Category Archives: Revenue

CAN THE TEAM TRYING TO PULL OFF PIZZA HUT’S COMEBACK DELIVER?

How the execs that rescued KFC hope to revive its sibling pizza purveyor     

By Jessica Wohl. Published on March 09, 2020

If any duo can fix the ailing Pizza Hut, it just might be George Felix and David Graves.

Each bring years of experience at Procter & Gamble, and already helped turn around one tired American fast-food chain. They play off each other’s strengths and admit their new brand’s weaknesses.

“We haven’t been very consistent with how we go to market,” Felix says. “We should be able to answer: Why would a pizza lover love this?”

Diners aren’t exactly loving Pizza Hut these days. The long-time top pizza chain lost that status to Domino’s in 2017. After a turnaround effort failed, parent company Yum Brands turned to the team behind one of its success stories for help.

Felix, Pizza Hut’s new chief marketing officer, and Graves, its new chief brand officer, hail from KFC. A few years ago no one would have called KFC a savvy marketer with ads as crispy as its chicken. But under their stewardship, Colonel Sanders was reinvigorated in ads starring celebrities and promoting new items such as Nashville Hot chicken. Sales at longstanding KFC locations increased for 13 consecutive quarters through the third quarter of 2017. U.S. quarterly same-store sales have since declined only twice.

Felix and Graves believe they can pull from a similar playbook, using the 62-year-old brand’s heritage as an asset. “I think there is a lot of similarity to where KFC was six years ago,” says Felix.

Team history
Felix and Graves are at Pizza Hut thanks to Kevin Hochman, the KFC U.S. chief marketing officer turned KFC U.S. president who is now also interim president of Pizza Hut U.S. At P&G, Hochman and Felix worked on revitalizing Old Spice. In 2015, Hochman called Felix as he was setting up shop at KFC. Graves, after a dozen years at P&G on brands including Herbal Essences, Pantene and Pampers, got a similar call and joined the guys a year later.

In 2018, Felix left Louisville-based KFC U.S. to become director of marketing at KFC Global, which, like Pizza Hut, is based in Plano, Texas. Now, he and Graves are reunited. “It’s going to be hard, but we will be our own toughest critics,” says Graves.

Pizza Hut’s U.S. same-store sales fell in three of the last four years, including a 1 percent decline in 2019. After Pizza Hut’s U.S. same-store sales rose 2 percent in 2018, various efforts to keep that momentum failed to take hold.

Plans to deliver beer along with pizza from at least 1,000 locations by the summer of 2019 didn’t juice sales. With only 700 restaurants delivering beer across 15 states, according to Pizza Hut, the program fell short of the goal.

And NPC International, the biggest U.S. franchisee, is reportedly considering a bankruptcy filing. 

Here’s the challenge: Pizza Hut doesn’t have a consistent message; it hasn’t fully capitalized on its budding relationship with the National Football League; and it’s bogged down with plenty of sit-down restaurants when delivery and carryout are the main drivers of the pizza business. Pizza Hut declined to say how many of its restaurants offer dine-in service.

“Nothing they’ve done, at least in my mind, has stood out as a message that is compelling enough to break through the clutter,” says David Henkes, senior principal at restaurant research firm Technomic.

Pizza Hut has bounced back before, with products such as pan pizza in 1980 and stuffed crust pizza in 1995. Work is underway on new items. “We want to be the first choice of America,” says Graves.

Churn
Pizza Hut churned through eight CMOs in the two decades before Felix joined. Graves is only the company’s third chief brand officer, but it’s a position that didn’t exist until 2015. When it comes to creative agencies, BBDO managed to hold onto the account for 22 years. Pizza Hut has worked with five more creative shops since BBDO lost the gig in 2009.

“That’s part of why the brand hasn’t been very consistent,” Felix says.

The current creative incumbent, GSD&M, won the account in 2018. Spark is the media agency. 

For now, no agency changes are being made. But when a new CMO comes in, that person often turns to the creative talents that were a good match at a prior job. At KFC, Hochman brought in Wieden+Kennedy, which had worked on Old Spice and went on to lead the “Re-Colonelization” of KFC.

Is Wieden poised to add Pizza Hut to its client roster, which already includes KFC and McDonald’s? Not just yet. There’s an energy with GSD&M and there’s value in the continuity, says Felix. 

Meanwhile, rivals are chugging along. Domino’s is known for ease of ordering, Little Caesars is promoting delivery for the first time, including in a recent Super Bowl commercial, and even Papa John’s is regaining some footing under new CEO Rob Lynch. Plus, there are thousands of local pizza chains and individual shops to compete against.

“There’s a lot of loyalty to those local places, so I think the pizza chains have to do something extraordinary to get consumers to order from them,” says Henkes.

About 40 percent of the U.S. pizza industry’s $43 billion in 2018 sales came from local operators, with the other 60 percent handled by chains, Henkes noted. Pizza Hut’s slice was nearly 13 percent.

And it isn’t just competing against other pizza purveyors. Among diners who chose Pizza Hut, the top restaurants in their consideration were, in order, Domino’s, McDonald’s, Papa John’s, Little Caesars, and Burger King, according to data from Technomic.  

Company history
Pizza Hut was started in Wichita, Kansas, in 1958. As the story goes, two landladies, inspired by a story they’d seen in a November 1957 issue of The Saturday Evening Post, suggested to Dan Carney that he open a pizzeria. Dan and his brother Frank opened the restaurant with the help of John Bender. On opening day, May 31, 1958, a large pie was $1.50, according to “The Pizza Hut Story,” a 176-page book published by the International Pizza Hut Franchise Holders Association in 2008.

Soon, pizza was catching on across America. In 1959, Little Caesars opened its first restaurant in Michigan, followed a year later by Domino’s. All three rapidly expanded. 

By the 1960s, Pizza Hut had a mustachioed mascot, Pizza Pete. Pizza Hut’s first TV spot featured the slogan “Putt Putt to the Pizza Hut,” featuring a man driving a miniature car to pick up his order.

It’s easy to forget what a cultural touchstone Pizza Hut has been. Ed McMahon promoted it on “The Tonight Show.” Rich Little appeared in a campaign. So did Aretha Franklin. In 1995, the unlikely duos of then-divorced Donald and Ivana Trump, plus David Robinson and Dennis Rodman, promoted stuffed crust pizza. In 1997, Mikhail Gorbachev hawked a pie called the Edge. In 2006, Jessica Simpson sang “These Bites Were Made for Poppin’” to sell the Cheesy Bites pizza, in a campaign that also starred Miss Piggy. 

“Pizza Hut should be a happy, fun-loving brand,” says Felix.

Felix is a fan of some of his predecessors’ plans, including the retro red roof logo and the “No One Outpizzas the Hut” tagline from Droga5 in 2016.

“I personally think there’s a lot to that and don’t think we’ve lived up to it,” says Felix.

Now, the team is eager to define the brand’s north star. Felix and Graves spent time earlier this year in Wichita, visiting the company museum, and speaking with franchisees about everything from profitability to the “fairy dust” seasoning they used to use. 

Felix handles brand positioning and strategy, advertising, brand communications, public relations, media and social impact such as the “Book It” program—which rewards kids for meeting reading goals with coupons for free personal pizzas. Graves is responsible for culinary, food safety, brand and consumer insights, and planning the cadence of deals.

Graves reflects fondly on the days when Pizza Hut pizza was considered “superior, abundant and great-tasting.” The chain already overhauled its pan pizza and stuffed crust, and he’s pleased with those. Now his team is working on other projects. The limited-time mozzarella poppers pizza introduced in February, which pushed 16 mini mozzarella sticks into the crust, was already in the pipeline.

Asked to name their favorite Pizza Hut foods, Graves listed the pan pizza and stuffed crust. “I’d forgotten how good it was,” says Graves. Felix chose the pan supreme and the chicken wings, which he says are an unsung menu hero.

To Graves, the goal is to have “pizzas you can only get at Pizza Hut” that resonate with consumers. 

Graves, who recalls his grandmother taking him to redeem his “Book It” coupons, sees heritage in the details from Tiffany lamps to the red plastic cups used in the dining rooms.

Then again, so did his predecessor, Marianne Radley, who had worked at Pizza Hut as a teen and joined its marketing ranks in 2018. She was out in less than two years.  

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Filed under Marketing, Menu Trends, Revenue, Uncategorized

New York City once repelled fast-food chains. Now it is their hottest market

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By Aaron Elstein
http://www.crainsnewyork.com/article/20171106/SMALLBIZ/171109948/new-york-city-once-repelled-fast-food-chains-now-taco-bell-chik-fil-a-and-more-think-its-the-place-to-eat-fast-food

The busiest place in town during lunch hour is the Chick-fil-A at the corner of West 37th Street and Sixth Avenue, where a fried chicken sandwich is sold every six seconds. To keep the frenzy from turning into a free-for-all, staffers are trained to be scrupulously polite. “I always ask them, ‘Did you bring your smile to work today?'” said the restaurant’s owner, Oscar Fittipaldi, who opened the Atlanta-based chain’s first standalone New York outpost two years ago.

The Garment District franchise sells more than 3,000 sandwiches a day, often with a side of waffle fries, and generates about $13 million in revenue, Crain’s estimated based on data from Fittipaldi. That means it sees the same revenue as Balthazar, the chic SoHo brasserie where the average check is $70, nearly seven times a typical Chick-fil-A tab.

The company wouldn’t comment on Fittipaldi’s revenue, but his success is clearly drawing a slew of followers. Chick-fil-A has plans to open roughly 12 more restaurants in the city, starting next year with a 5-story, 12,000-square-foot emporium in the Financial District. In September Taco Bell announced plans to triple its current 25-store city footprint, and Five Guys, which has grown to about 20 restaurants here since 2009, will soon be opening another one near Fittipaldi’s Chick-fil-A.

New York City is quickly becoming the capital of fast-food nation. More chains are moving in to replace diners and other independent restaurants forced out by relentlessly rising rents. Although many chains have broadened their menus and are experimenting with fast-casual dining, the bread and butter for most remains fried meat and a hefty soft drink.

“Fast-food chains used to draw a skull and crossbones around New York when they were looking for places to expand,” said Gary Occhiogrosso, who runs consulting firm Franchise Growth Solutions. “Now they all want to be here.”

In 2008 the Center for an Urban Future began tracking the growth of local chain retailers and restaurants, and counted about 5,400 city locations. By last year the figure had grown by more than a third, to 7,300. What struck Executive Director Jonathan Bowles was that one sector was responsible.

“All the growth is in food,” Bowles said.

Today New York is home to 3,419 chain-restaurant locations, according to the Department of Health. Leading the march is Dunkin’ Donuts, which has 596 city stores, a 75% increase since 2008. Over the past four years, meanwhile, the number of independent restaurants has declined by 8%.

Chain ganging
While chains still represent a minority of the city’s 26,546 restaurants and bars, their growth is startling because fast-food purveyors have been a popular punching bag for city officials for more than a quarter century. Former Mayor Michael Bloomberg banned trans fats from cooking oils and forced fast-food restaurants to post calorie counts for all menu items so people could better understand the health implications of what they were eating. Earlier this year the city also required restaurants to post sodium content.

Gov. Andrew Cuomo targeted the industry with legislation raising the minimum wage for fast-food workers until it reaches $15 per hour at the end of next year. And Mayor Bill de Blasio has singled out fast-food companies, claiming they are especially exploitive of their 65,000-strong New York workforce.

“If you want an example of how the 1% have gotten wealthier on the backs of working people, here you have it: the fast-food industry,” he said last year.

So why are these restaurants growing in such a seemingly hostile environment? Turns out, the environment isn’t so hostile after all.

A record 4.4 million New Yorkers are employed, and many want something fast and cheap for lunch. Tourism has doubled in the past 20 years, to more than 60 million, and many visitors look for familiar fare to munch on. And while there appears to be a glut of fast-food restaurants across the country—which experts see as a growing threat to the industry as a whole—New York is still relatively underrepresented. According to the Department of Labor, only 2% of the city’s private-sector employees work in limited-service restaurants, compared with 4% nationally.

“There are some big opportunities for fast food in New York because foot traffic is tremendous,” said David Henkes, a senior principal at consulting firm Technomic. “For the chains, premier locations here are all about showing their colors and strength.”

Those premier locations don’t come cheap, but fast-food joints are well-positioned to pay the rent because many of the busiest locations are company-owned or controlled by large operators. The city’s leading Wendy’s franchisee, for example, is The Briad Group, a New Jersey–based firm with 21 locations in the five boroughs, plus about 60 TGI Fridays and at least two Hilton hotels.

Fast-food restaurants are also expanding to create more locations to distribute their food to home-delivery outfits like UberEats and Seamless, said Nick Colas, co-founder of market analysis firm Datatrek Research. “The best way to get orders quickly to people who use these services is to have restaurants scattered around the city,” he said.

That growth is not only changing city storefronts; it’s also making New York’s traffic worse. Because fast-food restaurants often have little storage space, they require frequent food deliveries, which means more trucks on the streets. Mark Solasz, a vice president at Master Purveyors, a Bronx-based firm that supplies meat to about 400 restaurants, including local chains such as burger spot J.G. Melon, said the only way he can cope with soaring demand is by deploying bigger vehicles. “We’re sometimes doing three deliveries a day,” he said. Last month the mayor responded to the growing crush by announcing a pilot program banning deliveries on the city’s most congested streets during morning and evening rush hours.

At the same time, overall restaurant-industry sales are stagnating, so the name of the game is to seize market share from rivals. The environment plays to the strength of fast-food giants with vast marketing resources and purchasing power. And it helps explain why share prices of McDonald’s and the company that owns Burger King and Popeyes are up 53% and 49%, respectively, over the past 12 months.

In addition, steakhouses catering to the expense-account set have struggled: Del Frisco’s stock is down 2%. “Momentum is really on the side of quick-service restaurants,” Henkes said.

Before the Big Mac
Fast food came to New York relatively late. The first McDonald’s in Manhattan, at the corner of West 96th Street and Broadway, did not open until 1972, seven years after Wall Street bankers took the company public. The response was rapturous.

“A rush of pleasure surges through my body as it makes contact with my tongue,” a Village Voice reporter wrote. “The ecstasy is complete as I swallow the first bite of a Big Mac.”

The thrill didn’t last. In 1974 McDonald’s attempt to open an Upper East Side location was greeted by a group called the Friends of 65th Street, who gathered 15,000 signatures demanding the Golden Arches stay out. The New York Times wrote a disapproving editorial, and McDonald’s slunk away. “For the first time, we were on the defensive,” an executive said, according to John Love’s book, McDonald’s: Behind the Arches.

That was just the beginning of fast-food’s woes in New York. In 1986 McDonald’s agreed to begin disclosing nutritional information after state Attorney General Robert Abrams began investigating how the company marketed its McNuggets. Burger King followed in 1991, under pressure from the Dinkins administration’s Consumer Affairs commissioner, Mark Green. The 2004 movie Super Size Me also caused a big stir by documenting how filmmaker Morgan Spurlock gained 24 pounds after exclusively eating at McDonald’s for a month.

Fast food has long been linked to ill health. But it looks as if calorie postings are not doing much to stem demand. In a study last year, researchers at New York University found that only about 1 in 12 customers chose a healthier option after seeing calorie counts on fast-food menus.

“Dietary changes are more difficult than anything we’ve tackled,” said Beth Weitzman, an NYU professor of public health and policy. “We all really struggle to find what’s right.”

But even as scores of Burger Kings and McDonald’s set up shop in the city, other chains decided coming here wasn’t worth the bother, especially since it was tough to find enough space to accommodate their restaurants’ cookie-cutter formats.

“New York, especially Manhattan, was seen as just too hard,” recalled Lisa Oak, a former executive in charge of real estate at Subway.

But in the 1990s, the sandwich chain took a leap and moved into Manhattan even though it meant squeezing into storefronts as small as 300 square feet. There are now around 140 Subways in Manhattan, plus about another 300 throughout the rest of the city.

“People who lived in the suburbs and worked in the city were waiting for us,” Oak said.

In short order the rush was on, led by upstarts challenging the established chains. In 2003 Chipotle Mexican Grill debuted in Manhattan, and the next year restaurateur Danny Meyer opened the first Shake Shack, in Madison Square Park. In recent years the old warhorses have counterattacked. The number of Popeyes in the city has grown by 60% in less than a decade, to 90. Arby’s, which opened its first New York location in 1980, in Penn Station, expanded into Brooklyn in 2010, and a spokesman said, “We believe Manhattan and the boroughs are prime for future development.” The Checkers burger chain has doubled its footprint in the city over the past five years, according to Bowles’ research, to 37 locations.

Meanwhile, some independent restaurateurs have learned that the best way to fight the big chains is to start their own.

Made to order
In 2012 Danny Hodak opened Taboonette, a fast-food offshoot of Taboon, the full-service restaurant he runs in Hell’s Kitchen. Inspiration came from listening in his car to McDonald’s founder Ray Kroc’s memoir, Grinding It Out.

“I loved systems and finding procedures that solved problems,” Hodak said.

Today Taboonette does great business from its location near Union Square because the kitchen can serve up restaurant-quality kebabs or a falafel dish with a side of rice, salad and a Yemeni hot sauce called zhug in just three minutes. It costs about $13, which is considerably more than what most fast-food outfits charge for meals. With his 900-square-foot space generating $1.8 million in revenue, Hodak plans to start looking for franchisees to spread his concept around Manhattan.

“I feel a real sense of urgency because so much competition is coming,” he said.

Indeed, many fast-food giants are trying to mimic Hodak’s success and capitalize on changing tastes by offering high-end fast food. Several of the Taco Bell restaurants coming to the city will have a cantina format, in which alcohol might be served and diners will be invited to linger. For his part, Hodak plans to take a page from the big players and install a kiosk to take customer orders in a bid to make lines move faster.

Across the city, fast-food restaurateurs are installing automated kiosks at a rapid rate to replace human order-takers, whose wages are rising. At Shake Shack’s 19th and newest location in the city, on Astor Place, customers can place orders only via kiosks, though employees, dubbed hospitality champs, are on-site to help tech-challenged diners use the devices. Automation explains why employment growth at fast-food places has been cut in half over the past year and is running two-thirds below its 2011 rate, according to state Labor Department data.

“While new limited-service restaurants continue to open in the city,” said Andrew Rigie, executive director of the New York City Hospitality Alliance, “employment growth in the sector has increased at a much slower pace since New York started its minimum-wage experiment.”

Demand for kiosks means more work for Alejandro Swaby, director of sales at tech-services firm Cervion Systems. He charges $149 a month to rent a kiosk—”Equal to 15 sandwiches,” he said—and believes the devices have potential beyond fast food. He is talking to full-service restaurants about installing them at their bars to make it easier for diners to order a snack while waiting for a table. Swaby said he much prefers the pizza at Campania on his native Staten Island to any chain’s and sees kiosks as a way to help independent operators maximize profits as fast-food giants muscle in.

“I’m not anti-employee at all,” he said, “I’m pro–independent restaurant.”

The rising minimum wage is also opening doors for Avi Sharon, who runs a produce wholesaler in Long Island City called Adams Apple. After selling commercial time on Howard Stern’s radio show and cars in California, Sharon took over his father’s business serving mom-and-pop stores three years ago and invested $200,000 in machinery that peels onions, dices tomatoes and cuts carrots. He now supplies such fast-food restaurants as Wok to Walk and Maoz Vegetarian, a Mediterranean-themed chain.

“With the minimum wage going up, I figure there’s no way a fast-food place can sell a burger for $2.99 unless they hire someone like us,” said Sharon, who is planning to buy another $400,000 worth of equipment.

Greasy gourmand
Mike Abrusci, 29, is a native suburbanite who likes stopping by the nearest Taco Bell after gigs at comedy clubs before heading to his home in Ridgewood, Queens.

On a recent afternoon at the Union Square location, Abrusci ordered a Crunchwrap Supreme filled with guacamole and potatoes, which he described as “a quesadilla on steroids,” and a 7-Layer Burrito for later. His bill rang up to $14.

Growing up in Central Islip, Long Island, Abrusci and his buddies would hang out at Taco Bell after school. He loves the city and its variety of restaurants, but fast food fits his budget, and hitting the familiar chains has proved reassuring.

“One day I was feeling anxious about being in the city. I went to a Target, walked around and felt better,” he said. “Taco Bell does the same thing for me.”

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Filed under Chicken, Fast Casual, Fast Food, Fries, Growth, Health, Quick Service, Revenue, Sandwiches, Technology, Uncategorized

Coors Light has had a rough year, but not as bad as Bud Light

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By Greg Trotter
http://www.chicagotribune.com/business/ct-biz-miller-coors-light-beer-decline-20171026-story.html

Coors Light, the second-best-selling beer in the U.S., is having a rough year.

The amount of Coors Light sold in stores in recent months has declined at a faster rate than even its slide of recent years, according to scan data and industry experts. The good news for Chicago-based MillerCoors? At least for now, Bud Light, the top-selling beer in the country made by competitor Anheuser-Busch InBev, is in even steeper decline.

Premium light beer, as it’s called in the industry, peaked in 2007 and 2008. Since then, many American drinkers have turned toward craft beer and Mexican imports; others have drifted into wine and spirits.

Make no mistake: MillerCoors and Anheuser-Busch InBev still sell an enormous amount of light beer in the U.S., just not as much as they once did. Combined, the two beer giants — which sell the vast majority of light beer in the U.S. — are down about 26 million barrels in shipments to wholesalers since 2008, according to figures provided by Beer Marketer’s Insights, an industry trade publication.

“They’re getting hit from all over. They’re really taking a lashing,” said Vince Trunzo, co-owner of Affiliated Marketing, a managing company of about 350 liquor stores in the Chicago area, including Armanetti, Miska’s and Cardinal stores.

Trunzo estimated that sales of premium light beer have been down about 4 to 5 percent a year in his stores. Meanwhile, sales of wine, spirits and craft beer have increased. Customers who used to buy a 24-pack of Coors Light are now getting a 12-pack — along with a sixer of craft beer, Trunzo said.

Trunzo said he’s not devoting any less shelf space to MillerCoors products just because the light beer is in decline.

“MillerCoors has been a good partner for many years. We’re not going to kill ’em because they’re going through a little struggle,” Trunzo said.

MillerCoors executives declined to comment during the quiet period leading up to parent company Molson Coors’ Wednesday earnings release.

But in a recent post on the company blog, MillerCoors noted that Coors Light case volume was down 3.4 percent year-to-date through Sept. 30, according to Nielsen data, compared with Bud Light, which was down 5.7 percent over the same period. Chief Marketing Officer David Kroll called it a “challenging year” for Coors Light in the blog post but said he expected next year to be better because of improved marketing and packaging.

To help offset such sales declines, Anheuser-Busch and MillerCoors have both acquired craft breweries and introduced new brands in recent years. MillerCoors plans to roll out Two Hats, a fruity light beer aimed at millennials, and Arnold Palmer Spiked Half and Half early next year. MillerCoors also recently struck a 10-year deal to import and market Sol, the company’s first Mexican import beer.

There are obvious success stories in MillerCoors’ vast portfolio: Blue Moon keeps rising despite an overabundance of craft competitors. Leinenkugel had one of its best summers ever. Coors Banquet continues to grow. Hamm’s is going great as the hipster beer of the moment.

Still, it’s unclear at this point how MillerCoors will reach its publicly stated goal of revenue growth by 2019 if its two top-selling beers continue their slow descent.

Together, Miller Lite and Coors Light represent about 57 percent of the company’s business, said Eric Shepard, executive editor of Beer Marketer’s Insights.

“The numbers are the numbers. They’re going to have a very, very difficult time making up that volume,” Shepard said.

The future for light beer doesn’t look much brighter in bars and restaurants than it does in stores. On-premises sales of domestic light beer are projected to decrease another 1.2 percent this year, following five straight years of decline, according to data from Beverage Marketing Corp.

One exception to the domestic light beer fizzle: Michelob Ultra Light, owned by Anheuser-Busch, has been quietly blowing up, growing sales by double-digit percentages.

“To some degree, growth of one is coming at the expense of the other. It’s hard to grow two struggling brands in a shrinking category,” David Henkes, senior principal at Technomic, a Chicago-based market research firm, said of Miller Lite and Coors Light.

At Nisei Lounge, a beloved Wrigleyville dive bar, Miller Lite remains the top-beer, said Nisei Lounge beer buyer Pat Odon.

But what’s selling most on draft reflects how times and tastes have changed.

“Consumers at this specific bar have no interest in macro beers on draft, except Miller High Life,” Odon said. “On draft, people want IPA, IPA, IPA.”

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Filed under Alcohol, Beer, Craft Beer, Revenue, Sales & Profits, Uncategorized