Mega-brewers like Anheuser-Busch InBev (NYSE: BUD) and Molson Coors (NYSE: TAP) had a rough go in 2018. But after another year of falling sales volume and even faster falling profits in North America, shares have started to show signs of stabilizing on hopes that disruption from small craft brewing operations will begin to subside.
Data by YCharts.
According to new data from the craft brewing industry advocacy group Brewers Association, though, more pain could be in store.
What beer drinkers want...
As part of its annual findings on the state of the craft brew market, the Brewers Association released its list of the top 50 fastest-growing craft breweries of 2018. All but two of them were small microbreweries and brewpubs, the other two being small regional brewers. Here are some stats from the report:
2018 median production
1,350 barrels (41,850 gallons)
Median growth rate
Collective breweries' total production in 2017
Less than 70,000 barrels
Collective breweries' total production in 2018
More than 170,000 barrels
Year-over-year collective growth rate
Data source: The Brewers Association.
The Brewers Association also noted that these 50 breweries contributed 10% to the total craft beer industry growth rate in 2018 (production volume for craft beer rose 4% to 25.9 million barrels, while the total U.S. beer industry fell 1% to 194.3 million barrels). These growth rates were in spite of how crowded the beer universe has gotten in the U.S.
At the end of 2018, there were 7,346 producers in operation, up from 6,490 in 2017 and nearly double the 3,814 at the end of 2014. From 2014 to 2018, total craft production was only up 17%. The full 2018 report, including the top 50 fastest growing brewers, can be accessed here.
Image source: Getty Images.
Is mega-beer done for?
All of this means the beer industry is getting increasingly crowded, especially the craft brewing segment. As a result, the biggest beer makers are struggling as consumers value new choice and innovation, and they're willing to pay for it. Craft's share of retail dollars grew 7% year-over-year in 2018 and accounted for 24% of total dollars spent on brewskies.
That is putting the A-B InBev's and Molson Coors' business strategies to the test; they have been relying on pricing increases on their most popular brands to keep results from going completely flat. The plan is only partially working as market share keeps sliding.
Even larger craft brewers like Sam Adams parent Boston Beer Company (NYSE: SAM) have been winning from shifting consumer tastes. The Samuel Adams label hasn't done well in recent years, but Boston Beer makes Twisted Tea and the Truly Hard Seltzer sparkling water brands -- neither of which are technically "craft" by the traditional definition but have nonetheless helped the company stave off its multitude of smaller peers. Shipment volume at Boston Beer rose an impressive 13.7% in 2018 and is projected to grow another 8% to 13% in 2019, an early indication that new choice is still king.
What does all of this mean for big beer investors? In short, the outlook isn't fantastic. Though most of the beer supply is controlled by just A-B InBev and Molson Coors, there are lots of small upstarts slowly chipping away at the stubbornly loyal base of consumers still drinking Budweiser, Coors, and other mega-beer brands. Though these small innovators continue to get more numerous every year, they keep growing and finding a place in the drinking economy. As long as that trend holds, it's hard to get too excited about the biggest beer stocks on the market.
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Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool owns shares of Molson Coors Brewing. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.