During its year-end earnings call today, Craft Brew Alliance (CBA) – which markets Kona Brewing, Redhook Brewery, Widmer Brothers Brewing and Omission brands – advised investors that it had experienced lower-than-anticipated 2012 depletion growth of 6 percent. CBA had originally projected its 2012 depletion growth to be in the “high single digit to low double range.”
But despite lower than expected depletion growth, CBA was able to increase revenues to $169 million in 2012, up $20 million over the previous year. CEO Terry Michaelson said he is bullish on 2013.
“I look forward to a year of record breaking sales and operating profits,” he said. “We know 2013 will be a very competitive year in the craft beer industry and we are confident that we have established a strategy that allows us to compete in this environment.”
That strategy – one where CBA sells a broad portfolio consisting of four distinct brands nationally – has been in the development stages since CBA’s inception in 2008. But in 2013, Michaelson said, the strategy will transition into more of a growth phase, driven by new product introductions across Kona, Redhook and Widmer.
One intriguing introduction could be line extensions to the once iconic Widmer Hefeweizen label, which has been steadily losing market share in recent years. Andy Thomas, CBA’s president of commercial operations, said that declining draft sales of Hefeweizen in California are currently driving 50 percent of the brands losses.
To help offset the declines, CBA is actively investing in new flavor innovations for Hefeweizen, Thomas said. And although Thomas couldn’t guarantee a rollout of new Hefeweizen styles in 2013, he did hint at new recipes that may incorporate fruit and dark wheat as ingredients.
A hefeweizen line extension could help a Widmer brand that, throughout 2012, was the soft spot in a CBA portfolio that otherwise outperformed many larger craft brewers operating in the segment. Its shipments to retailers declined 5 percent in 2012; again, Thomas said it was important to put those volume declines into perspective.
“Volume is vanity and profit is sanity,” he said, noting that volume declines were concentrated on Widmer Hefeweizen in West Coast markets and that revenue per barrel was over 6 percent.
Other highlights include:
- Depletion growth of 10 percent in the fourth quarter, bolstered by STR (shipments to retailer) growth of 23 percent for the Kona brand and 6 percent for the Redhook brand.
- Total gross profits for all CBA brands grew a collective 11 percent in 2012.
- Sales of Widmer Brothers’ Rotator IPA series grew 12 percent in 2012.
- Redhook Longhammer IPA sales grew 17 percent in 2012.
- 23 percent sales growth for the Kona brand included 16 percent gains for Longboard Lager and 22 percent gains for the Aloha Series.
- Sales of Kona beer grew 18 percent in its home market of Hawaii.
- CBA anticipates spending upwards of $49 million on selling, general and administrative (SG&A) expenses and $12 million in capital expenses in 2013.
- CBA expects depletion growth between 7 to 11 percent.
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