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Sunday, May 19, 2024

Stone Brewing Eyes $60M in Capital Spending

MANUFACTURING: Hiring, Facilities Expansions to Support Sapporo Production

The beer industry has entered an era when specialty brewers and their mass-market counterparts need each other.

North County craft beer specialist Stone Brewing is no exception.

One year after its acquisition by a big brewer – Sapporo USA – for an estimated $165 million, Stone Brewing is perfecting the process for making Sapporo beer at its hilltop brewery in Escondido.

Sean Monahan
Chief Operating Officer
Stone Brewing

A recent large batch of “Experimental Lager” came in within the specification for Sapporo Premium, said Chief Operating Officer Sean Monahan. The batch was a little darker in color and a little more bitter in taste than usual, Monahan said, but it met all the criteria. The job now is to “dial it to the middle of the spec.”

Sapporo is the No. 1 selling Japanese import beer in the United States. Until now, Sapporo brewed beer for stateside consumption elsewhere in the U.S., Canada and Vietnam. Stone Brewing has “plenty of capacity” for the Sapporo project, Monahan said.

Stone Brewing is also ramping up to produce Sapporo at its second brewery in Virginia.

Roots Remembered

The work of turning out Sapporo beer will come in addition to producing the beverages Stone Brewing has been making all along its 27-year history. The business promises to increase 2022’s output of approximately 376,000 barrels (which equals 1.17 million gallons of beer).

“Nothing is changing on the Stone craft calendar,” said Monahan.

To support the expanded output, Stone Brewing is planning a round of capital improvements: roughly $20 million worth in Escondido and $40 million in Richmond, Virginia.

The business plans to hire approximately 150 people in Escondido and Richmond, putting them to work in brewing, packaging, quality assurance, procurement, planning, marketing and warehouse.

Stone Brewing’s business also includes a hospitality branch. It consists of several taprooms and its Stone Brewing World Bistro & Gardens at two locations (Escondido and at Liberty Station in Point Loma). Those businesses will retain the Stone brand, Monahan said.

Buenaveza Is Big

That said, this is not the same beer market of the late 1990s, when co-founders Greg Koch and Steve Wagner opened the business, or even the late 2010s.

An unlikely beer has risen to the top of its product line: Stone Buenaveza Salt & Lime Lager. The beer is reminiscent of Mexican imports. It is much lighter than the hearty ales that Stone Brewing built its business on. It is also the product that most closely resembles Sapporo Premium, Monahan said.

It is all an ironic twist, since for decades Koch derided beers such as Buenaveza. The market, however, has been demanding a fizzy, light-colored lager; it recently comprised more than 50% of global beer consumption, according to Future Market Insights. By February 2022, the Wall Street Journal proclaimed in a headline that “Craft Brew Snobs Suddenly Love the Humble Lager.”

“We are adapting as the consumer is changing,” said Monahan.

Future Market Insights says the global lager market is expected to reach $380.7 billion by the end of this year, and experience a compound annual growth rate of 3.1% to $512.3 billion by 2033.

Stone Brewing’s big seller is Stone Buenaveza Salt & Lime Lager, a product that stands in contrast to the ales the company built its business on. Last year Stone Brewing produced more than 1 million gallons of beer. Photo courtesy of Stone Brewing

The Big Experiment

The first attempts to brew Sapporo lager came in a small-scale, self-contained apparatus that Stone Brewing uses for R&D. Ethan Spiro, head brewer at Stone Brewing, called the equipment at the heart of the brewery “our own little brewpub here.”

When brewing Sapporo, Stone Brewing will use the same ingredients, the same process and the same yeast as the Japanese beer. The advantage is that the beer will be fresher, Monahan said. Two Sapporo employees came to the United States from Japan to provide technical expertise.

Specifications for Sapporo are exacting. One necessary attribute is foam with small bubbles.

Larger test batches of Sapporo Premium followed the small batches and the beer is now ready for market.

From Chaparral to Canning Line

The Stone brewery in Escondido has a distinctive aroma. Walking through it, one sees stainless steel tanks of all sizes; overhead piping seems to go everywhere. Many of the processes in Escondido are still manual, so crew members transfer product with flexible hoses and portable pumps. By contrast, processes at the Richmond brewery are more mechanized.

One 40-by-60-foot space in Escondido will be converted from warehouse to production facility with eight fermenters, each holding 450 barrels (slightly less than 14,000 gallons). Monahan and Spiro showed off the hole in the roof where the tanks will be inserted.

In the summer of 2004, when the San Diego Business Journal visited the site, Stone Brewing was located in San Marcos. There was dirt, boulders and little more on the six-acre Escondido site. Two decades later, Stone Brewing is running out of room for expansion. “We’re landlocked,” said Monahan. So the solution is to build upward, to use mezzanine space. Monahan showed off one second-story addition amid the racket of the canning line.

The Virginia plant, opened in 2016, is also expanding. In 2022, it added four new tanks of 31,000 gallons apiece – each about the size of a railroad tank car. The addition increased production capacity from 150,000 barrels to 200,000 barrels (from 4.65 million gallons to 6.2 million gallons). Just last week 12 additional new tanks of the same size were delivered and installed.

San Diego County based Stone Brewing expanded to a new facility in Richmond, Virginia in 2016. Photo courtesy of Stone Brewing

A History of Expansion

In its 27 years of history, Stone Brewing has been a remarkable North County San Diego growth story. Led by Wagner and Koch, its onetime CEO, the business pushed aggressively into the beer market until it reached the market’s limits. An expansion that put a brewery and bistro in a former gas plant in Germany was ambitious. Ultimately Stone Brewing had to retrench, though the effort spread the word about its brand. A Berlin tabloid newspaper writer saw the charismatic and heavily whiskered Koch and dubbed him “The Beer Jesus From America.” The name stuck.

Koch has stepped away from the spotlight in recent years. Maria Stipp, a San Diego tech executive who went on to lead Lagunitas Brewing, became Stone Brewing’s CEO in 2020. (Lagunitas was another business that emerged during the flowering of craft breweries in the 1990s and is another example of the recent M&A phenomenon. The Northern California brewer became a wholly owned subsidiary of Heineken in 2017.)

Going forward, Stone plans to turn out Sapporo’s distinctively shaped, 22-ounce cans of premium lager.

Management still seems to have an enthusiasm for gastronomic experimentation as well as new product releases. Cans for one recent project were evident in the noisy bottling plant; Stone Brewing recently released a special beer for University of Southern California Athletics, called Stone Fight On! Pale Ale. On a note less likely to rile the people at UCLA, the business has released its Stone 27th Anniversary Lemon Shark Double IPA, brewed with the innovative new ingredient Phantasm, a flavorful white grape skin extract.

The business is planning a 27th anniversary celebration at the Escondido brewery, open to paying customers, on Sept. 23.

Stone Brewing

CEO: Maria Stipp
REVENUE: Undisclosed
PRODUCTION: 376,347 barrels in 2022, up 3% from 364,325 barrels in 2021; there are 31 gallons in a beer barrel
CONTACT: 760-294-7899
SOCIAL IMPACT: World-class water reclamation, solar panels, sustainable design and landscaping; spent grain from the brewing process (approximately 140,000 pounds per day) is repurposed as mulch and animal feed
NOTABLE: Stone Brewing was founded by Steve Wagner and Greg Koch – the latter its bearded and outspoken pitchman



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