Eastside Distilling Inc. reports net sales fell 6.7% to $3.4 million. Despite the lower sales, Eastside narrowed its net loss to $1.7 million for the second quarter from $2.1 million a year earlier.
The lower sales were primarily driven by a decrease in canning services compared to last year when craft customers had scrambled to obtain access to cans and canning lines. This decline in canning was offset by increased spirits sales of Burnside and Azuñia partially offset by lower sales of Legacy brands resulting in positive price mix.
Both divisions were negatively impacted by the higher cost of materials and freight due to price pressures on the supply chain. In addition, canning margins were hurt by a shift from sales of canning services to lower margin consumables sales.
Paul Block, president/CEO, said the company had shifted to a growth mode. During the second quarter, the Company delivered 9,327 cases of spirits, excluding Redneck Riviera which it has sold. Azuñia benefitted from the slow recovery of the on-premise business while Burnside gained new distribution outside of Oregon. The softness in Portland Potato Vodka was due to cycling the shift to “at home” drinking at the start of the pandemic.
Azuñia cases roughly doubled to 3,237 from 1,667 cases. Burnside cases sales grew to 1,184 cases from 1,002; Hue-Hue fell to 81 cases from 110; Portland Potato Vodka sales eased to 4,682 cases from 4,857. Eastside brands sold 48 cases, and the company fell to 97 cases from 854.
The company reduced pricing discounts and shifted its portfolio mix.
The company said one of the biggest issues in craft canning is lack of cans. It is pivoting from a small canning business serving craft brewers and distillers to a larger outfit that includes printing labels on cans, rather than using plastic labels.
The opportunity to print cans for other beverage producers is substantial, the CFO said. It has built a pasteurization facility that can generate substantial sales to craft beverage makers.
The company is testing an organic margarita, which is testing very well. It will move into the market soon.
Eastside is going to grow Burnside by word of mouth, the executives said. Advertising will be at point of purchase to reach consumers in a buying mode. “We’ll build these brands one customer at a time,” Block said..
During the earnings call, several people wanted to know when Eastside was going to start marketing on the East Coast. The executives urged investors to focus on the craft market. In key Western craft markets craft spirits are growing.
Block said Eastside is a “little teeny player in the can business. If we can get bigger, we’ll be able to buy cans at a lower price.” Covid had a real impact, he said. Eastside benefitted when can production stopped because it had an ample supply on hand. Now, with production resuming, prices are soaring.
Eastside plans to change its game plan in craft canning from servicing the medium marke to also serve smaller customers with smaller trucks. “It’s not just printing, filling and packing, but small, medium and large. It will bring more customers into the fold, and we should be able to demand a disproportionate margin in the marketplace,” Block said.
