Brewer Profile: Hangar 24

March 21, 2011

Brewer Profile: Hangar 24

Dear Client:

Editor’s Note: Welcome to the inaugural issue of Craft Business Daily, dedicated to bringing you the latest in the growing and dynamic U.S. craft beer industry. I hope you will enjoy and find the publication useful in your business. And as always, drop me a line at any time with your opinions, comments, and of course, craft beer news. Cheers!
-Jenn Litz, Editor
jenn@beernet.com

HANGAR 24 is likely the fastest growing microbrewery in the Pacific region for the past two years. Case sales for the food channel at the 52-week period ended Jan. 23 were up 528.6%. Not bad, considering they sold their first keg in March 2008, and in that first year of business, sold 1,100 barrels. Skip to 2009, and it was just under 5,000. Last year they sold 10,024. This year, they plan to double that. Founder Ben Cook says their accountant has never seen a company grow that fast, ever.

THE GOODS. If you’ve heard of Hangar 24 and you don’t live in The Inland Empire, you might not recognize anything but their flagship, Orange Wheat, which accounts for 60%-70% of beer sales. But though the style is the same as Blue Moon, a proven gateway beer with triple-digit growth, the flavor profile is a bit more bitter, partially courtesy the orange peel from the local groves that grow like wildfire in Southern California. Ben hopes an upcoming bottling initiative (22 oz’ers) of their chocolate porter, IPA and apricot seasonal Polycot (“with cult following”) will help diversify their portfolio in consumers’ eyes.

BACKGROUND. Ben worked for AB for quality assurance in their Van Nuys plant, when he also got his pilot license (hence the name of the brewery). When he decided to open up a place, he went to brewing school at UC Davis, from where his A-B brewmaster colleagues hailed. He fashioned his own MBA of brewery dynamics, studying the list of Top 50 brewers like stone, Dogfish and Sierra Nevada to discover the way they do things.

CRAFT DISTRIBUTORSHIP. Perhaps it was Stone that gave them the idea to open a little distribution gig on the side. Hangar is closing on a 22,000 square foot building with a 4,000 square foot cold box to distribute their own beer, and picking up other craft in the area once they get the license. They figure they’ll service The Inland Empire “plus.” Ben thinks more breweries could get into the business, as a “craft distributor” is just as small, independent and local as its supplier counterparts. “We know our story, and when we start picking up other brands, we’ll learn theirs,” he says. Kim Jordan will tell you that’s what helps sell craft – stories.

NEXT MARKETS. The goal is to continue to fill gaps in Southern Cal before branching to adjacent states. The last gaps in their backyard are Orange and San Diego counties, which they’re filling; this week they’ll be in all of Orange County, in about 40 chain stores. Then they’ll take a step back to ensure all accounts can get as much beer as they want. After that the plan is work the coasts of Cali, maybe invade Las Vegas.

MANAGING GROWTH. Ben says they’re constantly managing cash to keep the momentum under control. Two months ago, they brought on a controller full time. And owning the company 100 percent helps Ben to grow his business at his own pace.

But perhaps one of the most important means of managing their growth has been self-distribution. “If you look at the BA stats, brewers that brew 10,000 barrels (are in about) 6.6 states,” says Ben. “Most breweries that did that much beer had 10 or 20 distributors [his estimation] in 6.6 states; we did it all ourselves in two counties.”

But the brewery is also cutting deals with independent distributors. Recently the brewery has signed distributor deals with A-B distributors in LA County and Palm Springs.

CHRISTON: ACCESS TO MARKET FOR CRAFT MAY UNDERGO CHANGES

Recall that amid lots of speculation lately of what could happen if AB InBev hooks up with SABMiller and/or Coke or Pepsi, Boston Beer’s Jim Koch described an “Armageddon” situation where the vertical integration of independent beer distributors by mega-brewers into cola bottling systems could potentially choke off access to market for craft brewers.

Longtime beverage consultant Andy Christon of Ippolito Christon & Co. writes that such vertical consolidations could also allow “mega brand owners to profit from future attempts by other brand owners to gain access to the marketplace through their systems.” Indeed, Coke and PepsiCo have already purchased their largest bottling franchises (PepsiCo acquired Pepsi Bottling Group and Pepsi Americas, and Coke acquired the North American operations of Coca-Cola Enterprises), and A-B has acquired or is attempting to acquire several of its distributorships in major markets. Andy says that “due to soft drink companies buying bottlers and brewers attempting to increase their ownership of distributors, access to the marketplace is a major challenge for many operators and, by far, the most valuable asset for every beverage company competing in the marketplace in the foreseeable future.”

If the megas acquire the majority of their distribution systems, it allows them to “increase their options to acquire future growth by buying out a competing brand owner seeking distribution” along with protecting their market shares with retailers, and creating “new challenges for the smaller beverage companies and craft brewers.”

The good news is that distributors, whether they are owned by the megas or not, will still need to compete for growing brand owners to augment their own growth. Craft beers will “enjoy significant competition for their brands”. But that competition and choice is best protected by having independently owned beer distributorships — “to risk altering the existing franchise or 3-tier system risks permanently damaging the equity of the brand owners,” says Andy. But along those lines, there needs to be balance. Craft brewers “are seeking and should be afforded relief from some of the state-regulated franchise laws, to enable them to economically divorce themselves from a non-performing distributor.” And of course, Andy advises that “well-drafted agreements will support the premium value of beverage distribution rights and strengthen the balanced partnership between a performing distributor and the brand owner.”

BEER BRIEFS:

TICKETS FOR DARK LORD DAY, the father of all special release beer parties, sold out in record minutes Saturday after putting tickets on sale at 1 p.m. CST. CBD has learned they sold 6,000 tickets online in roughly less than 30 minutes, by some estimates.

In other Three Floyds news, the Munster, Indiana brewer is teaming with Indianapolis’ Sun King Brewery to produce an American pale ale to help draw attention to issues with the Indiana small brewer’s permit: Currently if a small brewer makes more than 20,000 barrels per year they can no longer self distribute or operate a brew pub or tasting room.

“We aren’t quite there yet, but considering we sold over 5,000 barrels last year and are on pace for 10,000 this year, it is something that we wanted to start working on ahead of time,” said Sun King brewer-owner Clay Robinson. “Three Floyds is looking to run up against it sometime later this year, so for them it is imperative that the law be amended.”

Until tomorrow, Jenn

“It’s hard to take over the world when you sleep 20 hours a day.”
-Darby Conley

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