companies that I have just unbelievable amount of respect for and have worked closely with multi, multi generation might be, might not be the right word, but different leaders in those companies over time, and think the world of them. So right now, the answer to that is no. In the future, sure, anything is possible. You know, one thing I tell my team all the time is, every board is different. Every year we have a base, basically have a new board every, you know, every year, it's a little bit different. So where this board chooses to go on this issue, Stay tuned.

[00:47:22] Treasury Department: The way I've really organized it in my own head, following the monster canarchy news, because, you know, we had reported and I just very confidently wrote like, canarchy no longer a craft brew under the BA definition. And then, of course, you know, we heard, you know, from Meg, who was like, no, Jess, that's not right. And I hate being wrong. But I was like, Oh, well, look at that. I am wrong. And we obviously corrected the story.

[00:47:43] Jordan Breslauer: Not a beverage alcohol player.

[00:47:45] Treasury Department: Right. So I just thought about it so much that I kind of landed on, and I don't expect you to react or respond to this, but this is how it feels to me is that companies that are actively seeking to take market share from craft breweries, if they buy other craft breweries, they're creating a harm, not harmful, but they're trying to actively change marketplace scenarios for craft breweries. So if you sign on with one of them, then you're no longer a craft brewer. And that's what makes the Monster Canuckry situation a little different. Like Monster's not trying to compete with craft breweries on shelves or on chaplines. That was how I made my internal peace with it. And now I understand it.

[00:48:30] Jessica Infante: It feels like it gets trickier every year to sort of parse it out and figure out sort of what that mission is. When you look at the mission and not to carry the water for like Bells or New Belgium, because they certainly don't need it from me. Although, you know, if Steve Fetchheimer does want me as CEO of New Belgium, I'll swing it. But to me, it feels like those are companies that are actively fighting for ideals that have fallen under what you would consider those of craft, whether that's fighting for climate change or working toward the betterment of general society, whether that's diversity within their ranks or embracing of LGBTQ people. You look at those ideals and from an ideal standpoint, it jives. And then, you know, it's just that there's like, that dividing line, I guess, that puts them on the outside of what the definition is.

[00:49:31] Jordan Breslauer: Yeah, for those two companies, it's the acquisition by their parent company being itself somebody that produces over 6 million barrels of beer a year.

[00:49:39] Jessica Infante: Yeah.

[00:49:40] Jordan Breslauer: But yeah, I mean, I hear your argument about philosophically and values wise, VA being closely aligned with companies like New Belgium and Bells. Absolutely agree with you. You know, I speak with Steve Fetchheimer fairly regularly. I've worked with Cary Yunker, Mallet, Moberly at Bells. Multiple individuals from both of those companies continue to serve on BA committees. And, you know, they're still BA members.

[00:50:06] Jessica Infante: Right. And we see, you know, how some of this can play out, whether that's, you know, Constellation sale of Ballast Point, impairment charge write-offs on Lagunitas, the shuttering of St. Archer, you know, but then you see how it works on the other end, whether that's, you know, the growth that New Belgium has achieved over the last two to three years, or whatever it is, since the acquisition. In general, I'm curious to get your thoughts on just this convergence that we've seen, and what you think that that's shaping up to create as far as a competitive landscape in the next three to five years.

[00:50:50] Jordan Breslauer: You know, Justin, it's so complicated. And again, like the convergence, I'm watching today and seeing, I think, The hard Mountain Dew products, you know, hit the shelves today. I think I saw something, I think one of the beer trades this morning about that. Who would have thunk, you know, that Pepsi, Boston beer, you know, Pepsi slash Mountain Dew, Boston beer would team up for an alcohol containing beverage. But, you know, one thing that I think the, for me, it all kind of goes back to the emergence of seltzer. And then that really led to the explosion of what we call, you know, beyond beer products. Take your pick, kombucha, cidery, mead, you know, now hard sodas, which are not relative, not totally new. You know, Jim's comments about, you know, we'll be real beer, you know, we'll traditional beer grow again in our lifetime. He made a pretty, pretty solid case for why that, why that won't happen. You know, but for the BA at the end of the day, you know, we need to find ways to promote and protect our member breweries businesses. And you know, that's where, that's where we're focused.

[00:52:05] Jessica Infante: It depends on whose lifetime Jim's talking about. Like I, someone like Zoe's got a little more time than the rest of us.

[00:52:13] Jordan Breslauer: Good point. Yeah. Jim always, always has and always does look the same age to me.

[00:52:23] Brewers Association: While we're talking about all these beverage companies that are coming in, we're talking about these like blurring of lines between different products. There was something that we talked about a couple of times on our podcast, which was federal excise tax, and that was mentioned in the report. The Treasury said, that consumers are not going to be able to distinguish necessarily between certain flavored beverages that are going to be from wine or spirits or malt based, but the tax implications could be very different. And DISCUS, which is the Distilled Spirits Council, they showed their support for this claim. What does the BA feel about this opinion that the Treasury seems to have and what this could possibly mean?

[00:53:04] Jordan Breslauer: We certainly noticed that being one of the six main areas of the report, you know, for us, it kind of broke down trade practices, antitrust, state laws, direct consumer, streamlining regulatory burdens, and then excise tax. Those are kind of the six buckets we put the report into. We're not an advocate of any type of change at excise taxes unless Congress wants to get rid of them altogether for everybody, which I don't think is coming, but we support a differential and excise tax rates based on the type of product you have. You know, since the Whiskey Rebellion, you know, the late 1700s, liquor has been taxed at a higher rate than beer, I think for good reason. We are absolutely opposed to any efforts to move towards equivalency. And, you know, we are in lockstep with our friends at the Beer Institute in opposing efforts to lower state excise tax rates on ready-to-drink cocktails in many states around the country. We don't think that's good public policy, and we think those efforts to lower those rates really will only benefit primarily four or five large multinational liquor producers.

[00:54:27] Brewers Association: Did this report in the Treasury's comments make you concerned at all for those efforts?

[00:54:34] Jordan Breslauer: mildly, but not a pair on fire moment, given that how long I know it took for Congress to enact the Craft Beverage Modernization and Tax Reform Act, and how long we worked for that on the Small Beer Act. My involvement with that started in 2009, culminating with Bill being signed into law, made permanent 12 years later. I don't think Congress has the appetite to take on the re-examination of federal excise tax rates for beverage alcohol. At least the time I have left at the Brewers Association. I think that'll be somebody else's headache.

[00:55:12] Jessica Infante: Another issue that we keep hearing a lot about this year is price. And one of the issues that the Treasury zeroed in on was post and hold laws in states. And with the supply chain issues that we've seen, how does that affect the ability for suppliers to take price or to increase price?

[00:55:37] Jordan Breslauer: Well, I think in the states that have those post and hold laws, it makes it much more difficult. For us, supply chain challenges for our members right now are daunting. For us, that is a hair on fire moment as to what's going on right now with cans, with glass. I talked with Steve Hetchheimer last week about barley and what the 2022 crop looks like, potentially will look like, and the implications for 2023. Supply chain challenges are some level, you know, those are existential threats for our members.

[00:56:17] Jessica Infante: And I'm guessing that there is little relief that you see on the horizon?

[00:56:24] Jordan Breslauer: Yes, I mean, you know, certainly we have our issues, you know, with, with ball and how that all played out. But, you know, there's no doubt there is no, there's a raw material factor there that is beyond even balls control. And when barley crops and all of the barley growing regions are bad at the same time, there's not much a trade association can do about that other than to try to educate our members and make sure they're aware of this is coming down the road. I mean, this could be as bad, this could be as serious as the hop shortage of 2008, 2009.

[00:57:06] Treasury Department: So Bob, are there any areas in this treasury report where you think treasury didn't go far enough? Anything you'd like to have seen a little bit more on?

[00:57:15] Jordan Breslauer: The subject matter buckets were spot on. It was the more definitive statements on what could or should be done. You know, really putting, holding DOJ, TTB, FTC feet to the fire. you know, by this date, we want to see this. So I guess that is the one area, you know, not having a lot of familiarity with reports like this. But yeah, that would be the one thing that we would have hoped could have been a bit more concrete, a little bit more firm.

[00:57:56] Treasury Department: Gotcha. And then one thing I know the BA has always done in its life is a good amount of drinker outreach and education, you know, in terms of events like the Great American Beer Festival and Savor, you know, the organization has been great at educating the public on what craft beer is, how they can find breweries in their areas. And a lot of the things covered in the report say like middle tier consolidation. Those are big deals to your members. but might be hard for the public to grasp. However, if the public makes some noise about this and contacts their representatives or whoever would be appropriate, that might help. So what can the BA and its member breweries do to engage consumers on this level of kind of wonky stuff they might not always get?

[00:58:37] Jordan Breslauer: I think it depends on the issue, Jess. We certainly see a role for the beer lover or the consumer and direct-to-consumer shipping. Sure. We're actively engaged with them now on our website on the USPS Shipping Equity Act, another piece of legislation that is being opposed in our mind fairly needlessly. All that does is call for USPS to compete with FedEx and UPS where it's legal to ship beer, man. I mean, come on. So there, there's a role. At the Great American Beer Festival, we used to have an area called the Support Your Local Brewery or the State Guilds Pavilion. Unfortunately, we're not going to have that area this year for the Great American Beer Festival because our space is radically reduced due to construction at the Colorado Convention Center. The GABF this year is definitely going to happen, our 40th birthday, but it's going to look a lot different because it's going to be significantly smaller. So if you're a brewery, you're going to want to get your application in quick. Space will sell out. But that would be one area where you could really engage with the beer drinker, the beer lover, the consumer, if they wanted to get educated on an issue like this. Because these are fairly inside baseball topics. When you start talking to you know, a beer lover about franchise law or distributor consolidation. For the most part, I think you see their eyes roll back in their head and be like, can I go get another beer or something like that. So I'm not, I struggle with what, you know, how we could effectively, you know, engage the consumer there. But, you know, we have a, we've got a really good working relationship with the folks at NextGlass. and have had lots of interesting conversations with them about ongoing beer education for the beer lovers that their organization touches and that we touch. So yeah, maybe a role there with them.

[01:00:37] Jessica Infante: You mentioned the construction at the Colorado Convention Center. Does that mean that there are going to be fewer tickets sold to consumers or is that just more of a scaled back space for brewers? Both. Both.

[01:00:50] Jordan Breslauer: Less breweries, less ticket sales. Are you all doing paired? Yes, we are going to do paired. Great question. Yeah, the convention center, they're putting a huge ballroom on the roof of the convention center. So that's why this is a massive deal. So that area where we used to have paired, that balcony, that outside area, that's all gone. But we are going to do paired. We're going to do it in the lobby. of the Belco Theater. You guys know the convention center pretty well. It's like that holding area where everyone's gathered where they go into the theater for the GABF awards that we're going to do paired there. So that should be just as just as good. But yeah, I mean, ticket wise, I think we're ticket sales wise, I think we'll sell about 20% less tickets, 25% less. So it's still going to be a great event. You know, and maybe this year that is maybe this is the right year to have a smaller GABF given coming out of the pandemic. We think interest will be high because, you know, there's so much pent up demand in some quarters for an event like this.

[01:01:53] Treasury Department: I've really missed GABF. I used to go just about every year in my old life. And I was really excited to go in my Brewbound life to just not, you know, be confined to a booth for four whole sessions and be able to wander and take part. And COVID has just not wanted to let me do that. So I'm very excited.

[01:02:10] Jordan Breslauer: No, I mean, come on for us, you know, we haven't had an in-person GAVF, we have an in-person saver, we have an in-person homebrew con. This is a big year for us to have all of those events be back in person. And it's certainly taxing the staff, I can assure you on all the preparations required to put all those together.

[01:02:31] Jessica Infante: One last thing I wanted to ask about before we sort of get into like a CBC preview is, when you look at the areas that you sort of can focus on, you know, there are things out of your control, like the supply chain things, but what are the priorities for the BA, you know, the top three to five priorities for this year?

[01:02:51] Jordan Breslauer: Internally, it's build back our infrastructure. You know, we took a machete to our internal operations in terms of IT, marketing, so building that back so that we can execute all of the things that are in our plan and our budget is number one. Number two would be a renewed focus around the work of our public relations and marketing committee. that's chaired by Colby Cox of Roadhouse Brewing in Jackson, Wyoming. And we're going to find ways and come up with efforts to really double down on promoting the small and independent craft brewer seal. reinvesting in our capabilities under Mark Sweeney's direction at the state level on government affairs. And we've seen some of that work already come to four would be another significant organizational priority. Katie is amazing at the federal level, but shifting a lot of our internal focus towards state government affairs and finding meaningful ways to support state guilds on state legislative efforts, be it direct-to-consumer, franchise law reform, and then the execution of all of our in-person events. Nancy and her team make it look easy, but I can assure you it is not, and making sure that we can continue to execute and produce world-class events that bring tremendous value to the breweries and the members of the public that support it, and then brings the, hopefully, accompanying awareness from the earned media that we get around the values that, you know, small and independent craft brewers bring to every community in the country.

[01:04:34] Jessica Infante: Well, speaking of those events, we've got CBC coming up at the beginning of May. Give us a little overview of what we should expect this year in Minneapolis. It's gonna be great.

[01:04:47] Jordan Breslauer: Exhibit booth sales have sold out. Sponsorship sales are really, I think are at or above budget. Our early registration deadline for attendees is March 1st. So for your listeners that are listening to this, that's a big date. It's a great opportunity to save money as the register before the early registration deadline. You know, very excited to have Natalie Salerzo as our keynote, and I know she's going to really inspire a lot of people to the audience about challenges that she and Vinny have faced in their brewery and the choices they've made, and some of the values that Russian River has at their company and how they're a leader in their community and their state. Dr. Jay and The Thrive area is going to be a real focus. Again, this year, that was something we did last year. We'll have the folks from the National Resolution Conflict Center back to do bystander and upstander trainings. The TTB boot camp and the safety boot camp the day before the conference starts are coming back. Those are always very, very popular. And then, you know, BART's State of the Industry is always a can't miss session. So those are the, off the top of my head, those are the things that your listeners should be getting excited for. And then of course, Minneapolis is a great beer town, kind of a well-kept secret. All of the breweries in Minneapolis and the surrounding area are super excited to host. It's early May, so it should be warm enough.

[01:06:32] Jessica Infante: May in Minneapolis, what are the chances of snow, you know?

[01:06:35] Jordan Breslauer: Yeah, probably about the same as in Boulder, decent.

[01:06:39] Jessica Infante: Probably, same as here, probably too. Attendance wise, are you expecting like the full CBC experience?

[01:06:48] Jordan Breslauer: You know, we budgeted bigger than Denver 2021, but not to the level of Denver 2019. You know, that was when we had 14,000 people or so attending in 2019. So somewhere right in between there.

[01:07:08] Jessica Infante: Right on. Well, we'll be there too. Great. Looking forward to it. So until then, I'm sure we'll talk in the meantime, but thanks for doing this, Bob.

[01:07:17] Jordan Breslauer: My pleasure. Always. You guys do great work. Keep up, keep it up.

[01:07:21] Jessica Infante: I look forward to seeing you in Minneapolis, if not sooner. Absolutely. So, and with that, we'll say that's our show for this week. Thanks to our one man audio team, Joe. Thanks to all of you for tuning in. We'll be back next week.