THE GIST
For the fourth time in just more than a decade, the Brewers Association has proposed an update to its definition of what it means to be a "craft brewer.” Previous amendments from 2007, 2010, and 2014 have allowed for larger representation, notably through continued increases of a production cap that most recently pushed BA-defined craft brewer limits to six million barrels.
During the last round of updates in 2014, the industry trade group also made an amendment to its definition of what it meant to be a “traditional” brewer, acknowledging the use of adjunct grains as an allowable ingredient for its defined members. That welcomed breweries like Yuengling into the BA’s fold, now the largest officially-recognized BA “craft brewer” in the country. The definition also stated that a BA craft brewer must have “a majority of its total beverage alcohol volume” from beer, not ciders or flavored malt beverages (FMBs).
That tenet—“traditional” as a member moniker—would now be gone.
“As it reads today, the traditional pillar of the definition stifles the innovation that our breweries are using to survive or succeed,” Eric Wallace, co-founder and president of Left Hand Brewing and chair of the BA’s Board of Directors wrote in an email to members. “This change will allow companies to operate both in traditional and innovative ways and still be a part of the craft brewer data set.”
In the announcement, Wallace noted that the update was brought about after survey results from 999 members showed that a significant number were producing non-beer products such as FMBs (18.3%), non-alcoholic beer or other non-alcoholic beverages (14.1%), cider/mead (10.1%), and other products. Across the board, a quarter to about a third of respondents said they would consider producing non-beer brands in the future.
“No one knows what future innovation may bring,” Wallace wrote. “For many members, such innovation is a necessity and a matter of survival. They have invested in additional capacity only to see the demand for beer slump. It is logical to have a definition that is broad enough to allow unforeseen innovation as long as a company has a TTB Brewer’s Notice and is small and independent.”
WHY IT MATTERS
To have a better sense of why this is happening—or, rather, happening now—it’s easy to read between the lines. There’s no doubt that as craft beer’s growth has slowed it’s become useful for companies to diversify their portfolios. Ohio’s Rhinegeist Brewery, for example, has a hit in its Truth IPA, but has seen so much success with its cider brands that it used the non-beer products to lead its way when launching in Massachusetts.
But it would be easy to infer what’s not being said by what is being said. It was question #6 from an FAQ about the decision to change the group’s definition: “Are you doing this to keep Boston Beer in the craft data set?”
“This move was not made because of Boston Beer, but the timing of evaluating and revising the definition is related to Boston Beer,” the response reads. “Other companies will also be facing a similar circumstance in the coming years and it’s natural that the largest of the smallest would get there first. Including our largest member, Boston Beer Company, which brings much to the table in terms of greater craft market share, bolsters the association’s arguments for shelf space, government affairs capability, and technical program contributions.”
The irony of this statement is that, while not explicitly stated, previous updates to the BA’s definition have essentially been because of Boston Beer, which has been on a trajectory to lose its “craft brewer” definition since 2010. When Boston Beer was set to eclipse the previous “craft brewer” maximum barrelage of two million BBLs, the BA bumped the amount to six million. Earlier this year, Bart Watson, chief economist for the Association, told GBH that he couldn’t speculate on Boston Beer’s future as a designated BA craft brewer, but that adhering to the tenets of the definition was going to be something the BA evaluated for every member brewery.
However, this new decision is also supported by the organization's member survey, which found that, among 999 respondents, 60% of breweries were considering the potential to make FMB or other products taxed as beer, and 54% are looking at wine or spirits. It’s a discussion that is part of beer’s overall struggles against other alcohol categories and one that could be of growing importance to new waves of breweries who see a need for diversification as a record number of breweries is set daily and closings of peer businesses continue, even though the latter is part of a normal process. Competition begets innovation, and when drinkers are shifting attention to a variety of products, it’s time to meet them where they are.
What the updated definition speaks to is the Brewers Association’s need to focus more broadly on craft brewers for all they create, essentially following the necessary lead of their members. Should a small producer find wild success with a new cider or hard seltzer line, surpassing a 50% volume cap could come fast for someone making less than 1,000 BBLs of beer, a number that represents about three-quarters of U.S. breweries. Without a dedication to “traditional,” the BA’s more laissez-faire attitude takes a modernized approach to maximize the organization’s presence in the wake of a shifting alcoholic (and non-alcoholic) consumer landscape.
This shift also blurs the line a bit between the BA and other organizations that represent categories of cider, wine, and spirits. If craft brewers are now looking for new ways to make anything they want—or simply expand their own professional development through other alcohol segments—the Brewers Association is essentially removing a barrier for exclusion as a means to keep their ranks full.
And because of that, it’s hard to ignore the elephant in the room.
The BA’s announcement comes days after Boston Beer shared its third quarter results from 2018 in which it credited Angry Orchard Cider—specifically Rosé—and its Truly Spiked & Sparkling Hard Seltzer as key drivers for growth along with this year’s new releases of Samuel Adams Sam ’76 and New England IPA. Rosé sold twice as much volume as Sam '76 through Oct. 21 in IRI-tracked stores, and New England IPA has accounted for a little more sales volume than brands like Breckenridge Vanilla Porter, Narragansett Lager, and Troegs Perpetual IPA. Truly sold about 244,500 BBLs during this timespan, about 32,500 BBLs less than Lagunitas’ portfolio in IRI stores.
As noted by GBH this July, it’s those non-beer brands that are making a big difference.
On a national basis, Boston Beer reported a 16% increase in total BBLs sold of its products when comparing Q3 in 2018 vs. 2017. That growth is likely to have skewed toward products other than Samuel Adams. According to volumes tracked in IRI grocery, convenience, and other off-premise channels, which don’t count draft sales, overall numbers for Boston Beer are set to be flat or down in the IRI spaces in 2018.
As a family of brands, Boston Beer lost 2% of volume from 2015 to 2017, spurred by a 23.1% decrease from Sam Adams beers and 17.6% drop from Angry Orchard. Twisted Tea, which will easily outsell Sam Adams in IRI stores in 2018 after doing it for the first time last year, has grown 43.3% in IRI volume from 2015 to 2017. Through Oct. 21, Twisted Tea’s collection of brands sold 37.5% more volume than the Sam Adams family.
To get to the point as it relates to the Brewers Association's new definition, Twisted Tea has made up almost 36% of Boston Beer's IRI sales in 2018, followed by Sam Adams (26%), Angry Orchard (23.5%) and Truly (14.4%).
Click to enlarge
While the Brewers Association specifically referenced Boston Beer by name in its FAQ section as a way to say this change was not made because of that company, it’s also hard to see a complete lack of interest or influence. Jim Koch, chairman and founder of Boston Beer, has been a giant of the industry. In 2013, IBISWorld analyst Hayden Shipp told CNBC that his importance was so great that it would make sense for the BA to acquiesce in case of any issues around Boston Beer losing its “craft” status. "The largest craft brewery and the one that sort of dictates how the industry is defined as far as volume is Sam Adams, or the larger company Boston Beer Co.,” Shipp said at the time.
And while it’s clear many BA members are considering what non-beer brands may help them grow in the future, other companies aren’t close to doing what Boston Beer has accomplished with its cider and FMBs. That alone could be a clue as to why a change in definition is needed. The other highest-producing, BA-defined craft brewers all stick to beer. With the exception of a short-lived cider brand by New Belgium, Yuengling (#1), Sierra Nevada (#3), New Belgium (#4), and Duvel Moortgat (#5) all produce beer as the vast majority of their volume, if making a non-beer product at all. You’d have to go all the way to the bottom of the Brewers Association’s top-50 craft brewers to find a company with some amount of significant non-beer brands. Rhinegeist (#33) has seen success with its cider brands, but even its best-selling version moves less than a third of IRI-tracked volume than #1 Truth IPA. Wachusett Brewing’s (#49) second-best-selling brand is its collection of Nauti Seltzer Hard Seltzers, but IRI volume sales track the flavored malt beverage as less than 15% of the brewery’s total packages.
According IRI numbers, Sam Adams brands make up just 26% of Boston Beer’s sales in grocery, convenience, and other stores, and while that number doesn’t include Sam Adams’ massive draft presence across the country, GBH estimates still highlight the larger issue that would have faced the company in 2019 and beyond. By 2017, Boston Beer’s non-beer brands were almost 50% of its total volume, which would have put the company at risk of getting the boot from its “craft brewer” title until the Brewers Association’s definition change.
Among the thousands of BA member breweries, it seems there was one in particular that benefits most at this moment from the update.
“By adjusting the definition, we are being more inclusive of the needs of our voting members,” said BA Board of Directors chair Eric Wallace. “There is power in numbers and this inclusivity enables us to include hundreds of voting members in the craft data set, which in turn helps the association bolster arguments for fair access to shelf space, improve our government affairs capabilities, and focus on technical program contributions.”
Craft beer growth is still strong, but slowing, and as the Brewers Association continues to reflect on what kind of impact wine and spirits, hard seltzers, and even lifestyle macro brands will have on its members’ long term success, this most recent move shows that the organization believes it’ll need as many friends in its corner as possible.
—Bryan Roth