PORTLAND, Ore. (TheStreet) -- Vermont Hard Cider Company CEO Dan Rowell remembers when making and distributing his company's Woodchuck Cider in the U.S. was a much lonelier task.
Vermont Hard Cider Company has been producing Woodchuck Cider for roughly 23 years and, through 2012, was the leading hard cider producer in the country with a 53% share of the cider market. As recently as 2009, cider was a $35 million market in the U.S. that wasn't spreading past core markets in the Northeast, Northwest and Great Lakes.
However, a whole lot changed in 2012 to bring Vermont Hard Cider Company and U.S. drinkers into the cider-soaked present. SABMiller (SBMRY) and MolsonCoors (TAP) U.S. joint venture MillerCoors purchased Minneapolis-based craft cider company Crispin Hard Cider for a reported $40 million earlier that year and placed the cider within its Tenth & Blake craft beer division. Later that year, Boston Beer Company (SAM) , makers of the Samuel Adams line of craft beers, introduced its Angry Orchard cider line that would become the nation's top-selling cider by 2013.
Vermont Hard Cider Company, meanwhile, wasn't exactly left behind. Ireland-based C&C Group, makers of the Magner's cider brand, purchased the company and its Middlebury, Vt., headquarters and cider making facility for $305 million at the end of the year. While the creators of Woodchuck Cider were able to retain their autonomy, the infusion of funding from C&C allowed the company to expand Woodchuck's line of ciders and begin work on a second $34 million cider house in Middlebury, Vt.
The new cider house increases Woodchuck's overall capacity to roughly 720,000 barrels, making Vermont Hard Cider Company roughly the size of the Portland, Ore.-based Craft Brew Alliance (BREW) , the nation's ninth-largest brewer and producer of the Redhook, Kona and Widmer Brothers brands.
It's going to need that bulk to compete with not only Angry Orchard, but with MillerCoors' new male-targeted Smith & Forge cider and Anheuser-Busch InBev's (BUD) recently released Stella Cidre and Johnny Appleseed ciders.
Dan Rowell took over as chief executive of Vermont Hard Cider Company in March just after former CEO Bret Williams stepped down from the position for a different role within the board of directors. He's taking over at a time when IRI, a Chicago-based market research firm, notes that cider has exploded into a $327 million industry at retail locations alone. Overall U.S. cider sales have increased nearly 84% since 2012, with the industry adding $149 million in new sales in 2013. Cider is now a full 1% of the overall U.S. beer market, which is about the same share as Guinness distributor Diageo (DEO) currently holds.
While that company's share slid last year, however, Rowell believes that cider has the opportunity to take 5% of the beer market "in my lifetime." With most restaurants and bars dedicating one tap, at most, to cider and Rowell's Woodchuck taproom currently featuring 20 ciders on tap, he believes there's plenty of room for expansion and that Woodchuck and its big beer competitors alike are broadening the market. His portfolio backs up that claim, with sweetened and spiced seasonal varieties serving as the second best-selling Woodchuck ciders behind its flagship Amber and Belgian White, Hop Cider and India Pale Cider varieties aiming directly for crossover beer drinkers and steering them toward more esoteric ginger- and mint-infused ciders.
Just after the opening of Woodchuck's new Middlebury facility, we spoke with Rowell about his company's growth, the unexpected assist he's getting from beer brewers and how his brand managed to keep its home-grown Vermont roots after being purchased by an Irish cider company:
What drove Vermont Hard Cider Company to open its second facility and how have its distribution plans been affected by that expansion?
Rowell: We had a 9- or 10-year run where we saw double-digit (percentage) growth. We saw the cider industry growing as a percentage of the beer market. Not that long ago, cider was 0.1% of the beer market, now it's more than 1% of the beer market.
We've had a lot of success, particularly in the last 10 years, and now that the large beer companies are getting involved, cider's getting a lot of attention.
How helpful is it to have a big partner like C&C at a time like this?
Rowell: C&C has a very decentralized business model, so Vermont Hard Cider and Woodchuck Cider is still run locally.
I report to a board of directors that includes myself, our former CEO Bret Williams, two other Americans and three individuals from C&C. All of the decisions are made locally, even though we are owned by C&C Group, and they have several other divisions. It's a very unique business model, but it works well and I enjoy it.
What they did bring to the table was a willingness to invest more in our facility than we were originally planning, so we made some upgrades and improvements from the original design. We're also investing more in the marketing of our products than we were originally.
That seems evident across the Woodchuck line. Has that allowed Woodchuck to expand its offerings and elbow itself into a bit more room on store shelves and, if so, how much has that increased Woodchuck's portfolio and presence in the marketplace?
Rowell: Within the last two years, we've probably doubled the amount of ciders that we're doing.
Adding the second facility and seeing the increased shelf space and awareness of cider has... I'll put it like this: For the first 20-some odd years of our existence, we had to convince wholesalers and retailers to carry a cider. Once we did that, they would carry Woodchuck. Now with a lot more beer companies getting into the cider industry, we now have to convince them to carry our ciders, but this has also allowed us to do what we love to do: Play around with cider, experiment and innovate.
We've probably doubled our SKUs (stockkeeping units) in the last couple of years. We have 20 different ciders on tap in our cider house.
Has that led to a bit more creative freedom for your cider makers? How much have you expanded what they're able to do?
Rowell: We've designed what we called an infusion tank a few years ago and had a company make it to our specifications. What that allowed us to do was to infuse different ingredients into a cider and it works almost like a coffee filter.
For our mint cider, we put mint leaves into the tank, we poured the cider over the top and it would come out of the mint leaves and down to the bottom and we'd create a loop. Equipment like that has really allowed our cider makers to expand their horizon and play with other ingredients. They always try to stay true to the apple -- after all, that is the main ingredient in cider -- so when they do some of these unique, innovative ciders, we try to just infuse some other characteristics into it.
With the additional space, we've also added a place where we can age a lot of our ciders in barrels. We've done some in bourbon barrels, tequila barrels, whiskey barrels and other types of things as well. It's allowed the team to really play around.
How much of that is a luxury and how much is necessity? With a lot of other companies entering the cider market, it seems as if there's a need for differentiation.
Rowell: We've always been a craft company. We've always looked at cider as a portion of the craft beer segment.
If cider was a style of beer, it would be the third-largest style of craft beer in America. We try to do business like a craft company and we're very conscious of how we do business. We want to look long-term with out partner relationships, especially with the farmers, and we're also big into sustainability.
In the craft beer industry, innovation is important. What we know about cider is that there are 7,500 apples known to man, so you can make as simple or as complex of a cider as you'd like and you can do many different variations. I think that's just of who we are. We've always tried to do something different and it set us apart.
For a long time, Woodchuck Amber was so much different than anything else on the market, but now commercial guys are coming in and trying to copy what we've done for 23 years and they're doing a decent job of it.
What kind of pressures has Woodchuck faced since some of those larger competitors came into the cider market?
Rowell: The big boys have come in and they've used the tools that are available to them.
Angry Orchard has the Samuel Adams and Twisted Tea lineup, so they have 300-plus salespeople selling the portfolio and they're leveraging their portfolio to grow Angry Orchard. I would do the same thing if I were them.
Same thing with Smith & Forge and Johnny Appleseed with Miller and Budweiser. They go in and say "Here are all the Miller products you're taking and Smith & Forge is one," and we've never had that kind of clout or authority with some of the large distribution channels.
At the end of the day, they're spending $20 million-plus on TV ads and they're growing awareness of cider. As they bring more people into the cider category, those people will find Woodchuck and, based on the quality of our product, that's a recipe for success for us. Those guys can't compete with us on the quality and innovation of the ciders.
Do you feel that your company's history making cider alone gives it a bit of an advantage with both consumers and suppliers?
Rowell: I was getting calls earlier this year with a lot of concern over whether there would be enough apples for the cider industry.
My response was that we've had long-term relationships with all of our farmer partners and that our supply is not in jeopardy. Cider is all we do, so we pay very close attention to what's going on in the industry, the growth of cider and our supply needs. We're also working with the farmer partners to expand production of apples, in Vermont in particular.
We're working with farmers and investing with them to increase their investing capabilities, investing in their farms and buying some defunct farms, because now there is demand for apples. It's a win-win.
We rely on several different varieties, but a lot of them are in the McIntosh apple family. It's the largest apple crop Vermont and it's how Woodchuck Amber got its start 23 years ago. We're diversifying into other styles and other types and we're working with the farmers to do some research to see which apples make the best ciders and which can be grown in different climates and cost-effective ways.
Given your company's close ties to Vermont and the state's culture and economy, was there concern among your suppliers and neighbors when C&C came in with its buyout offer two years ago?
Rowell: There was some concern. We've gone through several different owners: Bret Williams and his investment group owned it the longest and there were several private owners, so there was concern about Vermont Hard Cider Being sold to a giant company.
But if you look at C&C [with a market cap of $1.48 billion], they're nowhere near the size of Boston Beer Company [$2.82 billion]. One of the things that Bret and I liked when I was the CFO and COO under Bret Williams was that, when they came in, they were touting how their businesses were locally run and locally managed. We agreed to sell to them because their values were the same as Woodchuck's and, to this day, they've kept to their word.
You always wonder when you throw out some of the large numbers of what they paid and how that would affect the fans, but the fans care about the quality of the product and the passion of the people making it. That hasn't changed.
So where do you see the cider industry going from here and what do you think Woodchuck's role in it will be?
Rowell: I think cider in America can be 5% of the beer market, and other people within the cider industry have said that.
Whether that happens within the next five to 10 years, I don't know. Cider around the world is 4% to 5% of the beer market and there are some countries like England and Ireland where it's 13% to 16%. Cider is a very approachable drink. It can be as simple or complex as you want it to be, so there are limitless opportunities there.
What Woodchuck needs to do is just keep doing what it's been doing: Giving its consumers an innovative, hand-crafted cider.
With beer breweries overlapping the cider market, does your cider end up competing directly with beer for customers as well?
Rowell: To this day, there are still a lot of restaurants, bars and retailers who'll say "I already have a cider" and they'll have four IPAs on their taps.
An IPA is an IPA is an IPA as far as I'm concerned. A cider is not necessarily the same as any other cider.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.