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USA, New York: Check out The Boston Beer Co.'s nine-month numbers, and at first pass it looks like another perfect pint for founder-chairman C. James Koch, a sixth-generation brewmaster who crafted an old-family blend of hops into Sam Adams, one of the best-selling specialty labels ever in the U.S., The Forbes posted on December 14.

Taken on their own, the interim results (net sales up 2.6% to $161.4 million, operating income up 49% to $15.2 million) could be read as pointing to another of the fat years that has just lifted Boston Beer to the pantheon of Forbes 200 Best Small Companies.

There have been speed bumps along the way, though, including a surprising drop in sales last year. They raise questions about whether Koch, 54, can continue to sustain a flat-out pace that has brought him so much recognition. Straight-line growth is becoming an increasingly hard pull. Bouncing around at about $200 million in sales, Boston Beer is a cork on an ocean of upscale brews, facing mounting pressure from global monsters like Heineken.

Koch (pronounced "cook") is an awesome force himself. He still owns 35% of the company and got Sam Adams out of the barrel two decades ago by peddling it bar to bar in downtown Boston. He shrewdly spotted a niche for chewier old-timey brews at a time when beer sales generally were slipping and conventional wisdom saw lighter blends as the future of a finicky market. Now, big rich himself as the result of a public offering several years ago, the indefatigable Koch still pops up in Sam Adams' chirpy TV commercials and is known to barnstorm major distributors, handing out samples and checking freezer temperatures.

So, when this guy who has all but left teeth marks on Boston Beer allows that unit growth has slowed from high to low single digits, it pays to listen up. Is the Sam Adams brand, two glorious decades down the road, approaching saturation? It's a fate common to most specialty items, no matter how carefully engineered. Koch talks of earnings gains ahead, but for this one-product company, the party could be winding down.

Tweak the fine print behind those promising-looking nine-month numbers, and you see that Sam Adams began to tap out toward the end of an always crucial summer selling season. In July through September, shipments fell 3.6%. Koch daringly jacked up prices a bit--2.2% on average--an option he will not likely be able to repeat if volume continues soft.

He nonetheless still took a hit on gross margins, because the business is so heavy with fixed costs. When shipments slip, profits slip even faster. Worse yet, advertising costs--cut earlier in the year--climbed right back up to almost 43% from 40% of a drooping sales curve.

Koch's life is also immeasurably complicated by The Great Obesity Scare. Low-carb everything has become an obsession with the calorie counters. Sam Adams' expensively cultivated identity as a purveyor of righteous stuff is a downer with that crowd, and the light goods Koch does manage to move seem to be cannibalizing volume from his basic line.

Koch may be right in thinking that more shrewdly tailored advertising will resolve the dilemma, but he has to make his living now in a universe suddenly peopled by global giants.

Southern African Breweries, for one, snaps up Milwaukee's Miller Brewing, making for a quantum leap in the ante it takes to cut a figure in light beers. Belgium's Interbrew, itself a creature of more than a dozen acquisitions in 11 countries, hooks up with Brazil's Ambev. The resulting $11.9 billion sales mix--second only to the behemoth Anheuser-Busch (nyse: BUD - news - people )--bristles with such premium imports as Bass, Beck's, Brahma and Stella Artois. Adolph Coors (nyse: RKY - news - people ) and Canada's Molson are melding into what is being billed as the world's fifth-largest brewer, its staple lines laced with such macho swigs as Killian's and Grolsch.

So, what's to be done? Is Koch toast? He has plenty of other options, but Wall Street seems to be betting he will ultimately sell out to some panting competitor at a fat premium. That theory presumably helps explains the runup in Boston Beer common stock this year, from a low of $16.40 to a current price of around $22. You can see the often skewed logic. Boston Beer is clearly a drool of a buy--unique franchise, no debt, loaded with cash. It couldn't look better if it was being groomed for sale.

Sell? Koch, a suit at Boston Consulting before going back to his apron at the family brewery, is an old hand at this game.

No way, he says with a grin, relishing his stock line for journalists. "If I did sell, I'd be going looking for a brewery to buy so I could launch my own label."


18 December, 2004