We initiated a new position during the quarter in The Boston Beer Company, Inc. (SAM) best known for its Samuel Adams brand. Founded in 1984 by sixth generation brewer Jim Koch, Boston Beer is the largest craft brewer in the United States, selling approximately three million barrels annually and generating $600 million in sales. Craft beer represents just 7% of the U.S. beer industry volume today, but is the fastest growing segment, taking share from 'big beer' brands: Budweiser, Miller and Coors, as well as wine and spirits. This shift is occurring as consumers seek out more variety, more flavor and better quality from their beers, similar to what the wine industry experienced several decades before. Boston Beer remains the clear innovator and leader within a category that we expect to double in size over the next five years. Boston Beer boasts the broadest portfolio in its industry, with fifty different varieties of Samuel Adams beer as well as recent introductions into hard cider and malt beverages. Though they are the largest craft player, Boston Beer has just 1% of the overall U.S. beer market by volume, representing a major opportunity as they gain wider distribution across the country and reap the benefits of recent investments in sales and marketing. The company generates high returns on capital at its three brewing facilities, significant free cash flow and maintains a debt free balance sheet. (Matt Weiss)
From Baron Funds' fourth quarter letter.