Brewbound Podcast: What’s Next for Stone Brewing in 2023

[00:00:00] Jessica Infante: Heading to CBC? Kick things off the day before at Brewbound's meetup at Love City Brewing in Philly, Sunday, April 19th from 5 to 7 p.m. Connect with beer industry leaders, grab a drink, and catch up with the Brewbound team. It's free to attend and walking distance from the convention center. Head to Brewbound.com slash lovecity.rsvp. And don't forget to catch the Brewbound team at booth 956 during CBC. What's next for Stone Brewing post-acquisition? Find out next on the Brewbound Podcast. Hello and welcome to the Brewbound Podcast. My name is Justin Kendall and I'm the editor of Brewbound joining you from snowy Grimes, Iowa. And I am joined by Jessica Infante, the managing editor of Brewbound. How are you doing, Jess?

[00:00:58] Stone Brewing: I'm good. I'm sorry about your snow. That's a bummer.

[00:01:02] Jessica Infante: Yeah. Pre Thanksgiving snow is not great. Not what you want. You know what, though? There is a benefit in not having a sidewalk. I don't have to shovel it.

[00:01:13] Stone Brewing: Congratulations.

[00:01:15] Jessica Infante: I know. Just thinking back to the nightmare scenario that I lived in Medford, where I was like piling snow into my non-existent yard and trying to figure out where where it goes next.

[00:01:27] Stone Brewing: Yeah, that's always a bummer.

[00:01:29] Jessica Infante: Yeah. So anyway, enough snow talk. People didn't come here for snow talk. They came here for beer talk or hard seltzer talk or whatever Bev Out talk we do. Joining us back from New York, Zoe Licata, Brewbound Reporter extraordinaire, Generation Z consultant. How are you doing?

[00:01:47] Maria Stipp: Hello. I'm doing well. Glad to be out of enemy territory.

[00:01:53] Jessica Infante: Oh, we're friends, sort of.

[00:01:55] Maria Stipp: No, not because of BMI, because of New York City.

[00:01:59] Jessica Infante: OK.

[00:02:00] Maria Stipp: I had a lovely time at the Beer Marketers Seminar in New York. I just always had a little bit of distaste for New York as a Bostonian.

[00:02:10] Jessica Infante: Yeah, you can't take the Bostonian out of you.

[00:02:14] Maria Stipp: Never, ever.

[00:02:15] Jessica Infante: Yeah.

[00:02:16] Maria Stipp: Get any pizza?

[00:02:17] Stone Brewing: No, no pizza, but plenty of bagels. Oh, good. That's what I missed on my last New York trip. So I'm glad you got bagels.

[00:02:24] Jessica Infante: Is it still a dollar a slice?

[00:02:27] Maria Stipp: Many places you can definitely find some, but it's not like the default. That's for sure.

[00:02:34] Jessica Infante: Man, it's a bad time when inflation comes for the dollar a slice.

[00:02:38] Maria Stipp: First the Arizona's and then the pizza. What's next? Maybe Costco hot dogs? Who knows?

[00:02:44] Jessica Infante: Oh man, don't don't even start. Well, we got a big guest this week. We're going to be joined by Stone Brewing CEO Maria Stipp. Maria is going to talk about how the integration with Stone Brewing is going when the first Sapporo beers will roll off the line and be in stores that were produced at Stone and what their plans are for 2023. So stick around for that. But we are less than two weeks away right now from Brewbound Live. No pressure on anybody on this podcast and very excited about this. If you are going to be in Santa Monica or want to be in Santa Monica and want to join us, tickets are available now. We keep announcing stuff, although the full agenda is out there. We're going to be joined by Mary Giver from Whole Foods, Jamie Carawan from Buffalo Wild Wings. We're going to have our Beer Buyers Tell All talk that we do pretty much every year now. And we're going to deep dive, Jess and I are.

[00:03:42] Stone Brewing: I love this talk every year. And I know last year we had our buddy Jason Murphy with us. He can't be with us this year, but Jamie's going to bring lots of great insights and we do it every year. But there's a reason that Jimmy Buffett always plays Margaritaville. You got to play with the people want. And I think what the people want is learning how to sell their beer into major nationwide retailers.

[00:04:02] Jessica Infante: And it's different every year.

[00:04:03] Stone Brewing: It's different every year.

[00:04:05] Jessica Infante: Yeah. We're going to have that discussion. We're going to have another big wholesaler conversation. We're going to be joined by Jessica Muskie from the Reyes Beer Division and Jeff Hansen from Stone Distribution. Both of them, as I'm sure everybody listening to this knows, have a lot going on, but conversation is going to be definitely about, you know, what they're looking for, how you can better partner with your wholesalers. And Jess is going to be leading that talk.

[00:04:33] Stone Brewing: Yeah, I psyched about that one, especially because we've got two different ends of the spectrum here. You've got, you know, the country's largest beer wholesaler and a craft-centric boutique operation. So it'll be really interesting to hear how both of them look at the business.

[00:04:45] Jessica Infante: Yeah. There's a whole lot more. I think we've got somewhere in the neighborhood of 15 talks that we'll be doing. There's data, there's everything. We're going to hit it all in Santa Monica. So if you're there, come out, join us. Tickets available now. With that, let's get to this week's news. And last Monday, I did not realize that we were entering deal week and it was a monster week of deals. Just the end of the year rush all at once. Hopefully all at once. Hopefully not, you know, in two weeks when we're getting ready for Brewbound Live.

[00:05:22] Stone Brewing: You should knock on some wood right now, sir.

[00:05:25] Jessica Infante: Yeah, seriously. We've talked about the Tilray-Montauk deal. We talked about the athletic Keurig-Dr. Pepper minority investment. And then there was a third. And we sort of knew this was coming. It had been hinted at. When we were at the Great American Beer Festival, we basically looked at the booths that were right next to each other. And it was Melvin Brewing and Roadhouse Brewing, two Wyoming breweries. And we knew that Melvin was for sale. And that was sort of the big tip off that, oh, yeah, this is where it's going.

[00:06:03] Stone Brewing: Am I engaging in revisionist history? Did you say that at GABF? I feel like you did.

[00:06:07] Jessica Infante: I did.

[00:06:08] Stone Brewing: Yes.

[00:06:08] Jessica Infante: Yeah. But Roadhouse, so we broke that story last week and I talked to all parties involved. They're all interested in getting this deal to the finish line. I know that there's a hearing this week on liquor license transfers within Alpine County or within Alpine, I should say. We'll know more about that this week, but it looks like this deal is pretty much on the road to completion.

[00:06:41] Stone Brewing: Well, congrats to them. Interesting to me. I know Melvin was certainly a darling a few years ago that a lot of people had their eyes on. So I'm not sure if you would ask somebody back in, what was it, 2017 when they brought the ruckus to GABF, if this was going to be their next stop, but here we are.

[00:07:01] Jessica Infante: I don't think so. At that time, I would say that was probably never in the conversation. And then you definitely have some fall from grace within there with the harassment of a server. at a brewpub, I believe, in Bellingham, Washington, by one of the co-founders who is no longer there. And I think that that might have been one of the things that they never really fully recovered from. I mean, their volume recovered, but image-wise, I'm not sure that they ever fully did. And there were some things on their website that were unsavory, to say the least.

[00:07:42] Stone Brewing: Yeah. And it's interesting that like the incident that you just referred to happened long before anything that came out on Brianne's Instagram last summer. So interesting to me that I don't feel like they got brought up too much last summer because there were just so many, so much new information out there, but you're right. Perhaps they never really recovered.

[00:08:02] Jessica Infante: To be fair, though, they did a complete overhaul of their leadership. Frank Magazine has led them. And, you know, I talked to Frank about this deal and, you know, whether he was really brought on to sort of prepare for a sale. And he said that not necessarily, but, you know, his history had sort of dictated that if it were going to go that route, that, you know, he was well prepared for it. And I think he said that he's been through like eight of these transactions. So I would say that his history has definitely dictated it. But according to him, this has been one of the most amicable deals he's worked on. And I also talked with Colby Cox, one of the co-founders of Roadhouse, and he's already got plans for, you know, the vision for the future of Melvin. And part of that involves being a B Corp. Interesting. Yeah.

[00:08:55] Stone Brewing: Why did they never pursue that prior to this?

[00:08:58] Jessica Infante: I don't know why Melvin wouldn't have, but Roadhouse is a certified B Corp. And what it means to be a certified B Corp is that basically their practices have to be very progressive.

[00:09:12] Stone Brewing: There's so much that goes into being a B Corp. It's a really tough certification to get. And there's not that many breweries that have it. You know, you think of like Allagash, New Belgium. I'm sure there's a few others, but.

[00:09:22] Jessica Infante: Athletic.

[00:09:22] Stone Brewing: Athletic. It's a tough one. So congrats to Roadhouse and Godspeed to Melbourne. What other news have we had? Zoe, any interesting tidbits coming out of the conference yesterday? Yes, a couple cool things.

[00:09:35] Maria Stipp: No big news dropping, but some interesting discussions between some of the panelists. There was a economy talk with some of the big names that we know very well, Lester Jones from MBWA, Danielle Cosmal from the BI, and Bart Watson from the BA. And they all touched on what's happening with beer in relation to everything else happening in the economy. The main focus of that conversation was we kind of have to look at everything within context. Because we're in a big time of, you know, even as recently as like the CPI coming out, those headlines can get a little scary sometimes, but within the greater context of everything can look a little bit better for beer. on premise, not where it should be compared to everything else. But there's opportunity there was a big thing that Bart said, especially in relation to price, because that's where you can kind of win out over spirits.

[00:10:33] Jessica Infante: That comment really stood out to me, too. You tweeted it. And, you know, we just had John Lane from the Winking Lizard on here who was talking about how scary draft pricing is at the moment. And so I'm curious to hear more from Bart on sort of his thinking there, because I think John had said, you know, the crap pricing isn't far off from the yellow fizzy stuff or something to that effect.

[00:10:58] Maria Stipp: Yeah, it's definitely still seeing those increases. I think Bart's point was that we need to take advantage of the history that beer has of being a better priced option compared to cocktails in the on-premise space. And so to be wary, I feel like there's a similar message there of what we were talking about with the Winking Lizard conversation of just being wary of that advantage. when it comes to price of draft. But we can ask Bart that when he's on stage at Brewbound Live, so we can definitely hear more about that.

[00:11:31] Jessica Infante: You definitely should, because you'll be hosting that conversation.

[00:11:35] Maria Stipp: Yeah, so that was one of the interesting parts of that conversation. On the other side of that, Bartzell also said, you know, people are celebrating dollar sales increases in records. And he's saying, don't forget, there's inflation, there's other factors going into those. So context, context, context was the main theme that all three of those guys were pushing. There was also an interesting distributor panel with Steve Economos from Eagle Rock, Ed McBrien from Manhattan Beer, and J.R. Hand from Hand Family Companies. They touched a lot on the continued labor problems that distributors are facing. Ed said that they were approached and were told, you know, you're 35,000 cases short of what you can distribute versus what consumers want. And he was like, oh, at like a month, a year? And he's like, no, that's a day. And that's purely based on just the amount of people they do not have to distribute beer and get beer out there. Purely based on consumer wants, not based on like what, I don't know, promises they've made to retailers. So they talked about solutions to that, you know, going away from certain CDL licensing requirements and different approaches there. And also touched on the touchy subject of contracts and people deciding to change distributors. The conversation was built around the context of specifically energy drinks, because there's been some history there, but there was an interesting comment that, you know, if the breakup fee, how they placed it for coming out of these contracts, isn't adequate to what they think the value is, then maybe some of these initial investment chunks of money aren't gonna be as big in the future.

[00:13:23] Stone Brewing: Yeah, energy drinks came up at Southern California Family Beer Distributors Conference that I attended the week before last. And basically the general gist that I took away from it was they're kind of a risky bet because you don't have the same protections that you have with beer in your contracts.

[00:13:39] Jessica Infante: And we saw that in Massachusetts when I believe Red Bull terminated Burke and that led to layoffs there. Yeah. It wasn't just Burke. I think that they were shipped in network anyway.

[00:13:53] Stone Brewing: So Zoe, I know you mentioned one more thing about something that's different about delivering beer in Manhattan, that Manhattan beer has to face, that I thought was fascinating. Can you give us a quick rundown of what that little nugget was?

[00:14:08] Maria Stipp: Yes. So, uh, of the many things that New York is known for, it is also known for being a bit heavy handed with ticketing. And so they have a rule that if you are seen idling for more than three minutes, you will get a parking ticket, but they don't have enough people to put as many tickets out as they would like. So they have incentivized civilians to take videos of trucks idling for more than three minutes. And if they submit them, they will get a portion of the quote-unquote profits from that ticket. And from Manhattan Beer was telling us that they know of a guy who just follows the Manhattan Beer trucks around to do this filming and has already made $60,000 from the city for doing this just off of his share of the tickets.

[00:14:57] Stone Brewing: Absolutely crazy. Similarly, at the CFBD conference that I attended, Kristen Demirjian, who's the head of sales at Firestone Walker, started her beer career at Union Beer in New York City years ago. And she had mentioned that back then they had had a company budget of like $2.5 million to account for employee parking tickets received while on the job. So selling beer in Manhattan is a whole other beast.

[00:15:22] Maria Stipp: Apparently, yeah, Ed had said that they have been north of $2.5 million before, but they were at or just under $2 million this year. So they were really excited that expense had gone down a little bit. So, you know, just a casual $2 million. Crazy.

[00:15:37] Jessica Infante: They're the white whale. Yeah. Well, with that, we should probably get to this week's featured interview. So let's get to our talk with Stone Brewing's Maria Stipp. It's been a milestone year for Stone Brewing. The company was acquired by Sapporo in a $165 million deal that closed in September. Here today to discuss the deal, the craft breweries move into canned cocktails, and what's next is CEO Maria Stipp. Welcome back, Maria.

[00:16:09] Brewbound Podcast: Hello, everybody. Thank you for having me.

[00:16:12] Jessica Infante: This is our annual conversation, it feels like. Now, I mean, with the acquisition, I guess we've done it a couple of times this year.

[00:16:19] Brewbound Podcast: Yeah, that's right, for sure.

[00:16:21] Jessica Infante: So the deal is done with Sapporo. Where are you all in the integration process at this point?

[00:16:29] Brewbound Podcast: Yeah, I'm proud to say we had a fast start. I was really happy with that. You know, we obviously knew we were closing. The team was really proactive about meeting each other and then identifying what parts of the company we wanted to integrate sooner versus later and really just, you know, immediately diving in, getting to know everyone, understanding what everybody does. Clarification of roles and goals, right? That's the most important thing.

[00:16:55] Jessica Infante: How much work do you think is still to be done to sort of get everybody on the same page?

[00:17:01] Brewbound Podcast: Yeah, well, I mean, I have to think about that a bit. You know, we decided to move faster on the sales and marketing side so we could all get on the same page about what we were driving with our retailers and our distributor partners. That was sort of the first step. And then also in terms of our breweries. So everybody in terms of the world of operations, packaging, everything that has really accelerated a lot, you know, getting up and ready to brew is key.

[00:17:30] Jessica Infante: Well, you're about to begin test batching Sapporo beers at Stone next month in early December. Is that on both coasts that you'll be doing that?

[00:17:40] Brewbound Podcast: Yeah, that's right. And we have done some test batches already. We have flavor match, which is super exciting for us to be able to do that. And, you know, as you know, in craft breweries, pasteurization isn't always something that is standard. So that is the one thing that we're going to have to put in place in order to truly, you know, package and distribute Sapporo. But we already have been working arm and arm with their brewers. And I feel really proud to say that we were able to make Sapporo to their specifications.

[00:18:12] Jessica Infante: As far as that goes, I guess, when do you expect the first Sapporo beers being produced at Stone to roll off the line and be in stores?

[00:18:21] Brewbound Podcast: Yeah, well, we're in a dead sprint to get there subject to the supply chain. As you can imagine, we've got all of our orders in for all of the equipment and everything that we're going to need on both coasts. So I'm hoping, you know, probably mid next year, third quarter.

[00:18:36] Jessica Infante: Okay. And you're investing $44 million in CapEx projects as part of adding that additional volume. What's that going toward?

[00:18:46] Brewbound Podcast: Yeah, well, so in Richmond, it's a lot of tank farm, as you can guess. We also have to split our line so that we can do more cans and bottles at the same time. Didn't need to do that before, need to do it now. We also have to accommodate their really, really cool can that you might have seen Sapporo in before, so we need to make sure we can accommodate that. And then also for Escondido, it's just making sure that we're utilizing as much space as we possibly can for additional tanks and some other, you know, pasteurization equipment, obviously. And then, you know, we have to think about all the raw impact that goes in. You know, it's not a small feat to be 350,000 barrels and then be over 700 in less than a year. And so warehousing, you know, we've had to figure that out. You know, we're going to put our warehouses on both coasts. And we're in the process of figuring that out right now.

[00:19:38] Jessica Infante: Well, when deals like this go down, the next question is usually about distribution footprint and alignment. And Stone is in a unique position. Having been in its home market, it was self distributed by its Stone Distribution company, but that was carved out of this deal. How are you approaching alignment? How does Stone Distribution fit here?

[00:20:01] Brewbound Podcast: Well, let's just clarify stone will continue to be distributed by Stone Distribution company in Southern California. We continue to work very, very close together. We just became 2 companies for the very 1st time, not just feels like minutes ago. So, obviously, the brand will stay with Stone Distribution company there. We have noticed Stone Distribution companies looking at national footprints, say, for example, with Bells. They have been proactive with us trading stone for Bells, and we've found ourselves moving in Chicago and Florida, as an example, because of that. So there might be some indication from other distributors that maybe they're looking for us to closely align with some other networks. We're not sure, but we're working it out.

[00:20:46] Jessica Infante: How fortuitous is that, that, you know, it just works out that way that you're able to be traded. It's almost like fantasy football.

[00:20:54] Brewbound Podcast: Yeah, it is. Indeed. I think everybody's got a plan for the brands that they have and how they want to grow. And, you know, I think fortunately for Stone, we're finding some great solutions for Stone Distribution footprint and. You know, I think in working with Sapporo too, we're going to really be thinking more thoroughly about how best to work together with our distributor partners in the future.

[00:21:17] Jessica Infante: Do you expect that to be a multi-year process? For sure. Yeah.

[00:21:23] Brewbound Podcast: for sure. It's a lot of work and we don't want to rush it. We want to stay very close to the business and what the business needs. We do have, you know, attack markets that we're identifying right now as key areas for us to work more together. And so that will come into the following years.

[00:21:40] Jessica Infante: Gotcha. Well, as you've gone through this process, I believe again, because you went through this, I believe one time before with Heineken and Lagunitas, and here you are, you're going through it with Sapporo and Stone. What have you learned this time around that maybe you didn't the previous one?

[00:21:58] Brewbound Podcast: Yeah, well, I think the biggest lesson and learning for me personally is to start aligning and working together as soon as possible. You know, don't be precious about certain things that maybe you're afraid of integrating. We've been an open book with Sephora, and they've been an open book to us. And so that's given us a fast start. into working together, both in terms of the commercial side, but also a lot of the shared services as well. I mean, the faster we all can figure out the very best way to become one team, the better and the stronger we'll be.

[00:22:29] Jessica Infante: Now that the deal is closed too, what have you learned about Sapporo's vision for Stone Brewing?

[00:22:37] Brewbound Podcast: Yeah, so we're on an upswing. We've worked really, really hard to get growth. As you know, I think you and I've talked about this a couple of times. And so the goal here is that, you know, just because we're one company does not mean that Stone somehow is intermingled with growth on Sapporo. We still have to do very, very well on our own as well. So we're looking at continued growth for Stone. We've got a solid three-year plan on what we're looking to do and how to accomplish that. We have focused on our core brands. You've probably seen that over the last couple of years, which is somewhat different than how Stone operated in the past. We're putting a lot of time and effort on our brand families with Delicious and with Buena, and it's working. We've been very disciplined in our pricing approach as well. Sapporo is expecting us to continue the trends that we've put down in that business case. So that's the goal.

[00:23:31] Jessica Infante: Do you really narrow down your focus on just the brands that you're going to be taking to market those core brands and cut out some of that extraneous stuff?

[00:23:43] Brewbound Podcast: So I don't know about cutting it out, but I do think that it has a place, right? So we've learned that we have to recognize that there are people that have not either had stone before or had it in the past, but hadn't had it recently, right? And we know that by adding Buena Vista as an example, we brought in new fans. And that's good news. And so we want to continue to do that. But we also want to make sure that we don't forget our core consumer, the people that have been there for us for years, and they love Ruination as an example, right? They love our special releases, they love our Enjoy Buy series. And all of that is still important to Stone. And that is a part of our legacy that we will continue to do. We're just going to be very specific about where we distribute that. And you know, where does that fit? and the spirit of priorities in our breweries.

[00:24:33] Jessica Infante: When you look at Stone's top priority, is that the Buena family moving forward?

[00:24:39] Brewbound Podcast: So we've made Buena Fesa our number one priority for the last two years and it's become our number three brand overall and our number one draft brand because we've done that. We're still going to keep it in our top three priorities. This coming year, we've pivoted to refreshing our delicious IPA brand with new packaging, a new look, and a mix pack with two additional flavors. And that will be a big driver for us in 23. That and then Buena will still be number two.

[00:25:10] Jessica Infante: Well, you're adding to the family too, and in a place that a lot of people probably wouldn't have expected Stone to play, and that is you're officially making canned cocktails now under the Buena Fiesta label. How are those performing so far in SoCal?

[00:25:26] Brewbound Podcast: Well, it's only been about a week and a half, so it's kind of hard to say, but our points Stone Distribution are higher than we anticipated. So we're above plan there. And our early, early sales are above plan as well. We decided to focus on our core market. I did have a statistic for that. Southern California for RTDs is about a 20, let's see, 16% overall share. And we found that that's two times higher than any other market in the U.S. So RTDs are super important in Southern California. So we thought, OK, let's come out with our very best Buena Fiesta that we can, which is four flavors of margaritas and put that through Stone Distribution Company so that we cover the Southern California market and really use it as a test bed. Get it right. Make sure our pricing's right. Make sure the liquid's right. Make sure we're marketing it correctly. And then that way, if we do decide to move out to other distributors that can distribute it, we've got it figured out.

[00:26:27] Jessica Infante: I'm sure you all researched this before you even got into it. But how much overlap is there between the stone beer drinker and an RTD can cocktail drinker?

[00:26:38] Brewbound Podcast: Yeah, so great question because we asked ourselves that a lot. So here is what I can tell you specifically, we know that 24% of beverage alcohol buying households purchase both craft. and RTDs. So that's one in four people. So that feels like a strong overlap to me. And I think the other thing that we've thought a lot about is continuing on the path of opening ourselves up to new fans. So that Buena brand family, it's a non-IPA family, as you know, right? So you have Buena Fiesta, which is our RTD, you have Buena Vesa, which is our salt and lime Mexican lager, and then Buena Vida, which is our seltzer. And we're really being very thoughtful about what we're bringing in that's new to not only, you know, have the craft beer drinker be excited, but also people that maybe don't drink IPAs or other kinds of craft beer.

[00:27:33] Jessica Infante: How big do you think that Buena Fiesta can be for Stone? Like how much of the business do you think someday this could be? Or, you know, I know it's very early.

[00:27:43] Brewbound Podcast: Yeah, that's a great question. I think that's exactly why I'm using Southern California as my test bed. Because I pretty much have a good understanding of what the share is in Southern California. I have a very good way of measuring my results through Stone Distribution Company. And then I'll be able to answer your question, Justin. I just need a bit more time.

[00:28:03] Jessica Infante: Well, you mentioned the Delicious brand and it's sort of getting a refresh. What do you see is driving growth for that this year?

[00:28:11] Brewbound Podcast: Yeah, so Delicious is currently one of the fastest growing IPAs in the US. We're up 17.9% in Nielsen dollar percent change versus prior year, which is significant. It's one of the brands in our portfolio that frankly was underserved. It came out after stone IPA, right? It was a more modern recipe, it's gluten-free, and it's also a higher ABV. And, you know, we always thought about it as the modern take of an IPA recipe. And it always grew really, really well in Southern California and in other parts of the country, but we never marketed it. And so we decided, let's make delicious our IPA brand family. And we took sort of the core elements of delicious, which is the ABV and some of the taste profile, and we made a double delicious and a citrus delicious. And then we decided, let's put it in a mixed pack for six pack versus a 12 pack. And then that way, you don't have to fully commit. You can give it a try. You can try all three flavors for a six pack price. which we think right now with inflation and costs the way they are, that's a great offer for consumers. We have our six packs aligned and pricing right along our competition. So we feel like we're offering a lot of beer for the money.

[00:29:32] Jessica Infante: How do you price that though, at that inflation buster price? Because as we know, when it's a mixed pack, it's not always easy to get those six cans or, you know, two, two, two all together without some extra help and, you know, cutting into your margin.

[00:29:47] Brewbound Podcast: Yeah, well, the great news is that early this year, before the transaction that we had with Sapporo, we invested in a mixed pack line. And we saw what was happening in the market with six packs and 12 packs and all the variations. And I think variety packs are here to stay, at least for a while. And we want to have that flexibility. And we don't want to have our margin affected by going having to go outside for co-packing. So we wanted to be able to do it ourselves.

[00:30:15] Jessica Infante: And you mentioned the Variety 12s. How are they performing for you all this year?

[00:30:21] Brewbound Podcast: Well, that also has contributed to our growth. So we've experienced incredible velocity. I think we're higher than most all of our competitors on dollars per store per week, as it stands today. You know, we're very thoughtful about the lineup that we put in our mixed pack twelves. We vary them every, let's say, I think we've got at least three or four different versions throughout the year. So people don't get tired. And like I said, having that mixed pack line really changes the game. because we don't have to be relying on outside partners. So we really can change things when we want easily.

[00:30:57] Jessica Infante: One of the last things that we talked about, I think last year was, you know, stone IPA and the pricing for that and what you'd learn there. How is that holding up? How is that performing? And, you know, is it getting to a place that you're, you're feeling better about?

[00:31:12] Brewbound Podcast: So the answer is yes, thankfully, right? It's still my largest brand. It's my flagship. I have to very much care about it. So Stone IPA is number one in the on-premise for CEs for us change versus a year ago, according to Nielsen. And Stone IPA is up 5.4% in dollar sales in Southern California, powered by a 19% increase in dollars per point Stone Distribution over the last 26 weeks. So Stone IPA certainly took a U-turn. If you were to look at the trends back in 2020 versus what they are now, the key here, as everyone probably knows, is we needed to align with our competitors. And once we did that, we were on an even playing field and we could really promote and we could get ad boxes and we could get retailer support for it. And it's changed the trend. So we're thrilled with it. We do see a little Stone Distribution on our six-pack bottles. I think everybody's probably experiencing some Stone Distribution on six-pack bottles as things convert to six-pack cans and 12-pack cans. But beyond that, I'm very happy with the results.

[00:32:19] Jessica Infante: And how's the on-premise business coming back for that brand?

[00:32:23] Brewbound Podcast: Yeah, really, really strong. Like I said, Stone IPA is number one in the on-premise for CEs percent change versus a year ago. That's Nielsen CGA on-premise data. And also, quite honestly, our on-premise total business. I mean, if you just look at even Southern California, Stone Distribution Company's on-premise business is ahead of 2019. So we've gotten back to where we need to be, which is, that's a lot of work and hats off to that team.

[00:32:50] Jessica Infante: Well, another product that you tested only in SoCal was hard seltzers. And that was another place that a lot of people didn't see stone playing. I know that you guys were looking to expand that nationally. What have you learned there? How are you feeling about hard seltzer trends? You know, is that a product that you guys are focused on going into 2023?

[00:33:11] Brewbound Podcast: Yeah, I mean, I think you could safely say stone entered the seltzer game a bit late. We knew that. We also knew we were in a glass bottle. We did that on purpose more so as a point of differentiation and to keep it premium. looking and tasting, which I'm really glad we did that. And it's doing better than our forecast for the markets that it's in. Do I think it's going to be the size of some of our bigger competitors? I seriously doubt it. But then again, that's okay. It's doing a good job on the basis of why we made it. And it does actually really, really well in our bistros. it always tends to be right there in the top, you know, let's call it five or six brands that we pour in all of our bistros. So it's nice to have it, especially when people want to have something other than beer.

[00:34:01] Jessica Infante: Nice. Well, as far as 2022 goes, when we wrap up this year, where do you think Stone's going to be performance wise? What are you on pace for this year?

[00:34:12] Brewbound Podcast: Yeah, so we're going to be, you know, looking at probably a 6% increase versus a year ago. Combined with Sapporo, we're going to be total company about 9% above last year. That's a big step forward for us. That's great momentum to have going into 23, which is going to be a very interesting year for all of us, I have a feeling. So, you know, we're doing our best to combat the costs. You know, we've got inflation just like everybody else. And but, you know, combined with Sapporo, we have a lot more strength in procurement as an example than we would have had on our own.

[00:34:44] Jessica Infante: What are the biggest challenges that you're seeing as far as taking on all that additional volume in a very short amount of time?

[00:34:54] Brewbound Podcast: I would just say keeping up, it's a lot about speed, right? The faster we can start brewing together, the better off the whole company is gonna perform. And so it's a lot about just moving as fast as possible without making mistakes, not moving too fast, making sure that we have people in place, well-trained to do what they need to be doing. We have a very, very high bar of quality in our breweries, so that's gonna take some time to get right and dialed in. But other than that, I'd say, like I said at the very beginning, making sure that we're just communicating with each other and working really, really close internally so that we have a very crisp message for our distributor partners and our retailers. We don't want to come across as confusing. We want to come across as an opportunity for all of them.

[00:35:41] Jessica Infante: How does it change the number of shifts or hours that your breweries will be working? And, you know, are you having to add on it? I imagine you're having to add on additional staff to sort of pick up some of those shifts.

[00:35:55] Brewbound Podcast: That's right. So in Escondido, we'll definitely have to add a shift or two, especially in packaging. And then Richmond is going to be a brand new place. I mean, right now, you know, we'Stone Brewing, let's call it three, four times a week. You know, we're going to have to go to a 24-7 brewery in Richmond to keep up. Wow, it's it's a lot.

[00:36:13] Jessica Infante: Yes, that is a lot.

[00:36:15] Brewbound Podcast: Yes, it is. I'm thrilled for that team. They're going to have a lot of new friends very soon. How many people work in Richmond now? Oh boy, I don't know if I have the exact number for Richmond off the top of my head. As a total company, we're nearly 800 people. If you add our Sapporo, Anchor, Stone, we're about 800. So we're going to be adding, call it in Richmond, I think at least another 30 or 40 people to brew and to package there.

[00:36:42] Jessica Infante: Pretty big increase.

[00:36:44] Brewbound Podcast: It is for us. Yes.

[00:36:46] Jessica Infante: You mentioned Anchor. Will they come into play in any of this? Will you be producing any Anchor beers in the future? Or, you know, do they stay sort of a separate shop going forward?

[00:36:57] Brewbound Podcast: Yeah, they've always been tried and true and brewed there in San Francisco. So we don't have any plans to brew Anchor.

[00:37:05] Jessica Infante: Right on. You mentioned inflation is a headwind this year and going into next year. What do you see as the biggest challenges for Stone on that front?

[00:37:15] Brewbound Podcast: You know, I think all of us are having to deal with how much inflation do we have and what kind of flexibility do we have in terms of growth and pricing? We don't want to take unneeded price increases only to then have to walk things back if things correct. So we're trying to be very patient as hard as that is with really watching the market and working with our supplier partners through this very tough time. and trying not to get reactionary. This is a business for the long term and we have to keep our consumers in mind as well and what they're really able to afford and how we wanna drive demand. So we're being extremely thoughtful about it.

[00:37:55] Jessica Infante: How much jockeying would you say you've had to do this year on price?

[00:38:00] Brewbound Podcast: Well, we took a price increase at early part of 22. We had a little bit more come in the fall of 22. We are planning another price increase into 23, but not at a super high percentage. So I think overall we're probably a 4% increase. That's probably about right. And, and, you know, that doesn't absorb all the costs it's hitting us, you know, just to be upfront, it just doesn't, but it is what it is, right. We have to try to weather it as best we can and really, you know, be super careful about what we're spending on internally.

[00:38:35] Jessica Infante: Do you get the sense that the U.S. consumer is going to be very resilient when it comes to price at this point?

[00:38:42] Brewbound Podcast: Well, you know, I think I read an interview that Jim Cook made not so long ago, and I think he's right. You know, beer is still a good deal as it compares to other things you can buy. And it isn't, you know, the inflation rates aren't equating to price increases, right? Those percentages are not the same. So we're all kind of taking it on the chin, to be honest, and we just have to hope that things start to even out and we don't have so much headwinds on our cost structure into the future.

[00:39:11] Jessica Infante: You mentioned Jim and he's made some headlines of late. One of the things that he said during their latest earnings call was that he doesn't expect traditional beer to grow again in our lifetime. And I wonder whose lifetime he's talking about. But I know not all folks have that view. And I guess, you know, you're running a Fairly large craft brewery, you're expanding with an import label. When you look at this, do you see traditional beer growing into the future?

[00:39:45] Brewbound Podcast: Well, my brands are growing. So I'm going to feel really good about that. And that's, that's what I'm going to focus on. I don't know. I mean, I see a lot of people buy a lot of beer. I buy it. I see it in a lot of carts in the grocery store. So I don't exactly know if he's right or not. I guess time will tell, but my brands are growing. Thank goodness. And that's what we're focused on.

[00:40:06] Jessica Infante: Right on. Well, as we head into 2023, we know that the Buena family is going to be a big priority again for you all. What are your other priorities or, you know, what are your main priorities heading into next year?

[00:40:21] Brewbound Podcast: Well, certainly it's brand building, profitable brand building always sits at the top, making sure our teams are taken care of as we go through this very big expedition of integration is really key. So communication, communication, communication all the time. and building out our breweries, making sure that we do it the right way, that we think about the long term when we make these very expensive decisions inside of capital improvements and so forth. And like I said, we're building for the next few decades, not for the next few quarters. So that's how we're thinking about it.

[00:40:53] Jessica Infante: Well, I really appreciate the time, Maria. Thanks for doing this.

[00:40:57] Brewbound Podcast: Thank you very much, Justin. Have a great day.

[00:40:59] Jessica Infante: You too. And that's our show for this week. Thanks to our one man audio team, Joe. Thanks to Jeff and Zoe for holding it down here. And thanks to all of you for listening. We'll be back next week.