How Big Beer Is Succeeding -- in Small Batches

Sales of Bud Light and Miller Lite have been dragging in the U.S., but megabrewers Anheuser-Busch InBev (NYSE: BUD  ) , Molson Coors (NYSE: TAP  ) , and SABMiller are finding plenty of success with their craft-style brands.

MillerCoors, the U.S. partnership between Molson Coors and SABMiller, says its craft and import portfolio grew by the high single digits over last year. Meanwhile, AB InBev says its Shock Top brand continues to grow, and its Goose Island label is now one of the fastest-growing craft brands in the U.S.

You can chalk this up -- at least in part -- to the megabrewers knowing their customers. Beer drinkers don't just jump from Budweiser to Sierra Nevada Torpedo IPA. There's a conversion that progresses, and the big brewers have found ways to appeal to the early converts.

The old standards have lost their luster
But brands like MillerCoors' Leinenkugel and Blue Moon and AB InBev's Shock Top and Goose Island make up only a small fraction of the megabrewers' sales. Sales of Blue Moon, the biggest of all megacrafts, still come in at only about one-tenth that of Coors Light, even after 72 consecutive quarters of growth.

So, moderate growth in these crafty labels right now won't make a significant dent in the overall revenue or earnings of AB InBev or the MillerCoors partners. The big brewers have their share of problems trying to revive flagging sales of their standards, like Budweiser, Bud Light, and Miller Lite. That's why revenues for the MillerCoors and AB InBev have been mostly flat.

Looking at the first nine months of 2013 compared to the same period of 2012, MillerCoors' sales volumes were down by nearly 3%. At Anheuser-Busch InBev, things were looking up. But if you factor out sales of the company's newly acquired Modelo group, its third-quarter volumes were down by 1.3% over 2012.

The companies are understandably making big investments in trying to revive their biggest brands.

A small, but important, piece of the puzzle
Still, growth in their smaller labels works to help the companies in two key ways. First, it gives them space in beer's fastest-growing segment -- and one that also happens to offer good margins for the big brewers -- craft. While overall beer consumption in the U.S. has been decreasing over the past few years -- sales turned up and grew by 1% last year -- craft beer sales have been growing at a steady clip, up as much as 17% annually.

Craft beer still owns only a little more than 10% of the overall beer market, so there could be a long runway still ahead for the segment. It's important that AB InBev, Molson Coors, and SABMiller have dogs in that fight.

Second, having successful craft offerings helps these brewers maintain their share of retail real estate, whether that's on the shelves at stores or the draft lines at bars and restaurants. The beer market, especially in the U.S., is the most competitive it's ever been.

In the early 1990s, there were fewer than 100 breweries operating in the states. Today, there are more than 2,500 -- and counting. The big brewers have largely relied on their distributing muscle to keep space. But if craft beers are selling better than the traditional American standards, shopkeepers and bar owners won't hesitate to give them more shelf space.

Is this bad news for the little guys?
This growth may look like trouble for smaller brewers like Boston Beer (NYSE: SAM  ) and Craft Brew Alliance (NASDAQ: BREW  ) . After all, there's only so much shelf space and so many tap handles available out there. One company's success in the craft beer arena would seem to inevitably be another's failure.

But both Boston Beer and Craft Brew are growing faster than they'd expected. Craft Brew's revenue was up 11% in the third quarter, year over year. What's more, sales of its Redhook beers were up an impressive 20%, and its Kona brand of beers were up an even better 26%. Meanwhile, sales of Sam Adams and its ancillary brands jumped 23% over the prior year for Boston Beer. So if there's a squeeze on, these two brewers are not yet feeling it.

The Foolish bottom line
All of these brewers are having success in craft beer, which is a testament to the strength of the segment in an otherwise lackluster beer market. The Leinenkugel, Blue Moon, Shock Top, and Goose Island labels may not be having a big impact on the megabrewers' revenues or earnings just yet, but they play important strategic roles for the big brewers moving forward.

Want more ways to make money?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2722891, ~/Articles/ArticleHandler.aspx, 10/22/2014 5:47:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement