Source: Samuel Adams
Continue Reading Below
The craft brewing category has become big business. All over the country, small brewers pop up offering beer drinkers a better alternative to the stereotypical watered-down, mass-brewed refreshment.Boston Beer Company , the maker of Samuel Adams beer, is the self-proclaimed -- and by many craft brew enthusiasts' admission -- founder of the American craft brew revolution.
With annual volume now topping 4,000 barrels and revenue exceeding $1 billion in 2015, can the maker of Samuel Adams still be considered a genuine craft brewer? What impact will this status have on the business going forward?
What is a craft brewer?So what exactly does it take to be called a "craft" brewing company? Ask beer aficionados, and you'll probably get a different answer each time. As with many other things that rely on subjective preference, there is no accounting for taste.
Despite this fact, the National Brewers Association has come up with a definition of "craft" beer. In its current state, the definition says a "craft" brewery is small (annual production of less than six million barrels), independent (owned 25% or less by a non-craft brewer), and traditional (majority of product is made using traditional or innovative ingredients and methods). The Boston Beer Company technically fits within this framework, but it certainly flirts with the gray area in many consumers' minds. For example, a few years ago, the Brewers Association defined "craft" as less than two million barrels of production, but when Boston Beer exceeded that figure, the number was increased to six million barrels.
With the Samuel Adams maker now valued at well over $2 billion in market capitalization and a multitude of small brewing start-ups popping up all over the country -- there are over 2,000 microbreweries or regional breweries in the U.S. -- what do sales numbers indicate about the popularity of Boston Beer offerings?
The beer industry by the numbersIn the past couple of years, overall beer sales have been flat. At the same time, craft brew sales have grown by double digits, and craft beer now owns over 20% of total domestic sales. What effect has this trend had on Boston Beer and, for the sake of comparison, the largest U.S. producer, Anheuser-Busch InBev ?
Source: Boston Beer Company and Anheuser-Busch InBev 2015 reports and Yahoo! Finance
The figures listed in the chart are consistent with the fact that, in this flat domestic beer sales environment, big producers are losing market share to the little guy. Boston Beer Company has managed to generate ever higher profits in spite of flattening sales in recent years. If the sales numbers continue to be stagnant over time, however, investors can expect profits to eventually follow suit. How can the company avoid following in the wake of bigger producers?
Keeping up appearancesAs consumers continue to alter their consumption habits and Samuel Adams' image as a craft beer fades, Boston Beer will be increasingly tasked with recapturing the growth it previously enjoyed. One way in which the company has tried to do so is with new brand start-ups and acquisitions. For example, Twisted Tea, Angry Orchard, and Rebel IPA are beverage brands under the Boston Beer umbrella, but in many ways, they have been able to retain a separate identity and image from the core Samuel Adams business.
Boston Beer is not alone in its struggle to regain growth. Other big companies in the consumer goods sector have had to stave off smaller competitors in recent years (think of the fast food industry, for example). I believe that big corporations, the Sam Adams beer maker included, can fight against the transition to small, local, or regional businesses by adding such companies to their portfolios. This type of business model allows the small subsidiary the flexibility to operate independently, make decisions tailored to their specific market, and retain its image as a distinct brand.
Jim Koch, founder and CEO of Boston Beer, likes to point out in quarterly earnings his company's unique position to be able to invest in the future. I believe that investments in small brands and craft brews, whether existing or new wholly owned subsidiaries, is one way the company can sustain growth. With this model, Boston Beer would also be able to evolve with a changing business environment while still holding on to its title as the nation's largest craft brewery.
The article Can Boston Beer Co Inc Remain Relevant as a Craft Brewer? originally appeared on Fool.com.
Nicholas Rossolillo 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.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.