Craft beer continued its tear in 2013, with sales up 20% over the prior year, according to a recent report put out by the Brewers Association. That's an acceleration from the 13-15% we'd seen in prior years. The trend no doubt helped buoy smaller beer makers Boston Beer (NYSE:SAM) and Craft Brew Alliance (NASDAQ:BREW). But if we're to believe the megabrewers, a good portion of that growth has come not from the little guys, but from their own craft and crafty labels. Molson-Coors in January attributed nearly 30% of craft's growth to the labels it produces in cooperation with SABMiller, including Blue Moon, Leinenkugel, and Henry Weinhard's.
If you're a craft beer purist who bristled at that news, you might want to brace yourself for what's to come next. The world's biggest brewer, Anheuser-Busch InBev (NYSE:BUD) may be brewing up America's next King of Craft.
A-B purchased the small, well respected Goose Island microbrewery in 2011. The benefits for Goose Island's owners were obvious. The beers they created and worked to perfect over nearly 23 years would suddenly have the distributing power to get into markets that they previously couldn't reach. That's a brewer's dream come true.
Growth came even faster than founder John Hall expected, and in just about a year, A-B was announcing plans to take Goose Island national.
It's done well. In February, A-B CEO Carlos de Brito said Goose Island's volumes were up 70% over the prior year. That doubles the growth of reigning craft champion -- by barrels sold -- Boston Beer(NYSE:SAM), which posted impressive growth of better than 34% of its Sam Adams beers and Angry Orchard ciders in 2013. It blows away the 8% growth of Craft Brew Alliance, which had a disappointing 2013, but still has high hopes moving ahead.
Here's what should really worry smaller brewers, however: That was just the beginning for Goose Island under A-B. The year ahead is where A-B and its acquired craft label can really start to make inroads into the growing craft market.
A-B is just now launching its first advertising campaign for Goose Island. A one-minute video that will run on selected websites takes viewers inside Goose Island's original Fulton Street brewery in Chicago. You can see it here:
A-B will also place full and double-page ads in magazines to promote its craft brewer. This is a major push at a time when smaller brewers are also looking to capitalize on the rising interest in craft to broaden their marketing efforts. Boston Beer in February told investors it plans to forsake some short-term profit to up its efforts to grab an even bigger share of the fast-growing craft beer market.
What both of these brewers see is not only growth, but the beginning of consolidation around core brands. Boston Beer founder Jim Koch referred to it as "variety fatigue." Stores and bars are starting to figure out what sells and what doesn't, and they're adjusting stock to arrange their tap handles and store shelves accordingly. Both Boston Beer and A-B see themselves as the eventual beneficiaries.
With plans to sell 17 different Goose Island beers across the country through A-B's massive distributing network, it isn't unreasonable to believe the label could rival Boston Beer's Sam Adams at the top of the craft market in fairly short time.
High quality, lower price
The thing about Goose Island that craft beer lovers can't ignore is that it's undeniably good. Its IPA rates a 95 of 100 on popular beer rating site RateBeer.com. For comparison, Boston Beer's Latitude 48 IPA rated an 81 -- still very respectable. Craft Brew Alliance's Redhook Long Hammer IPA rated just a 42.
What's more, because of the advantages A-B allows, Goose Island can afford to sell at a discount to most local and regional craft brews. A recent trip to the beer store showed Goose Island selling for 5%-10% less than comparable styles from regional microbrews and Sam Adams. Admittedly, this is a small sample size, and prices vary from market to market, but the point is, A-B can be competitive with Goose Island's pricing where it needs to.
High quality at a lower price is usually a recipe for success, especially when you have A-B's ability to source ingredients and scale successful products at will.
The Foolish bottom line
The craft brew market just took an interesting turn. The growth of Goose Island won't make up for slowing U.S. sales of Budweiser or Bud Light -- at least not anytime soon -- but it could take a big bite out of the craft market in the quarters and years to come.