More Craft Brewers Alliance Results Are They Buyers?

April 5, 2011

More Craft Brewers Alliance Results
Are They Buyers?

Dear Client:

The call on CBA’s Q4 results, expectedly, had little to do with Q4. It centered on the recent FSB sale and unique strengths and challenges of CBA’s in-flux portfolio.

BUT FIRST, THE NUMBERS. Revenues grew 4% to $30.3 mill, an increase of $1 mill over last year, driven by an increase of $740,000 in core product revenue and increase in contract brewing revenues (FYI, they’ll still continue to contract brew about 30,000 barrels of FSB for about 3 years). Total shipments for the quarter increased by 1%, while core product shipments decreased 1%; depletions increased on a volume basis by 4%.

A net loss of $633,000 for the quarter was driven by sales and admin spending of $2.4 million, says Terry, but they will continue to invest and execute on a scheme hatched last year they find critical to their long-term success: the Integrated Portfolio Strategy.

IPS STRATEGY. The plan seeks to “penetrate select, focused markets, and deliver new and exciting beer and packages to the consumer,” per Terry. Kona’s new products and momentum is one piece; Koko Brown Ale and Island Hopper variety pack have been released this year in select markets. Another is investing in Widmer brands to better communicate the “unique approach” Kurt and Rob have brought since the mid-’80s. Investments here funded new package design (see our brewpic), launch of the “bigger beer” Series 924 named for the addy at the Oregon brewery, and the in-progress launch of Rotator IPA series that will allow the company to pounce on the ever-innovating IPA trend. Finally, Redhook just got its 30th year makeover with new bottles (and Copperhook cans soon to debut) and package design; a Blueline Series for the Northwest and draft-only Brewery Backyard Series in New England cater specifically to local market releases.

MORE ON DISTRIBUTION AND A-B. Questions were pressing on the terms and specs of the A-B sale. Asked why they opted for the approx. $2.1 mill worth of annualized reduced distribution fees vs. $14.7 million for matching rights, the CBA camp said the former will improve their balance sheet and give more flexibility in brand investments and continued profitability growth. “There’s an incremental fee component that actually will deleverage the company as we grow. That’s a component you don’t see in the $2.1 mill,” said Terry.

PLUSES AND MINUSES OF CBA-A-B AFFILIATIONS. CBA is spending on capex to develop their own ordering system, so that distributors can order directly from them instead of using A-B’s systems. “We’ve always considered ourselves independent,” says Terry, but “as that happens, we are probably moving further away from interfacing with A-B’s system” because A-B is looking at a “different kind of business with their large volumes” while CBA is “seeking to provide more variety and more interface with our customers”. As a result, CBA is “moving in a direction that’s more conducive with our business and probably separate from Anheuser-Busch’s systems.” Recall that last year A-B had instituted a minimum order initiative (ordering by pallets or layers only) that would have hurt CBA’s smaller brands with smaller distributors, before A-B made pulled back. CBA is likely protecting their backside on this by creating separate systems.

IS CBA A BUYER? When asked what was the most important part of the negotiations with A-B on the sale of Goose Island other than the reduction in fees, Terry said it was the “flexibility to operate our business and pursue opportunities.” Part of that is “raising the limits on acquisitions” they can make, as well as divestitures. When asked if they were looking at buying or partner with other craft brewers, Terry said they are “constantly looking for opportunities to strengthen our portfolio.” For the last two years they have focused on “getting a foundation on the financial piece”, but now they could be looking at “opportunies to partner with another brewer. We’re gonig to be very aggressive in looking at how to move the topline … and some of that may be in pursuing partnerships,” he said.

PORTFOLIO CHALLENGES AND PLUSES ON/OFF PREMISE. They’re concentrating on making their diversified portfolio more market and occasion-specific, per the outlined strategy, which will also guide any new transactions they make this year and beyond. “We’ve done a lot of work to make sure there’s less cannibalizing among the portfolio; each brand has its unique position [and is] authentic.” The swath of products can be challenging to fit on-premise but advantageous off, because it allows them to work with big chains to provide a variety of styles to them from one company, which is more efficient for them in programming and distribution matters.

DID THEY HAND A-B THE REVOLVER? One caller jovially asked. “It’s going to be competitive,” said Terry. “If A-B is going to increase their position in craft, they do it with or without Goose Island. For us it … put us in the best position to compete.”

BEER BRIEFS:

NEW BELGIUM’S NEW RANGER IPA 12-packs (and national full-page ads) now feature a QR (quick response) code allowing smartphone users to access music, food and even book pairings. The brew was 2010’s fastest-growing new craft brand; latest SIG data available (ended Feb. 20) for US FOOD channels saw case sales up 4,422%.

THE BA REPORTS THAT estimated international sales by independent craft brewers were up 28% by volume for 2010, with some regions seeing export increases of more than 90%.

SHINER’S RUBY REDBIRD, the summer seasonal, is set to start shipping this month. Tasting notes tout a mild grapefruit taste (courtesy Texas Rio Red Grapefruit) and a “sharp ginger finish.” Interestingly, ginger is popular with Millennials, who have embraced ethnic flavors more than their counterparts.

CINCY’S CHRISTIAN MOERLEIN BREWING COMPANY has announced plans to launch its craft Moerlein Lagers & Ales in Tennessee via BountyBev of Nashville April 9 at the East Nashville Beer Festival. Look for more from this brewery that just opened a production brewery in December and will be bottling “high gravity, unique boutique brews” later this year, chief Greg Hardman tells CBD. They’re also building a brewery and restaurant on the banks of the Ohio River. YTD, Moerlein Lagers & Ales are up 31% on distributor depletions.

DESPITE ALL THE HOOPLA OVER HOW DISCOVERY’S BREW MASTERS WAS CANCELED, SAM CALAGIONE told us it wasn’t. “The plan was always to air an initial six episodes,” he says. “Five have already aired and Discovery told me last week that the sixth, which is about the Eataly NYC brewpub we are working on with Mario Batali and Joe Bastianch, is ‘expected to air this summer.'”

BREWPIC: WIDMER’S NEW PACKAGING has a few features that, like its brother Redhook’s new swaddlings, help recruit bourgeoning craft beer drinkers, featuring a summary of the beer style, recommended glassware, and flavor points to “help consumers select beers that they will love.” Expect to see more of this trend.

Until tomorrow, Jenn

“If it’s very painful for you to criticize your friends – you’re safe in doing it. But if you take the slightest pleasure in it, that’s the time to hold your tongue.”
-Alice Miller

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