"There's a Tear in My Beer:" Hard Times Creep into the Brewing Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--Craft Brewers Alliance (NASDAQ:HOOK) (Portland, Oregon) was formed on July 1, 2008, when Redhook Ale Brewery Incorporated (Woodinville, Washington) merged with Widmer Brothers Brewery (Portland, Oregon). The company currently operates four breweries: Redhook, Widmer, Kona Brewing Company (Kailua Kona, Hawaii) and Goose Island Beer Company (Chicago, Illinois).

Craft Brewers' very first quarterly results were not particularly good when compared previous Redhook earnings. Virtually everything seems to be moving against the company at the moment, including increased competition and a softening luxury market stemming from the nation's economic downturn. "On the economic front," said CEO Terry Michaelson, "we are seeing a slowdown of our on-premise sales, which is directly related to the reduction of consumer spending in restaurants and bars. On the competitive front, Widmer Hefeweizen competes in the wheat-beer category that has seen the introduction of well-funded brands from major brewers. More generally, major domestic brewers are successfully increasing their presence in the craft beers segment with the introduction of new brands behind strong sales and marketing support." An August 2007 article in The Rocky Mountain News confirms that, after the large success of the company's Blue Moon brand wheat beer, Molson Coors Brewing Company Incorporated (NYSE:TAP) intends to strengthen its position in the craft brewing market.

Additionally, raw materials costs in the brewing industry have also escalated. The cost of barley malt and hops significantly increased last year because of both a decrease in production and bad weather in Europe. Michaelson added that "shipping costs, while currently abating, have significantly impacted our financial performance." The company suffered a net loss of $1.2 million for the quarter, although targeted marketing campaigns, particularly for the Widmer brand, are hoped to help turn these losses around.

Doubt regarding the performance of larger brewers exists as well. Last week, in the largest cash acquisition in history, InBev NV (Leuven, Belgium) finalized its $54 billion purchase of Anheuser-Busch COS Incorporated, creating Anheuser-Busch InBev NV (Leuven), the largest brewer in the world. According to a Reuters press release, $17 billion of the debt incurred by InBev must be repaid within the next 12 months. Stock value of InBev has consistently moved downward as investors question InBev's ability to repay the debt. Additionally, the dollar's strengthening against the euro has raised the value of the transaction more than 8 billion euros since July, when the acquisition was announced.

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