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Industry Experts Weigh In On Sierra Nevada’s Move

Brewbound News:

While it promises to offer faster routes to market and a reduction in transportation costs, the news that Sierra Nevada has decided to add a production facility on the other side of the country means that the company will likely face a new set of logistical challenges, according to beer industry experts.

Sierra, the country’s second-largest craft brewer, announced last week that it was building a 300,000 barrel brewery in Mills River, N.C. The ramifications of the move will be felt not just by the 31 year-old California company, but by many other parties in the industry.

“Sierra has the ability to be an anchor for the business and this move helps with the long term sustainability of the category,” said Joth Ricci, the COO of First Beverage Group, an investment and consulting firm dealing with the beverage industry. “You are starting to see leadership ‘shape up’ in the industry and there is now a serious opportunity for Sierra to become a leader in the craft category.”

So what is Sierra Nevada’s biggest asset now that they have two locations? Doug Corbett, a former President at InBev, says it’s obvious – distribution.

“Beer is a heavy product,” he said. “The logistical savings associated with being closer to the east coast market are what they are taking advantage of.”

Bill Lenahan, the Brand Development Manager for Quality Beverage in Taunton, Mass. (who distributes Sierra Nevada in three counties) anticipates a more streamlined process when ordering product.

“The time between when I am actually ordering a product to when I receive it can take up to 30 days,” he said. “Even if I can get product 4-to-5 days faster from North Carolina, it will help us greatly to not have any out of stock SKU’s.”

The new facility might help ease any distribution tensions, but should other craft brewers fear that Sierra Nevada might steal shelf-space? Corbett doesn’t think so.

“I think it’s a fairly large market,” he said. “Shelf sets are being expanded and more space is being allocated to craft. I don’t think this move will have a big enough impact that craft brewers on the east coast should be any more or less worried about the competition that already exists.”

And Corbett expects Sierra Nevada to zero in markets that are already experiencing success with craft.

“I’m guessing the usual suspects,” he said. “Boston, Philly, D.C are areas where Sierra Nevada is already doing well. I also think Florida and the Carolinas could present some real growth opportunities for them.”

Ricci concurred, noting that many markets previously dominated by large domestic brands like Anheuser-Busch now have a growing level of demand for craft.

“You are seeing markets like Florida that are all of a sudden exploding,” he said. “Sierra Nevada’s move really showcases the long term viability of the craft beer business.”

And all three agreed that the new location will definitely help at the consumer level. The plans for the site, a 90 acre plot of land along the French Broad River, include a restaurant and tasting room. Additional plans for outdoor dining, a garden, hiking trails, kayak moorings and a music hall have been discussed internally but not finalized.

“Having that access for people on the east coast to see what Sierra Nevada is all about is going to do volumes for the brand and for our business going forward,” said Lenahan.

So what, if any, are the negatives? Corbett and Ricci both agreed that logistics and consistency will be Sierra Nevada’s biggest hurdle.

“They have two operations, two management teams, two completely different locations now,” said Corbett. “Getting the same product out of two locations is completely doable; it just adds another level of complexity.”

Ricci, however, thinks the move will come off “a lot cleaner than people see.”

“It’s a whole different company to run now,” he said. “Sierra now has to become a big, diverse business. Their ability to maintain culture and have a team in place that can handle that, from an internal standpoint, is a challenge but I think they will be able to do it.”

And even though this move comes at a time when nearly every craft brewer is expanding to meet demand, Ricci said he isn’t worried about oversaturation of the marketplace.

“I think there is a lot of room in an awful lot of markets for both new brewers and growth from existing brewers,” he said. “The evolution of change in the beer industry is what we are experiencing here and I don’t think it’s going to stop anytime soon.”

The new facility will most likely go online in the next 18-24 months. Until then, Sierra Nevada will grapple with capacity issues at their Chico, Calif. location. The brewery produced roughly 875,000 barrels in 2011 and is planning for 7-8 percent growth in 2012.

Spokesman Bill Manley said the current facility is capable of churning out close to 1 million barrels of beer, but that producing that amount would present some serious challenges.

“There was some serious strain on the brewery in 2011,” said Manley. “If all goes well, we should have beer coming out of North Carolina facility just before we reach capacity in Chico.”