Sam Adams creator Koch becomes billionaire amid craft beer surge

BOSTON — Armed with a family recipe and a flair for marketing, C. James “Jim” Koch popularized craft beer in the United States and turned Boston Beer Co. into the second- largest American-owned brewery. It also made him a billionaire.

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 tenfold 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.

“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. Last week, Koch planned to 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, Mass., 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.

Craft beer continues to require such hands-on sales calls. The segment occupies a niche in the U.S. beer market, with about 6.5 percent market share, according to data compiled by Bloomberg. Together, Belgium-based Anheuser-Busch InBev, which sells more than 200 brands including Budweiser and Beck's, and MillerCoors, a 70-brand joint venture of London-based SABMiller and Denver-based Miller Coors Brewing Co., 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, N.J. “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.

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.

After attending Harvard University for undergraduate and graduate school, Koch went to work for Boston Consulting Group in 1979, advising pulp and steel mills on manufacturing processes. When he decided he wanted to pursue his passion for beer, there were about a dozen craft brewers in the country, Koch said.

“Everyone thought I was crazy, like I was leaving consulting to go make mud pies,” he said. His original business plan was to be selling $1 million worth of beer in five years, have eight employees and pay himself a salary of $60,000.

When his father realized Koch was serious about starting a brewery, they went into the attic and dug out the recipe developed in the 1860s by his great-great grandfather Louis Koch. That became the basis for Boston Lager. Within a year, his marketing scored two boosts: taking the brand name from Samuel Adams, a Revolutionary War Patriot he found had a brewing connection, and getting the beer named the country's best at a national brewing festival.

By 1990, Koch had exceeded his business plan multiple times, selling $21.2 million in beer that year. Four years later, revenue topped $128 million.

To keep up with demand and avoid heavy capital investment in facilities, Koch began leasing excess capacity at large brewers in New York, Oregon and Pennsylvania. That rankled other microbrewers who had made large investments in equipment and felt mass production and marketing of beer was contrary to the ideals of the craft movement, according to Tom Acitelli, author of the book “The Audacity of Hops: The History of America's Craft Beer Revolution.”

“He taught consumers what to expect in an American craft beer,” said Acitelli in a phone interview from his Cambridge, Mass., office. “It's easy to look back now and assume it all would have worked out — that good taste would have triumphed — but it wasn't inevitable and Jim Koch helped that along, big time.”

In 1995, Boston Beer sold shares in an initial public offering at $20 a share. Some Sam Adams drinkers found offers in six packs that allowed them to buy their stock for $15 a share.

Today, the company sells more than 2.7 million barrels of beer, cider and malt beverage under the Sam Adams, Angry Orchard and Twisted Tea labels. Koch sees plenty of room for growth, noting that if craft beer continued to capture one percentage point market share each year, the sector won't catch up to imports until 2020.

The success also has inspired numerous other craft brewers into the business. There are 2,538 breweries in the country, more than at any time since at least 1887, according to the Brewers Association.

Koch, who mentors small businesses through a corporate philanthropic institute, said he offers one piece of advice to every entrepreneur.

“When you think about starting a business, the chances that it is going to make you rich are very small,” he said. “The chances that it will make you happy are pretty good. So when you go start a business, pick one that is going to make you happy.”