Critical Drinking

Someone Tell Jim Koch About the After Party

Jim Koch, a godfather of U.S. beer and the man behind Sam Adams, had a pretty big prediction published in The New York Times this weekend, ruminating on what Big Beer is doing to the industry through distributor consolidation and brewery purchases. "...if we continue down this path,” he opined, “we may be witnessing the beginning of the end of the American craft beer revolution."

Throughout the op-ed, Koch points at AB InBev and MillerCoors moving into craft acquisition, distribution consolidation, and more, furthering a long-simmering feud the Boston Beer head honcho and Anheuser-Busch have had for more than two decades. All things certainly worth considering for any business owner involved in beer these days. But what’s the source of this strongly worded doom-and-gloom?

After all, this is the same person who just last year said Boston Beer has lost market share "as new craft brewers enter the market and more existing craft brewers are expanding their regional distribution."

So which is it? The big, evil conglomerates or the upstart little guys? It sure sounds like both, especially when Koch cites "variety and innovation" created by direct craft competition as inspiration to push Sam Adams to launch products like their nitro line of beers while rapidly expanding and changing its Rebel IPA series.

But why now? What is it about this moment that has created such worry for one of the most famous, wealthy, household names in beer?

While reading Koch's column, a couple answers immediately came to mind:

• The annual Craft Brewers Conference is this week, an ideal time to sound the rallying cry for the 5,300+ Brewers Association-defined "craft" brewers. The same kind of conversation was created during last year's event, even though it's pretty clear craft has arrived, prominently and definitively.

• On April 26, Boston Beer will have its Q1 earnings call. The last one was...not good. In fact, the company projected a 2017 decrease in the amount of its beer getting to consumers: as low as -7% and high (best case!) +1%. Is this a way to get ahead of that upcoming performance report? A chance to show how and why Boston Beer isn't up to par?

Maybe that’s all conspiracy-theory thinking, no better than the rise Koch is looking to get from his own words. For years, he’s talked warmly about how the U.S. market could support up to 10,000 breweries. But as the industry as a whole has grown and supported so many businesses, all those new breweries and brands have slowly chipped away at Boston Beer's share, not just Bud, Miller and Coors.

There was the 15% decline in shipments to start 2017, which found Boston Beer pointing at a poorly performing seasonal release, Hopscape. Meanwhile, it's been a minute since I've seen or heard anything about the Nitro Project, even if those beers were among some of the top new brands of 2016. Koch has noted consumer interest is now more focused toward “new, small and local.” Maybe that’s why Sam Adams is now releasing a special beer just for Cincinnati, where the company has long brewed its beer.

In his Times op-ed, Koch talks about distribution advantages held by big brewers like AB InBev and MillerCoors, but fails to mention key points applicable to both he and his "craft" brothers and sisters:

Boston Beer already has "more clout than most when it brings a new product to market. That has worked in its favor in the past, but its size may be working against it now."

• The distribution system is changing for the smallest brewers in the country. "Own-premise" sales at breweries continues to reach record highs and distribution laws are changing or being fought to allow for greater flexibility for breweries themselves, whether for self-distribution or adjusted contracts. In Boston Beer's home state of Massachusetts, there are potential changes for which Koch himself has lobbied.

"The growth and the excitement in the beer business is in craft, and its potential is threatened by a beer landscape that is heavily tilted toward gigantic foreign-owned conglomerates and against the independent, innovative entrants," Koch writes, glossing over the nearly 3,000 new breweries the Brewers Association has tracked as opening in the last five years.

Craft's potential may be impacted by market forces, but those forces are coming from other craft breweries as much as "gigantic, foreign-owned conglomerates." This isn’t a one-platform issue.

“I’m not going to compete with the big boys like Anheuser-Busch," Koch wrote in his 2016 book, Quench Your Own Thirst: Business Lessons Learned Over a Beer or Two, reflecting on his mindset as he prepared to launch Boston Beer in 1984: 

"I know they’d kill me. But there’s another way. I’m going to look for drinkers who appreciate good beer and who would pay a premium for richer, more flavorful beer. I’m sure those drinkers exist. If I just focus on making a better beer, I know somebody will drink it.”

We now know those drinkers did exist—and today come in greater numbers than before. But they’re savvier and more promiscuous than ever, too, constantly considering the many other options around them. That's not a sign of “the beginning of the end of the American craft beer revolution.” That sounds like there’s lots of fight to be had.

Which is why a red flag immediately flew as I read this op-ed, especially considering its timing and placement. Koch is a brilliant businessman overseeing a publicly-traded company. As a whole, the "craft" side of the industry is doing well, even if growth isn't as fast as it was just a few years ago. Brewers have long talked about the Threat Of Macro as a kind of apocalyptic prophecy, but that dark worldview is more clearly seen through the prism of the largest beer companies whose share continues to be challenged. AB InBev and MillerCoors face declining sales, but New Belgium, Sierra Nevada, Yuengling, and Boston Beer all have tougher roads ahead as well, as small and regional craft snaps up what momentum remains in the category. 

From where I stand in the beer aisle, things are still looking good in spite of whatever political, legal, and commercial challenges lie ahead. As a drinker, there are a record number of options, offering us whatever we want, whenever we want. Increasingly, these beers are made up the street at breweries with no plans to take over the world, much less write an op-ed about Big Beer.

In a 2009 speech at the National Beer Wholesalers Association convention, Koch spoke about the rise of "better" beer (by “better,” he meant “craft and imports”) and its place among the future of American drinkers. In the years since, it's become evident the future has arrived, though perhaps it’s not the exact future Koch had envisioned for his own company.

The same day Koch's op-ed ran in The New York Times, Boston Beer’s stock price dipped to $137.65, its lowest point since January 2013.

Words by Bryan Roth
Graphics by Hillary Schuster

Bryan Roth

Bryan Roth is a writer living in Durham, North Carolina, who's been recognized by the North American Guild of Beer Writers with a "best blog" award for his site, This is Why I'm Drunk.

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