Brewers Association sheds more light on its recent decision to redefine ‘small brewery’
Production growth at Boston Beer Company was a factor in the not-for-profit Brewers Association’s board of directors recent redefinition of a “small brewery” as one that produces 6 million barrels per year, up from the previous upper threshold of 2 million bbl per year. But two Brewers Association officials interviewed this week by Road Trips for Beer said eliminating Boston Beer from the craft beer statistics would hurt all small brewers, and they shed some light on how the association comes up with its production numbers.
Julia Herz, craft beer program director, said in a phone interview that under the revised definition, no existing brewers will now be considered small breweries that were not already considered such under the previous limits.
“No other breweries are affected by this, other than Boston Beer Company,” she said.
During the interview, Herz did not have the exact 2009 production numbers for Boston Beer, founded in 1984 by current Chairman Jim Koch, but said later in a Twitter message that, according to the association’s May/June 2010 New Brewer publication, beer production at the brewer of Samuel Adams was estimated at 1,841,348 bbls in 2009.
Brewery production estimates for 2010 are being compiled now, she said. An overview of the craft beer industry in general will be released in February. Estimates for specific breweries will be published in the May issue of New Brewer, which is available for purchase through the association’s website.
The association’s stated purpose is “to promote and protect small and independent American brewers, their craft beers and the community of brewing enthusiasts.”
It uses a variety of data to compile the annual numbers, according to Paul Gatza, Brewers Association director.
“Generally we make our best estimate based on scan data from supermarkets, convenience, drug and liquor stores or on-premise information sources,” Gatza said in an email to Road Trips for Beer. “That was my source of the estimate through 2009.”
In the publicly traded Boston Beer Company’s (NYSE: SAM) 2009 annual report to stockholders, the company wrote that “For the first time, we surpassed the two million barrel mark, which includes Samuel Adams beers and our allied brands Twisted Tea, Longshot American Homebrew Contest beers, and Hardcore Cider.”
Combined, these “core products,” accounted for 2.02 million bbl in 2009.
The BA’s definition of “Craft Brewer” says that “Flavored malt beverages are not considered beer for purposes of this definition,” which would exclude the company’s Twisted Tea line.
Boston Beer said in a December statement that it anticipates a 12 percent increase in shipments of core products for 2010. The Twisted Tea products are one of the company’s fastest-growing segments, but if the 12 percent figure were applied across the board, it would mean the company’s beer production could have already topped 2 million bbl in 2010.
In a June 8 New York Times article, “Small Brewer Outgrowing Label,” Koch was attributed as predicting that Boston Beer would pass the 2 million bbl mark by 2012.
Gatza says that previous estimates could be off, though.
“It was widely reported that Jim in a speech in Chicago in 2010 said that Twisted Tea is ‘two-thirds the size of New Belgium,’ which would put this portion of (Flavored Malt Beverage) volume in the vicinity of 400k bbls,” he said. “Those numbers tell me that I was likely overstating the amount of beer production and I will likely lower past year barrel counts when we do our annual statistical issue of The New Brewer. So my previous estimates of their beer volume were likely on the high end.”
In answer to a follow-up question, Gatz said the details of Koch’s Chicago speech were published in Beer Marketers Insights, Insights Express (Oct. 5, 2010) and Beer Business Daily (Oct. 5, 2010), members-only trade publications that do not make their articles available to the general public and that he did not have permission to forward.
The Sam Adams Factor
If Boston Beer continues its growth trajectory, it will likely pass the 2 million bbl mark within a year or two. But Gatza said that the decision to redefine “small brewery” was made to benefit the craft brewing industry as a whole.
“Boston Beer’s situation and other companies that will possibly grow beyond 2 million bbls someday did factor into the discussion,” he said “Craft brewers often discuss getting to 10 percent market share as a group, and that would become very difficult if the most successful breweries get removed from the statistics each time a company outgrew the segment definition.”
According to the association’s website, craft brewing’s share of total U.S. beer sales in 2009 was 4.3 percent by volume and 6.9 percent by dollars. Boston Beer’s share remains tiny, at less than 1 percent of the 205.68 million bbl produced in 2009, and it likely will be many years before its production approaches the association’s new threshold.
Koch sits on the association’s board of directors as an at-large member, but Gatza was not specific about what role Koch might have played in the decision.
“Jim’s work on the BA board may or may not have been a minor factor,” he said. “Each member of the board votes based on what they think is best for the craft community and the association. In his board member hat, he participates in our government affairs, PR & marketing and pipeline committees, and he has been a significant contributor.”
Gatza emphasized the importance of Boston Beer as a leader in the industry, pointing to the company’s efforts over the years in boosting awareness for craft brewed beers and its support of other small brewers.
“They really helped out other craft brewers get hops during the hop crisis three years ago by doing a raffle of their surplus hops at cost,” he said. “I suspect that this change would have happened if Jim were on the board or not.”
Politics in the nation’s capital came into play as well. The association has been part of an effort to lower excise taxes on small brewers, which they hope will make it easier for craft brewers to become profitable and gain some relief from onerous regulations that hinder their growth.
“Another big factor in my mind was that the change aligned our government affairs efforts with our voting member status,” Gatza said. “We support a bill that has a 6 million-bbl qualifier for a small brewer tax differential, yet our bylaws capped voting rights at 2 million bbls.”
As it stands now, any craft brewery that surpasses the 2 million bbl production mark would no longer be eligible for the current federal excise tax break given to small brewers, which applies to the first 60,000 bbl produced each year.
“It’s history in the making,” she said, pointing out the growing trend of beer-food pairing dinners and restaurants’ expansion of craft beer offerings and predicting that trend will continue. “The opportunity I see here is that even the tiniest brewery benefits,” Herz said. “They’ll grow in recognition, notoriety and attention from the media.” Keeping Boston Beer in the craft-beer category will help further that trend.
“If Boston Beer were no longer part of our craft statistics,” Gatza said, “every craft brewer who seeks more shelf space could be punished in the market because they are part of a segment that then would have lower market share and find it harder to justify that shelf space.”