Small player takes over big spot: Jim Koch, Boston Beer Co

Drug Store News, April 20, 2009

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Boston Beer Co., with less than 1% of total U.S. beer sales, now holds the spot as the nation's biggest brewery, a situation its founder and brewer Jim Koch calls "sad and weird." He's bullish on the future of craft beer, as he recently told Drug Store News.

Drug Store News: How is the economy affecting the beer category?

Jim Koch: The beer category is holding up quite well. People are still drinking, whether it's beer, wine or liquor.... Within the category, there are a number of things going on. Craft beer entered the recession with a lot of growth momentum. While we won't see the double-digit growth that we saw last year and the year before, we expect decent single-digit growth.

DrSN: So consumers are still treating themselves to craft brews?

Koch: In 2008, our costs were up 12.7% and prices went up 5%. Consumers accepted that, as they did with most foods. We also see people trading from wine to craft beer. Research suggests that consumers may be substituting mixed drinks or wine with craft beer. Consumers may feel that a $12 margarita or an $8 glass of wine is something they can give up. But they still want to do something nice for themselves, and a craft beer, [such as] Sam Adams, is a very acceptable, more affordable substitute at $4.50.

DrSN: How can the drug channel grab more craft brew business?

Koch: Grabbing more business is great, but grabbing more profitable business is even better. Two-thirds of beer drinkers make their purchase decisions in the store, so retailers need to pay a lot of attention to what's visible and make sure the best positioning goes to the most profitable beer. Do they have it at eye level? What are they doing with point-of-sale? Are they blocking brands together to create a billboard? When retailers stack out large pack promotions, they can boost profit by putting a better beer next to it.

According to the last 30 days of data from Data Development Worldwide, 2007 Beer Usage and Attitude Study, only 22% of mass domestic drinkers drink only mass domestics. So, if retailers were to offer side-stack displays of craft/imports next to sale-priced mass domestics, they may have a greater chance of increasing the dollar amount of the sale. Retailers should make the customer walk past the Sam Adams, Heineken and Corona to get to the 30-pack of Keystone Light.

Retailers also have to be careful about creating trade down and protect their higher-end sales against margin vampires. You don't want to put Miller Chill or Bud Lime next to Corona--a $6.99 six-pack next to an $8.99 six-pack. They need to have all the products, but not next to each other.