Boston Beer Company, owner of Sam Adams, is struggling to convince their shareholders to hold on, as their stock plunged 12% when the company recently released their dismal first quarter results for the year. According to their numbers, so far their quarterly revenue fell 5% year over year, which doesn’t sound horrible. However, that translates into a 48.8% drop in net income after factoring in a 6% decline in core shipment volume.
What happened with our nation’s biggest, craft brewery? It turns out growth in an industry is can be a great thing, but it also means lots more competition for the companies in that industry. The craft beer industry reported a 2015 13% rise in volume from the previous year, with 620 new breweries opening up. That’s 620 more breweries fighting for Sam Adams’ market share, and it looks like for the moment, the little guys are winning. Jim Koch, Boston Beer Company’s founding chairman, explained it like this…
“Our total company depletion trends declined in the first quarter, even as the better beer and craft categories appear healthy. We believe Samuel Adams has lost share due to the increased competition and continued growth of drinker interest in variety and innovation.”
The very industry that Sam Adams helped to build up over the last 25 years is eating it for breakfast. Part of the issue is that based on last year’s numbers, Boston Beer Company was expecting a huge growth and increased capacity to be able to meet that projection. When the demand was not there, the hit was much harder had they not been growing at the pace they took on.
Another factor is that in an incredibly competitive market, especially here in San Diego, Sam Adams is barely considered craft beer. They produced just shy of the 6 million barrels of beer that is considered the limit for a brewery to still be considered craft and their beer is just not what craft beer drinkers tend to look for when bellying up to the bar at Hamilton’s or Toronado. Obviously, this country’s craft beer market is more than San Diego, but any craft beer hub is probably going to have the same feelings about Sam Adams, and that is a real struggle for the beer company. As the market is flooded with more craft breweries, ones much smaller than Sam Adams, they get lost in the mix of bigger brands that don’t seem “craft” anymore. They have gotten so huge, they are not niche and niche is “cool.”
So what are they going to do? Boston Beer’s CEO, Martin Roper told investors, “We are working hard to improve the Samuel Adams brand trends through continued innovation, executional focus on our core styles and a full review of our brand messaging and packaging, which we hope to complete during the second half of the year.”
Or perhaps, 2016 will be the year that Boston Beer Company sells…Industry insiders have alluded to a possible deal between Constellation, the company most famous for buying Ballast Point for $1 billion last year. Although Koch has always been vocally against craft breweries “selling out” to bigger beer brands, a deal with Constellation wouldn’t have nearly the bad press that selling to AB InBev would. Constellation hasn’t been gobbling up distributors the way that AB InBev has, nor does it have the same reputation for trying to squash the craft beer competition. With Boston Beer being a publicly traded company, Koch has a responsibility to his shareholders to remain profitable, so the pressure is on. In the coming months, we will see if this rumor has any merit, as well as what steps the company takes to get back some of their craft beer mojo.
Anna Brigham
4/27/16