Craft Brewers Alliance Inc.’s integration during the past year not only included the challenges of merging finance, sales and administration businesses, but also brewery operations and supply chain. Redhook Ale Brewery, Woodinville, Wash., brought two breweries to the merger, with facilities in Woodinville and Portsmouth, N.H., and Widmer Brothers Brewing Co. added its facility in Portland, Ore.
“We’re an amalgam of three separate physical plants, brewing different combinations of core brands, with business relationships with two other brands and breweries,” says Sebastian Pastore, CBA’s vice president of brewing operations. Collectively, CBA’s brewing operation is responsible for manufacturing Redhook and Widmer brands, and Hawaii’s Kona Brewing Co. brands through a licensing agreement with Kona Brewing.
Beginning with business systems, assimilating everyone onto one common enterprise resource planning (ERP) accounting and information management system was a significant undertaking, Pastore says. “The reward that has come out of it is that we’ve got a national brewing platform, which is what we were trying to accomplish,” he says.
CBA’s combined organization offers national coverage, and through recent expansions in Portsmouth and Portland, represents a capacity of 800,000 barrels. Between the three brewery operations, 140 employees work in the supply chain and breweries. The staff breaks down to about 70 people in Portland, 40 in Woodinville and 30 in Portsmouth.
In addition to the merger, CBA had to work through expansions at two of its breweries during the past two years. From November 2006 to August of this year, the company’s Portland brewery underwent a major expansion that included the appendage of a cold storage keg warehouse capable of holding up to 5,000 kegs and a 15,000-square-foot cold storage warehouse for finished packaged goods. In April, the plant also completed the installation of a new robotic keg washing and filling machine that is able to fill 300 kegs per hour.
The Portland brewery also added a fermentation cellar, which can hold up to 10 1,500-barrel fermentors. CBA has placed into service the first six of those stainless steel fermentors, and also put in a yeast storage and propagation system to support fermentation. Portland’s expanded brewery also includes additional office space and a new quality assurance technical center that features facilities for taste panel work, beer chemical analysis and microbiology. The Portland facility now comprises about 130,000 square feet.
“We added a significant amount of capacity to this brewery and to the system in general,” Pastore says. “Throughout all of 2006 and 2007, [Widmer] struggled hard to keep up with demand. It was particularly tough in the last six months of last year as we struggled to keep up with the growth on the Widmer and Kona brands. We also had a contract relationship with the Redhook brewery in Woodinville at the time before the merger, and we had their brewery running at a 100 percent capacity as well as Portland.”
Portland sits with a capacity of 375,000 barrels that is expandable up to 500,000 barrels. Next year, the Portland location plans to move to two full shifts in packaging and warehouse operations. Portland’s brewhouse already is running three shifts.
In the past 12 months, CBA also has been expanding its Portsmouth brewery in anticipation of the company’s sales projections for the East Coast. The plan is for the East Coast market to be served by the Portsmouth brewery, so significant infrastructure and capacity improvements are being made, Pastore says. This year, the brewery expanded with eight large fermentation tanks and four additional bright beer tanks. New water treatment and filtration and waste water treatment systems also were added.
The Portsmouth construction will be completed by January. When online, its capacity will be about 190,000 barrels and expandable up to 230,000 barrels, Pastore says. At the moment, the Portsmouth brewery’s volume is significantly lower than CBA’s other two breweries, but the company anticipates it eventually will be operating at the same capacity as Woodinville, which has a capacity of 230,000 barrels. The Woodinville brewery runs around the clock five to six days a week in the brewhouse, and packaging operations function 20 hours a day, four days a week.
Pastore expects that “if the current trend continues, we’ll look at further expansion in the Portsmouth plant, bringing that online in 2010, and possibly additional expansion will be made in the Portland plant in 2010.”
CBA’s production is organized with one plant manager in charge of operations at each brewery.
“With some small exceptions, each of the breweries has a unique set of capacity constraints, such as fermentation, brewing, packaging and so forth, but it also has a location,” Pastore says. “Really for us, deciding what gets made where is decided largely as a function of where the brewery is located. Because transportation is such a big piece of our cost structure these days, we try and use the brewery locations to our advantage to try and produce beer as close to where it’s being consumed as possible to spend as little as possible transporting to the wholesaler who needs it.”
In general, the Portland brewery produces all the Widmer brands and the Woodinville brewery meets Washington’s Widmer sales demands. The Portsmouth brewery also produces Widmer brands for the East Coast market. The Kona brands are manufactured in Portland and Portsmouth, with the potential for some of them to be manufactured in Woodinville if it is necessary for operations or freight management. At the moment, Redhook beers are made in the Woodinville and Portsmouth breweries.
Commodity prices are another expensive consideration for the brewer, and the merger allows the company to leverage its purchasing power for items such as glass, labels and ingredients. This is good news for the company, which has seen the basic cost of raw materials to make a barrel of beer roughly double in the past couple of years, Pastore says. The overall cost of making beer, which includes raw materials, labor and utilities, glass, packaging supplies and transportation has probably increased 30 to 35 percent during the past few years, he says.
“We’re very tuned into the fact that sales are important, but also squeezing anything we can out of the purchasing cycle, or any efficiencies that are out there are going to be critical to us,” Pastore says.
One area where CBA has been successful in reducing costs is pooling transportation between the two West Coast breweries. “It’s about better planning,” Pastore says. “We’ve dedicated a position in the supply chain organization to managing that process.”
Additionally, the company put all of its transportation business out to bid in the past six months. “We’re now actively pursuing the lowest cost carrier in each transportation lane,” Pastore says.
“We’re simply no longer looking at the business as two separate locations,” he continues.
While the merger process was challenging from a cultural and workload perspective, now that the company is integrated, it is working as one company in the production and supply chain areas, and it is gearing up to support growing sales.
“We project a very strong year of very strong sales growth with a significant number of new brands, new packages and new territories,” Pastore says. “It’s exciting; it’s challenging and it’s going to be an opportunity for us all to work together to accomplish the company’s goals.”