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Craft Brewers Alliance – An In-depth Snapshot

(Portland, OR) – LOTS of interesting stuff from today’s Craft Brewers Alliance earnings conference call…

More than any call in the past, the company has made it clear that it is focusing on growth of recently-introduced products. That obviously means less focus on Widmer Brothers Hefeweizen and other traditional brands which is evident when looking at the production numbers from a ‘macro’ perspective. The numbers below paint a glowing picture though sales of Hefe and others fading is the silver lining. It’s all part of a long-term approach to growing the CBA brands. We’re seeing this transition across a number of large regional craft breweries.

On overall CBA performance, trends, etc.:

– Management alluded to imitation being flattering and cited some examples: other rotating IPA series and upcoming introduction of a year-round Rye PA [ed. note: hint, I posted the label for it today…they didn’t identify it by name though] similar to their O’Ryely offering.

– When asked about hikes in SG&A, management contended that there is nothing “short-term” about its strategy. It’s all about building a long-term foundation given the increasingly competitive landscape while still taking advantage of short-term opportunities. Expects the SG&A-to-barrel ratio to hold going forward so no significant increases beyond projected volume growth.

– Management re-iterated that it is “picking its battles” depending on markets and which brands are the leaders in those markets. They tackled this both from the perspective of…

…how they sell each brand based on strengths and weaknesses across their markets. For example, RedHook is strongest in Northern New England (with a brewery based in Portsmouth, NH), Widmer Brothers is stronger in Boston and moving south, Kona is more in the mix as you move toward the coastal mid-atlantic areas.

…the sales shift toward the off-premise channel. They alluded to what are now over 1,800 craft breweries in the U.S. and that a lot of the new breweries popping up only have draft capability (it would be interesting to verify that empirically). As more drinkers adopt craft as part of their lifestyle, you’re going to see mix shift from draft to bottle/can, industry-wide. Also seeing wine and spirits doing a lot on the on-premise side which affects beer. While they are not pulling back from on-premise attention, it seems pretty clear that additional money will be focused on the off-premise channel.

– Has seen 15% to 30% higher pricing on grain going into 2012, expects very slight erosion in gross margin (according to them, this is in the ballpark of what other public breweries are reporting).

On growth:

– SIG-tracked off-premise sales grew 16%

– Geographically speaking, the CBA portfolio grew 16% in the East Coast and 7% in the West Coast.

– Widmer Brothers is growing as fast as Kona is on the East Coast, led by new product introductions like the various IPAs

– RedHook Pilsner, Widmer Rotator IPA Series and Kona Aloha Series are three of the top four fastest growing brands in SIG-tracked channels

– YTD, each brand is up in its home market more than the national average (craft or entire industry?). Drove home the point that it’s not just growth in new markets.

– Capacity was in the mid-80s in June. The company has room to bring in more fermentation tanks at Portsmouth (RedHook) and Portland when needed. Contracting is a possibility during peak production down the road.

On Widmer Brothers Brewing:

– Better than 50% seasonal growth driven in part by Citra Blonde Summer Brew introduction

– Rotator IPA Series is already outselling prior IPA offering by 30%

– Variety pack grew over 30%

– 924 Series grew over 25%

– Hefeweizen represented 5% less of the mix in Q3 than in 2010

– Seeing double-digit growth in Boston and Florida

– Will push more aggressively in key Midwest cities next year with focused portfolio

On Redhook Brewery:

– Is positioning the brand as a beer for the “crossover” drinker, trying to market it as the craft option in mainstream locations. Hence, the natural connection with sports and the sponsorship of the “Against the Grain” segment on the Dan Patrick show, one that hits tens of millions of households.

– Long Hammer IPA posted double-digit growth

– Variety pack sales doubled

– Summer Wit bested old summer seasonal by more than 75%

– Will push more aggressively in key Midwest cities next year with focused portfolio

– Projecting first full year of growth in over five years (my data -based off of financial statements- says over 15 years)

On Kona Brewing:

– Longboard Lager grew 30%

– Aloha Series grew over 40% (Wailua Wheat represented this seasonal line in Q3)

– Has plans to expand portfolio in methodical way but not in the early part of next year but possibly as early as second half of 2012

– You may see a beer currently available only in Hawaii become a year-round beer for the whole market

– Aloha Series will be distributed to all of it East Coast footprint next year.

– Not launching in Midwest next year

(courtesy of BeerNews.org)


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