Founders of three of Massachusetts’ oldest craft breweries shared insights and advice for the next generation of Bay State craft brewers during the virtual Mass Brewers Guild conference earlier this month.
“Expect to work your ass off,” said Jim Koch, founder of Boston Beer (Samuel Adams, Angry Orchard, Twisted Tea, Truly Hard Seltzer, Dogfish Head). “The problem is, if you’re not doing well, you got to work your ass off to rescue things. And if you’re doing well, you got to keep working your ass off because you’re doing well.
“It is both a job, a business, and a passion and a lifestyle,” he continued. “Enjoy the good times, because you’re going to have them, and survive the tough times because you’re going to have them too.”
Joining Koch on the panel, which Night Shift Brewing co-founder Rob Burns moderated, were Dan Kenary, co-founder of Mass. Bay Brewing (Harpoon, UFO, Clown Shoes, City Roots cider, Arctic Chill hard seltzer), and Ned LaFortune, co-founder of Wachusett Brewing (Wachusett, Country Hard Seltzer lemonade, Nauti Hard Seltzer). They reflected on their decades in business and how the COVID-19 pandemic has affected the beer industry.
All three leaders operate companies with several brands sold through distribution and multiple taprooms.
On the COVID-19 Pandemic …
When the pandemic forced the closure of on-premise establishments nationwide, purchasing of beer for at-home consumption spiked, but sales were not enough to overcome the loss of bar and restaurant volume. Some on-premise venues have been able to reopen with capacity restraints, but market research firms such as Nielsen have found many consumers are unsure about returning to past dining and drinking habits.
“This is gonna have, ultimately, a pretty devastating effect on craft brewing, given how many of our fellow craft brewers are dependent on taprooms,” Koch said. “What worries me is this isn’t going to go away in another three months. I mean, we will be lucky if we are back to any kind of semblance of normal in a year from now.”
Record-high unemployment levels, a lack of further economic stimulus from the federal government and rising case counts in most states have created a sense of uneasiness.
“The off-premise is doing great, but certainly that was helped by the extra $600 a week of unemployment, which is now gone,” Kenary said. “So if we now just stretch into a long cold winter of almost double-digit unemployment, without supplemental help from the government, people start really cutting back on their consumer spending, they’re not going out to bars because bars are closed. We may not be through the worst of this yet.”
With declining on-premise sales, Wachusett had to reckon with its finances.
“We had to go back and basically just go through everything in our budget and take out anything extra — anything at all — that we could to make sure that we have enough cash to get through what I’m unfortunately predicting to be a pretty dark beginning of the fall,” LaFortune said.
The U.S. Small Business Administration’s Paycheck Protection Program, which launched in the spring, was a lifeline for many of the country’s more than 8,000 craft breweries, including Wachusett, LaFortune said.
“That was critical,” he said. “It was absolutely critical to us, and I think it was an example of our government doing the right thing in an absolutely horrible crisis.”
Wachusett, which was founded in 1994 in Westminster, Massachusetts, has expanded to three taproom locations in the state, which LaFortune said help bolster the company’s sales with to-go sales and on-premise sales, when they became permitted again during the summer.
“It’s become an incredibly important thing for us, and it’s actually what’s helping us climb out of a hole from March,” he said.
On the Future of the Craft Beer Industry …
All three leaders agreed that the taproom model that’s taken hold over the craft beer industry in recent years has proven to be a viable path to success and its flexibility is akin to “an accordion to expand and grow your business,” Kenary said.
“The economics of the taproom where, we all know, the gross margin on that pint that you’re selling direct to consumers in a taproom is huge,” he added.
The Brewers Association (BA) began classifying taproom brewers separately from packaging brewers and brewpubs in 2019. Last year, the BA counted 2,966 taproom brewers among the country’s 8,275 craft breweries. They accounted for 6.1% of the craft beer industry’s total volume.
Koch said he expects the number of total breweries to keep growing.
“I think, particularly in a taproom environment, there’s room for 20,000, if they are run by people who are really passionate about beer, who aren’t in it to flip it and make a bunch of money, and who are reasonably good business people,” he said. “The craft beer taproom, in some ways, has become the 21st Century version of the neighborhood bar.”
Kenary agreed.
“The model works as long as you’re making great beer, sticking to your knitting and focusing on running a business,” he said. “Profit is not a dirty word and it’s an essential — to have a profit to plow back into your business to buy new equipment, to invest in taprooms, to invest in sales and marketing and then educating your employees to understand that.”
In the first months of the pandemic, BA chief economist Bart Watson conducted a survey of craft brewers that found only 15.3% said they could last more than six months under the restrictions in place. However, brewers pivoted to promote beer-to-go models, often with curbside pickup and home delivery — and hundreds of craft breweries received Paycheck Protection Program loans from the Small Business Administration — and many, many more than 15.3% are still in business today.
“We’ve proven that all the predictions from the spring about ‘My gosh, it’s going to 3,000 breweries that will be bankrupt’ has proven to be incredibly wrong, which is testimony to the resiliency in our industry and the flexibility of our business model,” Kenary said. “I think way more of us are going to come through this than expected, but that doesn’t mean it’s not gonna be really hard.”
On Self-Distribution …
All three breweries started by self-distributing their products in Massachusetts. Of the three, Mass. Bay kept its distribution business the longest, until it shuttered Harpoon Distributing in June and sold the rights to its brands to Randolph, Massachusetts-based Burke Distributing.
“What I concluded earlier this year, pre-COVID, was this: Strategically, for our company, our success was not going to be determined by our ability to deliver kegs to Kenmore Square and collect checks from pubs in Dorchester,” Kenary said.
Kenary added that his company would not exist today if he and his co-founders had not started out with self-distribution. Koch and LaFortune agreed that the ability to distribute their own products is key to upstart brewers’ early success.
“If we didn’t start this business by self-distributing, we would have been out of business in the late ’90s,” LaFortune said.
Wachusett distributed its own beer for several years after its founding. When the fledgling craft beer industry went through a slowdown in the late 1990s, LaFortune and his partners buoyed their company by selling its distribution rights to Brooklyn-based Craft Brewers Guild, which services Massachusetts.
“We spent way too much money trying to keep up with the big guys and going into seasonal packages with our 6-packs and bottles, and we were out of cash, and I didn’t think we’re going to be able to make it,” he said. “We were able to just barely hang on by actually putting a price tag on our distribution rights.”
Boston Beer self-distributed Samuel Adams in the Boston area until 1994, when Koch sold the company’s 500,000-case self-distribution business for $2.50 per case.
“Today, distribution rights can go for $30 a case, $35 a case, so there is a payoff if you can actually build up a reasonable amount of distribution volume and then sell to the wholesaler,” Koch said.
With self-distribution, brewers know their brand won’t have to compete for attention with the other brands in wholesalers’ portfolios.
“If you’re self-distributing, you really can put more pressure against the accounts in the market, Koch said. “You’re going to defend your lines better than the distributor’s gonna do. God love them, distributors do the hard work in this business, but they’ve got a big portfolio. We lose a [draft] line and we bleed, and we go back in there and get it.”
Kenary said self-distribution isn’t just “a nice option;” it’s vital. He recommended “all startup breweries go through at least a period of self-distribution.”
“It makes you better at dealing with your wholesalers if you know what they face in their business, so it was essential for us being where we are today,” he said.