Consolidation continues to reduce the number of brewers in the beer market while roiling those who remain. Boston Beer (NYSE:SAM) founder and chairman Jim Koch, who recently penned an op-ed bemoaning a lack of industry oversight and regulation by the government.
We can understand the craft brewer's frustration, as sales of his flagship Samuel Adams brand continue to slide and he's looking for someone to blame, but as investors we're tasked with dealing with the market as it is and finding great companies to invest in. So let's look at why Constellation Brands (NYSE:STZ), Heineken (OTC:HEINY), and Molson Coors (NYSE:TAP) may be the best investments in brewing.
A premier wine and spirits distributor, but one with a beer chaser, Constellation Brands' acquisition from Anheuser-Busch InBev (NYSE:BUD) in 2013 of Crown Imports and its U.S. rights to Grupo Modelo's portfolio of Corona, Modelo, and Pacifico beers tilted the field in favor of it becoming a major brewer. Beer now accounts for 55% of its revenue. It recently added Mexico's Obregon brewery as well.
The acquisitions came at just the right time, too, because drinkers searching for a different taste beyond mass-produced beers and even craft brews have hit on imports in a big way. According to industry site BevNet, the market researchers at Nielsen say off-premise sales of imported beer rose 6.8% last year while dollar sales were up 9.1%, as almost all Mexican beers showed strong growth.
Constellation just reported its fiscal year 2017 results and pointed to the 17% increase in beer sales, 13% of it from organic growth, as the reason for its record results. President and CEO Rob Sands said, "Our beer business continues to be a powerhouse for growth. We exceeded our profit and margin goals for the year." There's no reason to think the torrid pace Constellation has set on won't continue.
The same trends powering Constellation higher are also working in favor of Dutch brewer Heineken. When it released its own full-year results back in February, it reported higher sales and earnings despite unfavorable currency exchange rates and challenging economic conditions in a number of countries in which it does business.
Heineken is the world's second-largest brewer behind Anheuser-Busch, and it just purchased the Brazilian operations of major Japanese brewer Kirin, making it the second-biggest there as well, behind Anheuser-Busch. That's an important market and was one of the big reasons, along with SABMiller's African assets, that drove A-B's buyout. Heineken just opened its first brewery in Cote d'Ivoire, Africa's fastest-growing economy, suggesting it is strong enough to challenge the macro brewer everywhere it does business.
In its full-year report, on top of the strong global growth Heineken witnessed, it enjoyed 3.7% organic growth in the Americas, its second-biggest market behind Europe. Considering the overall beer market in the U.S. was flat, Heineken's performance shows those trends toward premium and imported beer continue. It's scheduled to report first-quarter results on April 19, so investors should get an idea of how that will play out in 2017.
Perhaps the riskiest of the three, Molson Coors is a play on the U.S. beer market, despite all the obvious limitations that entails for the flat market. It and Anheuser-Busch control 90% of the U.S. market, which was part of the reason behind the lament from Boston Beer's CEO, Jim Koch, on the lack of regulation.
If the craft brewer felt it was one of the losers from A-B's merger with Miller, Molson Coors was one of the winners, acquiring all the assets of its former MillerCoors joint venture. And while the JV's own sales to retailers and wholesalers were down last quarter, it still owns 25% of the beer market in the U.S., and both Miller Lite and Coors Light gained market share in the period, the former marking its ninth consecutive increase; the latter, its seventh. Outside of the U.S., Molson continues to do well, with its market share in Canada at 34% and at 20% in Europe, while remaining the third-largest brewer in the world behind A-B and Heineken by market cap.
The domestic beer business exhibited the sluggishness you'd expect, but there were still some highlights, including Coors Banquet completing its 10th consecutive year of volume growth that ended 2016 accelerating. Molson Coors also purchased three regional craft breweries during the year, which gives it some traction in the above premium category, which, like import beers, enjoys more strength.
Unlike A-B's merger with Miller, which might prove more challenging given they're integrating two different corporate cultures, Molson's integration of MillerCoors shouldn't be a hurdle for it, since it had owned about half of the business already. And with A-B distracted and looking to Africa and Latin America for growth, that gives Molson Coors the chance to gain more of the market in the U.S.