Anheuser-Busch InBev SA Shows a Growing Appetite for Craft Beer Brands

By Markets Fool.com

It's doubtful that even Anheuser-Busch InBev's new acquisition will be enough to quench the mass brewer's thirst for craft beer growth. Image source: Devils Backbone Brewing Co.

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Anheuser-Busch InBev is proving once more the only thing that can satisfy its thirst for growth is more craft beer. The mega brewer recently announced that it will be taking over yet another craft brewery, Devils Backbone Brewing of Virginia, which will join the four other craft beers (and a cider company) it purchased last year that comprise the company's High End portfolio.

According to Anheuser-Busch, it brewed 413 million hectoliters, or 10.9 billion gallons (some 351 million barrels) of beer in 2015. Rival SABMiller reported production volume of 324 million hectoliters last year, or 276 million barrels. North America contributes almost 26% of Anheuser-Busch's volume but 37% of its profits.

In contrast, the Brewers Association, which represents the craft beer industry, reported that regional breweries, microbreweries, and brew pubs saw production rise another 13% in 2015 to 24 million barrels. Craft beer now accounts for 12.2% of all beer produced in the U.S., up from 11% the previous year, meaning that if it wasn't for these small producers, there wouldn't be much growth to speak of for the industry. Volumes at mass brewers like Anheuser-Busch, Molson Coors, and SABMiller have been stagnant or in decline for the past few years.

This explains why Anheuser-Busch has been actively shopping for craft breweries. In the span of five days this past December, the brewer bought microbrewery Four Peaks Brewing in Arizona, Camden Town Brewery in London, and Breckenridge Brewery in Colorado. Since 2011, the company has made a dozen acquisitions in the space, including Goose Island, Blue Point Brewing, 10 Barrel Brewing, and Elysian Brewing, not to mention its own in-house Shock Top brand.

Big beer is on a bender with craft brewers. Constellation Brands agreed to pay $1 billion for Ballast Point Brewing & Spirits in November; Heineken bought half of Lagunitas last year; MillerCoors, the joint venture between Miller and Molson, owns its own portfolio of "crafty" beers, including Blue Moon; and even a private equity firm bought a stake in Dogfish Head Craft Brewery.

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More worrisome for the craft beer industry, however, might be Anheuser-Busch's equally insatiable appetite for beer distributors. The company is under Justice Dept. investigation over its acquisition of several regional distributors after making comments that it was looking to dramatically reduce the number of outside brands the distributors carried. Then, it came to light that Anheuser-Busch was offering incentives to distributors worth as much as $1.5 million if they would virtually excludeall other brands.

Certainly such a development would hurt the almost 4,300 small and independent breweries that already find it difficult to get shelf space in retail outlets, but even craft leader Boston Beer might encounter difficulty.

The face of the craft beer industry has been having trouble gaining traction for its flagship Samuel Adams brand, which saw declines in depletions, or sales from distributors to retailers, which are considered a reliable proxy for consumer demand, in 2015. Instead, the company had to rely on more novelty offerings like hard ciders, teas, and more recently, hard soda and seltzer to spark interest.

Anheuser-Busch InBev is already looking for world domination in beer by trying to acquire No. 2 brewer SABMiller, and the pace it's on with acquisitions in the craft beer space indicates it is looking to control that market as well.

The article Anheuser-Busch InBev SA Shows a Growing Appetite for Craft Beer Brands originally appeared on Fool.com.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool recommends Anheuser-Busch InBev NV. 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.