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Sunday, 22 January 2017 12:26

Craft beer pioneer and Boston Beer founder Jim Koch discusses the state of the industry

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Jim Koch, Founder and CEO, The Boston Beer Company Inc. Jim Koch, Founder and CEO, The Boston Beer Company Inc. Courtesy Photo

As the story goes, Jim Koch found his great-great grandfather’s lager recipe and decided to get into the beer industry. More than three decades later, the craft brewing pioneer and founder of The Boston Beer Company Inc. became perhaps the first craft beer billionaire based on the success of Samuel Adams Boston Lager. In the Harvard graduate’s 2016 book, “Quench Your Own Thirst: Business Lessons Learned Over a Beer or Two,” Koch discusses the management techniques he used to help grow Boston Beer (Nasdaq: SAM) into the fifth-largest U.S. brewery by sales volume. After addressing the Michigan Brewers Guild’s Winter Conference in Kalamazoo this month, Koch joined MiBiz over a beer to discuss the state of the ever-changing industry.

The craft beer industry started to plateau last year, growing less than 10 percent after a stretch of double-digit gains. You’ve seen ups and downs in your more than three decades in the craft beer industry, so what’s your best advice to small brewers who’ve only known growth? 

You have to transcend this total capitalist mentality and understand there are many forms of growth. There’s personal growth as a human being. That’s quite valuable. There’s growth by learning a little humility, for example. That’s a very good thing, that’s a valuable form of growth. There’s growth in your own capabilities and competences. It’s not automatic — maybe I’m going to have to listen to my customers a little bit more, and work on my quality and upgrade my brewing skills. That’s growth. It’s not, ‘Hey, now I have more money to buy more fermenters,’ but that gets old, too. 

Does an independent owner understand that better than big beer or a private
equity investor? 

That’s exactly right. People who have invested for purely financial motives: Hopefully, they’re grownups and they realize you have some things where you make a lot of money and some things where you don’t.

While the industry is in a state of change, where do you see it in five or 10 years?

I think there can be 300 more breweries in Michigan. Will any of them be the next Bell’s or Founders? Will any of them sell out to Spaniards for $100 million? Probably not. And if that’s your goal, you’re probably going to be disappointed. 

In other words, the craft brewers starting today will most likely remain small businesses 10 years from now. Given that, how does the definition of success change as the massive growth opportunities subside? 

When I started, my definition of success was that I could pay my alimony and child support and have something left over to live on — and do what I loved. I was fine. I made $17,000 in my first full year. That was awesome. … God knows, maybe you’ll be the next Sam Adams, but if it takes you as long as it took me, you’re not going to be the next Sam Adams until 2049.

How has the strong growth in recent years altered people’s perceptions of the craft beer industry? 

Small-scale brewing in a world dominated by giants has always been precarious. The success of craft beer and its entering the mainstream of culture in the last 12 years has maybe cloaked the fundamental reality that business is demanding. It’s challenging every day to survive and prosper in any business. The wonderful part about business is it’s competitive. You’ve got to keep growing, keep challenging yourself. … If you’re not excited by the challenge of doing really cool, amazing things that nobody else is doing, then you might as well get a more stable, safer job than craft brewing.

You also had a different strategy than most craft brewers in that you took Boston Beer public in 1995. With some of the consolidators today appearing to have a roll-up strategy ahead of a possible IPO and exit, what’s your assessment of the public market? 

To me, going public was great because on the one hand, all of my original investors who at that point had had their money in for 12 years without seeing a penny of it returned, they were able to get some liquidity. … That is a patient investor to get zero return for 12 years. 

Knowing what you know today, would you still pursue an IPO? 

I was able to go public without giving up control. The public shares are non-voting. I have all the voting shares. We have corporate democracy in a beautiful form: We take a vote, and I have all the votes.

While it’s no California or Colorado or Oregon, where do you see Michigan’s place in the industry? 

Michigan has an exceptional and unique place in craft brewing. Because of the latitude and the climate, you have a significant craft brewing industry, but also a significant malting and hop growing industry. In Michigan, it’s centered on craft — craft hops and craft malt. That’s unique, that’s pretty cool, and it’s happened in the last five years. … There’s now a craft infrastructure that extends back to the farm. 

When you look ahead to the next chapter for craft beer, what keeps you up at night? 

What keeps me up is just the drive to keep innovating, and that’s what keeps me going. If I had to get up every day and do the same thing that I’ve been doing for 33 years, I wouldn’t do it. But I love what I’m doing. … At this point, I’m still excited to wake up knowing that I’ve got a couple of 20-hour days in front of me. I know I’m going to enjoy it and I get to do unique and different things. 

Not many people look forward to 20-hour days, Jim. 

That’s the trade off. After 33 years, it’s still long hours, but it’s not hard work. 

Read 2693 times Last modified on Friday, 20 January 2017 12:42
Joe Boomgaard

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