Beer. The good kind.
Chase is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As a graduate of the University of Colorado, I have to admit I am pretty familiar with beer. I generally know the difference between an ale and a lager, but whenever I go back to Boulder for a visit I am astounded by the deep beer knowledge among the average twenty-something. This knowledge goes well beyond the most efficient shotgun method or the cheapest can. People in Boulder (and Colorado) truly know their stuff, and it seems like every other guy is home brewing. They are using exotic ingredients, studying traditional Belgian methods, and generally devoting a higher level of respect to beer than your typical college town.
According to a study conducted by the Leeds School of Business at CU-Boulder (my alma mater), and picked up today by Fox News, the craft brew industry contributes $446 Million annually to the state of Colorado. This validated my informal observations and lent some serious credentials to the craft brewing industry. In 2011, craft brewers (defined as a producer distributing 6,000,000 barrels a year or less) held 9.1% of the US beer market (in dollars), and has grown 15% in both 2010 and 2011. Go into any bar, sports bars even, and you'll notice the beer lists are getting bigger and people are more willing to try something beyond Miller or Bud. Even Sam Adams (NYSE: SAM) seems like a large brewer compared to some of the tiny labels bars are carrying.
Last week I was visiting some friends in New York and apparently the new summer trend seems to be the beer garden. I'd heard about this before, namely at the amazing Radegast Hall in hipster haven Williamsburg, Brooklyn, but I was surprised to see the trend had crossed the river to Manhattan in 2009 and taken up residence at the very modern Standard Hotel. Their beer garden underneath the highline was packed to the rafters and people were paying $9 a pint. As New York truly is a microcosm of the entire US, it's pretty telling that the Brooklyn hipster beer experience is now popular in mainstream Manhattan.
So, how to profit off this? A surprising majority of craft brews are just that: craft. They are not some huge multinational masquerading as a down-home micro brewery. Therefore, the investing opportunities are limited on the retail side. There is, however, a company whose business model will gain traction as the suits start to understand the real money to be made in small batch brewing. Craft Brew Alliance (NASDAQ: BREW) does exactly what you might think; they are an alliance of craft brews. Founded with the merger of Redhook and Widmer Brothers in 2008, BREW has since been joined by Omission and Kona (Hawaii's largest brewer).
They have grown EBITDA by around 28% last year and 50% the year before; and they are not financing growth with debt. The debt to asset ratio is among the lowest in the industry. Unfortunately, their cash position is not strong enough at the moment for them to go on a brewery buying spree. Their healthy balance sheet, though, will certainly allow them to raise the funds they need in order to get more brands in their portfolio, and with the growth in this industry I am looking to BREW as a serious force in the coming years.
TheLaowai has no positions in the stocks mentioned above. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.