UNIVERSITY OF BOULDER LEEDS SCHOOL OF BUSINESS

This issue: New Markets and Sizes Driving Can Growth in Colorado and the begins on this page. Colorado Distillers on page 3. : Rooted in History on page 4. Good for You, Good for the World, Good for Colorado on page 6, and Colorado Craft Beer Industry on page 7. A publication of the Business Research Division Volume 78, Number 4, 2012

Photo courtesy of Ball Corporation

New Markets and Sizes Driving Can Growth in Colorado and the United States

Jim Peterson accounts for 90% of the company’s sales, specialty packages. Demand for standard including more than 60 billion recyclable 12-ounce cans has decreased, while demand for The 50-year-plus history of the aluminum beverage cans a year produced at the company’s specialty packaging—different can sizes, cans beverage can in the United States has largely plants in the Americas, Europe, and Asia. with special graphics and features that consum- been one of growth. And it began right here in In 2006, more than 101 billion aluminum ers love such as reclosable aluminum bottles— Colorado, where Coors developed a seamless, beverage cans—85% of which were standard is increasing significantly. two-piece impact extruded aluminum can. 12-ounce cans—were sold in the U.S. market, Sales of standard 12-ounce cans have A few years later, Ball Corporation acquired a high point in the new millennium. Even dur- declined, at least temporarily, for several key Jeffco Manufacturing Company (named for ing down economies, consumers have tradi- reasons: Jefferson County) in Golden, an acquisition tionally continued to buy beverages and foods • Beverage companies are supporting less that launched Ball on its path to becoming the in cans. By last year, however, that number had promotional activity on retail shelves as largest beverage can maker in the world. declined to 92.5 billion, the lowest total since they seek improved pricing to catch up Today Ball is headquartered in Broomfield. 1991. Is this decline a blip on the radar, or a to supply chain increases. When there are

The $8.6 billion company, ranked 297 in sign of things to come? continued on page 2 the current Fortune 500, employs more than The answer is neither. The U.S. beverage 3,000 people in Colorado. Most Coloradans can market is quite healthy, still represent- know Ball for its Ball Aerospace business, ing the largest unit share (40.7%) in the U.S. which began in Boulder in 1956. The rest of beverage packaging market, and is evolving the world knows Ball for its packaging, which to meet brand owners’ growing demand for CAN GROWTH, CONTINUED FROM PAGE 1

promotions, they are often less attractive than a specific number of calories—something that From the Editor those in recent years. is in the sweet spot for all major brand owners. • Sales of carbonated soft drinks, long a staple XingTea, a popular all-natural green tea made beverage for cans in economical multipacks, are by -based Xing Beverage, is packaged in Colorado’s beverage sector, which struggling as consumers pursue wellness trends 24-ounce cans from Ball. includes soda, water, soft drinks, tea, and choose other beverages. One well-known specialty package from Ball, • Ongoing weak economic growth continues to especially in Colorado, is the Alumi-Tek bottle— beer, wine, and spirits, is an important affect consumer spending. Most consumers also known as the aluminum pint. Miller Lite part of the state’s economy. Colorado have long since “traded down” to less expensive and Coors Light have had great success with the products. Some have stopped buying discre- unique bottle, which offers a reclosable cap. Oskar has an integrated supply chain of tionary products altogether. Blues launched in Alumi-Tek in 2012. raw materials­­—wheat, barley, corn, Finally, other beverages continue to transi- The net result is a decline in demand for bev- tion into cans. Energy drinks have been offered grapes, mountain water, and so erages in 12-ounce cans, due largely to economic in cans for years. Wine is now available in cans as forth—that feeds this nondurable factors. When the economy improves, so should winemakers recognize the same benefits enjoyed beverage sales. by craft beer brewers who have been using cans goods manufacturing sector of our for much of the past decade. Infinite Monkey, New Markets based in Denver, launched in Ball cans in 2011. economy. Complementing this is Meanwhile, some very interesting trends have Even water in cans isn’t that uncommon the state’s reputation for health and developed that are creating new markets for cans. anymore, growing more than 30% since Many brand owners have actually expanded usage 2008, surpassing the 250-million-unit wellness, and beverage manufacturers of beverages in cans in their packaging mix. For mark in 2011. Perrier introduced its have leveraged this in creating example, the evolution of craft beer into cans famous water in Ball cans in Europe over continued at the staggering growth rate of roughly the summer. And sports and wellness drinks. Beverage 150% in 2011 as more craft brewers have come to whole new sizes, industry employment is growing faster realize the economic and sustainability advantages such as the 586ml of choosing cans. Oskar Blues, the craft brewery “royal pint” popu- than manufacturing employment that pioneered the movement into cans, is based lar in Europe and and total employment in the state, in Longmont. a new 8-ounce can that meets Over the last couple of years, more than 130 USDA guidelines for school portions, have been and is outperforming beverage craft beer brands, including almost all of the top introduced recently and are gaining traction. manufacturing employment nationally. 10 craft beer breweries by volume, have added It is tempting to paraphrase Mark Twain and cans into their packaging mix, driving new, note that “the reports of the death of the can have It is also a growing sector incremental sales of their brand. Last year, Sierra been greatly exaggerated.” But the truth is the , the second-largest craft beer brewer in the current decrease in the U.S. beverage can market in terms of gross domestic product nation, launched its well-regarded beer in both is more a sign of progress than one of decline as at the state level. This issue 12-ounce and 16-ounce cans from Ball. Among the industry shifts away from reliance on just other craft brewers in Colorado who have chosen the 12-ounce can. And Ball is expanding its new provides insight into some of the Ball cans are New Belgium Brewing, Breckenridge products and capabilities to meet demand. In specific sectors within beverage Brewery, and Avery Brewing Company. 2011 alone, Ball invested over $175 million in Another key driver of growth in the can its U.S. manufacturing locations, including $60 manufacturing, and discusses some of industry is the increasing demand for specialty can million in Colorado for a new specialty can line in the nuances these manufacturers face sizes, which grew at a robust rate of approximately the company’s Golden beverage can facility and a 15% last year. From the 5.5-ounce mini-can to the nearly $5 million expansion of its packaging R&D doing business in Colorado. 32-ounce jumbo can, brand owners are leverag- capabilities in Westminster. ing the unique sizes and shapes of the beverage With the sustainability advantages of the can Please contact me at can industry to drive catching the eye of consumers who are increasingly differentiation at retail. looking for more environmentally friendly pack- 303-492-1147 with questions For example, the new 7.5- ages, the evolution of an industry that had its start or comments. ounce sleek can appeals in Colorado continues to unfold. to consumers looking for smaller portions and offers Jim Peterson, Vice President Marketing and Corporate Richard Wobbekind an attractive package with Affairs with Ball Corporation, may be contacted at [email protected]. Photos of cans courtesy of Ball Corporation

Colorado Business Review 2 The Rise of the Colorado Distilling Scene

Rob Masters coast to coast. Though it may take a few years especially those borne from the state’s bounty. for the United States to catch up to the barrel Also, there is a certain caché to Colorado— Colorado is one of a growing number of stock of single malt whiskeys in Scotland, no the outdoorsy focus, the pride in nature, and states that is attempting to reclaim U.S. dollars longer do consumers need to look to England conservancy. Coloradans vote with their wallets from the global spirits market. The statistics to find world-class gin and to Russia for world- and readily spend their money on locally made don’t lie. class vodka. As well, within the U.S., Kentucky products, not only to support their friends and The U.S. distilled spirits market is mas- is no longer the only source for world-class neighbors in creating jobs, but to support the sive, providing a tremendous infusion into bourbon. Craft distillers in every state are creat- artisans for their quality and diligence. This is the national economy. According to the ing products to support the resurgence Distilled Spirits Council of the United States of the classic cocktail, the craft cocktail (DISCUS), in 2009, the entire U.S. alcohol movement, and the digestive and aperitif beverage industry contributed more than traditions of European mealtimes. $393 billion in total U.S. economic activity, Colorado is on the cutting edge of generating nearly $90 billion in wages and over this movement. In 2004, a Woody Creek 3.9 million jobs for U.S. workers. Within that fireman named Jess Graber responded to market, the distilled spirits segment accounted a fire in the barn of a neighbor. A friend- for nearly $117 billion in total economic activ- ship was formed and a local industry ity, or 30% of total economic activity from all was created. That was the start of what is alcohol beverages. now one of the largest craft distilleries in Distilled spirits are one of the highest the country, Stranahan’s Colorado Whis- taxed consumer products in the United States. key. In less than 10 years, there are now Standardizing for alcohol content, the distilled 34 distilleries across the state making a spirits federal excise tax burden is more than variety of products sought after for their quality and craftsmanship. double that of beer and almost triple that of Photo courtesy of Spring44 Distilling wine. The federal excise tax burden per proof Colorado distillers are taking old-world tra- gallon (standard measuring unit for the Tax ditions and making new variations using locally powerful to the ancillary industries supporting Trade Bureau) for distilled spirits is $13.50. In sourced raw goods that impart Colorado terroir. the craft segment—beekeepers, malt houses, comparison, the tax burden per proof gallon Vodka using Colorado honey (Spring44), single barley growers, and beyond. for beer and wine is $6.18 and $4.86, respec- malt-style whiskey from Colorado­ barley (Stra- Colorado maintains laws to further sup- tively. To put it in perspective, federal, state, nahan’s, Downslope, Deerhammer),­ and brandy port the industry and its growth. One of the and local taxes accounted for $7.86, or 54%, (Peach Street Distillers, Peak Spirits) from fruit major hurdles for a small producer is distribu- of the average $14.43 price for a typical 750ml grown in Colorado’s Western Slope orchards are tion. It is difficult, if not impossible, for a small bottle of 80 proof distilled spirits in the United just a few of the examples of products that are distiller to obtain distribution through a large States in 2011. available here. national distributor. For them, it’s consider- This market is clearly important to state In order to make world-class spirits, you ably less trouble to focus on large internation- economies. The overall beverage alcohol indus- need to start with world-class ingredients. ally recognized brands. While not allowed in try contributed more than $21 billion directly Coors has built an empire on the purity of many states, self-distribution is a viable option to state and local revenues during 2009. Of Colorado water. Spring44 Distilling lays claim in Colorado for small producers, and allows that amount, distilled spirits accounted for over to its quality with its use of Colorado Rocky young brands to go to market. It’s a proven $8.5 billion, or 41% of this direct revenue. In Mountain artesian spring water from its spring strategy—New Belgium Brewing of Fort 2009 alone, beverage alcohol’s total contribu- in Buckhorn Canyon. Who can argue that Collins, America’s third-largest craft brewery, tion to state and local revenues was over $40 water from the highest reaches of the earth, started selling beer out of the back of a station billion. Of that amount, $19.7 billion came naturally processed and minimally handled is wagon. from indirect revenues, such as corporate, not the source of the very best spirits? In addi- Because of the proliferation and quality, personal income, property, and other taxes tion to being sandwiched between the grain Colorado craft distilleries have become tourist generated by the beverage alcohol industry. fields of the Midwest and fruit orchards of the attractions. Many have tasting rooms, provid- Like many other consumer products, West, Colorado also has access to wonderful ing both revenue and immediate feedback for imports have gained market share. The vodka varieties of Colorado-grown sweet corn for the distiller and a wonderful experience for the market alone makes up 32% of all spirits bourbon and excellent fruit crops for brandy. guest. You may find that your favorite rum is consumption, and of that, 97% are imported Those are the basic building blocks to world- not made in the tropics, but rather high up in brands. However, Americans are taking back class products. the mountains of Colorado. their spirits. Although counterintuitive, the sudden Several interrelated consumer trends are growth in a highly regulated, highly taxed, Rob Masters is the Chief Ethanol Savant/Head Distiller specialized industry with high barriers to entry for Spring44 Distilling in Loveland, Colorado. Rob sweeping the nation, including slow food, loca- is also the President of the Board of the Colorado vore (local, seasonal eating), and buy American makes sense in Colorado. We have a culture of Distillers Guild. He can be reached at masters@ movements, as well as the focus on organic. In people who support, with strong conviction, spring44.com. response, craft distillers are popping up from local handcrafted and high-quality products,

Colorado Business Review 3 Colorado Wine: Rooted in History

Doug Caskey Jim and Ann Seewald headed a group of Perhaps the single event that moved 18 investors to found Colorado Mountain Colorado’s wine industry further ahead of the History Vineyards, and in 1978, the Denver winery other Four Corner states was the passage of the When Colorado Governor George produced its first bottle from Colorado grapes. Colorado Wine Industry Development Act A. Crawford planted 60 acres of grapes on After many corporate reorganizations, Colo- in 1990 by the state legislature. Modeled after Rapid Creek in 1890, above the town of rado Mountain Vineyards essentially operates Missouri and Oregon’s wine promotion statutes, Palisade in the “sweet spot” of today’s Grand today as Colorado Cellars in Palisade. the act created a continuously appropriated Valley American Viticultural Area (AVA), he The idea of using Colorado grapes grew funding stream from a penny per liter excise was taking advantage of the perfect fruit- quickly. Theron Barber planted mostly hybrid tax on all wine sold in the state, an additional growing conditions in the newly settled area. grapes across the interstate from the World $0.01-$0.05 per liter sliding scale excise tax on According to “The Fruit Belt of Mesa County,” Arena in Colorado Springs in 1979 as vitis wine produced by Colorado wineries, and $10 an authoritative statement of the resources of vinifera, the species of the classic European per ton on grapes and other produce used by Mesa County, c. 1896, prepared by the Com- wine grape varieties, does not tolerate the Colorado wineries to make wine. missioner of Immigration for Mesa County, extreme temperatures and fluctuations of the The fund is overseen by the nine members the conditions “can hardly be improved upon. Front Range. His winery, Pikes Peak Vineyards, of the Colorado Wine Industry Develop- More than 300 days of perfect sunshine annu- had its first crush in 1984. Hobby winemakers ment Board (CWIDB), who were appointed ally and the dryness of the atmosphere make it Doug Phillips and Eric Bruner founded Plum by the governor. The board operates under a natural sanitarium.” Creek Cellars in 1985 along its namesake in the auspices of the Colorado Department of The publication goes on to name the Larkspur, but soon moved the operation to Agriculture. The Wine Industry Development “finest European grapes [grown in the Grand Palisade to be near the grapes they had planted. statute mandates that at least one-third of the Valley], such the Black Hamburg, Flame Tokay, Grape grower Steve Smith opened Grande budget, which has totaled more than $600,000 Zinfandel, Sultana, and Malaga,” a River Vineyards in 1987, and Parker and Mary in recent years, be spent on research and at list that would have impressed a nineteenth- Carlson followed suit with Carlson Vineyards least one-third on promotion of Colorado wine century sommelier. and Winery in 1988. and grapes. Between 1899 and 1909, the grape harvest The CWIDB’s promotional efforts have in Colorado reported by the U.S. Department Funding included billboard, radio, and limited TV of Commerce Agriculture Census went from Due to its agricultural roots and its advertising, plus media trips for national and 586,300 to 1,037,614 pounds, with 1,034 potential to stimulate the economy of many local writers to taste Colorado wines. However, farms involved in grape production statewide. parts of the Western Slope, the Colorado wine wineries traditionally report that the most Many of the European settlers who had come industry has always enjoyed the avid support successful marketing tool is the Colorado Wine to Colorado to work the mines in areas like of the state legislature. The Colorado Lim- Brochure, listing all 105 licensed wineries and Pueblo and Cañon City brought ited Winery Act, passed in 1977, gave small their remote tasting or sales locations. The and a winemaking tradition with them. wineries using primarily Colorado fruit and publication has been distributed in tourist Unfortunately, Colorado was ahead of produce to make their wine a reduced cost brochure rack services across the state for the times and adopted Prohibition in 1916, license that allowed self-distribution, without nearly 20 years. It has been expanded to four years before the rest of the nation. Grand needing to go through a licensed wholesaler. It include an interactive map and winery listing Junction historian Abbot Fey calls Prohibition also allowed up to five remote sales and tasting on www.coloradowine.com, which is also a the advent of the peach industry in the Grand rooms, plus one on the manufacturing prem- source of information about virtually every Valley as hundreds of thousands of grape vines ises, from which to sell Colorado wine directly aspect of the Colorado wine industry for trade were torn out when the wine tap was closed by to consumers. members and consumers. the government. These privileges, plus the Colorado Wine When the legislature passed the Colorado In 1968, Denver dentist Dr. Gerald Ivancie Festival License, enacted by the state legislature Wine Industry Development Act in 1990, founded the first modern winery in Colorado in in 1999, permitted manufacturers of vinous there were 5 licensed wineries. That num- his cellar. He hired an aspiring winemaker, War- spirits in the state unprecedented access for sell- ber grew to 35 in 2000 and 105 currently, ren Winiarski, who went on to make wine at ing their products directly to consumers. While although the total fluctuates. The volume of Stag’s Leap Wine Cellars and had some notable limited wineries were always allowed direct-to- wine reported by the licensed wineries in the success at the Judgment of Paris in 1976. consumer shipping, the legislature brought that state has risen more than 12-fold, from 91,800 At Ivancie’s urging and Winiarski’s recom- privilege into compliance with the Granholm liters in 1992, the first year of records from the mendation, grapes were reintroduced to the Decision (U.S. Supreme Court, 2005) in the Wine Industry Development Act excise tax, to Grand Valley in the early 1970s. Colorado 2006 session. More recently, the legislature first 1,115,139 in fiscal year 2012, which ended in State University participated in viticultural allowed wineries, then breweries, to take advan- June. Despite enduring some of the worst crop research as part of a federally funded Four Cor- tage of a federal rule allowing manufacturers damage in recent history during December ners Project grant that looked at the viability of wine or beer to share “alternating premises” 2009, the average annual production increases of grapes as an agricultural economic generator for production activities, thereby reducing the for Colorado wine continue to track ahead of in all four of the adjacent states. That project initial capital investment required to get into annual increases in overall statewide wine con- would be the genesis for the current industry in the business. sumption, 4.7% versus 3.3% for 2008−2012. all four states. Nevertheless, Colorado wine’s market share

Colorado Business Review 4 based on volume hovers around 1.8% compared to other wine states, such as Washington and Oregon, which together account for 20% market share. A 2006 CSU economic impact study determined that the wine industry in Colorado generated $21.1 million in direct and induced effects. That amount, combined with an additional $20.6 million from wine tourism activities, created nearly $42 million in economic impact. An unverified 2009 economic impact study suggested this had increased to roughly $60 million total impact, but a revised number will not be available until 2013.

Challenges Contrary to the sunny picture painted by the Mesa County Commis- sioner of Immigration in 1896, extreme weather is the most consistent challenge for Colorado’s grape growers. On the plus side, the low humidity precludes Photo courtesy of Colorado Wine Industry Development Board disease and pests that necessitate the extensive use of chemicals required in most of the major wine growing regions. Colorado viticulture is Even in good grape harvests, such as those grapes, Dr. Horst Caspari, CSU State Viti- about as low impact as anywhere in the world, in 2000, 2006, and 2009, the statewide average culturist, has been conducting trellising trials provided growers can find the 20 inches of yield rarely surpasses 2.5 tons per acre, and using techniques that would seem frivolous in annual water grape vines require. averages 3.0−3.5 tons per acre in the more a consistent climate such as . He has The Grand Valley AVA, recognized by the fruitful Grand Valley AVA in those strong elevated yields 25%−50% (and even higher) federal government in 1990, follows the Colo- years. in experimental blocks by switching from the rado River (once known as the Grand River) as For most regions around the world, eco- nationwide standard of bilateral pruning and it emerges from the mouth of DeBeque Can- nomic viability rests with high-quality grapes trellising practices to quadrilateral arrange- yon up to the foot of the Colorado National and production yields of 4 to 5 tons per acre. ments, cutting away surplus shoots and buds Monument west of Grand Junction. Depend- Colorado does not come close to that even once frost danger is over and winter damage is ing on the vintage, the Grand Valley yields in a good year, and historical trends predict evident. 80%-85% of the grapes grown in the state. a devastating year once every decade. As the Coupled with CSU State Enologist Dr. (See the Colorado Wine Industry Overview at cost of vinifera grapes ranges between $1,200 Stephen Menke’s efforts to expand the viti- www.coloradowine.com for more information and $1,800 per ton, and a per acre cost for cultural palate of Colorado grape growers and on the climate of the Grand Valley AVA, as well production around double that price, a yield of winemakers to include more cold-hardy hybrid as the other growing regions in the state.) 2.0−2.5 tons of grapes per acres barely meets grape varieties that would allow planting in the In a normal year, the growing season for the break-even cost for growers. more extreme conditions of the Front Range the Grand Valley AVA yields as many degree and expanded areas on the Western Slope, days—a measure of the available heat for grape The Future the Colorado wine industry is on the verge of vines between the last spring and first fall Grape growing has persisted on Colorado’s significant expansion and improvement. New frosts—as Napa Valley in California or Tuscany Western Slope because it offers fruit growers a areas for viticulture, from Montezuma County, in Italy. But the heat is concentrated in a greater diversity of crops and a broader hedge where growers are actually dry-farming grapes roughly 180-day growing season, compared against frost damage. With an early spring on land cultivated by the Anasazi, to Fre- with 232 days in Napa Valley. This means that frost, growers might lose cherries and apricots, mont County that is reviving the immigrant Colorado grapes have to work faster to fully but grapes will still be viable. As the commer- grape-growing traditions from the nineteenth ripen. As a result, late ripening grape varieties, cial viability of apples has dropped precipi- century, the Colorado wine industry is return- such as Zinfandel or , are relegated tously in the last decade, grapes have increas- ing to the roots of its beginnings. to a very select few sites in the valley, while the ingly filled that late season harvest slot. Bordeaux and Rhône Valley varieties, such as Virtually all of the research funding from Doug Caskey is the Executive Director of the Colorado , or , and , the CWIDB goes to Colorado State Univer- Wine Industry Development Board. He may be con- tacted at [email protected]. flourish. sity. To improve the yields and profitability of

Colorado Business Review 5 Good for You, Good for the World… Good for Colorado!

Erin Humphries months and years. Again, having Colorado’s Sleep adventurous and healthy consumers on our The other side of the coin is, of course, Celestial Seasonings is proud to have been doorstep and with so many hungry and inno- sleep. According to Mintel, sales of natural and one of the founders of the natural foods move- vative beverage and natural foods companies in homeopathic sleep aids now have a larger share ment here in Colorado, which has steadily our neighborhood helps us tremendously. of the overall sleep aids category than active grown over the last 40 years to become one pharmaceutical brands. So we’re very pleased Wellness of the driving forces in our state’s economy. to announce the launch of Sleepytime Snooz We’re equally proud that we continue to With the increased focus on natural well- Natural Sleep Aid shots, which are intended to develop innovative new products that meet our ness both here in Colorado and across the address consumer demands for natural alterna- consumers’ changing beverage tastes and needs, country, wellness teas represent a large growth tives in what might be the most important both here in our home state of Colorado, opportunity for our brand. Consumers are need-state of all. Sleepytime Snooz shots are across the country, and around the world. demonstrating an increased willingness to con- perfect for consumers who need natural sup- It’s no coincidence that the tastes and sider natural alternatives to over-the-counter port to help them fall asleep faster, stay asleep trends enjoyed by Colorado consumers closely wellness products that provide condition- longer, and wake up feeling refreshed. We think align with our brand’s core mission: creating specific and everyday wellness solutions, and it’s a game-changing product that’s also in line unique and delicious natural products that Celestial Seasonings has responded to this with our long history of relaxing products— are good for you and good for the world. We opportunity by building out a robust line after all, we’ve been one of the most trusted frequently see Colorado act as an incubator of wellness teas that meet consumers’ needs names in sleep for more than 40 years. for the entire natural foods industry. Ideas and throughout the day and year-round. Our While we’re extremely excited about the innovations embraced by forward-thinking wellness assortment includes blends for when prospects of our Wellness Tea and Natural Colorado consumers quickly spread and are you’re feeling under the weather, like Sleepy- Shots lines, we continue to see increased popu- adopted by consumers nationwide. A few time Echinacea Complete Care, Sleepytime larity in some of our consumers’ most beloved examples include bottled Kombucha, natu- Sinus Soother, and Sleepytime Throat Tamer blends in our core herbal tea segment. This ral energy shots and drinks—and, of course, Wellness Teas, as well as everyday wellness vari- year, Celestial Seasonings is celebrating the herbal teas! eties like Natural Detox and Metabo Balance 40th anniversary of the best-selling specialty Celestial Seasonings tea drinkers have Wellness Teas. These innovative varieties are tea of all time, Sleepytime Herbal Tea, which always been receptive to adventurous new vari- a big reason why sales of Celestial Seasonings has sold well over 2 billion servings since 1972. eties—the “treasure hunt” in the tea aisle is part Wellness Teas are growing nearly twice as fast We’re marking this milestone by introducing of the allure for consumers. We also see that (+15.7%) in the natural channel as the overall two new Sleepytime herbal varieties: Sleepy- tastes in tea are somewhat cyclical, with variet- wellness segment (+8.4%). (Source: SPINS, 52 time Peach Herbal Tea and Sleepytime Kids ies like Rooibos, yerba mate, and many other weeks ending February 18, 2012) Goodnight Grape Herbal Tea. Sometimes teas enjoying increased popularity for stretches innovation comes in the form of big new ideas, Energy that often last several years. The challenge for and sometimes it’s just a little update to an us is to stay ahead of that curve and anticipate A new trend we’ve seen in the bever- already proven formula. It’s a testament to the where the trends are heading in the coming age market is a natural approach to meeting staying power of our Sleepytime subbrand that consumers’ energy needs. Colorado natural both young and old consumers continue to be and specialty stores are loaded with a wide so receptive to new varieties. variety of energy drinks, but curiously few It’s an exciting time for the natural prod- single-serve energy shots. In response, we’ve ucts industry in Colorado, and especially for recently launched two natural energy alter- beverage manufacturers. To be certain, the natives in our Celestial Seasonings Natural current economic climate represents a challenge Shots line: ENERJI Green Tea Energy Shots for all consumer brands. But Celestial Season- and Kombucha Energy Shots. We know ings continues to grow at a rate that exceeds many consumers are looking to bridge the that of the specialty tea category, and there are gap between finding the energy they need a variety of long-term opportunities that we and making healthy, natural dietary choices, believe will help us reach even more consum- so we’re providing great-tasting, natural, ers (in Colorado and across the nation) in the and portable solutions with our Natu- months and years to come. ral Shot product line. We feel this is a natural exten- Erin Humphries is a Senior Product Manager with sion for our brand because Celestial Seasonings. She may be contacted at we’ve been providing teas [email protected]. that meet a wide variety of consumer Photo courtesy of Celestial Seasonings needs for more than 40 years.

Colorado Business Review 6 The Colorado Craft Beer Industry: Something Special Is Brewing in Colorado

John Carlson

Colorado Craft Brewing Overview Colorado is a state with a great brewing tradition. Shortly after Front Range mining communities began forming in 1858, Colorado entrepreneurs saw an opportunity. Over the 120 years from 1859 to 1979, Colorado was home to 251 brewing companies. In 1990, there were 10 Colorado breweries; by 2000, that number had expanded to 91. According to a July 2012 Colorado Liquor Enforcement Division report, Colorado has 161 licensed craft breweries (97 brewpubs, 64 manufacturer breweries). This represents the greatest number of breweries operating in Colo- rado history. In addition, more than 60 breweries are in planning phases in various locales across the state. While California leads the nation with approximately 268 breweries, Colorado is close behind and with a smaller population.

Job Creation What is quite remarkable is that Colorado craft beer represents 4.6% of beer brewed in Colorado. Yet, of the approximately 6,600 brewery-related jobs in Photo courtesy of Colorado Brewers Guild Colorado, roughly 4,200, or 64%, involve craft beer. The Colorado Front Range is the largest craft brewing market in the United States, with about 74 breweries has approximately 20 farms growing hops for local in operation. In 2012, Colorado ranks second in the brewers across the state. number of breweries by state, and it is third in the Distinctive Beer Events and Colorado Beer Culture number of breweries per capita by state. In aggregate, Colorado craft breweries employ approximately 5,800 Known as the Munich of the West, Denver hosts Coloradans. Craft brewers in the state donated an esti- the Great American Beer Festival (GABF), celebrating mated $1.2 million to nonprofits in 2011. More than its 31st year in 2012. Colorado brewers were awarded 10% of Colorado craft brewers export internationally. 45 medals at the 2011 GABF, 37% of which were Colorado has the highest percentage (20%) of draft gold. Other distinctive Colorado beer events include beer sales, indicating Colorado beer lovers like to try the Colorado Brewers Rendezvous held every July. The new beer styles. The Colorado beer culture is growing, Rendezvous set a record in July 2012, with 62 brewer- and two Colorado craft brewers are each planning to ies pouring their finest. Every February, Colorado construct a new brewery, both in North Carolina, to brewers gather in Colorado Springs to host a cask ale more efficiently serve the East Coast market. Increased tasting called the Firkin Rendezvous. demand for Colorado craft beer leads to more jobs in Colorado is home to 5 of the top 50 craft brewer- the Colorado craft brewing sector. ies. U.S. craft brewer retail sales in 2011 totaled an esti- mated $8.7 billion, up from $7.6 billion the previous Innovation in Packaging and Beer Styles year. Nationally, craft brewing is growing, with a 5.7% The local Colorado market is the largest market for market share in 2011 that is predicted to hit 10% by Colorado craft brewers. Brewers have packaged their 2016. craft beer in many interesting ways to meet the desires Explanation for Craft Beer Growth in Colorado of the Colorado beer lover. Colorado also fostered the move of craft beer into cans, an innovative package for Craft beer has been successful in Colorado for craft beer. New styles of cans are being manufactured a number of reasons, including an active outdoor in the state. lifestyle and a rational state regulatory system with Craft beer is flavorful, and many Colorado craft beer styles highlight hops as an ingredient. Colorado continued on BACK page

Colorado Business Review 7 COLORADO CRAFT BEER INDUSTRY, CONTINUED FROM PAGE 7 BUSINESS flexibility for both manufacturing breweries Challenges to Growth and brew pubs. A highly educated population Many new entrants that are joining the that is interested in supporting local businesses market will make capturing retail shelf space and sustainable enterprises also plays a large more complex. As large brewers explore REVIEW role in the growth of Colorado craft beer. producing more flavorful beers with large Structural factors supporting the suc- marketing budgets, the concept of what is cess of craft beer entrepreneurs are found in and what is not a Colorado craft beer could an atmosphere where a specialty beer brewer become blurred. can gain access to market without overly In addition, large beer distributors con- burdensome barriers. Two market-friendly tinue to consolidate under pressure from large factors exist in Colorado. First, a lack of global brewers and the future distribution The CBR is a quarterly publication of the Business ­ overly stringent beer franchise laws allow craft options afforded to Colorado craft brewers Research Division at CU-Boulder. Opinions and conclusions­ brewers to self-distribute and modify their could be in peril. For Colorado wholesal- expressed in the CBR are those of the authors and are distributor agreements when necessary with ers, the success rate of getting new brands to not endorsed by the BRD, the Leeds School of Business beer wholesalers without punitive measures market effectively will be important, especially faculty, or the officials of CU. like those found in other states. Second, to a Colorado brewer trying to get established View our website: http://leeds.colorado.edu/brd/ a vibrant independent retail tier allows a in the retail channel. The continued pres- Richard L. Wobbekind, editor; Cindy DiPersio, Colorado craft brewer to form vital relation- sure from convenience and grocers to sell full assistant editor; Brian Lewandowski, technical advisor; ships with store owners in order to secure shelf strength beer raises questions about the future Lynn Reed, design. space for their craft beer. In other states, stock of the Colorado beer market. If successful, This report is not produced at taxpayer expense. keeping unit (SKU) rationalization programs access and availability of a wide array of Colo- The University of Colorado Boulder is an equal of major chain buyers tend to exclude small rado craft beer may be jeopardized. Colorado opportunity/affirmative action institution. specialty beers with lower sales velocity. Many craft brewers have experienced complexity sell- For information/address change: chain grocers and large warehouse retailers ing their beer in states that allow chain store Business Research Division are interested in ubiquitous products with the sales. Chain buyers typically stock less varieties 420 UCB, University of Colorado Boulder widest market appeal that sell or turn at a very of beer than a retail liquor store. This makes Boulder, CO 80309-0420 • 303-492-8227 rapid rate. it more difficult for craft brewers to get their beer on the store shelf. State legislation regard- Opportunities and Excitement ing beer composition, franchise, self-distribu- Mark your calendar to attend the Craft brewers are well connected to tion, excise tax, and tasting room operations of 48th Annual Colorado beer lovers and local communities manufacturing breweries all present potential throughout the state. Because of this connec- pitfalls for the Colorado craft brewer. 2013 Colorado tion, Colorado brewers have established a solid On the federal front, regulatory actions reputation and demand for their beer that is from the U.S. Food and Drug Administra- Business Economic likely to continue into the future. Moreover, tion, the Alcohol and Tobacco Tax and Trade Outlook Forum the excitement and activity surrounding Bureau, and the Federal Trade Commission the local purchasing movement has begun could adversely impact craft brewers. Monday, December 3 L 1–6 p.m. to move into the mainstream. Craft beer is Hop growing decisions by local suppliers, becoming a standard for Coloradans. Flavorful major domestic suppliers, and the interna- new location! craft beer is considered less exotic than in the tional market could influence beer pricing. Denver Marriott City Center past. For many, a Colorado craft beer is the Finally, as Colorado craft brewers con- 1701 California Street beer of choice. The growth in market share tinue to grow their operations from start-ups continues to climb for Colorado craft beer. to mature going concerns, the financing of A networking reception will follow the The newest generation of Colorado beer lov- capacity expansions present challenges and forecast and discussion breakout sessions. ers, the millennials, have never known a world opportunities to meet demand for flavorful, While there is no charge for the event, without Colorado craft beer. Their first beer locally brewed ale and lager. Brewing is participants are asked to register to obtain may have been a craft beer; they have a rela- a capital intensive activity. Efficiently financ- a nametag to facilitate networking. Visit tionship with the craft beer category. Colorado ing explosive growth can be a complex www.leeds.colorado.edu/brd#cbeo craft beer represents quality, it highlights the endeavor. for more information and to register. beneficial aspects of living in Colorado, and it is fun. Craft beer lovers experiment with beer John Carlson is the Executive Director of the Colorado Gain valuable insights about styles and enjoy limited seasonal offerings. Brewers Guild. He may be contacted at guild@colora- national, state, and local trends, This demand provides growth and excitement dobeer.org. and what lies ahead in 2013. in the craft beer category. This stands in sharp contrast to the larger beer industry, dominated Register today! by commodity-type lager produced by global corporations, which has been relatively flat.