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Is This How Boston Beer Continues Its Recovery?

By Rich Duprey - Dec 27, 2017 at 8:33AM

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With the craft brewer's sales still sliding, tapping into the local trend could perk them up again.

Sales at Boston Beer (SAM -2.14%) are still skunked, but you wouldn't know it by looking at its stock price, which has surged nearly 50% from its summer lows. Because the craft brewer's business isn't as bad as it was a year ago, even if it's not exactly healthy, investors have been according it some slack.

Yet there may be an opportunity for Boston Beer's business to live up to its stock price once again, as it's beginning to capitalize on the growing trend toward opening taprooms and brewpubs. The leading craft brewer opened one of the former at its Jamaica Plain brewery in Boston, and it's reportedly looking at opening the latter across the street from Faneuil Hall in the shadow of a statue of Boston Beer's icon, Samuel Adams.

Coupled with deposing Anheuser-Busch InBev's (BUD 0.26%) Budweiser beer as the official beer at Fenway Park, the home of the Boston Red Sox, where the brewer will be opening two Samuel Adams-branded "experiential bar areas," Boston Beer may have hit on how to grow once more.

Boston Brewery Tap Room

Image source: Boston Beer.

Tapping into the moment

According to the Brewers Association, the craft beer industry's trade group, craft beer sales continue to grow, and there are now more than 6,000 breweries operating in the U.S., 95% of which are dedicated to craft beer.

Yet this burgeoning business is making it more difficult for any one beer to stand out on store shelves, even for an industry giant like Boston Beer. Coupled with the "buy local" movement that has beer drinkers seeking out regional small-batch breweries, and it's understandable why the biggest names in beer are having trouble moving product.

Not only are Boston Beer's depletions down -- depletions are sales to distributors and retailers, and are considered a proxy for consumer demand -- but Anheuser-Busch, Molson Coors, and other major brewers are seeing lower sales as well.

According to the market research firm IRI Worldwide, although year-to-date total U.S. beer dollar sales are up 1.1%, volume sales have fallen 0.5%, with premium beer from the mega brewers down almost 4%. Even though super premium and import beers remain the hot segments, craft is holding its own, with a 3.6% increase in volume sales and a 5.5% rise in dollar sales.

Reform sparked resurgence

In the Brewers Association's midyear update, it noted that one area where many craft brewers were seeing some surprising strength was on-premise sales and in taprooms. Recently states including Mississippi, South Carolina, Texas, and others began reforming their antiquated liquor laws to allow breweries to open up taprooms (the difference between a taproom and a brewpub is the latter has a kitchen).

Wicked Weed brewpub

Image source: Wicked Weed Brewing.

Even the biggest brewers have latched onto the trend. Last year Anheuser-Busch opened a Goose Island Vintage Ale House in London and announced plans to open a string of the craft-beer-inspired pubs based on the Goose Island brand, which itself began as a brewpub in Chicago in 1988. The Wicked Weed craft brewery it acquired also operates a brewpub, and more recently it announced it would be launching a Latin-themed brewpub in Miami called Veza Sur, along with a craft beer of the same name.

Last year there were more than 1,900 brewpubs open in the U.S., up 11% from 2015, and with the state law reforms, we'll likely see those numbers rise considerably when they're all tallied this year.

Back to its roots

Beer distributors aren't happy with the trend, with one telling the Chicago Tribune, "Every beer poured at a taproom is a beer not sold by us or at retail," but it helps the brewers who may be getting lost in the riot of labels on the shelf, or who aren't even able to make it to the store shelf.

It may also be a way for Boston Beer to reignite interest in its Samuel Adams brand. The sagging flagship beer has been an anchor on the brewer's operations, and being able to reintroduce its beer again to beer drinkers in a non-retail setting could get this beer (and brewer) growing again.

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Stocks Mentioned

The Boston Beer Company, Inc. Stock Quote
The Boston Beer Company, Inc.
SAM
$333.99 (-2.14%) $-7.30
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
BUD
$54.08 (0.26%) $0.14
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$55.38 (-0.70%) $0.39

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