While its legacy Widmer and Redhook brands continue to decline, Kona offerings are up double-digits year-to-date in a Craft Brew Alliance portfolio that has grown to include a number of regional craft brewery partners in recent years.
In reporting its third-quarter earnings yesterday, CBA highlighted yet another quarter of depletions growth for the Hawaiian-themed brand, with a 9 percent increase in Q3 and a 10 percent increase year-to-date.
During a call with investors, CBA chief Andy Thomas attributed Kona’s growth to added distribution and “healthy velocity trends” of its Big Wave Golden Ale as well as expanded availability of Hanalei IPA. However, Kona’s Longboard lager is “suffering from the most velocity softness” due to heavy competition from similar beer styles, he added.
“We feel really good about the underlying velocity trends we’re seeing with a caveat that Longboard is one that has the most competitive positioning given the number of other competitive lagers out there,” he said.
Despite Kona’s surging sales, portfolio-wide depletions declined 2 percent while shipments remained “relatively flat” for the three-month period ending September 30.
Those declines are due, in large part, to Widmer Brothers and Redhook, whose sales to retailers declined 15 and 27 percent, respectively, during the quarter. During the first nine months of the year, Widmer depletions have declined 15 percent while Redhook depletions are down 25 percent.
CBA chief marketing officer Ken Kunze called Q3 “one of the tougher quarters in recent memory for industry depletions.” He added that the craft volumes California, Washington and Oregon, which account for about 45 percent of CBA’s sales, slowed in 2017. Citing Nielsen data through October 7, Kunze said craft segment volume had declined 3.9 percent in California, 2.8 in Washington and 1.7 in Oregon.
In fact, CBA’s “cornerstone” Kona brand lost 30 basis points of craft share in California, according to Kunze. To turn around the brand’s trends in the state, Kunze said CBA has “aggressive plans” to reach retailers, wholesalers and consumers.
“California is the only place where we’d like to see growth be a little bit stronger,” he said.
As for Widmer Brothers, Thomas said the Portland, Oregon-based brand is showing “real progress” in its home market where it grew craft share by 60 basis points. (Widmer’s craft share also increased by 30 bps in Washington state.)
“Even though the volumes don’t look fantastic,” Thomas said, “the share gains on Widmer Brothers in Oregon make me feel fantastic about the home market strategy.”
Earlier this year, CBA began retrenching the Widmer and Redhook brands in the Pacific Northwest. Thomas estimated that Widmer Brothers volume outside of California, Oregon and Washington is now under 10 percent while Redhook volume outside of the state of Washington is about 50 percent.
“When we see 20 and 30 percent declines on the Redhook brand, it is painful as hell for everybody but it’s part of the strategic consequence of where we’re heading.”
However, Kunze said Redhook is beginning to see “positive traction” behind two IPAs — Big Ballard and Bicoastal — with expanded chain commitments coming in store resets. He added that the company also successfully opened the Redhook Brewlab in Seattle.
“In Washington, we’ve begun to see a moderation in the declining trends in the off-premise, while the impact of new beers and Brewlab have not yet materialized in slowing Redhook’s on-premise decline,” Kunze said.
Thomas explained that CBA formed partnerships with Cisco Brewers, Wynwood Brewing and Appalachian Mountain Brewery to fill in volume holes on the East Coast as part of its Widmer and Redhook retrenchments. Depletions for CBA’s three partner brands, as well as Square Mile Cider, increased 10 percent during Q3 and 13 percent for the year.
“We feel that those three partners collectively are doing a great job plugging the former space held by the Redhook and the Widmer Brothers brands,” Thomas said. “If you look at the geographies, it enables us to compete more effectively in New England, the Carolinas and Florida.”
The deal for a 24.5 percent stake in one of those partner brands, Wynwood Brewing Company, was first announced last December. In an SEC filing yesterday, CBA revealed that it paid $2.1 million (in July) for the minority stake in the brewery.
During the call, chief financial officer Joe Vanderstelt said layoffs in 2016 saved the company $4.3 million. The now-closed Woodinville brewery has saved CBA $1.5 million this year, Vanderstelt added, and will save the company another $2 million once the brewery is sold. The closure of Woodinville also contributed to a 6 percent decline in net brewpub sales during the quarter, he added. The company said it will “revisit” its brewpub strategy due to the decline in sales and slower foot traffic.
Meanwhile, Vanderstelt said CBA “right-sized” the cost structure at its Portsmouth, New Hampshire, and Portland, Oregon, breweries this past fall.
Speaking to Brewbound, CBA chief operating officer Scott Mennen said part of the right sizing came as a result of not replacing employees who had departed the organization, as well as other efficiencies in the business. Mennen added that CBA’s total workforce has been reduced by about 15 percent in the last couple of years.
Additionally, Mennen said the Portsmouth brewery, which was once a Redhook-specific facility, now brews more products for Cisco, Wynwood and Appalachian Mountain Brewery than Redhook. He estimated that 15 percent of the brewery’s total volume is now Redhook products, and Redhook production at the brewery will continue to decline. However, Mennen said production at the Portsmouth brewery is expected to increase by 10 percent in 2018.