The craft beer industry has never looked healthier. The industry trade group Brewers Association says there are more than 4,100 breweries in existence in the U.S., more than at any time in history. At over 22 million barrels produced annually, small and independent brewers are churning out more beer than ever before, too -- about 11% of all beer brewed and 19% of the total market retail value.
At the same time, mass-brewed beers are in decline. The Treasury Department's latest beer statistics show that industry production declined 1.5% through last November, which is in line with the performance of the world's biggest brewer by volume, Anheuser-Busch InBev (NYSE:BUD). The company reported that North American volumes for Budweiser, Corona, and Stella Artois declined 1.6% over the first nine months of 2015. When it reports its full-year results later this month, no one is expecting the brewer to see much progress.
Similarly, for the six month period ended last September, SABMiller (NASDAQOTH:SBMRY) said its production volumes fell 2% year-over-year.
With such heady results for the craft beer industry, why is it that "craft beer" has become a virtually meaningless term? Ask Boston Beer (NYSE:SAM).
Giving the industry its voice
For many years, the craft brewer's flagship Samuel Adams brand was arguably the face of the industry. Boston Beer's founder and CEO Jim Koch has also been one of the industry's most vocal and visible cheerleaders, even going so far as to finance a craft beer incubator, Alchemy & Science, where local beers can get a jump start on growth. Yet it's that high profile association that has led to craft beer being watered down.
To be considered a craft beer, the Brewers Association demands specific criteria be met:
- Small: annual production of six million barrels of beer or less.
- Independent: less than 25% of the craft brewery is owned or controlled by mass brewers.
- Traditional: derives its flavor from the use of traditional or innovative ingredients and their fermentation. Flavored malt beverages need not apply.
Well, those are the criteria for the time being, or until Boston Beer approaches the six million barrel mark. Then, the Brewers Association will probably move the goal posts, just as it has in the past.
It means what I say it means
A few years ago, the trade group held that to be a craft brewer, it could produce no more than two million barrels a year, be independent, and use only traditional ingredients. But when Samuel Adams exceeded the two million barrel limit, the Brewers Association changed the definition, raising the bar to its current threshold.
It's no secret that without Jim Koch and Boston Beer as standard bearers for the industry, craft beer would not have its current identity and the trade group is loathe to lose its most effective cheerleader.
Still, the very fluid definition of what defines a craft beer ends up diluting the message. When even very large brewers -- and Boston Beer is a big one -- are considered "craft", the term loses power. It also undermines the Brewers Association's opposition to what it calls "crafty beer", or the small-batch beers made by megabrewers like Anheuser-Busch and Miller.
Brewing up trouble
AB InBev's Shock Top, for example, is for all intents and purposes, a craft beer. However, its ties to the global beer giant disqualifies it. Similarly, Lagunitas Brewing has been making craft beer since its founding in 1993, but last year, Heineken bought a 50% stake in the brewery, which makes it ineligible despite no changes to the beer itself. AB InBev's 32% stake in Craft Brew Alliance, which owns brands such as Kona Brewing and Redhook Brewery, also keeps it out of the group.
These criteria also blocked D.G. Yuengling & Son, the oldest operating brewer in the U.S., from being considered a craft beer, because it used adjuncts in its beer, a violation of the traditional ingredient requirement (long held to include barley, malt, and hops). The trade group, however, changed that definition too by allowing so-called innovative ingredients to also be included, basically endorsing the idea that anything goes when it comes to brewing beer.
It's a fine line to walk between being too exclusive on the one hand and broadly inclusive on the other, all the while trying to satisfy one of your biggest, most visible members. The effort, though, has rendered the term "craft beer" essentially meaningless. Beer drinkers are just as likely to consider Shock Top "craft" as they are a Spotted Cow from New Glarus Brewing.
While we may understand that if we crack open a Budweiser we're not drinking handcrafted beer, pop a cap off of just about anything else and it's much less certain. For that, you have Boston Beer to blame.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool recommends Anheuser-Busch InBev NV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.