Food & Drink

Sam Adams and Dogfish Head Just Merged. We Talked to Their Founders About It.

Sam Adams/Dogfish Head
Courtesy of Boston Beer Company

Thursday, news broke that Boston Beer Company (makers of Samuel Adams, Angry Orchard ciders, and the TRULY brand of hard seltzer, among others) would merge with Delaware’s Dogfish Head Brewery. A joint press release valued the deal at around $300 million in cash and stock; shares in BBC (stock ticker: SAM, because of course) have climbed around 5% since the announcement.

Some people will tell you that craft beer is not like other businesses. Boston Beer Company founder and chairman Jim Koch and Dogfish Head co-founder Sam Calagione are two of them. They think beer companies should be led by “brewers first, and businesspeople second,” and that corporate independence -- as defined by the Brewers Association, a trade group on whose board they have both served -- is a critical ingredient of authentic craft beer.

But as the number of American breweries ticks past 7,400, macrobrewers have proven they can buy and operate craft brands without facing revolt from the drinking public. Consolidation, not creativity, is the buzzword in the beer industry these days. In other words, instead of looking like America’s “strangest, happiest economic story,” craft beer is starting to look like, well, just another business.

Having covered the beer space for the better part of the decade, I’ve interviewed both Koch and Calagione several times. With the precipitous state of the craft beer industry very much on my mind, I spoke to the two men again by phone as they drove from a press event at New York City’s Eataly to Dogfish Head’s brewery in Delaware.

This interview has been edited lightly for brevity and clarity.

Thrillist: Jim and Sam, thanks for getting on the phone. Congratulations on the deal.

Jim Koch: We’re in the car here.

Sam Calagione: Lot of road noise.

Koch: If you can hear clinking in the background, you can imagine what that is.

Calagione: The carrot on the stick at the end of our journey!

Nice. I'm in Asheville, North Carolina right now. I want to start with a question on a lot of people’s minds, or at least my own. How is this deal any different from a macrobrewer like ABI acquiring a craft brewery like Wicked Weed?

Koch: It's totally different. This is two independent craft brewers joining forces. This is not a big global brewing conglomerate buying a small American craft brewer. Second, both Sam and I have always been strong advocates for transparency and believe that beer drinkers have the right to know who brews their beer. We both had issues with big brewers buying craft brewers without letting the consumer in on that fact. We intend to do what Boston beer has done with our innovation breweries like Angel City, Concrete Beach, and Coney Island. We are very proud to put Boston Beer Company on [their labels] as a brewer. We’re equally proud to have our name on Dogfish Head’s beers. They feel the same way.

Calagione: We're very proud to be independent craft brewers, and thankfully that's not a subjective concept. Our trade group, the Brewers Association, which represents the vast majority of America's 7,500 craft breweries, has the definition of indie craft, and we're proud to be within that. We also have a seal that only true indie craft breweries can put on their packaging. Our companies believe in that seal because we believe consumers want to know who makes their beer. And when we believe there's a lot of consumers who will be proud to buy beer made by a true indie American craft brewery and one that has the capability to get our beers coast to coast within the three-tier system.

How extensively did you guys consult with Brewers Association while you were putting this deal together?

Koch: We didn’t have to, because both Sam and I have been on the board of the Brewers Association.

Calagione: While we didn't consult with the Brewers Association, I had a great chat yesterday with Bob Pease, the CEO, and he sees this as yet another example of the creativity and collaborative ethos of the craft brewing community.

[In a statement provided to Thrillist, BA president & CEO Pease said: “As industry veterans, Jim and Sam are staunch supporters of the independent beer movement, leading the charge for small brewers and instrumental in growing the overall craft brewing segment [...] They will no doubt continue to champion for the more than 7,400 small and independent breweries in the U.S.”]

So the trade group is excited. What about customers? If I’m a diehard Dogfish Head drinker or a diehard Sam Adams fan, why should I be excited about this?

Calagione: I’ll start. In a word. Accessibility. It'll amplify the accessibility of both of our portfolios. On a national level, it's very challenging when essentially four international conglomerates control over 80% of America's beer market. It's challenging for the little guys to break through that noise and get our brands to the consumer, no matter how much [the consumers] desire it. Well now with our combined scale or combined creativity are a combined network of, uh, of distributors. We'll be able to get that beer more easily into consumers' hands.

Koch: This brings together brewers with a long track record of innovation and creativity. And it's been my experience that when you put creative individuals together, cool things happen that might not happen if they're innovating in their separate silos.

Sam Adams and Dogfish Head
Courtesy of Boston Beer Company

You’re two very different people with very different definitions of innovation and creativity. How do you fit those two different personality types together to be complementary, rather than butting heads?

Koch: Sam and I have already done this. Eight years ago, we brewed the first collaboration beer for a high-end food and beer tasting held by the Brewers Association called Savor. Sam had the idea for it. It was going to be called Savor the Flowers and we were going to use flowers including hops in new and different ways. I thought was very cool. He had this other idea is that we would collaborate on this beer old-school, by writing letters back and forth. The actual experience of sitting there writing a letter to Sam -- folding it, putting it in an envelope, licking the envelope, licking the stamp, writing it, sending it to each other’s homes -- created a whole different set of sensory experiences. I called it the world's first epistolary beer.

We were experimenting with this new hop that was not even on the market. [BBC’s] hop dealer in Germany had developed this new hop called 369. They were calling it Tutti Frutti. We made probably the first commercial beer with what is now known as the Mosaic hop. And it's become a staple of craft brewing.

Calagione: I just learned something. I didn't realize that we used to be called Mosaic and it was great. Dave, even in your story, I'm actually learning something about that.

Jim, I assume that you've been approached many times over about acquisition opportunities with breweries that look like a Dogfish Head, or had a similar portfolio, et cetera. Why Dogfish Head?

Koch: You're right on the first assumption, not quite right on the second. I would guess I’ve turned down maybe 100 proposals [for BBC to acquire breweries.] But where you’re wrong: none of them were like Dogfish Head. There’s just a bunch of “soft synergies” here. We share the same mission: the survival and hopefully the prosperity of independent American craft breweries. We have the same company values. A lot of the transactions are out there are basically people wanting to turn their brewery into cash and go sit on a beach somewhere. Over the years, Sam had many such opportunities to do that. He was interested in joining forces with us, and it still is basically not taking a penny out of this merger. So the Calagione family will be the second-largest non-institutional shareholder [after Koch himself.]

He is all in on this newly merged company. He will be a member of our board of directors. He's going to have a significant say in the direction of the company. We are hoping set an example that, you know, there is a better exit strategy than what a lot of craft breweries have done, which is sell out to a big foreign company. Maybe within the craft beer industry we can take care of our own.

Sam, Dogfish Head sold a stake to LNK Partners in 2015, and with this merger, they’re going to be exiting. Is this a rebuke of the ability of private equity to steward and grow craft breweries?

Calagione: I don’t see it as a rebuke. There are as many different examples of potentially successful business models in the beer world as there are different kinds of beer. I know passionate folks that work at breweries controlled by private equity, and I wish them the best luck. We just chose a different path. You know, we loved the idea that we can be brewers first and businesspeople second in this combined company. It has the awesome resources of a public company, but Jim’s long-term decisions are for the sustainability of their brands rather than just quarterly earnings.

How important is it to get distribution right as you combine these companies, making sure that footprint is optimized? How do you work through that?

Koch: Carefully and thoughtfully. For many years we’ve been an advocate for the three-tier system. It's, it's not perfect. But I think that middle tier of independent wholesalers has been crucial to the success of craft beer in the United States. Sam and I have a great deal of respect for the wholesaler community. Obviously we're going to have some Sophie’s Choices’ here because ultimately I would like to see our brands in the same wholesaler in as many geographies as possible. I know that's not always going to be possible.

Dogfish Head
Courtesy of Boston Beer Company

The press release touts this as a “powerful American-owned platform for craft beer and beyond.” Concretely, what does that mean?

Koch: First we're talking about a brewing company that is just stronger together, and that will enable both our portfolios to be on more shelves and tap handles. The innovation synergies will enable us to make a larger number of new and interesting beers. Sam has been an incredibly innovative brewer his whole career. I believe [Sam Adams] has been a very innovative brewer as well and have been somewhat fearless -- if not reckless -- about pushing the boundaries of what can be considered beer.

“Beyond beer” is something a lot of people talk about in this space. What is beyond beer that you weren’t able to tap as separate entities that you’ll be able to pursue as a combined company?

Calagione: If you look at, you know, the alc[oholic] beverage universe in America, picture it as a big old Amish quilt. You know, what we're kind of hand-sewing now together is beautiful, vibrant, distinct squares that represent ciders, tonics, ales, lagers, vodkas, gins, rums, whiskies, and who knows. When you think of all of those different dynamic touch points, as we overlap with them and learn from them… it's going to be limitless where our creativity and our resources can now take us.

Koch: Sam approaches brewing a batch of beer the way a chef approaches a dish. That expertise will be very helpful in the “beyond beer” space because when we're creating new products, we're in an area where there are no sign posts, no guidelines, no convention and tradition that we can follow. We have a clean sheet of paper when we're constructing a new flavor of cider, or trying to figure out the right flavors in alcoholic kombucha. I’m no kind of cook at all. I’m barely able to figure out how long to run the microwave to keep popcorn from burning. I'm looking forward to Sam helping us with some of those things.

There are skeptics of this deal, or at least people who don’t know what to make of it. For example, Jeff Alworth of Beervana wrote yesterday that this move “seems fear- rather than opportunity-based” and looked like a deal “created by two companies spooked by the direction of the industry.” What do you say to people who read this as a defensive/go-to-ground move given craft beer’s slowdown?

Koch: I have two answers there. First, both our companies are growing double digits. Those criticisms are made in the absence of fact. We are two of the strongest, most successful craft brewers out there right now! And the other answer is just something I've learned upsetting apple cards for 35 years. God, forgive me, it's the only time in my life I'm going to quote Taylor Swift: “Haters gonna hate.” She had it right.

Calagione: I thought you were going to go with “Are we out of the woods yet? Are we out of the woods?”

This has taken a weird turn.

Calagione: Let me just say also that our companies care deeply about what beer lovers think of our brands. We've been monitoring these discussions on social media, and from what we can see it's about 75% positive. And of the 25% and negative or more neutral, there's a lot of folks saying, “wait, this is interesting. I'm going to wait and see.” I guess that's all we're asking of those that might have been inclined to view this negatively: give us the opportunity to prove how creative, innovative, how indie, and how big of champions we're going to be of the entire indie craft beer movement.

Last question: I interviewed both of you earlier this year and neither of you told me about this $300 million merger you had planned. How dare you?

Koch: We hadn’t done it yet!

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Dave Infante is a freelance journalist in Charleston, South Carolina. Follow @dinfontay.