Today, the craft beer industry has gone mainstream, and many popular brands have been bought out by large brewers like Constellation Brands (NYSE:STZ) or joined the Craft Brew Alliance (NASDAQ:BREW), a consortium of craft brewers. Sam Adams parent Boston Beer (NYSE:SAM) is a rare stock that makes the bulk of its sales from craft beer, and is one of the pioneers in the industry, but it is seen as too mainstream by some consumers.
In this in-depth look at the craft beer market, we'll explore what makes a craft beer, where the industry stands today, and examine what individual stocks in the craft beer industry have to offer investors.
What is craft beer?
The definition of craft beer is much simpler than it sounds. It's not determined by a particular style, flavor, or set of ingredients. Whether or not a beer can be called "craft" largely depends on the size of the brewer and who owns it.
The Brewers Association, a trade group representing over 7,200 independent brewers, defines craft brewers as small, independent, and traditional. Annual production of beer must be 6 million barrels or less, the equivalent of about 1.5 billion pints, according to the Brewers Association, and beer must represent a majority of a craft brewer's alcohol production -- flavored malt beverages, like hard iced tea or lemonade, don't count. To be considered craft, a brewery also cannot give up more than a 25% ownership or controlling stake to an alcoholic beverage company that isn't a craft brewer.
Macrobrews, by contrast, produce a much higher volume than 6 million barrels. In 2016, there were 33.8 million barrels of Bud Light sold in the U.S. alone, making it the top-selling beer in the country. Because of the way craft beer is defined, craft brands that are bought by larger brewers like AB InBev (NYSE:BUD) or Molson Coors Brewing (NYSE:TAP) are no longer defined as craft beer even though they may be thought of that way by the drinking public.
Growth of craft brewing
In 1978, there were just 89 breweries in the United States, but President Carter's deregulation of the beer industry a year later created opportunities for new companies. The number of brewers began climbing in the late '80s -- around the time Boston Beer opened its doors -- and by 1990, there were 284 brewers in the country. The industry grew rapidly over the next decade, though, bringing the total to 1,564 domestic breweries in 1999. Growth then slowed in part due to the tech bubble bursting, but it took off rapidly beginning in 2010 marking craft beer's transition to the mainstream. As of last year, there were 6,372 breweries in the U.S. The category's growth since 2012. As you can see, the number of breweries have nearly tripled since then.
The Brewers Association classifies craft brewers in four different categories: regional brewery, microbrewery, brewpub, and contract brewery.
The largest are regional breweries, which have a majority of its volume in "traditional" or "innovative" beers with an annual production of 15,000 to 6 million barrels. Some examples of regional brewers include Boston Beer, Sierra Nevada, New Belgium, and D.G. Yuengling & Sons.
Microbreweries have an annual production of less than 15,000 barrels a year and sell at least 75% of its beer off-site, and they have been the fastest-growing category in craft beer in recent years. Some popular microbreweries include Hardywood, Westbrook, and Port City.
The third-largest segment is brewpub, which is a restaurant-brewery that sells 25% or more of its beer on-site. As of 2017, there were 2,252 brewpubs across the country.
The smallest category is contract brewery, which are business that hire another brewery produce their beer while handling the marketing, sales, and distribution aspects themselves. This segment also includes breweries that hire a separate brewery to make additional beer.
The chart below shows the growth in the different categories of craft breweries over the year.
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