Stone Brewing’s leaders have long said the company likes to forge its own path—but lately it’s been difficult to determine which direction it will go in.
The Escondido, California-headquartered company was the ninth-largest craft brewery in the country last year. But the past 18 months have been tumultuous, and rather than making headlines for its beer, Stone is earning notoriety for its controversies—from lawsuits to failures of expensive expansion. During the pandemic, at a time when Stone should be seeing a boost in packaged beer sales comparable to other national breweries, its numbers—especially for its flagship IPA—are lagging.
Amidst this negative attention, even Stone cofounder Greg Koch, the brewery’s executive chairman, has been unable to articulate a central focus for the brewery. The company’s new CEO, Maria Stipp, has also been mum on her plans for Stone, despite taking the helm at one of the most crucial transition points in the company’s history. What’s left is a messaging vacuum, and the impression of a rudderless ship.
February 2019 is a logical starting place to pinpoint the beginning of Stone’s tough times. That’s when the brewery filed a federal lawsuit against Molson Coors, alleging the brewing behemoth violated its trademark on the use of “Stone” as connected to “beers and ales.” The lawsuit—set for trial next month—has been protracted, public, and no doubt costly. Stone also publicly sparred with Sawstone Brewing Co., a small brewery in Morehead, Kentucky, this past July over the “Stone” trademark; it did the same with Holystone Distilling in Murray, Utah, this August.
Since filing the lawsuit against Molson Coors last year, Stone has:
Sold its ambitious Berlin brewery to Scottish multinational brewery BrewDog less than three years after it opened at a reported cost of $29 million. (Appearing on GBH’s podcast a week before the sale, Koch said that the Berlin operation was going well.)
Closed a taproom in Shanghai.
Laid off roughly 300 employees, later giving 250 of them $1,000 cash gift cards that did little to fix the bad blood those cuts created. (Koch donated his 2020 salary to this relief fund.)
CEO Dominic Engels announced he’d be leaving the company, and was quickly replaced by former Lagunitas Brewing Company CEO Maria Stipp, who will assume that role on Sept. 14.
And those are just the highlights. Headlines aside, sales in chain grocery, convenience, liquor, and other stores as tracked by market research company IRI are also down. Stone is on pace to see dollar sales in those channels slip about -12% this year.
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While most other large breweries saw sales for their flagships grow this summer as Americans shopped for beer at grocery and big-box stores rather than bars or specialty shops, Stone’s IPA lagged. From June through August, dollar sales of Stone IPA were down more than 10% versus a year ago in chain retailers tracked by IRI. During the same period, Cigar City Brewing’s Jai Alai IPA was up +16.8%; Bell’s Brewery’s Two Hearted Ale was up +13%; Sam Adams’ Boston Lager was up +9%; Sierra Nevada Brewing Company’s Pale Ale was +6.4%; and Odell Brewing Company’s IPA was +4.5%.
Asked about sales over the past six months, Koch said the challenges of COVID-19 “have not been demonstrably different for Stone than they have been for the entire industry.” But the numbers tell a different story, and indicate that Stone’s failure to reckon with recent missteps isn’t making them go away.
While it’s made news with its lawsuits and layoffs, the company’s most recent public statements and marketing campaigns have been strange—even by Stone’s unconventional standards. Among them: A letter written by Koch and posted on Stone’s website in July, in which he comments on his company’s trademark battle with Sawstone. In the meandering, 2,694-word essay, he three times writes that Sawstone’s actions are based on “false accusations” and claims employees and fans of the Kentucky brewery launched “a public smear campaign” against him and Stone.
Koch’s irreverent and at times confrontational attitude has long been a part of the brewery’s public persona. But it seemed more effective in the first decade of the 2000s, when the craft beer industry as a whole was doing battle against “Big Beer” for the hearts and minds of American drinkers. With $90 million in private equity money, sales all over the world, and its status as one of the biggest breweries in America, Stone is no longer a scrappy underdog. To some in the beer world, Stone is now the “corporate bully” “picking on the little guy.”
Even recent harmonious news from Stone has been out of left field. The brewery in early September launched a collaboration with hard kombucha maker JuneShine, which Stone’s distribution arm sells in Southern California. There’s seemingly little of Stone to be found in the product aside from branding: The product is called StoneShine, and is a hard kombucha created entirely at JuneShine’s production facility.The connection between the two brands—besides their wholesale partnership—isn’t immediately clear. Koch draws comparisons between the StoneShine collaboration and Stone’s prior collaborations with actor Wil Wheaton (Farking Wheaton w00tstout) and Metallica (Enter Night Pilsner), though in both those cases the actor and band directly interacted with the brewery and its staff as part of the creation of the collaboration beers.
“JuneShine is out of San Diego and we’ve had a relationship with them through Stone Distro and there’s a bit of mutual admiration,” Koch says. “I realize you have to look at some things through the commercial lens to a degree, but sometimes not, because it’s a cool idea.”
Koch declined to elaborate further on why the collaboration took place.
In another summer head-scratcher, Stone unveiled its first-ever ad campaign, “Leave No Stone Unturned,” purposefully printing upside-down labels on its cans and bottles. What do the labels signify? It’s not clear. The brewery’s website says they are “visual manifestation of our most deeply-held belief”—though what that belief is isn’t explained—but also “a mistake” because “every Stone is the result of trial and error and error and error until all that’s left is the best damn beer we can brew.”
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When asked directly what the goal of the upside-down labels is, Koch says only that the campaign is still in its early days but “we are quite pleased with the conversation that it has sparked with our fans.” He didn’t expand on what that conversation was, or what kind of insight it was providing the company. A search of Instagram shows people using the #leavenostoneunturned hashtag much as they’d use any other brand tagline. The labels haven’t moved the needle much on sales: Stone Delicious IPA has been the lone bright spot in the brewery’s lineup this summer, responsible for $1.2 million of the brewery’s $1.3 million in gains between June and August compared to 2019 sales during the same period.
Overall, Stone’s portfolio of brands was up +6.6% in total dollar sales in IRI-tracked channels from July to August compared to a year ago, thanks to Delicious IPA and Fear.Movie.Lions Double IPA. For comparison, Stone’s peer breweries were up by double digits during the same time frame: Sierra Nevada (+18%), New Belgium Brewing (+25%), New Holland Brewing (+13%), Revolution Brewing (+15%), Cigar City (+18.5%). Sales of key brands including Arrogant Bastard, Enjoy By IPA, Ripper Pale Ale, and Tangerine Express Hazy IPA are all on pace to lag behind last year’s numbers.
Approaching its 25th anniversary earlier this month, Stone announced Maria Stipp would be coming on board as the company’s new CEO. Stipp stepped down as CEO of Lagunitas in February following a five-year tenure, during which she’d guided Lagunitas through its acquisition by Heineken.
In September 2015, just three months after Stipp joined, Lagunitas sold a 50% stake to Heineken; it sold the remaining half to become a full Heineken subsidiary in May 2017. Under Stipp’s watch, the brewery’s global shipments reportedly increased +74%, as Heineken and Lagunitas made it a point to expand the brewery’s exports and begin brewing in foreign countries.
So, is Stipp planning to find a buyer for Stone? The two companies share rough parallels in size (Lagunitas was the sixth-largest craft brewery when Heineken first invested), flagship styles (IPAs), and eccentric cofounders (Tony Magee at Lagunitas and Koch at Stone).
Stone has been shopping itself around for a while, according to a brief Beer Marketer’s Insights published early this year: “Stone tried for a long time to sell pieces of itself, managing only to sell off its Berlin brewery. But now it’s exploring selling in its entirety, driven by its private equity partner VMG.”Five years is a typical timeframe for private equity investors to start looking to cash out; the end of 2020 would mark five years since VMG’s investment in Stone. (Dogfish Head Brewery merged with Boston Beer Co. five years after a significant investment from LNK Partners.) Koch calls talks of a sale “rumors,” saying “we have not changed our stance.” When asked what specific stance that is and whether he’s referring to the brewery’s stance on independent ownership, he replies: “On anything.”
“If we were [going to sell], we would be the biggest idiots in the world to do it in the middle of an international pandemic,” he adds, saying the company is stable right now and not looking to make significant changes. It’s a bold statement, considering companies large and small are eager for cash influxes during these dire economic times.
With the company at a leadership crossroads, it has an opportunity to right the ship. Yet there’s so far been little public indication that there’s a plan in place.
“Our priorities over the next six months will be to not set any new priorities over the next six months other than the navigation of the current turbulent waters that the world finds itself in,” Koch says. He acknowledges that the year has brought challenges, but says Stone has, over the past few years, removed inefficiencies. He didn’t explain further, but based on what the company has done in the past two years, he’s likely intimating the inefficiencies were costly expansions in Berlin and Richmond, as well as staff who were laid off this summer as the brewery implemented contactless ordering and payment systems.
“We are a stable company and have been very careful about operating lean,” Koch says.
Stone declined to make new CEO Maria Stipp available for an interview, saying that she plans to spend the next several months listening to and learning about the company.
“She’s not going to share any vision or plans for the company for some time,” a spokesperson says.
Facing economic headwinds, leadership turnover, and likely demands from its private-equity partners, the brewery is looking to Stipp to chart its course forward. So far, it’s clear that upside-down labels and legal circuses aren’t cutting it.
Words by Kate Bernot