​Are Investors Being Left Out of the Craft Beer Boom?

Henry Truc  |

With this year’s National Beer Day having come and gone, investors are probably left thirsty for a taste of the craft beer craze they’ve heard so much about. After all, the craft beer market grew by 15% last year to $22.3 billion, and still has a lot more room to grow as it only makes up about 12% of the $105.9 billion US market, according to figures from The Brewers Association.

But here’s the problem. Despite the growing selection of small and independent brewers popping up on the tap at your local watering hole, investors in the public market still only have a couple of names to choose from. We’re not talking about the global behemoths like Anheuser-Busch InBev (BUD), SABMiller plc (SBMRY), Molson Coors Brewing Company (TAP) and so forth, which make up about 60% of the market and have been competing in their own chugging contest to swallow up as many small brewers as they can get their hands on.

But for the upstarts and independents, there are currently over 4,200 small and independent brewers in the US, of that, only Sam Adams-maker Boston Beer Company (SAM) and Craft Brew Alliance, Inc. (BREW) are publicly traded. Highly acclaimed Ballast Point was set to join the group when it filed to IPO in October 2015 with the hopes of raising $172 million in proceeds, but opted instead to sell to alcohol conglomerate Constellation Brands (CTZ) for a frothy $1 billion just a month later. The Constellation acquisition of Ballast Point, however, is also indicative of the big bear arms race.

After years undergoing massive industry consolidation in which some of America’s largest and most iconic beer companies were merged into bigger overseas companies, Big Beer is now pointing its goggles squarely on budding craft breweries in an effort to protect their dominant market share. There’s perhaps no clearer sign of that then Anheuser-Busch InBev’s acquisition bender this past December in which the King of Beers bought three craft breweries in the span of five days, expanding its portfolio to eight total. In fact, today many popular “craft brews” are actually owned by big beer companies.

Having a Beer in Public

Boston Beer is perhaps a victim of its own success. Founder and CEO Jim Koch was a leading figure in the early days of the craft beer movement. But the company now finds itself in an interesting predicament. Its flagship Sam Adams isn’t necessarily viewed by consumers as a true craft beer, and at the same time, it certainly doesn’t have the size and distribution of its larger beer competitors either. Growth has also slowed considerably for Boston Beer, with sales growing at single digits in 2015 to $1.02 billion. At a market cap of $2.2 billion, it’s certainly not enjoying the same premium valuation as the faster-growing craft beers. As an example, Constellation was willing to pay eight times sales for Ballast Point, which sold about $115 million in 2015. But Boston Beer has been successful in tapping into other beverage types, such as its popular Angry Orchard apple cider, and has also been adding craft brewers to its own portfolio. And at the end of the day, as the number two craft brewer (fifth overall) in the US by sales volume, Boston Beer is still a formidable player in still-growing market.

The same could be said for Craft Brew Alliance as well. The company is made up of six distinct regional brands: Redhook Ale Brewery, Widmer Brothers Brewery, Kona Brewing Company, Omission Beer, Square Mile Cider, and KCCO. The company doesn’t necessarily have a flagship beer, per se, though it’s being to position the Hawaiian-style Kona brand in that way, to the point that the CBA management team refers to its growth strategy as “Kona-plus.” It’s easy to see why as the Kona brand was the fastest-growing brand in the CBA portfolio at 17% last year. The company also has a close relationship with Anheuser-Busch InBev, which owns about a 31% stake in CBA. In fact, if you go by the Brew Association’s definition of a craft brewer, Anheuser-Busch’s stake would actually mean CBA is not, in fact, a craft brewer even though it’s right there in the name. Still, CBA is a top 10 brewer by sales in the US, with $204 million in revenue in 2015. CBA currently has a market cap of about $150 million.

Any Beers on Tap?

Unfortunately, like the rest of the IPO market, new craft brew issues appear to have dried up, at least for the time being. While there was a lot of buzz around the time Ballast Point filed their S-1, with the expectation of many more rounds of craft brewers on the horizon, that doesn’t seem to be the case right now—especially when you consider how many of the smaller brewers are being gobbled up by the major beer companies.

Last year, Brooklyn Brewery, Lagunitas Brewing Company, and SweetWater Brewing Company were just a few names reported to be contemplating IPOs, which valuations estimated in the hundreds of millions. It’s been pretty quiet on that front since, but, again, the same could be said for the IPO market in general.

Whether the craft brew boom has come to a head–with investors harkening back to two decades ago when the beer industry experienced its own version of the dot-com bubble–or the companies are just taking a breather before the next round, remains to be seen. Still, one can’t help but wonder, by the time they’re ready to appeal to investors again, will the buzz have worn off?

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SAM Boston Beer Company Inc. (The) 286.04 -11.12 -3.74 116,565 Trade
BUD Anheuser-Busch Inbev SA Sponsored ADR (Belgium) 80.74 -3.18 -3.79 1,554,771 Trade
BREW Craft Brew Alliance Inc. 14.73 -0.50 -3.28 113,894 Trade
TAP Molson Coors Brewing Company Class B 59.45 -1.36 -2.24 1,225,186 Trade

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