Craft Beer Alliance, the parent company of Kona Brewing was sued in 2017 over its use of Hawaii-themed branding for beer that is produced on the mainland. The company has moved to settle for almost $5 million.
There are more than 7,000 breweries in United States. Most of them are small – producing less than 500,000 gallons a year.
Expanding is expensive, so when many breweries want to grow, they outsource production to an existing facility somewhere else.
That was the strategy used by Kona Brewing Company. As the company grew, it started shifting some production to the West Coast.
According to Andy Baker, who has worked in the Hawaii brewing industry for 35 years, it is generally cheaper to bring a smaller quantity of finished product to the islands than it is to import all the necessary raw materials.
“Containers that are coming to Hawaii are now full of full cases of beer, that are shipping at 40 percent less than your containers of raw materials,” Baker said.
How can full bottles ship for less than empty ones? Baker says that freight companies price based on the quantity of each commodity being shipped. So on a per unit basis, a smaller number of full bottles can be cheaper than a large quantity of empty ones.
That hasn’t deterred other local brewers. Maui Brewing Company produces all of its beer on the Valley Isle and has positioned itselfas the largest local producer of beer to actually brew all its beer in Hawaii.
But, outsourcing to a contract brewer is by no means an uncommon tactic according to Bart Watson, Chief Economist for the Brewers Association.
“Breweries are trying to find ways that they can still grow and be competitive without breaking the bank and taking on all that debt and risk of building a new brewery,” Watson said.
The class action suit filed against Kona Brewing centered on the company’s use of Hawaii-themed branding for its beer, many of which have Hawaiian names or are named for geographic places in Hawaii.
The suit alleged that Kona Brewing Company misled consumers to believe that bottled and canned beer was coming from Hawaii.
This is not the first isntance of a beer producer being sued over where it does its brewing. In 2013, Anheuser Busch, the producer of Beck's, was sued after it continued marketing the pilsner as a German beer, despite shifting production to St. Louis, Missouri.
In offering the $4.8 million Kona Brewing settlement, Craft Brew Alliance did not admit any wrongdoing, but expressed a desire “move forward and avoid the unnecessary distraction” of litigation.
If the settlement receives court approval, consumers who purchased Kona beer since February, 28, 2013 will be eligible for refunds of $1.25 to $2.75 on four-, six-, 12- and 24-packs of Kona, with a maximum $20 per household with receipts and $10 without receipts.
CBA has plans in the works to expand Hawaii beer production with a new brewing facility.
