CBC 2024: A State of Craft Update with Bart Watson of the Brewers Association

Justin Kendall [00:05] This is Justin Kendall from the Craft Brewers Conference. I'm joined by my colleagues Justin Fonte. Hello, how are you? and Zoey Lacata. Hello, I'm doing well. And first question I've got for our guest Bart Watson, the VP of strategy and chief economist for the Brewers Association, is a vibe check. How are you feeling about this year's CBC?

Speaker 2 [00:26] Feel great, um, you know, we, it happened. We got people here, um, you know, walking around the trade show, expo floor, vendors seem really excited with the traffic. Um, you know, brewers I've talked to are excited to be here, have the community. I've heard really good things about the seminars, you know, we'll see what the final scores come back, but a lot of positivity there. So it's, it's always just so great to have so many of our members, so much of the community in one place, and I, I get a lot of energy from CBC, so vibe checks positive.

Speaker 3 [00:56] Well, you heard it here first. The vibes are good. Uh, Bart, I think you did a great job, uh, in your state of the industry talk yesterday at keeping the vibes on the level. You know, I think there's, it's been a rough year. Craft volume was down for the first time other than 2020, which I think we've all agreed to completely throw out, but there is reason for optimism. There's reason for positivity. What are a couple of the bright spots that you think our audience should know about?

Speaker 2 [01:22] Yeah, and you know, I mean, you're right, you know, I tried to lay out the challenges as well. I mean, you can't discard those. That's a part of the environment right now. But you know, some of the positivity that I tried to inject was, was a, that there are a lot of growth stories out there, you know, it's not universal. The category as a whole is down, but Kraft's made up of so many individual companies and many of them are finding success. You know, I think one of the other things is a lot of companies are doing the hard work they need to to set themselves up for business success. You know, I remember reading Jim Cook's book years ago, and he talked about how, you know, you can grow without growing, you know, and in periods of slow product growth, that's a great time to invest in company growth, so that gives me some optimism. And then finally, you know, I tried to do a lot of putting the numbers in context. It's a challenging time to be a small business. It's a challenging time for a lot of parts of beverage and beverage alcohol and You know, craft brewers aren't, the numbers aren't, as I said yesterday, the numbers aren't necessarily good, but they'ren't what I call bad either. Once you take all that context into account, I think a lot of brewers are, you know, or the categories general is actually holding up surprisingly well. You

Speaker 3 [02:31] all right there? I was distracted. I'm being distracted. excited face. Well, I mean, I think it's actually worth mentioning who's distracting me because it was Don Bixel, founder of Three Tier Beverages, which offers BA members a really helpful data dashboard.

Speaker 2 [02:45] Yeah, check out the if you're a BA member, check out our 3 tier dashboard on the stats and data section on our website. Awesome, yeah, intro to scan data from Nielsen IQ.

Justin Kendall [02:55] So the BA recently promoted you. They added to your title VP of strategy. What does that entail?

Speaker 2 [03:01] Sounds really fancy, doesn't it? It does. You know, I think, you know, I'm I'm, we brought also Matt on board. Super excited to have Matt Gacio on as staff economist, which, you know, just frees my time to think a little bit more broadly. So we're still defining some of that, what it means, but I think it's looking at, you know, where the BA moves relative to our members. You know, I talked about this a little bit in the talk yesterday as well, but you know, we're thinking about how we support our members' holistic businesses right now, and I think that's a little more complex than it used to be because that's evolving so much, you know, we didn't have members producing a cross beverage alcohol, we didn't have members who were doing all these different things and so, you know, I think that strategy is what is our strategy in relation to what we offer. That help our members succeed and so it's evolved from I was the stats and data guy to I think I'm thinking of a little bit more holistically and having those conversations too, you know, with other industry associations or their partners about how can we deliver insights, resources, and valuable value to our members because that's that's a core of what we do and that needs to change as our members change.

Speaker 3 [04:06] And something that's jumped out to me just walking the trade show floor is there's a lot of stills. That's really interesting. Is this really the, is this new?

Speaker 2 [04:16] They've been here, so you know we've allowed those suppliers to bring those products, but I think you are seeing it level up and you know I referenced the 600, you know, breweries holding distilled spirits permits yesterday. I mean that's been growing pretty rapidly. We've actually looked at this before and it hasn't ever been high enough for me to call out. So you know the suppliers are evolving too with the needs of our members as they, you know, some of them become, it's not everyone, but some of them become total beverage companies and that's going to be interesting to watch and interesting to think about how we support that because you know we're there for our members.

Speaker 4 [04:48] I really liked when you brought up yesterday in the vein of like kind of redefining what growth is that story of someone who came up to you and they were like they weren't saying like, oh we expanded all these new places, they're talking about other developments in their business. I like, can you talk more of just like about what those conversations, how they've evolved?

Speaker 2 [05:05] Yeah, you know, and some members always did this, right? There's always been members who have really geeked out, not on the beer side, but on the like manufacturing and operations side. But I've just noticed that a lot more that, you know, having conversations with members, which I always try in the run up to this and as our stats are coming in to get some of that context, right? You can see the numbers, but a +3% can mean really different things for different members and so. Getting into, you know, what does that mean for individual businesses, and this year when I did that, um, you know, members, members know what the landscape looks like. They know it's competitive and instead of just immediately being like, well, here's the brand that grew for us, a lot of them just turned to business stuff really quickly, like, hey, we had huge grain costs. So I mean, you know, this member talked about the co op they had formed with another brewery, and, and I found that really interesting and I saw it repeated over and over and over that, you know, you get members on the horn and I don't call them well I do call some of the ones who had, you know, plus 30% years and they're talking about brands and what they did there, but a lot of the ones who are kind of more, you know, up a little bit down a little bit. It was really a business focus that they brought and Um, that's awesome. I mean, that's, you know, and that's a place too that we're thinking about what are the business resources? How can we, you know, we had the financial workshop again this year for the 2nd year in a row. How can we up some of that financial and business literacy because that's going to make a huge difference for companies going forward is just how do you manage your resources more effectively in a market that's not going to grow so you can't just grow your way out of it like you could 5 years ago.

Justin Kendall [06:31] One of the things that I've heard you talk about a couple of times now at least is the need for reinvention. And you know you can't just have an industrial space, throw out, you know, some kegs and, you know, hard ass chairs and all that, you know, like that model has been done and I, I think we all sort of throw look at like Tale as an example that has done that well, but I throw it back to you, like who else do you think is offering an experience out there right now that has really impressed you?

Speaker 2 [07:02] That's a great question. Um, you know, that's, that's maybe that's a piece I need to get on the road a little bit more and check out some of the new things that that people are doing. You know, I'll say with our local breweries, you know, I mean, I see them going in a bunch of different directions, so it's hard to nail down one, but I think the diversity of the models, that hospitality piece in particular, has really gone up in the last couple of years as, you know, breweries have realized, oh, if I Doing the same thing as every other brewery, you know, in Front Range of Colorado where I visit the most breweries. A lot of them did look alike 5 or 10 years ago, and I think they figured out that's a recipe for getting the same customers and, you know, splitting the pie too many ways to actually be successful, so. I'll call it just one super crazy fun one. There's a brewery in Denver Call to Arms. I know those guys well. They do a great job. And a couple of years back they brought in something that apparently people do on the East Coast where they just like decorated their taproom super crazy for Christmas, you know, glittery pink Christmas trees hanging from the ceiling and I don't think anybody in Denver had ever seen it before and it just, you know, it was a gangbusters for them, and they were getting the people who, who, this is a tradition, I guess on the East Coast. I see people nodding, um, you know, coming in and, you know, making it feel like home and I mean, those are the kind of things where we took for granted. The beer was enough to get people through the doors, and that's not always the case anymore, or, you know, it is if you really, really stand out, but there's so many people who stand out that it's hard for that to be a differentiator. So you just see people doing more interesting stuff over time and that's great to see.

Speaker 3 [08:38] Yeah, I mean that the overly decorating for various holidays, that's like just a byproduct of everything has to happen on Instagram or else it didn't happen at all, which is depressing. But also if it gets people in the door, hey, like do it. You know, I think something that breweries are really great at is being like a community center and hosting events. Like, I recently joined a book club. Zoey did too, you know, I joined a book club that's mostly, you know, new moms in my area, and we visit a different brewery every month and read a book and you're hanging out at the

Speaker 4 [09:08] Castle Island's South Boston location like once a month with a bunch of random like 20 something year old women, mainly just hanging out. I would go to Castle Island maybe. Once every 3 or 4 months if I wasn't doing that, so it brings me to the taproom a lot more,

Speaker 3 [09:26] but you know they they're comfortable environments where you feel OK hanging out for a while, so it doesn't have to be a book club, but Like, get creative, be a, be a venue for your community, right? Yeah,

Speaker 2 [09:38] you know, one of my local brewers, I mean, they have a night every night, you know, it's, you know, Bluegrass Tuesdays and Trivia Wednesdays, and, um, you know, and I think breweries too are increasingly thinking about those in, in very strategic ways of, you know, who are parts of the community that we're not bringing in that we could bring in through this night, and then hopefully they're going to be there on Saturday when the whole community is there and we don't need a theme night because, because everybody's out drinking.

Speaker 3 [10:01] Exactly. So I mean that covers taproom brewers, but what else are you seeing in like large regionals?

Speaker 2 [10:06] Yeah, I mean the regionals, I think a lot of them are really thinking about their footprint, you know, and where, where they can really lean in and where they just don't make any money selling beer anymore and it's, it's not worth the time and effort. Obviously we're seeing more of them look at groups and think about what that production piece, you know, does it make sense for me to have my own brewery, or could I be partnering with somebody and using their capacity, you know, we're seeing more of those announcements like, hey, we're just going to produce another, you know, we're going to go toward more of a contract brand. You know, that was one of the kind of cases and studies stories that we had heard when we changed our bylaws recently to allow contract brewers to be voting members and Some of that because we've, you know, we have long-standing members who are probably going to look at that model in the next couple of years of it doesn't make sense for me to have this space, but I think my brand still has relevance in the market, so I want to keep doing it that way. Um, so that's another thing I think we're seeing is just regionals thinking strategically around. Am I better alone? Am I better in a group? Am I better producing? Kind of where does this brand actually resonate and what is the business operation model that works best with that?

Speaker 4 [11:10] When you were talking about regionals yesterday, you brought up that like if you took out the top 3 in there the numbers for regionals would look a lot different when you have some companies that can skew that data so much, what do you look at to still kind of see real trends? Yeah,

Speaker 2 [11:26] I mean, I think you pull out some of that, right? You can look at, I mean, there's lots of ways to slice stats, right? You look at median growth, you look at, you know, here's what you know people in different places and As I kind of joked yesterday, I mean, you still want those breweries in, right? They're part of the category, and you know, you take the good numbers out, they get worse. You take the bad numbers out, they get better. But I think, you know, you stress test it in a variety of ways. So this is pretty common in stats, right? What happens if we remove outliers? Does this relationship still hold? Does it look different? And I do think this year there were a little bit more kind of extreme good cases than extreme bad cases. So that's why I said it that way as opposed to the other way around. Um, you know, but we're kind of pushing and prodding to really understand, you know, is this, is this individual company versus demand, and there's lots of places we've done this for years. I mean, style was the one for years, like, is there really double IPA growth right now or is there just voodoo Ranger growth, um, you know, that kind of stuff. And, and so I've always, always have that mindset of stress testing because you don't want to give a story about a category if it's really a story about a company and, and like NA is a place, for example, I've been fairly clear about this, like, I'm not sure there's huge opportunities in NA for a lot of individual companies. The category is growing, but it's being captured by a few firms, and it's still important for our members to understand that trend, what motivates it, what the consumers are doing. That doesn't mean I'm telling them they should make an NA because there's a very few number of companies who are accumulating the vast majority of that growth.

Justin Kendall [12:52] And just the amount of money that it takes to play in that space and do everything you need to do is You know, just a wild amount.

Speaker 2 [13:01] Yeah,

Justin Kendall [13:02] yeah,

Speaker 2 [13:02] I mean, producing NA beers is, you know, it's just more challenging and so um you need more equipment, you can do it different ways and that's another place we're seeing the kind of co-packer, who can I work with, um, you know, model evolve, which, you know, it's it's interesting to watch that, you know, brewers are figuring out what works for their brands and then they're figuring out how to make those beers in the way that works.

Justin Kendall [13:22] One of the things that you've brought up recently, and well, not even recently, I mean the last couple of years, has been just the health of draft and the need to twist those those trends around. Are you seeing sort of the coalition form around that to sort of approach that in the way that it needs to be approached?

Speaker 2 [13:43] I definitely think there's a coalition of the willing who wants to work on this. I think the challenge is understanding what To do, you know, the challenges with draft are so multifaceted. It's consumers changed, retailers changed, distributors changed, and they're all, all of these add up to a place where, you know, draft is not back to where it was. I think more brewers are starting to realize that they can lean in here and make a difference in their local market, which is great to see, and that was one thing I called out on stage that, you know, I was talking to brewers who said, yeah, our draft numbers actually were really good in distribution, and we were able to lean. You know, some of this is again winners and losers with the team yesterday. I'm hearing from brewers kind of polls, you know, if a distributor picks you as one of their, you know, draft horses, I think you can have a lot more success because distributors have looked to simplify there, and if you're not, then it can be really challenging still. So this isn't necessarily an option for everyone, but I think there's a lot of people who are interested in working on this. I actually in the walk here in the expo, somebody stopped me, asked me about draft, said it was great that we were talking about it, you know, they want to help regrow it, so it's on people's minds and now I think we just need to figure out as a group, as an industry, what are the top couple of things we could do, you know, is it talking to retailers about the profitability that exists there? Is it You know, on the government affairs level, you know, we're working on CHES Act to try to, you know, do things that we can do there, but what are the kind of top three levers we can pull, and I think once we all agree on what those are and figure those out, I think you'll see more action.

Speaker 3 [15:16] Awesome. One thing you mentioned, I'm not going to ask you specifics because I know cone of silence, but now that contract brewers are voting members. Did you see a good amount of attendance from that group in the voting members meeting yesterday?

Speaker 2 [15:27] We saw some, you know, I mean that's not the highest percentage of our members, partly because of historical reasons, and so we're going to have to do outreach to that community, find out more of their needs, build more specific resources. I will say we did. There was a lot of discussion of contract brewers and some of those things like, hey, what should we be doing differently? What are the resources we need? What are the What are the new kind of ways that we could put out business resources to help members explore those models and what opportunities exist. So there's going to be a learning curve there for us and it's going to take time, but you know, excited to more fully welcome them into the association as voting members.

Speaker 4 [16:00] You touched on innovation yesterday and you pulled out a quote, but I think it was really cool that we talk about innovation a lot and I think we think instantly like maybe canned cocktails or Beyond Beer or something, new products. Yes, but innovation can be the same product if it looks new to a consumer, right? Like, yeah,

Speaker 2 [16:18] any beer isn't new. Any beer had a higher share back in the day, and you know, athletics doing it in a way that's totally different, you know, some of the fastest growing brands out there. They're not doing much different in terms of products, but they're marketing it, branding it very differently, and finding ways to connect with consumers, you know, I was just, some of these products are different. I was just on a panel on regenerative grains talking about, you know, Fono, Kernza, things like that, and And I think that's a great example of like, you're still making a pale ale, you know, the beer is not hugely different, but you're using these ingredients to talk about it in a very different way and the way, you know, beer plays a role in agriculture and people's lives and farmers, and I mean that's the kind of stuff where I think brewers can can spend a little bit more time and that's not to say that the product innovation isn't important as well, but I mean, brewers are, you know, crazy innovators, and we figured out lots of beer innovation. And I think we have the beers we need to go out and grow in the marketplace. And now it's about how do we show the customer that this beer is the right beer for them in that occasion, how do we communicate that to distributors, to retailers, and that's the kind of place I think brewers can do a little bit more and also solve just some of the craft demographics are still fairly limited. You know, and I threw out some numbers on that, you know, specifically, but there's, I think there's still huge potential to take Kraft that next, that next S curve for Kraft is going to be even more truly into the mainstream, where Kraft is the everyday beer for more Americans, and that's going to mean marketing in a different way that's not around, you know, some of the past things that have worked for Kraft.

Justin Kendall [17:51] Is anyone's marketing out there right now standing out to you is sort of hitting some of those notes?

Speaker 2 [17:57] That's a great question that, you know, I'm not a marketer, you know, so, so I'm maybe not the best person to ask on this, but, you know, I mean, I think you do see people who are, you know, they understand who they are, and they, they really then, you know, they think about a product, and they think about the customer and they try to marry those two well and You know, I'm lucky I get to sit, you know, occasionally attend like sales meetings for companies and you know, got to do that for a company a couple of years back where they were rolling out a double IPA in 192's and you know, following kind of the New Belgium path. It was not New Belgium, and they just really made it their own. It's been a successful launch and you know they knew again, they knew who the customer was. They were differentiating it from who was going to buy their existing one. They thought about it differently, so. I think there's lots of people who are doing this, and I think we're seeing people get more sophisticated on it pretty quickly as well.

Speaker 3 [18:53] How many weeks a year are you not on an airplane

Speaker 2 [18:55] this year? So this year I got on airplanes a lot less, which was, I, it's amazing what you can just do still with a phone, you know, I did a lot more of just picking up the phone and calling members and talking to them that way, you know, I still like to get out there. There's nothing like walking into a brewery taproom and getting to really experience what the brewery is in a different way. So I'm spending a few more weeks at home than I did in the past, but I've still got pretty good airline status.

Speaker 3 [19:22] You deserve it.

Speaker 4 [19:24] We're going to Indianapolis next year for this next CBC. What are you looking forward to for that?

Speaker 2 [19:30] First, I'm excited for people to see that as a beer city. I don't, you know, when you think of beer cities, I don't think indie jumps into people's heads, but there's a lot of awesome breweries there and they make a lot of awesome beer. On a personal note, my parents live in South Bend. And South Bend's also got a beer scene, but it's not quite as good as Indy, and I've been suggesting we meet up there a lot when I go to visit them like, Hey, I'll fly into Indy. It's a direct flight. You can drive down, and we do a weekend there. So I've gotten a few weeks in India in the last couple of years. A lot of great beer bars, a lot of great breweries. So, so I'm excited about that. Um, I'm also excited. I think it's one of those places. Vegas has been awesome. It's been super fun. It's been fun to watch brewers, you know, I did a run the other day and you're still seeing brewers out on the strip, but, you know, early in the morning, let's just say, um, but I think Indy's going to be one of those places where you're just going to go around town and you're going to see kind of CBC take over that downtown a little bit more. And so I'm really excited to see that, whereas here we're just lost amidst the sea that is Vegas, so.

Justin Kendall [20:27] I'm not sure that you have much to do with the site selection, but what goes into figuring out a good host city for this event?

Speaker 2 [20:35] Yeah, I mean, you know, some of it's just real logistical stuff, so, you know, does it have a convention center that's big enough to house this amazing expo? You know, one of the other things we're increasingly looking at is cost and price. You know, what are the hotel rooms? Do they have enough hotel rooms? Can we get them at a price that brewers want? Um, so that's another piece we try to vary it geographically. We now have a scorecard that we are using for selection cities too around, you know, making sure attendees are going to feel safe there. And then, and then finally, and I think this has gotten deemphasized a little bit, but for years one of the things we were thinking about, and I think this is part of why we selected Vegas, is where is a place in its beer development and can CBC give that a little push and maybe we were naive to think you could influence Vegas in any particular way, but You know, I mean, you know, we heard some criticisms around Vegas in the last year of like, well, it's not a great city for craft beer, and our response is, well, that's part of why we're going there. We want to show them what we can bring. We want to show, you know, what craft beer is and maybe change that narrative a little bit and maybe make Vegas a slightly better place for craft beer. So I think that was part of why Indy was selected as well. Like, you know, we're picking these things 5 years out, so it was not as good a beer city 5 years ago and we were hoping that CBC could be part that gives it a push up. Do you

Justin Kendall [21:45] have the map after? Indy, I can't

Speaker 3 [21:47] remember. Philly. I'm so excited for Philly.

Speaker 2 [21:49] Oh yeah, so since it's out there already, yeah, Philly, 20, 250 years, you know, it'll be a great time to be in Philadelphia that year and we had a great conference there when I'm blanking on the year, but when it was, maybe 2015, 2016, 2017, sometime.

Speaker 3 [22:01] I feel like pre like between 2010 and 2014.

Speaker 2 [22:04] Yeah, I'm ready for my Dinic's roast pork and broccoli

Speaker 3 [22:07] rabe already. Yeah, I mean, I personally am pushing for an after party on the Jersey Shore, but you know. We got time.

Justin Kendall [22:14] Bart. This is always awesome. Thanks for doing

Speaker 2 [22:16] this. Yeah, thanks for having me. Great to see all three of you.