Maui Brewing eyes more mainland expansion with bid for Modern Times Beer
Kihei-based Maui Brewing Company has been rapidly expanding to keep up with the growing demand for its craft beer and seltzers.
Its flagship drinks Bikini Blonde Lager and POG Hard Seltzer are in such high demand that sales are over 50% year-to-date — and the company reports widespread out-of-stocks at wholesale and retail levels.
With demand for its product growing on the continental U.S., it partnered with Sleeping Giant Brewing Company of Denver, Colorado, for mainland production of its core Maui brands.
And a bigger mainland presence could be on the horizon.
The company has bid for San Diego-based craft brewer Modern Times — which has had troubled times as of late.
According to beer industry website Brewbound, the company closed four taprooms this year prior to entering a court-ordered receivership.
Its main lender, California Bank and Trust, alleged the company defaulted on three loans totaling more than $11 million in debt.
Maui Brewing has placed the stalking horse bid — meaning other bidders must place higher bids, and Maui Brewing would still have the opportunity to match.
Garrett Marrero, Maui Brewing’s co-founder and CEO, has called out other Hawaiʻi beer brands for brewing on the mainland in the past. He wants to be clear that, even with increased expansion, he is not eating his words.
"People say, ʻOh, you’ve said that no one should brew beer on the mainland to call it Hawaiʻi. And I've never said that," Marrero told HPR. "I said you should be honest about where the beer is coming from, you should be transparent, and you should give the consumer — the craft beer drinker — all the information to make a decision based on facts. Not make it look like it comes from Hawaiʻi and just not say so that it's on them to assume. I think that's where we want to be beyond reproach with the way we do so. And I think we are."
Marrero shared more thoughts on Hawaiʻi brewing as well as the proposed acquisition, supply chain challenges, and what he thinks is the biggest issue in Hawaiʻi. This interview has been edited for clarity.
Modern Times Beer acquisition
GARRETT MARRERO, MODERN TIMES: I think Modern Times is a fantastic brand. I think they obviously had some troubles, financially and otherwise. They haven't been able to work the financial stuff out themselves, but the other issues that I believe were addressed fully and not an issue at all. Certainly, they weren’t representative of the brand, but certain people within it. Financially they've found themselves in a pickle. I think if everything worked perfectly, they would have been fine. But a huge growth curve, huge amount of borrowing and investment going into a pandemic. Of course, no one knew that that was happening. They got caught in a pinch, right? It's almost like being in a short squeeze. They just didn't have a way out.
And the people there are amazing. The brand is amazing. The beer is amazing. I've known that brand since inception. I've known the people there for so long. So we believe in it. I'm from San Diego, originally, so it's nice to maybe have a foothold in our second-largest market outside of Hawaiʻi, with a brand that's respected and in my hometown.
So that's the kind of the why. There are certain business synergies that exist, such as scale. So when we go to buy cans, instead of buying 36 million cans, we're maybe buying 45 million, 50 million cans. So when we go to our can manufacturer, not only looking at the economies of scale from pricing, but in today's market, getting the cans. We command a little bit more attention. Combining our brands with our common wholesaler network in Southern California, which we already are aligned, also gives us strength with those wholesalers.
What we can do with our people — being able to allow fluidity between locations and training, and growing the camaraderie and craft beer and innovating to make some really cool stuff. And beyond that, the business efficiencies that come out from not only just economies of scale, but also from an operational level. We're not quite big enough to do certain things, but we're bigger than not to have to do those things. So bringing those together brings certain cost efficiencies into line and allow us to run two world-class manufacturing facilities. And certainly be able to brew in California beyond just Sleeping Giant Brewery.
JASON UBAY, HOST: So just to be clear, the brands would be completely separate? And you'd be able to expand Maui Brewing there on the mainland? And by being a bigger player, you’d be able to command more priority for wholesale supplies and things like that?
MARRERO: I mean, that's the, you know, the HPR business radio reason? Yes. But, I mean, it's just cool. Like, honestly, there are two great brands that are backed by great people. It's just cool. We get to do fun things. I mean, if we lose what's great about craft and we turn it 100% corporate and do it because, “Oh, well, it's good for P&L (Profit and Loss),” that's not how our company runs. We have to make business decisions because if we're not profitable, we're not able to provide the quality of life we can for our team and do all the tremendous amount that we do for the community.
But it's just cool. I mean, like they need help. We're in a unique position to be able to help and also capitalize on certain synergies. So I don't think there's anything wrong with that. It gives them a foothold, too. They do sell beer in Hawaiʻi. Not a lot, but you know, that's something that we can collaborate on to grow Modern Times here. A lot of beer drinkers have reached out to me locally, and said, “Hey, I can't wait to get more Modern Times here. And it's so cool that you guys are doing that." And let's face it, that brand is still facing getting shut down and not existing, right? We want to give it that life. I’ve heard there's at least one or two other bidders that are not in the industry or looking to part out equipment. That doesn't allow Modern Times to move forward as a brand.
Hawaiʻi beers brewed on the continental U.S.
UBAY: It's a bit of a hater question, but from a philosophical point of view, if you start producing more beer on the mainland and distribution, would you still consider Maui brewing a Hawaiʻi beer? What do you think makes it a Hawaiʻi beer?
MARRERO: Well, I think the origins are very important. Absolutely. When I say origins, it's not just the beer, but the brand. I think where other brands go wrong and — I'm not going to dance around that, we're talking about Kona Brewing Co. here, and Primo and Mucho Aloha — things that purport to be from Hawaiʻi or look like they're from Hawaiʻi, and maybe not go the step of saying they are. But those are very different than what we're doing. We will always make our beer in Hawaiʻi. We make more beer in Hawaiʻi than any other producer, period. And that includes Kona, right? Because let's face it, the vast majority of that beer is still coming in from the mainland, whether it says it or not on the can. And again, they're a different business model. The owners of that company, very different. We respect what they do, but it's just not us.
The amount of meetings that we have to make sure that we are transparent, that we are properly labeled and that we are accurate and not giving anyone inaccurate information — you'd be surprised because most brands would not go to the level that we do to ensure that transparency. We continue to invest in Hawaiʻi, and my goal was to always produce 100% in Hawaiʻi. Market conditions have changed. The world has changed around us. We did not cause COVID. We did not cause all of these supply chain, shipping, labor, housing, these are not issues that we caused. But they're at our footstep, and we now have to respond to those to be a for-profit business. I owe it to my teammates. [Editor's note: Maui Brewing refers to its employees as teammates. Marrero estimates there are currently 400 employees in Hawaiʻi, down from 750 before the pandemic. Most are employed at its four restaurants.]
So there's two options. We grow and continue to grow, and why wouldn't we if there's such a huge demand obviously out there for growing at the rates we are at the size we are. The other option is contraction. It's OK, we’ll sit down in the room with the team and say, “OK, who would like to quit, resign or be fired?” Is that good for anybody? It's not good for the company, it's not good for the bank and it's certainly not good for our teammates that count on us for their wages, their insurance, their 401(k) that we match. Their beer benefits — which, of course, are most important to everyone. So we had to have a hard look at what our options are. And this was the option.
"My goal was to always produce 100% in Hawaiʻi. Market conditions have changed. The world has changed around us."Garrett Marrero, CEO, Maui Brewing Company
I think for us to be transparent about it and talk about the beverage, you have to have it in this mindset that if people are going to buy it for a lot of different reasons. Some may buy it because it's 100%, local to Hawaiʻi, and that will be the case for Hawaiʻi. That is the case for Hawaiʻi. Now, if you're on the mainland, and you don't want to buy it because it's not made in Hawaiʻi, then you have zero choices for Hawaiian beer. We still will export to the mainland, by the way. All of our limited releases at the moment are coming out from here. We ship a lot of beverage from here still. It’s core brands that are going to be produced in the mainland for the mainland.
You talk about IPA — everybody likes a fresh IPA. When ports are backed up… We just had a container be shipped out beginning of May. It just showed up this week in California. Four weeks! Normally, it was two weeks, but they misplaced it. The person responsible for transferring it at the shipper, they were out with COVID. And nobody provided backup for that. So she's now back after two weeks. Our container of IPA — refrigerated — sat at the docks. So from a quality perspective, that makes sense. And as we continue to grow, why would we bring ingredients to Hawaiʻi just to turn around and ship them back to the mainland. That is highly unsustainable, both from an environmental perspective, and especially in today's market, an economic perspective. Shipping containers are costing two to four times what they cost us before.
We did look at the contraction model. Pre-COVID, we were looking at pulling out of every state except for West Coast states plus Hawaiʻi, of course, and we would have done everything in Hawaiʻi. And that proved to not be possible because when you have a pandemic, you lose 60% of your population overnight. And let's face it, the vast majority of our beer is sold to visitors, right hotels, bars, restaurants. If someone's going to complain about local, I think we need to maybe change the habits of the local drinker, right? It’s Heineken, Bud Light. There's nothing global about either of those brands. So for us, we had to think about how we continue to grow the company and evolve it, but do it with the highest level of integrity. And that is what our team has done.
Supply, demand and affordable housing
MARRERO: I think for us, everything's been selling really well. I'm not gonna say too well, but relative to the supply, our demand far outpaces supply on every brand. Bikini Blonde [Lager], POG [Hard Seltzer], Big Swell [IPA], Dragonfruit [Hard Seltzer] — those are all kind of leading the pack, if you will. But it's really hard to even give an accurate number as to what our demand is because we're running inventories that are — typically, you want to have a 21- to 30-day inventory at your wholesale or your distribution partner, which in Hawaiʻi, is Paradise Beverages. But to give you an idea of the demand, we ship a full container of kegs over to Oʻahu. And they're gone in two hours. So you know, you're talking about hundreds of kegs that are gone immediately. So you don't have an accurate forecast into what your demand truly is. Because you would have to build inventory, and actually have a run rate to know what your actual inventory or demand is going to be. And we just haven't been able to keep up even to that level yet.
And we are running at a faster pace than we've ever run in the past. I think last year, we produced somewhere around 64,000 barrels in Hawaiʻi. This year, that number will far exceed, you know, 92,000, maybe 100,000 barrels in total production between Hawaiʻi and the mainland. So we're talking about a fairly significant growth curve just for the Maui Brewing and Maui Hard Seltzer brands.
Why? I would comment that it's a relatively incomplete rather than say broken supply chain. Supply chain issues just around the world, are an issue, whether it be labor at Ball to make enough cans, or not enough labor at Young Brothers to move containers or not enough bookings available to go to work from Hawaiʻi. The war in Ukraine and its pressure on the malted barley market. You name it, it's been tough. Further, we've had in the malt market, that was a really bad year for the harvest, so the quality of the malt hasn't been as good. So we had to make some logistical changes, if you will, actually practical physical changes on the brewhouse side.
If I gave an interview at least a dozen times during COVID, and I said that coming out of COVID is going to be way worse than operating in COVID. I hate to be right. But that is absolutely true. And then that's just compounded by the labor market. I mean, just the labor market is nonexistent anywhere. I would push back and say, “This is where the government has not done their part.” And I think for me — talking about 17 years of brewing history here in Hawaiʻi — for 17 years, I've been talking about affordable and workforce housing, and so have the politicians. But there just hasn't been any real action, any meaningful move to make sure that our residents here are taken care of. And that is a real problem. So I think that's just further exacerbating the labor issues.
We are addressing the labor issues in many ways. One, wages, whatever we can do to increase. You got to remember, if we can't make enough beer, and we don't have the higher revenues coming in, it's harder to make increases in labor. So it's a Catch-22. We have been fervent job creators in this state since the beginning. And for the first time, we were bringing on two robots. We got a couple of robots coming in on our new mix backline speeding up the cam line by about two and a half times speed, and that will operate with half the number of people. So we are being forced through market conditions, supply chain labor issues, etc., to modernize the facility and in some ways to make labor a smaller factor, things that we can control and that's how we'll move forward as we continue to grow this company. Because I have a duty to the team here, more so than anybody else.
This interview also aired on The Conversation on June 7, 2022. The Conversation airs weekdays at 11 a.m. on HPR-1.