Boston Beer Company

Who’s Getting Hurt by Flat Sales?

Data compiled by the Brewers Association show that the bigger craft breweries bore the brunt of last year’s slump.

Twenty-five of the top 50 craft breweries, as defined by the BA, didn’t grow in 2016; and more then one-third of BA-defined regional breweries had either flat or declining sales. The damage was heaviest at the top of the standings: four of the five biggest crafts—D.G. Yuengling & Sons, Boston Beer Company, Sierra Nevada Brewing Company, and Gambrinus Company—suffered a sales decline. The top five’s only gainer was New Belgium Brewing Company.

According to the BA’s Bart Watson, the regionals are getting squeezed by both ends of the industry. Anheuser-Busch Companies, whose acquisition of craft brands has stirred up controversy, is snapping up retail space at the expense of the regionals. Meanwhile, many retailers are focused on getting the products of small local breweries on their shelves, again to the regionals’ detriment.

There were some bright spots, however. Regionals that upped production in 2016 include Bell’s Brewery, Firestone Walker Brewing Company, and Rheingeist Brewery. Several others that no longer meet the BA’s definition of “craft”, such as Founders Brewing Company and Lagunitas Brewing Company, also posted gains for the year.

Counterpoint: Craft Beer Isn’t Dying

Jim Koch, the founder of Boston Beer Company, warned last month that industry consolidation had put craft beer on the endangered list.

John Hall, the founder of Goose Island Brewery, begs to differ. He predicts a bright future for craft as a whole because it is so diverse, innovative, and in-sync with customers. Hall cites self-distribution (which is legal in many states), and state laws allowing breweries to serve pints, as two factors that change the equation for small breweries.

Hall also explains why Goose Island agreed to be taken over by Anheuser-Busch. One alternative was contract brewing, as Boston Beer has done for many years. Another was to take the company public; however, he didn’t like the idea of having to report every quarter to Wall Street. That left A-B.

Of the A-B deal, Hall said, “Like all big business decisions, it was risky being one of the first craft brewers to partner with a big brewer. But we preferred to partner with brewers who understood the beer business. Through our partnership with Anheuser-Busch, Goose Island was able to do what Boston Beer did, reach consumers nationwide while retaining the quality and integrity of our beer, and our brand.”

Beer…By the Numbers

  • Participants in the 2016 American Homebrewers Association Big Brew event: more than 12,000.
  • Establishments that hosted Big Brew events in 2016: 483.
  • Cities on this year’s Sierra Nevada “Beer Camp on Tour”: 8.
  • Breweries collaborating with Sierra Nevada on this year’s event: 12.
  • Beer’s share of Boston Beer Company’s beverage production in 2010: 88.9 percent.
  • Its share of Boston Beer Company’s beverage production in 2016: 57.2 percent.
  • Twelve-ounce beers in a “keg” (half-barrel) of beer: 165.
  • Growlers in a keg: 31.
  • Beer stores in Whiteclay, Nebraska (population 9) last year: 4.
  • Beer stores in Whiteclay today: 0. Their licenses were revoked by the state.
  • Cans of beer sold in Whiteclay last year: 3.5 million. Most are bought by Native Americans living on the Pine Ridge Indian Reservation, which is dry.
  • Japan’s legal drinking age: 20.
  • Japanese brewing industry’s recommended minimum age for actors in beer commercials: 25.
  • Mexican beer’s share of the U.S. import beer market: 70 percent.
  • Mexican beers among the 7 top-selling brands in the U.S.: 2 (Corona Extra and Modelo Especial).
  • Trendy Beers: A Bad Business Decision?

    Boston Beer Company’s slumping sales have been a topic of conversation in the craft beer community. Author Jeff Alworth blames the company’s propensity to chase trends. Alworth explains:

    Boston Beer has made a series of decisions that may have resulted in short-term profits–spinning off alcoholic apple juice, tea, and seltzer divisions–but they enhanced the sense that this was a big company as bland and personality-free as Kellogg’s or Proctor and Gamble. No one could ever fault Sam Adams for failing to release new beers, but the ever-multiplying new lines of random beer types (IPAs, barrel-aged beers, nitro cans) has created a brewery with no there there.

    Trend-chasing isn’t limited to Boston Beer. Breweries across the country are scrambling to bring out their versions of grapefruit IPAs, golden ales, and New England IPAs. If the past is any indication—remember the wheat beers of the 1990s?—today’s fad beers stay trendy very long.

    According to Alworth, breweries that specialize in trendy beers fail to establish a connection with their customers. That connection is more important with beer than with other consumer products. He cites four examples—Sierra Nevada, Hill Farmstead, Schlenkerla, and Genesee—each of which has a distinct “personality”. Those personalities are built in collaboration with their drinkers, who expect the beer will embody that personality.

    Jim Koch Sounds the Alarm

    Boston Beer Company jump-started America’s craft beer movement and made its founder, Jim Koch, a billionaire. But in a recent op-ed in the New York Times, Koch warns craft’s run might be coming to an end.

    Koch calls industry consolidation the number-one culprit. In 2008, federal antitrust regulators not only approved the MillerCoors joint venture, but they also gave the green light to InBev’s acquisition of Anheuser-Busch. That left two brewing giants in control of 90 percent of America’s domestic beer protection. Making matters worse, the federal government allowed the big brewers to buy craft breweries—and then fail to disclose that they were the new owners.

    Those mega-mergers resulted in higher beer prices and pink slips for American workers, as well as consolidation among distributors. Today, in most markets, more than 90 percent of all beer is controlled by distributors who depend on either A-B InBev or MillerCoors for most of their volume. Those distributors have considerable power regarding promotion, shelf space, and marketing support for the brands they handle—and they have an incentive to give preferential treatment to craft brands the big brewers now own.

    According to Koch, the key to saving American craft beer is stricter antitrust enforcement. He names China and South Africa as countries whose regulators imposed strict conditions on big brewery mergers to protect their domestic economies.

    The Friday Mash (“Don’t Cry for Me” Edition)

    On this day in 1946, Colonel Juan Peron, founder of the political movement known as Peronism, was elected to his first term as President of Argentina. He and his wife, Eva Duarte, would later become the subject of the Broadway musical Evita.

    And now….The Mash!

    We begin in Maryland, where craft brewers are concerned about Guinness’ plans to open a taproom at its new brewery. At the same time, retailers worry that raising the cap on how much breweries can sell on-premises will hurt their business.

    This year’s beer trends include the “haze craze”: unfiltered and unpasteurized IPAs aka “New England IPAs”. These beers have a shorter shelf life, but are richer in both flavor and aroma.

    Atlanta’s SweetWater Brewing Company is paying off a Super Bowl bet by releasing 100 cans of SB51 beer. It’s described as “a soul crushing pale ale that will leave you deflated”.

    Tomorrow, Cleveland’s Slovenian community celebrates Kurentovanje, its version of Mardi Gras. Festival-goers will dress up as giant fuzzy animals to scare winter away, and drink beer at the newly-opened Goldhorn Brewery.

    Three machinists and designers are about to launch the Kramstein beer stein. This metal stein, which comes in two sizes, is designed to keep the drink cool and the drinker’s hands dry.

    Martin Roper, who’s been CEO of the Boston Beer Company for 16 years, plans to step down next year. TheMotleyFool.com speculates on whether Roper’s successor can arrest the company’s recent sales slump.

    Finally, the BrewDog brewery offers an unusual perk: a week’s “paw-ternity” leave to employees who adopt a new dog. It also allows employees to bring their dogs to work. The company’s founders worked under the watchful eye of their “brew dog”, Bracken.

    Beer…By the Numbers

  • Asia’s per capita beer consumption in 2016: 57 liters.
  • India’s per capita beer consumption in 2016: 4.7 liters.
  • India’s microbrewery count in 2016: 80.
  • Its microbrewery count in 2008: 2.
  • Boston Beer Company’s net revenue in 2016: $687 million (down 8 percent from 2015).
  • Boston Beer Company’s share price on January 27, 2017: $153.85.
  • Its share price two years ago: $320.83.
  • Lagunitas Brewing Company’s current annual production at its Chicago brewery: 405,000 barrels.
  • Its projected annual production after planned expansion: 1.2 million barrels.
  • Goose Island Beer Company’s annual production (estimated): 480,000 barrels.
  • Chicago breweries’ combined annual production (estimated): 1.115 million barrels.
  • MillerCoors’s sales in Wisconsin, 2012-16: 38.2 million barrels (biggest seller in Wisconsin).
  • Mark Anthony Brewing Company’s (Mike’s Hard Lemonade) sales in Wisconsin, 2012-16: 3.3 million barrels (second-biggest seller in Wisconsin).
  • Alcoholic strength of Founders Centennial IPA: 7.2 percent ABV.
  • Alcoholic strength of Founders All Day IPA: 4.7 percent ABV.
  • Forecast for 2017: Craft Beer Turf Wars

    The number of craft breweries continues to grow rapidly, while the growth of the craft sector is slowing. Which means something has to give.

    Jason Notte of Marketwatch.com predicts that 2017 will be the year of the turf war; there will be less mergers-and-acquisitions activity and more competition among breweries to claim shelf space.

    This could be the year that craft breweries lay off workers and make other cuts in an effort to trim costs. Industry leader Boston Beer Company has been hit hard by shrinking sales of Samuel Adams Boston Lager; the company’s shares have tumbled 50 percent from their 2015 high.

    We’re also likely to see more breweries bring in private-equity firms. Already this year, Victory Brewing Company and Southern Tier Brewing Company have formed such partnerships with such firms.

    And we’re likely to see smaller brewers focus on taproom traffic and food sales and avoid the battle to get their products on store shelves and on bar and restaurant menus.

    Notte believes that Oskar Blues is the brewery to watch because it has been the craft sector’s trend-setter for years. The brewery was the first to can its beers and the first to build a second facility in the eastern United States. Two years ago, it kicked off the private-equity trend when it sold a majority interest to Fireman Capital. It then used some of that money to acquire craft breweries in Michigan, Florida, and Texas; the latter two states are considered underserved beer markets. Oskar Blues also borrowed from the big national brewers’ playbook. It rolled out more mainstream beers, sponsored sporting events, and put an emphasis on brand recognition.

    Notte concludes, “Whether drinkers benefit from [this] turf war or become victims of it remains to be seen.”

    Beer…By the Numbers

  • Top ten brewers’ share of the craft beer market in 2015: 3.8 percent.
  • Their share of the craft beer market in 2009: 5 percent.
  • People employed by Ohio craft breweries: 2,500.
  • Ohio’s current craft brewery count: 190.
  • New York State’s brewery count in 2015: 240.
  • Its brewery count in 2012: 95.
  • Craft brewing’s impact on New York State’s economy: $3.5 billion (fourth-highest in the U.S.).
  • Boston Beer Company’s (ticker symbol: SAM) closing price on May 13: $150.04 a share.
  • SAM’s highest price during the past 52 weeks: $266.62.
  • Calories in a 12-ounce can of Budweiser: 145.
  • Calories in a 12-ounce can of Bud Light: 110.
  • Bud Light’s share of the world beer market: 2.5 percent (third overall).
  • Snow beer’s share of the world beer market: 5.4 percent (first overall).
  • Cost of a liter of Snow beer in China, its home country: $1.
  • Growth in Snow’s sales volume since 2005: 573 percent.
  • Beer…By the Numbers

  • Price of a “regular bottle” of beer at Super Bowl 50: $13.
  • Price of a “premium draught” at Super Bowl 50: $15.
  • Cost of Anheuser-Busch’s anti-drunk driving Super Bowl spot featuring Helen Mirren: $10 million.
  • Estimated value of Peyton Manning’s post-Super Bowl endorsements of Budweiser: $3.2 million.
  • Germany’s annual hop production: 34,000 metric tons (first in the world).
  • United States’ annual hop production: 33,266 metric tons (second in the world).
  • Washington State’s share of U.S. hop production: 70 percent.
  • Beer’s share of the world-wide alcoholic beverage market: 80 percent.
  • Beer’s share of India’s alcoholic beverage market: 30 percent.
  • Beer’s share of the U.S. alcoholic beverage market in 2015: 48 percent.
  • Its share of the U.S. market in 2000: 55 percent.
  • Maximum weekly “units” of alcohol recommended by UK health authorities: 14.
  • Number of pints of lager in 14 units of alcohol: 7.
  • Boston Beer Company’s revenue in 2015: $959.9 million.
  • Increase over 2014: 6 percent.
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