Is This Craft Brewer About to Steal Corona's Winning Recipe?

Profits at brewer and winemaker Constellation Brands (NYSE: STZ  ) nearly doubled year-over-year in the recently reported quarter, and the company has its sunny, beach-fantasy-fueled Corona brand to credit for the gains. Craft Brew Alliance (NASDAQ: BREW  ) should be paying attention. It may have a similar opportunity on the horizon. In fact, it just might stand a chance of stealing some of Corona's tropical thunder.

Corona, an already popular Mexican label, continues to buck the trend of other bigger beers like the iconic Budweiser of Anheuser-Busch InBev  (NYSE: BUD  )  and is growing sales in the U.S. In 2013 -- the year Constellation took control of Corona's U.S. sales in a $5.3 billion deal with A-B InBev -- Corona's sales were up 4%, and Corona has climbed the best-selling beer chart to No. 5.

That comes at a time when big beer has fallen so far out of favor that A-B reported what it touted as the best market-share performance for the Budweiser family in the U.S. in a decade -- a 15-basis-point loss. 

Great marketing for a bad beer?
As an article in Bloomberg Businessweek pointed out, Corona consistently rates poorly at sites like BeerAdvocate, where it carries an "awful" rating. However, the beer continues to notch higher sales. Why? Because it has effective marketing.

Constellation doesn't just pitch the beer when it advertises Corona. It sells you the sun, the sand, the ocean waves, and the beautifully tanned beach-goers of Mexico's Caribbean coastline. Even when it's advertising during Thanksgiving football, you can expect to see that scene develop.

Source: Dailybillboardblog.com

No need to reinvent the wheel
Craft Brew has a similar opportunity with its Kona label, which along with Redhook has posted big growth for the West Coast brewer. For the full year 2013, Kona's sales to retailers were up 21%. That's the fastest of the brewer's major labels, and a hair faster than the 20% growth that the Brewer's Association reported for the craft brew segment in total.

The push that Craft Brew plans to make with Kona is likely the biggest reason why it brought new Chief Marketing Officer Ken Kunze aboard. Kona is Craft Brew's "No. 1 priority," Kunze said.

"As we look forward, we think Kona has a lot of run room. So we want to better understand how we can create more demand around that brand," Kunze said.

Craft Brew executives call Kona a "lifestyle play" -- much like Corona -- with a selection of beer that includes Longboard Lager, Big Wave Golden Ale, and a new Castaway IPA.

Longboard Lager and Big Wave have been the two key pieces of Kona's portfolio, making up 70% of the label's total sales as the company introduces the beers to new markets across the U.S. Kona is sold in 36 states, and Craft Brew plans to roll it out into four more in 2014. The label has also started to sell well in Asia, particularly in Japan and around the Pacific Rim, CEO Andy Thomas said.

This push is the big Kahuna
Craft Brew plans a substantial increase in spending on sales, general, and administrative expenses, up from about $40 million in 2013 to somewhere around $52 million-$54 million. A "significant chunk" of that increased spending will go toward promoting Kona, executives say.

For the first time, Craft Brew is venturing into television advertising as a part of what executives are calling a 360-degree advertising campaign around the Kona label.

The bottom line
It's clear that Craft Brew has been taking note of Corona's successful marketing. Corona tells its drinkers to "Find Your Beach." Kona's website beckons visitors to "Plan Your Paradise," and it prominently features the weather conditions for Kona, Hawaii, i.e., sunny skies with highs in the 80s and lows in the 70s.

Craft Brew's success in 2014 will depend a lot on how well it's able to market Kona beers as the "Liquid Aloha" that beer drinkers buy not just because it tastes good, but because it makes them feel like a little bit of Hawaii's sun and scenery come along with every pour.

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