Craft Beer Brews Up Trouble

Does craft beer by any other name still taste as heady? If you listen to the megabrewers like Anheuser-Busch InBev (NYSE: BUD  ) and Molson Coors (NYSE: TAP  ) , so long as the beer's cold and tastes good, it doesn't matter if it's called "craft beer" or not. Craft brewers, as you might imagine, have a different outlook on it, and they're not happy about the big boys' foray onto their turf.

It's not so much that A-B is trying to pass off Budweiser as a craft beer or that Coors is changing the marketing on its Silver Bullet to suggest that some wizened brewmaster is painstakingly stirring a copper kettle to get the formula just right. Rather, it's their smaller beers like Bud's Shock Top and Coors' Blue Moon Belgian Wheat that gets the Brewers Association -- the trade group for real craft beer -- into such a froth.

A rose by any other name
The association penned an editorial yesterday slamming the giant breweries for trying to pass themselves off as small craft shops, pointing out that A-B and SABMiller control three quarters of the beer market between them. Just because they push out a few small-run brews doesn't make them craft beers, and acquiring smaller craft brewers as they have skunks the definition.

There's certainly a reason behind why the biggest brewers want to be associated with the craft beer movement. It's the only one that's really growing. The craft beer segment grew 13% in 2011 by volume and 15% in dollar terms and over the first six months of 2012 volumes are 12% higher and dollar sales are up 14%.

Boston Beer (NYSE: SAM  ) , which arguably put the craft beer movement on the map with its Samuel Adams brand, just reported it expects 2012 earnings to be between $4.30 and $4.60 per share, up from an earlier view of $3.80 to $4.20 while analysts had expected earnings of $4.34 per share. Shares of the brewer rocketed 15% higher last week.

An industry in ferment, er, foment
It's not such a heady situation for the beer market in general, though, where the overall beer market has grown just 1.9% over the first eight months of 2012, according to the Beer Institute. Yet brewers can't really complain since sales are at least moving in the right direction: In 2011 they were down 1.5%.

Alcoholic beverages in general are taking a turn for the better, though. According to spirits maker Beam (NYSE: BEAM  ) , industrywide sales grew 3% to 4% over the past year.

Despite the apparent health of the craft brew industry -- there are more breweries in existence now than at any time since Prohibition -- it's not evenly applied. While Craft Brew Alliance (NASDAQ: BREW  ) saw a 21% increase in depletions of its Kona brand, Widmer Brothers dropped 9% last quarter. Its Redhook division rose 6%, but there was an overall of just 4%. While that might not seem so bad, Craft Brew is reliant upon Anheuser-Busch for its distribution,  so it's not one to be whining about their presence in the industry.

Why even bother defining it?
Nor is Boston Beer, for that matter, which is only considered a "craft brewer" these days because the Brewers Association moved the definitional goal posts of what constitutes a craft brewer so that the Sam Adams maker could still qualify. Previously it had been the production of up to 2 million barrels annually would let you call yourself a craft brewer, but when Boston Beer started bumping up against that limit, it was raised to 6 million barrels.

Moreover, Boston's biggest-selling segment isn't its Sam Adams beer, but rather its hard teas and ciders (it seasonal beers have done well, too). Last quarter, the brewer reported that depletions jumped 15% on the strength of its Angry Orchard and Twisted Tea while Samuel Adams fell. They're among the fastest-growing segments it has, and both MillerCoors and A-B have acquired hard-cider makers of their own.

Tastes great, less filling
In reality, most beer drinkers don't care about such industry minutiae; they're just interested in good-tasting beer regardless of who makes it. You have your beer snobs who will turn their nose up at mass-produced "craft" beers, and who'll lump Boston Beer in with that crowd (though they'll praise Yeungling in the same breath even as it tops out Sam Adams).

There may be purity in Germany's Reinheitsgebot, the regulations that dictated what can go into beer (water, barley, and hops), but there's no such bright line here in the U.S., even among the craft brewers themselves or their mouthpieces. Heck, when even Costco (NASDAQ: COST  ) can get into the act and brew its own craft beer, is it really worth fighting over whether Busch and Miller are calling some of their beers "craft made?"

Boston Beer's Samuel Adams brand helped to redefine beer and kick off the craft beer revolution in the United States. Success breeds competition, though, and while just a few years ago Boston Beer had claim over most of the craft beer shelf, today the field is crowded. Can Boston Beer rise above the rest, or will it be squeezed between small local breweries on one side and global beer giants on the other? To help you decide, we've compiled a premium research report filled with everything you need to know about Boston Beer's risks and opportunities. Just click here now to find out whether Boston Beer is a buy today.


Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2012, at 11:46 AM, wideNCawake wrote:

    ... anyone who knows good beer will know the difference. Anheuser-Busch makes nothing worth even pouring on the ground.

  • Report this Comment On December 15, 2012, at 12:57 PM, aaallison wrote:

    Anybody who drinks cold (as opposed to cellar temperature) beer doesn't know what beer tastes like, see: http://www.ratebeer.com/Story.asp?StoryID=479

  • Report this Comment On December 15, 2012, at 1:21 PM, rgod8855 wrote:

    The bigs can label it any way they want, but beer lovers know what is a craft brew and what isn't.

  • Report this Comment On December 17, 2012, at 5:17 PM, donzorco wrote:

    You wrote:

    "You have your beer snobs who will turn their nose up at mass-produced "craft" beers, and who'll lump Boston Beer in with that crowd (though they'll praise Yeungling in the same breath even as it tops out Sam Adams)."

    I'm a beer snob. If you're using 'craft' to mean less than 6million barrels, sure. If you're using the word to mean 'good,' then I throw out Sam and Yeungling because they're both terrible. BUT, they are the beers you drink when nothing else is available, and SAM does offer several decent beers apart from their main ones.

  • Report this Comment On December 18, 2012, at 6:01 AM, TMFCop wrote:

    I'll admit I'm the antithesis of a beer snob. I drink -- and enjoy -- mass produced beer, primarily Coors Light. And my only real favorite in the hazy demarcation of "craft beers" is Sam Adams.

    I recently attended the NYC Craft Beer Festival and got a chance to sample dozens of craft beers from all over the place, and I admit, I liked very few of them.

    For example, some of my snobbier friends love IPAs but there was barely one I could stomach. Actually, the closest thing I found was one that looked like Guinness, which was interesting considering it was supposed to be a "pale" ale.

    No doubt having largely grown up and lived with mass produced swill, that has come to define for me what beer is supposed to taste like. I find that many craft brews simple don't taste like "beer." Which may also be why Sam Adams seasonals, while a big hit with many people, aren't my cup of tea either. I also hate fruit with my beer and those that stick all kinds of ingredients in there beyond barley, malt, and hops really don't resonate with me.

    So all that goes towards understanding why I'm not quite as outraged as some might be that A-B is producing a so-called craft beer (though I actually don't like Bud in any of its iterations).

    I've often said I drink Coors Light when I want to get drunk and I drink Sam Adams when I want to enjoy the taste of a beer. Many can probably substitute their own favorites into those two categories.

    Rich

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