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04.2005

Massachusetts Beverage Business

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Article By: Andy Crouch

A pioneer of the craft brewing movement, Koch transformed a small business operation into one of the largest breweries in America. His story is firmly ensconced in beer lore: the recipe for Sam Adams in his attic, six generations of brewmasters in his family and humble origins peddling beer bar to bar in a briefcase. From this lore has grown a company that sold 1.2 million barrels of product in 2OO3 and accounted for more than $2OO million in sales.

Despite all of its successes, Boston Beer faces an uncertain future. The beer industry is a difficult, fluid place, made even more treacherous with round after round of consolidations and mergers. Growth across the industry has been flat in recent years and even the craft brewing sector is hard pressed to produce the numbers it enjoyed in the past.

Like an awkward teenager struggling to reconcile adolescence and adulthood, Boston Beer finds itself in a unique position in the beer industry. Although it is the sixth largest brewing company in America, Boston Beer is neither a big or small brewery. Samuel Adams is a national brand, but without the full benefits of scale and pull distributors accord to the Big Three. Boston Beer also remains a craft brewery, but one that is too rarely granted the status and respect handed to smaller producers.

It's not easy being one of a kind. Samuel Adams Lager has no true peer in the beer business. It is a national craft beer brand with no real footing in any one particular market. Its distribution is wide, but not as deep as other up-and-coming craft brands, such as New Belgium Fat Tire, Sierra Nevada Pale Ale, and Yuengling Lager. With this in mind, Jim Koch looks at the future of his Sam Adams brand and still forecasts success.

I recently traveled to the pilot brewery in Jamaica Plain to meet with Koch and discuss the future of Sam Adams. During our interview, Koch spoke about the importance of freshness dating, pushing hop levels to the edge of solubility, and whether the wine world has anything to teach those in the craft beer community.


ANDY CROUCH What does the term 'craft beer' mean?
JIM KOCH There is actually a definition. It is small, independent and traditional. Small meaning it is under two million barrels, independent meaning not owned by a big brewery, and traditional meaning you only use traditional brewing processes. No non-traditional adjuncts, no high gravity brewing and so forth.

AC Kim Jordan suggested that the craft beer market could reach ten percent. Is that possible?
JK I told the NBWA in 199O that within twenty years, better beers would be twenty to thirty percent of the industry and that craft beers would be at least a third of that. The quick answer is, absolutely. Today small, independent, American brewers are making some of the best beer in the world. I am a big believer that people drink the quality of the beer. They don't drink the marketing. They don't drink the promotion. They drink the beer. I believe it is incumbent on us as brewers to continue to make world class beers that are a pleasure to drink and create a variety of flavors and tastes. I believe the same forces that are driving the renewed interest in wine and spirits are also going to drive increased growth in craft beers. We're bringing the same thing to the consumers. We're bringing quality, beers with more flavor, interesting flavors and styles, and we're bringing beers that have interesting stories with them. It's a trade up - people are trading up. That is what is driving wine and spirits, I think, consumer interest in different tastes, styles, histories, and quality. The things that are growing in wine and spirits are all in the high end. The benchmark that I think is relevant here is that with wine and spirits, the high end is about thirty percent of the volume. Better wines and better spirits are about thirty percent of the volume and are growing five to six percent per year. With better beer, the high end is around 15 percent. So, yes, I believe there is upside to double.

AC Are there lessons to be learned from the wine industry, such as with Gallo Wines moving from the image of jug wine to becoming a top producer of premium wines?
JK I'm not that familiar with wine, but having met Gina Gallo, she is very dynamic and charismatic. I think it goes back to people want things with personality and an individual behind them. Beer doesn't need to follow anybody. We don't need to be more like them. We need to be more like us. You go back to the history of beer, it's been about flavor. It was the beverage of moderation that people would drink for the flavor and taste. It wasn't alcoholic soda pop. I think what we need to do as brewers is first make high quality beer. Second, there is a challenge that the craft beer industry needs to step up to. There is still a lot of stale beer being offered to consumers. The majority of craft brewers to this day do not have consumer-legible freshness coding. With most craft beers, you can't tell if you're getting a stale, bad beer. Craft brewers have to take responsibility for their beer all the way to the consumer. We started doing it in 1987 or 1988 and in 15 years, we still haven't had very many people follow. That's one of the things that hold the industry back; people unexpectedly pay good money for craft beer and get stale beer that you or I wouldn't drink. The same is true with draft beer. We sell a lot of our beer on draft and we need to make sure that it is fresh when it comes out of the tap, no matter what it takes to do that. We don't put any weird Julian dates or anything. It says right on the keg how long it's fresh so that anyone who reads English can see it.In contrast to wine, we have to take care of our beer all the way to the consumer. The big brewers, Bud, Miller and Coors, have done a better job than the majority of the craft brewers. I think that's something we have to step up to.

AC What is the importance of experimentation for Sam Adams?
JK The unique thing about Sam Adams is that we have eight brewmasters and two brewing labs that are dedicated not to making the beer cheaper or more popular, but rather to making beer more interesting and better. There is no other brewer that has that much dedication to making interesting beers and pushing the envelope of beers. To me, that's what we're all about. It's not like it's profitable or that we're making tons of money out of it. We probably lose money on those things. But, the essence of the company is a passion for great beer. As brewers, we're always trying to do new things.

AC Tell me about the Imperial Pilsner project.
JK We want to see what happens when you reach whatever the physical limits of solubility are. But, to me, just putting a bunch of [bitterness units] in it is like making really spicy food. Anybody can dump Scotch Bonnet Peppers and napalm and Chernobyl waste into something and make it really hot. The issue is making it extreme and wonderful.It's not about just creating alcohol. It's about creating an entirely new and wonderful alcoholic beverage. To get huge [bitterness units] in beer is pretty cool, but only if it makes it taste really great. It's my belief that you push that with ordinary hops and you get way too much harshness - bad tongue coating. What we're trying to find out is if you use really great hops, which unfortunately are low alpha. You're dealing with fours rather than 14s so it's a little more difficult. But that's the kind of thing we can do. We can get the best hops in the world. We can take a year to figure out how to use them. We have trained brewers who have scientific backgrounds. And we have this passion for making really cool beers.

AC Discuss the differences between the approaches of Yuengling, which has confined its growth to the East Coast, and Boston Beer as a national brand.
JK I think Yuengling has done a fantastic job with a strategy that a lot of people told them was crazy. They've been very successful taking their own path, which is competing with the mass domestic beers with a darker and more flavorful beer. They have a huge market share in eastern Pennsylvania. They may have market share there that is competitive with Budweiser, which is an extraordinary accomplishment. Even here in New England, we don't compete with Budweiser. They are 25 or 5O times our size, so we're still very small. But Yuengling has found a way to get an enormous volume by bringing the mass domestic drinkers into something that is a little more flavorful. I admire [Dick Yuengling's] refusal to listen to everybody who told him he was wrong. A lot of people told me I was wrong when I started. I know what it's like to have people tell you you're doing it the wrong way because it's unconventional.

AC What are the challenges that are unique to being a national brand?
JK We we're successful because we expanded very slowly. It took ten years from when I started in Boston until we were national. One of the challenges is to have the patience to do it slowly and correctly.

AC What are trends for the light product?
JK It has followed the curve of a successful new product introduction. It came in and took off and got a lot of distribution and trial and then found a stable and successful level of volume. It is alongside Amstel Light as one of the two high end light beers that have been successful. Sam Adams and Amstel Light are the ones that are still around.

AC Has there been any cannibalization of the lager?
JK A little but not that much. It might be the same drinker but it's a different occasion.

AC Is there a glass ceiling for nationally distributed craft beers?
JK I don't think so. We've just had the biggest year we've ever had. Twenty years later we're still getting more and more people drinking Sam Adams. So I don't think so.

AC What about the seventh generation of Kochs?
JK I have four children. I have the same feeling about it that my dad did. 'Jim, it's your life. Do what you want. The fact that this is a 15O year old tradition, and six generations that will die with you [laughs]. Don't worry about it.' That's essentially the same with my kids. It's their life and the fact that they are the inheritors of one of the longest brewing traditions in the United States should not be a burden to them. If it's an opportunity, that's great.

AC What does the lager taste like to you?
JK [Closing his eyes]. I get the classic progression of body, then sweetness of the malt, then spiciness, then bitterness of the hops. I get beautiful balance between the two, where one does not overwhelm the other. I get this nice complexity - I get body, structure and mouthfeel that come from leaving some quasi-fermentable sugars in the beer. That's what the decoction mash basically does. I get some caramel note, a drop of sweetness. Then I get a very complex hop character. I get citrus, grapefruit, very slight spruce. I get that beautiful, indescribable, what brewers call 'noble hop' character. I get elements of all of those.\

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