Hawaiian Beer

Kona Brewing Company’s Massive Expansion – Interview with Craft Brew Alliance’s Andy Thomas

New Kona Brewing Company Brewery Location

Kona Brewing Company opened 22 years ago as a small brewpub in Kailua Kona on the Big Island. Back then it was pretty much the only craft brewery in Hawaii. Over the past 22 years the company has grown tremendously and last week Craft Brew Alliance (CBA) announced plans to build a brand new brewery in Kona to dramatically expand the amount of beer produced here in Hawaii. I got the chance to sit down and chat with Andy Thomas, the CEO of CBA, about the new brewery, the beer industry and the Kona brand.

A little about the new brewery before I jump into the interview. The existing Kona brewery has been maxed out at around 13,000 barrels for a few years now and hasn’t been able to keep up with the demand of the islands. It also only produces draft beer and doesn’t have the ability to package (can or bottle). The newly announced brewery will be able to meet the demands of the Hawaii market for both draft and cans, at a whopping capacity of 100,000 barrels per year.

The new 30,000 square foot brewery will be built on a 2.5 acre lot right down the street from the current location. Sandi Shriver, Kona’s Head of Brewery Operations, explains that the brand new high efficiency brewing system will allow the team to do a brew every two hours and is designed to be as water and power efficient as possible. Sustainability has always been extremely important to Kona Brewing and Shriver notes that technology has finally caught up with their vision to allow them to responsibly brew beer at a greater scale in Hawaii.

According to Shriver, the new brewery is “actually smaller than our current brew house in the pub. Our system now is 25 barrels and we squeeze out 27 barrels on it and the new system is is only 20 hectoliters which is about 17 barrels. This is great for innovation because we can do small batch brews, but we can crank it up to do larger production. It’s more efficient, it uses less water. It uses a mash filter so you pretty much squeeze out all of the water from the mash.” The new brewery will have all the latest sustainable bells and whistles. Water recycling, energy recapture and lots of PV panels. Shriver says that “we’ll be able to divert 75% of the water we use away from the municipal water system and reuse it for irrigation, cleaning and other things at the brewery.” Up to 50% of the breweries power will come from renewable resources.

Price tag for the new brewery…a cool $20 million. The size of the investment and brewery are a sign of how bullish CBA is about Kona Brewing Company and Hawaii as a beer market. It’s something that Andy Thomas mentioned many times in our chat. Hawaii is an exciting beer market and Kona is a special brand with a lot of history. Thomas, a self professed dark beer fan, has been CEO of CBA for the past 4 years. Prior to that he spent over a decade with Heineken. He speaks with a passion for not only the product of beer, but also the business of beer. I’m publishing pretty much our entire conversation. It’s long, but well worth a read.

Andy Thomas CEO Craft Brew Alliance

With this announcement, you’re making a huge commitment to the Hawaii market. The craft beer scene here has grown tremendously in the past few years. How do you see it compared with the rest of the country?

AT: The craft beer scene here is probably as evolved as some craft beer scenes in major cities in the US. Take a look at Texas and Florida, the 2nd and 3rd largest beer states in America, and there is probably more craft sold in Hawaii relatively speaking on a percentage basis. So in that sense Hawaii is probably ahead of the curve and I think a lot of the activity we see now is basically going to accelerate that trend.

Why has it taken so long to expand the Hawaii brewery? Why now?

AT: I forget the exact way this quote goes, but Hawaii is the largest inhabited most isolated land mass in the entire world. It’s challenging to figure out how to do things here in Hawaii at scale in a way that is true and in a way that is real. Not to overuse authentic, but I think it creates a challenge for people and it’s not easy.

We’ve wanted to have a bigger facility and brew more here for years. It’s always been something we’ve talked about, but it didn’t really become a realistic wish for us, given all of the location based constraints of Hawaii, until probably in the last two years. There are some of the really interesting elements for the new brewery, repurposing energy and it’s focus on sustainability, and these are investments we can make are now actually doable and it’s exciting.

CBA is doing a pretty major expansion in Portland right now. That’s a 200,000 barrel expansion and it’s exciting in its own right, but by contrast with the brewery we’re building here, it’s just so much sexier. There are so many cool aspects to it and that’s exciting to be a part of.

Can you elaborate more about sustainability at CBA?

AT: Sustainability has always been a major focus for the entire company in general. Portland is a pretty sustainable brewery in terms of its water usage. We work a lot with government and non government agencies on energy efficiencies and recycling. Kona is at the forefront of our sustainability initiatives because it is a necessity here in Hawaii. The location demands it.

Why expand so big back in Hawaii instead of continuing to ship in the beer from Portland?

AT: There are a couple of aspects to that. I think the technology has finally caught up to our vision for brewing at scale in Hawaii. So all of a sudden it has become a reality to consider to have more of a production scale brewery here versus just a small pub sized brewery. There is an economic element to it as well. But more so it’s about reinfusing the brand with its DNA and keeping that alive. Community is critical. Being local and being able to give back to the community is important. Having the beer brewed closer to its market is good for business. It’s good for the brand, the economics are good and it’s possible now.

When you think about it, why ship all those kegs and cans across the ocean when you don’t need to. Especially when brewing them locally is better for everybody and makes sense for us. This is one of those few times where it’s a homerun across every dimension. It’s a homerun for the brand, it’s a homerun for the local community, it’s a homerun sustainability wise and it’s a homerun economically.

If we look at CBA, at a higher level, the Kona Brewery and the Portland expansion and the announcement we made last week about the brewing partnership with Pabst, those are all intricately related. So all of a sudden that allows us to basically be able to use our brewery assets in a much more effective way to be able to brew our brands where it makes sense for them to, closer to the consumer and still in the most economically and sustainable way.

13,000 to 100,00 is a huge leap in production size. Do you foresee that entire capacity being consumed only in Hawaii, or do you have plans to use the brewery to export to Asian markets?

AT: It’s a huge expansion. We’ll scale up to it. There’s a lot of really cool aspects about the new brewing system that we’re putting in. We don’t have to go from 0 to 100,000. We can scale up appropriately.

That said our vision is to produce all draft and cans for the islands out of the new brewery and I think the prospect of export is real. We don’t have definitive plans for export out of the brewery, but as our international markets continue to expand, especially in Asia where we have a nice business, you could imagine this being a brewery that can satisfy asian demand.

We grew at 20% in Hawaii last year and I think there is a lot of room to grow here. So 100,000 barrels is a lot relative to what we brew here now, but when you take a look at the fact that we sold 1.2 million cases on the islands last year, being able to absorb more of the draft and can volume locally with those growth rates and as we begin to focus more on those packages it’s not inconceivable that we’ll be talking about the need for a new expansion in the next 3-5 years.

Kona Brewing Company New Kona Brewery

The new site is 2.5 acres. That’s pretty huge, almost like a campus.  Will the new brewery be visitor friendly and a destination like the pub is now?

AT: There’s two bookends now to the Kona campus. There’s the existing pub and brewery and now there will be the new brewery. Once the new brewery is up and running there will be a brewery tour and we will have a consumer experience that we’ll develop into that. We’ll then remodel the existing pub and expand it into the current brewing space. Those plans are in their infancy stages and we’ll try to create an experience so that it remains a major destination for travelers and locals.

Cameron Healy, founder of Kona Brewing, refers to the Kona Pub location as Mecca for the Kona brand. Cameron’s a very spiritual guy and he always talks about the “juju” at that location and it’s great to hear him talk about it because it is so real for him. It’s one of the things that weighed pretty significantly on us as we looked at potential sites because there is something special about that location. When you go to the pub there is a great energy about it and something that is real about it. We want to make sure that we don’t lose that and we harvest that in a good way and we build on it. Hopefully the new brewery will feed off of that positive energy and bring even more energy to the whole location. The new brewery location and existing pub will be walking distance from each other.

The competition in Hawaii is growing. Maui Brewing has expanded, there are dozens of new small breweries opening up and the amount of new product coming into the state is incredible. I recently wrote about how competition is great for the consumer. Your thoughts?

AT: For the craft beer scene here in Hawaii to evolve it’s going take a village. It’s not just about what we’re doing. What Cameron and Spoon did here 22 years ago was really pioneering. But you really have to give credit to how the craft beer scene is evolving here. Take a look at what Garrett and the folks at Maui are doing and how vibrant that is and the beers that they are bringing to market. And that is all great for us. What I love is really healthy competitive markets where everybody can get really creative and force the other guy to get really creative. You look at other brewing hotbeds like Portland or San Diego and it’s super competitive and that’s fun and I think that could happen here.

Our corporate headquarters for CBA is in Portland and at last count there were over 60 breweries within the city limits. There are some really, really good breweries there. We’re fortunate that Widmer Brothers is Oregon’s favorite craft beer. Hefe outsells everything by a longshot there, but there are some outstanding beers in Oregon. Some of the other brewery owners are close friends of mine and we’ll go out and it is a very healthy dialogue we have because we’ll go someplace and we won’t be on tap and they will. It’s all good natured. I want to clean their clocks competitively and in the marketplace, but I love what they are doing because they are making it a better beer market. Better beer markets are good. Good companies should never shy away from competition. They should always encourage it and I love it.

How do you balance staying true to your brand while trying to grow and expand? The more you grow the more mainstream you become, which may anger some early fans.

AT: Brands are important, but the product itself is important too. It’s something you drink, so you have to like the flavor of it. If you look at the overall beer market in the US, still 90% plus is lager…I think Kona is such a beautiful brand because it’s flagship is a lager so it has mass appeal. The brand has a lot of richness, resonance and romance to it. And on top of that you can start to brew really fun and complex beers so you really have the best of both worlds. You’ve got a provenance like Hawaii, which is paradise. You’ve got a beautiful brand that is rooted in authenticity and a portfolio of beers that can satisfy your more mainstream sessionable occasions as well as the more special ones where you just want to have one or two.

I think when categories become mainstream, haters are going to hate. And you just have to accept that and deal with it. I love looking across categories. You look at coffee and it’s fascinating at how mainstream Starbucks is. Everybody loves to hate Starbucks, but everyone still goes there. Starbucks is always trying to keep their specialness, while being pretty unapologetic about trying to also be everyone’s mainstream coffee choice. There is a nobleness to that, and I know it sounds lofty but if you can make 8 out of 10 beer drinking occasions better, why hate on that. If you raise someone’s game everyday, feel good about it.

You can use Starbucks as a case study for craft beer. You have a segment of the population that made Starbucks “Starbucks.” If it hadn’t been as passionate and as unaccepting of what was readily available at the time Starbucks would never be here. Because those people would just have drank Foldgers and Maxwell house for the rest of their lives. I remember in 1992 when I was working for Craft Foods and I did some work in the coffee division which was Maxwell house. There was a person in the marketing department that took a trip out to Seattle in investigate this Starbucks thing. She wrote a memo and I wish I would have kept it. She said this is a fad, American’s will never drink coffee that taste that bitter and is that strong and they’ll never pay that for it. Fast forward 20 years!

So if you think about it, the group that made Starbucks popular eventually became the haters because they moved on to more obscure things. And the same thing is going to happen with beer. The thing is, the market is so big I think Starbucks has a ton of growth room left with people who still are finding it as the only game in town when they want to raise their game or is helping redefine what people expect out of a coffee experience. And I think for craft, regardless of where you are the same thing is happening. My crystal ball is that for a while, a decade maybe, you’re going to continue to see this really interesting thing going on in the US beer market, which is fragmentation and consolidation at the same time, and it’s going to look weird.

So many breweries are now opening up second and third locations far from their home brewery (Sierra Nevada, NB, Oscar Blues, Stone, etc.) to be able to brew beer closer to where it is being consumed. It’s something CBA and Kona started doing long before it became popular. It seems like now you were ahead of the time with that decision.

AT: I laugh because it was lonely for a while. The reason we have the brewery footprint we do now is largely because of the merger between Widmer Brothers and Redhook. It was in the late 90’s that Paul Shipman, who was one of the founders of Redhook, built a brewery in Portsmouth, NH. That was unheard of for a craft brewery from the Pacific Northwest to build a brewery in the Northeast. It was a good 15 years ahead of it’s time and he had a good vision of where the market was going to go.

We’ve been carrying pretty proudly on our Kona labels for almost four years the fact that we brew in multiple locations. If you look at a label we list all of our brewery locations. We brew in 5 locations around the US.

I find it interesting at how many breweries still don’t actually do that. In Memphis in particular, Blue City Brewing is our partner brewery and there’s a lot of other well known craft beers that are brewed in that brewery that you would never know. So, you know, it’s always been a smart business idea and in a lot of the cases it’s been good for the consumer because they got fresher beer brewed closer to the market and it didn’t compel brewers to do stupid things like play with shelf life or things along those lines. But for whatever reason I don’t think enough breweries were open about it and we allowed people to make it something to be secretive about when it should’ve never been secretive.

I am really proud of the DNA of all of our brands. I’m really proud of the story of Kona. It is authentic…and many haters will say it is not. But sit down and talk to Cameron Healy about what was in his mind when he and his son started the brewery 22 years ago and then tell me that’s not real or authentic. Then again I’m biased, I worked for Heineken for 13 years and the Heineken family was as passionate about Heineken in 2000 as they were 3 generations before when the brewery was started. And not every drop of Heineken was brewed in Amsterdam anymore either. So to me, it all comes down to being true to who you are and being true to your roots and being open about it.

You mentioned “craft” in air quotes earlier. Does that term mean anything anymore?

AT: What I find is interesting about it is I’ve always believed that good brands with a good relationship with their consumer elevate the experience and make them feel good. Why would you want to make someone feel bad? Make your consumers feel good about what they are doing.

Just look at the market shares. Most craft beer drinkers are probably drinking something other than craft maybe 1 out of 10 occasions. The amount of people who only drink Brewers Association defined craft beer is relatively small. So why would you ever make those people feel bad about that 9th out of 10 beers that they drink. I think we allowed people to demonize and to kind of make people feel bad about what they were drinking, which is never a good idea to me. If you talk down to the consumer in the long term you’ll never win.

This is the consumer in 2016. You open the menu and you look at the beer list and if there’s nothing interesting on there, most consumers today will go to cocktails. That’s the world we live in. So, it is all about what is available at that particular time. And if you really love beer you won’t blindly only drink craft because it might not always be the best choice in that occasion. There might be a year and a half old, incredibly oxidized beer on the shelf, but because you’re trying to be so black and white about it you’re going to drink that instead of drinking a “mainstream beer” that is fresher and candidly a lot better.

Do you think Kona has taken so much heat because it’s named after a location and that is part of its image? You don’t find the same type of criticism thrown at other breweries that are now brewing far away from their original home location (Sierra Nevada, Stone, New Belgium, Oscar Blues, etc. etc.)

AT: I think it’s a fair hypothesis. It’s speculative, but I think you’re right. I think the fact that it is called Kona is one of the the things that allows people to focus on. It’s like Brooklyn Brewery. I’m sure Steve Hindy and Garrett Oliver take heat for that because most of that beer isn’t brewed in Brooklyn either, but it’s called Brooklyn beer.

Without answering definitively because I think it’s speculative, I think what we’ve done is to try and acknowledge that and be transparent. We’ve continued to focus on being true to what gave inspiration to that name and what embodied that name. It’s why “Mecca” in Kona weighed so heavily on us as we looked at site selection. I think it raises the bar on our actions and it makes us more accountable to be true to what inspired the Kona name so that we can always with a straight face say we’re being true to the DNA of the brand. I think it does kind of increase the burden on us in a way and it’s all good. We’re not going to go back and change it. 22 years ago they called it Kona because that was the inspiration for it and I’m always going to celebrate and respect that inspiration rather than try and change it.

Kona merged into CBA five years ago, but Cameron is still a large shareholder and we still have an advisory board on the Kona brand, so there is still input there. What I love about all of our brands is our founders didn’t go away. No one sold out. The Widmer brothers are still active, I still see Paul Shipman on a regular basis and Cameron is still involved.

We try to pass the acid test by asking ourselves if we are reinfusing the equity of the brand and are we true to the roots. Look, we’re a public company. I’ve said this publicly, I’m not going to apologize for being a capitalist. I’ve got shareholders I have to worry about, so that creates another tension when you have to make some economically feasible decisions that are sometimes counter to what you want to do so otherwise.  The obligation we’ve got is to try and strike that balance in the right way and never violate what our values are. And I feel like we never have.

People talk about big faceless corporations and I love that. We’re not faceless. I find it offensive. To even suggest for the big brewers, that some guy who everyday busts his but working on a packaging line, just because he’s in a brewery in St. Louis is faceless. Why demonize that guy? He’s busting his butt to put bread on the table for his family give his family a great life and to do everything he can do produce something good…and we go around hating on them cause he works for a company. We all work for companies. We all carry phones and use banks and give money to cell phone carriers. I don’t apologize for it. I can only make sure that we are doing everything that we should be doing to be able to have the integrity to honor our company’s history.

Lots of acquisitions this past year? Is CBA looking to grow via acquisition?

AT: Kona is the cornerstone of the portfolio now. It’s now over 40% of our revenue and we believe it’s our growth engine for the future. We are looking expand our portfolio in a couple of ways; geographically and also brand wise. What makes us unique is that we really do believe in community and the importance of having real brands, not just brands that were created in a conference room.

The market is really frothy right now. So there are companies that are interested in selling out that are looking for ridiculous multiples that are difficult to justify to shareholders and to my board. There are also a lot of people who are looking to sell out to legitimately sell out and go away. We believe that brands are really important in that they have to be real, and the same way that I say Cameron is still involved or the Widmer brothers are still involved, we don’t like people who want to sell out and walk away. And those are normally the people that want the highest price.

We have a partnership strategy where we look to do what we did with Kona. We’re looking to find brands in geographies that are interesting to us that are looking to work with us through a distribution and brewing agreement where we can take an equity stake and partner with. We’ve done that in the last year with Appalachian Mountain Brewing in North Carolina and with Cisco Brewers in Nantucket, and we’ll look to do that in a few other places as we broaden the alliance. As they grow the founders stay involved and it’s a nice interim move for us and it’s similar to how Kona ended up merging in. Rather than go out and outright buy someone we’re looking to partner.

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2 thoughts on “Kona Brewing Company’s Massive Expansion – Interview with Craft Brew Alliance’s Andy Thomas

  1. Pingback: Three New Limited Releases from Kona Brewing Company | Beer In Hawaii

  2. Pingback: The Story Behind Kona Brewing’s Jab-Oat-icaba Cinnamon Oatmeal Stout | Beer In Hawaii

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