Deschutes Reworks Plans for Virginia Brewery

Two years after announcing plans to build a $95 million secondary brewing facility in Roanoke, Virginia, Oregon’s Deschutes Brewery has hit the pause button.

The company, which was set to purchase 49 acres of land by May 1, is in the process of renegotiating an incentive package in order to maintain “flexibility” on the timeline, size and scope of the project, Deschutes CEO Michael LaLonde told Brewbound.

Speaking to Brewbound, LaLonde, who said the company’s “plans haven’t changed for the project at all,” confirmed that Deschutes has agreed to buy the plot of land for $3.2 million by the end of May. In doing so, the company will free itself from a string of performance-based incentives that the original deal would have triggered.

“What we decided to do was to give up some really important incentives, and instead just go ahead and buy the property,” he said. “That way we’re decoupled from any timeline.”

According to the Roanoke Times, which first reported the news yesterday, had the original deal for the land gone forward, the city of Roanoke would have paid back the land purchase in 20 percent increments over a five-year period.

LaLonde said he plans to travel to Roanoke in about a month in order to meet with the city’s mayor and City Council about the project. He added that several incentives are still on the table but still need to be negotiated.

The Roanoke Times also reported that Deschutes has yet to receive a number of incentives, including $3 million from Virginia’s Commonwealth Opportunity Fund, $1.5 million in rebates for equipment and a $225,000 job creation grant from the Roanoke Economic Development Authority.

The Bend, Oregon-based craft brewery first announced plans to open its Roanoke brewery in March 2016. The company was one of several West Coast brewing operations — including Ballast Point, Stone Brewing, Green Flash and Sierra Nevada — to set its sights on building an East Coast hub.

Under the original project timeline, Deschutes was slated to break ground in June 2019, start commissioning and flavor matching in 2020 and begin shipping beer brewed at the facility in 2021. LaLonde said those plans, as well as plans to build a sizable production facility, remain.

“We predict that the first year we’ll sell just under 200,000 barrels at that location,” he told Brewbound. “So it will be sized to grow above that as we need additional capacity.”

LaLonde said the company is still projecting an investment of $55 million in the project and plans to hire 70 full-time employees and begin selling beer by June 2021.

“We still think that all of the numbers are right,” he said. “At least now, we have the flexibility if something happens within the market where we think there needs to be some delay or some consideration on the size, we can have the ability to do that. If sales take off and we get back to growth where we need the capacity, we may have to speed it up too.”

The news comes less than a week after an auction was held for the assets at San Diego-based Green Flash’s shuttered Virginia Beach production facility. LaLonde said Green Flash’s second brewery closing in Virginia didn’t raise any red flags for Deschutes.

“We have always been conservative over our 30 years of doing business,” he said. “We don’t have billions of dollars at our disposal, so it’s really critical that we’re conservative and approach this the right way.”

LaLonde added that there are three reasons Deschutes is planning to stay the course with its East Coast brewery project. First, he said, there’s “a tremendous amount of demand” for the Oregon brewery’s products in East Coast markets where the beer is not yet distributed. Second, the cost of shipping beer from Oregon to the East Coast is “very expensive” and not environmentally friendly.

“Just having an East Coast facility for that purpose saves a lot of money and saves the environment,” he said.

Finally, Deschutes wants to maintain a “local” presence and build a connection with consumers, he said. The company opened a taproom in downtown Roanoke last year.

In 2017, growth of Brewers Association-defined craft breweries slowed to about 5 percent — down from six percent growth in 2016 and a considerable dip from six consecutive years of double-digit growth between 2010 and 2015.

The BA, a nonprofit trade group that represents the interests of small and independent American beer companies, ranked Deschutes as the tenth largest craft beer company in 2017, down two sports from the previous year.

Dollar sales of Deschutes products declined 5.6 percent in 2017, according to market research firm IRI Worldwide, which tracks category-wide sales trends at off-premise retailers. Through the first three months of 2018, the brewery’s dollar sales are down 15 percent.

LaLonde admitted that the company made a couple of missteps heading into 2017 and that it is now attempting to correct course.

“In 2016, we were growing so fast that we were worried about our production capabilities, so we decided to pull a couple of brands off the shelf and go through a SKU rationalization with that as well as 22 oz. bottles,” he said. “That happened at the same time, we didn’t have cans. We only had bottles, and with bottles actually down in sales in the craft world and cans up 40-plus percent, we really missed a big opportunity.”

In a move to help offset declines from reducing its use of 22 oz. glass packages, Deschutes installed a canning line last May. In February, the company launched three core offerings — Mirror Pond Pale Ale, Fresh Squeezed IPA and Pacific Wonderland Lager — in 12 oz. aluminum cans.

Additionally, the company is hoping two IPAs — Hop Henge Imperial IPA and a yet-to-be-named New England-style IPA — as well as the release of flagship Fresh Squeezed IPA in 19.2 oz. single-serve cans will help boost sales.

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