If you’ve worked in any industry for more than 30 years, it’s safe to assume that you’re an expert in that field.
By that logic, Harpoon Brewery co-founder Dan Kenary, who started the Boston-based company with partners Rich Doyle and George Ligeti in 1986, is a bona fide beer business expert. But Kenary, who on Wednesday celebrated 30 years in business alongside 200 of his fellow employee-owners and Massachusetts Gov. Charlie Baker, refuses to admit it.
Of course, Kenary is just about as humble as they come in beer. He left a significant amount of money on the table in 2014 when, instead of selling his company to a private equity firm or another large brewery, he was able to convince Doyle and five other shareholders to sell all or parts of their stakes in the brewery back to employees as part of an employee stock ownership plan.
As part of that transaction, Doyle, who Kenary has said was more interested in a private equity or strategic sales, sold his entire stake in the business and stepped down as CEO. Kenary, meanwhile, stayed in. He retained all of his interest in the company and stepped into the role of CEO.
That year, the company made a record high 209,000 barrels of beer, according to Brewers Association records. But it’s been tough sledding ever since. Production dipped 2 percent in 2015 and Kenary said he’s expecting another year of declines, something that he attributes to increasing competition in the marketplace.
But the slowdown hasn’t stopped Kenary, who firmly believes that craft products will eventually make up 30 percent of all beer sold in the U.S., from feeling bullish about the category’s long-term growth potential and Harpoon’s chances of participating in that growth over the next 30 years.
Below is a wide-ranging interview with Kenary, who shares with Brewbound the business lessons he’s learned over the last three decades and thoughts on how the craft category will continue to evolve over the next few years.
Editor’s note: The following interview has been condensed and lightly edited for clarity. It’s also a long read, so grab a pint and pull up a chair.
Brewbound: So you’ve been in the beer business for 30 years now. Did you ever envision it being like it is today?
Dan Kenary: I think this will resonate with people who are in their 20s. When I was in my 20s, thinking about 30 years, you couldn’t really do it. My first job out of college was in banking and I remember looking at people who were in their 50s and I just knew one thing: I didn’t want to be them, at their age, doing what they were doing.
When we started Harpoon, the question was really, “can we do this?” There hadn’t been local breweries around here for a very long time, and there was probably a decent reason why there hadn’t been. There were such big, branded products — Bud, Miller, Coors, Heineken — could we pull it off? I thought we had a good chance of being successful, but I didn’t really know what success was. I never would have dreamed that, as an industry together, we would have accomplished what we would have accomplished.
BB: So Gov. Charlie Baker just spoke to your fellow employee-owners and he mentioned that Harpoon was brewing permit number 001 in Massachusetts and that there are now 84 brewing permits in the state. What do you think is enabling that kind of growth, specifically in Massachusetts? Obviously it is happening all over the country, but is there anything unique to Massachusetts?
DK: I don’t think so. It is happening all over the country. The gasoline that has been poured on the fire, here, has been all of the money that has come into the business. For the first 15-plus years, we were scrapping everywhere could for money. Banks wouldn’t really talk to you. We all know from studying how the system works, that the pendulum swings way out and people pile in and it goes to excess. There is just a ton of money flooding the industry now. Raising money is the least of anyone’s concern, which is a problem and is not a good thing.
BB: So how has that impacted the business? With all of the money coming into the space, does it make it more difficult for Harpoon to compete? Now you have startups that are not your traditional startups of yesterday. These are fully built out organizations in some cases.
DK: I remember thinking about a couple of startups from 20 years ago, started by wealthy people who didn’t have to play by the same economic rules as the rest of us. I thought that kind of screwed up the industry because they could stick around and not have to make money. What worries me now — there is so much money that has come in, especially private equity and family offices, they really just care about topline growth. So pricing could be a real concern.
BB: But people have been saying that for a few years now.
DK: Yea. That doesn’t mean they’re wrong, it just means their timing is wrong. You’ll start to see it.
BB: So when do you think we will start seeing pricing become a real concern?
DK: I don’t have any idea. I think we are at the later stages of the cycle, so I think we are going to start to see it sooner rather than later. I think you are starting to see, in certain markets, some pricing. But it’s not like a switch is flipped.
We lived through the whole Pete’s (Wicked Ale) thing in the 90s. At that time, you had four microbreweries go public — Sam Adams, Pete’s, Pyramid and Redhook — by very reputable groups like Morgan Stanley, Goldman Sachs, Paine Webber and Dean Witter. Four years later, Pete’s was circling the toilet, but they had raised like $35 million. They had a lot of money to stick around and mess the market up. They were selling $4.99 six-packs here in Boston for like three years. Sam followed Pete’s and so we followed Sam and it was tough.
BB: So it was a race to the bottom?
DK: Well, it was a race to very competitive pricing and it was hard. So, what we look for now is what are people doing market by market? We look at places like Vermont or New Hampshire — markets we know very well — and we are starting to see pricing crack. Name products. Top 10 craft brewers. Is it going back to $12.99 12-packs? You are starting to see it.
BB: But at the same time, there are breweries like Trillium selling $20 four-packs of double IPA. And they are selling out. They can barely get their beer to retail. So there are two opposites here — a push to drive pricing to its absolute peak and a fear that pricing is going to swing back the other way with deep discounting. Is the battle being fought in the middle?
DK: Yep. The battle is being fought in the middle. But if you did your volume curve with that, there is not a lot of beer being sold for $20 per four-pack. There is a whole bunch more being sold for $12.99 per 12-pack. So for the folks that play more in the chain and volume world — that is where you will start to see it.
And here’s another thing I think you’ll start to see happen, and we do have some history of this with our Catamount acquisition. They spent $4 million to open that facility in 1996 and we bought it from their bank for $1 million in 2000. Now, with the gasoline that’s been poured on this fire, when it slows down — or god forbid goes flat — that whipsaw is going to be even more pronounced. I think craft has a ways to go with growth. I’m with Jim Koch in thinking that we could be 20 or 30 percent of the market. But we are going to have cycles. Every business has these cycles. People get greedy and people start doing stupid stuff.
BB: So what are some of the lessons you’ve learned over the years, having been through some of those cycles?
DK: It’s interesting looking at various times of starting your business. The lessons you learn in the infancy stage are crucial. Long-term, they get into your DNA. I remember Rich Doyle used to talk about the “Field of Dreams” analogy of “if you build it, they will come.” But what happens when the music stops or when things change and you actually have to know how to market and sell beer? Some of the folks in the 90s never really found their way. A lot of guys who have started in the last five or six years think this is a really easy business, because you can raise all of the money you want to raise and you think that is normal and that it will continue. It’s not. We have highly engaged consumers right now who are comfortable spending 15 minutes buying a six-pack of beer. That’s not normal.
BB: So have craft brewers, collectively, made it almost too challenging for consumers?
DK: Nobody has set out to do that. We wanted to make it more interesting for consumers, but when do you go from more interesting into challenging? I have heard people say “it’s not fun anymore going to the store because it is hard.” Now it’s like “Am I missing out?” And when you get to my age, you observe it and you feel like you can ruminate on this and think you have some wisdom, which I know I don’t. You do observe it though, and it has gone on for a while. People assume stuff is just going to go on forever, and that it is the new normal. What is the new normal is that U.S. consumers don’t view beer as a commodity anymore — and that’s fantastic. Whether they will stay as engaged as they have the last five years where all you want is what’s new and what’s local, I would say that is not going to continue forever. Brands will, at some point, re-assert themselves one way or another. Or we will just go to a complete free-for-all like the wine industry.
BB: Where will Harpoon fit in all of that?
DK: We are a brand, so we are hoping that we don’t go that wine direction. You have a personal relationship with your beer — people really care about the beer they drink. We think there is always going to be value in standing for something as a brand — we are “Love Beer. Love Life.” We run festivals and 500,000 people come to visit our breweries. We want that interaction with our consumers. We are not about that extreme stuff that you have in your basement and share with two friends. That is not who we are. There will always be a place for that, but the market will ultimately determine it.
BB: Do you think that the days of regional brewers are numbered or do you think that organizations like Harpoon will develop into stronger entities?
DK: We made a conscious decision to really go a mile deep as opposed to a mile wide. There were not many top 15 breweries at the time that were not adding states. We have not added a state since 2009 and we have pulled out of a couple. We’ve gone from 25 to 23. We are still 70 percent New England and 50 percent Massachusetts. If we had an issue where we were sold in 46 states and we were 27 percent Massachusetts and 32 percent New England, I’d be scared.
BB: But there are a lot of brewers that appear to be racing toward that national footprint.
DK: Good luck to them.
BB: And you guys will be mostly flat or even down this year, why do you think that is?
DK: Well, we are 30 years old. It’s all been about new and about local. So, we are actually doing well in Boston and Massachusetts. But the further away we get from the brewery, the more challenging we are finding it. I think it is just part of the whole cycle of things. The two really encouraging things are how well we are doing in Boston — and all of Massachusetts — and Harpoon IPA turning back up.
BB: So you guys are up in Boston?
DK: We are up in Boston about 2.5 percent through the year.
BB: A couple years ago that probably would have been a double-digit figure though, right?
DK: A couple years ago that probably would have been a high single digit number. Again, it’s 22 percent of our business, what we distribute ourselves in just metro Boston.
BB: So what kind of opportunity do you see here in Boston?
DK: We have to keep plugging away. We are maybe three percent of the Boston market. I think we are about one percent of the Massachusetts market. We still see tremendous opportunity close to home.
BB: Nevertheless, it does seem like a very tough situation that Harpoon is faced with. You are strong in Boston, but at the same time, there is an uprising of local brands that consumers are gravitating toward. You are only up a percent or two in Boston and overall, will be flat to down. So even though you are focusing on your backyard, you are still challenged. How do you convince customers to choose Harpoon?
DK: By continuing to make great beer and standing for what we have always stood for: “Love Beer. Love Life.” And by updating the brand to remain relevant to new consumers. That’s our challenge. We are not going to be up every year.
BB: What’s the most impactful decision that you’ve made over the last 30 years and what do you think the next biggest one will be that you have to make as a company?
DK: I think the biggest decision we made was the ESOP two years ago. As a pivot point, we could have gone in a very different direction. We could have sold the company, to a lot of different people — private equity, family offices and big brewers. That would have obviously changed where we are today, dramatically. That was an important fork in the road for us and it was not easy to work out and it is kind of an experiment.
At this stage in my career, I am charged up about two things in this incredibly crazy marketplace: I am not frightened of where we are with all of the new breweries and competition and uncertainty. I am excited about that. This is the stage we are at. I take it as a flattering thing that there are so many breweries around — there weren’t when we started. But can we work it so that our brands are relevant? We are your dad’s beer in some cases now. Can we make Harpoon IPA relevant and fun to new consumers coming into the beer market?
And internally, can we make employee ownership work? I took a 60 percent hit in the value of my shareholdings here when we did the ESOP because I really like the people I work with. I think there has been way too much greed in this society. I like the idea of trying to make the system work for everyone. Can we share this? I don’t know who got all of the money when all of these other guys sold out. You can ask them that question. But I love the idea that of the 200 people here, that I can look downstairs and say, “he can maybe get that house on the Cape. He can maybe get a boat. Or she can do something that she thought she couldn’t or she has this security long-term.” Can we make that work? Craft brewing, financially, works for the people making, marketing and selling the beer and not some private equity guys. I don’t think the first question you are going to be asked at the end of your life is, “did you maximize value for your shareholders? Did you get the top deal?”
BB: And is it working so far?
DK: Yea. It’s working great. This morning, we announced the second year share price and the share price was up, which is great. It was a nice combination of a slight increase in earnings and debt repayment.