[00:00:00] Jessen Fante: There's a lot of volatility in the supply chain right now, but there are things that you can do about it. Hear more on the Brewbound podcast. Okay. Hello. Welcome back to the Brewbound podcast. I am Jessen Fante.
[00:00:25] Zoe Licata: And I am Zoe Licata.
[00:00:26] Jessen Fante: Hey, bud. Hi. Hi. So Justin is out today for some family stuff. So it's just the two of us. And we are going to talk about some beer news, industry events, other collaboration. What else? What am I forgetting?
[00:00:44] Zoe Licata: Yeah, there's a lot going on. As Jess teased, you're going to hear later, Justin did an interview with AggroGate on some supply chain stuff. So you talked to the co-founders, Tim Near and David Van Weese. So stay tuned for more on that. But Jess, you listened to that interview.
[00:01:01] Jessen Fante: I did. I did. Yeah. Tim and David are longtime friends at Brewbound. They co-founded Aggregate. They've both been in the industry for years and years and years, but they are your guys for anything regarding supply chain. They know kind of everything that's going on, whether it's raw ingredients, fuel charges, ocean freight, paperboard, aluminum, like anything that you can think of that is needed to make beer, they know what's going on with that item out in the world. So I did, I checked out their interview and Brewmine Insiders will be able to watch the video recording of it online at some point, but the podcast is getting just a snippet and I'm not sure where it's getting cut. But the thing that jumped out to me the most was that oats, had a terrible year. Yeah, oat production down like 50%, which is sad news. If you're into oat milk, there's so many. I love an oatmeal cookie. I mean, obviously, people in the alcoholic beverage industry are not concerned about oats for oatmeal cookies. But production declined, a lot of grain declined, price of oil is up. But one thing that the two of them really covered and hammered home is that brewers need to consider their own tolerance for risk and what parts of the business can you tolerate more risk than others. And one example given was that, you know, brewers tend to be really less risk averse when it comes to hops. You know, you'll have contracts out for hops for like three years in the future. So you always know what you'll have, when you'll have it, when it's available, all of that. Maybe you just got to look at your own business and think about like, where can I tolerate a little bit more uncertainty? And that will really give you the clarity that you need to make some decisions moving forward. Because as the conversation covers, you know, like there's two different wars going on in other parts of the world. How does that affect the industry here? And really everything is connected. So it's possible, but yeah. Great conversation, especially if you're feeling a little stressed out right now about really any part of the supply chain. Hopefully Tim and David can put your mind at ease.
[00:03:06] Zoe Licata: Another thing that tends to happen when supply chain is struggling is it kind of forces people to focus on a few things. And we're going to be talking a lot about focus and innovation and just how to survive and craft right now. during Brewbound Live, which is coming up very, very quickly. We are now less than 30 days away from Brewbound Live in Marina Del Rey, California, December 6th and 7th. We've been announcing some of the panelists and some of the speaker lineups and conversations over the past couple of weeks. I know we're a little biased, but it seems to be a pretty strong lineup this year. The most recent one that we announced was we are having a panel discussion on future-proofing your flagships. This is something that Jess, I know you've been really trying to get us to talk about for a while because it seems to be a really important part of crafter strategies, especially for the kind of craft breweries that have been around for longer periods of time are trying to figure out how they're going to survive in this next chapter of craft. And so we have some pretty big names of people who are trying to do that. We have leadership from Rogue, Bells, Lawsons, and Keanarchy. Adeline is back.
[00:04:29] Jessen Fante: Oh, that's so exciting. I'm psyched for this conversation. And selfishly, I requested to be the one that moderates this panel. But yeah, like when you look at where we are in the industry, you know, there's a lot of new brewers who have opened up shop in the past, I don't know, half a decade, maybe a little more. And are allergic to the idea of a flagship. They don't have a flagship. And that's great. That works for their business model, but that's not the way that elder craft brewers are set up. A lot of these companies do have a flagship and bolstered by a rotating seasonal family. That was the standard. And when you get to a point where your flagship is so big, but it's declining, like, is it too big to fail? Is there something like that? So what can you do to make sure that your flagship brand is ready to be healthy into the future? So that's what we're going to talk about. I'm pretty psyched about it. What we've seen happen is, you know, I mean, all four of these companies, you know, Rogue, Bells, Lawsons, Kanarchie, specifically with Kanarchie, my mind went to what they've done with the Oscar Blues brand and Dale's Pale Ale, but they've also built out the Highlight brand too under Cigar City. How can you make sure that these enduring brands that have been in your portfolio for a long time either are lending their name to new line extensions that are going to bring in new drinkers, Or what can you do to make sure that these things stay relevant for craft drinkers for years to come? Because it's something that we hear at all three tiers of the industry is that everybody is really tired of rotation nation. So how can you make sure that your flagship is going to be able to stand the test of time? So I'm psyched that Adeline is back in. This is going to be a great panel, and I'm excited.
[00:06:23] Zoe Licata: Yeah, it's going to be lots of fun, lots of really good insights from that conversation. So make sure if you haven't bought tickets yet, please come join us and Marina Del Rey, because it's going to be an awesome time. lots of really important conversations like that. Brewbound Live also means it's our annual Brewbound's Pitch Slam season. So that is one of the most fun parts of Brewbound Live. We talked about a little bit last week, but it's our annual pitch competition to see who's going to break out as this next star. We've seen a lot of people come out of Pitch Slam that have gone on to do really great things. So this is your first peek at some of those brands and these interesting things coming out of BevElk. Our Pitch Slam semi-finalists are announced and they are up on Brewbound.com, so go look at that. But we have quite a nice array of products and companies this year, so please check them out. It's a really good lineup.
[00:07:20] Jessen Fante: I don't mean to brag, but Brewbound Pitch Slam produces some superstars.
[00:07:25] Zoe Licata: Yeah, there have been some good names that have come out of Pitch Slam. You guys have heard us talk a lot about Funky Town, who won a couple years ago. They have just continued to kick ass since then. We've had Athletic participated in the Pitch Slam before. They didn't win, but they were participated. And now we have seen where they've gone. Crowns and Hops also in the Pitch Slam. There's a lot of heavy hitters.
[00:07:52] Jessen Fante: Yeah. Lunar Heart Seltzer.
[00:07:53] Zoe Licata: Mm-hmm.
[00:07:55] Jessen Fante: I think that the Funkytown guys were just named to like 40 under 40 in Chicago. Good for them. Love that. Really exciting for them. I only have one more year left. So if you're considering putting me on a 40 under 40 list, now is the time. We'll make some calls. Oh Lord. Yeah. Great call. I can't believe we're only a month out from the conference. That's wild. I went conference shopping last week during one of Cora's days at daycare and it was frightening, really frightening.
[00:08:26] Zoe Licata: I have to do that.
[00:08:27] Jessen Fante: Yeah.
[00:08:28] Zoe Licata: So come join us in sunny California next month.
[00:08:31] Jessen Fante: The dress code is cash.
[00:08:33] Zoe Licata: Dress code is casual. Don't let that stress you out. Just as shopping. Yeah. It's, it's a casual fun time. Should we jump into some of the news that's been going on? Something that technically we as we're recording this, we haven't put up on the site yet, but we'll be out once you're listening.
[00:08:51] Jessen Fante: Yeah, big stuff.
[00:08:54] Zoe Licata: Marinos.
[00:08:55] Jessen Fante: Smuttynose. Tell us what's going on there. Smuttynose and Smuttynose's parent company, Finestkind. They are an OG of the New England craft scene based in New Hampshire, just a little bit north of you and I here in Massachusetts. They are acquiring Brooklyn's own Five Burrows Brewing Company. And Justin wrote the story. I had a conversation with the leaders this morning. Teamwork makes the dream work around here. I think this makes a lot of sense, and it's just one more example of craft brewers teaming up when times get tough, and this is a great way to ensure the future for both of these brands. Production of Five Bros Beer is going to be moving up to New Hampshire. They are going to keep the tap room open in Brooklyn. That's very important for them. Co-founder and CEO Blake Tomnitz told me that they really want to make sure they keep a physical presence in the neighborhood. And conversations about this partnership started over a year ago, but really ramped up this summer. And they really found that the finest kind team is partners in every sense of the word. They all agree on values and goals and Blake and his co-founders feel very comfortable with the future of their brand. And finest kind CEO Steve Kirstead said that what's really nice about these two different companies' portfolios is that Fiveros has the new wave IPAs, like hazy New England style, and that's not really something that Smutty had dealt into. So their portfolios complement each other really well. Right now they're keeping their eyes on the price in terms of beer, but Finest Kind does have its eye on becoming a beverage platform, you know, Northeast-based cross-category platform. They do a little bit of that right now with their Spirits-based RTD brand, Island District. But yeah, this is, I think, a big deal and I'm excited for everybody involved because they all seem very happy with it.
[00:10:58] Zoe Licata: Yeah, and not the first we've heard of a strategy like this lately. We've been hearing a lot of other beverage brands, particularly craft brands, have been joining forces trying to do this kind of platform approach. We saw it with some cider brands last week as well with Blake's and Austin East Ciders. They're trying to create this kind of Blake's beverage platform. So lots going on there. And in other kind of craft joint forces strategy news. We also found out this week that Great Divide and Dry Dock Brewing have formed a strategic partnership. Both brands are going to continue to be run and produce their own brands and offerings, but they're joining their production forces. And so you'll see Great Divide's and Dry Dock's beers produced at Great Divide's facilities. They are looking into other ways to expand that partnership, whether that's joining sales forces or marketing teams or any other resources, but they're still kind of figuring out how that's going to work moving forward. But yet another of the countless we've seen this year of craft breweries coming together and being like, hey, we are a stronger force if we share some resources.
[00:12:19] Jessen Fante: I mean, it's just sea otters, sea otters as far as the eye can see. And that is an old reference to a few months ago in the fact that sea otters, when they are together in the water, they hold hands, they don't drift apart when they sleep. And that's what's going on here. Everybody is finding their otter buddy to share resources with.
[00:12:37] Zoe Licata: I missed your sea analogies. I'm glad they're back.
[00:12:41] Jessen Fante: You should see Cora's nursery. It's just all sea creatures all the time. I feel awful that I ditched you guys on an earnings week, but it was the first week of daycare and my little lady needed, you know, half days to acclimate herself, which she did great. And so now I'm here and I'm a work from home daycare mom, but you guys had a big week of earnings calls. So what happened there?
[00:13:03] Zoe Licata: Yeah, we talked a little bit last week. We saw AP had their earnings and Bud Light had a horrible Q3, at least in the US. Kind of worse than the previous quarter, which seems interesting and how their declines seem to be accelerating. We talked about that and we also heard some 2024 plans from Boston Beer with their wholesalers meeting. What we didn't get to talk about yet was Molson Coors also had their earnings at the end of last week. Theirs was much different than AB's. They were very positive about their Q3, enough so that they have now raised their full year growth guidance to between 32% and 36%. It was previously between 23 and 26%, but massive. I mean, that's a 10% jump from their previous guidance, which was already a pretty high number. That's crazy.
[00:14:03] Jessen Fante: If you were to tell a time traveler from, I don't know, 2006, what was happening with America's largest brewers right now, they would be astonished.
[00:14:14] Zoe Licata: Yeah, it's wild out there. I think investors were pretty happy to see that this happened because they've been kind of pushing for Molson Coors to adjust their guidance based on the additional sales that they've gotten because of some of the declines from Bud Light. And Molson Coors has been pretty steadfast about, hey, we already had this plan, the strategic plan in place for years on making sure we could have growth. We're not trying to celebrate the declines of others, but this earnings call has felt a little bit more like, okay, yeah, we're gonna specifically call out that. Bud Light continues to decline. We are getting a crap ton of shelf space and it's not slowing down. So we're gonna keep moving forward and keep growing. Did they talk about any other Beyond Beer brands?
[00:15:04] Jessen Fante: Any updates on like Topo or Vizzy or Simply?
[00:15:08] Zoe Licata: No, not really, which was also a bit of a change. Normally we'll hear a couple comments on at least Simply, mostly Simply, and how it's doing, but this one was all focused on their core beer offerings, mainly Miller Lite and Coors Lite and their gains. Both those brands got between 6% and 7% additional shelf space during fall resets, which was what Gavin Hattersley, the Molson Corp CEO, equated to about tens of thousands of cubic feet of space in retailers. So that is where their focus is now. It's like, we're going to have to sustain that. And they've said they are totally good with inventory. There shouldn't be any issues there. We'll see how that plays out. But they are confident enough about it that they're giving employees some more holiday time this year, which they've emphasized on the past two earnings calls. So yeah, very positive time for Molson Coors. I think the only other brand they called out was a little bit of like excitement for Coors Banquets Q3 as well.
[00:16:14] Jessen Fante: Wow. That is the tale of two earnings calls for sure.
[00:16:18] Zoe Licata: Geez. Yeah. Yeah. Very different Q3s for those two brands. So yeah, so look out for all of that coverage. We also have posted our latest quarterly three up, three down, which is exclusive for Brewbound Insiders. It's made with three-tier beverages out of Chicago. Three-tier beverages consultant, Stephanie Rojas, did an awesome job on that. So check that out if you want to see what other beers-related things are doing great through Q3 and what are not doing so well. We also will have some coverage this week from the Mass Brewers Guild's annual conference that Jess and I attended yesterday as we're recording this. So look out for some stuff there. Bart Watson was a keynote, and we always love hearing from Bart. So check out some of that. And then Jess also hosted a lovely panel on getting second locations. Should you? What are the risks? And we heard some comments on a retailer panel as well. So lots of stuff out on Brewbound.com. Check them all out, read about it. Before we hop into our interview, should we play another round or tabbing out?
[00:17:34] Jessen Fante: I think we should. That sounds great.
[00:17:36] Zoe Licata: So also coming out of last week was all of the big beer news and earnings calls. Constellation also had their investors day and Justin and I listened to it a little bit, but Justin pulled out a interesting new innovation that they talked about called Shift. a new F&B rolling out in select markets. I think you need to clarify how it's spelled. It's spelled how I think you would assume a weird F&B that we're talking about on another round or tabbing out is spelled. It is S-H-Y-F-T and this is a flavor changing F&B. So they described it as a flavor experience where it changes depending on how long it's been there. I assume what they're saying is that it's like as you drink it, the flavors change. So each of the flavors that they announced are kind of like two different fruits. And so I assume you first taste the initial fruit and then you get this kind of second flavor as you finish. Jess, are you getting another round or tabbing out on flavor changing F&Bs?
[00:18:52] Jessen Fante: No, no, I want none of this. Who asked for this? Who needs this? I would love to know the creative brief that went into this product. I can't imagine. You know what? You were there, not I. What's the need here?
[00:19:09] Zoe Licata: To be honest, I don't see one either. It's so confusing to me that we keep seeing random weird innovations like this after having a million conversations about focus and strategic innovation from every big beer company. I don't understand it. So it's rolling out in three markets, Providence, Rhode Island, Greenfield, Greenville, South Carolina, and Kansas City, Kansas. Kansas City, Kansas or Kansas City, Missouri? Kansas City, Kansas. according to Justin's report. Did they just like throw darts at a map? Right. Like the more you read about this innovation, the more questions I have of like, what is the point of this? The markets seem random. The concept seems random. The Constellation's like reasoning they said is that, you know, they want to be on this forefront of unique, disruptive like beverages. But I don't just don't think we need it.
[00:20:16] Jessen Fante: I feel weird about the idea of drinking something that tastes different from when you start to when you finish intentionally. I don't know, man. It's one thing if your ice cubes smell and that changes the flavor, but what drinker said, hey, you know what? I need more of various fruit flavors and I can't just have another can from the same 12 pack. It needs to happen in the same can. Make that happen for me, please. I feel like I'm getting mean.
[00:20:42] Zoe Licata: No, it's all very valid points. Like I this was very confusing. So you need to hear.
[00:20:50] Jessen Fante: You might be too young for this, but when I was little, well, when I was little, we used to have those gloves, those snow gloves that changed color with the temperature. This is that.
[00:21:01] Zoe Licata: We were really into the color changing like pencils and yeah, any of that like thermal changing color stuff. The fire department would always bring a lot of interesting like school supplies that had it. in elementary school, yeah, it was very exciting.
[00:21:19] Jessen Fante: That sounds exciting.
[00:21:20] Zoe Licata: Yeah. Maybe I'm too old for it. Maybe the real youths are asking for flavor-changing beverages.
[00:21:29] Jessen Fante: Maybe this is what the 21-year-olds want. God love them if so. my contribution to another round of tabbing out is Boston area brand collaborations, because we have gotten a rash of them in our email inboxes these days. We've got Lord Hobo and JP Licks, esteemed area ice cream chain and former employer of one Miss Zoe Licata, see me up on a beer. I believe it's like a chocolate mint Irish stout. And Night Shift is teaming up with their neighbor, Teddy Peanut Butter, a local institution maker of healthy-ish peanut butter before it became trendy to make a peanut butter beer, probably also a stout. I mean, and then like, you know, Harpoon has long done that collaboration with Mike's Pastry, which is, you know, one of our purveyors of cannoli in the North End, which is Boston's Italian neighborhood. Does this happen other places? Right? Like there's a lot of this. There's a lot.
[00:22:29] Zoe Licata: I have a lot of collaboration happening. I mean, obviously this isn't the only place that's happening, but I think it's maybe more frequently because Boston is such a central hub for a lot of companies. And like, we weirdly operate kind of like a small town and like loyalty and collaboration, even though we're a big city.
[00:22:49] Jessen Fante: Oh, I don't know about that. Have you seen the Onion article that's like, Boston residents wake up for another day of playing pretend big city. It's a good one. It's a good one.
[00:23:01] Zoe Licata: Yes, we do like to think that we're a little bigger than we are. But there's also a lot of very intense home spirit.
[00:23:14] Jessen Fante: Yes, intense local pride, for sure.
[00:23:17] Zoe Licata: Yes, so I think that carries over into product sometimes. I know that just responses to this Teddy, Peanut Butter, and Night Shift collaboration have been very positive. They are literally right across the street from each other in Everett and The small Everett population that I converse with is very, very excited about it. And I talked to Night Ship leadership a couple months ago, and they brought up them working on this collaboration. They said it's just like, it seems so obvious, something that you can literally smell them making Teddy's peanut butter as you're drinking a Night Ship beer at their brewery. I can't believe they haven't done it before. I know.
[00:24:00] Jessen Fante: Yeah. Right? I have a jar of Teddy in the pantry. Same. It's delicious. We have Chunky right now. Cora's going to taste peanut butter soon, and she cannot have the Chunky, so. I'm a smooth, but we have Chunky to cater to Lawrence's preferences. See, I love them both equally. Yeah. These are the food products, so this makes sense. But sometimes you see non-consumable items. I know Harpoon has collaborated with shoe companies around the marathon. So it just makes sense. I mean, it helps you tap into two different networks, but it just is like a super Boston thing to do. It's like Boston intensifying.
[00:24:42] Zoe Licata: I am always going another round on intensifying Boston culture, even though it's a little intense already.
[00:24:48] Jessen Fante: It's extremely intense already.
[00:24:51] Zoe Licata: But I am pro these collaborations. Nice. All right, let us get into our interview or Justin's interview with the guys at AggroGate.
[00:25:04] Justin Kendall: The supply chain feels like a roller coaster ride each year with ups, downs and some surprises. So here to sort through it all with us are the partners at AggroGate. First joining us is David Van Weest. Thanks for being here, David. Hey, Justin. How you doing? Doing well. And we also have Tim Near. Thanks for being here, Tim. Good to see you again, Justin. So guys, before we get started, in earnest, asking all things supply chain, why don't you tell us a little bit about what Aggregate does and maybe how the business has evolved a little bit.
[00:25:37] Speaker 1: Here at Aggregate, we're supporting craft beverage producers. And our goal is to help a craft beverage producer do better than they could themselves. And we do that by bringing industry knowledge, insights, know-how, scale, anything to help them do better than they could, focused primarily on what they're using to make, package, and ship the product. So think of it like the bill of material items, maybe some transportation. And that's what we've been doing, and we've been doing that for a few years now. eight years, and it's been going really great. The last few years during COVID and emerging out of COVID have been particularly challenging, Justin. And we've been getting a lot of calls for some help, and we've been able to deliver, I think, substantial, substantial help. The other thing is we work with the supplier community to help them find opportunities that they couldn't themselves either. And we've been really proud of our experience and engagement there across the whole system. that both supplies and produces craft beverages here in the U.S. and Canada. That's us.
[00:26:41] Tim Near: As top-line growth levels off a little bit, there's an increased challenge for independent craft beverage producers, particularly brewers, to get results. So you've had headwinds with supply constraints and inflation. Many of the big CPG companies have figured this out, and they wanna both grow top-line and take costs out of the business. And there's just a simple accounting. $1 out of your cost, is worth, depending on your margin level and profitability, could be $3, could be $6, could be $8 of sales you'd have to achieve incrementally to make up for $1. So it's a really powerful financial tool to help in times of more challenge with regards to costs or top line growth.
[00:27:32] Justin Kendall: Well, we're just about two months out before 2024. What do you both see as maybe the one or two biggest issues that brewers are going to be facing in the supply chain next year?
[00:27:44] Speaker 1: It's not going to be easy. It never really is. Thankfully, we've got some things that have improved quite substantially, like the supply of cans, like transportation costs and transportation services. That's all better than it was last year, and it will continue to be better next year. But in terms of the challenges, Justin, I see a couple of big ones. Number one, the grains haven't done well this year in terms of growing. The crop was strained. It was dry. Yields are way down. Looking at oats, for example, that's something a lot of brewers are using out in their formulations. Oats, we're going to produce here half the amount of oats. than we did the previous year. They're down more than 50%. That's a massive decline in the availability of something like barley's down somewhere in the 20% range. These are pretty significant reductions year over year just because of the way the crop progressed through the summer. That's big challenge number one. is managing through the consequence, and every operation is going to have a different consequence of that. Another big challenge is the pressure that continues on the top line, particularly on some of the more traditional beer lines, is causing everybody to look at alternative products, alternative SKUs, which is complicating their business, Justin. So this means more items, more ingredients, maybe more types of packaging, maybe more things you can't do yourself, so you need to look at investment internally or outside. That complexity is a force that works against being cost efficient. It's a force that works against being time efficient, but it is something that seems necessary in this environment. And we expect a lot of new products and a lot of complication compared to maybe this year or last year in those products, which is going to be tough to manage from a supply chain perspective.
[00:29:39] Justin Kendall: So what are maybe some things that brewers should consider now to get ahead of things?
[00:29:45] Speaker 1: There's a few things, Justin. Number one is we always ask people to look at their risk. What's their risk profile? What's their appetite for risk? So really, number one is understanding where you're exposed, if you are, and what is the extent of that exposure? And if you have some exposures, like let's say you're short on a particular item, or let's say you have a new product that's coming in that you haven't done before, maybe build a little more buffer than you would have traditionally. It'll help you maybe sleep a little better at night, maybe manage some known unknowns that you know something's going to happen, you just don't know what. So maybe building a buffer in for that, particularly for anything that's new to your operation and you haven't had a lot of experience in before. So that's number one. Number two would be, and this is any year, but particularly next year, take a hard look at what your forecasts are in terms of consumer demand, in terms of your demand at your production lines, and maybe try to do a little bit better, the best you can anyway, on It was very hard to forecast coming out of COVID. It's going to be a little easier, I think, now as we see some stabilization in some of the demand lines. But with these new products, it's always hard to anticipate something that you've never sold before. There is no history there. So spend a bit more time on that, and you're going to be less likely to run out or have too much if you spend a bit more time on the front end anticipating what your needs are.
[00:31:09] Tim Near: I would also add on to that, Tim, folks should look at innovation and maybe change, not just on products, but with regards to the way they're doing things. You've had many years of top line growth and no inflation, and now things have changed. Often we see brewers are doing things the way they always have done things. So I think there can be innovations in your back house or innovations in the way you're doing your purchasing or changing in order to improve your cost results.
[00:31:42] Justin Kendall: When you're looking at these risk assessments, David, what do you see is the biggest blind spot right now for brewers?
[00:31:49] Tim Near: Well, I think it's like looking in the mirror and really saying, hey, from a risk perspective, what's our tolerance and what's our current situation? So for example, often we see brewers are highly risk adverse with hops, okay? So they may have three years worth of hops locked in, perhaps even too much. And that's, you know, I don't wanna risk that supply. On the other hand, they may have other categories, could be aluminum. and they're wide open to the market. So a very different strategy. So understanding what's our tolerance and where are we at, maybe going through their contracts and really understanding what's my price adjustment formula, having the time in the day to look and see, did I get that adjustment on pulp on time? Did my incoming freight supplier for my inputs, are they reducing costs at market rates? So it's that risk of, do I have enough time to dig into it and understand that?
[00:32:51] Justin Kendall: You mentioned freight, and there's an ongoing war in the Middle East. We've got oil prices up a dollar a barrel right now, as of this recording. What are you expecting the impact from that to be on pricing for freight in 2024?
[00:33:08] Speaker 1: So Justin, it's a very difficult situation that's happening right now, as it was last year for the Ukraine war. And I just, this is a good, I think, add to something that Dave said as well. There's always going to be something like this. And I'll answer your question specifically in a minute, but there's always going to be something like this that happens. It's different than we expected. That has a consequences that's sometimes better, sometimes worse for us. One of the areas for improvement we see across the industry is for operations to understand that there are changes happening and therefore maybe change the way you need to do things in reaction or in proaction to that, if you can get ahead of it. What we see a lot is that we saw this with the Ukraine war, that put some strain on things like natural gas prices, which impacted the price of glass, put a strain on things like the availability of grains, which put a strain on the price of grains, and yet many operations were still operating the way they were before. that event happen. So that's a big opportunity is to know that these things are going to happen, scan for them, and know that you may need to change how you're doing things. Now, when it comes to freight and fuel, we actually have seen a nice benefit on freight this year compared to the last couple of years. Freight prices have generally declined double digits very significantly versus last year. Fuel is a big component of freight, but it's not as much as the actual cost of the cartage itself. So that benefit that we've seen in the price of freight, in some cases, we're talking 20%, 25% improvement versus last year on freight rates. It depends where you started from and which specific part of the country you're in or the continent you're in. Any increase we see to the price of fuel, which we do expect to see an increase to the price of fuel, won't be enough to manage back that benefit we saw in the price of the underlying freight itself. This also means that service levels are a little bit better. On freight, there's more trucks available. We still have a lot of underlying issues there, like product driver shortages and increased demand. but we are seeing a nice opportunity in transportation. I expect that there will be a little bit of a hit on the cost of fuel, but I'm also expecting that there's enough of a benefit of the price of the freight itself, the fuel will actually still have a net benefit this year on the price of freight. Next year, freight we expect in total to go up somewhere between 3% to 5% versus current levels. I am also a little concerned about more North American impacts as well. We are seeing more bankruptcies in freight. We saw yellow freight earlier this year. Convoys just come up with some big news. So there are some local impacts in addition to the international impacts that we'll be watching very closely on freight. Lots going on in that space.
[00:35:59] Justin Kendall: What's your expectation for trickle down on that, as in who might be the most affected by that? whether that's a larger brewer, smaller brewer, everyone in between.
[00:36:12] Speaker 1: If I look at it from a truck carrier point of view, a truck's a truck. Regardless of what's in it or who's in it, you're gonna have some dynamics there. I expect a couple things to happen. Number one, and I'm not gonna segment it that way, just I'm gonna segment it a little bit differently. Anybody that's been using a spot buying strategy for freight over the past year, and even the beginning of this year, has had the benefit of being in a spot market in a declining market. Okay, we expect that to stop and actually turn around a bit the other way. So, those that were in a spot market are still going to continue to use a spot market versus let's say a six month one year or long term contract on freight will be exposed more. to those that are actually going and putting in longer term contracts right now or have over the last few months. So that's the way I would look at it. So if you are in the spot market on freight, meaning you're calling for your truck next week or the next few weeks, maybe now's the time to set up more longer term relationships with your carriers. Those that don't may be exposed more.
[00:37:15] Justin Kendall: We saw impacts on grain due to the Russian war on Ukraine. How are prices at this point? Are we seeing any change there?
[00:37:27] Tim Near: Obviously the geopolitical has a lot to do with it. Ukraine doesn't produce barley in a great amount for brewing. They do barley for feed, but really they're a wheat producer. Wheat is a proxy to barley. So if wheat prices are going up around the world, it affects what farmers in North America are going to plant. So what we saw this year was planning intentions were for North America and Canada is about 75% of the North American barley production. Planning intentions were solid. It was about flat, you know, in acreage going into the year. It was a bit dry, but germination happened, and we've watched the crop progress quite nicely until the later summer, mid to later summer, and it got very dry. And that resulted in an early harvest. Tim touched on some of the numbers. An early harvest, so you're going to have two components there. The grains hadn't fully plumped up, And secondarily, there was just less actual yield. So barley down 22%, oats disaster down 53%. So we would have advised people quite early this year to get their 24 barley committed. It's going to drive pricing up. Now some positives, and we don't know exactly how this is going to play out, but China has dropped their trade war with Australia. We'll have to wait to see how the results of the Australian crop come in and how the global flows change. But right now, grains are going to have some upward price pressure on them through next year. So we'll have to see how planning intentions come out in sort of March, April time period. So we'll have a better idea there how much acreage is going in and then we'll watch the crop, but a little bit of a watch out there for this coming year.
[00:39:12] Justin Kendall: Speaking of acreage, there are reports that hop farmers are pulling acreage. What are you hearing now and how do you see this impacting brewers in the coming year?
[00:39:23] Speaker 1: Yeah, Justin, there actually was acreage taken out of the hop crops in the U.S. anyway, the Pacific Northwest, and we saw that affecting some varieties more than others, but it wasn't as severe as maybe would have been thought about last winter, okay? So it wasn't as bad as it was anticipated to be. We've seen some of the large aroma varieties have fairly significant reduction in acreages. Citra, Mosaic would be a couple of good examples there. But we've also seen acreages being added back in some of the more classic bittering varieties, Columbus, Tomahawk, Zeus, collectively called CTZ, actually had acreage increases this year. So a bit of a mixed bag with regards to hops. Last report I saw had the total hop acreages down about 5% this year compared to the previous year. Look, if you're a hop farmer, it's a bit of a tough job. You've got a very significant investment per acre. Once it's in, it's in. If you take that out, that's a lot of fixed costs. You've got to move to something else. That's a tough decision for a farmer to make. I understand these are gut-wrenching decisions on acreages on a farmer-by-farmer basis. Anyway, it wasn't as bad as we thought, but it did happen. There are ample supplies of most hops out there, but there are some key aroma varieties we need to ask people to take a closer look at. We do hear reports of the Centennial variety particularly suffering this year. So if you are exposed to Centennial, that may be something you want to take a closer look at, that particular variety. But in general, not as bad as people thought it was going to be.
[00:41:01] Justin Kendall: A couple of years ago, I think a lot of the talk centered around cans. Heading into 2024, what's the status of the can supply and any potential headwinds brewers should be watching out for in regards to aluminum?
[00:41:15] Speaker 1: So it's a much radically different situation than it was a couple of years ago. I think everybody did their best to provide as many cans as they could, but nobody could anticipate that. consumer spike that happened because nobody could anticipate the consequence of COVID happening so quickly. People going out of the movie theaters and out of the pubs and consuming their canned items at home. That created a very significant shock to the system, which was really just a difficult situation for everybody. There weren't enough cans to go around. If you're selling cans, of course, you want to sell more. You couldn't. And if you're trying to fill cans, well, you want to sell more too, but you can't because they weren't available. Good news is this year, we've seen a very significant improvement. Almost, I would say, a turnaround in that situation. We have seen some new manufacturing facilities for cans come into the North American environment and possibly demand wasn't as strong as it was during COVID or wasn't as strong as forecasted by the can users. It's quite a different situation. Just in going into next year, we actually see ample supply of cans compared to really what was quite an urgent situation over the past couple of years. We also expect to see, because aluminum prices were so high last year, and they've come off quite a bit this year, there was a record high price of aluminum last Last year, that was in consequence to the Ukraine war as well as just fundamentals of supply and demand. Compared to last year and the beginning of this year, we expect to see some softening of aluminum prices or at least some stability in aluminum prices, which should give an advantage to the cost of an aluminum can, Justin. Last point on this is now that we've caught our breath and there's enough cans out there, we're seeing more and more. investment and innovation coming into the can space, whether this is new ways to apply labels, new digital printing technology, new can sizes. As we go into 2024 and beyond, I expect more energy to be put against the innovation on cans, however we want to define it. And we'll keep a close eye on that because that's a way to differentiate yourself in a very crowded market, crowded space, and maybe even premiumize the offering. So that's what we're seeing, Justin, on cans.
[00:43:32] Justin Kendall: Another issue that's crept up has been increased paper slash cardboard prices. What are we seeing with that heading into next year?
[00:43:41] Tim Near: Things, you know, post-COVID have normalized. Justin, you know, as Tim alluded to, people were going in home and now people are going back out of home. So not as many deliveries as they had before. Still, you know, it's an Amazon culture, but not as much food delivery, things like that. So it's normalizing somewhat. It's a big, heavy, clunky industry. But bulk paper prices have come down. The pulp, which is the 60-70% of your cost of your paper, has come down this year. It had gone up to a historic high from 2020, big run-up, and now it's come down. Brewers should be seeing reductions from their paper companies. And we're seeing it probably level out at about $8.45 a ton for next year. So there should be another, call it maybe 5% decrease in paper costs for next year. So that's a positive sign on that side.
[00:44:38] Justin Kendall: What do you see as maybe one under-the-radar issue that's going to pop up next year that everybody should watch out for?
[00:44:44] Speaker 1: It's a question that I ask myself all the time and every year. What's out there that we don't know? that we should, that's going to surprise us. I call it the known unknowns. You know something's going to happen, you just don't know what. So I think a different way to answer your question is make sure you're always scanning for those things, okay. If you aren't on the lookout for that, It's very easy to get caught behind on something that's changed, but you were too late to react to it. I'm going to be very keenly aware of what happens with the situation in the Ukraine over the winter. We all thought initially it might be a very quick event. Now it's been quite some time, just a tragedy, what's happening there. But maybe something will either improve or worsen. We're going to keep our eye on that very close, Justin, because that will have a significant impact. It did when the conflict started. It will as the conflict continues to evolve. So that's when we're going to watch very, very closely over the winter. And if there is anything that changes for the good or for the bad, make sure we're able to react very quickly to it and take the right action versus being caught behind on something that could be a quickly evolving situation. And that's a core piece of what we do is making sure we're always scanning for those sorts of things. Beyond that, Justin, we'll let you know. There's always going to be something that comes up. That's the only thing we can be sure of.
[00:46:11] Tim Near: I think we went through many years of stability, stability of supply, stability of pricing, both at your input pricing as well as your retail pricing. Distribution had stability. There wasn't shelving coming out at the retail. Everything was stable. It's different now. So to answer your question, we don't know what bomb is going to go off next year, but one is going to go off. So to highlight Tim's point, resilience is such an important strategy that came out of COVID. So everyone's stretched, but keep looking for that alternative supply and have it lined up. Maybe get an alternative can supplier to have your graphics. What are my alternative transportation suppliers? Have those alternatives ready. and just make that part of your everyday.
[00:47:01] Justin Kendall: So let's wrap this up with maybe one piece of advice you'd give the brewers out there to save some money, because everybody loves saving a little money.
[00:47:11] Speaker 1: Well, I've got a couple thoughts there, Justin, and I think Dave probably does as well. Number one, what we've seen is, especially during COVID, when everybody was just trying to keep up or maybe reactionary, is now taking some time to get ahead and look at how I'm making the products I'm making, how I'm packaging the products I'm making, and is there a better, more cost-effective way to do that? We see a lot of really great materials coming out about using less packaging, less paper, less carbon. And if you don't take the time to really study that and evaluate it, you may be in a situation where for the long term, you're using more materials than you are. to produce the same item, which can be quite costly, but also has other effects like taking up more room in your warehouse, taking more weight in a truck, therefore creating more carbon, et cetera. And that's something we would advise people to look very carefully about. We mentioned one other specific example. We mentioned that the oat crop is over 50% less in terms of tonnage this year than it was last year. That's Canadian numbers where most of the oats are growing. Maybe take a look at your formulas to say, if I'm heavy on oats or I'm developing a new product that intends to be heavy on oats for some hazy, let's say, maybe I should take a second look at that and say, is there another way to get there without having such a big exposure to oats? So that's another example on the product development side, on the liquid side, the beer side to look at to adjust. And that's where I'd spend the winter looking at ways of how to be more cost effective or less wasteful in your process. A couple of examples.
[00:48:48] Tim Near: I'd quickly add in just to close things up, the craft brewing industry exists because an amazing group of people that were innovative and creative and broke the norms, broke the rules, and created this amazing category, and then it blew up around the world. I think the next chapter will be continue to do that, continue to come up with great liquids and new types of flavors and ways of brewing and things to put in making your brewery, but also apply that creativity and that innovation to the way you do it, whether it's like Tim said, is there another way to formulate to take some costs out of my business? Is there another way I should be looking at purchasing? Is there another way I should structure my purchasing? So apply creativity and innovation inwardly in your back of house as well as your front of house. So I think that would be the main thing I would suggest.
[00:49:49] Justin Kendall: Awesome. Well, thanks for joining us, David and Tim. Always a pleasure to talk to y'all. Yeah, thanks for the time, Justin. Appreciate it.
[00:49:56] Speaker 1: Likewise, Justin. Thanks very much.
[00:49:59] Justin Kendall: And that's our show for this week. Thanks to David and Tim for joining us. Thanks to Zoe and Jess for all they do. Thanks to our one man audio team, Joe. And thanks to all of you for listening. We'll be back next week.
