Stone Brewing Announces Restructuring & Layoffs

If no one bought bad beer twice then we would already be experiencing the shakeout that I mentioned in my initial post. Why do we still have so many new brewery startups and so few breweries closing today?

 

Supply and demand? The breweries are selling good beer? Here in MA the there have been only one or two beers that I would not buy again. An average ( c) beer is not a bad one. Just average. How much bad beer do you keep buying?

 

I think I agree with others in this merging of thoughts: Stone likely expanded based on the growth of the craft beer segment, and didn't properly assess the willingness or capability of "big beer" to get into the industry, and (more likely in my mind) the level of the local brewery growth (both of which they mention in their press release).

Greg (with other) has always indicated there was a shakeout coming in craft. I think the focus was on big, maybe to the blind spot of the small. I think most people I have discussed this with in the past agree that the shakeout is going to affect regional brewers more than local brewers. I think Stone is dealing with some of this shakeout.

But I also agree with those that think this is partially of Stone's own making. The aggressive growth happened to come at a less-than-optimal time. Unfortunately, the plan for expansion come years in advance of the fruition of those plans, and always involves risks. I think (and even moreso hope) that the company will adjust in light of new information and continues to serve the "craft beer" community.

Put another way, I hope and assume this is a bump in the road for the brewery. I feel for those laid off, and truly hope they move forward with as much success as the brewery that is letting them go.

 

So then according to you, the 4000+ breweries (and rising) are mostly all average or better (and I agree). Would you buy average beer twice? I'm not going to keep going back and forth on this. My opinion is that small local breweries are in a better position right now, compared to the likes of Stone, New Belgium, Sierra Nevada, etc... Even if (using your scale) those breweries are just average.

 

I think your logic is very sound, but I was a little put off by Stone's messaging pointing a finger at "Big Beer" (in title caps no less). Your post called such companies "vampires." Perhaps Stone should own some of the blame. I don't want to make speculations that sound like assertions, nor speak lightly about a topic that will have very real consequences for others. I don't doubt that this was very difficult for all at Stone. A company obviously needs to take competition into account when making growth projections. Stone wears their hubris on their sleeve. I understand that a marketing image and financial growth calculations do not necessarily intersect, but Stone appears to put their money where their mouth is and as such it's hard to divorce the two.

In my area, Stone Enjoy By hits with stacks and stacks of cases. The stuff sells. Beyond that (and Xocoveza for the time being), their shelf space isn't much. I don't see AB InBev brands crowding them out. I see Sierra Nevada, Bells, New Belgium, and a lot of small locals. I see lots of "new kids on the block" - like Pipeworks, who took on a loan to gain a new brewery and increase their capacity, and are now in my state as a result of that. Once again barring the stacks of Enjoy By on the floor, Pipeworks appears to have as much or more shelf space than Stone around here... and their beers appear to be flying off those shelves. When they expanded, Pipeworks also made sure to mention to the press that they would carefully monitor their growth and listen to any changes in the market. Granted, the flexibility of operations like Pipeworks and Stone are difficult to compare due to size. I'm not trying to state that Stone was doing anything wrong and that someone else is doing it right. It's just that I see "big beer" as such an easy and convenient scapegoat to a situation that is very complicated.

 

Although, maybe Stone feels expanding into international markets, despite the difficulties with the German markets you stated previously, is a better long-term strategy than focusing all efforts on an increasingly competitive US market. I think large to mid-size US craft breweries who depend on distribution will be forced to explore beyond US borders, or accept much lower growth/profits*. But, I say that and then think to myself...so, why did Stone build the Richmond, VA brewery too?

* - I don't see lower rates of growth/profits as a terrible thing either. It's past time for the last decade's happy-go-lucky brewery start-up culture to grow up and stop expecting that anyone who opens a brewery should get double-digit growth and a license to become a millionaire.

 

The lack of simple economic knowledge from some in this thread is a bit scary. Stone is a business first and foremost. They have to be able to pay the bills. They took a risk by opening up the two new locations and it seems to have backfired. They took these risks knowing what happens if things go poorly, and unfortunately they are having to make tough decisions on how to respond to the lack of revenue. It always sucks to lay people off, but it's better to lay a few off than to keep on going the wrong direction and eventually having to close up shop entirely.

I know craft beer is extremely personal to many on here (me, to a bit, included), but all breweries have to make money to stay afloat. It sucks, but it's the simple truth.

 

I can see that. Sierra Nevada entered the European market as well...I assume for similar reasons. However, they did so by finding a distributor that could meet their needs and not by building a brand new brewery. I guess time will tell (or maybe is already telling) which approach was smarter from a business perspective.

 

Im sorry to heat that for all of the employees and hopefully they an find new jobs soon. Whenever you pursue expansion, you always put yourself a risk if the market takes a downturn.
As much as I was disappointed that Stone decided to build somewhere other than Columbus, they are a key player if craft beer and I wish them all the best in the future.

 

Yup. I wanted to say that but couldnt think of a way that didnt make me sound like I was bitter because Stone didnt come to Columbus. LOL

 

5% is such a small amount, why would they layoff people for that? Freeze hiring, let attrition do it's work and how long would it take to reduce their workforce by 5%? A year at most?

95% is a stellar retention rate, I wonder if Stone is even that high.

 

Sadly, most likely those voluntarily leaving are relatively new employees, and from the comments seems like a lot of those laid off have been with the company awhile ($$)

 

I don't think its a money issue. How much is cutting 60 employees going to save given the positions involved? Miniscule in comparison to the investments made to open new sites in Richmond and Germany.

I don't think its preparation for a sale. Stone is giving them tons of time to find another job, retraining, etc.

Could be a couple other things. Could be an impending merger that would result in Stone having duplicative employees in the same position when incorporating another staff.

Most likely its the new CEO putting his stamp on the company and demonstrating that Stone will now be run as a tight business rather than a collective of people who have meandered together over many years into a labor force at Stone. More than anything just demonstrating quite publicly and internally that Stone is changing its image to become an efficient top-down business focused entity under his control rather than a large ship meandering its way through the craft beer constantly changing scene.

 

Well said, and I think probably the largest contributor to this.

 

I think we're seeing a trend from "craft beer" to "local beer". When traveling to Germany this is the norm, what you drink is whats brewed in that particular town or city to perfection. It's fresh, consistent and always there. I haven't bought Stone for a while, not because it's bad beer but like others said, just much better local options at a similar or fraction of the price point (why buy their IPA when I can get a 6er of Jai Alai that's damn good for a few dollars less).

 

Given the interest rate environment, if you're facing issues meeting debt payments then you made a HUGE miscalculation.

 

Yep. Saw something similar to that happen in the case of example I described. The market segment they were counting on was relatively high profit and when that effectively shrank until it almost disappeared, seemingly without advance warning, they were caught painfully short. Sometimes it is those hidden assumptions that will return to bite you in the A...

 

Can't help seeing the irony of someone with a BA name of EnronCFO making financial observations of Stone ! Kidding, cheers!

 

I think when the names of the departed are known, loyalties will be tested. Many people who have had a hand in making Stone great just got canned by the "New Guy."

I for one am very conflicted. Craft beer is subject to entropy, like all things.

 

Actually, the flat IRI craft volumes I mentioned are showing an overall (I'm not saying permanent, though I suspect that it will be) flattening in the so called craft beer category.. The danger is we are currently seeing so many breweries are going 7-8 figures in debt to expand to large regional/national breweries. The fact that one of the largest and most well publicized craft breweries has announced that they're feeling the pain first is what should alarm people who don't pay as much attention to IRI as industry people do.

Stone isn't the only large craft brewer who's not having a banner year while even if total volume sold is flat, means that customers are drinking something else. From my observations, it's a lot of crappy local beer. I can wander through my local store (liquor store, grocery store, wherever) and see a lot of pretty average to below average beer, but is on the shelves because these stores want to have a strong "local" selection. The store buyers know it's crap, but people are buying it because they're so excited to be drinking local beer. So, it follows that it's taking those dollars out of Stone (and other large brewers) pockets and going to these smaller brands.

Now, who am I to say what customers want? Perhaps the average craft beer customer is more interested in the geographical coincidence of production than the quality of liquid (it currently looks like it right now). I'm a businessperson, I'll give the people what they want. As a beer geek though, it has left a somewhat permanent hand print on my forehead from facepalming seeing what is selling across channels.

Lots of people buy bad beer twice, I'm not talking about horrendously infected diacetyl bombs (not that they don't exist, but that isn't the focus) but go to your local store and look at the shelves. How many of those beers will you, as a craft beer customer, not buy because there is a significantly better option available? If you're at a decent sized store, I'm sure there's at least 20 on the shelf that really aren't all that good. Assuming that SKU has been there more than 6 months in a large chain, enough people are buying it for that package to make hurdle rate.

I'm not sure I would agree that there has been a lot of people blind to the very real threat big beer is poses to the rest of the beer industry. With upcoming national releases or significant expansions from breweries like Revolver, Elysian, 10 Barrel, Terrapin, Devil's Backbone, etc. big beer will probably have at least one beer in the top 5 for the style in every market in the country. They can back it up with a better sales force, better pricing, better distribution and better marketing, they have a hundred year head start. My hope continues to be that the culling of the herd will be fast so that the best smaller breweries can thrive as the losers quickly see their taps and shelf space disappear. It's a distant hope, but a hope none the less.

I think that the "aggressive growth at a less-than-optimal time" will be a theme for pretty much all the breweries who are dropping a king's ransom in expansion. With the very different business plans of different breweries, I'm sure many with big expansions will survive, but it'll be interesting to see where we are in a year. We just saw Breckenridge sell to ABI for that exact reason, but I can't say how much more that either macro beer or private equity is going to be interested in buying. I suspect that with the recent sales of equity by Dogfish Head, Brooklyn and others show that the smart money is pulling chips off the table while we're at the peak of valuations. Not hating, it is a wise financial move.