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Jim Koch: microbrewer.

Employing equal measures of style and substance, Jim Koch has taken the specialty beer segment by storm

The American brewing scene has been transformed over the past decade, as brewers and consumers alike have discovered the romance of traditional beer styles. Arguably, no brewer has done more to advance the cause of these specialty beers than Jim Koch, founder and president of the Boston Beer Co.

Koch has become a highly visible presence in the beer industry--part showman and part sixth-generation brewmaster--and has served as a strong advocate for the revival of more flavorful beer. While microbrewing purists once looked askance at Koch's contract brewing success, even his critics now concede that the Boston Beer Co. has focused powerful synergies on the specialty segment.

Adept salesmanship, combined with a portfolio of quality products, have made the Boston Beer Co. a dominant force among specialty beer producers. In certain markets, and in many outlets, the Boston Beer Co. is the specialty segment.

The Boston Beer Co.'s reported sales of 270,000 barrels in 1992, a 63-percent increase over 1991, can be favorably compared with the roughly 700,000 barrels produced by all other craft breweries combined.

Koch expresses surprise at Boston Beer's 1992 sales jump. "It was incredible," he says. "We hadn't expected an increase of that magnitude, and we were running out of beer every month."

Building a Business

Although the magnitude of the increase may have been surprising, Boston Beer has chalked up strong yearly increases almost every year since its founding. At that time, microbreweries were spreading on the west coast, but Koch's company was one of a handful of eastern fledglings.

From the first, Koch spurned conventional wisdom, resisting the impulse to build a gleaming new brewery. His background as a manufacturing consultant gave him a pragmatic slant on the business, and showed him the inherent drawback of building a plant--mainly, that it cost a lot of money.

Koch also saw a new brewery (and its attendant capital outlay) as unnecessary, given the substantial excess capacity of America's regional breweries. For Koch, it was common sense. Regionals had a lot of empty vessels, and he wanted to fill them. The allure of regional breweries went beyond their availability, however. They also boasted experienced brewers and excellent lab facilities, two commodities in short supply at microbreweries.

In retrospect, analysts would agree that Koch's business plan was a sound one. In recent years, Boston Beer Co. has been the fastest-growing specialty brewer in the country.

As Boston Beer Co.'s sales have boomed, its production base has expanded accordingly. It now contracts production at three regional breweries; the Pittsburgh Brewing Co. of Pittsburgh, PA, the F.X. Matt Brewing Co. of Utica, NY, and the Blitz-Weinhard Brewing Co. of Portland, OR.

Working Microbrewery

The remarkable success of the Boston Beer Co.'s contract operations have allowed Koch to indulge the romantic side of his nature, and in 1989 he built a working brewery. Since then, the Boston Beer Co. has operated a showpiece microbrewery, nestled in the cavernous shell of the old Haffenreffer Brewery in Jamaica Plain, MA.

According to Koch, the Jamaica Plain microbrewery serves a multiple role for his company: producing draught beer for the Boston market, serving as an R&D facility for new brands and as a tour destination for budding beer enthusiasts.

In the latter role, Koch reports that the brewery hosted almost 20,000 visitors last year. The plant is set up for tours, with breweriana exhibits and photos from the Koch family album, tracing the brewing genealogy of Koch's father, grandfather, great-grandfather and great-great grandfather.

The educational aspect of the brewery is an important one, Koch says. "The objective of the Boston Beer Co. is to change the way Americans think about their beer," he asserts, "and I want people to get a sense of the history and tradition behind it."

In Koch's view, there is duality to beer, and consumers only get one side through mass-market advertising. "On the one hand," he says, "beer is fun, and the big brewers have done a great job in showing people how beer fits into an active social lifestyle. On the other hand, there is wonderful tradition and heritage behind the product. They have not focused on that, and I think people are tired of the beach bunnies."

Fear and Loathing

Koch's demonstrable devotion to beer's heritage has had at least one tangential result--it has done wonders for his image among his microbrewing colleagues. Scarcely five years ago, Koch was viewed with fear and loathing by many of his fellow brewers. Most would have been reluctant to even accord him the title of "brewer."

In recent years, Koch's stature in the estimation of his fellows has risen right along with his sales figures. This year, he was named to the board of advisers of the Institute of Brewing Studies, a prestigious microbrewing trade group.

Koch's acceptance into the microbrewing fold may owe less to his success, than to what he has done with that success. Although Koch has been called the "P.T. Barnum of the beer world" for his marketing efforts, few would deny that he has pursued the brewing craft with integrity.

This has been evident in Boston Beer Co.'s brand portfolio, which has placed craft above mammon, launching stylistic forays like a "lambic" and an authentic wheat beer.

Market Reach

The market reach of the Samuel Adams brands has also helped broaden the scope of the specialty beer wave, by introducing specialty beer into new markets across the country. Although many microbrewers are producing a wide range of beers, most have limited distribution. Beyond that, few have the resources or inclination to promote their beer with the avidity Koch has shown.

This has value for the segment as a whole, particularly as the Samuel Adams stable has expanded to encompass a wide array of beer styles. Although the company's marketing focus remains on Samuel Adams Boston Lager, nine brands will bear the Samuel Adams moniker in 1993. In addition to the flagship lager, the brewer will field a stock ale, a dark wheat lager, an octoberfest, a light beer, a wheat beer, a double bock and a cranberry lambic.

A cream stout is the newest addition to the product line, with other brands planned. Vessels at the Jamaica Plain brewery are filled with a new Samuel Adams "triple" bock, currently in full ferment. "Our triple bock will be a very challenging beer for drinkers," Koch says, "but because it says Samuel Adams on the label we can make it with confidence that someone will drink it. We've developed a reputation for quality that allows us to not only make, but sell, pretty radical beers."

Koch tested this proposition when he introduced his cranberry "lambic" in 1991. "We sold every drop of cranberry lambic," he says, "and there has not been much of a market for pink beers. We were able to sell it because we have developed a mutually beneficial arrangement with our drinkers--they keep buying good beers, and we get to keep making them."

This arrangement also held with the introduction of other specialty brews, Koch says, although he concedes that Samuel Adams Wheat Beer threw some consumers for a loop. He reports that the wheat beer's traditional clove-like flavor confused some drinkers, and a few even returned cases of the product, believing they had purchased spoiled beer.

"We've had trouble selling our wheat beer in the Pacific Northwest," Koch says, "because consumers there are used to American wheat beers that are very light in flavor. To make a real wheat, you have to use a really weird wild yeast, and it does produce what might typically be called an off-flavor."

Koch has persevered, however, and he continues to use the prescribed Brettanomyces yeast, which he obtains from Germany's Weihenstephan. "Weihenstephan is where the best wheat yeasts are kept," Koch reports, "and virtually all the German wheat beer breweries get their yeast there."

Despite his best efforts to expand the consumer's lexicon of beer, Koch concedes that the specialty beer market will remain minuscule. "I always have to remember how small my consumer base is," Koch says. "It took me awhile to get beyond the frustrating fact that 98 percent of beer drinkers don't like my beer. Only two percent of beer drinkers will enjoy flavorful, full-bodied beers, but that gives me enormous freedom to make all kinds of wonderful beers."

Upping the Ante

As Koch continues to cover the stylistic spectrum with his brands, he is launching a crusade on the issue of freshness dating. It is not enough to brew a good beer, he asserts; The brewer must also take some responsibility for ensuring that the beer receives care and attention in the marketplace. "If you sell a customer a stale beer," he says, "you lose that customer forever."

Since Koch is one of the few to embrace legible freshness dating, the campaign is somewhat double-edged, serving as it does to differentiate Koch's products. At the same time, open dating provides tangible benefits to the consumer, and few in the industry would question Koch's contention that there is a lot of old beer in the marketplace.

In this effort, Koch is taking a page from the major domestic breweries' book. "You have to respect the big breweries," he says. "They have put millions of dollars and incredible time and effort into rotating stock to guarantee freshness." And microbrewers, in Koch's view, "should at least meet the freshness standards of the big breweries."

As Koch points out, most major domestic and imported brands already carry a date on their packages, but these dates are coded. "Since the consumer has the biggest interest in making freshness an issue," he says, "we want to offer the consumer a guarantee through open dating. I view it as a way to up the quality ante."

Koch is not above sniping at his old nemeses, the importers, on this point. "I view the importers as the culprits," he says. "It seems that a lot of them want the ability to sell stale beer.

"Most importers claim a much longer shelf life for their products than the major U.S. breweries do," Koch says, "and if they know something about beer that Anheuser-Busch doesn't know, then it's a miracle."

According to Koch, a commitment to freshness dating by brewers and importers would benefit all tiers of the industry. "Having freshness dating is a way to keep everyone honest," Koch says. "It takes away the brewery's ability to force beer on a wholesaler, and it lines up everyone's self-interest on the side of fresh beer. The consumer doesn't want stale beer, the retailer doesn't want it, and the distributor doesn't want to eat it."

Such an approach is not without cost. Koch reports that the Boston Beer Co. destroys $100,000 worth of beer each year, and he concedes that smaller brewers might find Boston Beer Co.'s approach prohibitive. Still, Koch says, "Losing customers is a lot more expensive than simply living up to the promise of quality implicit in being a microbrewery."

Taking Hold

In Koch's view, the efforts of craft brewers are beginning to open up the specialty beer market. "I think that a small segment of the American population is changing their attitude about American beer," he says. "You used to go into a bar and ask for a Sam Adams, and they'd say, 'what's that?' Now they say, 'we don't carry that beer.' That's progress."

As the specialty niche continues to grow and become more competitive, Koch says, the larger brewers may begin to take an interest in the incremental share points at stake. "The quantities are so small that it will have to grow before the big brewers get really excited about it," he says, "but they will start throwing products into the segment. As a result, I think that consumer expectations in terms of quality will continue to go up."

Koch notes the introduction of Miller Reserve Lager and Miller Reserve Ale as symptomatic of this trend. "If they come from Miller," He says, "they won't be bad products, and they will be taken care of in the marketplace. A company like Miller has the distributor muscle and the marketing clout to change the whole specialty beer market if they want to. If they put 10 percent of their marketing budget into it, it would transform the segment."

Koch sees the initial steps as tentative ones, however. "The current specialty beers from big brewers are a baby step in the right direction," he says, "but it's still a giant step from a Killian's to a Sam Adams. The big brewers have the marketing muscle to get consumers to take that baby step, and hopefully consumers will be emboldened to take the next big step. As the big brewers continue to make lighter versions of specialty products, that will just create more consumers for us."

Samuel Adams

Some in the microbrewing segment have speculated that Koch will look to sell his Samuel Adams franchise once it gets big enough, but he scoffs at the idea. "I had a buy-out offer," he says, "but I thought about what I would want to do if I sold it, and I would want to own a brewery. So why sell the one I have?"

Professing his commitment to stay in the industry he has done so much to transform, Koch is optimistic about the future of the specialty segment. "The blossom has finally formed," he says, "and there is a growing awareness among distributors that they should have a microbrewery brand.

"I think that consumers are also becoming educated about beer," Koch continues, "and in some parts of the country, notably the Pacific Northwest, there is a beer culture that rivals anything in Europe."

And, as beer culture spreads across the country, Koch says the Boston Beer Co. will continue to do its bit. "We'll keep growing right along with it," he says, "but at a pace that's out of our hands. In the end, it's all up to the consumer."
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Title Annotation:Boston Beer Company L.P. founder and president
Author:Reid, Peter V.K.
Publication:Modern Brewery Age
Article Type:Cover Story
Date:May 10, 1993
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