Dogfish Head

Dogfish Head: This Time, is a Great Time

Inside the Dogfish Head Brewery success story

By Eric Balinski

Here is a recipe for building a well-differentiated company: Mix one part hospitality, with two parts brewery and distillery, and two parts restaurants, stir continually with the inspiration of a highly spirited culinary and beverage alchemist. What would you get?

If you are lucky and wholeheartedly commit- ted to the outcome, you could end up writing an entrepreneurial success story similar to that of Dogfish Head. Dogfish Head is the company Sam Calagione, the Epicurean Edison of the Craft Beer industry, founded back in 1995 in coastal Delaware as a mere 10-gallon-batch beer maker within their original Rehoboth restaurant, Brewing & Eats. From that simple beginning, he and his coworkers have trail blazed styles and tastes, not only in beer, but in creating a unique culture that pioneers across a number of business endeavors.

Any craft-made production endeavor takes dedication and focus to be successful. Blending some very different businesses seamlessly together seems almost a route to failure. From Calagione’s view though, they were inherently linked, feeding upon each other to make each endeavor a source of ideas, inspirations and new loyal fans. The reason their mixology of hospitality, brewing/distilling, and culinary works is they take each element very serious, but don’t take themselves serious, allowing for their hard work and dedication to be enjoyable even when some experiments don’t always come out exactly as planned.

Craft Brand and Marketing Magazine had the chance to speak with Sam and his wife Mariah, shortly after their merger with Boston Beer Co., which is run by Sam’s longtime friend Jim Koch, chairman and founder of Boston Beer Co.  We explored the merger and Dogfish’s history and future.

Give us a snapshot of today's craft brew market.

Historically, brewers followed the Brewers Act of 1516, The Reinheitsgebot, the "German Beer Purity Law." After more than 500 years, the Reinheitsgebot is considered the world’s oldest, still valid food safety and consumer protection legislation. For beer making that meant ingredients could only exist of the traditional beer foursome: barley malt, hops, water and yeast.

Dogfish Head was the first craft brewery to completely challenge the ingredient list for making beer, by creating the first coffee stout beer. We feel we’ve helped inspire many craft brewers to become more creative with their offerings and have contributed to the explosions of craft beers across the U.S.

Today, there are more than 7,000 craft breweries in America, with craft brewers having 14.5 percent share of the domestic beer market. A significant number of these brewers are hyper-local in scope, offering direct to consumer freshness and integrating themselves into the community. The top 50 Craft Brewers, while still part of their local communities, have 99 percent of their sales go through a three tier distribution system, the same as the global beer companies.

Currently, more than 80 percent of the beer produced in America comes from only two international players: AB/InBev and Molson Coors. These companies also have acquired many great craft breweries over the years. Other major international breweries have also acquired once-indie American craft brands. Ballast Point is now 100 percent owned by Constellation Brands, which also owns Corona. Lagunitas Brewing is 100 percent owned by Heineken.

As these companies are integrated into the larger parent, distribution is gained, but often the craft identity and magic gets lost with consumers. Every craft brewer who contemplates selling their company faces the decision of keeping a lifetime of passion and running the brand they founded or taking the money. Often when a craft brewer sells out, the international brewer that acquires them is not seen on the product packaging or in the brand marketing, ultimately making it hard for consumers to know who makes the beer.

Dogfish Head founders Sam and Mariah Calagione have not sold out. They have bought in.

They converted their Dogfish ownership stake into Boston Beer stock and are now the second-largest non-institutional owners of Boston Beer behind founder Jim Koch. They still run the Dogfish Head brand alongside their talented co-workers, and Sam has a seat on the board to help drive the strategy and the future of the Boston Beer Company.

All beer sales in the U.S., including craft beers were flat in 2018, as consumers considered other options such as teas, tonics and ciders, which grew in 2018. This however creates opportunity for those willing to innovate.

What’s likely to happen next?

We see “The Smiling Jaws of Death” scenario. The top Jaw has the big teeth of global breweries who have the power to control store placement. Along with them are the larger craft breweries who make 80,000 to one million-plus barrels of beer per year.

Before the merger, Dogfish was the 13th largest and on the upper jaw, but with resources finite. Now with our merger with the largest American-owned craft brewing company, Boston Beer, combined we’ll have 2 percent domestic market

share and enough strength to grow, adding our 400 co-workers to their 1,400 co-workers, coupled with Boston Beer’s top ranked sales force as the best high-end alcoholic beverage in the country.

The teeth on the bottom jaw represent the thou- sands of small craft breweries. The ones who are local and sell direct to consumer whether in their brew pub or tasting room. Brew pubs are okay as a model, but they have low margin food and food handling issues to deal with. Also, on the bottom jaw is the Tasting room model, no food, just tasty, high quality beer, available for carry out too. The customers typically are hardcore beer geeks who line-up to try and buy without the cost or hassle with low margin food.

In the middle of these jaws are the breweries with 5,000 to 80,000 barrels per year. Their size and reliance on the three-tier system dictates they must grow to survive, but it will be hard given the pressure of the top and bottom jaw eating at any market and customer opportunities.

What trends are defining the space?

I would say the dominant beverage trends are tonics, canned cocktails, lower ABV beers, Hazy IPAs and active lifestyle oriented alcohol-based beverages like Michelob Ultra or our Slightly Mighty, a true indie craft beer that has all the character of a world class IPA, but with only 95 calories, 3.6 gram carbs, 1 gram of protein and zero fat per 12 ounce serving.

As far as trends with restaurants and bars, we see the craft casual space growing, led by beverages and food that is focused on wellness, an active, healthy lifestyle, with customers willing to pay a premium price.

What is the Dogfish story from a brand perspective?

The idea for Dogfish Head was incubated when my wife, Mariah, and I were living in NYC in the early ’90s. I started doing research on trends in small- batched beer and the artisanal food movement that was underway. I noticed no one combined the two. This led to me to feel we could be the first culinary created and oriented brewery.

We left New York for Milton, Delaware to start Dogfish 24 years ago with a 10-gallon brewery in our restaurant. We intentionally did the brewing and restaurant under the same roof as I saw beer as “liquid food”. The introduction of our Ta Hanket® in 2011 represents this. The label has the oldest hieroglyph of the brewing art that is a universal symbol of both beer-and-bread. Meaning beer has been considered liquid bread since the earliest era of human civilization.

We also recognize creative chefs don’t limit their spice or ingredient cabinets, so we looked at chefs and the kitchen for culinary food ingredients to inspire what we create in beers as brewers. This naturally led to pairing craft beer with food when we started, along with championing a culture centered around being fun, creative and highly-interactive with our customer base.

We have consistently maintained this mind-set in all we do. Our efforts were recognized in 2017 by winning a James Beard Award, something we had been nominated for annually since 2010.

Walk us through your branding strategy.

Our rallying cry is “off-centered goodness for off-centered people.” We work hard to innovate and establish new concepts in the beer/spirits/ hospitality spaces rather than adopt the fast

follower model of hopping on trends others have established. We have been early innovators in fast-growing categories such as IPAs, fruited sours, craft-distilled spirits and active lifestyle beers like our yoga-themed white beer Namaste® and our Slightly Mighty®. This approach has been good for us, as we typically sell a barrel of beer for $49.90 per case, while the IRI average craft beer case price is $35.

What's the biggest item on your to-do list right now?

Finishing our sales and marketing plan with my Dogfish and Boston Beer fellow leaders. We in- tend to significantly amplify our marketing spends and resources for our three core beers of 2020, which we will announce at our September meeting in Boston.

How does the taproom space integrate into today's branding/marketing strategies?

Dogfish has tasting rooms in both Rehoboth and Milton. And Boston Beer has additional tap rooms in a number of states. They are import innovation hubs for our brands and will continue to be important resources and destinations for our brands. That said Dogfish and Boston Beer proudly sell more than 99 percent of what we produce through the three-tier system. And that focus will continue for decades to come.

What does your recent merger with Boston Beer mean for Dogfish Head?

In a word: growth. Growth for our brands which complement the brands in the Boston Beer port- folio. Dogfish focuses on IPAs, sours, active life- style beers and distillery spirits while Boston Beer has a great portfolio centered around: lagers, cider, seltzer, tea and kombucha (lightly effervescent sweetened black or green tea drinks.) I believe that together we have the most dynamic and complimentary high-end alcohol beverage portfolio of any company in the country.

To help with portfolio diversification, we are adding our distillery spirits line-up of Gins, Rums, Vodka, Whiskey and other distilled concoctions into the merger. We started distilling fourteen years ago when I drove by a rural scrap yard in Pennsylvania and saw a thing shaped like a Scottish Pot Still in the field. It aroused my curiosity so I bought it, restored it, and started tinkering with distilling. Today we have triple digit growth and are only in five states so far.

We also recognize creative chefs don’t limit their spice or ingredient cabinets, so we looked at chefs and the kitchen for culinary food

ingredients to inspire what we create in beers as brewers. This naturally led to pairing craft beer with food when we started, along with championing a culture centered around being fun, creative and highly-interactive with our customer base.

We have consistently maintained this mind-set in all we do. Our efforts were recognized in 2017 by winning a James Beard Award, something we had been nominated for annually since 2010.

Walk us through your branding strategy.

Our rallying cry is “off-centered goodness for off-centered people.” We work hard to innovate and establish new concepts in the beer/spirits/ hospitality spaces rather than adopt the fast follower model of hopping on trends others have established. We have been early innovators in fast-growing categories such as IPAs, fruited sours, craft-distilled spirits and active lifestyle beers like our yoga-themed white beer Namaste® and our Slightly Mighty®. This approach has been good for us, as we typically sell a barrel of beer for $49.90 per case, while the IRI average craft beer case price is $35.

What's the biggest item on your to-do list right now?

Finishing our sales and marketing plan with my Dogfish and Boston Beer fellow leaders. We in- tend to significantly amplify our marketing spends and resources for our three core beers of 2020, which we will announce at our September meeting in Boston.

How does the taproom space integrate into today's branding/marketing strategies?

Dogfish has tasting rooms in both Rehoboth and Milton. And Boston Beer has additional tap rooms in a number of states. They are import innovation hubs for our brands and will continue to be important resources and destinations for our brands. That said Dogfish and Boston Beer proudly sell more than 99 percent of what we produce through the three-tier system. And that focus will continue for decades to come.

What does your recent merger with Boston Beer mean for Dogfish Head?

In a word: growth. Growth for our brands which complement the brands in the Boston Beer port- folio. Dogfish focuses on IPAs, sours, active life- style beers and distillery spirits while Boston Beer has a great portfolio centered around: lagers, cider, seltzer, tea and kombucha (lightly effervescent sweetened black or green tea drinks.) I believe that together we have the most dynamic and complimentary high-end alcohol beverage portfolio of any company in the country.

To help with portfolio diversification, we are adding our distillery spirits line-up of Gins, Rums, Vodka, Whiskey and other distilled concoctions into the merger. We started distilling fourteen years ago when I drove by a rural scrap yard in Pennsylvania and saw a thing shaped like a Scottish Pot Still in the field. It aroused my curiosity so I bought it, restored it, and started tinkering with distilling. Today we have triple digit growth and are only in five states so far.

And a really great thing about the merger for me personally, along with Jim Koch who is still a passionate and energetic voice of the company, is that I will also be a brand Ambassador for the Boston Beer brands, a role I thoroughly love at Dogfish Head. With our combined product portfolio, we have something to share with all customers.

Is the merger a good thing for the craft beer industry? How so?

I think so but obviously I am biased. At least in the context of the top 50 alcohol beverage companies selling in the U.S. There is consolidation in all three tiers. And fewer bigger stronger retailers and distributors are focusing on fewer bigger stronger brands. Dogfish Head and Boston Beer are now in a position to bring one great portfolio to market. That is good for all of our stakeholders, especially the consumer. As it will now be easier to find the stuff from our company they have been looking for, and with more streamlined and powerful logistics and sales capabilities, they will find it fresher than ever.

Why do you think some DFH fans and other craft beer lovers are not in favor of the merger?

Of course, when the announcement is made the smaller entity takes more arrows than bigger entity as fans of the brands process the news. Jim and I have been loud and proud on the merger and as we tell the story of why we are joining forces the sentiment has swung way more positive. The fact of the matter is, even combined, we are a David up against the same international Goliaths that we and the other 7,000 true indie American craft breweries have been up against for a very long time.

How will Dogfish Head customers benefit from the merger?

Boston Beer has been consistently ranked the best beer supplier by distributors. Our beers and spirits will surely be easier to find and be fresher going through the Boston Beer distribution system.

Mariah we understand you and Sam are using a significant chunk of the proceeds from the merger to add to your philanthropic foundation. Please share what will be the focus.

“Beer & Benevolence” started 24 years ago to creatively collaborate with nonprofit organizations to foster community, nourish artistic advancement and cultivate environmental stewardship. Taking a chunk of proceeds from the Boston Beer stock and using them to create a foundation gives is the opportunity to grow Beer & Benevolence and continue giving back to the communities and non-profits that are meaningful to us, our co-workers, and our customers.

Here are some of our Beer & Benevolence highlights for 2018 & 2019 (YTD):

2018

  • Inaugural “Dogfish P.A.” bike event raised $40,000 for bike safety and advocacy in Delaware; $15,000 to Sussex Cyclist and $15,000 to Urban Bike Project plus $10,000 for “Bike Service Stations”  throughout the state to include one across from the Draper Memorial Kiosk.
  • Pledged $50,000 to the construction of public dock along the Lewes-Rehoboth Canal
  • Dogfish Dash raised $150,000 for TNC, DE (largest year to date)

2019

  • Raised over $5,000 for the “Camp Fire” relief via the Sierra Nevada Brewery’s Resilience Beer effort
  • Tour Tips (tips generated by our guests in the brewery’s Tasting Room that are donated to various local non-profits) are a big item for In 2018, we raised about $75,000, and we are looking to double that in 2019
  • Received the “Maker’s Award” for supporting the arts in Delaware; this is awarded by the “Delaware Contemporary” Art Museum