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Redhook Ale Brewery, Inc.

Redhook Ale Brewery, Inc.

14300 NE 145th Street, Suite 210
Seattle, Washington 98072-6950
U.S.A.
Telephone: (425) 483-3232
Fax: (425) 485-0761
Web site: http://www.redhook.com

Public Company
Incorporated: 1981
Employees: 196
Sales: $35.7 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: HOOK
NAIC: 31212 Breweries

Redhook Ale Brewery, Inc., brews specialty bottled and draft beer for sale to commercial establishments and retail locations in 48 states. Redhooks year-round labels include Redhook E.S.B., Redhook Long Hammer IPA, Redhook Blonde Ale, and Blackhook Porter, which are complemented by seasonal selections that include Nut Brown, Sunrye, Late Harvest Autumn, Winterhook, and Copperhook Ales. The company also sells Widmer Hefeweizen through a licensing agreement with Widmer Brothers Brewing Company. Redhook operates two company-owned facilities, which are located in a suburb of Seattle, Washington, and in Portsmouth, New Hampshire. Redhook shipped 271.6 million barrels of beer in 2006.

ORIGINS

Redhook was the inspiration of Gordon Bowker. At the beginning of the 1980s, Bowker was determined to start his own brewery, convinced that the growing import beer market could support a domestic brewer of high-quality beers. One of Bowkers first tasks in getting his start-up enterprise up and running was finding the individual to run the brewery. He drew up a list of candidates, but the search did not take long. The list was a short one, containing one name: Paul Shipman. At the time, Shipman was working as a marketing analyst for the Chateau Ste. Michelle Winery, his first job after earning an MBA at the University of Virginia in 1978. Shipman was loquacious and beguiling, renowned for hour-long stories and a deceptive intellect. Often, Shipman failed to impress at first blush but his outward naiveté belied an incisive mind, leading his boss at Chateau Ste. Michelle to describe him as the Columbo of the business world, according to the Business Journal-Portland. Although Shipman had spent only a limited time at Chateau Ste. Michelle, his accomplishments had made a strong impression on Bowker, who was able to see through the young executives veneer and perceive a bright and tireless worker. Shipman agreed to join Bowker in 1981, becoming the president and cofounder of the radical Redhook Ale Brewery.

Redhook earned its maverick status by virtue of its early emergence as a microbrewery, a foreign concept in the domestic beer industry during the early 1980s. When Bowker set out to enlist the financial help of investors, his second inquiry prompted a response that typified the mind-set of the early 1980s: Breweries dont start up, the investor chided Bowker, they shut down. Undeterred by the prevailing opinion that they would fail, Bowker and Shipman succeeded in securing the capital to start their company, incorporating Redhook in May 1981.

1984 INTRODUCTION OF BALLARD BITTER SPARKS GROWTH

Bowker and Shipman established the companys offices in Seattle, choosing the location because the Pacific Northwest had the highest per capita draft beer consumption in the United States. A small, 5,000-square-foot brewery was built in Ballard, a Scandinavian enclave of Seattle that offered the light industrial facilities needed for brewing and a community steeped in European traditions, including the centuries-old tradition of craft brewing. After developing a recipe similar to spicy Belgian ales, the company introduced its inaugural beer on August 11, 1982, when the first pint of Redhook Ale was sold in Seattle. Referred to as banana beer, Redhook Ale attracted a small number of devout fans, but it did not attract legions of beer drinkers, limiting the brewerys sales to less than 1,000 barrels during its first year of operation, 2,000 barrels below capacity. A second selection called Blackhook Porter debuted the following year, but like Redhook Ale, the brand only established a small following. Bowker and Shipman needed a beer that could transform their fledgling brewery into a burgeoning enterprise, and they produced such a beer in 1984. The introduction of Ballard Bitter marked a seminal moment in Redhooks history, giving the company its first widely popular brand. Seattleites began seeking out establishments that served Ballard Bitter, pushing Redhooks brewery to capacity. Within a few short years, Bowker and Shipman were forced to expand; the companys brewery could no longer meet the demand for Ballard Bitter.

For their next brewery, the Redhook founders wanted to build a state-of-the-art facility that would give them the most technically advanced craft brewery in North America. A German company was hired to design and build the companys new and much larger brewery, which was located in the Fremont neighborhood of Seattle. For the site of the new brewery, the company obtained a trolley car barn used by the defunct Seattle Electric Railway, a 26,000-square-foot building that housed the new brewery and Redhooks new brewpub, the Trolleyman. The brewery commenced production in 1989, starting with an annual capacity of 30,000 barrels. The new brewing operations and the adjoining brewpub served as a showcase for the newly prominent company, evidence of Shipmans belief that a true microbrewer should offer brewery tours and an onsite premises where the public could sample the brewerys offerings.

With a facility five times larger than the original operation in Ballard and a beer embraced by a growing audience, Redhook closed the 1980s by cementing its reputation as an unmitigated success story in the microbrewery industry. The company began selling beer in northern California in 1989, helping to fuel sales growth that led to a 55 percent gain in revenues for the year. Shipman, the promoter and architect of Redhooks growth, showed no signs of complacency as he ushered the company into the 1990s. In March 1990, he announced plans for another new brewery with four times the production capacity of the Fremont brewery, which had been in operation for only a year and a half. The 150,000-barrel-capacity plant, slated to be built somewhere in western Washington, was expected to be used to produce lower-priced beers than the companys microbrews, pitting Redhook against superpremium brands such as Michelob and Henry Weinhards.

The bold plan to take on much larger competitors never materialized as planned, however. Details involving the financing and the specific site for the new brewery were expected to be announced by the end of 1990, but the entire expansion project was shelved before the end of the year, its progress halted by uncertain market conditions. Shipman scotched plans for the $18 million brewery when it became apparent that the parent company of the largest regional brand, Rainier, was mired in profound financial difficulties. Rainiers parent company, G. Heileman Brewing Co. Inc., filed for bankruptcy in January 1991, provoking wariness in the investment community Shipman planned to solicit for the brewerys financing. Shipman decided to forestall plans for the big brewery, but he was determined to one day press forward with his original plan, declaring to the Puget Sound Business Journal in March 1991 that building a second brewery is still my mission.

COMPANY PERSPECTIVES

Redhook strives to be the preeminent specialty craft brewing company in the U.S., producing the highest quality ale products in company-owned facilities, and marketing and selling them responsibly through its three-tier distribution system.

Entering the 1990s, Redhook stood poised to reap the rewards of a microbrew revolution. No longer hard-to-find curiosities, domestic craft beers were the preferred choice of a growing number of beer drinkers during the 1990s. Although Shipman had checked his effort to build a second brewery at the start of the decade, Redhook enjoyed an otherwise progressive start to its second decade of business. Underpinned by the increasing consumption of microbrews, Redhooks sales grew explosively during the first half of the decade, averaging annual increases of nearly 50 percent. The burgeoning growth of the craft beer market further invigorated Shipmans desire for another brewery, presenting the companys ambitious chief executive with an irrepressible opportunity to seize a greater share of an expanding market.

Financing the project, however, remained a troublesome task, particularly during the economically recessive early 1990s, but Shipman moved forward with the preparations for Redhooks future expansion. A private placement was completed in 1993, raising $10 million for the company. Also in 1993, a site for a new brewery was obtained in Woodinville, Washington, a suburb of Seattle, and production capacity at the Fremont brewery was increased to 75,000 barrels. Shipman also adopted a methodical approach to Redhooks future debut as a public company.

In 1992, he began gearing the company for an initial public offering (IPO), implementing a pervasive program that touched on all aspects of the companys activities. Employees involved with legal, financial, brewing, marketing, and trademark functions of Redhooks operation began preparing on a daily basis for the companys IPO, a process that went so far as to tailor the companys telephone system for the eventual public debut. By the beginning of the mid-1990s, Redhook was amply prepared for an expansive conclusion to the 1990s, a period in the companys history that was touched off by several landmark developments between 1994 and 1995.

1994 PARTNERSHIP WITH ANHEUSER-BUSCH

Redhooks competitors and industry observers were served notice of a new era in the craft brewing industry by an announcement in June 1994. Anheuser-Busch, Inc., the self-proclaimed king of beers and the worlds largest brewer, announced that it had reached a distributorship and equity partnership agreement with Redhook. For Jim Koch, founder of Redhooks rival, Boston Beer Co., nothing would ever be the same again. In response to the news that Anheuser-Busch had purchased a 25 percent stake in Redhook in exchange for distributing Redhook labels nationwide, Koch told Inc. magazine in June 1994, That was no press release; it was a declaration of war. What it means is that the cozy fraternal days of the microbrewery business are over. Koch marked the end of the era by derisively referring to Redhook as Budhook, an appellation meant to relate the cynicism surrounding the partnership of a craft brewer with a mass production giant. For his part, Shipman responded by referring to Boston Beer Co.s flagship brand Sam Adams as Scam Adams, because Boston Beer Co., without a brewery of its own, contracted all production out to contract brewers.

KEY DATES

1982:
First pint of Redhook Ale is sold in Seattle on August 11.
1989:
Fremont brewery and adjoining pub, the Trolleyman, are opened.
1994:
Anheuser-Busch and Redhook sign a distribution and equity partnership agreement.
1995:
Redhook debuts on the NASDAQ.
1996:
Portsmouth, New Hampshire, brewery begins operation and is Redhooks first facility outside the Pacific Northwest.
1998:
Distribution of Redhook covers 48 states; Fremont brewery is shuttered.
2004:
Craft Brands Alliance LLC is formed as a joint venture with Widmer Brothers Brewing Company.
2006:
The company enters merger talks with Widmer.

Beyond the name calling, the agreement was profoundly important to the actualization of Shipmans plans. By his own admission, the companys growth had been constrained by a lack of capacity in 1994, but with the cash from the Anheuser-Busch deal Shipman was able to accelerate his expansion plans. Construction of the companys Woodinville brewery was nearly completed by the time the Anheuser-Busch partnership was announced, with limited production of 60,000 barrels beginning in September 1994. Shipman had waited four years for a second brewery, but he would not have to wait long for the third addition to the companys portfolio. In January 1995, coming off $15 million in sales for the previous year, Redhook announced plans for a third brewery, the companys first facility located outside the Pacific Northwest. For a location, Shipman chose Portsmouth, New Hampshire, where construction began on 250,000-barrel brewery and 6,000-square-foot pub. In preparation for the construction of the $25 million facility, Redhook began shipping draft beer to taverns in the Boston area in November 1994 and began selling bottled beer in retail locations in January 1995.

According to the companys calculations, the brewery in Portsmouth, which was scheduled to be completed by early 1996, would enable Redhook to reach roughly 40 percent of the countrys population and it would make the company the largest specialty beer maker in New England. Production began in October 1996, starting with a 100,000-barrel capacity. The addition of a brewery on the East Coast, coupled with the distribution agreement with Anheuser-Busch, gave Redhook the ability to develop into a national force, but Shipmans efforts to expand did not end in Portsmouth. Concurrent with the construction of the Portsmouth facility, the Woodinville brewery was expanded, inching toward the brewerys production capacity of 250,000 barrels annually.

Redhook entered the mid-1990s as a growing giant in an industry niche previously populated by small, local concerns. Technically, the company that had started as one of the pioneers of the microbrew industry was no longer a microbrewery. According to industry standards, microbreweries produced 15,000 barrels or less a year, a production level Redhook had exceeded years earlier. The company had promoted itself to a regional specialty brewer, a designation applicable to brewers of between 15,000 and one million barrels annually. Shipman showed no signs of nostalgia for Redhooks former industry status.

Having realized his mission of building a second brewery and quickly adding a third brewery, Shipman next turned his attention to fulfilling the objective he had been working toward for the previous three years. By mid-1995, Redhooks lengthy preparations for an IPO were over. With the proceeds gained from the IPO, the company planned to pay for the Portsmouth facility and finance its transformation from a regional brewer into a national brewer. Shipman planned to sell 26 percent of the company to the public, hoping to garner between $13 and $15 per share. Anheuser-Busch, wishing to maintain its 25 percent stake in the company, invested an additional $9.2 million through a private placement, which, together with the proceeds from the IPO, would give Shipman nearly $50 million to funnel toward Redhooks expansion. During the August 1995 IPO, investors demonstrated greater exuberance than expected, attracted by Redhooks annual revenue growth of nearly 50 percent during the 1990s. The stock debuted at $17 per share and quickly shot upward in value before settling at $32 per share a week later.

With the IPO completed and production capacity increased significantly, attention turned to rolling out the stable of Redhook brands to a national audience. The time had come to put the Anheuser-Busch distribution agreement to work. Prior to the Anheuser-Busch partnership, Redhook distributed its beers in eight western states; by 1995, the companys bottled and draft beers were available in 19 states nationwide. In 1996, efforts to broaden the companys geographic reach were intensified, leading to the release of Redhook brands in 15 new states. Of the half-dozen beer styles produced by the company, none was more important than Redhook E.S.B. (Extra Special Bitter), born from the companys first successful brand, Ballard Bitter. The flagship brand accounted for more than half of the companys total sales, by far outdistancing the contributions of the companys other major labels, which included Redhook India Pale Ale, Blackhook Porter, Nut Brown Ale, Redhook Rye, and a coffee-flavored beer introduced in late 1995, Double Black Stout.

Supporting these year-round offerings was an ever-changing selection of seasonal beers, which, as in the case of Redhook Rye, occasionally became part of the companys primary roster of beers. Of the seasonal variety, two promising beers made their debut in 1997, Winterhook and Redhook Blonde Ale. The distribution of these beers to a significantly larger customer base led to a considerable rise in sales by the end of 1996, as 1995s total of $28 million swelled to nearly $40 million after the energetic push into new markets. After 1996, however, sales dipped for two successive years, as Redhook grappled with stiff competition from a plethora of new craft brewers.

As Redhook exited the 1990s, it stood strongly positioned as one of the few craft breweries supported by a national network of distributors. By the end of 1998, penetration into new markets had extended the companys geographic reach into 48 states, a charge led by the signature Redhook E.S.B. brand, which accounted for 62 percent of sales at the end of the 1990s. Despite the companys prominent position, the craft brewing industry was becoming increasingly competitive, as the number of specialty brewers, microbreweries, and brewpubs proliferated during the latter half of the 1990s.

To combat the pressures of mounting competition, Redhook management decided in 1999 to invest in media advertising, something the company had not done to any great extent previously. The company also was exploring new areas for revenue growth. In 1999, Redhook introduced Doubleblack Barbecue Sauce, made with the brewerys Double Black Stout and Starbucks coffee, which initially was sold in the companys pubs and in selected retail locations in Seattle. As the company prepared for the 21st century, it did so without one of its breweries. In January 1998, production was significantly reduced at the Fremont brewery before being abandoned entirely several months later. The decision to close the brewery left Redhook with production capacity of 350,000 barrels annually, but as the company galvanized its national recognition, the room to increase production at the Woodinville and Portsmouth breweries promised to be used in the years ahead.

REDHOOK IN THE NEW MILLENNIUM

The early years of the new millennium were tough for craft breweries. Sales peaked for Redhook Ale and its three closest competitors in 1996 but over 300 brewpubs and breweries had shut down by 2000. The market had failed to take off in the latter half of the 1990s and thus specialty and craft beers only accounted for 3 percent of the domestic beer market; many analysts once predicted this segment would account for at least 10 percent.

Reliant on sales to wholesalers and retailers, Redhook focused keeping its current customers happy while securing new business. Chairman and CEO Shipman described industry conditions in a February 2004 Puget Sound Business Journal article claiming, The microbrewery beer game is a game of musical chairs, and every time we go around theres one fewer slot to work with. Thats why sales calls are so critically important. Indeed, Redhook and its competitors were in a precarious situation. As the industry began to consolidate around them, many breweries opted to merge together or form key partnerships. Redhook decided the latter would work best in its favor and in 2004 the company inked a deal with competitor Widmer Brothers Brewing Company to form Craft Brands Alliance LLC. The new venture was set up to advertise, market, sell, and distribute each companys products in the western United States.

The company remained afloat during this time period by cutting costs and controlling debt. The company even went so far as to turn down the heat at its New Hampshire brewery during the winter season. We hung on at times by our fingernails, Shipman told the Seattle Times in April 2007. Redhooks determination paid offthe company posted its first profit in a decade during fiscal 2006.

In early 2007, Redhook and Widmer Brothers Brewing made it known that they were eyeing a possible merger. Preliminary talks revealed that a union would leave the company positioned as the third largest craft brewer in the United States by shipments and give it the necessary means to expand and compete with the larger brewers in the United States. Anheuser-Busch Cos. was a major stakeholder in each company and indicated it would support a merger. If the Redhook and Widmer deal reached fruition, Redhook would most likely be the surviving company.

Jeffrey L. Covell
Updated, Christina Stansell Weaver

PRINCIPAL COMPETITORS

The Boston Beer Company Inc.; New Belgium Brewing Company Inc.; Pyramid Breweries Inc.

FURTHER READING

A-B Closes Pact for Redhook Partnership, Nations Restaurant News, December 5, 1994, p. 64.

Allison, Melissa, Correction: Redhook Posts First Annual Profit in a Decade, Seattle Times, April 1, 2007.

Baker, M. Sharon, Captain Redhook, Business Journal-Portland, March 1, 1996, p. 10.

_____, Redhook Eyes an IPO to Tap Frothy Stock Market, Puget Sound Business Journal, May 19, 1995, p. 1.

_____, Redhook IPO Wont Slake Anheuser Buschs Thirst, Puget Sound Business Journal, July 14, 1995, p. 7.

_____, Redhook Will Build Brewery in the Northeast, Puget Sound Business Journal, January 6, 1995, p. 1.

Brewed Awakening, Inc., October 1994, p. 11.

Buoyant Redhook Says Widmer Talks Still Preliminary, Just-Drinks, March 27, 2007.

Denne, Lorianne, Red Hooks Ambitious Expansion Scheme Is Placed in Hold for Now, Puget Sound Business Journal, March 18, 1991, p. 8.

Engleman, Eric, Paul Shipman, Crafty Brewer, Puget Sound Business Journal, February 13, 2004.

Hinton, Christopher, Redhook Brews Optimism with Profit, Merger Plan, Wall Street Journal, February 7, 2007, p. B5E.

Leap of Faith, Restaurants & Institutions, March 15, 1999, p. 17.

Redhook Finalizes Deal with A-B and Widmer, Modern Brewery Age, July 12, 2004.

Specialty Beers No Longer Fill Nations Thirst, Wall Street Journal, May 15, 2000.

Turcsik, Richard, Microbrews Getting Larger: Manufacturer Outlook, Supermarket News, May 29, 1995, p. 14A.

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Redhook Ale Brewery, Inc.

Redhook Ale Brewery, Inc.

3400 Phinney Avenue North
Seattle, Washington 98103
U.S.A
Telephone:(206) 548-8000
Fax: (206) 548-1305
Web site:http://www.redhook.com

Public Company
Incorporated:
1982
Employees: 202
Sales: $32.6 million (1998)
Stock Exchanges: NASDAQ Ticker Symbol: HOOK NAIC: 31212 Breweries

Redhook Ale Brewery, Inc. brews nonpasteurized, European-style beer for sale to commercial establishments and retail locations in 48 states. Redhooks year-round labels include Redhook E.S.B., Redhook India Pale Ale, Redhook Hefe-Weizen, Blackhook Porter, and Double Black Stout, which are complemented by seasonal selections that include Winterhook, Redhook Blonde Ale, and Redhook Nut Brown Ale. Redhooks popularity in Seattle led to the distribution of the brand into neighboring western states, before a 1994 distribution and equity partnership agreement with Anheuser Busch, Inc. fueled its expansion nationally. The companys product line is led by Redhook E.S.B., which accounts for more than 60 percent of total sales. Brewing operations comprise two facilities, one in Woodinville, Washington, and another in Portsmouth, New Hampshire, which had a combined production capacity of 350,000 barrels a year by the end of 1998.

Origins

Redhook was the inspiration of Gordon Bowker. At the beginning of the 1980s, Bowker was determined to start his own brewery, convinced that the growing import beer market could support a domestic brewer of high-quality beers. One of Bowkers first tasks in getting his start-up enterprise up and running was finding the individual to run the brewery. He drew

up a list of candidates, but the search did not take long. The list was a short one, containing one name: Paul Shipman. At the time, Shipman was working as a marketing analyst for the Chateau Ste. Michelle Winery, his first job after earning an MBA at the University of Virginia in 1978. Shipman was loquacious and beguiling, renowned for hour-long stories and a deceptive intellect. Often, Shipman failed to impress at first blush but his outward naivete belied an incisive mind, leading his boss at Chateau Ste. Michelle to describe him as the Columbo of the business world, according to the Business Journal-Portland. Although Shipman had spent only a limited time at Chateau Ste. Michelle, his accomplishments had made a strong impression on Bowker, who was able to see through the young executives veneer and perceive a bright and tireless worker. Shipman agreed to join Bowker in 1981, becoming the president and co-founder of the radical Redhook Ale Brewery.

Redhook earned its maverick status by virtue of its early emergence as a microbrewery, a foreign concept in the domestic beer industry during the early 1980s. When Bowker set out to enlist the financial help of investors, his second inquiry prompted a response that typified the mindset of the early 1980s: Breweries dont start up, the investor chided Bowker, they shut down. Undeterred by the prevailing opinion that they would fail, Bowker and Shipman succeeded in securing the capital to start their company, incorporating Redhook in May 1981.

1984 Introduction of Bailará Bitter Sparks Growth

Bowker and Shipman established the companys offices in Seattle, choosing the location because the Pacific Northwest had the highest per capita draft beer consumption in the United States. A small, 5,000-square-foot brewery was built in Ballard, a Scandinavian enclave of Seattle that offered the light industrial facilities needed for brewing and a community steeped in European traditions, including the centuries-old tradition of craft brewing. After developing a recipe similar to spicy Belgian ales, the company introduced its inaugural beer on August 11, 1982, when the first pint of Redhook Ale was sold in Seattle. Referred to as banana beer, Redhook Ale attracted a small number of devout fans, but it did not attract legions of beer drinkers, limiting the brewerys sales to less than 1,000 barrels during its first year of operation, 2,000 barrels below capacity. A second selection called Blackhook Porter debuted the following year, but like Redhook Ale, the brand only established a small following. Bowker and Shipman needed a beer that could transform their fledgling brewery into a burgeoning enterprise, and they produced such a beer in 1984. The introduction of Ballard Bitter marked a seminal moment in Redhooks history, giving the company its first widely popular brand. Seattleites began seeking out establishments that served Ballard Bitter, pushing Redhooks brewery to capacity. Within a few short years, Bowker and Shipman were forced to expand; the companys brewery could no longer meet the demand for Ballard Bitter.

For their next brewery, the Redhook founders wanted to build a state-of-the-art facility that would give them the most technically advanced craft brewery in North America. A German company was hired to design and build the companys new and much larger brewery, which was located in the Fremont neighborhood of Seattle. For the site of the new brewery, the company obtained a trolley car barn used by the defunct Seattle Electric Railway, a 26,000-square-foot building that housed the new brewery and Redhooks new brewpub, the Trolleyman. The brewery commenced production in 1989, starting with an annual capacity of 30,000 barrels. The new brewing operations and the adjoining brewpub served as a showcase for the newly prominent company, evidence of Shipmans belief that a true microbrewer should offer brewery tours and an on-site premises where the public could sample the brewerys offerings.

With a facility five times larger than the original operation in Ballard and a beer embraced by a growing audience, Redhook closed the 1980s by cementing its reputation as an unmitigated success story in the microbrewery industry. The company began

selling beer in northern California in 1989, helping to fuel sales growth that led to a 55 percent gain in revenues for the year. Shipman, the promoter and architect of Redhooks growth, showed no signs of complacency as he ushered the company into the 1990s. In March 1990, he announced plans for another new brewery with four times the production capacity of the Fremont brewery, which had been in operation for only a year and a half. The 150,000-barrel-capacity plant, slated to be built somewhere in western Washington, was expected to be used to produce lower-priced beers than the companys microbrews, pitting Redhook against super-premium brands such as Michelob and Henry Weinhards. The bold plan to take on much larger competitors never materialized as planned, however. Details involving the financing and the specific site for the new brewery were expected to be announced by the end of 1990, but the entire expansion project was shelved before the end of the year, its progress halted by uncertain market conditions. Shipman scotched plans for the $18 million brewery when it became apparent that the parent company of the largest regional brand, Rainier, was mired in profound financial difficulties. Rainiers parent company, G. Heileman Brewing Co. Inc., filed for bankruptcy in January 1991, provoking wariness in the investment community Shipman planned to solicit for the brewerys financing. Shipman decided to forestall plans for the big brewery, but he was determined to one day press forward with his original plan, declaring to the Puget Sound Business Journal in March 1991 that building a second brewery is still my mission.

Company Perspectives:

A well-built chair serves as a chair in the best way. It appeals to the eye. It serves a nobler purpose than just being a place to sit. Well-builtness isn t the material used; oak, beech, metal or some form of extruded plastic. It may be how those materials support the sitter when he is sitting, but just as important is how that chair looks from across the room. We know people who are well-built not just that they are physically strong or cut a handsome figure, but that they embody proportion and grace that goes beyond appearances. A well-built person has mental balance, personality and style. A well-built business will always make money. But inside of that business are people who feel accomplished. In that well-builtness is a generous, human enterprise serving a range of needs. A well-built movie or play has three acts, a beginning, middle and end. But more than that it makes you feel something far deeper than admiration for the skill of the author. Well-builtness is in the craft of things. Sturdiness, honesty and proportion create a psychological sense of well-being. A sense that you are in good hands. Heft. Click. Touch and feel. Warmth. Pleasure. Satisfaction. Ahhhh! We dont always have the exact right word to describe what we mean when we say something is well built. But we do have a beer. Its called Redhook.

Entering the 1990s, Redhook stood poised to reap the rewards of a microbrew revolution. No longer hard-to-find curiosities, domestic craft beers were the preferred choice of a growing number of beer drinkers during the 1990s. Although Shipman had checked his effort to build a second brewery at the start of the decade, Redhook enjoyed an otherwise progressive start to its second decade of business. Underpinned by the increasing consumption of microbrews, Redhooks sales grew explosively during the first half of the decade, averaging annual increases of nearly 50 percent. The burgeoning growth of the craft beer market further invigorated Shipmans desire for another brewery, presenting the companys ambitious chief executive with an irrepressible opportunity to seize a greater share of an expanding market. Financing the project, however, remained a troublesome task, particularly during the economically recessive early 1990s, but Shipman moved forward with the preparations for Redhooks future expansion. A private placement was completed in 1993, raising $10 million for the company. Also in 1993, a site for a new brewery was obtained in Woodinville, Washington, a suburb of Seattle, and production capacity at the Fremont brewery was increased to 75,000 barrels. Shipman also adopted a methodical approach to Redhooks future debut as a public company. In 1992, he began gearing the company for an initial public offering (IPO), implementing a pervasive program that touched on all aspects of the companys activities. Employees involved with legal, financial, brewing, marketing, and trademark functions of Redhooks operation began preparing on a daily basis for the companys IPO, a preparatory process that went so far as to tailor the companys telephone system for the eventual public debut. By the beginning of the mid-1990s, Redhook was amply prepared for an expansive conclusion to the 1990s, a period in the companys history that was touched off by several landmark developments between 1994 and 1995.

1994 Partnership with Anheuser Busch Fuels National Expansion

Redhooks competitors and industry observers were served notice of a new era in the craft brewing industry by an announcement in June 1994. Anheuser Busch, Inc., the self-proclaimed king of beers and the worlds largest brewer, announced that it had reached a distributorship and equity partnership agreement with Redhook. For Jim Koch, founder of Redhooks rival, Boston Beer Co., nothing would ever be the same again. In response to the news that Anheuser Busch had purchased a 25 percent stake in Redhook in exchange for distributing Redhook labels nationwide, Koch told Inc. magazine in June 1994, That was no press release; it was a declaration of war. What it means is that the cozy fraternal days of the microbrewery business are over. Koch marked the end of the era by derisively referring to Redhook as Budhook, an appellation meant to relate the cynicism surrounding the partnership of a craft brewer with a mass production giant. For his part, Shipman responded by referring to Boston Beer Co.s flagship brand Sam Adams as Scam Adams, because Boston Beer Co., without a brewery of its own, contracted all production out to contract brewers.

Beyond the name calling, the agreement was profoundly important to the actualization of Shipmans plans. By his own admission, the companys growth had been constrained by a lack of capacity in 1994, but with the cash from the Anheuser Busch deal Shipman was able to accelerate his expansion plans. Construction of the companys Woodinville brewery was nearly completed by the time the Anheuser Busch partnership was announced, with limited production of 60,000 barrels beginning in September 1994. Shipman had waited four years for a second brewery, but he would not have to wait long for the third addition to the companys portfolio. In January 1995, coming off $15 million in sales for the previous year, Redhook announced plans for a third brewerythe companys first facility located outside the Pacific Northwest. For a location, Shipman chose Portsmouth, New Hampshire, where construction began on 250,000-barrel brewery and 6,000-square-foot pub. In preparation for the construction of the $25 million facility, Redhook began shipping draft beer to taverns in the Boston area in November 1994 and began selling bottled beer in retail locations in January 1995. According to the companys calculations,

the brewery in Portsmouth, which was scheduled to be completed by early 1996, would enable Redhook to reach roughly 40 percent of the countrys population and it would make the company the largest specialty beer maker in New England. Production began in October 1996, starting with a 100,000-barrel capacity. The addition of a brewery on the East Coast, coupled with the distribution agreement with Anheuser Busch, gave Redhook the ability to develop into a national force, but Shipmans efforts to expand did not end in Portsmouth. Concurrent with the construction of the Portsmouth facility, the Woodinville brewery was expanded, inching toward the brewerys production capacity of 250,000 barrels annually.

Redhook entered the mid-1990s as a growing giant in an industry niche previously populated by small, local concerns. Technically, the company that had started as one of the pioneers of the microbrew industry was no longer a microbrewery. According to industry standards, microbreweries produced 15,000 barrels or less a year, a production level Redhook had exceeded years earlier. The company had promoted itself to a regional specialty brewer, a designation applicable to brewers of between 15,000 and one million barrels annually. Shipman showed no signs of nostalgia for Redhooks former industry status. Having realized his mission of building a second brewery and quickly adding a third brewery, Shipman next turned his attention to fulfilling the objective he had been working toward for the previous three years. By mid-1995, Redhooks lengthy preparations for an IPO were over. With the proceeds gained from the IPO, the company planned to pay for the Portsmouth facility and finance its transformation from a regional brewer into a national brewer. Shipman planned to sell 26 percent of the company to the public, hoping to garner between $13 and $15 per share. Anheuser Busch, wishing to maintain its 25 percent stake in the company, invested an additional $9.2 million through a private placement, which, together with the proceeds from the IPO, would give Shipman nearly $50 million to funnel toward Redhooks expansion. During the August 1995 IPO, investors demonstrated greater exuberance than expected, attracted by Redhooks annual revenue growth of nearly 50 percent during the 1990s. The stock debuted at $17 per share and quickly shot upward in value before settling at $32 per share a week later.

Key Dates:

1982:
First pint of Redhook Ale is sold in Seattle on August 11.
1989:
Fremont brewery and adjoining pub, the Trol-leyman, are opened.
1994:
Anheuser Busch and Redhook sign a distribution and equity partnership agreement.
1995:
Redhook debuts on the NASDAQ Stock Exchange.
1996:
Portsmouth, New Hampshire brewery begins operation, Redhooks first facility outside the Pacific Northwest.
1998:
Distribution of Redhook covers 48 states; Fremont brewery is shuttered.

With the IPO completed and production capacity increased significantly, attention turned to rolling out the stable of Redhook brands to a national audience: The time had come to put the Anheuser Busch distribution agreement to work. Prior to the Anheuser Busch partnership, Redhook distributed its beers in eight western states; by 1995, the companys bottled and draft beers were available in 19 states nationwide. In 1996, efforts to broaden the companys geographic reach were intensified, leading to the release of Redhook brands in 15 new states. Of the half-dozen beer styles produced by the company, none was more important than Redhook E.S.B. (Extra Special Bitter), born from the companys first successful brand, Ballard Bitter. The flagship brand accounted for more than half of the companys total sales, by far outdistancing the contributions of the companys other major labels, which included Redhook India Pale Ale, Blackhook Porter, Nut Brown Ale, Redhook Rye, and a coffee-flavored beer introduced in late 1995, Double Black Stout. Supporting these year-round offerings was an ever-changing selection of seasonal beers, which, as in the case of Redhook Rye, occasionally became part of the companys primary roster of beers. Of the seasonal variety, two promising beers made their debut in 1997, Winterhook and Redhook Blonde Ale. The distribution of these beers to a significantly larger customer base led to a considerable rise in sales by the end of 1996, as 1995s total of $28 million swelled to nearly $40 million after the energetic push into new markets. After 1996, however, sales dipped for two successive years, as Redhook grappled with stiff competition from a plethora of new craft brewers.

As Redhook exited the 1990s, it stood strongly positioned as one of the few craft breweries supported by a national network of distributors. By the end of 1998, penetration into new markets had extended the companys geographic reach into 48 states, a charge led by the signature Redhook E.S.B. brand, which accounted for 62 percent of sales at the end of the 1990s. Despite the companys prominent position, the craft brewing industry was becoming increasingly competitive, as the number of specialty brewers, microbreweries, and brewpubs proliferated during the latter half of the 1990s. To combat the pressures of mounting competition, Redhook management decided in 1999 to invest in media advertising, something the company had not done to any great extent previously. The company also was exploring new areas for revenue growth. In 1999, Redhook introduced Dou-bleblack Barbecue Sauce, made with the brewerys Double Black Stout and Starbucks coffee, which initially was sold in the companys pubs and in selected retail locations in Seattle. As the company prepared for the 21st century, it did so without one of its breweries. In January 1998, production was significantly reduced at the Fremont brewery before being abandoned entirely several

months later. The decision to close the brewery left Redhook with production capacity of 350,000 barrels annually, but as the company galvanized its national recognition, the room to increase production at the Woodinville and Portsmouth breweries promised to be utilized in the years ahead.

Principal Competitors

Anchor Brewing; Boston Beer Co.; Bridgeport Brewery; Hart Brewing Co.

Further Reading

A-B Closes Pact for Redhook Partnership, Nations Restaurant News, December 5, 1994, p. 64.

Baker, M. Sharon, Captain Redhook, Business Journal-Portland, March 1, 1996, p. 10.

, Redhook Eyes an IPO To Tap Frothy Stock Market, Puget Sound Business Journal, May 19, 1995, p. 1.

, Redhook IPO Wont Slake Anheuser Buschs Thirst, Puget Sound Business Journal, July 14, 1995, p. 7.

, Redhook Will Build Brewery in the Northeast, Puget Sound Business Journal, January 6, 1995, p. 1.

Brewed Awakening, Inc., October 1994, p. 11.

Denne, Lorianne, Red Hooks Ambitious Expansion Scheme Is Placed in Hold for Now, Puget Sound Business Journal, March 18, 1991, p. 8.

Leap of Faith, Restaurants & Institutions, March 15, 1999, p. 17.

Turcsik, Richard, Microbrews Getting Larger: Manufacturer Outlook, Supermarket News, May 29, 1995, p. 14A.

Jeffrey L. Covell

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