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A craft brewer goes to Germany … to make American-style beers

September 27, 2014

Stone Brewing co-founder Greg Koch Stone Brewing co-founder Greg Koch
Stone Brewing co-founder Greg Koch Stone Brewing Co.

Greg Koch, CEO and co-founder of the tenth-largest craft brewer in the United States, knows a thing or two about making beer.

Koch has built Stone Brewing Co., which was founded in 1996, into a brewer that generates more than $137 million in annual revenue. The company has reported 50% year-over-year growth (on average) since it was founded. It brews dozens of styles, selling IPAs with strongly suggested “Enjoy By” dates and beers with grapefruit, chipotle peppers, coffee and other flavorful concoctions.

Now Koch hopes to persuade the Germans and other Europeans that an American can make a high-quality beer. This summer, Stone Brewing announced it will spend more than $25 million to turn a Berlin gasworks complex into the first American craft brewery on the continent. The site could open as early as next year, with Stone planning to make beer for Germany and other European markets.

Germans, however, favor home-brewed beers, as well as offerings produced by giants such as Anheuser-Busch, InBev and Carlsberg. It is hard for companies like Stone to break into the German market, especially when the target audience doesn’t think too highly of the beer’s origin.

“The term I’ve heard is ‘watered down water,'” said Sam Adams founder Jim Koch (no relation to Greg). “The average German doesn’t yet understand craft beer in the U.S.”

Greg Koch isn’t deterred. He thinks there’s a lot to admire about the beers Stone produces — offerings that often pack a stronger punch and tend to have more bitterness than typical beers.

Koch began his international aspirations more than four years ago, visiting more than 130 sites in nine countries before settling on Berlin as the location for his restaurant and production facility.

“I’m excited to help Germans and Europeans understand that America is creating some phenomenal beers; we are no longer a country of Coke, McDonald’s, Budweiser and Michael Bay movies—we actually make good stuff,” Koch told Fortune.

Though Americans are clearly sold on craft beers (the craft market is now worth $14.3 billion and posted 20% dollar sales growth last year), Europeans are a bit more skeptical.

When Koch was scouting sites in Germany, he would inevitably find himself in a bar. And during his conversations with the locals, he’d eventually share why he was in town.

“And they would say to me, ‘Are you researching German beer styles to learn how beer is supposed to be made and bring it back to the U.S.?'” Koch recalled. “I would say, ‘Well no, actually we are looking here in Europe for a location for our brewery to come over here and brew our styles.'”

Their response? “In Germany? A brewery? But you’re American,” Koch said, recalling their incredulous response.

Koch believes international beer drinkers are finally giving American craft brewers some credit. Beers are being marketed as “American craft beers” or “American Pale Ales” in markets like Brazil, Japan and New Zealand. While Stone exports just a sliver of its beers, it sees global opportunities. Along with Stone’s plan to open a brewery in Germany, the company next month intends to sell its beers in some Canadian markets.

Another motivating factor to open a European facility is cost savings. Stone can save a lot of money on shipping, and the ales are also fresher (many of Stone’s beers have a suggested drink-by date).

One unique challenge that the German market presents is the Reinheitsgebot — sometimes called the “German Beer Purity Law” — that has been on the books for centuries and says for a product to be marketed as a beer, it can only use four ingredients: water, yeast, malt and hops. A lot of craft beers made in the U.S. incorporate new ingredients and brewing techniques, which are outlawed in Germany.

Stone Brewing says all of its nine year-round beers meet the Reinheitsgebot requirements. For the beers that don’t meet the requirements, Stone says it can still sell them, just not label them as “beer.”

Jim Koch, chairman of Boston Beer Co., first started selling his beers in Germany nearly 30 years ago—when Sam Adams was the first American beer that passed the Reinheitsgebot.

“It was a shock to Germans when they tasted Sam Adams—so contrary to what they expected from an American beer,” he said.

Jim Koch said attitudes are changing, at least among beer industry insiders, and he believes American craft brewers can bring something new to a market that hasn’t seen much innovation in recent years, limited in part by the Reinheitsgebot.

“German beer drinks are now drinking hard liquor, they get excited about American bourbon,” Jim Koch said. “American craft beer has potential, it can bring new energy into the German beer market.”