New Belgium: Brewing Success

Employee ownership and a strong sense of purpose have fueled New Belgium's rise to the top of the craft beer pyramid, creating highly motivated employees and loyal customers.

New Belgium Brewing Company is the eighth largest beer manufacturer in the United States. Over the last five years, volume has grown at a 10% CAGR, reaching over 945,000 barrels in 2014, which represents 4% share of the U.S. craft beer market (1, 2). After 25 years in Fort Collins, Colorado, the company is building its second brewery in Asheville, North Carolina, to continue to meet growing market demand.

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New Belgium’s purpose statement is “To manifest our love and talent by crafting our customers’ favorite brands and proving business can be a force for good.” (3)  In addition to developing products that appeal to both craft beer connoisseurs and the average drinking public, the company has created brand identification through non-traditional approaches to ownership, transparency, and marketing.

Like many craft brewers, New Belgium produces a mix of year-round, seasonal, and limited release beer. Fat Tire, the company’s flagship beer, ensures consistent distribution and national recognition. Fat Tire and the rest of the company’s year-round beers are likely higher-margin, with dedicated brewing tanks and long-term supplier relationships. Seasonal and limited-release products provide opportunities for brewers to experiment with new styles, providing innovative new products that appeal to the most passionate beer drinkers. Stores and bars are encouraged to stock and promote year-round beers in order to gain access to limited-release products, and having limited-release products demonstrates knowledge and credibility to high-value beer-drinking customers. Having a diverse product suite is also important because craft beer consumers are always hunting for new products, and are rarely as loyal to one product as beer drinkers of prior generations.

A limited release collaboration with Ben & Jerry's generated significant excitement and press in 2015
A limited release collaboration with Ben & Jerry’s generated significant excitement and press, with a portion of the proceeds benefiting Protect our Winters, a non-profit rallying snow sports enthusiasts against climate change.

In order to ensure consistent product and profitable growth, the company has significantly grown its supply chain function over the last decade, from three people to over 200. The company has professionalized its manufacturing function with lean techniques and software implementations, while increasing productivity and lowering per-unit manufacturing cost. Given the limited shelf life of beer, forecasting is a required skill for success in the industry. After entering the California market and over-producing, the company introduced new software meant to better combine historical data, distributor orders, and information from the sales team into one forecast, reducing potential spoilage and the need for discounting. (4)

Employee ownership has been a hallmark of New Belgium since inception, with stock granted to its first outside employee and an Employee Stock Ownership Plan (ESOP) in place since 2000. In late 2012, co-founder and then-CEO Kim Jordan sold her shares back to the ESOP, allowing the company to go from 41% employee-ownership to 100% employee ownership. Through this model, employees are more invested in company success because their retirement plans directly benefit. One of the historical criticisms of ESOPs is that workers who are owners may favor short-term wage increases, not investments in long-term growth. (5) However, New Belgium has successfully navigated this concern, pursuing the $175 million Asheville expansion project while transitioning to full employee ownership.

In addition to encouraging employees to become owners, they are also taught to think like owners. All new hires are taught basic financial concepts, and are given access to company financial data and KPIs. Senior leaders regularly convene all-company meetings to discuss how the business is performing and field questions. In addition to creating a culture of employee engagement, New Belgium ensures cross-functional collaboration, sourcing process improvement ideas from throughout the company, such as the elimination of dividers in its 12-packs, which reduced downtime and saved nearly $300,000 per year. (6, 7)

Employee retention has improved from an already-strong 92% to 97% since 2009, even as the company has continued to grow, a testament to the value of employee ownership (8, 9). Low turnover reduces the company’s recruiting and HR costs, and ensures a well-trained workforce who understands the brewing process and the New Belgium customer.

WasteDiversion_2New Belgium’s commitment to openness also extends to its environmental and social practices. As a certified B-Corp, New Belgium is focused on stakeholders beyond its ownership base. It publishes environmental metrics on its web site, donates 1% of its sales to environmental causes and $1 for every barrel sold to philanthropic endeavors. Through its role as one of the largest ESOPs and B-Corps, New Belgium ensures a steady stream of positive media stories, serving as highly effective earned media.

New Belgium also connects with its customers through special events. The company’s Tour de Fat is a traveling festival celebrating bicycles and irreverence. By attaching the New Belgium brand to outdoor events, the company creates non-obtrusive advertising in line with its values and its customers.

Craft beer is an incredibly trendy market, with the number of breweries in the US doubling from 1,653 in 2009 to 3,464 in 2014. (10) Having a diverse product set and operational skills to operate at a low-cost helps New Belgium remain highly competitive. As Millennials have become a core customer of craft beer, brand authenticity and focus on the greater good have become key success factors in appealing to customers. (11) Purpose-driven companies can effectively organize around a shared vision, differentiating their products and attracting customers and employees. Through its commitment to openness, preserving the environment, and fun, New Belgium has transcended beer and become a lifestyle brand, with values that directly align with its target customers.


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Student comments on New Belgium: Brewing Success

  1. Great analysis! It really brings to life the value that New Belgium is gaining from empowering the employees. I wonder if New Belgium is at risk as it continues its rapid growth. Could that shift its perception from craft brewer to national brewer? What would this growth do for the existing consumer base?

  2. Thanks for the question, Brian. I think the risk of being viewed as a “national brewer” is something certainly worth keeping in mind. While New Belgium is large and nearly national (35-40 states today, expected to have distribution across all 50 states by 2018 as their Asheville brewery scales up), there is still a wide gap between New Belgium and Sam Adams in terms of size. I also think that the dichotomy for most customers isn’t just size, but independent versus “corporate”, i.e. owned by AB-InBev, Miller Coors, Heineken, or another multi-national alcoholic beverage company. There has been significant, loud, and public outcry from loyal customers when craft brewers sell to AB-InBev (for example, Elysian).

    Ultimately, I think it will be interesting to see how New Belgium performs in the Northeast, which is the only part of the country they don’t sell in today. It seems that their CO brewery is at capacity (they’re not forecasting any growth in 2015), so there’s probably some potential pent-up demand that Asheville helps them meet, but ultimately, success of the new brewery will be driven by how they enter a market that hasn’t really had a chance to get their product to-date.

  3. What a neat brewery! I would be interested to learn more about their distribution strategy because it is certainly a key “make or break” element when trying to enter a new market. Are they going to be able to generate market share in New England through traditional grass-roots efforts or are they going to need to take on more of a “big box” strategy to establish a foothold in the region? Can they expand quickly enough to meet demand while keeping employees happy and not diluting ESOPs? Another great beer to keep an eye out for soon!

  4. Alcohol distribution laws vary highly state-to-state and are pretty complex, but generally, producers will have exclusive relationships for a given territory or state. I would guess there will be a fairly significant push by distributors to get the product into both large and small retailers. One thing you definitely can’t do in Massachusetts is provide payments to bars to stock your product, which is a little strange if you’re comparing to other retail-type verticals where slotting fees are common. I think they’ll be pretty successful getting into large retailers, as these retailers probably know the company from their locations elsewhere in the US, and retailers have been generally adding craft SKUs to their assortment.

    In terms of keeping employees happy with the ESOP valuation, there is a one-year waiting period between joining the company and becoming an owner via the ESOP, so that will give the new plant time to generate profitability for the company before their new employees dilute the pool. The company can also control how many shares it wants to grant, which manages dilution.

    Finally, my experience (having worked on a transaction where my private equity firm purchased an ESOP) is that while the ESOP has to get an annual outside valuation, since these are private companies without many comparables, there are enough assumptions to be made that there’s always a little wiggle room to show a more stable trend while staying on the right side of the rules (growth and margin estimates, control premium used, comps selected, etc).

  5. Interesting post! I’m not familiar with the ESOP model. Under ESOP, do employees have the authority to overthrow the CEO? In addition, are board of directors appointed by employees?

  6. Technically, the employees aren’t legal shareholders of record, though they have all the economic benefits of the shares.

    There is a trustee who oversees the ESOP, who votes the shares on behalf of the employee “owners”. In the case of board election, the trustee generally has discretion over how the shares are voted, but for major financial decisions (i.e. whether to sell or merge the company), ESOP members have direct votes, and there are very explicit laws about the fiduciary duties of the trustee.

    The CEO is still appointed by the Board of Directors, but the ESOP trustee and Board of Directors effectively appoint each other. So, in order to fire the CEO, the employees would need to effectively convince both the trustee and the Board this was a good idea. If employees only convinced the trustee, the Board could replace the trustee, and if employees only convinced the Board, the trustee could replace the Board. Said another way, ESOPs are not good tools for employee/shareholder activism, but are good for aligning the long-term financial incentives of employees and employers.

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