Brewers and the view from the stock market
What investors think of stock market-listed brewers may just be a narrow-focus snapshot of the brewing industry in general but it would be unwise to ignore it altogether.
This year some brewery stocks have declined while the smallest are growing. The US group Craft Brew Alliance, the owner of craft-beer brands such as Kona, Redhook, and Widmer Brothers, in which AB-InBev owns shares, has enjoyed a banner year. Its stock has soared 86 percent so far, while AB-InBev’s shares are down almost 15 percent year to date.
In an interesting piece on 5 December 2016, the Motley Fool, a website for investors, argued that this mirrors much of what is happening in the US beer market, where overall sales are flat or falling, the volume hikes of the smallest craft brewers notwithstanding.
Globally, AB-InBev’s output has dropped 1.4 percent during the first nine months of 2016 to 340.8 million hl. In North America, it has declined 1.1 percent in the same period. In the third quarter, however, the decline accelerated to 2.4 percent year-on-year.
As Beer Marketer’s Insights, a trade publication, suggested, the decline may have been triggered by the Big Brewers and their aggressive pricing strategies in recent years.
Consumer prices increased 31 percent between January 2003 and October 2015. The price of take home beer rose only 30 percent over that period, but the increase was still more pronounced than for other alcoholic beverages. The price of whiskey was up only 22 percent and wine 10 percent, it was reported.
Surprisingly or not, Boston Beer’s stock has similarly suffered in 2016. Its sales to distributors and retailers have declined sharply this year, also accelerating in the third quarter, dragging its share price down 14 percent to date.
Its founder, Jim Koch, may extol Boston Beer’s virtues as a craft brewer but there is a nagging suspicion that Boston Beer has become too big to be still considered a craft brewer by those who matter most: consumers.
So if Big Brewers are witnessing their stocks decline, why is Molson Coors seeing a share price hike? Its stock is up 6 percent so far this year.
One likely explanation is that investors regard the number two brewer in the US as the big winner from AB-InBev’s takeover of SABMiller. Although its sales, volumes, and adjusted profits have all been lower, like AB-InBev’s, Molson Coors is widely assumed to now have a clear path to growth in North America. Equally important is the cross-selling that the acquisition will allow Molson Coors to perform north of the border. Canada can now start receiving Miller products that were previously off limits, the Motley Fool says.
Clearly, the US beer market is turning into a tale of two markets: Big Beer and craft beer. Perhaps the woes of Boston Beer are an early indication that there really is a glass ceiling for craft beer, an invisible cut off line between craft brewers and Big Brewers. Or there are just too many craft beers to choose from these days - an excess of choice that dilutes everyone’s business.
Ultimately, the Motley Fool concludes, it will be beer drinkers’ preferences for flavour and style that will determine which way the beer market heads in 2017.
