AB In"bev" Trouble, Craft Brewers Can Keep up Double Digit Growth

The brewing industry is under pressure from rising prices. Much of the increases are due to rising fuel costs, after all the finished product, made up of mostly water, is quite heavy. However, for craft beer makers, those with total production below 5 million barrels annually (AB produces 100 million annually in the US) the cost of ingredients have been going up as well. Well documented increases in barley malt, hops, and various other ingredients are driving up production costs. These cost increases are just hitting the stores now as price rises averaging a dollar per six pack. Will this increase drive consumers away, or at least stop the rapid growth? We think not for several reasons:

1 - Mainstream lager producers are under competition from all sides, including so called alco-pops, as consumers continue to pursue better tasting libations.
2 - The recent new beers from AB and Miller, are dubious (see linked ratings from Beer Advocate), not much better than their regular beers, and in most cases worse.
3 - The approach by Inbev to aquire AB will take most of management's focus off AB's attempt to diversify. Though this will go on, they will focus more on operations for now.

A bell weather for the craft industry, Sam Adams aka Boston Beer Company, keeps growing by double digits, as described by Jim Koch for the first quarter 2008,

Jim Koch, Chairman and Founder of the Company, commented, "We achieved 12% depletions growth in the first quarter over a very strong first quarter last year. We feel good about this growth and the continued overall positive craft beer category trends, even as our whole category has raised prices in the face of significant cost pressures. This was our ninth successive quarter of double digit depletions increases. While it is too early to predict if the price increases will affect the Company's or category growth, I believe that as the leading craft brewer, we should continue to benefit from the increasing support of retailers and wholesalers for craft beers, as they recognize the potential of this fast growing and profitable category. Even in tough economic conditions, beer drinkers are continuing to trade up to better beers. I believe that the quality of the Samuel Adams brand and our distinctive, full-flavored beers position us well to meet this growing drinker interest."

Long live the continuing growth of this vital small business segment.