Food Service & Agriculture, Manufacturing, and Retail

Founders sets sights on top 10

CEO Mike Stevens warns of misleading numbers in regard to declining growth of craft beer sales.

November 4, 2016
| By Pat Evans |
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Founders CEO Mike Stevens expects the brewery to stay on target for 40 percent growth this year, producing 350,000 barrels of beer, up from 269,000 last year. Courtesy Founders Brewing Co.

Whether or not the craft beer industry is starting to flat line, Founders Brewing Co. leadership expects to continue its upward charge to become one of the top 10 largest breweries in the country.

Multiple national news outlets reported on data this summer from IRI Worldwide, a market research firm, showing craft beer sales were up 6.5 percent this year compared to last year’s 17 percent.

On the surface, the numbers don’t look bright, but dig deeper, and Founders CEO Mike Stevens said the numbers are misleading, as information can be “sliced and diced so much.” IRI data also can be misleading, as it only counts brands scanned at retail outlets.

“Frankly, we’re fortunate to be in a good spot, and doom and gloom hasn’t come our way,” Stevens said. “I also look at it and say why are we talking about the sky is falling, because it’s just flat out not. It really is not.”

IRI’s craft beer classification, for example, includes Blue Moon and Shock Top, two “crafty” brands from global corporations AB InBev and MillerCoors, both of which saw sales drop. Take the two major brands out, and craft growth jumps to 9 percent.

Yuengling Brewing Co., Boston Beer, New Belgium Brewing Co. and Sierra Nevada Brewing Co., the largest craft brewer as defined by the Brewers Association, were down a combined 4 percent. Those four, along with Blue Moon and Shock Top, make up 48 percent of the IRI craft segment.

Founders should stay on target for 40 percent growth this year, Stevens said, producing 350,000 barrels of beer, up from 269,000 last year. A barrel is approximately 31 gallons. According to Founders’ early plans for 2017, the brewery expects to brew 465,000 barrels next year.

When the Brewers Association compiles and releases its data, it no longer includes major brands, such as Founders, Ballast Point Brewing Co. and Lagunitas Brewing Co., as they are more than 25 percent owned by “an alcoholic beverage industry member that is not itself a craft brewer.”

“BA corrects the ship a bit, but now, they’ve removed the three horseman of the industry,” he said. “You can slice and dice so many ways, but no one compares apples to apples. It’s all convoluted, so it’s difficult to know where you’re really at.”

Regardless of the industry’s growth, Stevens is confident in Founders’ position in the beer world, craft or not. Beer is entering a new era, he said, a time when it will be important for companies to have strong business practices in place.

Stevens argues the craft beer industry has matured and will continue to grow, but with nearly 5,000 breweries in the United States, the slices of the pie are shrinking. For the past 30 years, craft beer has grown on the back of consumer demand, and the wave helped most startup breweries grow and succeed. Founders had its own massive struggles through its first 10 years in business but survived to position itself for explosive growth in a tight time.

Stevens said the industry long preached the importance of quality, but now looking at the top 50 largest breweries — Founders ranks approximately 15th — he assumes they all have quality figured out. Now as the industry has matured and competition sets in, he wonders about some of the other business practices of the fellow large breweries.

“Those who don’t know how to operate properly, who have systems in place, those that don’t have deep benches, it’s going to be a rougher road,” Stevens said. “It will take a while to get out of the weeds. It’s the most fundamental problem I see as I travel and talk to a lot of different breweries. It’s very apparent that a lot of the rather large breweries, how underdeveloped they are from a business perspective.”

With the domestic beers, imports — except brands such as Modelo and Corona — and large craft flat lining, Stevens said there is a lot of white space for brands, such as Founders, to move up another level.

“There’s a lot of potential there, but it’s not there to get unless you know how to get it there and sell effectively,” he said. “Those who are there will accelerate through this and grow faster than most in the top 25. We’re in a good spot. Early on, we realized there was a benefit to understanding a deeper part of the business side.”

To help lead the charge, Founders partnered with Mahou San Miguel, a more than 125-year-old, family-owned Spanish brewery that bought 30 percent of the Grand Rapids brewery in 2014. The investment brought friendships, manufacturing improvements and worldwide distribution knowledge, Stevens said.

Mahou San Miguel has been respectful of Founders’ operations and was interested in learning more about the U.S. beer industry, Stevens said. Now, Founders is looking at ways to expand its international footprint, including a Founders-focused taproom in Madrid in a partnership with a Chicago native, who is now a restaurateur in Spain.

He said he believes all of Founders’ departments are clicking and have formed a “well-oiled machine,” as the company has invested more than $75 million into expansion projects during the past five years, including a taproom makeover, constant expansion of its 200,000-square-foot main production space and a new 200,000-square-foot warehouse and specialty production brewhouse.

Founders is riding on the back of All Day IPA, a brand the company launched in 2012 and now makes up 60 percent of the brewery’s total volume. All Day IPA’s sales are up 108 percent year-to-date, and the beer is the top-selling craft canned beer and the No. 2-selling IPA, behind Lagunitas IPA.

The beer has allowed Founders to push into new markets and retailers, followed by additional products, such as their seasonal lineup — PC Pils, Mosaic Promise and Azacca, all to be in 15-packs of cans like All Day — and staples, such as Centennial IPA and Dirty Bastard.

Despite the brewery’s non-craft status, it doesn’t appear it has hurt brand equity the way growth and corporate ownership or partners sometimes do. Founders still is among the top-10 highest-rated breweries on RateBeer and Beer Advocate and hasn’t been featured in national articles questioning its status as some other breweries have in the recent past.

Founders also won a Great American Beer Festival medal this year for reDANKulous, an Imperial Red IPA.

Stevens said the passion with which he and Dave Engbers started the company nearly 20 years ago as homebrewers still is there, and there’s no sign of slowing.

“I understand the soul of this company so well I can taste it,” Stevens said. “There are some things that just stay in your gut and grow with you. The business success is a result of the product you produce. We know that. We love that. As long as we’re around, I don’t see the foundation going away.”

To help continue to foster the beer’s brand equity, as Stevens calls it, Founders invested in the new warehouse and production facility in Grand Rapids. The area combines warehousing space the company was leasing in three separate buildings and creates a new, smaller brewhouse designed for specialty brewing and frees space for the workhorses, such as All Day IPA, at the main facility.

“It allows a smaller system over there to be highly creative and very nimble and kind of get back to the roots of what we love to do,” Stevens said. “That speaks to how do we stay cool? We build breweries to have fun and stay cool. Part of the impetus of that was (to) not allow us to get bogged down and sucked into the big beer world vacuum we despise. That’s our way to keep it real and small and focus on why we started it in the first place.

“It’s day-in, day-out what we’re excited about, making badass beer.”

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