Sometimes it pays to be a niche player in a large-scale, competitive business. In the beer industry, perhaps no company fits this mold better than Boston Beer (NYSE:SAM). The small-cap company has made large strides in creating a popular and lasting beer brand in the Samuel Adams name and has since diversified its product lineup to include hard teas and ciders.
The popularity of craft beer continues to grow despite flat industrywide sales. And Boston Beer remains a great way for investors to profit from America's seemingly endless fascination with delicious lagers.
A niche market but growing
There is no denying it: Craft beer is a strong growth story, particularly in America. Turn on any major sporting event and it's hard not to see an advertisement for one of the many popular craft beers flooding the market.
In fact, the rise of craft beer is so strong that it is happening despite overall weak industry sales. For example, according to the Brewers Association, in 2013 the craft beer market grew 20% and generated approximately $14.3 billion in sales, up from sales of $11.9 billion in 2012. Meanwhile, total beer sales in 2013 remained essentially flat year over year at $93 billion.
The combination of rising craft beer sales and stagnant total beer sales means that the niche product category is quickly gaining market share. According to the Brewers Association, craft beer represented more than 14% of the total beer market last year, which is a 4% improvement from 2012's 10% share.
Head of the pack
Now that we know the market is strong, we can turn our attention to Boston Beer, which happens to be the largest craft brewer, according to the Brewers Association. The next two largest competitors are Sierra Nevada Brewing and New Belgium Brewing, both of which are privately held.
Boston Beer has managed to remain ahead of the competition by continuing to introduce new products and keeping customers on their toes. Boston Beer Founder and Chairman Jim Koch explained:
We've seen the craft beer drinker evolve from novice to tastemaker. Today's drinkers have a global palate and are coming to expect more interesting and in-depth flavors from brewers -- similar to what they're discovering in the food universe.
On the company's most recent earnings call, management explained that Boston Beer has plans to release several new beers in the first quarter. New releases like Samuel Adams Cold Snap and Samuel Adams Rebel IPA have also been well received by consumers so far. Additionally, the company's research and development division, called Alchemy & Science, continues to work to develop new and exciting beer brands.
In addition to expanding its presence in craft beer, Boston Beer is busy strengthening its position in other product segments as well. The Twisted Tea and Angry Orchard brands, which are the company's respective takes on hard tea and cider, have been met with success so far.
President and CEO Martin Roper explained on the company's most recent earnings call: "With the launch of several new beers and our increased investment behind Twisted Tea and Angry Orchard, we believe we are well-positioned to maintain our momentum."
Since Boston Beer has directly capitalized on the surge in craft beer lately, the company is leading most public beer companies in terms of growth. When compared to a larger company like Molson Coors Brewing (NYSE:TAP), which owns large beer brands like Coors, Molson, and Carling, Boston Beer is growing aggressively.
While Molson Coors has several craft/specialty labels including Blue Moon and Creemore Springs, the company's product portfolio is overwhelmingly weighted toward traditional beer offerings. This is in direct contrast to Boston Beer and is reflected in both companies' growth estimates.
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Boston Beer's vastly superior growth projections are a result of the company's direct focus on the surging craft beer market. Likewise, Molson Coors is struggling to grow at all in 2014 thanks to its heavy reliance on the traditional beer segment.
Boston Beer is the best way for investors to ride the incredible momentum in the craft beer market. The company also remains one of the most aggressive long-term investments in the beverages industry in general.