Boston Beer Co Profile

Jim Koch of Boston Beer Company

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Last month, the maker of Samuel Adams put 10 tons of hops up for sale to its craft-brewing competitors at cost—last year's much lower cost—adding only a nominal shipping fee. This took place in a hop market so tight that the Boston Beer Co. had to postpone brewing one of its one-off beers, a double I.P.A., because the hops it required weren't available at any price.

Selling the hops was a highly confident move for a company that had seen its stock drop 30 percent in one day only three months before. But Boston Beer has a good reason to be confident; it knows how to focus on the long term.

"The hops we use are very expensive and therefore have limited customers," explains founder and chairman Jim Koch. "We have to contract years in advance. You can't just show up and buy them. If you don't brew with a hop strain, if you don't buy it, they won't grow it. The way the market works now is how we've always worked." Boston Beer has similar contracts for malt and has developed proprietary malts with its suppliers.

The company is also changing how it brews in at least one important way: It's getting out of contract brewing. For most of its 24-year history, Boston Beer has relied on contract brewing, the practice of hiring breweries with excess capacity to make beer. Contract brewing brings some distinct advantages: Capital costs are much lower, labor negotiations are someone else's problem, and you can always go elsewhere. Contract brewing allowed Koch to focus spending on product development and marketing, a large part of why Samuel Adams is the biggest-selling craft beer in the U.S.

But contract brewing also has its problems: You're not first priority for production, the gross profit is lower, and you have to overcome an image problem when your "micro" beer comes from a large brewery. In Boston Beer's case, the challenge was even greater because the large breweries weren't in Boston, but the company has been mostly successful in getting past the issue.

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