CBA Plans National Ad Campaign, Double-Digit Growth for Kona in 2019

Hoping to build off the continued growth of its flagship Kona Brewing portfolio, Craft Brew Alliance said it plans to increase sales of the Hawaiian-themed brand by double digits in 2019.

During Thursday’s earnings call with investors and analysts, CEO Andy Thomas laid out the company’s plans to hit that goal, while also reflecting on a “good” 2018.

As Brewbound reported Wednesday, CBA released its full-year and fourth-quarter earnings, which were highlighted by 8 percent depletions growth for Kona products on the year. However, the company’s net sales still declined 1 percent, to $206.2 million, and total shipments dipped about 700 barrels, to 747,600 barrels.

On Thursday’s call, Thomas said CBA’s 2019 strategy is shaped by consumer research conducted last year, which he said provided the company a more contemporary view of the marketplace and drinkers.

“We believe beer is still a vibrant category,” he said. “And we believe consumers still love beer, but our reality is we live in a world of seemingly infinite drink choices. As a result, beer is no longer the unchallenged choice it once was.”

According to Thomas, consumers are no longer satisfied by “one brand, one style, one size.” And, as recreational use of cannabis has become legal in key beer states — such as Oregon, Washington and California — Thomas said CBA’s research has shown a profound effect on “drinking occasions, need states, drink preferences and attitudes.”

Despite those headwinds, Thomas said consumers are not abandoning beer.

“Beer has been walking away from consumers,” he said. “And, for our part, we believe we have the portfolio, the capability, and now the learnings to better meet consumers on their terms and their locations and tie them closer to our brands.”

As such, Thomas said the “window of opportunity” is now for the Kona brand, which accounts for more than 60 percent of CBA’s business.

“The research to us suggests that we’ve got the right vehicle, the right brand, the right liquids with the right kind of understanding of how to go after it,” he said. “And secondly, we’ve got the scale to be able to make the financials pencil.”

In an effort to capitalize on that opportunity, CBA will roll out Kona’s first national advertising campaign during the 2019 NCAA basketball tournament. Chief marketing officer Ken Kunze said the company will buy national TV ads as well as regional and digital spots during live streams of games on CBS and Bleacher Report. He added that the advertising spend on Kona is up more than 50 percent.

CBA is also conducting a “national distribution drive” through April for Kona and has “100 percent” buy-in from its top wholesalers, who represent 96 percent of the company’s volume, Kunze said.

“When we look at the acceleration, we expect to see a high double-digit number on Kona,” Thomas said. “We believe that it will come from a pretty healthy expansion in distribution both in Q1 and Q2.

“Off that better distribution base, we expect to see velocity increases as we get through the peak selling season in the summer,” he added.

The news wasn’t as rosy for the Widmer Brothers and Redhook brands, which collectively declined nearly 50,000 barrels last year, to 98,700 and 71,200 barrels, respectively. According to Kunze, both brands struggled to secure chain placements for newer introductions.

Nevertheless, Thomas said CBA now has a more “realistic” understanding of marketplace expectations for Widmer and Redhook due to the company’s research, and he expects their declines to stabilize.

“You’re not going to see a positive number in front of those brands,” he added. “I can say that unequivocally. You shouldn’t see a more accelerated negative number.”

Although Widmer and Redhook represent about 20 percent of the company’s volume, Thomas said they have contracted to a point that they should no longer negatively offset the growth of Kona, its acquired brands — Cisco, Wynwood and Appalachian Mountain Brewery — and Omission, a set of gluten-reduced beers which will now be marketed as a suite of low-calorie, healthier lifestyle offerings.

As for CBA’s new standalone business the pH Experiment, Thomas said the strategy is to rollout in markets where the company believes it can succeed “in a targeted way,” rather than going “big everywhere.”

“We think that’s going to differentiate what pH is doing from what a lot of others are doing in the drink space,” he said.

Thomas also addressed the upcoming August deadline for Anheuser-Busch InBev, which owns a 31.3 percent stake in CBA, to make a qualified offer to buy the company or pay a $20 million fee. He said the relationship between the two companies remains ”healthy, productive and mutually beneficial.”

“In either case, our shareholders can look forward to the security of the existing ABI agreements, an accelerated topline, a healthier portfolio, anchored by Kona,” he said.

Also of note, Thomas said CBA is in the “final stages” of hiring a new chief financial officer, who he expects to be in place by the company’s Q1 2019 earnings call.

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