Hopping Higher or Going Flat? A Look at the Beer Industry

For most people, beer is just something fun to drink when the game is on or while out on the town. For investors, however, this beverage is an extremely lucrative industry that only appears to be growing. The beer industry contributes more than $250 billion dollars to the U.S. economy annually, making it larger than the videogame industry and twice the size of wine.

Beer could be considered a mature industry, as people were drinking beer in the U.S. before it officially became a country more than two hundred years ago. Despite the industry’s age, there’s been an upheaval. Craft beers are growing in size and taking over market share, while the biggest players in the industry are aggressively fighting back through acquisitions and other measures.

The craft beer industry’s share of total beer revenue rose from 5.7 percent in 2011 to 12.2 percent in 2015.  And in 2014, there were nearly 3,500 craft breweries operating in the United States, a 19% increase from the previous year. Despite that incredible growth, this year the craft beer industry’s revenue has grown by only 6 percent.

These numbers show it’s an exciting yet uncertain time in the industry. Investors can choose between the multi-national behemoths and smaller, newer craft beer openings. These opposites offer their own benefits and risks. Here’s a look at a few options for investors.

Anheuser-Busch InBev (BUD)

It doesn’t get bigger than InBev. This Belgium-based company acquired the maker of Budweiser back in 2008. Just this month it wrapped up another mega-acquisition when it acquired SAB Miller in the third-largest acquisition in history. Due to the sheer size of InBev, which now contributes almost half of global beer profits, the company had to spin off various brands due to antitrust concerns.

Still, InBev remains a giant in the industry and a very steady performer on Wall Street. The company offers a generous dividend and has shown consistent growth almost every year since 2011.

Craft Brew Alliance (BREW)

The exact opposite of InBev, at least on the surface, is the upstart Craft Brew Alliance. This company, which has “only” five brands, has been growing extremely quickly.

The company went public in 2008 and has risen more than sevenfold since then. This year has been especially lucrative, with shares more than doubling in 2016. While earnings have been good, the company is now trading at a crazy 340 P/E ratio. That number is simply unsustainable for most levelheaded investors.

Interestingly, InBev owns about 35 percent of the Craft Beer Alliance. That means its strong growth has been good news for InBev investors.

Boston Beer Company (SAM)

The Boston Beer Company, maker of the Sam Adams brand, was one of the pioneers of the craft beer scene. Since its formation in 1984, the company has grown to be the second-largest craft beer producer in the U.S.

While the company has demonstrated impressive growth since weathering the financial crisis of 2008, the past two years have been less kind. In September alone, shares dropped 15 percent. On the year, prices are down even more.

What’s causing the decline? It’s a couple of industry-related factors. First, the big competitors like InBev are getting bigger through consolidation. Meanwhile, smaller brands are rising in popularity. Those factors seem to be driving share prices down for Boston Beer.

Recession-Proof?

One of the strengths of the beer industry is it weathers economic downturns fairly well. While the industry definitely couldn’t be called recession-proof, it has been described as “recession resilient” compared to other industries. That resiliency makes beer an even more appealing investment. How bad, after all, would things have to be for people to stop drinking beer?