There are two ways to view the U.S. beer market today: glass half-empty, or glass half-full. On one hand, beer sales in 2013 were just a hair higher than they were a year earlier -- 2.79 billion cases to 2012's 2.78 billion, research firm Mintel said last week. That's growth of less than four-tenths of 1%. Considering that the U.S. population grows by about seven-tenths of 1% per year, we can officially say Americans are drinking less beer. On the other hand, the U.S. craft beer industry continues to grow at a rate just shy of 15% per year.
So, Americans are drinking less beer. But at the same time, they've never been more interested in beer, and particularly, U.S.-brewed beer. Investors across the adult-beverage industry need to keep these trends in mind, whether they're interested in larger craft brewers Boston Beer (NYSE:SAM) and Craft Brew Alliance (NASDAQ:BREW), megabrewers Anheuser-Busch InBev (NYSE:BUD) and Moslon Coors (NYSE:TAP), or spirits makers Brown-Forman (NYSE:BF.B) and Beam. They all have skin in this game, and they're all trying to adjust to take advantage of Americans' changing tastes in libations.
Figuring out just who has the upper hand, however, isn't so simple.
The switch from beer to bourbon
While beer sales by volume have been stagnant, sales of American whiskey have surged, suggesting that there's been a swap under way. Some big beneficiaries of this shift have been Brown-Forman, the maker of Jack Daniel's, and Beam.
Sales of Jack Daniel's were up 10% in the first six months of Brown-Forman's fiscal 2014. Even better, sales of its "super-premium" whiskeys like Gentleman Jack and Jack Daniel's Single Barrel were up 18%. Top-shelf Woodford Reserve was up 28% in fiscal 2013.
Beam, likewise, saw its best sales at the high end, where it owns several labels, including Maker's Mark, Basil Hayden's, and Knob Creek. Overall, Beam reported 4% growth in 2013. That included 3% growth for the flagship bourbon, and 17% growth for high-end Maker's Mark. Other high-end Beam bourbons were showing even better numbers earlier in 2013.
These trends look good for distillers. Not only are U.S. drinkers switching from beer to bourbon and other spirits, but they're choosing high-end -- read: "high-margin" -- products.
"Beer" is on the decline, "craft beer" is not
While overall beer sales looks bleak, it means little out of context. What's happening in beer is a major shift of consumer preferences. Light beer has been in fast decline. The biggest labels like Budweiser continue to give up major ground. But the craft brewing industry is thriving.
Despite Boston Beer's position as the country's largest craft brewer -- it produces nearly three times as much beer as runner-up Sierra Nevada -- it has continued a rapid pace of growth. Over the first nine months of 2013, sales were up 25%.
It's done so by pushing a wide variety of beers into the market. Every season brings new offerings and variety packs. And Boston Beer has found the right recipe of different but not-too-adventurous styles to appeal to those drinkers who are not hard-core beer geeks.
Craft Brew, likewise, has some fast-selling beers in its Kona and Redhook labels, which it believes appeal most to "crossover drinkers" from Bud, Coors Light, and other alcoholic beverages. It also has a number of clever marketing partnerships targeting a younger demographic, the latest being its deal with theCHIVE.com for KCCO Black Lager. While 2013 was a disappointing year overall, with sales up just 6%, Craft Brew has an ambitious plan to grow in 2014, including a new brewery to serve the East Coast.
The big guys are getting in on the act
Molson Coors, meanwhile, continues to surprise with its growth of crafty labels like Blue Moon and Leinenkugel. Its "above-premium" beers enjoyed double-digit growth in 2013, the company reported. Molson Coors owns 30% of the growth of the entire craft market, it says. That's helped to make up for losses in its shrinking traditional labels.
A-B InBev has continued reaching deeper into the craft space by doing one of the things it does best: acquiring more breweries. Earlier this month, it picked up another highly regarded craft brewer in Blue Point. Like Goose Island before it, the move will take Blue Point's beers nationwide with A-B's massive distribution network. A-B has also been able to benefit from the craft trend by investing in craft brewers, including a 35% stake in Craft Brew.
The Foolish bottom line
Overall beer sales in the U.S. barely moved in 2013, while sales of spirits such as whiskey surged, putting companies like Brown-Forman in prime position to capitalize. But there are winners to be found in this stagnant beer market, and investors don't need to look any further than fast-growing Boston Beer to find one. The megabrewers are looking to tap into the craft beer trend and are making inroads. The big question for them is whether they can ever do enough with their craft offerings to make up for the losses in their biggest brands.
Editor's note: A previous version of this article attributed sales data to the Beer Institute instead of to Mintel. The Fool regrets the error.