Boston Beer (SAM 3.42%) knows a thing or two when it comes to brewing a beer that's closer to being a vintage port, an old sherry, or fine cognac. Its $200-a-bottle Utopias, of which only 15,000 bottles are sold every two years, are high-proof beers that have been banned by more than a dozen states because of their alcohol content. So maybe it ought to give up the pretense of being "just" a brewer and also become a distiller of fine spirits.
And considering a few whiskeys that are now hitting the market -- their own Samuel Adams beer, Angry Orchard cider, and Twisted Tea -- Boston Beer seems to be creeping ever closer to doing just that.
A spirited diversion
Several years ago, Boston Beer agreed to collaborate with craft distiller Berkshire Mountain Distilleries to develop small-batch whiskies infused with various brands of the brewer's beer. Now, after they've aged for around four years, the craft whiskies are coming to market.
Shay's Rebellion American Whiskey was released this past March after Berkshire triple-distilled Samuel Adams Cinder Bock beer (a limited-release rauchbier with a distinctive smoky flavor) and then aged it for three-and-a-half years in Samuel Adams Utopias casks. Berkshire describes it as finishing with "port and dried fruit notes" that come from the Utopias casks, but also offering the intense, mature, and complex flavors of a craft whiskey.
That spirit has now been followed by Two Lanterns American Whiskey, which this time triple-distilled Samuel Adams Boston Lager before barrel-aging it in vintage bourbon casks. It reportedly took almost 25,000 gallons of Samuel Adams to produce 1,000 gallons of whiskey. The aging barrels are going to be returned to Boston Beer to be used to age an as-yet-unnamed beer in the future.
Because Boston Beer keeps dabbling around the edges of the craft whiskey market, it should probably take the plunge and begin distilling its own line of spirits.
Over a barrel
And why not? Craft distilleries are exhibiting the same signs of growth the craft beer industry did at its start 20-plus years ago. According to the American Distilling Institute, there are 760 craft distilleries operating in the U.S. today, up from 60 in 2003, and there are around 200 more under construction.
Still, it is a niche market where some 95% of the distilleries operating produce fewer than 50,000 cases annually (the Distilled Spirits Council of the United States defines small distillers as those producing under 100,000 nine-liter cases annually). Analysts estimate the niche represents around 2% to 3% of the total spirits market by volume and value.
That's still a long way from the 12% share craft brewers own of the total beer market, but the American Craft Spirits Association says crafts spirits are growing much faster than craft beer did at the same point in its infancy.
Moreover, the big distillers like Constellation Brands (STZ 1.07%) and Beam Suntory are taking notice. Constellation has created an in-house venture firm that's already taken stakes in two craft distilleries, while Beam is exploring the potential for making acquisitions.
And therein lies the strategy Boston Beer could use. It already has a craft incubator in place through Alchemy & Science, which it has used to launch small shops like Angel City Brewery, Concrete Beach Brewery, and Traveler Beer. But it's also used A&S to branch out beyond just beer, with Coney Island Brewing developing a hard soda brand as well as the hard seltzer, Simply Sparkling.
A hard choice to make
Taken together with its hard ciders and teas, it's clear Boston Beer has no qualms about straying from the craft beer path. A craft distillery would allow it to tap into America's growing love affair with whiskey just as craft beer slows and its own sales falter.
According to the Brewers Association, craft beer growth will dim to around 8% this year, the first time it's been below double-digit rates in recent memory, and Boston Beer's depletions, or sales from distributors to retailers, a reliable industry proxy for consumer demand, have fallen by 5% across 2016.
It could use Alchemy & Science to acquire an existing distillery, like Berkshire Mountain, or develop one in-house. In either case, it could spark new growth for the brewer that it would otherwise be hard-pressed to achieve.
With these small-batch whiskies Boston Beer has coming to market using its beer, the brewer ought to use this moment as a stepping stone to further expand its portfolio while further burnishing its craft reputation.