Seattle Beer Week isn’t off to a good start for the granddaddy of local craft brewing, just declared the “least profitable” brand for parent company Craft Brew Alliance.
The granddaddy of Seattle craft brewing may be showing its age. And if you’re seeing less of it around, that’s not just your pub or grocery store.
Shipments of Redhook beer fell 16 percent in the first quarter of 2015 from the year-earlier period, after growing just 3 percent during 2014, Redhook owner Craft Brew Alliance (CBA) reported late Wednesday. Overall, the Portland company had a 5 percent drop in sales.
Those results sparked an 18.8 percent drop in its stock price Thursday, even as company executives outlined upbeat plans to expand production capacity at its Kona and Widmer breweries and establish a new Seattle pub for Redhook.
Small independent breweries are proliferating across the state, making Washington No. 2 among states in the sheer number of craft breweries, according to the Brewers Association, a Colorado-based trade group. Statewide production by small brewers leapt 21.6 percent last year to 405,131 barrels.
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The nationwide growth rate was a slightly less frothy 18 percent, giving craft brewers an 11 percent market share, says Bart Watson, the association’s chief economist.
CBA, no longer considered a craft brewer, has wide-ranging national distribution of its Kona, Widmer and Redhook beers, thanks to part-owner Anheuser-Busch InBev.
But that doesn’t seem to be a big plus: Quarterly sales through A-B fell 7.2 percent for the quarter, while contract brewing and international sales rose 5.9 percent and revenues from the company’s five pubs edged up 2.3 percent.
On a conference call with analysts, CBA Chief Executive Andy Thomas emphasized “our home-market strategy,” selling its beers in the states where they are produced.
Those markets — Washington for Redhook, Oregon for Widmer, and Hawaii for Kona — are “the most profitable and the most crucial to the health of those brands,” he said.
Among the three, however, “the Redhook brand family is our least profitable brand family.”
He said a brewpub the company plans to build in Fremont or Ballard will “reconnect the Redhook brand to the heart of Seattle.” Redhook was founded in Seattle in 1981 but the brewery and pub in Woodinville are its only local presence.
In Washington, Redhook sales did increase last quarter; even sales of its flagship Longhammer IPA were up here, while nationally that beer and Redhook’s Audible Ale were blamed for most of brand’s sales slump.
But in some other markets, where “where we sell a fair amount of volume” of Redhook beers with little profit, the company plans to “transition … to other more profitable brands in the portfolio,” said chief marketing officer Kennet Kunze.
That switch-over, he added, is likely to be “a drag on Redhook performance” in the quarters ahead.
Redhook’s offerings were already cut back last year by 40 percent as the company embarked on what Thomas called “SKU rationalizations,” reducing the number of stock-keeping units or different products. As analyst Francesco Pellegrino of Sidoti put it, Redhook “was the one that was really whacked the most.”
Brewers Association economist Watson says surveys show craft-beer aficionados do care about buying local, so the home-market focus may be a good strategy for CBA.
Running local brewpubs gives a brewer more than just visibility, it’s a form of instant consumer research, he says. “It allows you a lot of freedom in experimenting, getting a lot of feedback.”