Jim Koch is a multi-generational brewer, but it was a tax loophole that inspired him to start his brewery and create Samuel Adams.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
[Waukee Feet Ad]
Dave Young:
Welcome back to the Empire Builders Podcast. Dave Young here, along with Stephen Semple and Stephen whispered in my ear that we’re going to talk about another beer today. Sam Adams. Sam Adams. Samuel Adams.
Stephen Semple:
Samuel Adams.
Dave Young:
I don’t know the story. I know that it was a brand that wasn’t in my vocabulary in my younger years, perhaps, and that might have been a geographical thing. I’m not sure. So let’s learn all about Samuel Adams beer.
Stephen Semple:
Yeah, so Samuel Adams beer is owned by the Boston Brewing Company, and it was actually the first brand for the Boston Brewing Company. And the Boston Brewing Company is now publicly traded and does a little over $2 billion in sales and has 2000 employees and it was started in 1984 by Jim Koch.
Dave Young:
Oh, okay. See, I graduated from college in ’84, so it wasn’t a college beer that I was drinking.
Stephen Semple:
See, there you go. That was probably part of the connection. Plus it was a bit of a, plus it was a little bit of a premium price. You might have been a cheap ass student. Who knows?
Dave Young:
Oh yeah. Oh yeah.
Stephen Semple:
In its first year, it’s estimated they sold about 10,000 barrels of beer, and today it’s one of the largest craft brewers in US selling about little over almost four and a half million barrels of beer in 2020.
Dave Young:
You could say these guys blazed the trail into craft beer.
Stephen Semple:
Oh, no. They really were one of the early ones, and really did very much lead the trail in many ways. Look, there were other ones around. They were new to the whole craft beer area. And the thing that’s interesting, what’s unusual about this story, so many of our other stories were started by people who were outsiders. And in some ways, Jim was an insider because Jim grew up with beer. He’s actually a sixth generation brewer from Cincinnati. His family grew up in beer. His history goes back to Johann Koch, who in the mid 1800s started brewing beer when he immigrated to the United States from Germany back in the 1800s. And his great-great-grandfather was also a brewer in St. Louis. And here’s the funny thing about his great-great-grandfather.
One record I found states that Samuel Adams, is that his great-great-grandfather was Samuel Adams, and that’s the Sam Adams that inspired the name. And another spot I found that the inspiration is the Samuel Adams founding father, who also happened to be a brewer. So there seems to be a lot of confusion about where did the name come from. In addition, another record I found said that his great-great-grandfather’s name was not Sam, Samuel Adams, but Louis Koch. So who the heck, there seems to be some real confusion in terms of which records, but they all agree, his great-great-grandfather brewed beer in St. Louis.
Dave Young:
Okay.
Stephen Semple:
And when we talk about St. Louis, there were a lot of brewers in St. Louis. If you remember-
Dave Young:
Oh, yeah.
Stephen Semple:
… when we talked about Budweiser, there was one brewery in St. Louis for every 600 people. So it was like a beer mecca. I was not able to come across the name of the brewery. That seems to be lost in history, but what we do know is that it was successful and well liked in the German community. And then Jim’s grandfather was also a brew master in Cincinnati for Hudepohl Brewing Company, which at the time was one of the largest in the area. So it’s kind of in their blood and kind of this whole idea of doing German style beer was kind of in their blood. So Jim grew up brewing beer. He had often helped his father brew beer in the basement. They kind of did that and gave beer away. But he also went to the technical University of Munich where he got a degree in brewing and fermentation science.
Dave Young:
Oh, I did not know that was an offering there.
Stephen Semple:
Yeah, it has.
Dave Young:
But it makes sense that it would be.
Stephen Semple:
Yeah, he went off to Germany to learn how to brew beer, and he worked for a number of breweries for a period of time. Then he attended Harvard where he got his MBA. And following Harvard, he worked for the Boston Consulting Group where he did a number of consulting gigs there. And while there, he discovered a loophole in US tax law. And basically he founded a brewery in 1984 to take advantage of this provision in the excise code, which allowed small brewers to pay much lower taxes than large brewers.
Dave Young:
Okay.
Stephen Semple:
But we also have to admit beer brewing was in his blood. His family had done it. Great-grandfather, grandfather, dad went and took a degree in brewing. And yes, then while working he found this loophole and went, here’s my opening to launch a brewery.
Dave Young:
And you got to start small anyway.
Stephen Semple:
That’s right. That’s right.
Dave Young:
Nobody just sets out to be a big brewer on the opening day.
Stephen Semple:
Yeah, and it was this little provision that very few businesses had taken advantage of and was really there to help a small business get a foothold in the industry. So when they launched Sam Adams, this tax loophole allowed them to be priced lower than other premium beers, still be priced at a premium, but priced lower than the premium beers that are being made by the large breweries. So in 1985, Jim launches Sam Adams beer. He invests 100K of his own money, and he borrows some money from family and friends. He also gets some bank financing, and he was able to lease a small brewery space in Boston. So he used a recipe that he had inherited from his great, great, great-grandfather for Boston Lager. So again, like the Sleeman story where there’s this old recipe that the family held onto, there’s still this old recipe in the family that someone had held onto that he went, “You know what? This is the beer I’m going to brew.”
Dave Young:
Let’s make that beer, what people love with their beer, with their whiskey, with any kind of recreational beverage, a good story.
Stephen Semple:
A good story. Yeah. So it was this traditional, full body beer using this process called decoction mashing, which involves boiling a portion of the grains before brewing.
Dave Young:
Okay. Boiling it.
Stephen Semple:
Yeah.
Dave Young:
Okay.
Stephen Semple:
It was a very different process. And then the second beer they came up with was a light version of Samuel Adams. And then in 1995, 11 years after founding, they went public under the symbol Sam raising $27 million and at the time of the IPO it was the most successful craft brewer in the United States was $70 million in sales, and they really paved the way for craft brewing. And the first ad that they ran was a radio ad. I wasn’t able to find the ad, but I was able to find some information about the ad. And it featured the history of beer, and how their beer was different.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Empire Builders Ad]
Dave Young:
Let’s pick up our story where we left off. And trust me, you haven’t missed a thing. Again, man, so you tell that little story, that’s enough for me to say, “Yeah, I’ll try it.”
Stephen Semple:
Yes.
Dave Young:
Sure.
Stephen Semple:
Yes.
Dave Young:
Oh, cool story. I’ll try it. What’s the cost of entry. I’m going to go to my local bar and they’re going to say, “Yeah, we’ve got that new beer on tap, that Samuel Adams stuff.” “Oh, yeah, I’ve heard the story. Yeah. Let me have one of those. If I don’t like it, I’m not going to have another one.”
Stephen Semple:
It’s like an earlier episode that we did on Sleeman’s ale, which was a Canadian craft brewer and what got them going was the whole idea of, again, the story. The family story of being shut down by prohibition and the family originally pirates who became brewers, and the recipe was lost and the family refound it. All of that stuff makes you go, “Oh, that’s really cool. I should give that a try.” So we’ve seen that before. That was back in episode 68 where we talked about Sleeman’s in that history, although what’s interesting is that you could tell though from Jim’s path, he had been wanting to get into the beer business. Where John Sleeman had no desire to get into the beer business. I think it’s safe to say that Jim was looking for his opportunity. Then when he found this whole tax angle, I think that’s the thing that allowed them to go, okay, here’s how I’m getting into it.
Dave Young:
Yeah.
Stephen Semple:
You don’t travel to Germany and take fermentation science if you’re not interested in eventually becoming a brewer, let’s face it.
Dave Young:
Yeah, absolutely. Do you know what role channel marketing had to play in the success, especially in those first days, if you’re going to put a radio ad out for a new product that’s a beer, you need to be able to tell people where to get it and how to get it. Is it on tap at your local pub? Is it in cans in the supermarkets, in the liquor stores? Did they have distribution strategy as such?
Stephen Semple:
It was very difficult to find information on what did they do at the time of launch in terms of distribution. Here’s what I believe that they did, and if somebody knows better I’m quite happy for them to correct me on it.
Dave Young:
Oh, absolutely. Yeah.
Stephen Semple:
Is that I believe that the early distribution was through local bars like on tap, because that’s the-
Dave Young:
Yeah, that makes sense.
Stephen Semple:
And that’s a traditional way that many of these get started because first of all, it’s easier to convince some local restaurants and bars to carry it. It’s an easier distribution model because you’re not having a bottle and glass and have all that. You’re putting it in kegs. So that’s the traditional approach it goes. Because today it’s much, there’s a whole section when you go into stores today that is craft beer. Like, man, there’s aisles of craft beer today. But craft beer was not a thing in the eighties.
Dave Young:
And it would be a challenge in the eighties because you think about there were a few establishments that had large selections of beer and some even with large selections on tap. But man, your typical little place maybe only had four taps.
Stephen Semple:
Correct. Yes
Dave Young:
Right. A couple of one brand and a couple of another.
Stephen Semple:
Yeah. You didn’t have, again, that whole [inaudible 00:12:43] thing where you went in and there was a whole slew of taps. So distribution definitely would’ve been a challenge. But here’s also what he recognized. No matter what distribution method he was using, just getting it in taps or even just getting it into stores or just making the right product was not enough. He still had to advertise directly to consumers, which they did on radio to stimulate that demand.
Dave Young:
And don’t forget, has to be a good product.
Stephen Semple:
And it has to be a good product.
Dave Young:
Right. The bartenders have to like it. The waiters have to like it, and then the patrons. And when you can tie a good story to it and then get people to taste it and they like it, you’re off to the races.
Stephen Semple:
But the other thing that they did have working for them is it would’ve had a very different flavor. So it definitely would’ve stood out in the marketplace. Like today to stand out in the craft beer business is significantly harder because there’s so many, it’s sort of one of those catch 22s. It was hard for them back then because there was no one in craft and they were paving the way. But when you start paving the way, you get that explosive growth because you are the one paving the way, and you’re different. Today it’s much harder because it’s really hard to stand out in the craft beer space.
Dave Young:
And so if I have any memory of the early days where Sam Adams was showing up, it’s that, yeah, people said, “Oh, they have Sam Adams. I’ll have that because it’s different.”
Stephen Semple:
Correct. Yes.
Dave Young:
Right. It’s like, “Oh, I’ve had it. It’s different. It’s not like all the other stuff on tap.”
Stephen Semple:
Yes.
Dave Young:
So I’ll have one of those, and if you don’t have it on tap, I’ll have a bottle.
Stephen Semple:
Yes. It’s the early push that would’ve been the big challenge for them, which again, is why they used mass media advertising and created this story, and calling it a Boston Lager would be kind of interesting when you’re doing it in the Boston area. But what I found that was really interesting was Jim, he really, he followed his passion. He followed his passion, was in the family history. He got education on it. He then got a business degree, did some consulting, but you could tell from the way this laid out, he was waiting for his opportunity to get into the beer business. It was going to be that or some other way that it was going to happen. But he was really following his passion, but he chose to become educated on it. It wasn’t just dove in going, this is my family tradition and I have a passion on it. He really got educated in the industry.
Dave Young:
So if you have a passion, start learning more about it. Learn about what makes it so interesting to you, what makes it interesting to other people.
Stephen Semple:
Yes.
Dave Young:
You may find a business opportunity at the end of that passion.
Stephen Semple:
And it may even be a business opportunity that was very different than what you were expecting, such as, oh, here’s this loophole in the tax act.
Dave Young:
Yeah. Cool story. Let’s raise a cold one to Samuel Adams next time we get together, Stephen.
Stephen Semple:
Absolutely. Because you know what? It’s actually not a bad beer. Not a bad beer. Yeah.
Dave Young:
All right. Thanks a lot.
Stephen Semple:
Thanks David.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to [email protected].
