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As Fools who saw co-founder David Gardner host CNBC's Worldwide Exchange know, David loves "good old-fashioned American brands" -- and he's got a knack for finding them. After all, he recommended Marvel in 2002 and Netflix (NYSE: NFLX ) in 2004, and both have gone to stellar gains. Marvel got bought out after a 1,000%+ gain, but Netflix is still cruising, up nearly 1,200% since 2004. And just recently, another stock with big brand potential caught his eye: Boston Beer (NYSE: SAM ) .
Boston Beer is one of the largest American-owned beermakers. With double-digit growth and just a tiny fraction of the domestic market, it's no surprise that David recommended the Samuel Adams producer in Motley Fool Stock Advisor (where David's total returns are, oh, just around 106% since the service launched in 2002). Here's a SWOT analysis for the company -- its strengths, weaknesses, opportunities, threats -- to help you decide if you think this stock is positioned for long-term growth.
Beer so good you can bake with it
Strengths: Boston Beer's core strength is its delicious beer -- it's so good it even makes a tasty addition to your pumpkin bread. When Harvard-educated chairman Jim Koch decided to abandon a successful consulting career and become a brewmaster, he set out to brew the best beer in America. And that's just what he did. Jim created the award-winning Samuel Adams Boston Lager -- the flagship beer in a line of more than 20 varieties -- from an old Koch family recipe that had been passed down for generations.
The company has smartly used this commitment to the quality of its beer to drive its advertising strategy. In 2009, it spent 30% of net revenue on advertising, which included television commercials showing off its premium ingredients and four-vat brewing process. At the same time that it's appealing to the masses, Boston Beer also works hard to maintain its street cred among its craft brewer peers. Its innovative seasonal and specialty beers continue to rack up awards at domestic and international beer festivals.
Better beer requires better (read: expensive) ingredients
Weaknesses: As analyst Matt Argersinger points out, Boston Beer is a small fish in a big pond. When you're fighting heavyweights such as Anheuser Busch-InBev (NYSE: BUD ) , Molson Coors (NYSE: TAP ) , and SAB Miller (OTC: SBMRY.PK) for shelf space, it's not going to be an easy battle.
However, by competing on taste, Boston Beer is able to differentiate itself from the big guns. But this taste comes at a premium. Samuel Adams drinkers are paying more per bottle for better ingredients, and it's these superior ingredients combined with the company's relatively small size that make it difficult for the company to exert pricing power over its suppliers and leave it susceptible to price fluctuations.
Go west, young Sam
Opportunities: The domestic market -- the 99% that Boston Beer has not yet tapped -- is one big growth opportunity. While U.S. beer sales were down an estimated 2.7% volume in the first half of 2010, the craft brewing industry grew 9% by volume -- thank you, American craft beer revolution tailwind!
To increase its market share, Koch is likely looking to grow the company's distribution network, currently 400-distributors large, and possibly its sales force, a team made up of 265 employees, possibly the largest in the domestic beer industry. To accommodate increasing demand, Boston Beer made a strategic investment in its production capacity with the acquisition of a third brewery, giving it in all production facilities in Massachusetts, Pennsylvania, and Ohio.
Are we discerning enough?
Threats: It's not hard to imagine how this growth story unfolds -- buy, drink, enjoy, repeat -- especially this time of year when the Samuel Adams Octoberfest hits the shelves. But as with any company, you have to consider the threats. Boston Beer said it best in its 2009 annual report: "In recent years, the beer industry has seen continued consolidation among brewers in order to take advantage of cost savings opportunities for suppliers, distribution, and operations."
These large multinational brewers are also trying to establish market share in the better beer market, in some cases with "faux craft" beers like MillerCoors' Blue Moon. These competitors' size and pricing advantages could make it difficult for Boston Beer to maintain, let alone grow, its market share if the American beer lover deems these products satisfactory substitutions. But on balance, I believe that Boston Beer's commitment to quality and the ample domestic (and international) growth opportunities provide more upside than downside.
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