Tuesday, November 22, 2016

A Conversation with Dave Engbers of Founders

Dave and Dave, circa 2011.

Interview with Dave Engbers, co-founder and president of Founders Brewing, conducted November 11, 2016, on behalf of Ashley's.

Founders beers have been part of the Ashley’s lineup since you started distributing in the Ann Arbor area, which must have been in the late 1990s?

Yeah, since 1998 or 1999. We started brewing in November 1997, with the beer getting to market in early 1998. Initially we distributed only in Western Michigan before we looked to expand into Ann Arbor and Detroit in 1999 and then the rest of the state.

Can you talk a little bit about those early years in the beer business? The landscape must have been much different then than what we see now.

My partner Mike [Stevens] and I were just a couple young kids cutting our teeth. We weren’t shy about telling people we were naïve about the industry we were getting into. For example, we knew about the three-tier distribution system, but didn’t really understand the politics of it. Initially our gut reaction was that as long as we made a quality product and put it out in the market at a fair rate, then everyone would support us. But reality woke us up fast.

How so?

We didn't realize how many retailers were loyal to certain wholesalers, and unfortunately it wasn't always about the quality of the products but rather the relationship with the retailers. Craft was so new and there weren't enough consumers interested in our brand. The enthusiast community wasn't large enough to impact the larger market.

We were just a couple of nice Midwestern guys, not really aggressive. As a result, we were getting a lot of doors shut in our faces and it didn’t take long before we knew we had to change tactics. Others had these long-term relationships with wholesalers that we didn’t. It wasn’t unusual to find accounts who didn’t buy from our wholesalers because they just didn’t like us.

Distributing beers that were so new and different must have been difficult.

Well, it didn’t take a genius to walk into an account with Bud and Bud Light on tap and figure they probably weren’t interested in us. We’d mostly see those, along with Miller Lite, Guinness, Molson, Labatt, Killian’s, Bass Pale Ale, and maybe this beer called Bell’s might have one tap handle. Ashley’s was an early adopter, but in those days trying to convince an account to buy a keg that cost $125 vs. $47 usually meant getting laughed at.

I just remember going to all these bars, knowing their taps are bought and paid for by big breweries and the owner’s acting kind of embarrassed as we try to dance around this fact. You had to get these people into a different mindset. Like saying, all your food vendors, do you let them write your menu for you? You’re letting someone else control your business and that makes no sense to me.

But of course you were able to get your beers out there.

It was a lot of work. After a few years I’d get calls from a wholesaler somewhere, saying no one was ordering full truckloads but we’d lose six taps if we didn’t get our beer to, say, Columbus right away. I’d throw six or eight kegs and a bunch of cases in my car and drive them down to Columbus. I’d put 50,000 miles a year on my car each year doing this, and we were only in five states then: Michigan, Ohio, Wisconsin, Illinois, and Indiana.

It doesn’t sound like the most efficient way of doing things. How did you manage to stay afloat?

We had created a financial trainwreck. We were buying fermenters with credit cards, doing whatever we could to stay alive. At one point I went eight months without a paycheck. Mike and I were both bartending at the time to make it, working for tips. We realized to survive we had to wear many different hats. We had to build every sixpack, every case. We were homebrewers in college together and here we were, financially miserable, not taking care of our families, watching our friends buying houses and cars. Holidays were embarrassing because everyone would get Founders hats and shirts as gifts because it was all we had.

It became clear our business model wasn’t working. Finally, a consultant came to us and said, “What you guys have is a very expensive hobby.” He was right; we didn’t know how to run a business. He said if you want to be serious, you need to assemble a team with different skill sets. So we assessed our own skills to find out where the gaps were. We were wearing so many hats internally and doing a mediocre job everywhere. We decided quality was our No. 1 priority and built a team around that philosophy, hiring our first CFO and firms to help with marketing and so on. Hiring folks with different skill sets took us to the next level.

Things obviously got a lot better for Founders in the ensuing years. Did you ever expect the kind of growth you’ve experienced, or the kind of growth we’ve seen in the craft beer business in general?

Mike and I never anticipated the industry being like this. At first we thought we’d just be a Michigan brewery, and even when we expanded out of state we thought, oh, we’ll just be a regional brewery. Now we’re in 39 states and expect to fill out the rest in the next year or two.  It wasn’t that long ago – maybe 2007 or so – we had just 16 employees, with Mike handling the lawyers, accountants, and bankers and me doing sales and marketing. Now we have 410 employees, of which two or three hundred are in Michigan. Our first year we brewed about 400 barrels; last year we did 269,000 barrels.

The craft beer category has expanded so much. There are what, 4,800 breweries across the U.S. now? It’s crazy to see how it’s grown. Founders is so much bigger than we ever anticipated. But we’ve embraced it. We travel the world – I’m flying to Germany later today – we have a team in China now, it’s incredible.

What’s it like selling American craft beer abroad?

We export to quite a few countries now. The beer scene is so different, for example, in Europe, where everywhere they have tied houses, bars that are “tied to,” or only serve, beer from one brewery. Walking into a bar and being able to drink beers from more than one brewery is a foreign concept to most Europeans. In some ways it’s not unlike the U.S. in the 1980s and ’90s, when only a smattering of wholesalers were willing to handle craft beer.

There seems to be a lot of investment and “outside money” entering the industry these days. Do you see at least some of the growth in craft beer driven by people getting into the business opportunistically?

It’s the same as the 1990s. A lot of people got involved when craft beer became sexy. They wanted to hitch their wagon to it, and then came a shakeout once the people not in the industry for the right reasons went belly up.

We’ve definitely moved from early adopters – which Ashley’s is proud to count itself among – to craft beer getting more mainline. But even so, a lot of people now don’t know the history or trailblazing that it took to get where we are…

We’re a veteran brewery, but I do not put us in the “trailblazing” category. We think of people like Fritz Maytag, Larry Bell, Ken Grossman, and Jim Koch as the trailblazers. Those guys did a lot of the heavy lifting. Jim was instrumental in mainstreaming “microbrewed” beer. Along with Pete Slosberg [“Pete’s Wicked Ale”], he was among the first bring it to mass market. They brought beers that didn’t look like every other beer, like the beer that Dad and Grandpa had been drinking for 50 years. But as far as innovation goes, we believe that’s the Founders legacy.

Right, Ashley’s always has five or six Founders taps on because you make great beer and you’ve been consistent over the years. What are some of the innovations you’re most proud of?

We’re the first craft brewer to have embraced the extreme beer movement. We were one of the first that really went for the big, aggressive, higher gravity stuff, like Dirty Bastard, Curmudgeon, Devil Dancer, a whole host of complex big beers. Not to mention among the first to experiment with flavors like chocolate and coffee and the first to package bourbon barrel aged beer with our Kentucky Breakfast Stout.

And now everyone takes that stuff for granted.

It’s fair to ask what millennials know about Founders. They see it everywhere in grocery stores like Meijer, Kroger, etc. But have we done an adequate job teaching the history of our brand? Younger folks don’t know what the craft category looked like in 2000, the years of financial turmoil, or being on the brink of bankruptcy for a decade. It doesn’t take long for norms to change. Anyone who is 21 now has grown up watching their parents always have options in terms of beer. As a company we don’t want to turn into the same old, same old or bore everyone with “back in my day it was like this,” but we have gone through a lot of struggles in our journey to now.

In other words, it didn’t just happen and nothing was inevitable. But what do you see as your current set of challenges?

Our compounded annual growth is now around 30 percent, second in the country only to Ballast Point. We’re happy with that, but the challenge is not growth in existing markets but with getting exposure in outlying markets and overcoming the local aspect with on-premise accounts. I travel all the time to support our markets, and now when I walk into a bar I often hear, as an example, “If it’s not made in Arizona I’m not pouring it.” I appreciate that, but to me it’s always about the product. Today every community has its own brewery, but I tell them, if you have a bakery just down the road but it makes lousy bread, would you serve it to your customers? There are lots of good breweries out there, but also a lot of terrible beers being brewed. It’s a matter of the maturity of a market – the more established ones, they know our brand, they’re looking forward to us entering their market. The younger, less mature ones that want to support local only, we say that’s fine if your local breweries are making great beer, but the challenge is overcoming when people put up barriers saying, “We only serve this beer.”

Another challenge we see as we look at lots of data moving from regional to national is that there’s a limit to the amount of real estate in retailers. There’s only so much space on the shelves for beer, whether domestic premium or craft, and the consumer doesn’t really need 43 IPA options. Stores will look at what are the top three or the top six. So we’re dealing with this as we compete in all different regions. We’re still fairly young and compared to New Belgium and Sam Adams, we feel we've still got a ton of space ahead of us.

You’ve been around now for two decades. What’s next for Founders? Any big plans to celebrate your 20th anniversary?

It might sound a little morbid, but we think a lot about what happens once Mike and I are out of the picture. I’m 46 now and asking what’s our legacy, what’s our impact, and how does Founders live on and continue to thrive past our generation? That’s how we approach decisions now. Something might feel right today, but is it sustainable 20 years from now? Are we holding true to our Founders ethos?

In the last seven years, we’ve gone from being a smaller brewery to the next few years where we’ll have grown to be in the top 10 breweries in the U.S. Now we’re influencing hop farmers and maltsters, meeting with the farmers growing the ingredients that ultimately end up in our beer. We also have banking relationships, relationships with the Liquor Control Commission, with politicians – we’re really in the relationship game and finally understand the full scope of our business and that has allowed us to grow as aggressively as we have.

As for our 20th anniversary celebration, for us, it’s really a celebration of the persistence of our brand. But we’re trying to look at it from the consumer standpoint. We initially asked what would blow people away? Like throwing a big party, shutting down the streets, having people fly in from Australia and the UK and everywhere like when we release KBS. Ultimately we decided it’s a celebration of our community, of West Michigan. But that doesn’t mean people who don’t have the ability to fly in from Florida or California or wherever can’t be a part of it through video and social media. That’s the new generation. Everyone wants to be heard, and we embrace Pinterest and Twitter and all of it. We have a team collecting people’s stories to share – tell us how Founders has changed your life. We already have 2,000 submissions, and will narrow them down to the top 20 and bring those people in to celebrate with us.

Anything else you’d like to say?

Our job continues to be to brew the best beer we can, push the envelope, and create new and unique experiences without being a novelty. It dilutes the value of your brand when you do things just to gain attention. We also hope to influence the next generation of brewers to focus on quality, helping them put systems in place to ensure they’re making the best product they can. We have brewers from all over in all the time and after giving one of these guys a tour, he called me up and says, “We’ll never be as big as you or have a bottle line that does 300 bottles a minute, but that’s not an excuse not to have a clean brewery or standard operating procedures. We’re making better beer today than we were three months ago and it’s because of you guys.”

There’s nothing we enjoy more than bringing friends and colleagues to our place to really experience Founders, where they can meet our employees and our “irregular regulars,” walk through the facility, hear our story, and enjoy a fresh, crisp beer. Which is what I really want to go do now.

Enjoy Founders drafts and specials all week long at the Beers We're Thankful For celebration at Ashley's Beer & Grill in Westland

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