Brewbound Session Winter’16 Review

Latest Craft Trends, Impact of Marijuana on Alcohol Sales Discussed at December Brewbound Session

More than 200 beer industry professionals descended upon San Diego in December to attend the bi-annual Brewbound Session, hosted at the Paradise Point Resort & Spa.

In addition to sampling numerous beer and cider products from across the U.S., attendees heard insights from more than a dozen of the beer industry’s top entrepreneurs and executives. Discussions ranged from industry trends to mergers and acquisitions and the impact marijuana could have on future alcohol sales, among other topics.

In a conversation with Brewbound editor Chris Furnari, Pabst chairman Eugene Kashper discussed the hiring of former Duvel USA executive Simon Thorpe as the new Pabst CEO, and he shared his company’s craft partnership strategy.

“We’re on the same page in terms of finding the best fit to build the right portfolio over the never five, 10 years,” Kashper said of his relationship with Thorpe. “We’re looking to build the right portfolio of brands and breweries that are complementary.”

Kashper said his offer to potential partners is the ability to grow by leveraging his company’s supply chain infrastructure, nationwide distribution network and strong retail relationships. He added that Pabst was seeking partners for long-term, “arms-length agreements,” similar to the company’s relationship with Vermont Hard Cider Company.

During the interview, Kashper also said he wanted to find the “right partners” within the “high-end space and maximize the potential of those brands.” In some cases, partners would retain control of their brand, oversee innovation efforts and not have to sell an equity stake in order to access additional production capacity or utilize Pabst’s sales teams.

“What we’re looking for are people who don’t want to sell,” Kashper said.

That was the case for New Holland Brewing, a Michigan-based craft brewery that inked a deal with Pabst just two weeks after Kashper laid out his approach to craft partnerships. Specific financial terms of that transaction, which was is slated to begin this quarter, were not disclosed, but Pabst executives have confirmed that New Holland did not sell an equity stake.

4Despite its appetite for craft deals, Pabst’s heritage brand portfolio will remain the company’s number one priority, Kashper said during the conference.

“That makes our business go,” he said.

Brewers Association chief economist Bart Watson and National Beer Wholesalers Association chief economist Lester Jones also took the stage to crunch the latest craft numbers and explain last year’s slowdown amongst many top established craft breweries.

“We are moving to a period of slowing growth,” Watson said. “But even flat markets still have growth.”

“It’s just a slow, gradual maturation of the industry,” Jones added. “The craft index is still positive; it’s just not as strong as it was in the past.”

Of note, craft beer orders peaked in July 2015, with only a little rebound in the first half of 2016. However, the higher levels couldn’t be sustained, and that has signaled some concern from many established players in the space.

The pair also said it’s getting harder to track where people are drinking craft beer, which impacts the accuracy of available retail data. More people are drinking at more non-traditional locations such as beer festivals and taprooms, while drinking in bars, restaurants and clubs is on the decline.

Taproom business also continues to be a bright spot for breweries, the pair noted. Through the first three quarters of 2016, breweries had already surpassed 2015’s total of barrels for use by the breweries themselves, Watson said.

“It’s quite possible we will get to 2.5 million barrels sold directly at breweries and brewpubs,” Watson said.

In a separate presentation, Cowen and Company analyst Vivien Azer explained the negative effect marijuana is having on alcohol sales and the need for the industry to reach new customers.

Marijuana is now legal for recreational use in eight states and available for medical use in many more, Azer noted. In states where marijuana has been legalized, use increases, especially in the 26 and older age group, and even more so among men. Meanwhile, alcohol usage decreases, she said.

Azer suggested that brewers “double down” on Hispanics and women, who show lower use of cannabis, to win their business.

5One craft brewery doubling down on that demographic is San Diego’s Border X Brewing, which used its Latino-fusion flair to win Startup Brewery Challenge 7, also held during the session.
Brewery founder David Favela beat out five other participants with his true-to-brand story and logo, his strong connections to the Hispanic community, and his contagious passion for bringing Latino-fusion brews to San Diego consumers.

Brewbound Session attendees also heard pitches from the owners at five other companies — Friends and Allies Brewing, Alamo Beer Company, M.I.A. Beer Company, Binghamton Brewing Co., and Shannon Brewing Co. — who presented during the bi-annual business pitch competition, sponsored by Craft Brew Alliance, which gives new beer companies an opportunity to showcase their business plans to five expert judges.

During his pitch, Favela described how the almost two-year-old brewery was created to serve the Latino community, one that he felt was going unnoticed by craft brewers, “especially in terms of our palette,” he said.

He also shared how Border X opened its first taproom on Logan Avenue, one of the toughest neighborhoods in San Diego, and described how the tasting room also serves street tacos, a variety of beers, and regularly features live music. The brewery, he said, has helped to rejuvenate an economically depressed area of the city over the last two years.

Favela won a $5,000 grand prize, which will be used to fuel the growth of his emerging business, as well as an all-expenses-paid trip to Portland, Ore., where he’ll have the chance to meet with and learn from CBA executives.