After Merger, Boston Beer and Dogfish Head Still 'Davids in a World of Goliaths'

May 10, 2019

By Rebecca Heilweil

The $300 million merger of craft breweries Boston Beer Company and Dogfish Head began, quite fittingly, over a beer at a beer festival. "It was kind of one of those 'you got my chocolate in my peanut butter' moments," Sam Calagione, the co-founder and president of Dogfish Head, told Cheddar.

The companies see the merger, announced yesterday, as an opportunity to capitalize on complementary portfolios. Boston Beer ($SAM) is best known as the parent company of Samuel Adams, but also owns the popular cider brand Angry Orchard and the hard iced tea line Twisted Tea. It's currently the second-largest craft brewery in the United States, following Yuengling.

Dogfish Head ー the country's 13th largest craft brewery ー has specialized in IPAs and experimental flavors, earning a reputation for idiosyncrasy. Now, some customers are concerned that the merger could lead Dogfish Head to compromise on its independence and quirky brand.

Jim Koch, Boston Beer's co-founder and chairman, cautioned that his company isn't interested in changing Dogfish Head's identity. Both Koch and Calagione said they plan to emphasize their independence from international conglomerates, which are purchasing an increasing number of smaller American craft breweries.

"We kind of are two superheroes with complementary superpowers, but we're tiny little superheroes," said Calagione. "We hope that people who care about Davids in a world of Goliaths recognize that."

Though 82 percent of beer purchased in the U.S. is produced domestically, according to the National Beer Wholesalers Association, many popular beer brands are actually owned by foreign companies. The Belgium-based Anheuser-Busch InBev ($BUD), the world's largest beer company and brewer of Budweiser, is currently preparing an impending public offering of its operations in Asia, which could be worth at least $5 billion.

"Collectively, the 7,500 breweries in America only have less than 14 percent market share," said Calagione. "If we get together ー exponentially ー we can work to take on the giant international companies that actually control America's beer marketplace."

While Boston Beer and Dogfish Head stand to benefit from sharing their distribution channels, executives don't anticipate they'll have much influence over pricing. "We don't have much pricing power. Together, we're 2 percent of the beer market. That doesn't give you a lot of clout when somebody else is 45 percent," said Koch. He adds that the merger could also forge "soft synergies that you don't put on a spreadsheet."

"We're all small, and we are competing with these behemoths. To do that successfully, we need to join forces," said Koch. "Most mergers falter on values and founders not getting along. But I've known this guy for 20 years. We've brewed beer together."