July 16, 2013
Dear Client:
New Belgium Brewing Co. chief and founder embarked on a press tour last week to set the record straight on much of the chatter that has centered on the craft brewer sent they became employee-owned, flagship Fat Tire growth slowed, delayed schedule for building out their Asheville brewery, and general distributor malaise. Craft Business Daily covered the finer points, but wanted to highlight some key points Kim made about the brewery’s growing pains.
KIM ON FAT TIRE SOFTNESS: Fat Tire is down 2.2% in national IRI all-channel scans so far this year. “There is marketplace softness for flagships across the board.” And Fat Tire is a bigger brand than the vast majority of craft brewers in the U.S. “When you have a flagship that’s that large a part of your total portfolio, it takes a lot of new brand introductions to make up for even a small loss in market share. So we realized … it’s really important to continue to introduce that brand to beer drinkers who maybe either are new to the category and aren’t aware of it, or have been drinking craft beer for a long time and have lost sight of Fat Tire.”
ON THE ESOP DEAL. Kim stresses the deal didn’t saddle the company with too much debt, because the deal comes in tranches. “The selling shareholders took 18% of the total value of the ESOP transaction. And it will be a staged transaction over many years. And I think people have this sense that perhaps we really stressed the company with debt from the ESOP, and that’s really not accurate.”
ON ASHEVILLE DELAY. Kim says they spent $30 million building capacity in Fort Collins last year and this year. That means they’d have “excess capacity in Fort Collins when we bring Asheville online, and won’t be able to immediately use all of the Asheville capacity … we’ve always been fiscally conservative, and want to continue to do things like philanthropy, investments, renewable energy, the ESOP. [And we decided] that it was probably best to push that [Asheville] timeline out a little more.”
ON GETTING TO FIFTY STATES. Kim estimated that NBB could be in all fifty states by 2018 or so, and they will start expanding more aggressively once the Asheville plant is built. She cautioned that they “have to very carefully walk the line of capacity” over the next two years: “We have opened a few small markets this year in addition to [imminent] Florida. Some markets, we can fit in, because they’re not too many barrels. And then, Pennsylvania or New York for instance, they’re too big before Asheville to fit in. So my guess is that 2014 will be … maybe 1 bigger market [and some smaller holes] and 2015 will all depend on where we are in terms of the capacity we have here, and when we anticipate Asheville coming online. We have an order to it, but that changes as we see what happens with the markets we’re opening currently.” Which may be why Kim and vp sales Joe Menetre are embarking on a roadshow to visit as many of their larger distributors as possible.
NBB ROLLS OUT DELAWARE WITH NKS
Meanwhile, Red network 4.7 million case distributor NKS Distributors of Delaware, which has has some rocky press over the past few years as former owner Chris Tigani’s legal woes got worked over, had some good news to share with BBD on Friday: They’ve been awarded the New Belgium Brewing Co. brand rights for the entire state of Delaware. NBB joins their roster of craft brands including Boston Beer, Goose Island, CBA, NAB, Yards, Evolution, Starr Hill, Fordham/Dominion, Harpoon, and Shiner. “We are very excited and honored to have been selected to partner with New Belgium in Delaware. Their level of commitment and passion to the craft beer category is incredibly impressive. Their thoroughness in their distributor selection process is unprecedented. Their dedication to their people and the culture that they exhibit is surely an integral part of their success.
The craft beer segment is elevating the overall image of beer, which is critical as we continue to compete with wines and spirits,” said NKS GM Tim Donnelly to BBD. “Therefore, at NKS, we continue to invest in the enhancement of the craft beer segment in Delaware with particular focus on image, quality assurance and pricing integrity. We are constantly evaluating our ‘go to market strategy’ as the dynamics of the beer industry continues to evolve.”
BA CLARIFIES POSITIONS ON A NUMBER OF ISSUES
As brewers and a few distributors descend upon Chicago for the annual Beer Institute confab, their smaller cousins in Boulder, the Brewers Association, as updated and put in one place all of their position statements on a variety of issues. I’m not going to list them all (see entire statements here), but here are the highlights:
DISTRIBUTORS OWNING A PIECE OF CRAFT BREWERS, SECRETLY: That’s fine, but the BA says it should be disclosed. “Our desire is for transparency so that a brewer entering an agreement with a distributor is aware of any direct or indirect ownership interest in any other brewery.”
THREE TIER SYSTEM IMPORTANT: BA says that an “independent distribution tier that is unencumbered by undue influence, ownership or control by the largest brewers and ensures access to market for all brewers.” But…. small brewers should be able to self-distribute. It’s “often an essential element that serves to provide them access to market and increase consumer choice.”
DIRECT TO CONSUMER SALES. The BA believes small brewers should be able to sell “beer directly to qualified consumers” at the brewery.
NO RESTRICTIONS ON ABV. The BA says that craft brewers shouldn’t be limited on their alcohol content. “Brewers should have the right to offer beers of varying alcohol content and not be restricted by limits of alcohol by volume (abv) or alcohol by weight (abw).”
FRANCHISE LAW RELIEF. Here’s a big one. The BA says that distributors and brewers “should be free to establish enforceable contracts between the parties that both parties agree are fair and equitable. Franchise laws were enacted to protect wholesalers from the undue bargaining power of their largest suppliers. Applying those laws to the relationship between a small brewer and the wholesaler is unfair and against free market principles. Where franchise laws exist, the BA believes that any brewer contributing a small percentage of a wholesaler’s volume should be exempted from those laws and free to establish a mutually beneficial contract with that wholesaler. Without the leverage inherent in being a large part of a wholesaler’s business, a small brewer and wholesaler can negotiate a fair contract at arm’s length.”
Until tomorrow, Harry
“I have noticed that the people who are late are often so much jollier than the people who have to wait for them.”
-E. V. Lucas
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