Will Craft Brewers Mar Beer Industry's Fortunes?

In the recent past, craft breweries have increased dramatically across the United States. To put things into perspective, there were about 7,346 craft breweries operating across the country in 2018, up from 3,814 in 2014. Furthermore, about 1,049 new microbreweries opened in 2018 alone. Having said that, major players in the beer industry that didn’t probably produce any craft beer until recently, are fast adapting to the changing demand dynamics.

Prudent marketing strategies and acquisition of smaller brewers in the country have paid off for the bigger players. Obviously, craft beer has eaten into the market share of other premium beers recently but does that mean the bigger players stand to lose in the long run?

Craft Beer Witnesses a Spike in Market Shares

Craft beer has taken America’s brewing industry by storm. The craft beer movement which began in the late 1960s and 1970s is only gaining strength every year. Per the latest report by Colorado-based Brewers Association on Apr 2, craft beer’s market share surged to 24.1% in 2018, reflecting an increase of 7% from 2017. Further, microbreweries in the United States also witnessed a year-over-year increase of 7% (to $27.6 billion) in sales last year.

Collectively, small brewers in America produced about 25.9 million barrels last year. Notably, small and independent brewers witnessed growth in demand amid an otherwise downbeat beer market in 2018. Overall, the beer market declined 1% last year. Meanwhile, craft’s overall beer market share by volume increased to 13.2%.

Major Players Adapt to the Craft Boom

Major players in the beer industry have upped the ante to adapt to the changing dynamics of the industry. Anheuser-Busch InBev’s (NYSE:BUD) foray into the craft beer space has driven its top-line growth in the recent past. The beer giant’s Budweiser is one of the leading craft beer players in the industry presently.

Further, Anheuser-Busch surged surpassed Boston Beer (NYSE:SAM) to become America’s largest craft beer manufacturer in 2018. This was achieved on the back of its brewery acquisitions between 2011 and 2017, when it bought about 10 craft breweries across the country.

The Boston Beer Company’s Samuel Adams craft beer made it to the Brewers Association's annual list of the “Top 50” craft beer brands in 2018. The company remains optimistic about the future of its craft beer offerings. Moreover, on the basis of premium price, quality, image and taste, the company's craft beer is positioned in the "Better Beer" category of the beer industry.

On the other hand, players like Molson Coors Brewing Company (NYSE:TAP) have established sustainability goals through 2025 to keep expanding into the premium beers space, which includes craft beers. Constellation Brands’ (NYSE:STZ) foray into craft beer might not have paid off. But its Modelo brand helped the company perform well in the recent past.

Anheuser-Busch, Boston Beer, Molson Coors and Constellation Brands have year-to-date returns of 31.3%, 11.8%, 6.4% and 18.7%, respectively. Anheuser-Busch, Boston Beer and Molson Coors carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

To Conclude

Despite a number of microbreweries cropping up in the recent past, a dent in the long-term fortunes of international craft beer vendors is highly unlikely. This is because smaller brewers reel under the pressure of technological development, reliability and quality problems.

Moreover, bigger players are quickly acquiring smaller ones, thereby reducing competition. This is evident in Anheuser-Busch’s taker-over spree when its acquired brands reported better sales.

Meanwhile, customers are consistently looking to try out newer craft brands. Smaller brewers find it difficult to build new brands easily. This is where the bigger players have an edge.

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