The Steve Jobs of Beer
Ambition made Jim Koch, the head of Sam Adams, a billionaire. It also opened America to a craft-beer renaissance.
In TV commercials for Sam Adams beer, Jim Koch is always smiling or laughing. While Koch (pronounced “Cook”) was walking me around the Sam Adams headquarters, on the site of a restored 19th-century brewery in the Boston neighborhood of Jamaica Plain, tourists kept stopping to wave at him, crowd around him for pictures, and shake his hand. “Enjoy your beer! Thanks for coming!” he called, more sunny-seeming than most politicians working a crowd. In ads, he is usually shown holding a beer or happily licking foam from his lips, and generally looks as if he has been sampling his products all day—which he told me recently he does. Early this year he told Esquire that by swallowing a teaspoon of yeast before each drink, he cut the impact of its alcohol by half. “It works!” he told me, with an excursion into the details of yeast’s metabolism, which he said allows it to break down some of the same alcohol that other yeast has produced. “But I do it only so often, because frankly I don’t mind the alcohol.”
Beneath this boozily disarming presentation is one of the most cannily successful entrepreneurs of our time. When Koch graduated from Harvard College, in 1971, there were barely 150 breweries, large or small, in America. By 1984, when he started the Boston Beer Company with Rhonda Kallman, consolidation had eliminated all but 100. Now the number of small breweries is just over 3,000, with permits on file for 1,500 more. As my wife and I have visited cities for our American Futures reports on economic turnarounds, we’ve come to take the presence of craft brewers—and their more hip counterparts, craft distillers—as important markers of cities that are attracting the young and ambitious. A town with a craft brewery has a sense of the “local,” plus entrepreneurs who start the businesses, plus mainly young customers who spend time and money there.
Koch says that there is an economic explanation for the spread of craft beers—as a share of disposable income, a six-pack of fancy craft beer now costs no more than a six-pack of Bud did 30 years ago, due to a relative fall in food costs—and an even more important cultural one. “It’s the phenomenon of trading up,” he said, describing the process that in a generation has changed America from the country with the worst selection of good beers to the one with the best. “People want more variety. They are drinking less, so they want to drink better. They want interesting, complex flavors.” This force, he said, drove the interest in wine starting 30 years ago, in craft beer over the past decade, and in craft spirits more recently.
Boston Beer, the company that makes Sam Adams, went public in 1995, with the ticker abbreviation SAM. Based on his holdings, Koch is now a billionaire. No one goes as far in business as Jim Koch has without creating enemies, or at least critics. The main gripe about him boils down to a sense that he’s posing as a friendly small-town publican when he is actually big enough to muscle others around. Sam Adams’s sales are more than double those of its nearest craft-beer rival (Sierra Nevada, of California) and nearly triple those of the next-largest (New Belgium, of Colorado). Visitors soak in the Olde Boston charm of the Jamaica Plain brewery, but the largest Sam Adams production site is near Allentown, Pennsylvania. The IRS applies a lower tax rate to beer from breweries with output below 2 million barrels a year, a level unchanged since 1976. Sam Adams, whose output now exceeds 3.4 million barrels, no longer makes that cut. Koch, along with other brewers, has lobbied Congress to increase the ceiling to 6 million barrels, which would save Sam Adams millions of dollars in federal taxes per year.
As controversies go, this strikes me as, well, small beer. Koch points out that all craft breweries, together, make up well under 10 percent of total U.S. beer sales. Their sales and market share are rising quickly, while the major brewers’ sales have been going down, but the gap is still immense. “After 30 years of trying, we’re all the way up to 1 percent of national market share!,” Koch said. For comparison, Anheuser-Busch sells about 125 million barrels.
Koch didn’t tell me, but other craft brewers I interviewed around the country did, that he has gone out of his way to help small start-ups. A brewer in California said that during the disastrous (for the industry, and for devoted customers like me) world hops shortage of 2008, Koch shared some of his hops stockpile, at cost, with smaller brewers. One in Pennsylvania told me this summer, “I figure he created the business we’re living in. To me, he’s our Steve Jobs.” Koch’s differences in personality and background from Steve Jobs are obvious. Still, there is this parallel: Koch has made a very successful business out of satisfying a demand people didn’t know they had.
Jim Koch’s father was a brewer, in Ohio. Back through the generations, from the time the first Kochs came to the United States from Germany in the 1840s, the eldest son in each generation had run a brewery. Jim Koch had little interest in the family business, and thought he would break the string. “I watched my dad lose his job every year or two, as the small breweries got driven out of business first by regional and then by national breweries,” he said. “I was going to go a different way.”
After college and business school, he became a consultant with the Boston Consulting Group, specializing in manufacturing. But eventually he felt that he’d stopped learning new things about businesses, and started getting weary of the consultant lifestyle. So he decided to start a small company of his own, returning to the family heritage he thought he had left behind.
His initial business plan foresaw production of 5,000 barrels a year after five years, with eight employees and total revenue of $1 million. “I thought it would level off then, and that was the plan on which I raised my money.” In reality, five years in, his volume and revenue were 20 times higher than projected, and the business was still growing by almost 50 percent a year. Since then, its annual growth rate has averaged 15 percent.
“The primary thing that happened is that people drank the beer,” he said. Six weeks after its appearance, Sam Adams Boston Lager won a contest for Best American Beer. “It’s not that we were smart or daring or full of virtue. It was a new taste”—based on an old taste, a recipe his great-great-grandfather had used in the 1870s—“that people liked, and drank.”
“It was just embarrassing to be an American when everybody laughed at our beers,” he said. “Every time I’d hear the stupid canoe joke I’d get so pissed off.” (Review: Why is drinking American beer like making love in a canoe? Because they’re both fucking close to water.) This year Koch got something like the Nobel Prize in brewing, as the first American ever invited to give the main address at the Brau Beviale, a worldwide beer gathering in Germany. “Today, for people who pay attention, American beers are generally considered to be the best beers made in the world,” he told me. The U.S. has more new breweries and a wider range of styles than any other country, which has earned it a reputation as the place where beer’s future is being created. “We didn’t get there in wine,” Koch said, since California contends with rather than flat-out surpasses France, Italy, etc. “We’re there in beer.”
“In the big picture, the spread of craft beers truly is good for America.” When Koch said this, he entirely dropped the jokey pitchman tone and leaned across the sudsy table to speak earnestly. “We’re part of the manufacturing renaissance! If there was no craft-beer movement, people who wanted more-flavorful beer would be drinking imports. These are high-paying blue-collar jobs”—he said the median company salary is $55,000—“created out of import substitution. What’s better than that?”
Still serious, he said: “And the best part is, it came from a bunch of misfits, people who didn’t fit the normal paths.” He went down a list of colleagues who’d left or been fired from their jobs, who’d tried and failed at a variety of businesses but had found themselves in this new movement.
“America seemed the least likely place in the world for the history of beer to swing on its hinge and open a door nobody had seen before. But it happened here!” He was back in his genial-salesman mode, but he meant it.