Craft Beer Market Analysis on Bloomberg Business Week

A fascinating recent segment on Bloomberg Business Week rates Boston Beer Company, makers of Samuel Adams, as a "sell" stock. Noting that the Boston Beer Co. has had record stock gains mostly to due the success of its cider brand, Twisted Tea, and expanded distribution to 48 states. UBS analyst Kaumil Gajrawala essentially makes Boston Beer Co. out to be not unlike Microsoft, which may be a big company, but its stock is plummeting and the company is running out of places to grow as new innovators swoop in. Is Boston Beer Co. a target for a buyout by a big guy like AB-InBev? Perhaps, but judging by this Jim Koch interview on ABC News the other day, he is quite happy and enthusiastic about the industry still.

With craft beer's foothold in the market growing every year, the macro brewers are struggling to hold onto their market share. As the analyst here points out, the big guys are not going anywhere and will likely always hold most of the supermarket shelf space. What I am most concerned about are those limited shelf spaces in coolers across the country that more and more craft brewers are gunning for. Those valuable SKU's will soon be running out, I suspect, and faster than ever with the advent of the mobile canning line and multiple lines of beers from single breweries, like Hopworks Lager in 22oz bottles as well as cans.

As craft brewers do eat into the big guys' shelf space, more and more they become larger targets for buyouts, especially when they have potential and room to grow.

Just take a look at Goose Island, which was purchased by A-B Inbev last year for $38.8 million with plans to quickly expand Chicago's biggest craft brewer. After immediately installing new 100 bbl tanks last year, the Chicago Tribune reported that Goose Island beers (still difficult to find in Oregon and not available at all in many regions) will expand to distribution in all 50 states. That kind of aggressive growth strategy, largely based around packaged bottles, will put more pressure on regional brewers, who will soon be fighting to stay on grocery store shelves. Inbev's $38.8 million investment to purchase Goose Island was a drop in the bucket compared to how much it will be worth in the coming years. Distributors controlled by A-B Inbev across the country can push the product. To compete with these big guys, craft brewers need to sign on to larger distributors, many of which are controlled by or have strong ties to the macros. Either way, it's a win/win for the big guys. The next 5 years will be a trying time for craft brewers, I predict.