Market Maker
One of the hottest niche markets today is microbrewery beer, and this EOY runner-up is one of its creators.
When Jim Koch decided to become a microbrewer of beer -- giving up the secure life for which his Harvard degrees and tony consulting job had prepared him -- the niche he targeted didn't exist. Now, despite counterattacks by his huge, supercompetitive rivals, it does
EOY: RUNNER-UP
FOUNDER: Jim Koch, baby-boomer Fortune 500 consultant with three Harvard degrees, now 45
MARKET ENTERED: Beer manufacturing. Mature
industry dominated by big competitors (Anheuser-Busch, Miller, Coors)
STRATEGY: Make superpremium niche economically viable, based on product quality, guerrilla marketing
RESULT: Pretax profits of $14 million on sales of $180 million
* * *The main difference between Sam Adams, whose father was a brewer, and Jim Koch, whose father was a brewer, is that Adams didn't call his beer James Koch. Otherwise, each was passionately into causes, graduated from Harvard, did business in Pennsylvania, was a populist, and was a thorn in the side of the competition. It's appropriate, then, that in 1985 Koch sold his first case of Samuel Adams barely a block from the site of its namesake's 1776 brewery.
The sale occurred only a few months after Koch (pronounced "Cook") had given notice at his former job (as a $2,500-a-day consultant to big business), drafted a business plan, raised $140,000 on top of his own $100,000, and launched the Boston Beer Co. (BBC). Even then, the new brew, samples of which Koch carried in an executive briefcase lined with ice packs, was exceptional enough -- and Koch glib enough -- to persuade the barkeep to order a few cases. Elated, the rookie salesman was well down the street when he realized he'd forgotten to ask how many. (For the record, it was 25.)
No longer is "how many" a quantity that eludes BBC's founder, now that he's gone on from that bumbling beginning to become the country's 10th-largest beer producer, behind such family lines as Busch, Miller, Coors, Strohs, Heileman, and Pabst. In 1994 BBC sold $133 million worth of beer, for a pretax profit of $9.7 million; 1995 sales are estimated at $180 million, with income at $14 million. And, despite additional financing in 1987, which diluted his initial $100,000 investment, Koch owns 42% of the action (subject to possible adjustment because of 1995's planned initial public offering).
Like it or not, beer is the world's second-most-popular drink, next to tea. Which might explain the original Sam Adams's dumping the latter into Boston Harbor. More to the point, it explains how the big domestic brewers rack up commanding figures year after year (leader Anheuser-Busch's 1994 sales: $8.7 billion). Next to Anheuser-Busch's, Miller's, and Coors's combined 1994 production of 150 million barrels (a barrel yields approximately 52 six-packs), BBC's 700,000 barrels were a drop in the bucket. But they were enough to spirit the company to the head of the minuscule microbrewing niche. Really minuscule: despite its number 10 overall position, BBC manufactures only about three one-thousandths of the beer sold in this country. At that, its output is greater than that of the next six microbrewers combined.
What makes BBC's immediate acceptance and its 40% annualized growth thereafter so remarkable is that the company sprang from ashes. At the time of its founding, in late 1984, the ranks of colorful local breweries, which at their peak in the 1870s approached more than 3,000, had dwindled to fewer than 40. They disappeared "because they didn't make a product that was either cheaper or better. If you don't have one or the other," Koch holds, "you don't have a business." Not the least of the failures were the 13 breweries operated by his forebears, starting with great-great-grandfather Louis, who ran a brewery in St. Louis "when Eberhard Anheuser was still selling soap."
But since Jim Koch's arrival on the craft-beer scene, an estimated 500 small breweries and brew pubs have ventured to open, their ranks swelling at the rate of some 50 a year from 1985 on. Observers agree that the steep reversal was at least partly inspired by BBC's success and the publicity it received.
The success itself was spurred by as astute and imaginative a promotional barrage as the industry had seen. In addition to handing out the typical T-shirts and coasters, Koch and company peppered Boston and its environs with restaurant umbrellas, pub-menu chalkboards, and gala beer parties -- all touting BBC's brands. Koch himself took to the airwaves, drolly reciting 60-second spots of self-praise like a micro Iacocca. Eschewing "babes and hunks," BBC print ads educated drinkers about how to recognize and enjoy truly premium brew (and why they should expect to pay more for it), by inference taking competitors to task for not delivering the quality and consistency of Koch's offering. In grudging admiration of his merchandising instincts and sometimes abrasive infighting skills -- "You can't do what I do without being feisty," Koch concedes -- one major brewer recently responded to Koch's stated mission to make Samuel Adams the country's number-one-selling specialty beer by the deadline of the year 2006 with this curt appraisal: "He's going to beat it."
Not to say that Koch alone revivified the marketing concept of gourmet "craft" offerings concocted by neighborhood microbreweries. He was attracted to specialty beer after seeing an article about San Francisco's Anchor Brewery, taken over in the 1960s by one Fritz Maytag to revive the area's steamed-beer tradition. The article reminded Koch that if he remained in the safety of consultancy, he would be the first in his family in six generations not to become a brewer. He recalls: "I read the piece and thought, 'Maytag is making better beer than the imports right here in the United States! If I don't do the same thing, a tradition that's lasted for 140 years will die with me, and I'm going to be real disappointed in myself.' "
No need. In April 1984 Harvard M.B.A. (and Harvard juris doctor -- he's also a lawyer) C. James Koch resigned from the prestigious Boston Consulting Group (annual compensation: about $250,000) to become beermeister of his own fate (annual salary: exactly $50,000). Maytag's Anchor Brewery may have been his inspiration, but it wasn't his model. "Fritz had family money," Koch observes matter-of-factly. "He was a wealthy man when he went in, and he took two decades to turn a profit. My grandfather was a brewer. He didn't invent a washing machine, so I didn't have the luxury of lots of time and money. As a result, I started my company with two priorities -- making a great beer as soon as I could and getting people to drink it."
