Kona Brewing Co. will spend $15M on a Hawaii plant

Can. No can.

This is a debate among beer makers and beer drinkers over whether enough consumers will buy premium-priced craft beer packaged in cans instead of bottles.

The practical dilemma has been particularly divided in Hawaii where the oldest existing "local" brewery, Kona Brewing Co., ships all its bottled beer to the state from mainland brewing outposts while producing all draft beer sold statewide at its brewery on Hawaii island.

Kona Brewing’s dichotomy has long been an economic decision driven largely by manufacturing and shipping costs, including supply-demand pricing that makes shiping bottled beer to Hawaii cheaper than shipping empty beer bottles.

Now, Kona Brewing is saying: Can. Or at least: More can.

The company plans to invest in a new $15 million Hawaii brewery that boosts annual production capacity from 12,000 barrels to 100,000 barrels. In gallons, that’s going from 368,000 to 3 million.

Much of the new facility, which is slated to come on line in 2017, will produce beer packaged in cans for Hawaii distribution as well as making all of Kona Brewing’s draft beer for local consumption.

"We’ve been waiting a long time for technology to catch up with our vision for efficient and sustainably minded brewing and packaging in Hawaii," said Mattson Davis, chairman of Kona Brewing’s advisory board. "We’re really excited."

Davis said bottled beer made by the company on the mainland will still be distributed in Hawaii given the preference of some consumers. But an almost 20-year practice of Kona Brewing shipping all its nondraft beer to Hawaii will come to an end.

A site for Kona Brewing’s new facility is still being discussed with landowners and local government officials, according to Davis, who said a deal to locate the brewery should come soon and allow construction to start by the end of the year. He said sites on Hawaii island, Oahu and Maui are in consideration.

The new brewery, which will add 15 employees to Kona Brewing’s Hawaii workforce of 200, will have a tasting room to accommodate tours but will not be attached to a pub or restaurant, Davis said. After the facility starts production, Kona Brewing’s existing brewery will shut down and the space will be used to expand the company’s adjacent restaurant there.

"The restaurant is almost 17 years old," Davis said. "We will be rebuilding it from the ground up."

Kona Brewing was established in 1994 by Cameron Healy — an Oregon entrepreneur who created Kettle Chips — and his son, Spoon Khalsa. They set up the brewery in a former newspaper printing press building in Kailua-Kona.

The company added a restaurant to its brewery in 1998, and since then has made all its bottled beer on the mainland through arrangements with other breweries.

Another weakening of Kona Brewing’s localness happened in 2010 when it was acquired by Oregon-based Craft Brew Alliance Inc., a publicly traded firm that owns Redhook and Widmer Brothers breweries in Oregon, Washington state and New Hampshire. The largest shareholder of Craft Brew is Anheuser-Busch InBev, the world’s largest beer maker.

Craft Brew, which paid $14 million for the Hawaii company mostly in stock, has dramatically grown sales of what Kona Brewing calls "liquid aloha" and promotes as embodying the culture and spirit of the people of Hawaii.

Kona Brewing beers, which are distributed in 40 states and 17 countries, became Craft Brew’s biggest brand after five straight years of double-digit growth on the mainland.

Last year Kona Brewing shipped 300,000 barrels of beer, up from 134,000 in 2010, under Craft. Nearly all of the beer is brewed at Craft’s three mainland breweries.

Healy, who is Craft Brew’s second-largest shareholder, said in a statement that he is pleased that Kona Brewing is investing back in its birthplace.

"Kona’s tremendous success today is a testament to the support from this amazing community that we started in," he said.

Davis said more economically efficient canning and brewing technology drove the decision to expand production in Hawaii. The new facility will allow the company to make more small special batches of beer like a current brown ale brewed with taro root that is the first in a new series of beers served only in Hawaii.

Consumer acceptance for canned craft beer also is growing, Davis said.

Craft Brew added a canning line in 2012 to its Oregon brewery that produces canned versions of Kona Brewing’s Longboard Lager.

Maui Brewing Co., which was founded in 2005, cans all its nondraft beer. The company recently expanded with a new brewery in Kihei and expects to produce 40,000 barrels of beer this year.

Hawaii Nui Brewing Co., a Hilo-based brewer, also has embraced canning its beers.

Several Hawaii breweries have been critical of Kona Brewing promoting its Hawaii origin compared with rivals that exclusively produce their beers in Hawaii.

Last month Kenneth Kunze, Craft Brew’s chief marketing officer, described Kona Brewing as being positioned "as a craft imported from Hawaii" during a conference call with stock analysts.

The issue over Hawaii beer production origins was debated two years ago at the Legislature in bills that proposed requiring labels stating where beer is made if packaging gives an impression it was made in Hawaii when it’s not.

"A company that is allowed to create a product posing as locally made when not in fact made locally can save the inherent higher costs of local production while selling a product that is actually not ‘Hawaiian’ and does not support the economy of the state in the same manner a locally brewed beer does," Thomas Kerns, owner of Big Island Brewhaus, said in written testimony.

Kona Brewing opposed the bills, noting that it changed its labels in 2012 to list all four locations where its beers are made instead of its primary place of business.

The bills did not become law.

Current annual capacity in Hawaii: 12,000 barrels or 368,000 gallons. Increased capacity: 88,000 barrels or 2.6 million gallons in 2017. Each mug represents 2,000 barrels or about 63,000 gallons.