The Latest News on the Brands You Sell

CAPITOL HILL

Unity, At Last, On Craft Bill

After years of debate over how to best reduce the federal excise tax rate on brewers, two of the beer industry’s leading organizations — the Brewers Association and the Beer Institute — have finally come together in support of a single bill.

Bevscape1At a press conference hosted at Hopworks Urban Brewery in Portland, Ore. in June, Sen. Ron Wyden (D-OR) addressed industry and media members and unveiled the Craft Beverage Modernization and Tax Reform Act, a comprehensive tax reform bill aimed at modernizing “outdated regulations” imposed on craft brewers and other alcoholic beverage manufacturers.

The new legislation, which eases small producer regulations and slashes excise taxes for brewers, cidermakers, distillers and winemakers, combines aspects of previous bills backed by groups in all four beverage alcohol categories.

For years, the BA and the BI have disagreed on the best way to reduce federal excise taxes on brewers and pushed behind separate pieces of legislation — the Small BREW Act and the Fair BEER Act. Elements of both bills are now included in the Craft Modernization Act.

As written, the federal excise tax rate on a brewer’s first 60,000 barrels (annually) would be cut in half, from $7 per barrel to $3.50. That reduced rate would extend to all breweries producing less than 2 million barrels annually. The bill also allows for any domestic brewery that produces in excess of 2 million barrels to pay a decreased $16 per barrel rate on its first 6 million barrels, down from $18. Importers would pay $16 on their first 6 million barrels and $18 for every subsequent barrel.

BI president Jim McGreevy told Brebwound that his organization fully supports Sen. Wyden’s bill. The BA, however, despite being “100 percent” in support of the new bill, said it would continue to support the Small BREW Act, which it has championed (in various forms) over the last five years. That bill seeks to slash the federal excise tax rates, but only for brewers producing less than 6 million barrels. The Fair BEER Act, however, extends cuts to large domestic brewers and importers.

Bevscape2“This is uncharted territory for us,” BA chief Bob Pease told Brewbound. “We are absolutely in support of the Wyden bill, but I think you could support both pieces of legislation at the same time.”

Nevertheless, Pease said the organization’s “active engagement” will be more geared towards the Craft Modernization Act and that it would be working more closely with the BI to rally support from Congress.

And while each group issued separate press statements announcing the new bill today, Pease said the BA will look to jointly develop future press communications with the BI going forward.

Both Pease and McGreevy agreed that Sen. Wyden was the catalyst who brought all industry stakeholders together to offer their support of a unified bill.

“I think the BA has pretty consistently maintained that we would be open to compromise but it would need to be driven by one of our legislative champions,” Pease said. “We started to hear more consistently that members (of Congress) wanted to see one bill. Now we can go back to them and say ‘hey, we heard you, we got together and hopefully we are giving you what you want.”

So what’s at stake?

Industry figureheads on both sides have argued that cutting taxes would enable companies to create jobs and reinvest in their businesses. The BA has claimed that the Small BREW Act alone would cost approximately $64 million, with all tax savings retained in America, while the Fair BEER Act on its own would cost $150 million, sending $59 million of that overseas.

It’s still unclear how much the Craft Modernization Act will cost, though it is currently being reviewed by the Joint Committee on Taxation, Pease said.

“It will be more expensive than Fair BEER and Small BREW, but industry coalition will offset those costs,” he said.

Hopworks owner Christian Ettinger said his company will produce 16,000 barrels of beer in 2015 and the proposed excise tax reductions would mean an additional $56,000 in annual savings. Ettinger said he would likely reinvest that money into additional fermentation tanks, which would enable to him to add 4,000 more barrels of capacity and hire three new employees.

“This really helps the vast majority of craft business be a little more competitive,” he said. “I think it is okay to give the small brewer a little bit of a competitive advantage. I would much rather spend that hard earned money on my family business then give it to the federal government.”


REGULATION

TTB Label “Dictator” Retires

Kent Battle Martin has been called many things throughout his time as the Alcohol and Tobacco Tax and Trade Bureau’s Malt Beverage Labeling Specialist.

A 2014 Daily Beast profile described Battle as the “beer bottle dictator,” characterizing him as the “tyrant,” and “pedantic pain in the ass” that has approved every beer label design in the U.S. for the better part of a decade.

Bevscape5Since joining TTB in October 2004, Battle has single-handedly reviewed every malt beverage label application ever submitted. But on May 28, that came to an end.

The TTB has formally announced Battle’s retirement from the U.S. Treasury, which is tasked with monitoring and enforcing compliance for the expansive beverage alcoholic category.

“Battle’s departure marks the end of an era at TTB,” a statement read.

The end of an era indeed — Battle processed over 60,000 malt beverage labels in 2013 and 2014 alone. Since just last October, he had already reviewed over 25,000 labels.

A polarizing figure in craft beer circles, most brewers had somewhat of a love/hate relationship with the man. In the Daily Beast piece, Scott Newman-Bale, a partner at Michigan’s Shorts Brewing, was quoted as saying “I’ve never seen anyone working as hard as him.”

His reputation for being an eccentric and, at times, awkward figure at the controls of a multi-billion dollar industry has practically taken on a life of its own. He was known for approving labels in the middle of the night and rejecting labels for including nuanced design elements like googly eyes on a Santa or a hamburger, which, according to Battle, implied there were meat additives in the beer.

At trade shows, brewers have routinely traded whispers about their run-ins with the label czar, and how he could make or break the production of a beer with the single stroke of a pen.

But don’t tell TTB copywriters that.

“He was also a very popular person at many beer industry conferences and trade shows over the years, providing advice, presenting seminars, and even processing people’s malt beverage label applications on the spot,” the release stated.

Also, according to the announcement, Michael Webster will now the lead TTB’s malt beverage labeling efforts.


LEGAL

Bevscape4Arty Water Discontinued After J-Lo Run-In

While the concept of an artichoke-infused water might send a few folks running for the hills, the presentation and positioning of Arty Water, which launched in early 2014, compelled some to take a closer look. With a unique formulation and winsome package, Arty Water has over the past year attracted a heap of media attention from trade and mainstream media outlets and found itself as a poster child for the new wave of nutritious, plant-based waters coming to market.

Despite significant interest in the brand, however, Arty Water has been discontinued. According to co-founder Kevin Kian, Arty Water was doomed by “incompetent leadership and lack of direction” and the company behind the brand is now dissolved. Kian did not elaborate nor offer specifics on the factors that led to Arty Water’s demise, but did say that because of the dissolution, “officer positions within our company were terminated,” including that of CEO Dr. Howard Ketelson and COO Yen Tran, each of whom are also co-founders of the brand.

“We were all shareholders and collectively decided to dissolve ARTY as both Howard and Yen are full time employees elsewhere and could not jeopardize being terminated by their employer,” Kian said. “They are no longer involved in the beverage industry.”

In a call with BevNET, Ketelson said that the company is still in the process of dissolution, and stated that, along with his own personal family obligations, Arty Water required a time and financial commitment that could not be met by its co-founders. Ketelson said that he wished his former partners well and hoped for their success.

Ketelson currently works for Alcon, a developer of eye care products, and has been with the company since September, 2000. Oddly, his LinkedIn page offers no mention of Arty Water listed as part of his background or career experience. Tran also works at Alcon and, according to his LinkedIn page, has held several positions with the company since August, 2011. Like Ketelson, Tran lists no connection with Arty Water.

For fans of the artichoke water brand, all is not lost. Kian is behind the development of a new company called Botanic Water, which markets a line of plant-based water products, one of which is — you guessed it — infused with artichoke extract. Botanic Water products are organic, sugar-free, caffeine-free and zero-calorie, and the line also features a jasmine water, ginger water and rose water.

Botanic Water’s website describes the formulation of the products as the result of an “innovative patent-pending process which harnesses the powerful antioxidant and nutrient properties found abundantly in plants.” Kian believes that the brand is differentiated from competing products in that Botanic waters are “plant-based and not flavored or essence waters like most of the products that you see in the market today.”

Botanic Water will be produced in a company-owned facility in Southern California, Kian said, who noted that in addition to the new production plant, “we also recruited a talented team of industry veterans to help our company grow.”

Things started to fall apart for Arty Water in January, when the parent company of BodyLab, a health and fitness brand endorsed by actor and musician Jennifer Lopez, filed a lawsuit in U.S. District Court of Nevada, alleging that Arty Water had engaged in a “brazen theft of Plaintiff’s intellectual property.”

Fitco, which operates BodyLab, described as an “innovative, research-based line of health and fitness formulas designed specifically for a woman’s body,” claims that Arty Water “stole Plaintiff’s intellectual property in order to drive traffic to its Website and increase its sales.”

At the heart of the lawsuit is story titled “Artichoke Your Way Into Smaller Jeans” that was posted on Arty Water’s website on Nov. 19, 2014, according to the filing. The story had previously appeared on BodyLab’s website, and was accompanied by images of Lopez on the Arty Water site, implying an endorsement, according to Fitco.

Tran said that the use of BodyLab trademarks was the fault of a “novice web designer” employed by the company. Referring to the “Artichoke Your Way Into Smaller Jeans” story posted on the Arty Water website, Tran said that “we mistakenly used it to help with the education of artichokes.” He noted that Fitco initially sent Arty Water a cease and desist letter before seeking a trial by jury.

Both Kian and Ketelson did say that the lawsuit filed against the company was not the reason that Arty Water shut down. Instead, Kian described it as “a distraction,” and one that “did not have any lasting impact” on the company. He also said that “we have already agreed on a settlement amount and the case has been resolved,” specifically in May.


MONEY

Big Investment in Blue Bottle

Third-wave coffee darling Blue Bottle Coffee recently completed a funding round that netted the company $70 million, according to The Financial Times. The news comes a few days after it was revealed that Blue Bottle secured a lease for a large warehouse in Bushwick, Brooklyn which the Oakland, Calif.-based company will use as a coffee roastery, cafe and bakery.

Known for its small, artisanal cafes and pour-over brewing method, Blue Bottle has rapidly emerged as a player in the thriving market for high-end coffee. The company operates cafes in the Bay Area, Los Angeles, New York and Tokyo, and the new funding, which was led by Fidelity Investments, will support further expansion of its retail stores.

“I think people like Fidelity see that there’s a great opportunity, in the same way Chipotle and Shake Shack have come from nothing, to do something better with coffee and baked goods,” Bryan Meehan, Blue Bottle’s executive chairman, told The Financial Times.

Blue Bottle had previously raised $46 million in two funding rounds and has a number of well-known backers in its corner, including U2’s Bono and actor Jared Leto. The company has not only made internal investments toward growth; two months ago it purchased Tartine Bakery, a San Francisco-based company that will have its first retail location in New York next year as part of Blue Bottle’s new multi-use space in Bushwick.

While Blue Bottle has made waves on-premise, its foray into packaged coffee drinks has been quite smaller than that of rival Stumptown. Last year, Blue Bottle, in a partnership with dairy producer Clover Farms, launched a New Orleans-style iced coffee product. Packaged in a 10.66 oz. carton, the milk-heavy product is USDA certified organic and formulated with chicory and 19 grams of sugar. The beverage is currently available at select Whole Foods stores in California, Nevada, Arizona, Connecticut, New Jersey and New York.

A-B InBev Invests South
of the Border

Bevscape5Anheuser-Busch InBev subsidiary Grupo Modelo said it will invest approximately $328 million – or roughly 5 billion pesos –
to construct a new brewery and can production plant in Yucatán, Mexico.

The company first detailed plans to expand in January, at the time saying it would spend $146.8 million to construct a new brewery in Yucatán’s Hunucmá municipality. The new brewery, Reuters had reported, would enable the company to increase production capacity by over 8 percent.

Grupo Modelo CEO Ricardo Tadeu then revealed the company’s plans to spend an additional $182.1 million to build out the canning facility. The plant, according to the Wall Street Journal, will be capable of producing 1 billion cans per year and enable the company to halt importing cans and begin exporting them.

Construction on the two plants is slated to begin in the second half of this year, Tadeu reportedly said at the event. Once complete, Grupo Modelo will own and operated eight breweries in Mexico.

A-B InBev’s revenues increased 8.1 percent in Mexico during the first quarter of 2015, according to its quarterly earnings report. Volume was up 2.1 percent, while revenue per hectoliter increased 5.9 percent. Worldwide, Corona volume was up 2.7 percent, driven by growth not only in Mexico, but Canada, Australia, and Italy. In April, Constellation Brands — which owns the import rights to the Grupo Modelo portfolio in the U.S. — also announced a net sales increase of 12 percent for its beer portfolio during fiscal 2015.

In addition to Corona, Grupo Modelo manufactures Pacifico, Victoria, Tropical, Modelo, Montejo, as well as select brands from A-B’s portfolio, according to its website.


EXECUTIVE MOVES

MacCombie Leaves Runa

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Dan MacCombie, the co-founder of Runa, is moving on from the guayusa-based beverage company.

“After six and a half years with Runa, and knowing I’m turning 30 in two weeks, I’ve literally spent my entire adulthood building this amazing company,” he told BevNET. “I’m incredibly proud of what we’ve built.”

MacCombie said he’d remain on the company’s board. For the rest of the year, he added, he will continue in “something between a part-time and advisory role,” for a day or two a month, but he plans to travel and figure out new ways to follow a passion for “reimagining the connections between communities and ecosystems.”

His departure — planned and amicable, he said — means an end, at least on a day-to-day level, of a highly-visible partnership between two Brown University friends who started a socially conscious brand that has deep roots in the Amazonian rainforest and Ecuadorean native tribes.

A slightly less visible figure than partner Tyler Gage, the Cleveland native MacCombie shouldered much of the sales and execution role for the two-man crew. Graduating from Brown, the pair settled in Brooklyn, where they quickly joined and contributed to a growing entrepreneurial food and beverage scene.

The growth of the company meant harder challenges for the pair, particularly when it came to managing a harder-to-organize DSD system. Recently, investor MetaBrand Capital installed an interim president, Sambazon veteran Richard Matusow. His 90-day contract over, it is not yet clear if Matusow will continue in a permanent role, but the company has begun working to bring in a senior-level sales executive to replace MacCombie.

MacCombie, meanwhile, made it clear he still backs the company but is excited to move on, allowing he had recently booked tickets for Estonia.

“I’m not quite sure what the next adventure is but I’m looking forward to what it has in store.”


INFASTRUCTURE

Spindrift Shifts Headquarters

Spindrift, a soda and seltzer brand devoted to the use of fresh squeezed ingredients, is breaking ground on a new facility located in Waltham, Mass. The upcoming 2,000 sq. ft. space is slated to be up and running later this summer, and will serve as the company’s “innovation center,” according to Spindrift founder Bill Creelman.

In a call to BevNET, Creelman said the impetus behind the new facility came out of a desire to pursue the use of more exotic ingredients in Spindrift products.

Bevscape7“We started out with citrus-based sodas – lemons, oranges, grapefruits – but as we started to look at ingredients like freshly-squeezed ginger and cucumber, we discovered there was really no established supply chain and no authorities on the subject,” Creelman said. “We realized we were going to have to pursue the use of these ingredients ourselves.”

The new center will staff a full-time research and development specialist responsible for conducting analysis on the properties of ingredients and how they can be incorporated into shelf-stable beverage products. It will also serve as a production facility, where new beverages can be developed prior to commercial scale. Creelman expressed an interested in working with herbs like mint as well as the possibility of formulating traditional sodas like root beer and cola with fresh ingredients.

“With the migration from traditional carbonated soft drinks, it’s such an exciting time in the category,” Creelman added. “And this is our way of acknowledging that and advancing
our position within it.”

The announcement of the new innovation center comes a year after Spindrift secured $2 million in financing from venture capital firm Prolog Ventures. At the time Prolog Ventures Managing Director Ilya Nykin said “we love the innovation that Spindrift has brought to the carbonated beverage space. Bill Creelman has created a unique brand with strong sell through – we look forward to the partnership.”


ORGANIZATIONS

Kevita Chases Truth-in-Labeling

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Probiotic beverage brand KeVita has pledged to fund the development of a Truth-In-Labeling Initiative for the kombucha industry, with KeVita co-founder and CEO Bill Moses writing “We believe it is incumbent on the industry to proactively self regulate and communicate for the benefit of consumers, retailers, and all the producers.” The proposed initiative will seek to to put forth an accredited certification process for brands across the kombucha category to be accurately identified as non-alcohol or alcohol products. KeVita’s announcement arrives after issues surrounding the alcohol levels in the fermented effervescent beverage have resurfaced in recent months.

Moses furthered discussed the new initiative in a call to BevNET, calling a March 27 reminder from the Alcohol and Tobacco Tax and Trade Bureau the “tipping point” for KeVita to become actively involved and take a leadership role in addressing the issue. That reminder, featured in the TTB’s weekly newsletter, read as follows:

“In the past, our tests of kombucha in the marketplace revealed that many of these products contained at least 0.5 percent alcohol by volume. These products are alcohol beverages are are subject to TTB regulation. Regardless of the alcohol content of the finished beverage when it leaves the manufacturing facility, when kombucha contains 0.5 percent alcohol or more by volume at any time, it must be produced on qualified premises subject to TTB regulation.”

In May, California’s Department of Alcoholic Beverage Control added to the pressure when it raided an event hosted by new age religion Full Circle, seizing two kegs of kombucha and issuing a citation for selling alcohol without a permit. The TTB also now requires all kombucha producers to obtain a Brewers license.

Moses said KeVita would contribute “up to $100,000” to fund the Truth-In-Labeling initiative, which will go towards the development and implementation of third-party product testing protocols. Additionally, Kevita revealed a “Verified Non-Alcoholic” emblem that it will begin displaying on all its kombucha products. That verification will be conducted by a TTB-accredited laboratory using off-the-shelf samples, according to the press release.

Reached by phone, GT Dave, founder of category leader GT’s Kombucha, echoed a similar sentiment to that expressed by Moses.

“Every industry faces challenges that are unique to its trade and one of the most fundamental ways to ensure success in that industry is to be proactive in addressing those challenges,” Dave said.

KeVita’s certainly not the only one taking action to address the ongoing issues. In April, kombucha trade association Kombucha Brewers International published a new set of testing protocols to measure kombucha’s alcohol levels for compliance testing. Meanwhile, a set of off-the-shelf tests that the American Herbal Products Association had made to test alcohol levels of kombucha brands remains with AHPA, and has not yet been released.