There’s a story that Greg Koch, Sam Calagione and Bill Covaleski like to tell.
Back in 2003, the three craft beer luminaries – Koch of Stone Brewing, Calagione of Dogfish Head Craft Brewery and Covaleski of Victory Brewing – held a press conference in Boston to announce a new initiative intended to highlight the ascendance of American craft brewing. One person showed up. The three brewery founders briefly wondered if their movement would ever truly take root.
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Fast forward 13 years, and Koch, Calagione and Covaleski face quite a different challenge. Their breweries are the 10th, 16th and 26th largest craft breweries in the United States, respectively. But with more than 4,200 operating breweries – up from 1,485 in 2003 – craft beer is now talking over-saturation, and faces an even more complicating factor in the form of big beer’s entry into the arena.
Koch, Calagione and Covaleski were in Chicago this week for a panel at the Beer Marketer’s Insights spring conference, and we cornered the trio for a 20-minute conversation about the state of the industry. The conversation was edited for space and clarity.
Q: You all started brewing during the mid-1990s. Do you even recognize the industry anymore?
Covaleski: Absolutely. It feels very familiar. A lot of the ethics are still the same, but in order to manage our businesses and go forward, we’ve always been course correcting, and we’re doing that now more so than ever.
Koch: We are experiencing the reality that three of us and so many others have been fighting for. But the truth is, in some ways, it’s a case of “be careful what you wish for.” We got so much of what we wanted, but now we’re facing some things that are real challenges.
Covaleski: We incited a riot.
Koch: Riot is beer. Riot is choice. Riot is flavor.
Calagione: We want people to be able to choose what beers they’re going to buy and not massive companies choosing for them. That’s what we got. But it also means complications and fragmentation and confusion, too.
Q: What’s the biggest challenge you’re facing in 2016 as a brewery founder?
Koch: With every thrust that craft beer has made, there’s been a parry by big beer. We talked about choice. It used to be that back in the day, there was no choice. I was in the Burbank airport recently and it had seven IPAs on tap – all from breweries owned by Anheuser-Busch InBev. That’s the parry. We haven’t won the battle of choice yet, but to the average consumer it looks like we have. People are like, “What battle? I have more choices than ever!” But from the insider view, that’s the illusion of choice, not the reality of choice. We, of course, are still fighting for it.
Covaleski: We’re seeing conflict from the top and the bottom. The big guys have been encouraged to come in and be legitimate craft brewers. And we’ve excited to see so many brethren enter the industry and open little pubs. Meanwhile, we are not growing consumers at the rate that we’re growing producers. I think it’s a momentary anomaly that we’ll get past, but it’s a challenge.
Q: It sounds like you believe in the idea of “the bubble,” and that there are too many breweries out there.
Covaleski: I didn’t say too many, and I wouldn’t say too many. There is more supply than there is demand at the moment, but I don’t think it will be resolved in a cataclysm. We’ll continue to work together and encourage people to choose truly unique, independent, crafted products – as we’ve been doing for 20-plus years.
Calagione: I wouldn’t call it a bubble moment because that implies that this is a trend that is going to disappear. But I do think the rate of two breweries opening per day is probably not sustainable. It’s the ones that have quality, consistency and focus on being well differentiated, regardless of what scale they aspire to, that will be successful. The reality is that not every brewery will be focused on all three of those things to the level they need to be, and hopefully the consumer will speak and say, “These are the ones that are kicking ass and deserve it and these are the ones that deserve to go away.” I’m confident there are going to be way, way more that deserve the support and help our movement grow than those that have to go away.
Koch: I’m in slight disagreement with Bill. He said supply is slightly outweighing the demand; I think we’re really, really close and you can find some markets where that’s the case. But if everyone keeps opening at this unsustainable rate, there will be fallout. That’s not Greg from Stone Brewing talking, that’s simple economics.
Q: What will that fallout look like?
Koch: We know four out of five breweries are great and one out of five is maybe doing something that’s not putting their best foot forward. Either they’ll learn how to do that or not and, yeah, there might be some breweries closing. Each of us in our own way went through the bubble bursting in 1996. Bill and I decided to open in the middle of it, in a moment when we had no idea it was happening. Sam was oblivious to it because he was so small.
Covaleski: There’s the unknown factor of fortune. There are people who have taken on debt at a bad time and they’ll be unfortunate victims. If you have a product that has resonant value, great. If you have well-marketed branding, you’re on the positive side. But even if you have both of those and you’ve taken on debt to do an expansion at a time when you’re not generating the sales to support it, the grim reaper’s sickle is coming for your head.
Q: Yet all three of you are continuing to grow your breweries through this era.
Calagione: We’ve focused on strong growth instead of fast growth. We could discount our way to maintain top-line growth, but we want to build brands that are going to last not just through this tumultuous moment, but also be relevant 10 or 20 years from now. However, prioritizing strong growth can be a challenge when we are coast-to-coast brands depending on a network of distributors who rely on us to keep growing, as do our families and co-workers for opportunities within our own companies.
Covaleski: Sam’s last point is huge – creating opportunity for the folks who have helped our companies get to where they are. If we don’t create opportunity for all the great people who got on our trains, it’s not going to be a fun train to ride anymore.
Q: Who do you see as your competition as you grow? Big breweries, small breweries or both?
Koch: I’ve always looked at the difference between the commodity-industrial style of doing business and the artisanal entrepreneurial style as the difference between a hockey game and a footrace. The hockey game, you’re literally looking to beat up the other guy. You’re looking to throw elbows. By and large — not exclusively, but by and large — craft beer runs more like a foot race. Yeah, you’re spurred on by looking over your shoulder and saying, “Yeah, that guy is running fast and hard and I better pick up my game.” But personally, I’ve never looked at it as competition. I look at it as we earn our spot on the tap tower. We don’t throw elbows to get that spot. That’s why some of us get in such a rub when industrial beer starts horning in. They play by a different set of rules. They’re bringing hockey tactics to a foot race.
Q: Let’s clarify our terms. Industrial beer meaning … ?
Calagione: The world’s biggest conglomerates.
Koch: I don’t want to name it, not because I’m afraid to say the name of Voldemort, but because this is simply how commodity industrial business operates. It’s their nature. It’s not specific to any one company in the beer industry.
Q: Well, then, how have things changed since Anheuser-Busch InBev, Heineken and Constellation Brands started getting involved by buying once-independent craft breweries?
Koch: Well, I don’t see Victory, Dogfish or Stone at the Burbank airport bar.
Calagione: We realize not every beer drinker wants to politicize their beer choices to the degree that existentially we need to. That said, I do feel that every beer drinker deserves to know who really owns the brands that they are told are coming from independent craft breweries. And in that case I’m not just throwing the world’s biggest breweries under the bus. There are sometimes labels on brands that fall into the Brewers Association’s definition of a craft brewer on which you can’t see what facility it was made in or whatever. I think more transparency is necessary. It’s easy to stand outside that definition and poke holes at it, but for better or worse, it is the most established definition we have. I feel true indie craft breweries need to keep championing that definition and draw consumers’ attention to it. If they understand who makes their beer and they’re like, “Screw it, it’s half as much as an IPA made by a small brewery; glad you told me I don’t give a crap,” well, God bless them. That, too, is economic Darwinism. But right now there is not enough integrity in being as transparent as the consumer deserves us to be.
Koch: Obfuscation is the big breweries’ jobs.
Covaleski: What’s really going on here is the need to defend our industry and the roots of our industry. It’s something we’ve always been doing.
Q: We’ve had lots of business talk, so let’s talk beer. Name one beer that you’re loving right now.
Calagione: I just had an Arrogant Bastard from Stone in a can for the first time and it was very, very good. It’s cool to see that beer in a can.
Covaleski: I drank an Allagash White yesterday. I’m always happy to drink an Allagash White.
Koch: Especially for people who are unfamiliar with craft beer, or those who think they don’t like it, I always recommend the one you haven’t had. Dive in.
Q: OK, bonus question: name one of your own beers that you want people to try because you love it.
Covaleski: I’ll go for our current seasonal, Kirsch Gose. It’s got sweetness and it’s got very high salinity that creates a velvety bridge from the sweet to the tart. It’s pretty phenomenal for 4 percent alcohol.
Calagione: I had a Kirsch Gose at The Common Table in Dallas last night. It was delicious. I would say for us, our Festina Peche. We started bottling that as a sour Berliner weisse 10 years ago and some of it used to be sent back to us because a bunch of distributors said, “Oh, your beer went sour.” It’s great to see awareness of session sour beers going up.
Koch: We have a beer coming out in July that I’m really excited about called Wussie. Actually the whole name is Who You Callin’ Wussie. It’s a hoppy northern German-style pilsner in 16-ounce six packs.
Calagione: Coming soon to Chi-town!
Twitter @joshbnoel
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