Right now in the craft beer industry, it’s all about growth.
2011 saw double-digit growth, in dollar sales and of volume of craft beer brewed. More than 600 breweries plan to open in the next two years and over 50 opened last year. Smaller breweries are struggling to keep up with production and demand and bigger breweries are being forced to pull out of markets.
As founder and president of Boston Beer Company, the second-biggest American-owned brewery, Jim Koch knows a thing or two about growth. Sam Adams produces about 2 million barrels of beer a year and distributes it in 50 states and 20 foreign countries. Sam Adams is the leader of the craft beer industry—yet it only owns less than 1 percent of the market share for the entire US beer market.
That’s just one of the paradoxes that comes with growth.
As Koch points out: “We’re all small.”
So what is it like to be one of the biggest breweries in a relatively small industry? Well, sometimes it’s being an underground indie band that starts playing to sold-out arenas. Those who loved you when you were small are now suspicious of you selling out, and start listening to the newer, lesser-known bands.
In a blog post titled, “Paradox of Popularity,” Koch talks about this conundrum, in a response to a long, tiresome Beer Advocate thread about overrated breweries (Sam Adams, Sierra Nevada and Dogfish Head were repeatedly brought up as overrated and overhyped). Koch described how Sam Adams lost an account at a high-profile Boston restaurant in 1985 because the owner said the brewery had gotten “too big”—even though they were only open for five months and were in just 80 places in the world.
It’s hard to think about Sam Adams as a start-up brewery--of a young Jim Koch driving around Boston selling Boston Lager out a station wagon--but that’s how he started 28 years ago. Nearly three decades later, Koch had a lot to say about growth--how Sam Adams has used growth to their advantage, and why he will never sell out--in a phone interview with Honest Pint.
You’ve gone from starting the first wave to being the godfather of craft beer. That’s quite a position to be in—what has it been like to go through that?
Jim Koch: It’s probably a bigger deal in other people’s perception. My job hasn’t really changed that much from the beginning. It’s just in more places. When we started, we only had one truck and a station wagon. We didn’t have a distributor. Nobody would take my beer so I had to go out and sell it myself. … We were limited to a few areas and we took care of those bars. So that part hasn’t really changed that much—it’s the same thing in more places and with more different beers. I think the industry has probably changed then a lot more than my job has changed.
You mentioned on the blog that you were only in 80 places in the world when a restaurant owner said you were too big and dropped the Sam Adams account.
[Laughs] Yea, that was my first experience with this. It was maybe five months after I started. I was shocked. I was like, are you kidding me? We’ve still only got one truck, we’re only in 80 places. We’re still in danger, we’re not even making money. Is anything that doesn’t go out of business is too big?
It was actually pretty funny because I was driving back from the Brewers Association meeting with two other brewers and they were complaining how they were getting thrown out of places because they are too big. I told them the story and was like, ‘Guys, this has been part of my life since practically day one.’
So having that experience early on has given me some perspective on the fact that there are always going to be people who love you when you were small and obscure than by making great beer and making it available to more people—that is looked on as a bad thing, even though the quality of the beer has improved, the flavor is more consistent, you have access to better ingredients and brewing.
It made me understand that there are people who don’t really drink beer, they’re drinking the image, and if your image isn’t small and obscure, then they don’t want your beer.
They weren’t really drinking your beer in the first place, they were drinking your image.
Do you think this is the kind of thing that every big brewer will run into?
That thread on BA mentioned virtually every really good brewery in the country who has been even modestly successful.
To me this has been a fact of life since 1985—that there are people who if you make great beer and succeed by making great beer don’t want to drink you anymore. After 27 years of hearing this, I don’t pay much attention to it because we continue to make great beer and grow as a result of it.
In the last 28 years, many breweries didn’t make it and I think the vast majority of them didn’t make it because they didn’t make great beer. So I’d rather succeed by making great beer than cater to people who only want something obscure and often not very good.
Sam Adams is often referred to as a gateway beer—as a beer that gets you into craft beer. Is that a term you’re comfortable with?
It’s an interesting term. It’s like Sierra, which has also been put in the same category. What’s interesting is that Sam Adams Boston Lager is a pretty challenging beer. It’s over 30 IBUs, it’s a big, malty beer. It’s always been a beer that requires the drinker to accept a higher flavor profile than a lot of the easier drinking, more sessionable craft beers.
What characterizes Sam Adams is we’ve been very focused for 28 years that when you order a Sam Adams, no matter where you are in the country, what kind of bar you are in, you are going to get a reliably rewarding craft beer experience bcause we have quality and freshness standards that are the highest in craft beer.
Because one of the things with beer is it’s perishable—it has to be fresh and so a beer which has small sales runs the risk of being stale. And I know because when we were very small, or even for the first five years, it was a constant battle. And there was a fair amount of stale Sam Adams way back because the turnovers were lower and as we’ve gotten bigger the beer is fresher. So on top of that we’ve done two things we couldn’t do when we were smaller.
One is we do tens of thousands of draft quality audits a year. Salespeople all over the country go into draft accounts and they audit the beer quality, and if it doesn’t meet our standards, we will work with the account to make the changes they need to. Maybe they need to clean the lines more frequently, maybe they’re leaving detergent residue on the glassware, maybe they’re pushing the wrong gas. There’s a lot of reasons for bad things to happen to good beer. A vast majority of our volume moves through accounts that we’ve audited to upgrade the quality of the draft. We couldn’t do that when we were little. We had to hope that our beer was well-treated everywhere it was available. Now we actually ensure that.
And second, we have a different supply chain, with our wholesalers called the Precious Beer Program. What we’ve done is cut the wholesaler’s inventory down by two-thirds. A normal wholesaler keeps roughly month worth of beer in warehouse—we’ve got a program to narrow it down to a week, to ensure the beer is that much fresher. We were also the first brewery in the US to have consumer legible freshness dating on every bottle.
As we’ve grown we’ve used that success to upgrade quality of the beer.
I don’t know if it’s a gateway beer. I would think of it as more of a reliably rewarding choice.
Somebody can have a Sam Adams and know that that beer is well made and well taken care of, where if you have something else, there’s a greater chance that probably doesn’t meet that brewer’s standard.
It’s interesting because for many people Sam Adams is their first craft beer drinking experience—I know it was mine.
Well, it’s always been that way. As a pioneer, we were the first craft beer that a lot of people had. When your first craft beer experience is a Sam Adams that means it’s going to be a good one and they will be interested in trying other Sam Adams and other craft beers.
Back in the ‘90s when craft beer exploded for the first time, there was a lot of bad beer out there and it turned a lot of people off craft beer. In the mid-‘90s craft beer had a really uneven reputation. If you had a Sam Adams and you really liked it and then you tried some other craft beers, it wasn’t very long before you had a bad one. That put a damper on craft beer growth.
It’s always been important to the category that there are beers out there like Sam Adams that are more likely to be your first craft beer experience and more likely to be therefore a really good experience.
Going back to the BA thread—some people responded to your blog post as saying that the reason they weren’t critical because of Sam Adams’s size and popularity but because of the taste of the beer and the price. How do you respond to that?
I guess that’s why you can’t take every opinion from every drinker literally. And one of the things we’ve always like to do is enter our beers in blind tastings. Ever since the beginning we’ve always scored in the top of those tasting because people, again, are tasting the beers.
What would you want people to most know about Sam Adams? What is most important to you?
Most important is how good it tastes and why. I started this in my kitchen 28 years ago and it’s pretty clear to me why Sam Adams became successful—because we made a great beer from the beginning, we never compromised on the recipe or the ingredients. As a result, we continue to win awards all over the world. It all comes down to the quality of the ingredients, the care and intention in the recipe and the pride the brewer takes in their craft. And none of that has changed an iota since I started. That’s why it tastes the way it does and the way it tastes is why it’s been successful.
It’s an interesting, sort of funny thing—a trap we all fall into—that we think we like the things we like because we’re intelligent, discerning and rational, but things that are successful are successful because of marketing. And yet we know when we consume something we consume it because we think it’s good and we believe we’re not really influenced by marketing, but then we assume that everyone else is. And from what I’ve seen by watching craft beer evolve over nearly 30 years is that the beers that prospered did so because they were good beers.
There’s this idea that if something becomes well known, it must have sold out. Because that’s often true.
What is unique about craft beer is that successful breweries were successful because they never sold out.
I started Sam Adams way back and I’m still here and I’m still responsible for the beer.
I have certainly had offers but I never sold out. The same thing is true for Sierra Nevada, about Dogfish Head, about New Belgium. Most successful craft brewers did not sell out. That’s unique in craft beer. …
I used to keep this list of entrepreneurs that I’d known that I’d heard give impassioned pleas about how bad corporate America was and then very quickly ended up selling. When it got to 20, it was so depressing, I stopped keeping it. I remember the last one was Tom’s of Maine, selling to Colgate-Palmolive. We have this experience with so many other things, and with craft beer it hasn’t happened.
Why do you think that is?
I think it’s because we all do have so much pride in our beer. We love our work. Many of us started from nothing, so we’re happy having what we have now and aren’t trying to get some huge pot of gold. We’ve already burned down the pot of gold and after you do that a few times, it kind of sets your mind right about what you’re doing this for, which is because you really love beer. I think it’s a testament to how much the original founders love making beer.
I’ve heard you say before that Budweiser spills more beer in a year than you make. What will it take for craft beer to get a bigger slice of that market?
Well that’s another piece of irony in this size issue: we’re all small. I’ve always felt like I’m making beer for the 5-10 percent of the population that really wants rich, flavorful beer. And I’m not making beer for the 80 or 90 percent of the population that wants refreshment, thirst-quenching drinkability. And there’s nothing a matter with that. Most people, when they drink a beer, they want refreshment and they don’t want the flavor to be too intrusive. And that’s fine.
My father was a brewmaster and I remember he told me, “Jim, all beer is good. Some beer is better, but all beer is good.”
Coming from a brewing family, I’ve never looked down my nose at the big mass-market brewers.
My grandfather was a brewmaster for a whole bunch of breweries and people who worked at the big breweries were my grandfather’s friends, my father’s friends. They were very good, very caring brewers who were just making something different.
I realize that most people don’t want rich, flavorful beer. And that’s okay! If it ever became really mainstream, I probably couldn’t survive because the big guys would put us all out of business. As long as we stay relatively small, relatively special, we can survive. If craft beer ever became 50 percent of the market, there probably wouldn’t be any craft brewers.
What does the future hold for Sam Adams?
There’s always new beers. I’ve got almost 10 new beers I’m working on—this is a great time to be a brewer. Some of them we’re barrel aging, some are new styles, we’ve got some more single batch beers in the pipeline, and other variations on things we’ve done before. I could think of 10 beers we’re working on and I think most of them will eventually get out of the brewery.
This is just a really exciting time to be a brewer and being a brewer at Sam Adams because
we’re just in a sweet spot of being big enough to have the capabilities to make a world-class version of any beer I can imagine and small enough to want to do that.