Approximately 30 years ago, mass domestic beers ruled the industry, and the term “craft beer” didn’t even exist. Yet, sixth-generation brewer Jim Koch envisioned a niche for full-flavored domestic beers in the United States. Although he realized that his company would never have the economies of scale or mass marketing capabilities that the large brewers in the market had, he was sure that a small part of the market would enjoy a full-flavored craft beer. Therefore, he co-founded The Boston Beer Co. in 1984.

“My original business plan was that we would grow to 5,000 barrels, which was about $1 million in revenue, and then level off,” Founder and Chairman Koch says. “I was terribly wrong, but in the right direction.”

Within 15 years of launching Samuel Adams Boston Lager, craft beer became more accepted by American consumers, and the brand increased its distribution nationwide, he says. In the first half of 2013, the Boston-based company grew double digits, selling nearly 1.5 million barrels resulting in $341 million in revenue.

Named Beverage Industry’s 2013 Executive of the Year, Koch has led his company to success by investing in quality beer, creating a passionate company culture, and innovating with creative beers and beer alternatives. Nevertheless, the company would not have achieved all of its success if it hadn’t been for a few failures.

Lucky No. 15

After establishing his family recipe for Samuel Adams Boston Lager in the U.S. market, Koch extended the brand and developed a light beer called Lightship.

“I had this vision of a beer that would be brewed according to the German beer purity law, which only allows water, malt, yeast and hops — so just the classic ingredients — and would have the flavor profile of [an import beer] … with under 100 calories,” Koch says.

The beer survived for more than a decade but eventually failed, he notes. However, Koch’s interest in creating a flavorful light beer did not disappear.

“It’s something that I was always interested in, because there are light beer drinkers who are trying to cut back on calories — some of them wanted to cut back on calories but didn’t want to cut back on taste,” he explains. “So the idea of making a flavorful light beer was always on my mind.”

In 2001, the company introduced Sam Adams Light, which uses roasted malts to add color and flavor without calories, as well as a blend of Noble hops to balance the flavor, according to the Samuel Adams website.

“Sam Adams Light has done reasonably well, so in a way Lightship was not in vain — it just took 15 years to catch on,” Koch says.

This 15-year delay applies to many of The Boston Beer Co.’s brands. In 1988, Koch made the company’s first seasonal beer, Samuel Adams Double Bock, which still exists today but is not a top seller, he says. Nevertheless, it led to the company’s seasonal beer portfolio.

In 1992, the company began aging beer in used spirits barrels. The first aged beer was Samuel Adams Triple Bock. Like the company’s Double Bock, Samuel Adams Triple Bock was not a commercial success, but it led to the barrel-aging mainstay of craft brewing, Koch says. Furthermore, the beer eventually transformed into Samuel Adams Millennium and then morphed into Samuel Adams Utopias. These extreme beers are not meant to have mass appeal; however, Utopias has gained a cult following, Koch says.

Another example of the 15-year delay came when the company entered the hard cider market. Its first hard cider brand, Hardcore Cider, made its debut in 1997. Like craft beer, hard cider features natural ingredients, a traditional manufacturing process, and a lot of flavor, Koch notes. Interest-ingly, the hard cider segment was very popular in the United States until about the middle of the 19th century, he adds.

“It was a bigger thing than beer, really, until the wave of German immigrants came in the 1840s, ‘50s and ‘60s to bring beer in,” Koch explains. “[Hard cider] died out in America but stayed vibrant in Europe, so it was in that same kind of craft sweet spot.”

In 2012, as hard ciders started to regain popularity, The Boston Beer Co. launched Angry Orchard hard ciders, which now are among the top-selling hard ciders.

“Like many other things, Angry Orchard is now quite successful, but it began in failure and took 15 years,” Koch says. “We had 15 years of cider-making experience before we came out with Angry Orchard, and I think we applied all that.”

Building from strong bases

Despite growth across much of its portfolio, the company still makes up only 1 percent of the beer market and continues to compete against significantly larger brewers, Koch says. Therefore, The Boston Beer Co. has to exhibit “the strength of the weak,” he says.

“If you’re small and weak, you can find different ways of succeeding,” he explains. “Like for us, we don’t have mass marketing capabilities like the big guys do, but we have very passionate, committed salespeople, and that’s our strength.”

To encourage this passion, the company provides intensive training programs that develop various skills, including basic selling skills, beer knowledge and working with distributors, Koch says.

“That’s part of our culture is that we want people to constantly get better, so we have over a dozen courses that we’ve developed internally around different skills that we want our people to have,” he says.

Additionally, The Boston Beer Co. holds an annual homebrew competition for all of its employees. Koch selects three finalists from the submitted brews, and the winner is chosen by visitors of the brewery who vote for their favorite beer after touring the facility. The winning beer is then released commercially with the employee’s name displayed on the packaging. Hundreds of beers typically are submitted for this contest, Koch says.

The culture of the company is one of Koch’s Top 2 responsibilities at the company, he says. The other is the quality of the beer.

“I still taste a sample of every batch to this day, and I’m still involved in a hands-on way in the brewing and the development of new beers,” Koch says. “The other thing I worry about is maintaining the entrepreneurial, innovative and passionate culture of the company.”

These priorities allude to lessons learned during Koch’s life before The Boston Beer Co. when he worked as an instructor for the nonprofit educational organization Outward Bound and when he held the position of manufacturing consultant at Boston Consulting Group. At Outward Bound, he learned that culture and values can substitute for money and resources, and at Boston Consulting Group, he learned that a business can only be competitive if its product is either better or less expensive than the alternatives, he says.

Koch also took advice from his father, who was a brewmaster. “He always reminded me, he said, ‘Jim, remember, people drink the beer, they don’t drink the marketing, so focus on the beer.’” And that’s exactly what he’s done.

Selection by style

Each year, the company makes and releases approximately 70 beers, Koch says. These beers fall into one of five groups: Brewmasters Collection, Barrel Room Collection, Small Batch beers, Extreme beers and Seasonals.

The Brewmasters Collection explores classic or innovative beer styles, he says. For instance, Samuel Adams Cream Stout was inspired by traditional English sweet stouts and maintains those classic roots; however, Samuel Adams Double Agent IPL is more innovative.

“IPL stands for India Pale Lager, so it uses the hops that people identify as [India Pale Ale] (IPA) hops, but instead of an ale, we put them on a smoother, more elegant lager base, which people hadn’t done before,” Koch explains.

The Boston Beer Co.’s Barrel Room Collection features a yeast blend called Kosmic Mother Funk. The most recent addition to the collection is Samuel Adams Tetravis, which is the company’s interpretation of a traditional Belgian Quadrupel.

The Small Batch beers feature more flavor, more hops and more alcohol, Koch says. Samuel Adams Double Bock, for instance, contains 9.5 percent alcohol by volume, and Samuel Adams Imperial Stout has 9.2 percent alcohol by volume. The Extreme beers, however, push the limits even further. Last year’s release of Samuel Adams Utopias weighed in at 29 percent alcohol by volume. It comprises blends of beers that have been aged in a variety of wood barrels for as many as 19 years. In 2010, the company also partnered with Germany’s Weihenstephan Brewery, which is one of the oldest breweries in the world, to launch a Champagne-style beer called Infinium.

“We actually have a patent on the brewing process for Infinium, so to me that’s extreme — when nobody’s ever made it before, and Utopias is [one of] the strongest beer[s] in the world,” Koch says.

Most of these beers will not have mass appeal, but that doesn’t mean they’re not worth making, according to Koch.

“We think they’re cool beers to make and so we make them, and there may be things we learn from that,” he says. “We can then apply that to other things and maybe something will come out of it.” For instance, the company learned how to use cocoa nibs to get true chocolate flavor into a beer, and that eventually evolved into Samuel Adams Chocolate Bock, which now is part of the brand’s winter variety pack, he says.

The Boston Beer Co. also offers multiple seasonal beers in single-serve packages and on draught. The four mainstays are Octoberfest, Winter Lager, Alpine Spring and Summer Ale, but other seasonals also are available for a limited time in bottles only, Koch says. For instance, during the fall, the company offers Samuel Adams Octoberfest in bottles and on draught, but it also offers Samuel Adams Harvest Pumpkin Ale in bottles only. Most recently, its summer and fall seasonal beers expanded into a new packaging format: cans. 

After two years of ergonomic and sensory research and testing, The Boston Beer Co. released its custom-made Sam Can, which hit shelves this past summer.

“Before I would put Sam Adams in a can, I wanted to see if we could actually make a better can — a can that was really designed around optimizing the taste and flavor of Sam Adams,” Koch says. “We spent two years actually working with different design firms, can manufacturers — pretty much everybody that knew about cans that would talk to us — and out of that process came the Sam Adams can.”

The position of the can opening and wider lid naturally open up the mouth, allowing for more air flow, and positions the drinker’s nose closer to the hop aromas of the beer, the company says. Drinkers also will note that the extended, curved lip of the can delivers the beer to the front of the palate to maximize the early enjoyment of the malt sweetness, it adds. Samuel Adams Boston Lager was the first to make its national debut in the can, but this fall, Octoberfest joined the packaging format.

In order to accommodate this new packaging format, The Boston Beer Co. invested $1 million in special equipment tooling along with time, research and testing, it says.

“This new can will also cost more than the standard can to produce,” Koch said in a statement. “It may seem a little crazy to make that kind of investment, but we felt the slight improvement in the drinking experience was worth the expense. We made decisions based on the beer, not on the bottom line.”

Investing in self-starters

In addition to investing in his products, Koch decided to invest in a fellow craft brewer in 2011. Alan Newman co-founded the Magic Hat Brewing Co., which eventually became the ninth largest craft brewery in the United States, Koch says. However, when the company was sold in 2010, Newman was left to determine what his next step would be.

“As a founder who’s had my own success, I think I have a special appreciation of founders who are willing to start something from scratch and work hard and make it successful,” Koch says. “So, after Alan’s non-compete expired, I called him and said, ‘Do you want to get back in the beer business with me?’”

Now in its third year, Alchemy & Science is an independent subsidiary of The Boston Beer Co. operated by Newman and Magic Hat’s first employee, Stacey Steinmetz. Although the craft beer incubator has not achieved significant sales yet, it continues to progress with its existing brands as well as other opportunities, the company says. Alchemy & Science currently owns Angel City Brewery in Los Angeles, which is one of the oldest breweries in Southern California; The Traveler Beer Co. in Burlington, Vt., which specializes in shandy beers; and the Just Beer Project, also based in Burlington, Vt., which aims to simplify craft beer. The subsidiary also recently acquired rights to Shmaltz Brewing’s Coney Island craft beer brands. Plus, it is building a brewery in Miami, which Newman thinks is an underdeveloped craft beer market, Koch says.

“We have to be creative, entrepreneurial and innovative because, again, we’re competing with enormous big companies who can do so many things so much better than us,” Koch says. “What we can do is we can be innovative, creative and crazy because … I control the voting shares … so it gives me and it gives The Boston Beer Co. the ability to look at things with a 15-year time horizon and to make investments that take
15 years to pay off.”

Koch also invests in hard-working entrepreneurs and small businesses via the Samuel Adams Brewing the American Dream program.

“[This program] came out of my experience starting Sam Adams,” Koch says. “What I realized is a small business needs two things that it doesn’t have: one is access to loan money so that you don’t have to give away all your equity to get a $10,000 loan; and the other is good, solid, nuts-and-bolts business advice. The Brewing the American Dream program puts those two together for small businesses all across the United States.”

In partnership with microlender Accion, The Boston Beer Co. offers loans as well as industry-specific coaching, mentoring and educational resources to small-business owners in the food, hospitality and beverage industries, including craft brewing. To date, the program has funded more than 250 businesses and coached more than 3,000, Koch says.

“We’ve actually made loans to a dozen different craft brewers,” Koch says. “It sounds a little perverse, but we’re helping our competitors in a sense. In craft brewing, we’re all small, so my feeling has been that as craft brewers, we’re all going to grow together or we’re not going to grow at all.”

Revered by Dogfish Head Craft Brewery Founder and President Sam Calagione as the godfather of craft beer, Koch is determined to keep the industry growing.

When Samuel Adams Boston Lager first appeared in the market in the ‘80s, retailers didn’t know how to merchandise it, and foodservice operators didn’t know how to present it on their menus, he says. “Sam Adams was a domestic beer, but it had more flavor than the imports, so they didn’t know [whether] to put it with the imports or with the domestic,” Koch explains. Today, the landscape has completely changed.

“I think that the next 10 or 20 years will be a golden age for craft brewing,” he adds.

To remain competitive, The Boston Beer Co. will continue to put an emphasis on innovative, creative beers.

“I think there’s a lot of really great beers that have never been made yet, and I want to be one of the brewers who makes them,” Koch says.

Keeping it fresh

It’s not every day that someone jumps into a vat of stale beer to prove a point. However, The Boston Beer Co. Founder and Chairman Jim Koch does so from time to time to demonstrate that the company would rather put people into stale beer than stale beer into people, he says.

This reinforces the company’s Freshest Beer Program, which prints a consumer-legible freshness date on every beer and audits retail shelves for expired beer, Koch says. If an expired beer is found at retail, The Boston Beer Co. will pull it off the shelf, reimburse the retailer 100 percent, and crush the beer, he adds. The company also is in its third year of implementing a strategy to reduce the inventory of its beer that is carried by wholesalers. As of July, 120 wholesalers represented more than 65 percent of The Boston Beer Co.’s volume, and the company thinks this could reach 75 percent by the end of 2013, it says.

“Traditionally in the beer business, the wholesaler carries about a month’s worth of inventory, so that’s why they have those big warehouses,” Koch explains. “There are about a month’s worth of sales in there so that they never run out, and it also helps the brewery operate efficiently — they can have long runs and then put it in the distributor’s warehouse. But beer is perishable, so we want to reduce that inventory.

“From my point of view, that beer at the wholesaler, the longer it sits, the less fresh it’s going to taste when the consumer drinks it, so we are cutting the wholesaler’s inventory down from roughly a month to a week, and because there’s so much less beer in the wholesaler, they can easily keep it in cold storage,” he continues. “We’re virtually eliminating any loss of freshness between the brewery and the retailer.”

Q&A with Jim Koch

Beverage Industry (BI): How did you work to increase distribution over the years?

Jim Koch (JK): [In the beginning,] I would put two of those blue cold packs in my briefcase every morning — I could fit seven beers in there — and then I’d have a cooler in my station wagon, and I would go from bar to bar trying to get people to sample my beer and trying to get them to carry it in their bar or their restaurant. … So I sold and delivered the beer for the first 10 years, and by that time, we had pretty good volume and we had our own distributor at that point. I outgrew my station wagon pretty quickly, and we actually had a couple of trucks. … After it started doing well in Boston, then I got distributors calling from outside Boston. … Over the next 10 or 11 years, we slowly went national.

BI: What is your favorite part of your job?

JK: I have to say it’s tasting beer. That’s the best part of my job. It’s the part I look forward to, and luckily as we grow, I get to do more of it.

BI: How has your role at the company changed throughout the years?

JK: It hasn’t changed that much. When I started, I was basically spending my time working on the beer and then selling, and it’s still largely what I do.

BI: What role does sustainability play within the company?

JK: Like everybody, we’re trying to reduce the footprint of our breweries. One thing that is unique to us is I think we are the last brewer in the U.S. who actually refills their bottles. So in the deposit states, we work to get our bottles back and clean and sterilize them and then refill them.

BI: After going public in 1995, what has stopped the company from merging with or being acquired by another brewer?

JK: Obviously over all these years we’ve had opportunities, and I’ve always chosen to remain stubbornly independent, because I think it has served us well.

Crafty collaborations

Last summer, Boston-based The Boston Beer Co. teamed up with Berkshire Mountain Distillers Inc., Great Barrington, Mass., to turn its Samuel Adams Boston Lager and Samuel Adams Cinder Bock into whiskeys. The distilled Samuel Adams Boston Lager will age in vintage wooden bourbon barrels for two years, and the distilled Samuel Adams Cinder Bock will age in wooden oak barrels, some of which were previously used for Samuel Adams Utopias, for two years. The spirits are expected to launch in 2015. Once all of the barrels have been emptied, they will make their way back to the Samuel Adams brewery in Boston to be used for a new barrel-aged beer.

In the summer of 2011, Founder and Chairman Jim Koch teamed up with Sam Calagione, founder and president of Dogfish Head Craft Brewery, Milton, Del., to create Savor Flowers. The drink is based on three of the four traditional ingredients of beer — yeast, hops and barley — but instead of using water, the brewers created a rosewater base through an age-old distillation process. Koch and Calagione also added dried lavender, hibiscus, jasmine and rosebuds as well as a new floral hop from the Yakima, Wash., growing region during the brewing process to further enhance the beer’s botanical qualities. Then the brew was aged in the same bourbon barrel used to age Samuel Adams Triple Bock.