Jim Koch, chairman and founder of Boston Beer Co., maker of Samuel Adams Beer, right, toasts the New England College of Business graduating class of 2014 with a Samuel Adams impersonator on May 17, 2014.Gretchen Ertl
As he slides into a booth at Betty's bar in downtown Toronto, Jim Koch lets out a rueful chuckle.
"That's funny," the co-founder and chairman of Boston Beer Co. says, pointing to two taps installed right into the table – a red one, labelled Budweiser, and a blue one for Bud Light. "That's the life of a craft brewer: always in the shadow of giants."
Mr. Koch, the creator of Samuel Adams Boston Lager, is in Toronto as part of a roadshow of sorts, promoting this very story. Essentially: Don't forget, we're the little guys.
The Sam Adams brand is in a fight to stand out in a climate where even big brands such as Budweiser are borrowing craft brewers' marketing techniques, with commercials boasting about their aging process, featuring bearded brewers fussing over malt grains and hops. Mr. Koch is promoting his new memoir about building a leading craft brewery, at a time when many other craft beers have been snapped up by the likes of Anheuser-Busch InBev SA and Molson Coors Brewing Co. After three decades in the business, Sam Adams is now so ubiquitous that it's easy to mistake it for one of the big guys.
"My daughter said, 'Dad, you're the OG. [A hip hop term that stands for 'original gangsta.'] My friends don't know you're the OG,'" Mr. Koch says.
"Sam Adams, we're not exactly straight outta Compton," the New Englander in the chambray shirt adds, redundantly. "But it's very clear when we talk to people that … it's a very meaningful thing to be an original, to be authentic and to stay independent."
Since Mr. Koch started his brewery in 1984, the market for craft beer has exploded. Last year, the number of breweries operating in the United States grew 15 per cent, to 4,269 breweries – more than have ever operated in the country, according to the Brewers Association, a trade group that Mr. Koch helped to create. In Canada, the number of licensed breweries has more than doubled in seven years: to 644 last year from 290 in 2009, according to industry group Beer Canada. And the growth is overwhelmingly driven by breweries producing less than 2,000 hectolitres (200,000 litres) a year.
Many beer drinkers are seeking out complex flavours, but they are also less brand-loyal than in the past. In more recent years, the company's flagging growth reflects an overall slowdown in the craft category. Mr. Koch is responding to this by reminding people of Boston Beer's roots: a craft pioneer founded upon his great-great-grandfather's recipe, dug out of the family attic.
Mr. Koch's family settled in the German neighbourhood of west St. Louis as part of a wave of immigration in the 19th century. His great-great grandfather opened a brewery, one of many in the area. A neighbour was Adolphus Busch, co-founder of Budweiser – maker Anheuser-Busch, which was swallowed by Belgian giant InBev in 2008.
"They're gone, and my family is still making beer," Mr. Koch boasts.
The original family brewery only lasted 35 years, but the generations that came after – who moved east, eventually, to Boston – were all brewmasters. But over the course of his father's career, a wave of consolidation reduced the number of breweries in the United States from more than 1,000 to less than 100. When Mr. Koch announced he wanted to become a brewer, his disillusioned father discouraged it.
"He thought you can't compete with the big guys. And he was right," Mr. Koch says, gesturing at the Budweiser taps at our table. "We had a different vision. I'm not going to compete with the big guys … I'm going to make beer for the 1 per cent that wants something different."
That's when his father dug the recipe out of the attic. In July, 1984, Boston Beer Co. was incorporated, starting with $250,000 (U.S.) in capital – $100,000 of which came from Mr. Koch's own money, the rest in investments from friends and family ranging from $1,000 to $50,000 – in exchange for limited non-controlling partnerships. Its first warehouse space, in the old Haffenreffer Brewery in Boston, cost $80 a month in rent.
Naming the beer after his great-great grandfather was out of the question. "'Koch' is pronounced like 'cook,' but some people unthinkingly turn it into an obscenity," he writes in the book, "so I didn't think 'Louis Koch Lager' was such a great name for a product you expect people to put in their mouth – particularly in a long-neck bottle."
The name came from Mr. Koch's affinity for the story of Boston revolutionary Samuel Adams (brother of John and uncle of John Quincy), who also happened to be a brewer.
From the beginning, Mr. Koch borrowed marketing tactics from the wine industry, which emphasizes the story of the ingredients and the soil that wine comes from. He offered training sessions on the brewing process to bartenders and waiters, and brought hops and malt to bars for customers to touch and smell – a tactic that now even big brewers are using to lend their products legitimacy.
Realizing how much the idea of a handmade product appealed to people, Mr. Koch made it a centrepiece of his marketing, with "handcrafted in small batches" printed on Sam Adams's small placards on bar tables.
Freshness also became a key selling point: Mr. Koch says his beer tastes stale after four to five months in the bottle. So the company introduced best-before dates, and offered refunds to distributors on expired beer. In the 90s, that was about $100,000 of beer down the drain a year; today Mr. Koch says it's over $6-million.
The mid-80s saw the early resurgence in "micro brewing," with brands such a Bad Frog, Brooklyn Lager and Fat Tire joining Sam Adams in the surge of breweries setting up shop in the United States. The other "O.G." was Fritz Maytag, who acquired San Francisco's Anchor Brewing Co. in 1965, and who Mr. Koch cites as the father of micro brewing.
"[Sam Adams] really helped turn the American beer drinker on to flavour. They're definitely one of the pioneers," said Daniel Bradford, former head of the Brewers Association, former publisher of All About Beer magazine and producer for the World Beer Festival. "There had been other craft brewers making and selling their beer, but nobody pursued the market the way Boston Beer did."
Since then, the craft movement has gone through phases of expansion and contraction, with small breweries gobbled up by bigger players. It's hard to pick up a beer these days and know whether it is the product of an independent brewery, or simply a craft brand owned by a big conglomerate.
"There's just something better tasting, to me, about a beer where I know it comes from a real human being. To this day, I've always tasted every batch of every beer we make," Mr. Koch says.
He tells a story of his days at the prestigious international Boston Consulting Group, consulting with a client who made dog food and came to him to find out why its market share had fallen. Mr. Koch advised them that dozens of tiny changes to the manufacturing of the product, over time, had stripped costs out but ultimately made the food worse. No single change mattered; but cumulatively, they made a difference – and when they tested the product against its original recipe, the dogs tasted it.
"This is repeated across so many consumer products," he says. "I think it's why consumers, including beer drinkers, are skeptical about the stuff that comes from the big companies."
Some may write off craft beer as an exercise for hipsters chasing a notion of authenticity as a finicky mark of prestige; others will tell you that consumers at large are becoming more sophisticated, seeking out different tastes. Whatever the explanation, since Mr. Koch got started, craft beer has taken off.
"Still, 90 per cent of the beer in the U.S. is made by AB Inbev and SABMiller," Mr. Koch says, referring to the two brewing giants that closed a deal to merge in October. "So there's 90 per cent, and then there's thousands of us with the other 10 per cent. There's a big chasm … Our objective as craft brewers, is to get to 20-per-cent market share. I'm on record saying I think there will be 10,000 craft breweries in the U.S. Now, North America is the centre of the brewing world – the place that 30 years ago was the laughingstock of beer."
The only trend that annoys him in the space is people who start breweries with the goal in mind to sell them to a global giant and get rich. "It's not an alternative to Goldman Sachs," he sniffs.
The industry's growth has had its rough patches: in the mid-90s, at the same time that Boston Beer went public, craft sales hit a slowdown. Had he not maintained control of the firm's voting shares, Mr. Koch believes he would have been fired at the time. The company has grown significantly since then, but the stock price has been soft this year and Boston Beer is facing the slowdown in growth across the craft-beer industry.
Retailers "are, by and large, not expanding craft space. They've kind of put up the yellow light, because they as a rule believe they have enough variety," Mr. Koch said on the company's most recent conference call to discuss its earnings. "And similarly [at bars], we are seeing a real slowdown in adding taps."
He believes the company stands to benefit from this, as one of the bigger players – but it has work to do to reverse sales declines for Sam Adams and for its Angry Orchard cider brand. Early next year, the company plans to launch two new seasonal beers, and it has just invested in a revamp of its packaging, including changing the image of Samuel Adams on the labels. Boston Beer plans to spend $10- to $20-million more on advertising, promotions and sales next year.
It is also expanding its portfolio of drinks: Twisted Tea has been growing, and a new launch this year, not yet in Canada, is Truly – alcoholic sparkling water that is lightly flavoured but low in sugar.
All the while, Mr. Koch has become the face of the brand, appearing in ads riding around with salespeople, overseeing the brewing, and lecturing people on the importance of freshness – getting away from the beer industry staple of "babes in bikinis," as he puts it. For someone who says he's always been skeptical of marketing, he's a natural at it.
Mr. Koch has no plans to step away from the company as he gets older. Today he celebrates the craft breweries opening all over the world.
"The craft beer movement began with a handful of crazies, like Sam Adams and his friends," he says. "Today, this is a global revolution."
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SUCCESS IN A BOTTLE
5,000: the target number of barrels Mr. Koch wanted to sell by the company's fifth year
24,000: barrels of beer the company sold in 1987, its third year
700,000: barrels sold in 1994
4 million: barrels sold in 2015
1995: the year the company went public, in an unusual offering of common stock to its customers at the same time as institutional investors
130,000: individual customers who mailed in checks looking to buy stock in the oversubscribed IPO
Susan Krashinsky Robertson