Why isn’t Boston Beer buying any craft brewers?

It’s an interesting time for one of the biggest craft brewers in the US. Boston Beer’s sales have declined 5 percent during the first half of 2016, dragging its share price down too.

Several financial commentators have laid out the argument that Jim Koch, its founder, should sell the company. They point out that it has got too big and familiar to be considered an authentic craft brewer by beer aficionados, yet it isn’t big enough to have the cost advantages of big brewers like AB-InBev, Molson Coors or Constellation brands.

No doubt, Boston Beer is at the crossroads. But it is also in a unique position to further the cause of craft brewing and reward its shareholders in the process by turning itself into a craft beer group by buying other small brewers, much in the way the big brewers have done in the past few years.

Although Boston Beer is a large company with a turnover of USD 900 million in 2015 and a net income of USD 98 million, most in the craft beer industry still respect Sam Adams’ status as one of their own. At the very least, partnering with Boston Beer should be preferable to smaller brewers seeking an exit than making a deal with the big brewers. Selling to one of the major corporates is always accompanied by the ignominy of exclusion from the list of bona fide craft brewers. This perception is precisely where Boston Beer’s advantage lies.

Boston Beer has the money and the distribution. As every craft brewer will know, they need a distribution network to reach consumers. To compete with Budweiser and Miller, one needs a partner. Over many decades the big brewers in the US have created the distribution infrastructure and massive facilities required to gain a dominant market share. This is why, in spite of its staggering growth, craft beer has merely dented their position. Even after years of falling sales of Budweiser and Miller Lite, the big two brewers control three quarters of beer sales in the US.

Once one realises that the true advantage of the big brewers isn’t their beer but their distribution network, one instantly has all the more respect for Sam Adams. It started out as a small craft brewer in the 1980s with a lager recipe. Today, it sells Sam Adams, Angry Orchard, and numerous other alcoholic beverage brands to over 350 distributors that operate in the US and a host of foreign markets. It has a US beer market share of 1 percent.

Unfortunately, there is also the issue of timing. Surely, Mr Koch will have weighed his options. But perhaps the decision will be taken out of his hands as hedge funds are building up stakes in his company. For example, Tybourne Capital Management has stepped up its interest, boosting its holding to 10.1 percent of the company’s common stock in August 2016. These shares come with voting rights. The hedge fund may not be in a position to force a change on Boston Beer’s strategy but it can still cause a real and very public stink – as we saw recently in the course of the SABMiller takeover.

Perhaps, this is the time for Boston Beer to seriously consider becoming a craft-brewing conglomerate with many brands under its umbrella. At the very least, taking on craft brewers whose sales volumes are going up, Boston Beer would get out of its down swing and reignite its growth.

As commentators have pointed out, Boston Beer would not even have to fork out cash to make this happen. Its competitors could be offered stock instead of cash to join forces with the dominant craft beer player, and everyone would benefit. Any small brewer brought into the fold would be instantly more valuable, given access to Boston Beer’s distribution network. Not only that, but the move would also be far more preferable to selling out to the big brewers for any craft brewer looking to cash out.

Well, it’s a thought.