Boston Beer Co Profile

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Then there's the most critical point, which only arises as sales rise to Boston Beer's current levels—volume figures for 2007 aren't yet available, but the company should be over 1.5 million barrels (more than 47 million gallons). Finding a brewery with that much spare capacity becomes difficult, the ones that have it start to see you as a real competitor, and you can't piece together your production from too many different places without affecting the consistency of your product.

In late 2007, after inconclusive negotiations over a site for a new brewery in Massachusetts, the company announced that it would purchase a Diageo facility in Pennsylvania's Lehigh Valley. Boston Beer planned to pay $55 million for the brewery, which could potentially sustain its production needs for the next ten to 15 years. The shift in strategy bumped Boston Beer's stock to a record high of $55.30 on November 6.

Then the company issued its third-quarter statement. Boston Beer, it said, would be spending between $60 million and $100 million on additional capital improvements to the new facility. The company also expected a 10 to 14 percent increase in production costs (for hops, malt, and glass) and intended to continue investing in its brands at "high levels." Boston Beer also reported a 46 percent decline in quarterly profit because of increased production costs. The stock hit a low of $31.25 about two weeks later and is currently trading at around $36.

Profit statements like that are hard to face. But Koch strongly believes that the Lehigh Valley purchase is the right move. It will bring virtually all of Boston Beer's production in-house, he says. The additional capital investment is "more than just lunch money," he says, but the brewery needs improvements—an automated kegging line, for instance—and repairs to basics like the roof and brickwork.

Still, the bones of the place are solid. This was where Pabst Brewing made the beer that won most of its large number of Great American Beer Festival medals, and there were years when this brewery won more of them than any other. Koch noted that the facility was designed to make old-school lagers, brewed to full strength and aged in traditional horizontal tanks for longer periods of time. "It's well suited to the beers we want to make there," he says. Boston Beer even had some brews made there in the late 1990s; Koch hopes to be back in the facility by June or July.

Put it all together and Boston Beer looks pretty good. The craft-beer segment is growing steadily, and the company has costs under better control than most domestic competitors, while imported specialty beers are taking a beating from the weak dollar. Price increases—which should be less than its competitors'—in 2008 will partially offset the rising costs.

No wonder Koch is confident enough to lend a hand to his fellow brewers.

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