Brewers may finally get a break on a costly tax levied against them since 1791. Bipartisan lawmakers in both the U.S. House and Senate are backing legislation that would permanently reform taxes on brewers, winemakers, distillers and alcohol importers.
The bill – called the Craft Beverage Modernization and Tax Reform Act (CBMTRA) – reduces the federal excise tax on alcoholic beverages. It lowers tax rates for beer, wine and other fermented spirits, like cider. Small brewers save on average $80 million a year without the extra tax.
“Taxes are the single most expensive ingredient in beer, costing more than the labor and raw materials combined,” writes the Beer Institute, a trade organization. “If all the taxes levied on the production, distribution and retailing of beer are added up, they amount to more than 40 percent of the retail price.”
Alcohol excise taxes were the first tax on a domestic product by the U.S. government, and one of the government’s first revenue sources. First collected in 1791, the taxes led to the infamous Whiskey Rebellion tax protest. The purpose of the tax was to help war debt from the Revolutionary War.
Today, though, the government still taxes goods like alcohol and tobacco as part of the “sin tax” logic. Such goods are considered harmful, as alcohol and tobacco consumption is linked to heavy healthcare costs, some paid by taxpayers. Excessive alcohol consumption causes 88,000 deaths a year, an estimated economic impact of $249 billion.
In 2017, the first version of the CBMTRA was passed, under a two-year provision that will expire at the end of 2019. That legislation amended tax law, including:
- For smaller domestic brewers producing fewer than 2 million barrels a year: Reduce federal excise tax from $7 per barrel to $3.50 per barrel for the first 60,000 barrels.
- For all other brewers and beer imports: Reduce federal excise tax from $18 a barrel to $16 a barrel on the first 6 million barrels
- For large brewers with a barrelage over 6 million: Federal excise tax kept at current $18 a barrel.
Brewers, lobbyists and trade associations are pushing for the tax reduction to remain permanent. They point to the huge economic impact the alcohol industry has on the U.S. economy. The U.S. beer industry alone created more than 2.19 million jobs that paid more than $101 billion in wages and benefits in 2018. And, with the increasing popularity of craft brewing, those numbers are rising.
“The craft brewing industry can be found in nearly every Congressional District in the U.S. and contributes more than 500,000 jobs, including an additional 15,000 directly added at small breweries just last year, showcasing the positive momentum supported by temporary provisions,” said Bob Pease, president and CEO of the Brewers Association. “The industry is responsible for contributing more than $76.2 billion to the U.S. economy and is a success story for American industry.”
The wine industry, meanwhile, supported 1.73 million jobs that paid more than $75.7 billion in wages in 2017. Though the cider industry doesn’t have specific numbers on jobs, the cider market grew faster in 2018 than the beer, wine or spirits industry.
“Many of our members are small producers with direct investment in agriculture here in the United States,” said Paul Vander Heide, president of the United States Association of Cider Makers. “This will provide them additional security for their families and capital to invest in growth opportunities for their business.”
After the CBMTRA enactment in 2017, 99 percent of small brewers saw a 50 percent reduction of their federal excise tax. A survey by the Brewers Association found those savings sparked a variety of economic gains for the craft brewing industry:
- 73% of breweries are purchasing new equipment, upgrading their tasting rooms and breweries, moving to new buildings, etc.
- 53% of breweries are hiring new employees
- 39% are increasing their employee benefits by raising pay, offering insurance and expanding vacation time
- 21% are increasing their charitable contributions
- 58% are doing two or more of the above-mentioned actions
Added Bobby Koch, president and CEO of Wine Institute: “The savings will allow wineries across America – most of which are small, family-owned businesses – to hire new employees, upgrade equipment, and invest in the future growth of their wineries.”
Information and updates on the bill can be found on the Congress website. The bill was introduced by Rep. Ron Kind, D-Wisconsin, Mike Kelly, R-Pennsylvania, Sen. Ron Wyden, D-Oregon and Roy Blunt, R-Missouri.
Craft brewers are catering to a new beer drinker: healthy, active lifestyle drinkers. Though craft brewers are thriving, it’s a smart adaption to add low calorie beers to their products. A study found 52 percent of beer drinkers want to reduce their alcohol consumption this year, the top reason being: “opting for healthier lifestyle.” Beer brands have often ignored the development of watery, light beers. But as millennials – who drove craft brewery growth – enter their 30s and focus on health and wellness, lower calorie beers are becoming an important part of breweries flavor lineup.
Read more (New York Times)
Kombucha brands biggest competition are not other kombucha brands – it’s soda and functional beverages. Sales continue to hemorrhage in the soda category as consumers shun sugar-filled drinks. And kombucha companies have a great opportunity now to grab that market share.
A panel of leaders in the kombucha and beverage industry shared their insights on the future of kombucha at KombuchaKon, Kombucha Brewers International’s 6th annual conference. They agreed the fermented tea is not a fad, but brands “have to be nimble and creative” to thrive in an increasingly crowded market.
“The future is really, really bright,” said John Peirano, the vice president of marketing at Humm Kombucha. “It’s super exciting – and we’re just getting started.”
Local Brands Will Reign
As more and more kombucha brands enter the industry, the brand’s biggest strengths will be selling to their regional market.
“There are all these local brands retailers are going to want because they care about what’s happening locally,” Peirano said. “Local brands are going to be really, really important.”
John Craven, editor of beverage industry news site BevNET, has covered the beverage world for nearly two decades. He said marketing brands locally works in the kombucha category, but not in any other beverage space.
“Prior to (kombucha), if you said ‘I want to build a regional brand,’ I would have said ‘That’s not a thing,’” Craven said.
Educating Retailer & Consumer
Retailers want to give \consumer’s a variety of product choices, Craven added. They’re more likely to commit to selling kombucha if there are multiple brands and SKUs on their store shelf.
“With (kombucha), it’s OK to like a bunch of different brands,” Craven said. It’s normal for a kombucha consumer to switch between different brands and flavors. “That is one thing this category has going for it that’s really unique. … It definitely has defied traditional beverage logic in that regard.”
Litigation against kombucha brands continues to top headlines, as lawsuits claim alcohol content is misrepresented or sugar levels are understated in different brands. In the next few months, KBI will be releasing their own standards defining kombucha.
Truth in labeling will drive trust with the consumer and the retailer, Peirano said. “It’s important that what’s inside the bottle is on the label,” he added.
“As category leaders, we also have to be category captains. We have to go to the retailers with really strong selling stories. And those selling stories aren’t just about Humm. Those selling stories are about the category and what will drive the most profitability for that retailer category and that shelf set, so they can be successful.”
Refrigerated kombucha and the fermented beverage category has grown 31.4 percent year-over-year, according to data from SPINS market research. And household awareness continues to climb – it increased 20 percent in 2018.
Kombucha is sold in the refrigerated section, some of the most expensive space on a grocery shelf.
“I think it’s all our responsibilities, if we want to continue to grow this category, we’ve got to go out and education and tell people about the magical, beautiful benefits of what kombucha brings to the table from a functional health standpoint,” Peirano said.
Brands Need to Remain Fresh
The kombucha industry is already dominated by a handful of national brands – GT Kombucha, Kevita, Health Ade, Humm Kombucha and Brew Dr. control the majority of market share. The panel agreed smaller brands can still successfully enter the category, but the top sellers are locked.
“There’s not room for a dozen million dollar-plus brands,” Craven said. “But the reality…is that some of these (smaller) brands will be acquired and will probably be absorbed and evolved, ruined, whatever, which makes an opportunity for the next brand to come along.”
“There are a lot of functional products out there…the beverage history lesson is consumers are really fickle,” Craven added. He pointed to Vitamin Water as an example, a brand that rapidly grew popular in the beverage industry but then lost sales. “The consumer keeps moving on to the flavor or the function of the month, so to speak.”
Craven does not think kombucha will be a victim like Vitamin Water because kombucha includes value-added health benefits. The kombucha brands that survive the next decade, though, must be adept to change. They must evolve with new flavors and brewing styles, while maintaining affordability, consistency and health benefits.
Growing Kombucha Enhancement: CBD
One of those kombucha styles keeping the industry fresh: CBD. Conrad Ferrel, founder and CEO of True Büch, said combining the benefits of the cannabis plant with the functional compounds in kombucha makes sense.
“The evolution of cannabis used with kombucha, it’s a natural marriage,” Ferrel said. “If you want to have kombucha for sleep, there will be a specific kombucha for that. If you want it for pain management, it will be there. It will be functional and specific to the certain (medical aid) people want.”
There are 140 compounds in the cannabis plant, but so far only two – THC and CP – have been studied, added Ferrel. CP is a value-added compound, known to aid in improving medical ailments. But science is lagging.
“As the world gets used to the science … the struggle is to sell people something that for years was considered a drug, now we’re trying to sell people on the fact that it’s good for you,” Ferrel added.
Hard Kombucha Gaining Traction
Hard kombucha is another brewing style keeping the kombucha category competitive. It’s evidence of how many beverage categories kombucha bleeds into – like alcohol, tea, juice, flavored water and functional beverages.
Kyle Oliver, quality assurance scientist at Boochcraft, said regular kombucha has an ABV of .5 percent to 2 percent. Hard or high alcohol kombucha goes above that level. Boochcraft has 7 percent ABV. The ABV is higher because hard kombucha goes through a secondary fermentation process, where more yeast and sugar are added.
“Our organisms we want in our kombucha are spoilage organisms in other industries (like wine and beer),” Oliver said. “The higher ABV doesn’t kill probiotics, they’re able to still grow in that environment.”
Craft cheese sales lag behind craft beer sales, despite the similarities in the two industries. Craft beer sales in America totaled $27.6 billion in 2018, while craft cheese sales totaled $4 billion. Experts tell VinePair why cheese doesn’t keep up with beer’s growth: cheese’s short lifespan (less than two months), greater risk of cheese mishandling by a distributor during the supply chain and the high price of artisan cheese. What can a cheese brand do? Experts advise increasing social media promotion. Craft beer has thrived on social media because people love seeing the hops being picked, brewers experimenting near the fermentation tank and the beer displayed in glassware. Craft cheese brands don’t self promote the same creation process, like a goat that made the milk or a family that runs the dairy farm. Cheese brands could also benefit from better merchandising, experts say. Beer labels are constantly and creatively changed and updated, but cheese labels remain the same for years.
Read more (VinePair)
Sour is taking over our taste buds. A New York Times Style Magazine article explores how sour flavor is “dominating our dining discourse.” The article lists fermenting, kombucha, sourdough, kimchi, drinking vinegar, cocktail shrubs and sour beer as evidence of sour’s ascent in American’s palates. Samin Nosrat, author of the book of cohost of the Netflix series both titled “Salt, Fat, Acid, Heat,” says acid is one of the building blocks of flavor and makes our mouth water. “...your body gets confused — maybe I want more?”
Read more (New York Times Style Magazine)
There are beer wars over fermentation practices between two of the country’s biggest beer brands. MillersCoors is suing Anheuser-Busch over a Bud Light Super Bowl ad that shamed Miller Lite and Coors Light beers for using corn syrup during their brewing process. The controversial ad shows the Bud Light King trying to figure out what to do with a giant corn syrup barrel delivered to their castle by mistake. The Bud Light knights attempt to deliver the barrel to both the Miller Lite and Coors Lite castle, since both beers have corn syrup in their ingredients. MillersCoors says the ad is false advertising. The brand says corn syrup is used in brewing to aid the fermentation process, but their final product does not include corn syrup. MillerCoors also alleges that Anheuser-Busch is playing on consumer’s fears of corn syrup. Focus groups show consumers view no difference between corn syrup and high-fructose corn syrup. Dietitians say corn syrup is not unhealthy in brewing, but high-fructose corn syrup is an additive linked to obesity. The lawsuit also alleges Anheuser-Busch also uses corn syrup as a fermentation aid in some of the brand’s other drinks (Stella Artois Cidre and Bud Ice). MillerCoors is asking Bud Light to stop the ad immediately and pay all of MillerCoors’ legal fees.
Read more (CNBC)
Female leadership is sparse in the craft beer industry – just 17% are CEOs and 21% are executives. Tanisha “T” Robinson talks about breaking the glass ceiling as the female CEO of BrewDog’s U.S. operations. Robinson says there is a huge demographic opportunity to draw in more women and people of color to the industry. “If craft brewers could figure out how to authentically connect to women and people of color, they could sell a lot more beer,” she said. “That’s something that I highly doubt most craft brewers are talking about or thinking about, but it’s something that is important to me — that craft beer should be open and accessible and authentic and approachable for everyone.” She says partnerships, events and collaborations are a great step.
Read more (MarketWatch) (Photo: BrewDog)
Two scientists have a patent pending on a brewery invention that detects the wild yeast contaminant Saccharomyces cerevisiae var. diastaticus. The wild yeast causes secondary fermentation in beer production, fermenting unfermentable sugars and overcarbonating brews. A contamination costs brewers millions in recalled product, lost sales and decreased market share. The patent is by a University of Sciences director and his 20-year-old undergrad researcher. The microbiological medium would be marketed for professional and home brewers.
Read more (Philadelphia Business Journal)