Sam Calagione was in town to officially announce an extended partnership with Mario Batali's Eataly Chicago, in which Dogfish Head will build and manage a small batch brewing system on the second floor of the former ESPN Zone space in the Gold Coast. Dogfish Head and Eataly have built similar concepts in New York City and Rome, bringing cask-conditioned ales to foodie cultures, and extending the reach of the Dogfish's brewing techniques into other markets rather than just expanding distribution. It's an interesting concept, part gypsy brewing, part brewpub, part test batching and experimentation on systems large enough to serve a restaurant setting, but small enough that someone like Sam can still get his hands in the mash and make some beer on occasion. The NYC Eataly location now accounts for 10 percent of Dogfish's market there, despite having only three tap handles and six packs available. It's proven to be a powerful niche to work from at the local level. Soon, Sam will return to brew the first batches of beer at Eataly.
Taking advantage of Sam's presence in the city for an afternoon, I gathered a few great Chicago beer minds, people I admire and work with on a daily basis, to facilitate a discussion about some of the larger, looming issues of the craft market. Sam's been brewing professionally since '96, and his wisdom in invaluable. He's seen a few tectonic shifts in craft's short resurgent history. And balancing that perspective with some newer players and rising stars provided for some great education and debate.
We got together at Publican in Chicago, one of the city's best venues for food and beer, and a recent James Beard Award winner for chef Paul Kahan. Publican's beer director, Michael McAvena, hosted and we were joined by Chris Quinn, owner of the Beer Temple, one of Chicago's newest and best retail shops, as well as John Barley, owner of Solemn Oath Brewery in Naperville, which just celebrated its first year anniversary.
Sam also brought beer. We drank the Indian Brown, and hoppy brown IPA that predates most, if not all, of the dark IPAs on the market today. Fort, an ale brewed with raspberry juice; and Sixty-One, Dogfish's first new year-round brew to be introduced since 2007 and described as a 60 Minute ale with Syrah grape must. To top things off, we shared an Oxford Comma from Solemn Oath Brewery, a very Dogfish-like Belgian spiced ale with lemon peel, lavender, rosehips, Indian green coriander and ginger, which Sam described as "soft, and beautiful. Really great herbal notes. Dry, delicate."
I've divided the conversation into six chapters and extracted the highlights of our two-hour dialogue, covering everything from start-up stories, to contract brewing to distribution and new trends. In the end, I think we all learned a lot about each other, Chicago's opportunities for growth, and the craft industry at large. Here we go.
A lot of breweries are going through expansion right now, and that's pretty great to see. We always kind of kept demand a little bit in front of supply so we could have really fresh beer. And we quietly said it's good if once every four or five months a distributor would run out of our beer because then we knew we were flushing whatever was in their warehouses and keeping everything fresh. So that really worked. But at a certain point it became more frustrating than helpful, I would say. And we were on a schedule with our production — and you guys have probably hit these — where every brewery has a pinch-point in its production. And our pinch-point was becoming the entire brewery. I started Dogfish head in '95 with 15-gallon tanks and the entire company cost me $220,000 to start. And I raised the money from my dad, my orthodontist, and a guy who I built stone walls for to get $110,000. And with that I got another $110,000 in bank loans. And started with that tiny system in the corner of my restaurant. I was scared shitless. I was 25 and being a waiter and building stone walls were the only jobs I ever had. Flash-forward to now and I think it's a $51 million dollar expansion we're in the midst of.
Still hitting up the orthodontist?
Ha, no he's out. I bought those guys out. He didn't do great. I felt bad.
Ha, yeah, he probably doesn't deal with that small-time shit anymore.
I wanted to pay them back quickly, so I paid them back within five years. Those were personal loans to me, so they didn't do that great actually. But now there's less anxiety, because of the trajectory of craft beer, consumer demand, grassroots, so many places that are helping to get the word out. But also, I have so many amazing people in my company helping me grow. At first it was just me, and all the jobs I sucked at I still had to do because when you're small you have to wear a lot of different hats. And now I have awesome people like our VP of sales, Adam. Our local sales manager, Zach. Our COO, Nick. So now there's enough people where the hats fit them well, so that I'm less anxious about the expansion. We're brewing 24/7 right now in our 100-barrel brewhouse and we're under construction — we'll have finished by July — our 200-barrel brewhouse right next to our 100, and we're putting in a new bottling line. So every decision we make now is different than when it used to be barely profitable. I'd just buy any piece of equipment that would get us through the next production hurdle, but never thinking it through. Now everything I buy has to be aligned with how much beer we want to produce ultimately. So now every decision I make, filtration, tanks, bottling line, is about getting to an end capacity of 600,000 barrels. After we finish this in June, all we have to do is add tanks to get to 600,000, hopefully for the next 15 years. We believe in strong growth over fast growth, so we hope it takes a bunch of time to get there. Hopefully it's my kid's problem some day and not mine. To go into the next giant amount of debt.
As we scale, we're trying to stay hands-on with every account we have. Sam, how do you handle that challenge?
I'm on the road maybe three or four days every other week. And I have little kids at home. The nice thing is that I work with my wife — she helps run the company with me. So there's always something to talk about and she's pretty forgiving of the travel. So, I answer way too many emails, and right now I'm chairman of the Brewers' Association, so that's one day a week of full-on work. I'm proud to do it but it's a lot of work. I get to brew, maybe just eight times a year. Those are my favorite days of work still. I'm researching a lot, because the days the I brew it's for something we haven't brewed before. I'm still the person they come to to figure out what we're going to do next, whether it's an event or a project or a beer, and I write a paragraph about it, send it to our brewmaster Tim, and go down and brew the first batch with him. I'm proud to say that I'm the least technical brewer that our company has. I wouldn't even know how to brew on our 100-barrel system. But I've done a lot of brewing on our 2-barrel at the pub. So those are my favorite days but there's not enough of them. And I'll take that test batch out to events, like I did with the 61 Minute, and I gauge if it's something we're going to bring into national distribution. And then my job shifts more to design and packaging, sales and marketing.
I read early on that you were having trouble getting approval for the land, that part of the town had some issues with the expansion.
The papers love to write about any contentiousness, and the beer media to some extent. But really, where we built the brewery was a cannery — one of the biggest independent, family-owned canneries east of the Mississippi. And like the beer industry, the canning industry underwent massive consolidation with global players. These guys got their asses kicked. On the brink of bankruptcy. And a developer came in and bought it and rented to us, the main part of the cannery. So our site's been zoned industrial for over 100 years. But, when the developer bought it, they leveled the cannery and put in houses around it. So now it's kind of about people being pissed that we're noisy. As if they live next to an airport. So we have a few loud neighbors. And any time we want to do something with a parcel, they go in front of the town council and stand up and picket. And say "move Dogfish out of my neighborhood!" And we're just like, listen, your neighborhood wasn't even here when this was a place employing most of the people in the town 100 years ago and it's still the biggest employer in the town, and the biggest tax payer. But a few folks clearly are just mad because they live next door to a brewery. So no big deal.
So how did you win those people over? How does someone in a smaller town, follow through on their ambitions and get the town aligned with the goal of growth?
The one word that resonates with everyone is "jobs." We're in a shitty economy, still, and craft brewing overall is this awesome anomaly. It's a high-end, manufacturing-based business and every town in America generally thrives off it. Our challenges are more about access to capital as small companies, than it is excitement from consumers. There's no other industry I can think of where the high end is thriving in a challenging economy. And it's because our beers are world-class, but you don't have to be a millionaire to buy world-class beer. So I think we're really well positioned for when the economy turns around. The brewers association is working really hard, and has great traction on a bill, that has bipartisan sponsorship — rare right now with Congress — and that bill would reduce the taxes for small breweries by half for breweries with less than 60,000 barrels. So hopefully that will move forward.
We're looking at a growth curve from an education standpoint because we're in Naperville, a fairly conservative town. And they don't really know what we are yet. To them, I'm a bearded, punk kid trying to do something that they don't understand. And they don't get it, so we get push back in some of those areas.
Does Chicago Craft Beer Week help with that? Does it give you guys a platform to talk about how many breweries you're adding, and jobs you're creating locally?
Sure. But, it's still pretty old-school. That education will take time.
Solemn Oath is also at a bigger level already. We have tons of small breweries that are scheduled to open this year that don't even own a brewery. They're going to contract out. They're already seeing distributors.
I'm really excited that we're with Chicago Beverage, a new network of distributors for us that has the passion and the intention to really invest in the resources to help the breweries in their house grow. I was with Glunz before that, and I'm really grateful to the Glunz family for believing in Dogfish when we were tiny and we were able to come to Chicago and start growing.
The Chicago Beverage guys just rolled a new craft program this week, with new reps for both on and off-premise stores.
Does that change who you deal with?
Yeah, my guy just switched. The quality of a rep might not matter for somebody like me who knows the product, but for somebody else it could really hurt them. Some guys just pull out their little walkie-talkie things and say "point to the thing you want." But at CBS they're really focused on getting the right people, training them and getting the knowledge.
The worst is when a distributor tries to put pressure on me to sell a minimum, and if I don't, then the stuff doesn't show up next time. I mean, if you're going to play like that, just tell me stuff isn't going to show up. But don't let the day come and the product not be here.
A lot of these distributors that are bringing on craft for the first time, or expanding their market, are making some embarrassing mistakes early on. But the great thing about the craft beer market is how vocal it is. They're getting the feedback quickly, sometimes loudly, and hopefully they'll keep fixing it.
Yeah, I'm pretty sure the one guy I called in about at this one distributor is selling 40s on the South Side now.
But that's why I think social media is so strong. It weeds out where the problems are. Where the gouging happens. It's a huge issue, especially for breweries where demand is in front of supply. Mariah, my wife, all day long will watch social media. And she'll see that somewhere in Philadelphia, at a specific account, that some guy is saying that his Dogfish beer was $18 a 4-pack. And she'll immediately call on that account, or email someone in the region and ask them to go in and talk to someone, tell them it's bullshit and that we won't sell to them if they do that. It really keeps everyone fair. Sometimes it's the distributor. Oftentimes it's the retailer. It goes all over the place.
That happened last year with Zombie Dust. It was insanely popular. And some accounts were selling it for $28 a six pack.
No way. I went straight line-item pricing with it. Only way to do it. 3
I've seen your place, the Beer Temple, on our charts — it comes up. And I'm sure the craft community keeps coming to you because they know you aren't screwing people. You're trusted.
Does it matter to you how many other craft beers your distributor carries?
I used to say no, because the consumer will decide. But I do think logistically the rate of openings right now is going to be distracting for a distributor. But I think it's not up to the craft brewers to say that. The distributors are their own business people. They've got to decide how many brands they can manage well.
That's where Illinois is at a disadvantage with the three-tier system. It's very hard to move. If there's a little guy that they think might turn into something 10 years from now, distributors might dive on them while they're small just because they want to hang out knowing that out of the 10 little brands they have, two will make it and then they own the franchise rights. That means that if they move, the distributor potentially gets a huge payday based on those future prospects. And for that reason, it's hard to move later on.
It's a one-way road with breweries going from little distributors to big distributors. Dogfish being one of them, and you're not the only one to do that. That's the biggest trend I've noticed.
I work really hard on this through the Brewers' Association and with the NBWA, to say that there's something wrong with this picture. There's 1.5 breweries opening every day in America, but distributors are consolidating. Yes, it's capitalism, and Reyes is awesome at selling beer and they deserve to grow. But there should be laws in every state that allow two dudes in a van to open a distributorship and sell the little guys. It might be possible some day, but for now Reyes and Windy City are still looking to get small brands like John's.
But something's gotta give for these little brands like Pipeworks who are self-distributing. I've never bought a single Pipeworks beer. And it's because no one's ever come in to say hey and talk about it.
I picked up my beer from the brewery today. I go there. But I like that because I want to see what they're doing. I want to get into it.
And you can tell your customers about it!
But then there's people like me, who don't have the time. I'm here 12 hours a day.
Sure, and then you have to respect the people who take the time to come to you.
So, what we've got to be really vigilant about is that quality and consistency aspect. Because that's what was used against us in the late '90s when a lot of people that didn't want to see small breweries succeed said "Oh look, their quality sucks. All their consistency sucks. Don't drink small brewery beer." We have to champion economic Darwinism and support making awesome consistent beer, but be honest when some breweries aren't.
Totally. And it's one thing to make beer that people don't like because it's too wacky. It's another thing to make beer that people like because it's wrong and poorly made.
I'm seeing Chicago get a little defensive about the local thing. To the point that I'd consider some of the sentiment to be jingoistic. Whatever it is, whether it's good or not doesn't matter, but that it's made here in Chicago. That seems dangerous to me.
I've had people tell me that I should say it's good no matter what, just because it's local. A brewer actually. There was another brewer who had called out some small brewers, saying that they should put in more time and know what they're doing. Right or wrong. And the other guys said that he shouldn't do that, that there should be solidarity. Even if you don't like it, you should say you do because it's local. And I just don't agree with that. In the end, it's not going to help anybody. It's going to hurt everybody.
Like I said earlier, quality and consistency is going to be a big component of what breweries regardless of scale — and there's as many different models for success as there are great beers — are going to encounter over the next two years. And the other one is differentiation. A brewery that has thought through what they're making in a way that it can be distinct from everything else in the market — it's going to be more and more challenging as one or two breweries open every day. So quality, consistency, and distinction I think are kind of the holy trinity of what we as a craft beer community have to achieve for the next two or three years.
How do you guys feel about contract brewing? That model of gypsy brewer or contract brewer. There's been some discussions lately.
I don't like to get caught up in the philosophical argument. I'm more interested in the execution. I've seen great breweries, like Half Acre, that started by contracting. It helped them build something. But I've seen other people do it because they want to play around with a brand at first, create an audience, see where they can go with it. They have a marketing background and that's what they know. I get it. That doesn't always result in the best product in the end. But that's a pattern — there are exceptions. A lot of concrete and steel doesn't always result in great beer either.
And coming from a buyer's standpoint, sometimes the quality is great, but the cost of the product is just astronomical. It's hard to really bring it in.
Anyone doing contract and trying to make a lot of money off it is looking at the opportunity the wrong way, at least at first. It's a way to get your name and product out there while you build something more substantial in the background. Hopefully a brewery, but not necessarily. You can build a dedicated audience if the product is outstanding. And you can grow from that. You can go in a variety of profitable and worthwhile directions. There's a lot of ways to make beer that's compelling to a craft audience and it doesn't have to be in your own production brewery. I've seen incubators, and pop-up breweries within existing breweries. It's going to get easier to come to market at a small scale and we can't keep applying values from the '90s to what's happening in craft beer today or we'll miss the switch. But out of the gate, you can't be trying to pass those contracting costs on to accounts and consumers. That just won't work.
It's a step.
But even that is working out for some of the nano brewers who are doing self distribution. They're charging what the end retail price would be. There's $8.99 American pale ale bombers that are selling. So right now the consumer is saying "If it's new, I will try it and give it a shot."
But that doesn't mean that you'll stick to it.
Right, eventually you're going to have some really top quality beers that are the same price for a six-pack. And that's what I'm curious to see, when some of the shine wears off a little bit.
That's a really great point because you look at places like Dogfish Head, Victory, Allagash, these rocks, that couldn't make a bad beer if they tried.
Ha, we throw some out every year.
Sure, but it'd never see the light of day. The thing is, there's brand recognition there, and you trust that brand because so many times you tried it, it don't cost too much, and it was awesome. Whereas, a lot of these other breweries starting up, or contracting, they're just making everything they can and they have to sell everything they make.
They can't afford to dump it.
And that puts us back to where were earlier. The gypsy brewer question. I've had some awesome beers that come from brewers that don't have their own bricks-and-mortar breweries, but at the end of the day, I do feel like there's a heart and a soul to a beer. The soul can move around, but the heart is a place. And hearing John's struggle to get to his first bottling line, you're going to hand-label for the first few months. To me, as a buyer of beer, I'm rooting for you to be able to afford your labeler. If you're coming in and saying "yeah, I'm using this system, this bottling line that's already paid off by somebody else." Maybe it's an awesome beer, and maybe I'll love it. But it's one less compelling reason for me to champion your brand.
So you're saying I should make my struggle as difficult as possible and tell everyone how difficult it is.
Ha ha. Yeah. Do that.
How do you look at the Chicago market? What's the opportunity for Dogfish Head in Chicago beyond just expansion?
I first came here in '97 or '98 because I had a hundred firkins from when we separated our restaurant brewery from our production brewery. And I loved drinking cask beer. The only cask beer festival that I knew about back then was here. So it was the first time that we physically went to a festival ever. And we entered a few beers in GABF and a couple others, but they always come back and we'd hear, "Sorry, your Belgian beer didn't win because it stinks of raisins." And we'd be like "Well yeah, it has raisins in it." Or the Chicory Stout had something "wrong" with it because it tastes like coffee and licorice. There were never really categories back in the '90s for us to enter our beers into because we never brewed to style. So I came to that festival that Ray Daniels and some other folks used to run. And Chicory Stout won Best of Show in that festival. It was the first award we'd ever won since we opened our brewery. Someone pointed me to Delilah's, Mike Miller's first place. I went there and drank a bunch of beers with him. He was an early supporter of craft. And there was a painting on the wall by John Lankford, lead singer of the Wacko Brothers. And drunkenly, I bought that painting, and it lead to us doing a bunch of artwork with John.
Chicago's brewing scene is much more anchored on food and beer. Certainly we don't own that, but I think that much of craft beer's success in Chicago has been due to the passion and collaboration with chefs, much more than some other craft beer meccas. In Portland, it's largely focused on the beer alone. I don't think Chicago would be catching up right now if it weren't for chefs.
I totally agree with that. And for us, we intentionally opened our brewery in the corner of a restaurant because we were going to brew these off-center ales that were going to be more like wine with their alcohol, complexity and food compatibility. So to present them in the context of food is part of what we always do. They're food centric beers in that we've always kind of looked at the entire culinary landscape for ingredient choices when we brew. But DC was a wine town. When we started selling our beer in the mid 90s in DC, no one gave a shit. No one wanted to hear about a $13 six-pack of Immort, wood-aged with juniper and maple in the mid-'90s. I think a big difference was when Chicago's food scene exploded, your most high-profile chefs were immediately into good beer. That didn't happen in DC and Baltimore. It did a little bit in Philly. Philly is more beer centric. But DC, Baltimore, New York were wine towns, begrudgingly becoming beer towns too.
For awhile, the only people targeting the Chicago market were people like Unibroue who saw an untapped market that was into heavier, northern-style foods, and had some traction with Belgian ales because of places like the Hopleaf. Then we started seeing the West Coast target Chicago's market more with big IPAs. And now it's sort of wide open in terms of who's trying to get into Chicago while we catch up to the curve. But not everyone succeeds here.
For smaller guys, we're just a vacuum for production and they just can't handle it. That's what I've seen. Successful brands who can't supply Chicago and the home crowd anymore and they pull back. Which I think is admirable really.
Yeah, we did that's three or four years ago, when we had that TV show on and it got to where too many people were too angry because they couldn't get the product. So we kind of shut down some of the other states. And we took so much shit from those states. It's nice that people are passionate, and mad that we weren't there, but we've noticed that a lot of other breweries have dealt with that challenge in a similar way.
Chicago just seems like a tough economic market for outsiders to solve. We're either bigger than they expect, or more demanding, or finicky, or we get bored. And it's not always consistent. It seems like a lot of people play a flat hand when they come into Chicago and get frustrated when it doesn't just take off.
To be honest, we probably aren't so methodical that we even had the forethought to look at it like that. We started bringing beer in '97-'98 one or two pallets at a time, and it's really just been organic, grass-roots growth. And the beer geek community (that's a term of endearment) in Chicago really liked Dogfish, and one beer geek would tell another and that's really all we needed to grow. We did make the investment of making a full-time sales person in this market many years ago, which we don't have in every market. We particular want our Midwest salesperson to be based in Chicago because it's the wheelhouse of our Midwest business. So having a person here, Zach, is really important. It shows our commitment to the local market.
Is there anything in the Dogfish Head portfolio that moves differently in Chicago? Anything that's especially popular or slow?
That's a great question. I just know that our trends are strong here.
The 60-minute and the 90-minute. Three years ago when I wanted to get some Dogfish in here, the distributor said "Well, you can't get any of the 60 or 90" and I said "That's cool, because I can get that anywhere," so I just rocked the brown and it's amazing.
The Indian Brown is our brewer's quiet favorite beer. He feels like it's the unsung hero of our portfolio. It has as much roasty bitterness as hop bitterness, which is different than a lot of black IPAs that way.
Brown ales can be such a ho-hum style. The brown was the first Dogfish beer I had at the Deer Park Tavern in Newark. I got it because there was a shark on the tap handle. I was 21.
I haven't noticed anything else in particular trend-wise. I know it's hoppy beers.
It's true across the board. With IPAs, it can be the most cumbersome, heavy-handed, expensive beer in the world, but in Chicago it just flies. The hoppier the better.
Women. I've never seen as many women spend as much money on a high-end four-pack as they do with Midas Touch.
We make 34 different beers that we bottle and that's our 4th or 5th biggest in volume. So at that price-point we make, I dunno, 10,000 barrels?
And once you've told them the story, it's an instant sale.
I read an article last week about an investigative report finding that sixty-percent of NYC accounts were skimming on pours. It blew peoples' minds that places serving craft might not always be on the up-and-up. It's been interesting to see the mainstream media start really digging into the craft story, and even getting a little protective of it.
So much good comes from that kind of reporting for consumers. The whole "craft vs crafty" thing. People saying hey, if you want to drink a craft beer, or a beer that's marketed as a craft beer but made by a giant company, knock yourself out. You should have the right to do that. But you should also have the right to know who made the beer that you're drinking. That's what that initiative was about. And now that initiative has over 90 million media impressions. So that's an awesome example of how the craft beer community self-corrects and teaches each other.
But so many of those brands are growing from light beer drinkers. They're taking the majority of their share from within their own portfolios. I'm not sure they're really stealing away many craft drinkers. At least not yet. Not the drinkers that real craft brewers are after right now. It's serving more as a hand-off to real craft beer once they get the bug. It's changing palates.
It's all about light lager terra firma and taking that flavor bridge. I mean, how many people get halfway over that flavor bridge and say "You know what? I'm going to go back to light lagers." Nobody.
You guys tow the line of innovative but not gimmicky. Is that something you're cognizant of? Or do you just not worry about it because it's something you believe in?
That's a great question. We'll do our R+D batches, and our goal is to do something that's never been done before in the beer world. We're psyched to see other breweries putting their thumbprint on the industry, but we don't want our thumbprint to overlap with theirs. SI "is it something that's been done before?" is the first question we ask. And the second is "Does it actually matter for the liquid?" So the liquid has to be in front of the story, but both are important. The story differentiates it, and helps explain why it costs more than the average six-pack of even craft beer. It has to be the cost of ingredients, or that we build giant wood tanks. It has to make it compelling at that higher cost. So yeah, we're pretty sensitive to that. We don't want to beers that are just story beers.
But that story does enhance what you're drinking. I don't think it's just marketing bullshit.
I hate it when people treat consumers like robots, as if we're only built for math problems, objectivity and logical decisions. Some breweries do that and hide behind the claim that "Brand doesn't matter, story doesn't matter, it's all about the beer." I think the truth is that they're just not good at those things and so they pretend like people don't need it or care. But we're emotional creatures. A story can change what you taste. And that's not cynical. That's not saying that marketing is more important. What I'm saying is that with so many choices and so many things we can consumer every day, we're looking for more than just what's in the bottle. Hell, even if it's a bottle of homebrew with no label, no name, I still care about the fact that my friend made it for me, that he tried three times and failed, and this beer, this barely competent IPA, will taste all the more better because I care about that. The best beer in the world is a beer you actually care about.