Sam Adams Eyes Expansion

By Jon Newberry

Boston Beer Co., owner of the Samuel Adams brewery in Cincinnati’s West End, said it might expand the brewery further or build another one elsewhere.

Boston Beer Co., which brews more than a dozen Samuel Adams varieties, invested more than $11 million in the former Hudepohl- Schoenling brewery in 2005. The Central Parkway facility is expected to produce about two-thirds of the company’s total volume this year, the company said. Most of the rest of the company’s beer is made under contract by breweries in Rochester, N.Y., and Eden, N.C.

Shipments in the last three months of 2005 increased 14 percent to 366,000 31-gallon barrels — 20 million six-packs — according to its year-end financial report. Part of that increase was attributed to higher wholesale inventories that are expected to unwind in the coming months. For all of 2005, shipments rose 7 percent to 1.36 million barrels, following a 2.5 percent rise in 2004.

Boston Beer said in the report that it’s evaluating its long- term production strategy and could decide to make all of its own beer. Until it bought the Hudepohl-Schoenling brewery 10 years ago, almost all of its beer had been made under contract since the company’s founding in 1984 — including at the Hudepohl- Schoenling facility.

There was idle brewing capacity then in the industry from smaller regional breweries that had lost market share to industry leaders such as Anheuser-Busch. In recent years, however, craft and microbrewery beer sales have been growing while mainstream brands have been flat, and there’s less capacity available for contract brewing.

If Boston Beer decides to make all of its own beer and build a new brewery, it would likely require an investment of $70 million to $90 million and yield improved operating and freight costs, it said. Company officials told analysts during a conference call this week that the evaluation of its production strategy was ongoing and that they hadn’t developed full economic estimates yet.

Martin Roper, Boston Beer’s chief executive, cited freight costs, beer freshness and quality control as some of the factors that they’re looking at.

Cincinnati native Jim Koch, the company’s founder and chairman, said he thinks the trend toward increased market share for craft- style beers reflects a fundamental shift in consumer preferences that will continue for years. Craft and imported beers now account for about 16 percent of the U.S. beer market, but in wine and spirits, high-end categories have market shares that are more than twice that size. “So I see a lot of upside,” Koch said.

Boston Beer’s net income in the fourth quarter declined 20 percent to $2.3 million, or 16 cents per share, from $2.8 million, or 19 cents, in the 2004 period. Net revenue rose 16 percent to $65 million from $56 million.

For all of 2005, net income rose 24 percent to $15.6 million, or $1.07 per share, from $12.5 million or 86 cents. Net revenue in 2005 increased 10 percent to $238 million from $217 million.

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A closer look

About Samuel Adams brewery:

Owner: Boston Beer Co., since 1996

Location: Central Parkway and Liberty Street, West End

Beers: More than a dozen varieties, including Sam Adams Boston Lager and Sam Adams Light

Annual capacity: More than 800,000 31-gallon barrels (44 million six-packs)