The beer business has been tough for former giants like Budweiser and Coors over the past decade. Customer trends are shifting toward craft brewers, and the old guard is losing luster as buyers become more sophisticated. Leading the charge into craft beer has been Boston Beer (SAM -2.13%), maker of Sam Adams and one of the first craft breweries to go national. 

However, Boston Beer is no longer an underdog, and there are few areas where the company can expand in the beer business without becoming just another mega-beer company or acquiring competitors. Instead, the company is seeing all of its growth from non-beer products, especially the booming seltzer called Truly. 

A row a beer taps with a full glass sitting under each one

Image source: Getty Images.

Boston Beer's ups and downs

You can see in the chart below that revenue over the past decade has gone through some ups and downs. In 2015, revenue growth stalled and began to decline as consumers looked at Sam Adams as a big beer brand, not a craft upstart. 

SAM Revenue (TTM) Chart

SAM Revenue (TTM) data by YCharts.

Sam Adams continues to decline overall, but what returned the company to growth was the boom in demand for hard seltzers and sparkling drinks, which Boston Beer has a large share of via its Truly brand. These drinks are made using the same equipment as craft beers, so they leverage existing capital. 

What's changed in the last year is that Boston Beer now needs to invest in new capital just to grow its Truly brand. Management said on a recent conference call that it's operating at capacity in its current breweries and is planning to invest $95 million to $115 million in capital equipment, partly to expand capacity. If management finds it prudent, the company could spend "significantly" more, driven by the need for more Truly. 

Innovation has saved Boston Beer

It may seem strange that a beer company's growth is coming from a product that isn't beer, but it shows where the beer industry is today. Large beer brands are being abandoned in favor of smaller, local breweries known as microbreweries and even smaller brewpubs. In 2018, nearly 1,000 new breweries opened in the U.S., according to the Brewer's Association, and nearly all were in the microbrewery or brewpub category. 

Innovation in products like cider and seltzer have saved Boston Beer from the decline that has hampered mega breweries. But with depletions expected to rise in the high teens to low 20s in 2020, with Truly doubling each year, the company is set to grow once again. 

A new era for Boston Beer

For most of its life, Boston Beer has been a growth company on the back of craft beer. But that phase may be coming to an end as even smaller brewers grow market share and the Sam Adams brand enters a phase as one of the big beer names in the U.S. 

Now, Boston Beer's growth is going to be on the back of non-beer products, and investors should be happy that the company has been able to make that shift even faster than large competitors in this consumer discretionary space.