Just 14 days remain before Anheuser-Busch InBev’s deadline to make a qualifying offer to buy the remaining stake of Craft Brew Alliance, or pay a $20 million fee.
The prospect of a qualifying offer of around $328 million (at a minimum price of $24.50 per share) from Anheuser-Busch, which already owns about 31 percent of CBA, was one of the main focuses of Thursday’s second-quarter earnings call.
CBA chief executive Andy Thomas, during the call, made a case that regardless of an offer, CBA is in a much stronger position now than three years ago. Compared to 2016:
- Beer gross margins have grown by more than 900 basis points;
- Core revenue per barrel is up 10 percent, to more than $265;
- Gross profit is up 15 percent, to more than $70 million on a trailing 12-month basis;
- The Kona brand’s volume, which is approaching 500,000 barrels, is up nearly 100,000 barrels;
- The company has revamped its “Kona-plus” portfolio, with innovation division the pH Experiment creating “unicorn offerings” such as Pacer low-proof seltzer and PRE Aperitivo Spritz, as well as brands with runway such as La Rubia blonde ale.
Should Anheuser-Busch not make an offer, Thomas told shareholders that CBA is protected by the receipt of $20 million and the continuation of distribution, contract brewing and international distribution agreements for up to seven years. CBA would also be able to finally “embrace a host of strategic alternatives,” although Anheuser-Busch would still have a say with two seats on CBA’s eight-member board.
In an interview with Brewbound, Thomas said should Anheuser-Busch not make an offer, there are “an infinite number of possibilities” for CBA.
“If that didn’t come to pass, depending on where the stock is, you look at what other alternatives would be accretive on a value basis for shareholders, and that could include a ‘for sale’ sign,” he said. “Or in less crude terms, you could begin a process and take a look at whether there are other strategic suitors out there that would make sense for the company, or you could look at other capital structure and go it alone.”
Should Anheuser-Busch not make an offer, Thomas said, the questions becomes, why wasn’t an offer made? And what is Anheuser-Busch’s future interest in CBA? Those questions, however, are premature until August 23.
CBA to Launch 2 New Hard Seltzers
Beyond the qualifying offer, CBA executives shared plans for new product releases this fall, including the rollout of two new hard seltzer brands to pair with the Pacer seltzer line, which the pH Experiment launched in July.
CBA is planning a national release release for an Omission line of gluten-removed seltzers, as well as a line of Kona-branded hard seltzers only available in Hawaii.
Speaking to Brewbound, Thomas said CBA’s research has found that seltzers are starting to pick up refreshment occasions during the summer that beer once dominated.
“As beer became almost apologetic for being light or for being blonde or for being lagers and became all about being high alcohol or IPA or more bitter, there seemed to be all of this unsatisfied demand for refreshing malt beverages,” he said. “Seltzers seem to have walked in and taken that back from what used to beer’s domain, certainly in the summertime.”
The Omission seltzer line will include flavors such as Blueberry Asahi and is made with four ingredients, including organic cane sugar. Omission seltzers will check in at 4 percent ABV and contain 90 calories.
As for the Kona seltzer line, CBA chief operating officer Scott Mennen told Brewbound that the company is “rapidly working to develop the right flavor” for the “Hawaiian-inspired” brand, which is expected to launch on draft in the third quarter.
“Part of the play for us in Hawaii only is saying Kona is a big brand in Hawaii, we’re a local brand in Hawaii, and we have an obligation to our local consumers to participate in the Kona experience even if they want a seltzer or an IPA or a dark beer,” Thomas added.
As for Pacer, which checks in at 2 percent ABV and contains 50 calories and 1 gram of sugar, the brand currently has more than 500 points of distribution in California and the Pacific Northwest. The Safeway grocery chain is the brand’s largest account, and the Harris Teeter supermarket chain also picked up the brand in South Carolina, Thomas said.
Pacer, along with other pH Experiment brands, is also being test marketed in Amazon Go stores in Washington. The company is also expanding distribution in the state with Amazon through the e-commerce giant’s Fresh and Prime platforms. CBA executives credited pH Experiment general manager Karmen Olson with building its Amazon relationship. In working with Amazon, Thomas said the company has learned that each Amazon platform appeals to different consumers.
“Go are like leading-edge progressive consumers, and they’re interested in the technology and whatnot, and pH is doing really well with that target,” he said. “And then you get the Fresh people who are looking for immediate deliveries and are probably more leading-edge, and then you get the Prime consumers who are more mainstream.
“pH can appeal to all three sets of those sub-targets, both because the brand is experimental, but some of the things that it does are more mainstream and some are more niche,” he added.
Distribution Expansion for La Rubia and more Innovations in the Pipeline
CBA believes La Rubia blonde ale, made by Miami’s Wynwood Brewing, has the potential to be a “standalone brand,” Thomas said. “This is a legitimate brand born out of a Caribbean Hispanic culture that appeals to that occasion.”
As such, CBA plans to market La Rubia to “Caribbean Hispanics” when it expands distribution this fall to up to five states, which could include New York, Pennsylvania, Connecticut and Massachusetts.
Earlier this year, La Rubio was released in Puerto Rico and had a “strong start,” CMO Ken Kunze said during the investors’ call.
Mennen also cited several new product launches as having potential, including Cisco Brewery’s Crantucket Brut Rosé IPA, Appalachian Mountain Brewery’s Cream donut-infused nitro milk stout, and Wynwood Brewing’s English Pale Ale, which is being served on Virgin Voyage’s Scarlet Lady cruise ship.