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December 6, 2008

It’s All About the Beer, and Independence


WHEN Jim Koch, a sixth-generation brewer, started Boston Beer Company in 1984 with an old family recipe, he was one of a few pioneering craft brewers in a field dominated by Miller, Budweiser and Coors.

Now, a wave of consolidation has radically altered the brewing landscape. In November, shareholders of Anheuser-Busch agreed to a $52 billion acquisition by the Belgium-based InBev, creating the world’s largest beer maker (now called Anheuser-Busch InBev). That follows the merger in July of the United States operations of SABMiller, with roots in South Africa, with Molson Coors Brewing Company (itself a merger of Molson Inc. of Canada and Adolph Coors Company of Colorado), into a new entity called MillerCoors.

With less than 1 percent of beer sales in the United States, Boston Beer is now the nation’s leading independent brewer.

In addition to its signature Sam Adams lager, Boston Beer produces more than 21 types of beer, including seasonal ales, Chocolate Bock and Utopias, a beer aged in oak barrels that sells for $140 for a 24-ounce bottle. Still, the company has struggled in recent months to manage a voluntary recall because of defects in bottles from one of its suppliers, the acquisition of a new brewery and a broadening economic slowdown.

Mr. Koch recently discussed the beer market.

Q. It’s an interesting time in the beer market, wouldn’t you say?

A. There has probably been more change in the last four months than at any time since Prohibition. Ninety-five percent of the beer made in the United States is controlled by two companies, one based in Belgium and one in South Africa. It’s stunning.

Q. How does it feel to be the country’s largest independent brewer?

A. It’s bizarre and sad. It’s a little like your kid’s Little League team winning the World Series because no one else showed up.

Q. How have things changed since the early days of the craft brew movement?

A. For years, craft beers were a largely ignored curiosity in American beer. When I started Sam Adams, beer drinkers had two choices: mass-produced domestic beer that was consistent and well made — the equiv of fast food — or imports. The mentality of beer was completely different. No one thought about beer as having quality differences.

Over time, Sam Adams and the whole craft movement began to slowly change the way Americans think about their own beer. Today, the center of creativity and quality in brewing has migrated from Europe to the United States.

Q. And now, there are 1,400 craft brewers in the United States?

A. Yes. Roughly 1,000 of those are brew pubs, while others are making some of the most interesting beer around.

Q. Does the competition worry you?

A. No. Beer is where wine was 25 years ago. We are at the beginning of an explosion in interest in beer. There’s a generation of beer drinkers who have grown up expecting to get great beer. They are really driving the market. Sam Adams is starting to become available in places that it was never was, like convenience stores. We are growing in Wal-Mart.

Q. When you’re the No. 1 brewer, and you’re in Wal-Mart, do you worry that that takes away from your pioneer craft beer image?

A. There will always be people looking for novelty and obscurity. I’m not trying to be obscure. I’m trying to change the way Americans think about beer.

Q. Boston Beer reported worse-than-expected third-quarter results and lowered the outlook for 2009. What happened?

A. Sales were actually a little better than expected. We had a number of accounting charges. One of them was some residual charges from the recall back in April. We thought we closed the books on it and then we got the last bit of beer back from our wholesalers. And we had to accelerate the shortfall fees we pay to other breweries as we ramped up our new brewery in Pennsylvania, and there were some things with the tax rate.

The thing that I’m most worried about is what we call depletions — the beer that got shipped out of wholesalers to retailers. It’s the closest proxy we have to how much beer people drink. That was up 12 percent, compared to 10 percent last quarter. But it’s really more a continuation of the trend.

Q. Consumers have been cutting back on all kinds of discretionary spending. Has that included beer?

A. We haven’t seen that happening yet. Beer as a category is recession-resistant — nothing’s recession-proof. A quality beer is a very affordable luxury. People will cut back on a lot of things before they give up on something that’s so affordable. But we don’t know. We’re looking week by week at whether the economic situation is going to affect our drinkers. I was at an account in Philadelphia the other day. He said what’s really been hurt is the high-end margarita. They’re not buying the luxury vodkas.

Q. Are people buying more beer at the store and drinking it at home?

A. You bet. And that kind of benefits Sam Adams. That’s one of the very democratic things about beer. If you are a wine connoisseur and want to experience a world-class wine, it’s going to cost you around $100.

Q. There’s a lot of experimentation in brewing lately. Tell me about your extreme beer.

A. Extreme beer was a term I coined back in 1994 to describe a beer we had invented called Triple Bock. It was the beer equivalent of extreme sports: 35 proof, 17 percent alcohol. At that level of alcohol, there’s no longer carbonation. It didn’t taste like a beer. It tastes like a tawny port, maybe with some old sherry notes, and a bit of that savory character came from the yeast. It has evolved into Utopias. The boundaries of beer are much farther out than people realize. Extreme beer is brewers’ way of pushing those boundaries.



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