There were plenty of points in Molson Coors' (NYSE:TAP) 2013 results that look bleak for the company. But sales of its so-called "above-premium beers" was not among them. In fact, Molson Coors is recording some impressive sales numbers at the higher end, where it competes with smaller brewers, including Boston Beer (NYSE:SAM) and the Craft Brew Alliance (NASDAQ:BREW), as well as crafty offerings from Anheuser-Busch InBev.
How good were the company's numbers at the higher end? Sales of above-premium brands were up by double digits around the globe, Molson Coors reported Thursday. What's more, its high-end beers accounted for 29% of all growth in the U.S. craft beer market last year, according to the company.
That's right. Despite a new brewer opening up almost every day in the U.S., Molson Coors accounts for nearly one of every three additional brews sold at the craft-brew level.
While it's certainly debatable as to whether Molson Coors can claim that brands like Blue Moon and Leinenkugel are truly craft -- the Brewer's Association and many craft brew lovers would say they can't -- there's no debating that these beers compete with craft beers produced by the smaller brewers. And with that kind of growth in an overcrowded market, they are competing very well.
What does this mean for the smaller brewers? That's tough to say. While veteran craft beer drinkers may turn their noses up at Blue Moon and Leinenkugel, the real area of growth in this market is in the drinkers who are coming over from labels like Budweiser, Coors, Heineken, Corona, etc. Craft Brew calls these "crossover drinkers" and they're the main target of the West Coast brewer's Kona and Redhook labels.
Competitors in craft
Craft Brew's disappointing 6% sales growth in 2013 trailed the double-digit growth that Molson Coors' higher-end labels recorded. But Kona and Redhook also had some stellar quarters over the course of the year, achieving as high at 25% growth over the prior-year period in the third quarter. So, while the Molson Coors beers are formidable competitors, they don't seem to be stealing much share away from those two key Craft Brew labels. The upcoming year is an important one for Craft Brew, however. It's making major investments, and it needs faster growth to follow. To do so, it must win the battle over labels like Blue Moon and Leinenkugel.
We'll get a better look at where Boston Beer stands when the company reports later this month. But its previous report was stellar. Over the first nine months of 2013, revenue was up 25% over the same period in 2012. Comparing the third quarter of 2013 to the third quarter of 2012, that increase was 30%. That's not a company showing signs of weakness.
Little craft is important to big brewers
Molson Coors -- as well as MillerCoors partner SABMiller -- needs this segment to shine. It has too many problems elsewhere that are dragging down company performance.
The biggest of those problems: Drinkers continue to turn away from light beer, and that's what the company's flagship beer -- and its largest, by a long shot -- happens to be. So while Coors Light can claim segment share gains, it's not because it's growing. It's just shrinking slower than the light beers with which it competes.
The crafty beers, meanwhile, continue to make up a bigger portion of Molson Coors' sales. In 2013, the brewer's high-end beers made up 14% of its total revenue. That's up more than 3 percentage points -- or nearly 30% -- from 2012.
The market overall continues to grow, as well. Craft beer grew 16% in volume in 2013 versus a 1.7% decline for the biggest U.S. beer brands, Bloomberg Businessweek reported last month.
A-B InBev also recognizes the importance of the craft and high-end markets. That's why it recently acquired highly regarded Blue Point Brewing of Long Island, N.Y. It's why it bought Chicago microbrewer Goose Island three years ago, and why it's invested in a number of smaller brewers, including a 35% stake in Craft Brew Alliance. It's also why it continues to develop its Shock Top wheat beers.
The Foolish bottom line If we could buy only one stock in 2014, this would be it
Molson Coors and MillerCoors partner SABMiller have found winning beers that continue to drive growth at the high end, making up for struggling light and premium labels. These beers compete with craft beers and are doing well. The upcoming year will provide investors with more insight as to how this battle for the entry-level craft drinker is shaping up.
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If we could buy only one stock in 2014, this would be it
John-Erik Koslosky owns shares of Boston Beer. The Motley Fool recommends Boston Beer and Molson Coors Brewing. The Motley Fool owns shares of Boston Beer. 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.