SAN DIEGO (CN) — San Diego-based craft brewer Stone Brewing owes its investor hundreds of millions of dollars.
$464 million to be exact.
The June 2023 due date is fast approaching but given the Covid-19 pandemic’s impact on the craft brewer’s already dwindling sales, investment firm VMG/Hillhouse has given Stone some wiggle room to pay it back.
“I was given no timeline. I knew it would take time to build back the company and [VMG/Hillhouse] was giving me some time,” Stone Brewing CEO Maria Stipp testified Thursday during questioning in an ongoing trademark trial against beer conglomerate MillerCoors — now known as Molson Coors.
Stipp, who was CEO of industry competitor Lagunitas Brewing Company from 2015 through 2020, was introduced to Stone through the investment firm.
She took over the helm in September 2020 at a time when the craft brewer was ramping up to go to trial in what it characterized as a “David versus Goliath” fight against MillerCoors over its claim the economy beer brand Keystone Light infringed Stone Brewing’s trademark when it rebranded the lager’s packaging in April 2017.
Stone Brewing claims consumers — mostly new beer drinkers — were confused by Keystone Light’s new packaging which separated “key” from “stone” to emphasize the word “stone.”
As a result, its “flagship” beer Stone IPA experienced a nosedive in sales.
“I have not to my knowledge seen any brewery experience such extreme losses,” Stipp said, noting Stone’s year-to-date sales are down 6%.
When questioned by Stone attorney Jeffrey Theodore, Stipp confirmed Keystone’s “stone”-heavy rebranding had impacted the investment.
“Has MillerCoors’ infringement forced you to consider certain options you don’t want to,” Theodore asked when questioning Stipp if Stone Brewing had considered selling the company.
“Yes,” Stipp responded.
U.S. District Judge Roger Benitez — a George W. Bush appointee who has interrupted attorneys’ examination throughout the trial to ask witnesses his own questions — asked Stipp whether Keystone Light’s rebranding could help Stone Brewing through increasing brand awareness.
“Aren’t you essentially getting free advertising?” Benitez asked, to which Stipp — noting Keystone is a budget beer — answered, "I don't think that's the advertising I'd hope for."
Stipp also said increasing the price of Stone IPA to fund a marketing campaign to recapture lost sales didn’t make a difference.
“We tried price, a marketing campaign, incentives — everything we could think of to do to change from negative to positive and it’s not making a difference,” Stipp said, adding: “I’m frankly not sure what else we can do.”
But during cross-examination by MillerCoors attorney Valerie Goo, Stipp acknowledged the craft beer industry as a whole had been slowing down around the same time as Keystone Light’s rebranding.
Internal documents from Stone Brewing shown in court noted “Stone IPA was not competing” among its peers as early as 2016.
And a July 2017 five-year business plan for Stone Brewing noted “craft slowdown is real.”
A memo from former Stone CEO Dominic Engels to around 700 employees who attended an “all-hands” meeting in February 2019 was also shown in court. It stated: “Craft beer is in a doldrums right now but it will re-remerge as it has before. We saw this in the late 90s-early 2000s. No matter the trend, Stone intends to be there as a global standard bearer.”
“Do you agree at the time, craft beer was slow?” Goo asked Stipp about the memo.
“Less up than it was before, potentially yes,” Stipp responded.
The trial is scheduled to continue Friday.
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