Founders Built a Portfolio, Then Found a Flagship

December 01, 2017

By Pat Evans, December 01, 2017

Deep in gypsum mine caves under Grand Rapids, Michigan, Dave Engbers and Mike Stevens disagreed.

It was a polite disagreement on a grey April day, but for the two founders of a brewery that built itself on the slogan, “Brewed for Us,” it was still significant.

The two founders of Founders Brewing Company were at odds over a new barrel-aged experiment in their barrel caves, then cavernously empty as the 2017 batch of their famed Kentucky Brand Stout was out and bottled, and their new specialty brewery and warehouse was already up and running.

The beer? A Scotch barrel-aged Dirty Bastard, a delicious Scotch Ale which helped Founders reset its course from near closure more than a decade ago. A bourbon barrel-aged variant of the beer, Backwoods Bastard, is itself a monster in its own right when it’s released every fall.

Stevens, a Scotch fan, was drawn to the overwhelming smokiness from the beer, very much reminiscent of a Scotch.

Engbers, on the other hand, immediately made his distaste for the beer known.

These two men built Founders, one of the top 15 largest breweries in the nation – brewing 348,000 barrels last year – but still the fastest growing brewery in the country. The way they’ve done it is focusing on the quality of a diverse set of great beers, while also balancing that focus with a purposefully built executive team from outside industries.

That Scotch barrel-aged beer likely will never be packaged, but it might end up at the taproom, with a disclaimer. It is thinking like that – aging a scotch beer in a Scotch barrel – that has put Founders on the map and made it into the beast it is today. The brewery has one of the most consistently solid portfolios of regularly brewed beer, and that’s by design. They've always wanted to innovate and create as many new great beers as they could. 

Fundamentally, we’re a product-driven company over all things.”

“We have an unwavering focus to creating some of the world’s greatest beers and it flows down form there,” Stevens said. “The success story with All Day, the story of All Day was not about filling niche in the session beer category. The category didn’t exist; we just wanted a great tasting Founders style beer that was below five percent."

“Spent three four years before we launched it, just happened that craze was just getting started," Stevens continued.

All Day was released in 2012 and sales of the beer grew 108% in 2016 according to IRI data. It makes up 60% of Founders production. The brewery as a whole is growing at 40+% while much of the rest of the industry stutters.

All Day is now the defacto flagship for Founders, just by the way its easy drinkability helps leads the brand into new markets, but the beer Founders is perhaps best known for is KBS. Founders has also turned its barrel aged program into beers that regularly turn into sought-after products like the annual release of Backwoods Bastard.

As All Day IPA, the brewery’s rocket ship of a session IPA, continues to eat up more of the production – it's one of the fastest growing brands across breweries – Founders decided it was time to open another brewery. The new brewery is just a few miles down the road in Grand Rapids and focused solely on the production of specialty, experimental and barrel beers for Founders. The “Barrel House,” as it’s known, is bigger than nearly 99% of the breweries in the U.S., with the capacity to brew nearly 250,000 barrels of beer a year. It opens the main brewery, which takes a full city block in Grand Rapids, for the full-year beers.

The new barrel house is meant to help Founders stay true to its roots while it grows.

“Fundamentally, we’re a product-driven company over all things,” Stevens said. “If you do right by the product, the byproduct is the creation of value. When you focus too much on earnings and the bottom line, you forget what you’re all about."

“When you stay focused on what you’re all about, which to us is to be known as great beer makers, which I think we’ve achieved, the end result is success on the bottom line.”

FoundersTaking the barrels from the caves to the house could allow for more innovation.

All Day IPA is the horse of Founders Brewing Co. The growth of the beer is largely fueling much of the rest of the brewery’s growth, but prior to its introduction earlier this decade, Founders had already built a diverse portfolio.

Founders has an eclectic year-long, seasonal and specialty list that includes such solid and style representative beers as: Centennial IPA, Porter, Breakfast Stout, Dirty Bastard, Red’s Rye IPA, Azacca IPA, PC Pils, Mosaic Promise, Imperial Stout, Rubeaus, Curmudgeon, Sumatra Mountain Brown and ReDANKulous.

“We’re positioned well,” Engbers said. “We created a portfolio from day one and have never been a one-horse town. You never want all eggs in one basket."

“Probably the best compliment we even get is when we hear from other brewers that we don’t have a bad beer. That’s the biggest compliment and testimony to our team.”

All Day IPA didn’t join the party until 2012, though, and until then Founders was a balanced portfolio. Founders wasn’t like Sam Adams, Sierra Nevada or New Belgium with a lead beer defining the brewery. They’d like to keep it that way, even as All Day leads theway.

“Almost each of the top 10 [largest breweries], had a brand flagship and then tried to build a portfolio around it,” Founders Chief Operations Officer Chase Kushak said. “We had the portfolio and we did it opposite. You take what you have and make it work. Who’s to say we don’t have another All Day? We need to find three of them if we can.”

In 2007, Founders produced a little more than 6,000 barrels of beer and was hemorrhaging money. The product was in demand, but they couldn’t make enough, nor could they afford to expand. They brought on a new partner, built a board of directors and strategic plan and moved to a facility, which allowed them to package debts and finally have positive cash flow. This year, Founders is expected to brew more than 450,000 barrels.

Michael KiserIs KBS the flagship? Or the portfolio? Yes.

Stevens and Engbers once made the full commitment to also focus on the business side and capture an opportunity they saw in open market share.

“To be honest, we are driven to make this a financial win as well,” said John Green, the chairman of Founders. “A lot of people in beer shy away from that topic, but it’s important. You get a feeling for the breweries driven entirely by passion and no financial or strategic planning, or the complete opposite, which isn’t good either.

“If we’re profitable, we’re sustainable. If we’re sustainable, we can start looking at things from a much longer-term perspective.”

It’s that long-term growth and legacy which drove Founders to partner with 125-year-old Spanish family brewery Mahou San Miguel, which bought 30% of Founders in late 2014. Founders ownership met with more than 30 groups of big breweries, private equity firms, and family offices searching for capital to help grow and reward some investors who were ready to cash in.

The partnership will help push Founders internationally, which currently makes up approximately 5% of sales, as it rounds out its final four states to complete full U.S. distribution.

“I get goosebumps every time I see a photo or hear a story about our beer in Ireland, Finland, or Mexico or seeing a neon light in a window,” Green said. “To me, this is a brand that translates well globally.”

I think a lot of breweries are knee jerk reactions. We don’t chase trends. That’s scary, not to pick on anyone.”

To get to where Founders is now, a top 15 largest brewery with countless awards and a steep growth rate despite overall segment stagnation, it took a lot of factors. Now it’s about what’s next.

“A lot of it was timing and luck,” Stevens said. “You see hyper growth in infantile stages, and now we’re getting to the end of the beginning and we have hit a maturity level.”

Founders is turning 20 years old this fall and has gotten this far without following trends. The brewery claims it doesn’t brew for the masses, but by sticking to their guns and staying committed to their product while growing the beers are turning quickly into a brand enjoyed by the masses.

“We don’t take shortcuts. We’re Midwestern, we don’t react quickly,” Engbers said. “I think a lot of breweries are knee jerk reactions. We don’t chase trends. That’s scary, not to pick on anyone."

“Sometimes you have to take a big step back and go, ‘What are we really doing here?’”

ZX Ventures, a division within AB InBev, is an investor in October
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