The Craft Beer Trend Is Damaging Its Creator, Sam Adams

When Boston Beer, maker of the Samuel Adams lager series, first sparked the craft beer movement nearly 30 years ago, they had the market cornered. There was traditional beer, and then there was Sam Adams. But now that everybody and their brother seem to have their own craft brew, the market has become saturated, and consumers are getting fed up.

The past few quarters have shown that craft beer purchases are on the decline, and Boston Beer has been hit particularly hard. Last month they posted their first annual sales drop in 13 years.  Its earnings per share for 2016 were 6% below 2015 results. The company has projected a “staggeringly wide range” for 2017 that indicates a drop of anywhere from 9% to 38%, according to Cowen analyst Vivien Azer, although the actual results could “vary significantly from the current projection.”

So far 2017 results are not promising. The company’s first spring brew, called Hopscape, is a dud, and Boston Beer sales slipped 3.9% at convenience stores in the first four weeks of the year. Boston Beer stock shares are down 16% in the past year.

The issue does not seem to be with the quality of the product, but rather the complete market saturation of craft beers, which have seen a drastic slowing of sales in the past few years – from a 22% increase in 2014, down to just 6% in 2016. Specialized beers are still trendy, but not so much in the go-to-the-store-and-grab-a-6-pack kind of way.

Consumers are spending more time sampling new beers at tap rooms attached to local breweries and Boston Beer has not done much to exploit that trend. When they launched in 1984, there were just 97 breweries in the United States. There are now more than 5,000, and the number has more than doubled since 2012.

Jim Koch, the chairman and founder of Boston Beer, said that consumers might actually be suffering from a “paradox of choice, where if you have too much variety, it actually depresses consumer purchases in that category.” In other words, when we head to the store and are surrounded by cool, trendy looking labels and craft ingredients everywhere we turn, we are more likely to opt for a case of Corona and call it a day!

Anheuser-Busch and MillerCoors already produce more than 80% of the beer consumed in the U.S., and they have now begun to buy up craft breweries, making them “less special” and leaving companies like Boston Brewers vulnerable to damaged brand identity.

According to analyst Azer, the folks behind Sam Adams are going to have to ramp up their advertising if they want to remain a major player in the beer game. This will increase the promotional budget and cut into profit margins, but it’s a risk they have to take.

“Advertising works in beer,” Azer notes. “It’s going to come down to the quality of the ads.”

 

H/T to Barrons.com