You have to hand it to Craft Brew Alliance (NASDAQ:BREW). This is a company that knows how to form partnerships to promote its beers. The latest example: KCCO Black Lager, a brew it produces with Portland's Resignation Brewery and will market in cooperation with popular website The Chive. Craft Brew and its partners rolled this out nationally earlier in January.
Previous partnerships with Buffalo Wild Wings (NASDAQ:BWLD) and The Dan Patrick Show have paid off for the West Coast brewer. But The Chive partnership could prove to be its best yet.
Craft Brew is growing, reaching out geographically from the West Coast to the East. This growth is important. At more than 230 times earnings, the company's shares are priced for it. In fact, they're priced for much more than the 6% net sales growth Craft Brew posted in 2013. The West is a mature market for CBA. The eastern U.S. offers opportunity. In the third quarter of 2013, revenue from the East was up 45% over the prior-year period.
But Craft Brew has also made expanding its margins a priority. That means it has to spread its wings without being able to go after the traditional, big-money advertising that brewers like Anheuser-Busch InBev (NYSE:BUD), SABMiller, Molson Coors, or even Boston Beer (NYSE:SAM) target with major professional sports sponsorships and national TV advertising.
Instead, Craft Brew has had to be clever. Its partnership with Buffalo Wild Wings put its Game Changer Ale on tap in more than 900 B-Wild restaurants, which pour more draft beer than any other chain in the U.S. That's introduced an important beer in the Redhook portfolio to beer drinkers across the country.
And Craft Brew can take that beer further, since its deal with B-Wild does not give the restaurant chain exclusive rights to the ale. CBA is also exploring additional possibilities with Buffalo Wild Wings, with new CEO Andy Thomas calling Game Changer "the first step" with B-Wild.
Partnerships pay off
The brewer's deal with The Dan Patrick Show has also been a success. The former ESPN host's show reaches an estimated 1.2 million listeners each week. He's carried on more than 250 stations across the U.S., and on DirecTV. Audible Ale has been a great success. It's selling three times better than the beer it replaced, Copperhook.
Expect the newest national partnership to pay off, as well. Resignation brews a line of KCCO beers -- a play on the "Keep Calm and Carry On" phrase that's grown popular via the web. But it's the involvement of The Chive that's most important here.
TheChive.com is a popular website. But it's not just popular -- it's popular with the right crowd. The site's combination of humor, dating advice, and photos of attractive young women draw young men, en masse. That's the demographic every American brewer wants. It's why brewers target sports. It's why A-B InBev sponsors a huge music festival that draws more than 100,000 fans each summer.
Spending big money
A-B InBev has a $1.2 billion sponsorship deal with the NFL, as well as a long-term deal with Major League Baseball. And even Boston Beer, the country's largest craft brewer, advertises on national television and capitalizes on popular sporting events. The company upped its ad spending 21% last quarter, but that helped to fuel 23% growth in revenue.
Craft Brew spent just more than $12 million on advertising and promotion in 2012 -- about 7.4% of its revenue. For comparison, over the first six months of 2013, A-B InBev spent about 15% of its revenue on ads and marketing, and Boston Beer spent 27%.
The Foolish bottom line
These partnerships for Craft Brew are important. When they are effective, as we've seen with Audible Ale and Game Changer, they pay off for CBA in a big way, helping to promote the company's beers across the U.S. without it having to incur costly national TV advertising, which just isn't in the cards at this stage in Craft Brew's maturation.
Expect the partnership with Resignation and The Chive to pay off -- not just in the short term with KCCO Black Lager, but over the long haul, as the company markets to the young male demographic.