Boston Beer’s side project finally ready for national stage
Incubator subsidiary Alchemy & Science has major plans for four new brands of craft beer
After four years, Boston Beer Co. chairman Jim Koch is ready to crack open a bottle or two from his side project, developing new lines of craft beers. And you won’t find the Samuel Adams name anywhere on the labels.
Four brands developed or acquired by a business incubator that Koch created within Boston Beer are all having breakout moments. One, a line of fruit-flavored beverages known as shandies, just launched a national rollout, while two of the smaller labels are in the midst of opening breweries.
The incubator is called Alchemy & Science, and in 2011 Koch recruited old friend and former rival Alan Newman, cofounder of Magic Hat Brewing Co., to “make great craft beer in any way, place or style that Alan thought made sense.”
Newman is a widely respected figure in the business. Like Boston Beer, Magic Hat was a pioneer of the American craft beer movement and became one of the largest such brewers in the country. The company is now owned by a food and beverage company based in Costa Rica.
“Having a guy like Alan be your pied piper and say, ‘be as creative as you want and we’ll support you,’ I think it’s a great idea,” said Dan Kenary, chief executive at Harpoon Brewery in South Boston. “The chances that he’s going to come up with something good that will be successful for Boston Beer is reasonably high.”
With his former Magic Hat colleague Stacey Steinmetz, Newman had been toiling away like a mad scientist in relative secrecy in Burlington, Vt., some four hours from Boston Beer’s headquarters in South Boston. Boston Beer plowed millions of dollars into the venture. The beers that emerged — either home-grown or picked up through acquisitions — have been available in limited geographies. Until now.
The brand with the biggest potential to add to Boston Beer’s business is Traveler, the line of shandies developed by Newman that until this spring was limited to a few local markets. Emboldened by the successful national rollouts of two Boston Beer brands, Rebel IPA and Angry Orchard cider, the company is trying to get Traveler distributed in all 50 states by the end of the year, backed by a national television-ad campaign.
“I’ve talked to distributors, and they’re excited about it,” said Caroline Levy, an analyst at CLSA, a research and investment firm, who follows the beverages industry. “It’s very much a summer drink. It’s going to be very hard to judge shandy until we’ve been through the whole summer.”
In an e-mail, Newman said he chose to take Traveler national because it was “an approachable beer” that was well-received in its initial markets.
Meanwhile, Alchemy & Science is expanding production of its three other small beer brands. Later this year the company will open a new brewery in New York for its Coney Island line of beers, which it bought in 2013 from another brewer. It also just expanded distribution outside California for Angel City Brewing, a Los Angeles company it acquired in 2012.
And, after a long wait, the company opened Concrete Beach brewery in Miami a few weeks ago. The Concrete Beach project is an example of how Newman says he is targeting “underdeveloped craft beer markets,” such as South Florida.
The four brands are being promoted without any obvious connection to their parent company’s better-known Sam Adams line.
However, last year one of Alchemy & Science’s other concoctions failed to take hold, and the company discontinued its Just Beer line, a trademark it had acquired from Buzzards Bay Brewing.
It’s hard to calculate how much money Boston Beer is spending on Alchemy & Science, or how much revenue it’s generating, as the company doesn’t typically break out such figures by brands. But there are clues tucked away in Boston Beer’s financial statements.
For example, Boston Beer said a $10 million to $15 million increase in promotional and selling expenses this year will be attributable to Alchemy & Science, as well as $3 million to $5 million in capital investments. Boston Beer also recently disclosed that Alchemy & Science contributed less than 2 percent — essentially under $20 million — of the company’s overall revenue for 2014.
The company has said it doesn’t expect the 2015 sales volume at Alchemy & Science to cover all of its costs.
Boston Beer’s stock had been on a steady climb for much of the past four years, reaching a high of around $320 a share in January. It closed at $263.01 a share on Friday.
Morningstar analyst Adam Fleck said having a separate venture such as Alchemy & Science makes sense for Boston Beer, which has become in the eyes of some hard-core fans too big to be considered a craft brewer anymore. Many craft-beer fans, he said, crave variety and pride themselves on drinking local beer that’s brewed in small batches.
“That’s just not Sam Adams anymore,” Fleck said.
Here’s where Alchemy & Science plays an important role.
“From a direct revenue perspective, it hasn’t paid off yet,” Fleck said. “But from an intangible benefit of understanding [changing] consumer tastes, and being able to try new flavors without damaging your premier top-end brands, I think there’s more benefit to the company than just the direct financials of it.”
Levy, the CLSA analyst, added that Koch was clever to carve out a separate organization that works in an entrepreneurial and creative way. A dozen people now work at Alchemy & Science’s Burlington headquarters.
“The bigger the firm you work for, the more you’re caught up in the day-to-day nonsense, the day-to-day trivia,” Levy said. “You have less brain space to think about original ideas.”