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Craft Brewers readies $10M in upgrades

November 26, 2010

Craft beer lovers rejoice.

The 2007 marriage of Widmer Bros. Brewing and Redhook Ale Breweries will yield new brews in 2011 when Craft Brewers Alliance Inc. rolls out new products.

More importantly for investors, the bumpy road that resulted from the merger of the two companies might finally be smoothing out.

“People will be seeing some new beers. They’ll be seeing some changes to the packaging. They’ll see us involved in new kinds of events and new kinds of activities,” said Craft Brewers CEO Terry Michaelson.

Michaelson offered a glimpse of the new initiatives when the company announced a 15 percent increase in its third quarter earnings earlier this month.

The company spent the past three years integrating its brands and management. Now, with a new distribution agreement in place that will yield an estimated $1.6 million in annual cost savings, it’s matured enough to invest in new products and markets.

“We’ve been improving financially and gotten to a place where we have the resources to invest,” he said.

In the next five quarters, the company plans to invest $8 million to $10 million in improvements to its brewing operations and its supply chain management system, representing a five-fold increase over its historical $2 million in annual upgrades.

Michaelson said most of the investment will pay for a new order management system that will maximize sales.

It also updated its distribution agreement with Anheuser Bush-Inbev, a major shareholder. Anheuser-Busch Inbev distributes all Craft Brewers beer not sold directly in one of its restaurants.

The new distribution agreement trims the fee Craft Brewers pays to access the distribution network by nearly a third and will yield estimated annual savings of $1.6 million. Michaelson said it makes Craft Brewers the only company in its category with unlimited access to wholesalers.

The cost savings will be plowed into the cost to develop its new brands and markets.

“It’s good for us and it’s good for them.”

The 2007 merger of Widmer Bros. Brewing and Redhook Ales to form Craft Brewers Alliance created a company with a current market cap of about $120 million and an annual brewing capacity of about 660,000 barrels.

It is second to only Samuel Adams in the $1.6 billion craft brew market.

Mintel International Group Ltd., a market data firm, recently said the craft segment is the brewing industry’s fastest growing player.

Craft brewing remains a small player in the U.S. domestic beer market, with estimated sales of more than $87.4 billion this year. Domestic beer accounts for 87 percent of all beer sales in the U.S. Domestic beers gained market share during the recession as shoppers traded down from more expensive imports.

Michaelson is optimistic the new brands will strike a note with customers.

“At the end of the day, do we get the right beer at the right place?”

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