Brewbound Podcast: The State of the Craft Beer Biz 3/4 Through 2021

[00:00:00] Team Jay: Heading to CBC? Kick things off the day before The 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 The Brewbound.com slash lovecity.rsvp. And don't forget to catch The Brewbound Team Jay booth 956 during CBC. Three quarters of the way through 2021.

[00:00:30] Bump Williams: How's the beer industry doing? Stick around to find out. Hey, everyone. Welcome back to The Brewbound Podcast. My name is Justin Kendall, and I'm the editor The Brewbound, and I am joined by Team Jay. Justin Fonte, how are you doing? I am good, Justin. How are you? I'm doing pretty well. And we also have the other half of Team Jay, Zoe Licata. How's it going?

[00:01:04] Dave Williams: I am doing well. Hello.

[00:01:07] Bump Williams: What is new in the world of Generation Z now? Right now.

[00:01:14] Dave Williams: Everyone's really into the fall flavors, fall beers for sure. I went out with some friends this weekend and everyone was getting the like cinnamon sugar rims on their pumpkin beers and such. So that's all the rage right now.

[00:01:31] Bump Williams: I am an avowed fan of pumpkin spice. I couldn't get my pumpkin spice latte this morning. They were out of pumpkin spice. I can't tell you the horrors of my life at this moment.

[00:01:43] Williams and Brian: That sounds like a crisis. A Starbucks is out of pumpkin spice in October?

[00:01:48] Bump Williams: I'm going to blame the supply chain and you can find out all about supply chain issues on the The Brewbound Frontlines episode, which is out now The Brewbound.com if you're The Brewbound insider, not a subscriber, an insider. But yeah, that's out there. And Jess, I believe you took a trip to Allagash.

[00:02:09] Williams and Brian: I did. Well, I took a trip to many places in Maine. So my husband is a high school teacher. At the beginning of the school year, he's like very dedicated and he spends like whole weekend days grading and usually also monopolizing the television, watching football. So in the fall, I go on a lot of solo adventures. I swear I have friends, but like sometimes it doesn't feel like it. So yeah, I went hiking in Maine yesterday and then I went to L.L. Bean and then I went to Allagash. Basically, as I noted in my Instagram post about the whole ordeal, I'm just trying to get my Subaru to respect me.

[00:02:43] Bump Williams: Well, just like any good Allagashian, if you're in Maine, you gotta stop at Allagash.

[00:02:49] Williams and Brian: Yeah, got a lobster roll, had a house beer, brought home way too much beer. It was a good time. And I did not tell our Allagash friends that I was coming because I remember what it's like when somebody shows up at the brewery where you work, but it's a weekend and you're not working and then you feel bad and then you go see them and then you end up being at work seven days a week. Do I sound like I've done this a million times? Yeah, I totally have.

[00:03:11] Dave Williams: Yeah, you sound like you have some previous trauma.

[00:03:15] Williams and Brian: I'm not necessarily traumatized by it. Cause it's like, it's not obviously a terrible burden to go drink beer with your friends where you work, but you also don't want to spend six or seven days a week at the place where you work. So I was just trying to be cognizant of that and be, you know, plus I didn't want any special treatment. I just wanted to show up being an anonymous person, buy some beer, buy a lobster roll and leave. And that's what I did.

[00:03:38] Bump Williams: You're just a common woman. You're just like everyone.

[00:03:41] Williams and Brian: I don't want to be treated any differently than anybody else.

[00:03:44] Bump Williams: You are every woman.

[00:03:46] Williams and Brian: Yeah, I didn't want to be treated any differently than anybody else in Allagash, but I did pick up a bottle of ghoul ship, which is their pumpkin beer that they make in their cool ship to bring to L.A. for Thanksgiving because my sister-in-law who lives there loves pumpkin beers and can't find any in L.A.

[00:04:01] Bump Williams: Anything else going on in L.A. around that time?

[00:04:04] Williams and Brian: I don't know. Why might I be going to L.A. in late November for Brewbound Live? I'm so excited. It's going to be great.

[00:04:11] Bump Williams: The Brewbound Live is November 30th and December 1st. You can find out all the details The Brewbound.com on that.

[00:04:20] Williams and Brian: If you fly out early and want to hang with my family for Thanksgiving, open door.

[00:04:26] Bump Williams: Jess has invited everybody out to her family's place for Thanksgiving, and we'd love it if you all could join us in Santa Monica for a couple of days, talk beer biz, network, get some stuff done. It'll be a good time. You can find out all the details The Brewbound.com. We're not going to belabor this this week. But what we are going to hop into is a conversation with Dave Williams and Brian BK Kruger from Bump Williams. We're going to discuss everything about the state of the beer industry right now, what's going on with craft, what's going on with hard seltzer, what's going on with variety packs, seasonals, and what we should be looking for in 2022. But before we get into that conversation, there's been a lot going on this week in the beer industry, or at least the last week and a half in the beer industry, I should say. And Zoe, you've done a very good job of kind of summing it up for us. And a lot of these issues deal with McKellar and what's going on with their beer fest in Copenhagen and a lot of breweries dropping out. Run us through what's going on.

[00:05:32] Dave Williams: Yeah, I mean, if you have a Twitter account, you've probably seen someone talk about what's going on with McKellar. Their name was brought up over the summer in the big wave of a lot of accusations about toxic workplace and some harassment issues. And they have their annual Copenhagen festival. And people have been slowly dropping out. After a couple of weeks ago, the women of evolution, they put out on their Instagram page hey, we've seen a lot of breweries who've said they're advocating for women in the industry, but they're still attending this festival that has been accused of discriminating against people. Maybe you should check the actions of certain breweries. And in response to that, right now, 56 of the original 112 signups for the festival have pulled out. There's 59 that are still expected to attend. So it's about a 50-50 split of who is going and who's decided to back out. And it's been a hot topic of debate on beer Twitter for sure.

[00:06:37] Williams and Brian: Really what happened with McKellar was there were allegations of both unsafe work environments and discriminatory behavior and just kind of an all around toxic environment, both at some of the bars they own and license, a brewery they have in the US and San Diego and at their locations in Europe. So it's a kind of a global issue almost. I think the issue is that people don't think they had done enough atoning and they haven't really talked to the press. I think that's why this wave of people pulling out of their festival really, that's kind of what that's in response to. But the Mikkeller Beer Celebration Copenhagen is a pretty big deal. You have to be invited to participate. It's been, obviously the last one was held in 2019. So this is a reschedule of 2020 and the breweries who all said they were going, probably signed on a long time ago. And pre-2021 to be invited was important. And it was a mark that you were a quote unquote cool brewer right now. And I think it used to come with a little bit of cache. And I think that's by pulling out was probably something some brewers weren't really sure what to do about.

[00:07:43] Dave Williams: And then Keller has responded to everything. Originally, they posted on their Instagram saying, hey, we kind of are going to speak out against this necessarily and say we actually have handled some of these harassment cases properly. We've tried to better our HR teams and such. But then they created a second post at the end of last week saying, OK, we're sorry, like obviously something is wrong. Tell us what we need to do. So they kind of had to backtrack a little bit and realize that there might be more that hasn't been done yet.

[00:08:13] Williams and Brian: That post, you could take that a few ways. You could look at it and say that they genuinely do want to do better and they want to know, you know, what their fans and drinkers think and how they should do better. But the other side of that coin is, hey, there's like a whole industry of, you know, consultants that you could hire.

[00:08:27] Dave Williams: Yeah, there's definitely a lot of resources that they can take advantage of that are out there. they can hop on them if they'd like to. Right.

[00:08:38] Bump Williams: And that wasn't the only statement that they've released. I believe they, Mikkel even responded earlier this week.

[00:08:45] Williams and Brian: Yeah. So Mikkel posted something two hours ago and, you know, he writes on his own Instagram, says, I want to say that I'm sorry. We have not done nearly enough. We will be better. And he had gave some interviews last week on Danish radio. And it's hard to know, you know, obviously none of us speak Danish. I mean, I don't, I assume you guys don't speak Danish. I certainly don't, but you know, it was hard to know from those translations, like the tone that he was using, but some of the transcriptions that I read came off where he seemed like he was, felt like he was accusing activists of trying to ruin his business.

[00:09:19] Dave Williams: It definitely came across in their first posts that they seemed very personally offended by the original response, that they just, it didn't seem to connect with what they thought was going on. So whether that's just a disconnect with what's going on at the company or just a simple, just misunderstanding of everything, it was, there's certainly been a slight tone change since that original post.

[00:09:44] Williams and Brian: Totally, and you see it in his post. Like he says, some of the things I said came across as if I did not acknowledge McKellar's responsibility. That was not my intention.

[00:09:52] Bump Williams: Yeah, and so where does this situation go from here?

[00:09:55] Williams and Brian: Well, the festivals this weekend.

[00:09:57] Dave Williams: Yeah, I mean, as of when we wrote about it on Friday, it was about 46 breweries had pulled out. Another 10 more have pulled out since then. So we'll see if there's even more before the festival starts in the next few days. But yeah, it's just kind of a wait and see and see if this is going to continue with future events at other breweries that might have similar situations as well.

[00:10:20] Bump Williams: And there have been a few breweries that have sort of explained why they're going to continue to participate, right?

[00:10:27] Dave Williams: Yeah, Creature Comfort has actually put out a statement a few days ago, they are not pulling out of the festival. And they've pulled out of festivals in the past before, those more based off of larger companies buying out breweries and that being a different story about small businesses. They said, we're not going to pull out because we found in the past that negatively impacts consumers rather than the businesses involved in these controversies. And it impacts people who bought tickets to go to these festivals to specifically see these breweries or drink these beers. They didn't find that as an effective way to address the situation.

[00:11:04] Bump Williams: Well, it's quite a change too from, I believe one of the references was there was an uproar when Wicked Weed was sold to Anheuser-Busch and a lot of craft breweries dropped out of that festival. This is obviously a way different situation. Right. I've also noticed a couple of comments from folks at like Bottle Logic and Great Notion explaining why they were going to continue to take part in the festival.

[00:11:33] Dave Williams: Yeah, there seems to be a general consensus where people, they are still in support of like trying to better the industry and not necessarily support a toxic company or environment, but they don't want to, again, it's just negatively impacting consumers and what actions can you take to actually make a difference and to what the actual problem is. And that might not necessarily be participating in a festival that nothing might change from you participating in it. That's what the debate is.

[00:12:07] Bump Williams: What do you guys think is going to happen with future festivals, at least for those putting them on and those who are considering taking part in them?

[00:12:16] Williams and Brian: Zoe, have you ever been to a beer festival? I don't believe so I can't think of any that I've gone to. Yeah, I mean they've certainly changed a lot just in general, over the past like 10 years. But I mean Justin that's a good question I think, you know, one of the things that has been discussed a lot lately with the untapped festival earlier this month was that untapped had set a code of conduct for, you know, everybody attending the festival. And that's important because when Brienne and Bolden Act Advance were sharing all those stories back in May and June, there were a lot of women sharing their experiences at festivals, because what we've talked about this, what happens is a lot of overconsumption. And it can be dangerous for a lot of women shared pretty scary stories about assault and groping and stuff like that. And I think a festival is going to need to have a code of contact. There's going to need to be a safe way to report aggressive behavior and a way that will need to be dealt with on site because going home after a festival and reporting this happened like it's going to have to all be immediate in the moment. Saying something after the fact doesn't really help you in that moment when you needed the help.

[00:13:23] Dave Williams: I think it's gonna be interesting now that festivals are happening again, and there are more people going to these type of beer related events post this big wave of people coming out about these kinds of incidents, how festivals and breweries are going to change how they do things in response. Then put out these statements, we've seen them put out these codes of conducts now that these events are actually happening, how are those going to be put into effect?

[00:13:51] Bump Williams: Yeah, I think that's a good place to leave this conversation. We've got to hop on with our friends from Bump Williams Consulting, so stick around for that. We're three quarters of the way through 2021, and what's the state of the beer industry? Well, we're going to talk about it with the guys from Bump Williams Consulting. Here today are Dave Williams. Thanks for being here, Dave.

[00:14:14] The Brewbound: Absolutely, Justin. Thanks for having me.

[00:14:16] Bump Williams: And we've got Brian BK Kruger. What's up, BK? How are you doing, Justin? Thanks for having us. We couldn't be happier to have you guys here. So you guys shared your recent report with us. Craft dollar sales are down about 7% in off-premise retailers. When we look at this performance so far, how should we read into it? Is this a situation where it may indicate a stronger on-premise or even an on-premise return?

[00:14:44] The Brewbound: certainly be- you know stemming from that a little bit- some of the reports we've seen are that on premise. Is slowly but surely returning back to quote unquote normal these days and you know that's always been a threat to source some occasions. Occasions that came in last year maybe you know trickling back out this year. I think just in general though what we see in the off premise trend data. Is simply a function of just that giant surge we saw last year. down to reality a bit this year when you're doing the year over year swings. The good news is that a lot of times we also look back at twenty nineteen we're still seeing some positives there if you're going you know that two year gap so. It's in the red. You know not what you call healthy on paper but there are some silver linings in there some slowings of the negative that. That add a little bit of- your positivity heading out to the end of this year I think.

[00:15:39] Mikkeller Beer: Yeah, I think if you look at the overall environment, exactly what Dave is saying is absolutely true. I mean, we're operating a little bit differently than we were in 2020. Things are a little bit more spread out. When you mentioned the on-premise and the on-premise, people are definitely benefiting from that, getting back to a little, quote, normalcy and kind of more of a spread out business plan instead of everything being as off-premise centric as it was. And let's face it, those are some pretty big numbers for some pretty big breweries that had to comp in 21 that didn't have to comp in 20 versus 19. So it's definitely a changing environment. It's a challenging environment. You throw into the proliferation of seltzer skews and the confusion that that causes in the market. And things look differently this year than they did in the past.

[00:16:28] Williams and Brian: So this is ABP and national sales meeting season. I know you guys have a ton, we've covered a ton. We've heard a lot about Agave and Tiki and Tropical. What are other themes that you're hearing in terms of product innovation that we'll be talking a lot about in 2022?

[00:16:44] The Brewbound: I'll add a little bit on this. And I know BK has been the one that's really neck deep in the ABPs from our BWC side. So just some of the other things that we're having a lot of conversations about or trends that we're seeing as we had in the twenty twenty two is. Single service specifically nineteen twos are getting a lot of focus. They were a player inconvenience to start the becoming a much bigger player in groceries you're starting to see a lot more suppliers get into that format and they're moving. So that that's obviously something that a lot of brewers are going to jump in on as well. We're seeing a much more diversified portfolio in terms of offering variety. In a single skew options within one thing you can buy but variety in the broader sense to win. crossing segments dipping into different categories as well. And then there's always going to be the plays within certain styles or flavors or- aligning with what's hot right now that consumers are going after. But I'll kick it to BK on this because I'm sure he's got some more details.

[00:17:43] Mikkeller Beer: Yeah, Jessica, I think you covered it well as far as kind of those specific flavors. But if you want to break it down into an overarching theme, fruit is going to continue to be hot. I mean, in fruit, especially across those lighter offerings, as far as categories and styles, we've seen Seltzer really introduce and put fruit forward for quite a while now. And that's transitioning and translating well into the other categories, whether it be wheat, any of your lighter offerings that are coming. And then as far as other things that are getting pitched and people are most excited about is really taking advantage of opportunities within your existing core markets. That may be a package size uptend as far as going into a 19-2. It may be very challenging. channel specific as far as going into C store and establishing a footprint there. Higher ABV is something that also a lot of people are talking about and kind of that next evolution of where seltzer is now as far as the harder seltzers and more cocktail mixes across the board. So 8%, 9% ABV, not as calorie counting centric as we've seen in the past. really trying to capitalize on that FNB consumer that may not be as health conscious or health aware as far as their decision making and trying to present something within your SKU offerings that is different than what you have that reaches that consumer that maybe you're not hitting right now with just some of the lower calorie, lower carb traditional offerings that you have.

[00:19:10] Williams and Brian: Fascinating, really excited to see all that stuff roll out next year. I do want to talk a little bit about 19.2 ounce cans, because Dave, as you mentioned, like they traditionally were for C-stores and now they're getting into grocery. That's really interesting to me. Like I have some theories is that, you know, I feel like one of the tenets that we all knew and believed in the beer industry is that, you know, the sun rises in the East and brands are built in the on-premise. But 2020 showed us that, first of all, it wasn't possible. And second of all, it doesn't need to be true anymore. Is this proliferance of 19.2 ounce cans an outcropping of that? Is it like a way to drive trial? And why do grocery stores want them? What's going on there?

[00:19:48] The Brewbound: You know, if you see something's working in one area and you think you have a shot at replicating that success in a different area, then the trends have always been behind that package. And granted, it's been a small universe. It really still kind of is a small universe. We're seeing more and more SKUs get added to it. But if we had this conversation five, six years ago, it might have been five to 10 SKUs total that made up that world. And I think suppliers, And retailers, no matter the class of trade, they see the potential there and then they want to start sourcing those occasions. So if you're shopping, whether it's in a C store for a grab and go occasion, you're doing something quickly or you're walking through the aisles in a grocery store and you see something that catches your eye or you've wanted to try or You know you like, but you don't need a lot of it at once. You grab it and you literally go with it. I think it's more just trying to ride the success of that format scene in one area and replicating it in another.

[00:20:45] Mikkeller Beer: This really isn't anything new. We've seen the evolution of the single serve occur in the past where it used to be traditionally 22 ounce bombers and some of them were mainstream. Some of them were the higher ABV. Some of them were specialty beers. That segment has pretty much died out as far as grocery, but the shelf space is still there. Like retailers are still saying, OK, I want that single serve opportunity. Where do I need to go? So now instead of those bigger bombers, they're going into 19 two and they do absolutely see what's going on in C stores. And that's also what more of the successful breweries are pitching into them is here's my success story with this consumer. The chain grocery store is not happy with that consumer just going to a C store. They want to be able to capitalize on that impulse buyer, that same purchase within their wall so they don't have to leave to go to someplace else to get it. So again, just kind of a natural evolution of that single serve. We've seen it before. It's going to continue to evolve. Who knows where it's going next, but this is absolutely where it's going here in the next year. Are they giving it a cold box space? you are seeing cold box space. You're also seeing display space for it. You're also seeing it kind of out there on the edge as far as kind of the end of aisle cold box displays. So any opportunities that they can get to get that, if you want to consider it an impulse buy, but I like to consider it an additional buy because you're still going to be picking up your six pack, your 12 pack, your variety packs, but Hey, I'm going to pick up a couple of single serve 19 to very familiar package, very familiar brand. You're getting your bang for your buck, especially with the higher AVVs. So just capitalizing on everything. Where's that space being pulled from? So a little bit of allocation. I mean, there were quite honestly, too many hard seltzers that got shelf placement. They ate into some of that single serve opportunity that was there before. We haven't seen what the sets are looking like yet for kind of February, March, April timeframe of next year. But with the retailers that we do work with, we do know that there's going to be a constriction of the shelf space to Seltzer and not as much leeway towards, hey, it's a brand new Seltzer brand, we're going to take them all. They're starting to reallocate their shelf space to these higher growth segments or these higher opportunity segments and stick with the ones, whether it's traditional brands, traditional craft, traditional Seltzer that have a proven track record.

[00:23:12] Williams and Brian: So with seltzer getting the 19.2 ounce treatment as well, or is it just core beer?

[00:23:17] Mikkeller Beer: You've seen a little bit of seltzer come into 19 twos as well, and why not? I mean that consumers there. It's a familiar package. You are seeing companies present and retailers are excited about it, but they're also a little bit cautious, not wanting to overextend on the 19 two. It's going to have to be something that's proven something that they know is going to have that rate of sale for them to get the shelf space on it. but you will see some seltzers in 19.2 as well. Either it's traditional seltzer or some of the harder and kind of the elevated ABV ones.

[00:23:49] Dave Williams: And another one of these themes that we keep hearing about coming up is lifestyle brands. And everyone seems to have a different definition of what that means. Could you guys give us like, what is a lifestyle brand? Is it like the new beverage company term? And are there any brands that are embodying that right now?

[00:24:08] The Brewbound: To your exact point, I think when you use a phrase like lifestyle, it means different things to different people. You can look at some of the top growth brands for craft this year, and you see a few non-alcoholic brands on there. And you could certainly make the case that non-alcoholic brands fit a certain lifestyle that consumers are looking to follow at a certain point. We've also seen interesting trends develop with hard kombucha brands. And that's certainly a very specific consumer that's buying those. A lot of growth on the coasts right now, not so much in the middle of the U.S., but, you know, in California, we're seeing those kombucha brands rank at the top of other F&B brands side by side in terms of size and scale. I think it really just means what attributes are you looking for in your brand that fits what you're looking to do with your life? Low-cal, low-carb offerings are big now. You're seeing a lot more focus on the packaging. Make that pretty clear. in terms of what this brand is bringing to the table, not just with craft, but beer and beverage alcohol of all, of all categories. So we have seen some trends with it. I am curious to see how those trends continue to cycle because those areas I described are still pretty small in terms of their percent ownership, whether it's of beer or within craft, but there are some standouts, you know, brands like harpoon rec league, is carving out some pretty good spots in the northeast and in other pockets. There's a dogfish head slightly might is another one that's kind of leading that charge. So you see brands cycling and having success. The universe is growing just not as rapidly as it was from that initial boom. But that's something we're keeping an eye on when it comes to cycling trends for these lifestyle type brands or segments or styles.

[00:25:52] Mikkeller Beer: Yeah, when we're talking lifestyle brands, which the breweries are really after is loyalty. And if they can get that loyalty within a particular segment, then that's a lifestyle offering for them. It doesn't have to be athletic defined or outdoors. I mean, it doesn't have to be, but it is all of those things. So they're sitting there saying, getting very sophisticated saying, What is the consumer that I currently don't have in my portfolio right now? What are they drinking? What are they into? I can now be at the point where I can develop a brand that fits into that. I can market very directly, especially through digital and social. And you can also get very sophisticated if you have your store level data and you know where that consumer shops. you can direct your efforts as far as distribution to be highly targeted. So you use a lifestyle to get to the loyalty and you bring the retailer along as far as the profitability because you're satisfying everybody's needs and the distributor follows the game plan as well and is able to execute it at levels that we haven't seen before. So very highly targeted. That's why you see brands or breweries that used to be, hey, this is one brand, this is another brand. They still do that. Now they have it. This is a brand for this particular person in this particular drinking occasion. They happen to have this particular lifestyle. I have another three or four buckets that target other similar, different demographics and lifestyles as well. And if you can get loyalty in each one of those, then you're having success.

[00:27:21] The Brewbound: I go back to thinking, you know, there's three ways to grow a category, right? You get them drinking more frequently. You get them spending more per occasion where you get more consumers drinking. And I think this lifestyle is aimed at getting consumers more consumers into your family or your category or your segment. So it's it's in addition to what you're already bringing to the table just trying to grow the category and the consumer base at the same time.

[00:27:47] Bump Williams: Well, speaking of growing a category for all the chatter of Seltzer's demise, the segment remains up 14% year to date. So I'm curious to get what your expectations are for where the segment ends in 2021. Is this looking like a $7 billion category? Is this a $8 billion category? What's it going to be in the off premise by the time the calendar wraps?

[00:28:15] The Brewbound: I don't want to be the rain cloud that comes in right now, but if you look at just Q3, the seltzer segment, the off premise, I would call relatively flat. But yeah, let's be honest, that segment is still up double digits year to date. end of twenty twenty one it's going to be one of the few standout segments in terms of growth. Across the board you might see imports remain above break even F. and B. has been treading water right above break even so there might be. Some pockets of success you can point to for beer with seltzer standing at the top when it comes to their trends at the end of the year. I do wonder. About when we're going to start to see that saturation point get hit we might be approaching it from a brand in a skew count perspective right now. right now you can't argue with the fact that the trends continue to go up and up. At an aggregated level so. I think we'll see it close to the end of the year pretty pretty happily and then. Next year it's that kind of that thing again you wait and see if more consumers are gonna start trick trading their occasions. Towards seltzer from somewhere else and keep the trends on the up and up.

[00:29:20] Mikkeller Beer: I think next year will be a true gauge as far as what Seltzer is able to sustain. And if you look at the beginning part of 2022, there's going to be some big comps that Seltzer manufacturers are going to have to make with all of the new brand introductions and brand launches. And absolutely, they do have plans to come up against those numbers. They're very aware of it. But I think 2022 is going to be a very telling year for, OK, how loyal is the Seltzer consumer, where is it that they like to go within brand families? How much trial are they actually doing? Are they done with it by now? And overall, what percentage of their drinking habits is Seltzer going to occupy? I think it's been too many variables thrown at the Seltzer game over the last couple of years with all the new introductions and all the marketing and all the shelf space. When you start to see things normalize, I think we're going to get a better read. Are they able to sustain? They're going to have to comp what they did this year first, and then they're going to have to be able to build it from there.

[00:30:19] Bump Williams: MAX WIETHE, MD, PhD So dollar figure at the end of the year, what do you think it's going to be? What are we on pace for, at least?

[00:30:26] The Brewbound: MICHAEL SCHWIMER, MD, PhD It's a scary statement to make, because if I look at year-to-date trends right now, it's right around $4 billion in the off-premise arena. I think- putting up. Around a little over one between one one and a half each quarter I think we'll see that get over. You know get over the six between six and seven in the off premise data I think we'll see it settle at I know that's a pretty broad range when you're talking billions of dollars but that's- where I see things settling out. As the you know the off premise scan data would have it show.

[00:30:59] Dave Williams: And we've heard about, like, the culling of hard seltzer brands. We said goodbye to Coors Seltzer over the summer. Is this something that you're actually seeing playing out this fall? Are there brands that are just going away?

[00:31:11] The Brewbound: You've seen some brands already get talked about as being, you know, D.C. or the focus is going away. I mean, Coors Seltzer came and it went and, you know, it was that was a pretty short window of time. I think when you look at the leaders right now in terms of whether they're growing flat it said I think that core. The top ten or fifteen that account for ninety plus percent of seltzer you'll see those brands stick around for a while there's no denying that. I think you're gonna continue to see new entries come into the play on a much smaller scale but- the leading macro brands the leading independent brands I think the universe collectively is still swelling. So we haven't seen it have a negative impact in the big picture. But I think at some point, and this is to BK's point before too, it's at some point, it's not going to be the automatic yes on the shelf. So there's going to have to be alternative routes to find consumers or routes to market. I think it's going to get harder and harder for a new supplier to find that spot on the shelf unless they're bringing something brand new to the table, whether it's the ranch water twist. whether it's the new flavor variant, ABV, Up or Down, any type of added health benefit when the ingredients, electrolytes or vitamins, et cetera, those might get a look because those align with where consumers are searching on their labels for what the brand brings. But I think, again, it's going to get harder and harder. There's more and more barriers to entry now at the retail level, for sure.

[00:32:41] Mikkeller Beer: If you look at some of the biggest misses on forecast for this year, they were definitely from being overly optimistic as far as the power of Seltzer and every new brand is just going to increase and increase and increase, really didn't come to fruition to your point where you're asking, is there going to be a culling? There's going to be a reduction. There's going to be a learning curve where people are going to get a little bit more reality based, probably a little bit less overly optimistic as far as what each offering is going to bring and even what their mainstays are going to bring. I think you're going to see a little bit more of a conservative approach to the forecasting, a little bit more focused approach as far as what's going to get programming and what's going to get retail shelf space as well. And yes, as far as a lot of the local seltzers, some of those are probably going to be disappearing in the year 2022. And you're going to see more of that dominance from the national players and those that have the scale and the leverage and the success story to take up that shelf space.

[00:33:38] Dave Williams: What has been the general retail consensus about this segment? Like, are they reallocating that shelf space? How are they reacting to its performance?

[00:33:48] Mikkeller Beer: I think reallocation might be a little bit strong. I think focus is probably the better word for it, that they're going to focus their shelf space with those proven brands and the ones that they feel are going to be able to be incremental next year. But I do feel like you are going to see a little bit of a shrinking. of that overall hard seltzer shelf space back down. Many of the reasons we've already talked about before as far as proliferation of different pack sizes or RTD opportunities or brand extensions off of existing brands that are successful, that's a pretty safe bet if you're a retailer. This year, if you had 25 new seltzer offerings and only three to four of them had any success, and you're looking to shelf space allocate, you're going to be a little bit more conservative as you go into it next year and not have space for each and every new line extension or entry into the seltzer market that hasn't had a chance to prove themselves.

[00:34:46] The Brewbound: A lot of those single flavor SKUs are going to be the ones that get the axe because right now, it's still overwhelmingly skewed toward variety. single flavor SKU really has to fly off the shelf for that one to probably get there side by side with the variety pack.

[00:35:01] Williams and Brian: I'm shocked there is still as many single flavor SKUs as there are right now. I surely would have thought those guys would have gotten boot like last year.

[00:35:09] The Brewbound: I think it's still 75% are variety pack sales for Seltzer overall, and that 25% that's doing singles, probably only the brands that we can rattle off the top of our head. It's been overwhelmingly skewed toward variety even today, and those are the SKUs that are growing, whereas the single flavor ones are typically in the decline.

[00:35:30] Williams and Brian: What lessons do you think the greater beer industry has learned from hard seltzer over the last few years? Because I think we see seltzer's influence playing out a few other places throughout the rest of the category. What do you think people are taking away from what we've seen?

[00:35:43] The Brewbound: I think one of the biggest things is the importance of having a well-diversified portfolio. terms of what categories you offer we've done some consumer surveys recently. Among the same consumer base let's say it's two hundred consumers. 80% of them say they drink craft 75% of them say they drink seltzers 70% say they also drink RTD spirits or canned cocktails that's a pretty high overlap among that same pool of consumers so you have to imagine that a lot of the occasions are being traded off you know between those three categories or segments. So I think having something that you bring to the table to address the different occasions for even just that one single consumer is important. And not only that but making sure that consumers are aware that you offer all these different categories or types of beverages under your umbrella diversification has been extremely important as well as focus. You can be diversified, but you have to make sure that you're focusing on the brands that are moving, and the brands that the consumers want. You don't want to get too lost in the weeds trying to do everything. Do the handful of things right, keep your focus on your foundational brands, and then you sprinkle in the brands that'll bring in those incremental occasions on top of that. You know, we preached about in the past, but it's really been more important than ever these days.

[00:37:06] Mikkeller Beer: And focus is the key word in there, and having that prioritization within your house as well and being very clear with your distributor and your retail partners as far as what your focus is what the priorities are, and what the expected return is from anything that you're bringing into it, the most successful brewers are the ones that have been. very diligent about doing that. They're very disciplined in their planning and their approach to market. And you also look at it. They're also very quick to react to what current trends are. And they react in a way that doesn't take away from the focus that's still going to be driving things. But they have their toe in the water a little bit earlier than everybody else.

[00:37:43] Bump Williams: So you mentioned some consumer data that you guys recently did. Are you getting anything from consumers that are sort of pointing to seltzer being a gateway to spirits-based RTD cocktails?

[00:37:57] The Brewbound: I think just the fact that there's a very high amount of overlap between them, you could infer that that's certainly a way into it. You know, we look at some data too about sourcing. You know, if you used to spend this much in a certain category, you don't spend as much there now. Well, where else are you spending your money in beverage alcohol? And we are seeing overlap with wine and spirits for among seltzer drinkers. So I think you could certainly put some of those pieces together and say that seltzers might've been a gateway in, but I think also just the increased number of ready to drink offerings out there now that share similar attributes or labor profiles. you know, they did it on their own too. I mean, you know that you like a certain type of drink and now it's not just front and center, but more options are front and center too. So I think it's, um, it's just been the progression of spirits drinkers before or newfound ones that found out they like a certain profile in their beverage from drinking seltzers.

[00:38:58] Williams and Brian: So one thing that I thought maybe one of you would say when we asked about the hard seltzer lessons question is that we've seen a lot of craft breweries lately announcing variety packs. And for some of them, it's their first go at a mix pack. And we've seen these before. I used to work at Sam Adams who has had a variety pack every season forever. But do you think more and more breweries jumping onto the variety pack train is because they learned through the success of variety packs and hard seltzer that consumers want variety and they don't want to have to shop that much? Do we think they're related or is that just a crazy conspiracy theory?

[00:39:33] Mikkeller Beer: I think that they are related. I also think that they're learning more from what their consumers are consuming on premise or in their own premise. They see that they are sampling around. If they have 15 different IPAs, somebody may drink four to six of them, not full servings, but it is a sampling culture that's been created within craft beer. Variety packs are the perfect vehicle for that. In the past, it used to be kind of cost prohibitive as far as the extra cents per case. that you were giving up, but if you're not able to get shelf space because you don't have it, it really doesn't matter what that extra cost is. You still need to find a way to make it profitable, give the consumer what they want, and in turn, you're giving the retailer what they want. Retailers are craving variety packs, without a doubt, allocating more shelf space. It's a great way to keep things rotating. It's a great way to offer variety that craft has always been known for. Seltzer is absolutely taken full advantage of that, and now you have variety pack consumers like you're saying earlier, just that people do not purchase as many single serve six pack options. Single flavor. You're starting to see that transcend across all categories.

[00:40:45] Williams and Brian: Might be a silly question, but within craft are 12 pack variety packs always line price with regular 12 packs?

[00:40:51] Mikkeller Beer: Not always, it really depends on what the offering is. And that's something that you also have flexibility. It wasn't as profitable, put some of the higher hopped or the more specialty hopped IPAs into a variety pack because you couldn't hit that price point. But now if you're able to get one, two, sometimes $3 higher because you're offering bigger beers, more specialty beers, the consumer's willing to pay for it and they're getting variety and they're getting a good deal out of it. So not always need to be aligned as far as the variety pack pricing as well.

[00:41:21] Bump Williams: Are they getting the space? This is not an easy package to add to your shelf set. Are we able to get that space? Are the brewers who are putting these out, are they getting the space that they need for these?

[00:41:35] Mikkeller Beer: Most cases, yes. Some cases, no. It really depends on if it's channel specific as well. As far as National Grocery, you probably need to have a better story to go into it, and it may be a swap of something else that you've had on the shelf that's not performing as well, but you can almost guarantee that this is going to have a higher performance. If it's independent, you can get very aggressive, establish that local slash regional presence, get it on display, have it truly be a specialty offering, and you may not even need the permanent shelf space in there if you're able to get enough feature activity for when you release these.

[00:42:10] The Brewbound: Yeah, I would also add that if we look at some of the top craft variety packs in terms of growth this year, there's a decent amount of them that are new have no sales from the year ago period. So I'd say that would indicate that there are certain brewers that have been able to get space with these new formats. Whether that means swapping something out from their own end to fit that in versus getting an incremental facing is obviously another story. But I think we're seeing the overall universal variety packs take up a little bit after it had been trending down for a while. So I think that that does speak to these finding a space on the shelf. maybe now more so than they might have in the last couple of years.

[00:42:50] Williams and Brian: Dave, I'm glad you mentioned that because I spent a lot of time with your Q3 report last week, and I noticed that the report showed variety pack share of crap dollars was steadily declining until just about this year, and it nudged from 6.9% to 7.1%. What was driving those declines of the past few years, and do we know if that increase in dollar share is going to be here to stay? Because variety packs are really labor intensive thing to put out in terms of brewing all those different beers, getting those formulas approved, getting your labels designed, getting them approved, getting it into a box, like that's a lot of work. So is this going to be worth it in the long run for everybody that's putting one out now for the first time?

[00:43:30] The Brewbound: I think if you look back, the reason variety pack share was probably declining for craft year over years, because a lot of the top selling variety packs in the past were 12 pack bottles, right? The big brands that accounted for a large size of that variety pack pie. And those were the SKUs that tended to struggle year over year, slowly being eaten away at by other areas. A lot of the variety packs we see coming in now are cants. The shift is happening, but it was pretty top heavy. And as those handful of SKUs decline, the share collectively for variety pack erodes. But when you peel the layers back and start looking deeper, there are a lot of examples of successful variety packs. And most of those happen to be cants these days, too. So I think As that transition happens, some of these could put roots down Amanda Huang on for a long time. Consumers have and continue to look for variety in their options, particularly within Kraft. So depending on the mix, depending on what's in the package, at what time of year it's being brought out, I think there are a lot of factors at play that can point to a successful run moving forward. But it's going to continue to be constrained because of the top-heavy role that those legacy packages play, I would say.

[00:44:44] Mikkeller Beer: Dave, I'm glad you brought up the can thing, because we talk a lot about trends as far as being individual brands or brand families. But if you look at the alarming can trend that we have in the US, up close to five points this year as far as taking market share from bottles. Can share is now at 58%, again, up 4.9% over last year. The lowest index part of the country as far as can share is in the Midwest at 54. So I know in the past people are like, Oh, is craft the right vessel or is can the right vessel for craft? Absolutely it is. And that's really the story. And that does give you a little bit more efficiency to dial into the variety packs. And it does make it a little bit more economical in a lot of cases, you're in a hot category, you're in a hot package, and you're in something that the consumer wants. And the retailer knows that they can make a profit off of it all plays. It all plays well.

[00:45:39] Dave Williams: So we're officially into the fall season, even if the weather doesn't quite realize it yet. And we were talking earlier about the big fall seasonal beers, pumpkin beers, German Oktoberfest. How are those seasonal beers performing?

[00:45:54] The Brewbound: I think collectively as a seasonal universe, you know, that seasonal lineup within craft is still down to date, maybe at a faster clip than the craft average. So when you want to say how our craft season was doing on a large scale, you know, still in the red to some degree and losing a bit of share. However, there are certain styles and this time of year in particular, and it's, I think we're hitting 40 degrees out here in Connecticut. So it's starting to feel a bit like fall and I'm loving every minute of it. But I think this time of year is when you do see that expected spike and pumpkins certainly play a role in that. you've seen them on the shelf already. They will always be that staple of this season. I think what we're also seeing more recently than maybe years past is within craft seasonals, a bit of a shift toward more of those German inspired styles as well. That is giving, you know, a shot in the arm to that seasonal profile when Q3, and then heading into the colder months, I think seasonals in general, they see their highest average sales this time of year. There's obviously the summer seasonals, the winters, the spring, et cetera. But fall is where craft seasonals really shine from a magnitude perspective. I think there are a lot of brewers playing with new styles to go in addition to the pumpkins that we typically see on the shelf.

[00:47:19] Mikkeller Beer: And with seasonals being down about 11% and losing about a half share year to date, you have to ask, where is that consumer going? And is it a conscious effort by the breweries to say, hey, we're steering them towards something else? It's a little bit easier to manage. We know that other people may have an advantage on us as far as being able to hit the tighter windows for the seasonal offerings. So who's really benefiting from it? I mean, that consumer, probably an IPA consumer. So there's more seasonal offerings in IPAs that aren't quote seasonals as far as categorized in the syndicated data. But breweries are offering IPAs in a seasonal way that's not necessarily showing up in the seasonal data that we're seeing. You also look at the role of who's being successful in seasonals or who has more success getting to the shelf, it's becoming more of a kind of local and a regional play because they are a little bit tighter to the supply chain, a little bit easier to hit those offerings as far as timing, and their consumers are looking to them to be their seasonal provider more so than some of the larger breweries that they were looking towards in the past.

[00:48:27] Dave Williams: Dave, you mentioned there seems to be a lot more of those like German style beers this season. We've noticed a lot of these like fest beers that have been having a moment. Is that something you're seeing? And can you credit that to anything?

[00:48:40] The Brewbound: Yes, it is something that we've been seeing. And I think in terms of what the shift has been, I mean, that might be just a conscious effort to maybe introduce a lighter option that you can play the frequency game with or the volume game with. You know, some of those pumpkin beers out there are heavier, whether it's in terms of the ABV or the spices or the flavoring. So let's even say on premise, you might have one to two of those, whereas some of the lighter styles, the more lighter German inspired offerings, you could crank that frequency up. And I'm not advocating high frequency every time, but the point being is, you know, playing the frequency per occasion game as well. Something new that you might not have seen in the past that provokes or, you know, creates excitement. but it's also frequency of purchase from the off-premise or number per occasion in the on-premise. I think frequency has a lot to do with the shift as well. And taste.

[00:49:35] Williams and Brian: Elsewhere in your report, hazy IPAs, you know, imperial double, triple IPAs, loggers and sour ales are all having a pretty good year. So what are the opportunity areas that you see for craft brewers heading into 2022? Anything in addition to those styles?

[00:49:51] The Brewbound: Tying a little bit back to what we talked about earlier today, in terms of that flavor centric or fruit forward, we're seeing a bit of a rise behind wheat beers lately that feature some type of flavor component to it. It's a lighter style, it's an easier drinking style, but it also has that flavor component to it. And I think that is an area we're seeing grow now and could continue to be an area that'll grow in the future as well. you know, lagers, whether it's a, you know, attached to a flavor component or just a, you know, a spin on, on that lager type of beverage, I think is, is going to continue to be an area where brewers explore. But yeah, I mean, you look up and down the list of which styles are growing and which ones are not. It's, it's the IPAs, but variants of, it's the sours that offer the complex profiles. And again, tying back to another theme today, a lot of sour rotationals too. variety pack offering seasonally timed offerings within that sour umbrella. I think you're going to continue to see brewers play in that space. So it's it's sticking within the pillars of what's been working just putting a new twist on it to build out that portfolio a bit more.

[00:51:01] Williams and Brian: So, I mean, how many years are retailers willing to watch a trend grow? You know, so let's say like non-ALC beers, you know, before they're willing to start shuffling their shelves and coolers to accommodate it. Like how long does something like a rotational sour as a trend item have before it just becomes adopted into the mainstream at retail?

[00:51:22] The Brewbound: Well, think about, I mean, we've been probably having conversations about what role sours could play within craft for a long time now. You know, I think about when, when sequence came out, when that's now thinking back a little while, and that kind of opened everyone's eyes a bit wider about the scalability and the staying power of, of sours within craft. And it, you know, sours are still a very small piece of the overall pie. So I think as long as IPAs and loggers and weeds continue to dominate those slices of the pie from a share perspective, and then there's the size that that universe brings in. It's gonna be hard for another style to carve out a ton of space to really see what they can do in there, but it's gonna be just a little bit at a time nibbling away at the shelf space at the share. I don't think it's something that can or will happen overnight, unfortunately.

[00:52:13] Mikkeller Beer: I think it is a little bit at a time and you have to understand who that consumer is. And it used to be highly targeted. Oh, there's a sour consumer out there that we have to go after. Now it's not so much that they're a sour consumer, but they're a fruit consumer and you can deliver them a sour beer and get it more into the everyday. So you're seeing more of those approaches start to play out in the market. may end up being the same consumer, but it's a different approach to get it there. It's a different positioning on the shelf, and it lends itself to a little bit more chance for success and definitely opportunity to spread out a brewery's portfolio into that area.

[00:52:48] Bump Williams: Just mentioned non-ALC beer, and I recently sat in on Heineken's national sales meeting, and 0-0 is a major focus for them. And looking at your report, the growth of Athletic is really unreal year over year. I mean, it's a $12 million difference, more than $12 million at this point, and that's only three quarters of the year. Are non-ALC beers getting the respect at retail that they seem to be commanding at this point? Or at least those two brands have sort of taken us into another level. And we also see the growth of Lagunitas IPNA and what Boston Beer is doing with just the Hays, but that's not on the level of the others at this point yet. But are they getting that respect at retail? Are they getting that shelf space?

[00:53:38] The Brewbound: I think they are getting respect at retail. And I mean, I can say anecdotally, you walk into certain stores around here and that not health space has tripled, you know, in the last year or two in terms of not just athletic Lagunitas or Boston beer, what they're putting out there. But I think there's a lot of other non-ALC dedicated brewers that are now getting a look that they would not have gotten in years past. So I think, The staying power, now, a lot of that is still pretty fresh, sure, in the data, when you look at the gains there, but there is staying power. Zero, zero is a testament to that. There's other non-ALC imports, like KlausDollar, that have stuck around and churned out growth year over year, so there is proof that there is the non-ALC consumer out there, and there are that the ability to grow year over year has been outside of Kraft lately thus far, but we're seeing it translate now in Kraft, and yeah, I think the respect is there. Retailers know that consumers are certainly looking for it right now and the big brands are getting their space and the smaller brands are getting a look to see what they can do.

[00:54:44] Mikkeller Beer: You are seeing it evolve from the warm shelf into the cold box because consumers are asking for it. They're like, hey, where can I find, name a non-ALK? And then it used to be, okay, well, it's tucked away over here somewhere on a warm shelf. Now they realize that there's some velocity in there. That consumer is loyal. They keep coming back. They're looking for it in the cold box. So they're gonna designate some space towards the non-ALK section more and more. And you have tremendous success stories and massive marketing campaigns and consumer awareness and health conscious attributes that are all over. Retailers respond to that and they want to provide their consumers with it on the shelf.

[00:55:26] Dave Williams: Are there any products on your guys list of the top craft growth brands that surprised you?

[00:55:34] The Brewbound: You know, if I look at the list and break it down, I can't really say that there's a lot. entirely surprising out there I mean you look up it's double I. P. A. 's I think maybe what still surprises me is- just the sheer size that a new hazy I. P. A. can become so quickly. We know he's still a hot style a hot variant under that I. P. A. umbrella but consumers are still going out and buying the new hazy so I think that staying power I won't say is surprising but is maybe just reassuring to see is that there's still that experimentation out there. The search for what's new, what's next, that's driven craft for a while is still out there. It's dialing up the ABV and the IPAs, you're seeing variety packs pop up there still. A lot of those brands, it makes sense when you look at the overall theme or the attributes that each one comes bearing.

[00:56:31] Williams and Brian: It is crazy to think about how hazy has changed. I mean, Davey, you're in New England too. I remember taking trips to Vermont to pick up Hattie Topper and Sip of Sunshine and the hazies today. I think these beers are wildly different. The bitterness is almost completely dissipated from the style. That's definitely another conversation for another time, preferably one with several beers.

[00:56:55] The Brewbound: So yeah, the hazies of yesteryear were the hazies you didn't even know were hazy because they drank it right out of the can. You didn't even know what they looked like inside.

[00:57:02] Williams and Brian: No, and the can told you to drink it from the can.

[00:57:06] The Brewbound: Ah, what a world. You're right. Evolving universe and quickly at that.

[00:57:12] Williams and Brian: So the most recent report shows that the count of craft brands has declined by nearly 10%. That's pretty big. What do you guys think this tells us about the current retail landscape?

[00:57:24] The Brewbound: I'll let BK take this one because he mentioned it a little bit before about the focusing and the rationalizing that a lot of suppliers and retailers and distributors are all considering right now.

[00:57:36] Mikkeller Beer: Yeah, I think if you look at what happened in 2020 and which brands were successful and they were kind of the more old school established brands and retailers used to have the mentality of craft is all about variety. And there's still a certainly a lot of that that holds true, but it doesn't necessarily have to hold true on their shelves. They know that consumer is going to come in and still purchase at a rate not irrelevant of how many craft offerings they have, but they know that they're going to be able to focus them. And if they're not picking up something, then they're going to have something else on the shelf that's ready to do it. So when you see it decreased by about 9.7%, retailers are getting a little bit smarter. They're like, Hey, some of these brands that I had out there, just weren't moving. They weren't hitting the hurdle rate. But if I allocate that towards a brand that I do know is going to have success, it may actually accelerate that brand anymore. Consumers getting what they want. I'm getting more profitability over it and my rate of sale continues to increase. So they're being smarter with how they're allocating their shelf space, not falling into the trap of I need everything from every brewer and then having to worry about code dates and kind of lack of focus. So Dave's point again, Focus, prioritization, if you play that all the way through from the brewery to the retailer, you can direct the consumer into certain buckets and make it a little bit easier on yourself and the retailer and the distributor all at the same time. There still is separate outlets for that creativity and that variety and the multiple offerings, but it doesn't necessarily have to be on your national grocer's shelf that they have limited shelf space allocated for.

[00:59:18] Bump Williams: Maybe that's the word for 2022. If it's not, it should be, without a doubt. Well, I've come to the rationalization that we've got to end this. Thanks for the time, BK and Dave. We really appreciate it.

[00:59:34] The Brewbound: Absolutely. Thank you. This is always fun.

[00:59:37] Bump Williams: Well, we appreciate the insights and I know our listeners and viewers do too. So guys, thanks for the time. And we're going to say that's our show for this week. Thanks to our one man audio team, Joe, and we will see you next week.