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Redhook Ale Brewery is well positioned to
capitalize on a renewed growth in the microbrewery category because of their brewery that
has ample excess capacity, sales force and unique approach to the industry
Redhook Ale Brewery, Inc.
14300 NE 145th Street Suite 210
Woodinville, WA 98027-9045
Paul S. Shipman
Co-founder, Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
November 9, 2006
Shipman, what was your vision when you founded Redhook?
Mr. Shipman: My partner and I started
the company in 1982. We saw two trends in the beer business in the United Stated; one was
the consolidation of the big brewers and that trend was pulling the taste profile of the
products in the market towards a single standard. Simultaneously, we saw the emergence of
the imports, which were only about 1% of the market in those days, as offering an
alternative. Therefore, we decided to compete in that import arena, the idea being that we
would offer a flavor alternative in the beer business to compete with imports; offering a
counter point to the nationally branded products. That turned out to be a very farsighted
insight because that prediction that we made turned out to be very true. The imports
turned out to be something over 10 to 15% of the market. The category that we created has
turned into 6 or 7% of the market and the consolidation of the national brewers has almost
reached a crescendo with just three players. We are convinced that the basics that we laid
out in 1982 have been coming to fruition and we are well placed to continue to take
advantage of those trends.
You have seven different styles of beer today?
Mr. Shipman: Yes. The products that we
make are all top fermented ales, which are a more English style of beer than the typical
national American beer, which is a lager beer. The ales are more expressive, fuller
flavored; tend to be stronger, more interesting, and richer product. Our flagship product
Redhook E.S.B. is a very strong rich amber ale. Our fastest growing product is Redhook
IPA, which is an India Pale Ale. It is very strong and has great intense hops. Therefore,
our products are highly differentiated from what the average American thinks of when they
think of a beer.
Who is your typical customer?
Mr. Shipman: The audience for products
like ours is primarily an affluent, very upscale, well-educated, well-traveled, very aware
audience. It has an additional distinction; all of those traits also apply to consumers of
import products. The way that our consumers are differentiated from import consumers is
that they have a far more personal relationship with the product and they do not consume
these products from the point of view of trying to make an overt display of their
sophistication; it is a personal private statement of their beliefs and their tastes.
How do you reach new customers and what is your geographical market?
Mr. Shipman: This is a product that is
available in both package and draft. There are hotbeds of consumption in the United States,
primarily in the northeast and west coast. However, products of this type, the
microbrewery beers or domestic specialty beers are popular all over the country. Years ago
we used to say that the products were the most popular along the northern border; the
states that bordered Canada. As it has evolved, it has become part of the alcoholic
beverage landscape almost everywhere. The way that we gain new customers is by making our
products available in the settings where products like this are popular; it is still a
distribution driven phenomenon. In the alcoholic beverage business, there are two critical
pieces in marketing; one is image and brand development, and the other is distribution. In
our field, we have a positive image with consumers, we are highly regarded in the audience
that likes beers of this type and the drive is to make the products available to most
How often do you come up with something new? Is that necessary for your growth?
Mr. Shipman: There is a need for
newness. We are constantly trying to update the products and the packaging. We have an
ongoing seasonal program, which provides something new 4 times a year. Right now, it is
the Redhook Sunrye Ale in the fall, in the east, it will be the Oktoberfest and in the
winter, it is the Winterhook, which is the seasonal winter beer. All microbreweries make
some seasonal products. As for launching new products, that is something we do only with
great care because it requires a massive effort; it used to pay a lot of dividends years
ago but now it involves more risk. There is an expectation that there will be new products
and we will address that expectation all the time.
Does the fact that it is a beer from Redhook Brewery make a difference to customers?
How important is branding?
Mr. Shipman: The brand Redhook brings
credibility to whatever is in the package. However, there is also an audience looking for
new things and we might get new customers by offering something. In the spring we produced
a product called Redhook Copper Ale and Copper was a new style, so we gained new customers
How is business these days?
Mr. Shipman: I can talk about
everything up until the 1st Quarter. Our next release is on or about August 14th
for the Q. I can tell you that we had a big challenge from 1998-2001. Our category which
had been growing at a rapid clip, moved into a slow growth. That coincided with a dramatic
in retrospect, over-expansion on the part of Redhook Brewery. Because we had a strong
balance sheet, we were able to get through that difficult period. The last few years have
been a healing period characterized by improving trends.
What should investors look for two or three years down the line and why should they be
Mr. Shipman: Redhook is a company that
was in a difficult spot in the late 1990s to early 2000, and has worked through the
majority of those challenges through a variety of initiatives. Today Redhook is extremely
well positioned to capitalize on a renewed growth in the microbrewery category because of
our brewery, which has an ample excess capacity, our sales force and our unique approach
to the industry. As we grow with the microbrewery trend, and we work through the challenge
of utilizing the capacity that we built back in the 1990s, we should begin to have
very good improvement in the financial performance.
What should investors know that they do not realize when they look at the company?
Mr. Shipman: The company is sort of
challenged on the performance side but is very rich on the asset side; the assets being
the land and breweries, the brands and the distribution. The company is at a stage where
improvements in the revenue side, which we think we come through, market share as well as
stable market share in an increasing market environment; those should translate over time,
very positively without additional capital expenditure. When you look at Redhook, you see
a company with very little debt, cash is close to a dollar a share, the company is solid,
has good brands and relationships, and I think it is going to have a bright future.
Any final thoughts?
Mr. Shipman: I would like everybody
that hasnt had one of the beers yet to give it a try because that is where the
rubber hits the road in our business. We look forward to inviting sophisticated investors
to participate in our future conference calls.
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