Craft Brew Alliance 2013 Preview
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Craft Brew Alliance (NASDAQ: BREW) had a choppy and lackluster 2012, giving up midyear gains of 45% to end the year up a modest 8%. In the first half of 2012, CBA’s share price soared on big earnings gains, margin and sales improvements, and a catchy ticker change. In August, the company reported earnings misses and in November revised its 2012 EPS guidance down by half. Shares plunged accordingly and CBA starts 2013 with a lot to prove. Thankfully for shareholders, the company has several opportunities for growth.
Craft Brew Alliance has two interesting ventures ahead in 2013 and one major challenge. The company could score big with its new award winning gluten-free brand, Omission, and exports to nearly a dozen Asian and European countries. However, to counter its underwhelming performance in 2012, CBA must also reverse declining sales of its core Widmer brand.
CBA launched Omission in late 2012. The company touts Omission as filling a niche for newly gluten-free consumers. CBA has its market research right: a growing number of beer-swilling urbanites are going gluten free and finding only a few bad lagers. In a saturated beer market, CBA found a growing and largely underserved group of consumers. Only about a dozen gluten-free beers are on the market and CBA is the first of the large craft breweries to put one out; Boston Beer (NYSE: SAM), New Belgium, Sierra Nevada, and CBA’s other main craft competitors have not tapped the gluten-free market. Of the publicly-traded beer companies, only Anheuser-Busch (NYSE: BUD) has a gluten-free beer, Redbridge, which tastes like Budweiser. Omission actually tastes like craft beer – both beer festivals and gluten free blogs are pouring accolades on it – and there is an Omission pale ale as well as the requisite lager. However, CBA cannot label Omission “gluten-free” outside of Oregon, which complicates marketing. Furthermore, if gluten free becomes one more diet fad, Omission’s rapidly growing sales will evaporate.
CBA’s second opportunity comes from its partnership with CraftCanTravel. The partnership is still in its early stages but offers another opportunity for CBA to profit outside of the saturated U.S. brewpub market. The partnership will export all four CBA brands to China, Denmark, Finland, Holland, Hong Kong, Ireland, Japan, Norway, Sweden, Taiwan and the United Kingdom. While Europeans may not be excited about paying a premium over European craft for imported American beer, Asia has multiple growing markets for all kinds of alcohol. With expats and growing numbers of well-traveled citizens aware of the distinction between mass and craft beer, CBA may be able to distinguish its brands from established imports such as Guinness and Heineken. Once again, however, CBA faces the challenge of distinguishing its beers from much larger and more established companies, such as Anheuser-Busch, and with a much smaller marketing budget.
Finally, to pull out ahead in 2013, CBA has to do something about Widmer. The brand’s sales have been declining since 2010, even as Redhook and Kona’s sales see double digit increases nearly every quarter. Widmer’s flagship beer Widmer Hefeweizen has been drowned out by everyone and their parent company’s decision to put out wheat beers, from Anheuser-Busch’s Shock Top to Molson Coors’s Blue Moon to every microbrewery’s summer seasonal.
Craft rival Boston Beer faces similar challenges with its core brand and has yet to turn around declining sales of Samuel Adam’s Boston Lager, suggesting that the problem does not lie with one company’s marketing tactics. Unfortunately, Widmer’s push to rebrand itself as an elite craft beer brand with the Widmer’s Reserve line and expanded small batch offerings has not resuscitated sales. After several disappointing attempts, CBA’s major challenge in 2013 is to reverse Widmer’s decline.
Heading into 2013, CBA is the highest valued American beer company by the price-to-earnings metric, with a ratio of 48 to Boston Beer’s 30, Anheuser-Busch’s 19, and Molson Coors’s 14. To grow into its valuation, CBA will have to turn around core product sales in 2013 and continue to grow its other divisions at breakneck rates. Whether the CraftCanTravel partnership can revive core sales with exports to new markets and whether Omission will hit or miss on the national gluten-free market remains to be seen, but 2013 will be an interesting year for BREW shareholders.
CallaMarie owns shares of Craft Brewers Alliance. The Motley Fool has no positions in the stocks mentioned above. 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!