Sam Adams Creator Becomes Billionaire as Craft Beer Rises

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By BUSINESSWEEK

sam adams

Armed with a family recipe and a flair for marketing, C. James “Jim” Koch popularized craft beer in the U.S. and turned Boston Beer Co. into the second-largest American-owned brewery. It also made him a billionaire, as frothy sales of his flagship Samuel Adams brand helped Boston Beer shares double in the past year and reach a record high Friday.

Craft beer such as Sam Adams has been a bright spot in an otherwise stale U.S. beer market. Total American beer sales fell 2 percent in the first half of 2013, according to data compiled by Bloomberg, while the craft brew segment grew 15 percent. Boston Beer’s sales increased more than 17 percent during the period.

“What he has done is amazing,” said David Geary, president of D.L. Geary Brewing, a craft brewer in Portland, Maine, he co-founded in 1983. “He’s very focused, a brilliant marketer and he sort of taught us all how to sell beer.”

Through a combination of in-person proselytizing and folksy TV ads, Koch created widespread awareness in the 1980s and 1990s that there was more to beer than what the major U.S. brewers and European imports were offering.

Consumers have flocked to Boston Beer’s 70-plus offerings, including its most popular seller, Boston Lager, to small batch specialty brews, such as Norse Legend, a Finnish-style sahti that Vikings drank. The demand has sent Boston Beer shares up ten-fold since mid-2009, propelling Koch’s net worth above $1 billion, according to the Bloomberg Billionaires Index. He has never appeared on an international wealth ranking.

Niche Market

“Having watched my stock price go up and down and up, it seems almost whimsical,” Koch, 64, said in a telephone interview. “I remind people getting rich is life’s great booby prize. Any normal person would much rather be happy than rich.”

Selling craft beer has made Koch both. This week, Koch will travel to Los Angeles and Maine, where he will go bar-to-bar trying to persuade beverage managers to carry Sam Adams, something he has done since he started brewing beer in his Newton, Massachusetts, kitchen in 1984.

“Because this was something started out of passion, I’ve been able to sustain 30 years of growing the business with all the ups and downs,” Koch said.

‘Better Product’

Craft beer continues to require such hands-on sales calls. The segment occupies a niche in the $54 billion U.S. beer market, with about 6.5 percent market share, according to data compiled by Bloomberg. Together, Belgium-based Anheuser-Busch InBev NV (ABI), which sells more than 200 brands including Budweiser and Beck’s, and MillerCoors LLC, a 70-brand joint venture of London-based SABMiller Plc (SAB) and Denver-based Molson Coors Brewing Co. (TAP:US), control about 80 percent of the U.S. beer market.

Boston Beer has 1.3 percent of the U.S. market, just behind DG Yuengling & Son Inc., the largest U.S.-owned brewing company with 1.5 percent share. Its owner — and Koch’s friend — Richard L. “Dick” Yuengling, has a fortune valued at more than $2.7 billion, according to the Bloomberg index.

“The Street generally likes underdogs like Boston Beer and the way that they are growing share by producing a better product,” said Kenneth Shea, a beverage industry analyst with Bloomberg Industries in Princeton, New Jersey. “The mass-produced, industrial brands tend to be bland and undifferentiated.”

To avoid tasting too similarly to his larger competitors, Koch samples every batch of beer the company produces and leads purchasing trips to Germany each year to buy hops, according to the company.

Sixth Generation

Koch is the sixth-generation oldest son in a row to be a brewer. Born in 1949, Koch grew up in Cincinnati, where his father was a brewmaster. The domestic beer business had been decimated by Prohibition, a period from 1920 to 1933 when the U.S. outlawed the production and sale of alcoholic beverages. Grain rationing in World War II then steered public tastes away from richer-flavored small batch beers to lighter-styled brands such as Budweiser and Coors.

The emergence of national television advertising and ease of transport allowed the major beer makers to dominate the market. Seeing no chance to be a brewmaster, Koch decided to pursue a different career.


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