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Boston Beer's flagship Samuel Adams saw sales weaken as more competition filled store shelves.
Is Boston Beer going flat? It's third quarter earnings report last month certainly didn't hint that it was expecting frothy growth anytime soon, and in fact, the craft brewer's flagship Samuel Adams beer was being assailed from all sides by competitors.
Over a barrel
While the brewer's depletions grew 6% year-over-year -- depletions are sales from distributors to retailers, which are considered a reliable proxy for consumer demand -- that was actually slower than what management had expected. Chairman Jim Koch said it was a result of "a very competitive craft beer category".
And with Anheuser-Busch InBev making a play for SABMiller in a $106 billion deal, some investors worry the brewer will squeeze competing craft beer brands off store shelves to make room for its own brands like Shock Top and Goose Island.
The marriage of the No. 1 and No. 2 global brewers would give it control of some 70% of the U.S. beer market before the planned divestiture of Miller's joint venture with Molson Coors, after which it will control just less than half.
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But despite the pressure Boston Beer is under, there are some very good reasons why it need not worry about whether this merger is successful or not.
After taking a huge leap forward, hard cider sales have softened, but Boston Beer's Angry Orchard remains the leading brand.
Crafting a defense
According to the Brewers Association, craft beer is still enjoying meteoric growth, with U.S. production volumes rising to 12.2 million barrels over the first six months of 2015, or a 16% increase, accounting for an 11% share of the market. There are also 22% more craft breweries operating in the U.S., some 3,700 in all, with 1,750 more in the planning stage.
At the same time, the mass brewers are buying up craft brewers by the score. Anheuser-Busch has purchased Goose Island Beer, Blue Point Brewing, 10 Barrel Brewing, Elysian Brewing, Golden Road Brewing, and Mill Street Brewery. Earlier this year, Miller bought the U.K.'s biggest craft brewer, Meantime, and Constellation Brandsjust announced it was buying Ballast Point Beer & Spirits for the heady sum of $1 billion.
There's a reason for all this activity. The analysts at market research firm Mintel say the industry is really showing no signs of giving up the growth trajectory it has been on. Although the pace is expected to ease back a little through 2020, it forecasts craft beer will enjoy a 22% increase in dollar sales in 2015 with the category hitting $24 billion.
And because the industry is expanding product lines to include lighter and more seasonal flavors that ought to attract greater numbers of non-traditional beer drinkers, like women, it ought to continue eating away at the market share of mass produced beers that will see consumption decline further.
While it's true that light beer consumption has also been on the decline over the past few years, with Mintel's research showing consumption falling to 47% of the total last year from 52% in 2009 -- no doubt in large part driven by beer drinkers that have been attracted to the full-bodied flavor of craft beer -- key growth demographics like millennials and Hispanics are seen as heavy consumers in this niche.
With those growth drivers pushing the industry forward, and Boston Beer maintaining its position as the second largest craft brewer in the U.S. behind Yuengling, there's little to fear that a bigger Anheuser-Busch will have much impact on its business.
Boston Beer is making important innovations to its flagship Samuel Adams brand, including the Rebel IPA it introduced in 2014 and the Nitro series that offers nitrogen-carbonation widgets it will begin distributing in February. There's also the lift it thinks it can get from its Twisted Teas, Coney Island brands, and the rest of its Alchemy & Science portfolio.
The brewer may have a cloudier outlook on what the future holds for products like its Angry Orchard cider, but when it comes to how the Anheuser-Busch InBev and Miller beer merger plays out, there shouldn't be any worries that it will cut into Boston Beer's market share.
The article Boston Beer Co Inc Has Nothing to Fear From the Budweiser-Miller Merger originally appeared on Fool.com.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.
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