The idea seems sound enough... on the surface. Consumers love craft beer, so Molson Coors Beverage (NYSE:TAP) is acquiring a small-scale craft brewer called Atwater Brewery. The move offers instant, bolt-on growth that's desperately needed at this time. In step with 2019's industrywide sales slump, Molson Coors is on pace to report slightly lower revenue for the recently completed fiscal year. Earnings are set to slide by a more alarming 15%.
Investors who believe buying exposure to the craft beer market is the best path forward, however, may ultimately be disappointed. The craft beer business, much like its bigger mainstream-beer brother a few years ago, is bumping into a serious headwind of its own.
The craft craze has chilled
A little over a decade ago, craft beer's time had finally come. Tiring of the predictable brands like Anheuser Busch Inbev's (NYSE:BUD) Budweiser or Molson Coors' well-established Coors label -- beers their parents enjoyed -- younger consumers demonstrated more discerning tastes for something unique. Craft beers were the answer, driving an explosion of the market beginning in 2005 that didn't slow down until 2014. And even then, craft beer's sales and its share of the United States beer market continued to inch forward through 2016.
Image Source: Getty Images.
As is the case with far too many consumer products, though, too much of a good thing is still too much. While 2019's final numbers are still being crunched, the Brewers Association reports a modest 4% increase in craft beer sales for 2018. And between October 2018 and October 2019, sales of beer from craft brewers and microbreweries declined by 0.4%. That's a far cry from previous years' double-digit growth rates.
It could be worse for craft brewers. Market research firm IWSR says overall beer sales in the U.S. fell 4.6% for the same October-to-October time frame, dragged lower by the likes of the aforementioned mainstream brands Coors and Budweiser. In that vein, stepping into a craft business that appears to be holding its own is better than doing nothing.
Except it's possible the nation's craft beer business is treading water solely due to the proliferation of small-scale brewers. By 2018 there were 7,346 craft breweries and microbreweries up and running in the U.S., nearly doubling the figure of 3,814 from just four years earlier. The overzealous rush to get into the craze now leaves too many small brewers fighting for a smaller piece of a an overwhelmingly fragmented market that's simply not growing like it once was.
Not the time, or way, to start playing offense
That backdrop hasn't prevented big names like Molson Coors and Anheuser Busch Inbev from seeking out more exposure to the craft beer market. Aside from Molson Coors' bid for Atwater, last year Anheuser Busch announced its acquisitions of Platform Beer and the part of Craft Brew Alliance it didn't already own. Boston Beer Company (NYSE:SAM) acquired Dogfish Head Brewery in 2019 as well.
If anything though, the big names' additional exposure to the craft market only exacerbates the industry's headaches. "There will be a huge hangover from this unsustainable boom," explains Daniel Kenary, co-founder and CEO of Harpoon Brewery. "The fast money will try to leave as quickly as it has entered, distorting economics again in the other direction. Those brewers who thought the good and easy times would last forever are in for a rude awakening," he added.
Then there's the X factor. That is, the charm and value of a craft beer hinges on the idea that's it has not been commoditized by a megabrewer. Likewise, powerhouses like Molson Coors and Anheuser Busch weren't built to handle lots of different brands, each sold in relatively low volumes.
The major beer names seem to understand their key weakness. Anheuser-Busch's head of North America brewing, Travis Moore, recently told Food Dive, "We've definitely had to get better at managing complexity, but that's part of what the consumer demands now." Molson Coors spokesperson Marty Maloney also lamented his company's complexity dilemma, explaining, "There's still huge demand for the Miller Lites and the Coors Lights, so we're still investing and in fact doubling down on those brands, but we also want to make sure that we have a wider portfolio so we can meet the consumer trends."
Awareness of liabilities is a good start. But only time will tell if that awareness will lead to restored growth in overall beer sales or prevent craft beer sales from turning negative.
Bottom line for beer companies
It's possible the weakness is largely beyond the beer industry's control, and will remain so for a while. The Brewers Association's chief economist, Bart Watson, commented late last year, "For overall beer, I don't see the demographic or price dynamics changing much, so stopping continued volume declines seems like a decade-long challenge."
If that is indeed the case, the recent wave of M&A Molson Coors just extended may be yet another pricey misfire. It's certainly not going to meaningfully turn the tide back in favor of the company. Ditto for Molson Coors' rivals and their recent interest in expansion through craft beer acquisitions. Their rebound will still lean on non-beer products like hard seltzers.
"craft" - Google News
January 28, 2020 at 06:18PM
https://ift.tt/37ApETJ
More Craft Beer Can't Help Big Brewers - Motley Fool
"craft" - Google News
https://ift.tt/2YrY2MS
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
Bagikan Berita Ini
0 Response to "More Craft Beer Can't Help Big Brewers - Motley Fool"
Post a Comment