The Boston Beer Company (NYSE: SAM) is the largest craft brewer and independently-owned brewer in the United States. The company sells various variations of Samuel Adams beer, Twisted Tea flavored malt beverages, and HardCore hard cider.
Boston Beer Company began in Jim Koch's kitchen in the early 1980's. The first beer he ever brewed was based on a family recipe from the 1800's.The company is based out of Boston, Massachusetts and currently owns three breweries.
Prior to the prohibition, the U.S. beer industry consisted of hundreds of small breweries who produced full-flavor beers. After the prohibition, domestic brewers moved towards lighter, simpler beers, which are made of cheaper ingredients and can be mass produced in order to take advantage of economies of scale.
The alcoholic beverage industry may be lucrative, but it is highly regulated and taxed. Federal, state, and local laws govern and regulate many facets of operations such as production, distribution, marketing, permitting, licensing and distribution relationships. There is risk involved with this area of business because failure to comply may result in higher taxes, penalties, and fees, which may hurt company financials.
The company sells their beer primarily in domestic U.S. markets, but they also target select international markets. These markets include Canada, Europe, Israel, the Caribbean, the Pacific Rim and Mexico. As you can see in the graph on the right, of the seven markets that Boston Beer Company serves, none of the seven are ranked as being one of the top ten beer consuming countries.
Boston Beer Company receives revenue through three main alcoholic beverage segments, which are listed below.
Boston Beer Company's main claim to fame is their beer segment, and more specifically, the Sam Adams Boston Lager brand. The company takes great pride in this craft beer and continuously tests qualities on the lager. One unique aspect of the Sam Adams brand that competitors do not offer is the variety, specialty, and seasonality of flavors. For example, Heineken N.V.'s premium staple beer, Heineken, only offers the one type, no matter what season it is. The Sam Adams varieties fall within six major categories:
The chart below shows the number of beers in each category. As you can see, Boston Beer Company covets their original staple lager, and only offers two varieties. This proves that the company is not trying to dilute their most popular beer by differentiating it too much. One other notable statistic from the chart is the large number of Seasonal beers. This creates customer loyalty because beer drinkers will always be looking for new seasonal beers, or old favorites, at local stores. Also, very few beer drinkers consistently drink the same beer, so by offering a change by season allows Boston Beer Company to capture anticipation of change.
Below are some examples of Boston Beer Company's beers:
Samuel Adams Boston Lager: Original This is a full, rich flavored beer that is both balanced and complex. It's brewed using a four vessel brewing process. It is made up of very fine ingredients, including two-row malted barley and Bavarian noble hops, which are hand selected by Jim Koch and other Boston Beer Company brewers. It is the company's most popular and best selling beer. After 6 weeks of being introduced in the 1980's, it was named “The Best Beer in America” at the Great American Beer Festival.The only other beer offered by Boston Beer Company within this category is a light version of the same beer. This version is aimed to compete with popular U.S. domestic light beer, such as MillerCoors Coor's Light and Miller Light, and also Anheuser-Busch's Bud Light. It offers a similar lighter taste for drinkers who prefer that, but is made of a higher quality.
Samuel Adams Octoberfest: Seasonal Octoberfest is a worldwide fall harvest festival, which is celebrated with an Octoberfest flavored lager. March is the last month in which brewers can start the cold storage process of beer production. The beer is aged during the summer months, then enjoyed in the fall, during the festival. Sam Adam's version is made with five different versions of roasted malt. This creates many unique blended flavors that include caramel and toffee. Sam Adam's seasonal varieties cannot be matched by any large competitor, in terms of quality and product depth.
Samuel Adams Cherry Wheat: Brewmaster's Collection This ale has a unique cherry flavor because it is actually brewed with Michigan grown cherries. It has a fruitful taste, which mixed with the cereal flavors of malted wheat and finished with a touch of honey for sweetness. This ale is lighter on the palate compared to others, and therefore appeals to a wider demographic of drinkers, specially those who do not fully enjoy the beer flavor. Sam Adam's Cherry Wheat proves that Boston Beer Company tries to target as many drinkers as they can in order to drive revenues.
Samuel Adams Imperial White: Imperial Series
Sam Adams Imperial White is a witbeir, which is a belgian style ale that's very pale and cloudy. It is brewed with malted wheat and large quantities of three different malts. It has flavors of dry fruits, exotic spices, and floral blossoms. This beer is most similar wine or spirits, making this a fuller flavored beer that's illegal in Idaho, Mississippi, and South Carolina. 
Samuel Adams Stony Brook Red: Barrel Room Collection
This is a dark red-brown beer, with a slight haze. It is similar in taste and consistency of red wine. This beer goes through two oak barrel fermentation processes. It pairs well with meats, and has a toasty oak flavor. This beer, like the Cherry Wheat, proves that Sam Adams has a wide variety. It is appealing to wine lovers because of its similar taste and color. 
Samuel Adams Utopias: Speciality Beers Although this beer is not a top seller, it is of the highest quality. Sam Adam Specialty Beers are harder to find than popular blends. This particular beer is barrel aged for about 16 years. It has such a high alcohol content, that it is banned in most states. The beer is aged in many different casks, so no two beers taste alike, but all taste smooth. Casks are usually reserved for Whiskey producers, but Boston Beer Company decided to try it. Utopias is a top of the line luxury beer, and sells for about $500 each. This just goes to show the wide range of beers Sam Adams offers. You can enjoy anything from a light craft beer, to a cherry infused beer, to a luxury cask aged beer.
Boston Beer Company also produces a different type of alcoholic beverage called Malt Beverages. Like many beers, they are also brewed with barley, and are sometimes referred to as ales or lagers.  In addition to beer, Boston Beer Company produces a "Hard Iced Tea" malt beverage called Twisted Tea. They are, essentially, Iced Tea with alcohol. As of 2011, Boston Beer Company offers the following flavors:
Once again, this just goes to show the extreme differentiation of products that Boston Beer Company offers. Not only do they offer a wide variety within the beer category, which ranges from light, to flavored, to wine inspired, to speciality, but they also offer a wide variety within the Malt Beverage category. It is brewed under the tradename Twisted Tea Brewing Company.
Last, but not least, Boston Beer Company offers an alcoholic cider called HardCore Cider. This beverage is an alcoholic apple cider. It comes in the following flavors:
This is Boston Beer Company's least popular segment because it is not heavily marketed like other items. But this should not be of much concern because of the wide breadth of beers and malt beverages.
Competition within the beer industry is extremely fierce. Due to the highly categorized structure of the industry, there are threats coming from all angles. For example, Boston Beer Company is the leading craft beer, but in most instances, beer drinkers will be more than willing to drink a light domestic beer or a local micro brew instead.
Anheuser-Busch InBev and MillerCoors LLC make up 90% of all U.S. domestic beer production, excluding imports. They have over 50 beers and 3 energy drinks, with their main beer being the Budweiser family. The others are various brands that they have acquired and brew. Even though they have so many beers, they do not offer as much of a variety as Boston Beer Company.
Heineken N.V. is currently the number two brewer by revenue internationally because of their recent acquisition of FEMSA Cerveza. Other than their recently acquired Cerveza, which offers 4 different kinds of beer and many Mexican soft drinks, they only offer Heineken beer. The interesting thing about Heineken is that they offer mini kegs for home use, and a kegerator draft pull to hold these kegs, both of which Boston Beer Company does not offer.
MillerCoors LLC is most similar to Anheuser-Busch because they both offer similar beers and they both have acquired and brew other beers. MillerCoors has about 30 different kinds of beer, with their main staple beers being the Coors and Miller families. Although their light beers are meant to appeal to the masses, and the company sacrifices some quality to do so, they also offer even lower quality beers for drinkers who are on a budget. Boston Beer Company does not offer such a beer, and may be losing out in that market.
Grupo Modelo S.A.B. de C.V. is a Mexican brewer who offers about 13 beers, and imports several more, such as Anheuser-Busch's Budweiser. Their most notable beer is Corona, which is also popular in America. In addition to beer, they also have a partnership with Nestle Waters to make and distribute bottle water. This is a very strong market to be in because of Mexico's poor quality of tap water. So poor, in fact, that BBC recommends boiling the water first or drinking bottled water.
In 2009, SAM generated a net income of $31.1 million on revenue of $453.4 million in revenue. This represents a 284.7% increase in net income and a 0.9% decrease in total revenue from 2008, when the company earned $8.1 million on $449.6 million in revenues.
Like its competitors, Boston Beer Company has been profitable for several years. This comes as a result of the popularity of beer, strong management, and quality product. As you can see in the graph on the left, SAM has maintained a strong Return on Invested Capital of over 15%. This suggests that the company is efficiently using its capital for operations, whereas a company like MillerCoors could improve on using capital, because they have an ROIC of about 7%. You will notice in 2008 that SAM's ROIC dipped dramatically. This was caused by recessionary issues, and other beer companies also felt that impact. Unfortunately, in a recession, consumers cut spending by sacrificing extras (such as beer), or trade their premium Sam Adam's beer for a cheaper Anheuser-Busch beer. One other point that should be mentioned regarding this graph is SAM's ROIC for 2010. You can see that it's the highest its been in the last 7 years. Most of SAM's financials were relatively similar as the year prior, except for Operating Profit which skyrocketed. This suggests superior management and a well run company.
Boston Beer Company tries very hard to promote product quality and their brewers are always testing the beer. They even offer a unique perk to their distributors, which is that they can return beer if it goes stale, so as to ensure that it is not sold and consumed. Upon receiving the stale beer, Boston Beer Company destroys the beer, and makes note of the accrual in their financial statements. The stale beer expense is noted as a reduction in revenue. Like other brewers, they also offer a date on their label, so that consumers can see how fresh the beer is.
Like most beer companies, Boston Beer Company sells their beer directly to distributors. The distributors then sell that beer to grocers, party stores, bars, restaurants, sports arenas, etc. Very rarely will the brewer sell directly to consumers. Boston Beer Company has a network of about 400 distributors. But, just about all of these distributors aren't carrying Sam Adams as their primary beer. This is important because Boston Beer Company has to compete for distributors' attention, since they are the ones bringing the beer to the final individual market.
With the exception of the Samuel Adam's speciality brands, as mentioned above, the regular Sam Adam's beers are moderately priced. Moderately meaning that it isn't as cheap as MillerCoors or Anheuser-Busch's primary beers, but it isn't as expensive as most foreign imports. For example, a six pack of Miller, Coors, or Bud will range between $5-$6. A six pack of Sam Adam's Original, Seasonal, or Brewmaster's Collection ranges from $7-$8. Finally, an import can range anywhere from $9-$10. Of course, large beer retailers, such as pubs, bars, restaurants, and sporting venues, get their beer cheaper per ounce because they buying more at once. This concept usually holds true in the individual market, where the more beer you buy, the cheaper per ounce that beer will be.
Boston Beer Company markets its Sam Adams beer as a product of patriotism. The company makes note that beer is not only an alcoholic beverage, but rather the drink revolutionaries consumed in taverns while planning the Revolution.The man on the label, Sam Adams, is a patriot of that era and is proudly boasting a beer stein in the air. Boston Beer Company also plays into the fact that they are Boston based because the Pilgrims on the Mayflower arrived in Plymouth, which is only 40 miles away. The whole idea of Pilgrims, revolutionaries, patriotism, and Sam Adams lager all work very well together.
Beer companies generally spend a large amount on marketing their beer. For example, in the 2011 Super Bowl, a 30 second spot cost upwards of $3,000,000 and Anheuser-Busch had several different commercials. In total, Anheuser-Busch spent about $230,000,000 in Super Bowl Ads over the past 10 years. Boston Beer Company generally chooses not to compete and spend in the Super Bowl, but 2011 was an exception. They did spend money to have a commercial produced, but unfortunately it did not make it to the airwaves because it was banned. This was a small mis-step by the company.
In 2010, Boston Beer Company brewed 95% of their beer at their company-owned breweries. These breweries are the Boston Brewery, located in Boston, MA, the Cincinnati Brewery, located in Cincinnati, OH, and the Pennsylvania Brewery, located in Breinigsville, PA. The beverages that are not produced by company owned breweries are contracted elsewhere. In order for Boston Beer Company to maintain consistent product quality and taste, they select these contracts based on the following two criteria:
One thing Boston Beer Company takes pride in is the quality ingredients that their beer is made of. For example, most of their hops and barley is hand-picked, as mentioned above in the beer descriptions. Their barley selection is usually picked from the U.S. and Canada markets. Their hops is also of high quality and is imported from various regions such as Germany, the Czech Republic and the UK. Boston Beer Company uses four different hops dealers, and has contracts with them in order to meet demand needs.
An ingredient that is of great concern to Boston Beer Company is their yeast. The company maintains proprietary strands to use in their beers because this strand would be impossible to duplicate. These strands are so detrimental to their beer's quality, that they have them stored in several different secure locations, including an unaffiliated laboratory.
The ingredients the company uses is really what makes their beer superior to competitors. Even their television commercials boast that most ingredients are hand picked for quality. While competitors make comical commercials to push their beer onto drinkers, Boston Beer Company makes more serious commercials, which suggests they are more serious about their final product.
Key Executives at Boston Beer Company are as follows:
One thing that should be immediately noted is the third bullet point, C. "Jim" Koch. As mentioned above, he was the one that founded the company and brewed the very first beer in his kitchen. He is currently serving as Chairman, and helps advise the company. No other large competitor has their founder as an executive. His knowledge and expertise of Boston Beer Company is priceless and irreplaceable. Even considering all of this, he is awarded a modest salary. This suggests that he is more passionate about the beer than a paycheck.