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Craft Beer: The Next Microsoft?

We all know that Craft beer is great for drinking, and some of us are lucky enough to make a living in the craft beer industry, but what about the masses?  Craft beer is getting all grown up, and like a kid wearing a tuxedo for the first time, people (with money) are beginning to take notice.  About 6 months ago I accidentally subscribed to “The Motley Fool” which is an on-line investment magazine.  Mostly they just clog up my inbox with their daily spam, but Saturday they sent something that really caught my eye.  I opened it up and what did I see?…

The American Beer Renaissance Could Make You Rich!

Naturally I was intrigued!  So I clicked through to an insufferable powerpoint type presentation that talked about the financial history of beer, the demise of Budweiser as a national investment, and the rise of craft beer.  It talked about all the consumer choice that exists today that never used to, it talked about the shelf space that “new” beers are getting and it talked about what a great investment Craft Beer is.  And this is an opportunity to get in on the ground floor.

So I did a little research.  Currently there are only two craft breweries (That I could find online) that are traded publicly.  They are the Craft Brewers Alliance that sports brands such as Kona, Widmer and Redhook, and Boston Beer Company.  They never really said which beer investment was best, but they gave clues like 14% growth in each of the lase 3 years, 28% profit margins and (here’s the identifier) a $45 Million cash equity position.  With a bit of deductive reasoning it is easy to know they were talking about Boston Beer Company as being the hot investment tip.

It isn’t that difficult to figure out if you’ve been paying attention to some of the moves that have happened recently.  Specifically the purchase of Goose Island by AB InBev.  This happened in part, because for the last two years Goose Island had been looking for investors to raise needed capital for an expansion of their brewery.  Do you think if the CBA had $45 Million in the bank that Goose Island would have had to go out, hat in hand, looking for investors?  Of course not.  That leaves only one company that is the GREAT investment tip.

So what does this mean?  Well I’ve come away with several things from this.  First, this is further proof that Craft Beer is entering the mainstream of the American Psyche.  After all America was founded on free enterprise, and this is definitely following in that vein.  Second, as craft beer grows it will become more and more like the macros, on the business side.  Beer is business, and as much as we might want to keep it small and accessible, as it continues to grow and gain in popularity, it will have to be treated as such.  That doesn’t mean they will start making swill, but it does mean that they will begin to act like other businesses, and less like our little community.  Think Starbucks.  Before they got huge, they were a few little hang outs in Seattle.  Again it isn’t a bad thing, but a necessary one to allow craft beer to grow and take root.  Finally, I think we are witnessing a rebirth of an industry, or perhaps an evolutionary shift in beer production in America.  With the economy these days, people need affordable luxury, and Craft Beer has been there every step of the way.  This is no longer a trend, it is a movement that will reshape the American beer industry for decades to come.

Those are a few of the impressions I got out of this little e-mail.  What are your thoughts?  Are we on the brink of ruin because the next step in craft brewing makes brewers look like macros? or are we simply witness to the evolutionary trends that will continue to reshape this industry?  Whichever the case may be, you might want to take that beer money and put it into brewery stock to make sure your investments continue to pay dividends for years to come.  As usual, give us your thoughts below.

-Don

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14 Comments on “Craft Beer: The Next Microsoft?”

  1. June 13, 2011 at 1:09 pm #

    I think we’ve seen that the money people are starting to get interested in our little slice of heaven, and it won’t be long before some folks take the bait and start chasing dollars. In the end, I don’t thin it will deeply impact the quality of the beers we enjoy, because if a brewer loses focus and starts producing crappy beer, there will be many, many alternatives for beer drinkers to choose from.

    • Don
      June 13, 2011 at 1:12 pm #

      I agree totally Jim. I think SA is doing it the right way though, paying as you go, keeping reserves in the bank, and expanding expeditiously to keep pace with demand. If they keep that philosophy it should keep them from overextending, cutting corners, and losing touch with their base.

  2. June 13, 2011 at 2:38 pm #

    Apart from what you said, Jim, I think it will force some of the breweries to become better businesses as well. There will always be the undercurrent of micro and nano breweries that will never be touched by ‘big money’, but there is a wide open space for ‘big established craft beer breweries’, that will become the mainstream alternative for the classic lager. Widely and regionally/nationally available, these craft beers will represent the best of what is happening (not the same as being necessarily the VERY best), and will open up craft beer for a much larger portion of the population, which will be converted one pint at a time 🙂
    All in all, not a bad development. Too many beer drinkers have refined a taste for quality, so big money takeovers that tamper with that, will go down. Was thinking of your story about Pabst Blue Ribbon to make that point.

    • Don
      June 13, 2011 at 2:47 pm #

      Good point Wim. If they mess with quality, most will pay a dollar or two more for a better bottle of something else. That is what they need to understand as they expand. The bean counters can’t make the decisions. Those need to be made by the brewers.

  3. June 13, 2011 at 3:37 pm #

    I’ve read they are also investing in some kind of ‘fresh beer’ thingy technology which sounds pretty cool and might help make the product stand out even more. I think they have what, 1% of the beer market? Lots of room for growth.

    • Don
      June 13, 2011 at 3:53 pm #

      I don’t think it even goes that far (1% that is). So yes, there is TONS of room for growth. I hope it happens. I’d love to see the macros tumble.

  4. June 13, 2011 at 4:00 pm #

    I don’t think they should tumble only because they serve as a foil to good beer. If all beer is good beer, than only good beer can be bad beer.

    Diggit?

    • Don
      June 13, 2011 at 4:02 pm #

      I live for the day when bad beer is good, and good beer is great!

  5. ScottG
    June 14, 2011 at 3:18 pm #

    With the idea of moneyed people taking interest in craft brewing as an investment and the craft movement going into the mainstream, I wonder if we see something similar to the vanity vineyard (a vanity brewery, if you will). Not necessarily to the degree of growing your own barley and hops, but in the same vein.

    • Don
      June 14, 2011 at 3:54 pm #

      Gee Scott, I guess I’m not familiar with the concept, not being that well versed in wine. But there are already home brew stores where you can go in and brew beer yourself and pick out your own ingredients, etc, so I’m wondering if that is the type of situation you are describing?

      • ScottG
        June 14, 2011 at 4:25 pm #

        Maybe it’s a Virginia thing. Or I could have made it up. But basically, rich person decides to open a vineyard. They may know something about wine, they may know nothing, but they have the money and interest to have a go at it. They hire some well known wine operation person from France and voila, vineyard. It’s an ego thing, but if the wine is good then I guess all is not lost.
        I was wondering if something like the previous scene might happen within the craft brewing scene, minus the guy from France. There’s a reason they stick to wine.

        • Don
          June 14, 2011 at 4:32 pm #

          That has probably already happened. But this was more about larger breweries going public and trading on the stock market, thus allowing people to invest. I’m thinking strongly about moving my 401K into SA.

  6. ScottG
    June 14, 2011 at 5:36 pm #

    I see it as something of a full circle. As craft breweries go big(er) via public offering, the small hobby brewer potentially moves into something of the more egotistical realm. The beer remains good (possibly great) but the motive behind its production is less about the inclusive nature of the current craft brew trend and more of a status symbol, both for those who brew it and those who purchase it.
    Maybe I’m seeing boogeymen where none exist. But if the Motley Fool is telling people to invest in one of the most widely known craft brewers, then I’m not sure my worries are all that misplaced.

  7. ScottG
    June 14, 2011 at 5:38 pm #

    But buying into SA probably isn’t a bad idea, considering the source of advice.

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