An Entrepreneur’s Guide to Food Industry Success
Advice is cheap, but advice from a successful food industry entrepreneur is worth a listen by the thousands of start-ups that have burst onto the scene in recent years.
The entrepreneur in question is Jim Koch, founder and brewer of Sam Adams beer. He’s also former president and CEO of Boston Beer Company Inc., the company that did for craft beer what hundreds of food start-ups are trying to do for free-from and better-for-you products that are trying to: disrupt the food & beverage mainstream.
Thirty-two years after he left a safe and stolid job as a management consultant and 31 years after selling his first 4,000 cases to Boston bars and restaurants, Koch’s “Quench Your Own Thirst: Business Lessons Learned Over a Beer or Two” has been published by Flatiron Books.
It’s become almost standard practice for food start-ups to focus on sales and marketing while farming out production to a copacker. It was somewhat unusual in 1984, particularly in the craft beer business. While his contemporaries were committing limited capital into equipment and then fighting an often losing battle to gain distribution, Koch and his partner drafted a hit list of 100 Boston watering holes with clientele deemed adventurous enough to sample a richer, fresher tasting brew than the existing market could offer. By the time he took delivery of the first batch order from Pittsburgh Brewing Co. in April 1985, he was well on the way to converting every surviving bar and restaurant on that list to a Sam Adams customer.
Patience, a superior product and a high-touch sales force were crucial components. “It took four years to get the formulation right,” says Koch, “and drinkers might love it or hate it, but nobody said ‘It’s just another beer.’ No one would mistake a Sam Adams for a Bud or Coors. It was a revolution to the taste buds of the drinker.”
Retail distributors weren’t interested in carrying a product without any advertising behind it. Koch couldn’t afford six-pack cartons, anyway, making foodservice the distribution channel of necessity. A company’s culture and values—in this case, a commitment to better beer--can be leveraged to form personal relationships, he reasoned. “I didn’t have a lot of money or resources, but I had table tents, and I took the time and effort to put them up in bars and restaurants after asking in a nice and thoughtful way and explaining, ‘This will help you make money.’ We were David for so long, and people want to support the little guy.”
Sales reps also asked managers to put Boston Lager on the back bar, at eye level. “Eye level boosts sales 60 percent, and there is no amount of advertising you can do to boost sales 60 percent,” he says. The same request would later be made to retailers. “They would shift Bud below, and if you asked them why, they’d say, ‘Because August Busch never came into my store.’”
Even after three decades, Koch continues to call on retailers and foodservice managers one or two days a week. “It can be demanding and grueling,” he allows, but “when the guy who actually makes the product visits, it has an impact.” It also provides an understanding of how that customer makes money.
Continuous innovation and a refusal to rest on one’s laurels also have been critical to Boston Beer’s success. In 1988, the firm pioneered freshness dating, buying back and destroying the equivalent in today’s dollars of $6 million of out-of-code beer from distributors. Long before other brewers recognized drinkers’ thirst for variety, specialty and seasonal styles joined Sam in the lineup. Other craft brewers may look down their noses at reduced calorie beer or malternatives like Twisted Tea, but that last product rings up $200 million in annual sales.
“The rest of the world is looking to the United States for innovation and quality in beer,” says Koch. Every month, he hosts German brewers who visit to learn “how are we able to get 20-somethings excited about beer. Beer is boring in Germany,” where young adults are turning to wine, instead.
Based on the book’s disparagement of marketing, you’d suspect Koch had a bad encounter with a marketer as a child. Nonetheless, pull-through marketing in the form of advertising and promotion is one of Boston Beer’s distinguishing features. It’s unclear who actually coined the term craft beer, but there’s no question who popularized it. Thirteen months after introducing Sam to the market, Koch was promoting it on WBCN radio as part of a barter deal. “Take whatever publicity we can get and always look for more” was the simple strategy. Ten years later, the first ads aired on TV.
The conventional wisdom holds that successful food startups eventually are acquired by large corporations, where ingredient compromises and production shortcuts gradually degrade the end product. The alternative scenario is a public stock offering that results in the founder’s loss of control. Koch rewrote that script in 1995 with an IPO in which he retained all the voting shares, a tactic copied by Mark Zuckerberg of Facebook and Google’s Sergey Brin and Larry Page. In the process, he stuck a finger in Wall Street’s eye, giving 130,000 drinkers an opportunity to buy shares at a price $5 a share below the opening-day price paid by institutional investors.
Conventional wisdom also suggests that, beyond a certain point, entrepreneurs must turn control over to professional managers. While he gave up the titles of president and CEO long ago, he remains firmly in control as chairman of a $1 billion company. Citing the example of Steve Jobs and others, Koch notes, “It’s turned out that founder-led companies have tended to outperform other companies.”
“Quench Your Own Thirst” tells the story of Sam Adams & Co. and the nonlinear growth of the craft beer movement that Koch played a central role in instigating. It’s also a useful how-to guide to creating a food company with integrity and managing it through the peaks and valleys of the business cycle.