Boston Beer's (NYSE:SAM) success with hard seltzer is not only pushing its own sales into the stratosphere, but it's also responsible for the influx of other brewers developing their own seltzer brands.
It's possible Anheuser-Busch InBev's three new hard seltzer offerings and competition from the new Corona Seltzer from Constellation Brands will eat away at some of the Boston Beer's Truly market share, but the craft brewer saw depletions, or sales to distributors and retailers, surge 19% in the fourth quarter.
It helped make 2019 one of its best years ever, but it also puts at risk its status of being a craft brewer.
How small is small?
According to the Brewers Association, the industry trade group that sets the terms for what qualifies as a craft beer, a brewer must be three things:
- Small: producing six million barrels of beer or fewer annually
- Independent: meaning less than 25% of the brewery is owned or controlled by an alcohol company that's not a craft brewer
- A brewer: meaning it has to make beer
Those are very different definitions than the trade group used to have even just a few years ago, and the changes were mostly made to ensure that Boston Beer was able to hold onto its title as a craft brewer.
When sales of its flagship Samuel Adams beer were hot, Boston Beer risked exceeding the Brewers Association's "small" criterion, so the trade group raised the limit from four to six million barrels.
Similarly, as Boston Beer's hard seltzer sales took off -- and Sam Adams sales continued their five-year decline --- the brewer risked running afoul of the requirement that a craft brewer had to brew mostly beer, so the trade group stepped in and changed the definition again to specify that the brewer had to brew at least some beer.
Representative of what craft beer is
There were other arguments in favor of updating the definitions, such as the fact they should reflect the current state of the industry. It wasn't just Boston Beer brewing these other alcoholic beverages -- a lot of real small brewers also made them, so the rule changes also benefited them as well.
Yet it also can't be denied Boston Beer was the primary beneficiary of the rule changes, and that was because it has been the face of the industry for decades. Founder Jim Koch has been a tireless advocate for and supporter of the craft beer industry, and it would hurt everyone if he and Boston Beer were no longer considered part of that group.
But that could very well happen, as Boston Beer is poised to exceed the bounds of the definition once more. It remains to be seen if the Brewers Association will move the goalposts yet again.
Too big for its own good
The craft brewer shipped over 5.3 million barrels in 2019, a near-24% increase over the prior year, when it produced almost 4.3 million barrels. Part of that was the result of adding 300,000 barrels of production from its acquisition of Dogfish Head Brewery. Management's 2020 outlook calls for depletions and shipment volume growth of 15% to 25% -- even the bottom of that range would push the company over the six-million-barrel threshold.
The brewer has long been caught in a sort of "no man's land" where it's too big to be considered a craft brewer but too small to effectively challenge the likes of Anheuser-Busch or the other megabrewers. This could be the year when Boston Beer finally outgrows the constraints of what it means to be a craft brewer.