Stone and Karl Strauss CEOs Discuss Selling Out, Self-Distribution and Maintaining Culture

Stone Brewing CEO Dominic Engels and Karl Strauss Brewing CEO and co-founder Chris Cramer discussed their respective companies’ operations and strategies last week at the Brewbound Live business conference in Santa Monica.

Both San Diego companies are listed on not-for-profit trade group the Brewers Association’s (BA) list of the 50 largest craft breweries. However, Engels and Cramer offered varying perspectives for attendees and viewers. Escondido, California-headquartered Stone, the nation’s ninth-largest craft brewery, has national distribution, while, Karl Strauss, which is ranked No. 40 nationwide, only distributes in California and operates 11 brewpubs in the state.

Here are a handful of takeaways from their conversation with Brewbound editor Justin Kendall:

Stone Brewing Is Not For Sale

Engels denied that Stone Brewing is for sale, as a report in subscription-based news outlet Beer Marketer’s Insights’ sister publication, Insights Express, suggested last week.

“There’s always a bit of rumor mongering that goes on,” he said. “I can dispel all those rumors. We’re not for sale.”

Cramer quipped that he had a price in mind for his company.

“If somebody wants to pay me billions, I will definitely consider it,” he said, drawing a laugh from the audience.

The discussion occurred during a week in which Constellation Brands sold the Ballast Point brand to an investment group fronted by little-known Chicago-area craft brewery Kings & Convicts and Anderson Valley Brewing Company was acquired by a private family investment group.

When asked if a return to BA-defined craft status for fellow San Diego-based brand Ballast Point meant increased competition, neither CEO said he expected his company to lose share, but each offered thoughts on the change in ownership.

“I think they have a huge challenge for them; sales have been declining for the last couple of years,” Cramer said. “To right a ship that has been going down takes a lot of effort.”

Engels was cautiously optimistic for Ballast Point’s prospects.

“I think it’s fantastic for the employees and the community to have another beer brand that’s back in the community in a stronger way,” Engels said. “I don’t know Kings & Convicts from anybody, but certainly they’ve kind of stepped up from the minor leagues into the major leagues and have no salesforce. It leaves a lot of questions of how they’re going to right the ship.”

State of Self-Distribution in California

Both Stone and Karl Strauss operate independent distribution companies in California, a state where the Reyes Beverage Group, the largest beer wholesaler in the U.S., has acquired three distributors in 2019. Consolidation opens doors for smaller, independent distributors, Cramer said.

“It has created new opportunity for us to grow the territory of our distribution footprint so that we basically cover all of Southern California, which is one of the most valuable distribution territories in the world,” he said. “I am blessed. I’ve got 40 million people in my home state, in a state with an economy that’s the fifth largest in the world. It’s the size of the U.K. economy. And within a four-hour drive of my home brewery, I’ve got 20 million people.”

“As long as I win in my own backyard, I can win for a long time,” he added.

When Karl Strauss opened in 1989, the company had few options for distribution. So Cramer and Karl Strauss co-founder Matt Rattner chose self-distribution. With wholesaler consolidation changing California’s landscape, that decision has proven profitable.

“There are fewer and fewer points of access to market for craft brewers here in California, and so for those of us who actually already have a profitable way of taking them to market we’re in a very good position,” Cramer said. “I believe were both building a lot of value in our distribution businesses.”

For Stone, which operates distributors in San Diego and the Bay Area, self-distribution allows the company to profit from the non-craft beer segments that have been booming without launching new product lines under the Stone flag.

“Being a distributor allows us to credibly play in some of these beyond beer categories without necessarily stretching and mutating the Stone brand,” he said. “As an independent beer brand, you’re not trying to be all things to all people; you can participate in these things in different ways.”

Keeping the Culture of Founder-Led Companies

Both Stone and Karl Strauss are pioneering craft brewers with co-founders still in place who have helped create their companies’ cultures. While none of the four has announced plans to retire or leave the companies, Cramer said that he expects the culture he and Rattner formed to continue after they move on.

“If you build a strong enough culture and you get your team members to really embrace it and love what they’re doing, then it can go on and on,” he said. He also encouraged fellow brewers to read their companies’ reviews on workplace review platform Glassdoor. “The founder isn’t really the person; it’s the culture and you have to feed it.”

At Stone, both co-founders — executive chairman Greg Koch and president Steve Wagner — complement each other in their personalities and the roles they play.

“They really offset each other in a lot of ways and that’s what I think underpinned a lot of the success of the company,” Engels said. “Greg is really that external face for the brand. Steve faces internally and really nurtures the culture of the company.”

2020 Innovation

Both CEOs shared highlights of their companies’ innovation efforts for next year.

Citing California’s rising minimum wage, Cramer said Karl Strauss will open a quick-service, “backyard playground”-style, on-premise retail experience in San Marcos. California does not have a lower minimum wage for tipped employees, so bar and restaurant staff at companies with 26 or more employees are paid $12 per hour, which will rise $1 each year until levelling off at $15 per hour in 2022.

“We’ve had to make a significant number of changes to our full-service brewpubs,” Cramer said and noted that the shift is challenging for businesses. “I fully anticipate there is going to be a huge number of full-service restaurants in the state of California that will close.”

If the San Marcos location is successful, Karl Strauss plans to replicate the model.

For Stone, which had to offload its Berlin brewery earlier this year to Scotland-based craft brewer BrewDog, innovation will come in the form of a new product: Arrogant Bastard Whiskey, Engels said.

New beers and beer-adjacent products, such a beer-kombucha hybrid brewed with hard kombucha producer Boochcraft, are being tested in the company’s 11 restaurants and taprooms, but most non-beer exploration happens through Stone Distributing.

“We think about our distributor arm as one where we can really go broad, and we really want to make sure, much like Stone has been developed over the years, and Arrogant Bastard, we want to be clear about who we are and not dilute that too much,” Engels said. “We’ll always experiment, because brewers are experimenters, but what we take all the way to the mainstage, we’re going to be pretty judicious about that.”

Watch the full discussion here:

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