Summer Time and Beer Go Together
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Editor's Note: This article has been amended to fix mistakes. Motley Fool apologizes for the errors.
America's love affair with beer continues. This is particularly evident in the rise of the craft breweries that specialize in unique flavors of beer. Beer is the new wine and is attracting more and more drinkers. There are now beer tastings and even pairings with certain foods. The result has been an increase in consumption and increases the exposure of America's original craft beer company Boston Beer (NYSE: SAM).
Can't argue with tradition
Boston Beer has been producing beer since the mid-1980s using the same recipe and brewing process of Chairman Jim Koch's family. The company's flagship brand is Samuel Adams Boston Lager. Boston Beer now produces over 50+ flavors of beer. In the last five years, the company has won more awards at international beer-tasting competitions than any other brewery.
Boston Beer is now entering uncharted territory for the company – beer in a can. This goes against everything founder Jim Koch has previously said. In his “Beer Drinker's Bill of Rights,” he says:
Beer shall be offered in bottles, not cans, so that no brew is jeopardized with the taste of metal.
This change in strategy for Boston Beer is the result of the increase in canned beer consumption. Last year, beer sold in cans made up 53% of the market versus 48% in 2006. This is a growing trend that the company could no longer ignore. To capture this market opportunity, Boston Beer has spent the last two years and $1 million to develop the “Sam Can.” Considering that Boston Beer has less than 1% of the total beer market, I see the “Sam Can” adding another marketing dynamic and helping to increase market share.
The other segment for growth for Boston beer is in the burgeoning cider market. In less than one year, the company's Angry Orchard cider went from being nonexistent to having 40% of the market. According to an analyst report from Goldman Sachs, Angry Orchard could make up 20% of total sales by the end of 2015. Shareholders can certainly drink to that good news.
The king of beers isn't taking this lying down
Anheuser-Busch InBev (NYSE: BUD) certainly is not showing any signs of slowing down as other beer makers try and encroach on its dominant market share. To solidify its position, the company just spent $20.1 billion to purchase Mexican brewer Grupo Modelo. Anheuser-Busch InBev was forced to divest Modelo's U.S. business to win U.S. antitrust approval. With the purchase of Modelo, Anheuser-Busch InBev now has the popular Corona beer to sell in fast-growing international markets.
Anheuser-Busch InBev is hoping that the Modelo acquisition spurs revenue growth and offsets declining beer volumes. Last quarter, the company was only able to grow revenue 1.5% on a year-over-year basis. Total beer sales actually declined 1.5%.
To improve sales of its flagship beer, Budweiser, Anheuser-Busch InBev is targeting the beer can market like Boston Beer. Budweiser is launching a new bow-tie can to help boost sales. Sales of Budweiser were hurt after a group of beer drinkers filed a class-action lawsuit claiming that Budweiser “watered” down its beer. While any court victory by the beer drinkers would have minimal financial impact on Anheuser-Busch InBev, the negative PR from the lawsuit hasn't helped the company and its marketing. The company has instituted new safety checks to ensure that its beer does not get watered down in the brewing process.
Anheuser-Busch InBev joins the craft beer alliance
Anheuser-Busch InBev sees the trend towards craft beers and as a result purchased a 32.2% stake in Craft Brew Alliance (NASDAQ: BREW). Craft Brew Alliance makes the increasingly popular craft beers Red Hook, Kona, and Widmer. Besides having Anheuser-Busch InBev as a primary shareholder, the company relies on Anheuser-Busch InBev to distribute its craft beers.
What I like about Craft Brew Alliance is that the company is still small enough to innovate and adapt to changing market conditions. The company just recently launched a beer for the gluten-free market. So far though, the company has not received permission from the Federal government to market the beer as gluten-free. If and when it does receive permission, that will be a big boost for the company as the gluten-free market is rapidly growing and winning new followers every day.
Craft Brew Alliance has two new products to propel growth this year. One is its new beer that it has developed with its partner Buffalo Wild Wings called “Game Changer Ale.” This new craft beer will be available at all Buffalo Wild Wings' locations. The second product is the company's foray into the cider market with “Square Mill Cider.” The cider market is very similar to the craft beer market and the company hopes to have the same success as Boston Beer with its cider offering.
My favorite among the three is Boston Beer. Even though the stock is up 50% in the past year, I think it's a great buy on dips. The company has a loyal customer base and growing every day. Anheuser-Busch InBev still does not garner much respect from craft beer enthusiasts. The company still dominates the overall beer market, but to attract new drinkers it needs more craft beer brands.
Craft Brew Alliance is the smallest of the bunch and the most speculative. The company's brands are still not as well known as a Sam Adams from Boston Beer. The company needs to spend a lot more on marketing to attract new customers. With Anheuser-Busch InBev taking a stake, I think it's inevitable that one day they'll be bought out.
Boston Beer's Samuel Adams brand helped to redefine beer and kick off the craft beer revolution in the United States. Success breeds competition, though, and while just a few years ago Boston Beer had claim over most of the craft beer shelf, today the field is crowded. Can Boston Beer rise above the rest, or will it be squeezed between small local breweries on one side and global beer giants on the other? To help you decide, we've compiled a premium research report filled with everything you need to know about Boston Beer's risks and opportunities. Just click here now to find out whether Boston Beer is a buy today.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Boston Beer. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!