Redhook Ale Brewery, Inc. History

Address:

3400 Phinney Avenue North
Seattle, Washington 98103
U.S.A

Telephone: (206) 548-8000
Fax: (206) 548-1305

Website: www.redhook.com

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

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 don't always have the exact right word to describe what we mean when we say something is well built. But we do have a beer. It's called Redhook. Key Dates:

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 Stock Exchange.
1996:: Portsmouth, New Hampshire brewery begins operation, Redhook's first facility outside the Pacific Northwest.
1998:: Distribution of Redhook covers 48 states; Fremont brewery is shuttered.

Company History:

Redhook Ale Brewery, Inc. brews nonpasteurized, European-style beer for sale to commercial establishments and retail locations in 48 states. Redhook's 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. Redhook's 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 company's 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 Bowker's 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 executive's 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 don't 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 company's 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 brewery's 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 Redhook's history, giving the company its first widely popular brand. Seattleites began seeking out establishments that served Ballard Bitter, pushing Redhook's brewery to capacity. Within a few short years, Bowker and Shipman were forced to expand; the company's 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 company's 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 Redhook's 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 Shipman's belief that a true microbrewer should offer brewery tours and an on-site premises where the public could sample the brewery's 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 Redhook's 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 company's microbrews, pitting Redhook against super-premium brands such as Michelob and Henry Weinhard's. 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. Rainier's 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 brewery's 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.'

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, Redhook's 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 Shipman's desire for another brewery, presenting the company's 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 Redhook's 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 Redhook's 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 company's activities. Employees involved with legal, financial, brewing, marketing, and trademark functions of Redhook's operation began preparing on a daily basis for the company's IPO, a preparatory process that went so far as to tailor the company's 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 company's history that was touched off by several landmark developments between 1994 and 1995.

1994 Partnership with Anheuser Busch Fuels National Expansion

Redhook's 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 world's largest brewer, announced that it had reached a distributorship and equity partnership agreement with Redhook. For Jim Koch, founder of Redhook's 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 Shipman's plans. By his own admission, the company's 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 company's 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 company's portfolio. In January 1995, coming off $15 million in sales for the previous year, Redhook announced plans for a third brewery--the company's 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 company's calculations, the brewery in Portsmouth, which was scheduled to be completed by early 1996, would enable Redhook to reach roughly 40 percent of the country's 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 Shipman's efforts to expand did not end in Portsmouth. Concurrent with the construction of the Portsmouth facility, the Woodinville brewery was expanded, inching toward the brewery's 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 Redhook's 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, Redhook's 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 Redhook's expansion. During the August 1995 IPO, investors demonstrated greater exuberance than expected, attracted by Redhook's 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 company's bottled and draft beers were available in 19 states nationwide. In 1996, efforts to broaden the company's 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 company's first successful brand, Ballard Bitter. The flagship brand accounted for more than half of the company's total sales, by far outdistancing the contributions of the company's 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 company's 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 1995's 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 company's 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 company's 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 brewery's Double Black Stout and Starbucks coffee, which initially was sold in the company's 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.

Redhook Ale Brewery, Inc. History

Company Perspectives:

Key Dates:

Company History:

Further Reading: