“We can make beer grow again,” Boston Beer Company founder Jim Koch told thousands of beer distributors Monday during the opening session of the National Beer Wholesalers Association’s Annual Convention in Las Vegas.
Beer, by Koch’s definition, though, doesn’t stop at traditional suds, but includes anything made at a brewery, sold to a beer wholesaler and passed through beer retailers. Those products include FMBs, canned cocktails, single-serve wine, spritzers, hard kombucha and beverages that have not yet been created.
“I want everybody to think about beer differently,” Koch said during an opening day discussion with NBWA president and CEO Craig Purser and Dogfish Head founder Sam Calagione.
Koch views products that aren’t quite beer or wine or spirits as part of a so-called “fourth category” of alcoholic beverages, which he said amounts to about 500 million case equivalents in 2019, with the potential to grow to 750 million CEs by 2024. Koch added that there are about 20 million barrels in the fourth category, and it’s growing at a rate of 10%.
The fourth category looks like beer in many ways, as those products are sold in the cold box, check in at similar ABVs to beer, are sold in packages similar to beer and come with higher margins, Koch said.
“That’s the growth area in all of alcoholic beverages,” he said. “And we not only can and should play there, but we should win there.”
Nevertheless, Koch added that for the beer category to be healthy, the largest brewers must be healthy, as they are the gateway to new legal-drinking-age consumers.
“If they keep bleeding millions of barrels of volume, that’s bad for all of us, including Boston Beer Company,” he said.
“We can’t do it by ourselves — [Mark Anthony founder] Anthony [von Mandl], Sam [Calagione] and myself. We need the big guys to step up their game as well,” he continued.
In an effort to play better with the largest brewers, Koch said Boston Beer shelved a Truly Hard Seltzer ad in which comedian Keegan-Michael Key waters a plant with a light beer. (That commercial still lives on YouTube, although it is now unlisted.)
“We’re not running that ad,” he said to applause.
Although Koch called for more acceptance of products beyond traditional beer, he also cautioned against high ABV hard seltzers.
“There’s a company coming out with a seltzer in a 24 oz. can at 14% ABV,” Koch said, alluding to but not naming Phusion Projects and its planned Four Loko hard seltzer brand. “We have privileges because we’re the beverage of moderation.”
A 24 oz., 14% ABV hard seltzer is the equivalent of a 6-pack of beer and a shot of tequila, Koch continued. He said if someone drank that at his house in an hour, he wouldn’t let that person drive home.
“We have privileges, but we should also be responsible in how we do that and use those privileges,” he said.
The fourth category, for Boston Beer, won’t include CBD- or THC-infused beverages, for now. Koch said Boston Beer is focused on producing products in beverage alcohol and not the cannabis space.
“Let those guys sort it out,” he said. “We’re going to make really great stuff with alcohol.”
The conversation veered from beyond beer products to Boston Beer’s merger with Dogfish Head earlier this year. Asked about the merger, Calagione called it “intense” but “a blast.” He explained Dogfish Head’s reasoning for joining forces with Samuel Adams maker Boston Beer was national growth for Dogfish Head’s brands, as well as growth for the company’s workers.
“We believe we’re really well-positioned, with the No. 1 sales force in the country, to make something impactful across all of these categories that belong to the beer industry,” he said.
Calagione added that he’s been surprised by how “risk tolerant” Boston Beer is as a company. He added that Boston Beer CFO Frank Smalla “is just as obsessed with innovation and driving the topline of every category that we play in as Jim and I.”
For his part, Koch said Boston Beer had passed on 100 deals before inking a deal with Dogfish Head.
“This one made sense to me,” he said, adding that he’s “looking forward to doing some super cool things over the next five years” with Calagione, who he called one of the industry’s top innovators and creatives.
“The opportunity to partner with Sam and Mariah and the rest of the Dogfish Head team, that was basically a natural fit,” he said. “We basically said yes before we looked at the financials.”
Koch’s appetite for M&A appears to be satiated though. Asked if the Dogfish deal foretells future transactions, Koch replied: “I don’t have any big desire to buy somebody else.”