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In Peter Lynch’s book, One Up on Wall Street, he pointed out that the average person is exposed to interesting local companies and products years before the professionals on Wall Street. A person can make successful investments by paying attention to what’s happening around them and invest accordingly.
I believe craft beer is one of those things worth paying attention to…it is the one oasis of growth in an otherwise flat, overall beer market.
In my previous article, I outlined the craft brewing industry’s 2010 and year-to-date 2011 performance. Craft beer sales growth continues to accelerate according to scan data of beer sales in supermarkets, drug stores and convenience stores. According to the Brewers Association data, the latest results show:
| Period | Volume Growth | Sales Growth | Pricing Change per Case |
| 17 Apr – 15 May 2011 | 13.8% | 15.3% | $0.42 |
| YTD 2011 | 12.6% | 14.3% | $0.47 |
| May 2010 – May 2011 | 12.2% | 13.9% | $0.47 |
| 2010 | 11% | 12% |
By contrast the typical, mass-produced domestic sub-premiums, premiums, super-premiums and malt liquor are all down between 1.1% and 5.2% YTD. In 2010, the overall US beer market was down 1% in volume and sales. This partly explains the Big 3’s recent interest in acquiring stakes in this part of the industry, such as Anheuser Busch-Inbev’s (BUD) purchase of Goose Island and their 30% stake in the Craft Brewers Alliance (HOOK). Additionally, Anheuser Busch-Inbev, SAB-Miller (SAB), and Molson-Coors (TAP) are looking to emerging markets to boost the growth that they’re not getting here in the US.
The craft brewing industry’s explosive growth represents only 5% of the overall US beer market. However, take a casual notice around and you’ll see it increasingly taking up tap space at bars, shelves at the supermarket, and I’ve even seen it at Wal-Mart.
Besides consumer interest in more robust beers, craft beers are now experiencing the attention that wine had in the 1960s & 1970s--as a compliment to dining and is being paired with menu choices. In fact, events such as SAVOR, held every year in Washington DC, celebrate the pairing of craft beer and food. This year Boston Beer Company (SAM) and the Dogfish Head Craft Brewery, collaborated on an exclusive beer for the event which is not available elsewhere. As an anecdotal gauge of enthusiasm, this year’s SAVOR event was sold out in less than 24 hours.
With this increasing attention due to the education of the consumer, restaurants will need to create pairings as they’d previously done with wine. As consumer demand increases for craft beer over the years, restaurants will need to adapt. Craft beer is cheaper than wine and champagne and makes it all the more intriguing and accessible to diners to experience what the affluent do.
Tailwinds continue to fuel the craft beer industry, which I don’t believe will die anytime in the near future.
Cheers!
Disclosure: Long SAM
About the author:
I'm an IT professional and a private individual value investor with degrees in Electronic Engineering and Economics. My major investment influence is Warren Buffett. I focus on finding "wonderful companies trading at wonderful prices". I want these companies to: be one I can understand; have favorable long-term prospets and economics; be operated by honest and competent managers; and be available at an attractive price. I'm willing to hold securities for long periods of time to allow management to compound earnings for me, and I am at ease with holding a concentrated portfolio of no more than 20 'wonderful companies'.
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