You Can't Be Angry About Boston Beer's Cider
Jul 29th 2013 5:46PM
Updated Jul 29th 2013 5:48PM
Perhaps brewer Boston Beer should consider changing its name to Boston Cider. After all, with its flagship Samuel Adams brand suffering from flagging sales and its Angry Orchard cider business now owning the biggest share of the cider market, it may want to reposition its marketing.
Just recently I pointed to the potential for cider's growth, noting the expansion of the total pie to about 1% of beer sales. Obviously, it's still a tiny niche market, and for Boston Beer, which generated $163 million in total sales last quarter and $360 million over the past 12 months, cider only comprises a very tiny portion of the total, but it's already been able to overtake the industry leader.
At C&C Group's annual meeting earlier this month, it was revealed that when it bought the Hornsby brand two years ago, it paid $25 million and got a 20% share of the market for its efforts. It paid more than 10 times that amount, or about $300 million, for Vermont Hard Cider and its top Woodchuck brand, and got another 42% share of the market. So C&C had almost two-thirds of the cider market all to itself.
Yet management was forced to admit that within the past month, Boston Beer's Angry Orchard has become the No. 1 hard cider in the country, if for no other reason than because the overall size of the market has grown so much. According to the Beer Institute, the U.S. cider market was about 690,000 barrels in 2012 and expanded 88% in the first quarter alone of 2013. Even so, C&C concedes Angry Orchard's growth has simply been "phenomenal."
Indeed, last quarter Boston Beer achieved 16% growth in depletions, but that was largely the result of its Angry Orchard and Twisted Teas business. It would have been higher but was offset by declines in Samuel Adams, and all this in just a year's time since it rolled out its cider nationally.
C&C says the cider market is growing 9% to 10% globally, and we're seeing a number of other brewers also recognize the potential. Anheuser-Busch InBev introduced Stella Artois Cidre and Michelob Ultra Light Cider, Heineken distributes the U.K.-based Strongbow brand, and the joint venture of SABMiller and Molson Coors , Miller Coors, acquired Crispin cider.
As an alternative to wine, not beer, the brewers don't see cider as a threat to sales, yet it's this very reason that leads some analysts to think vintners have the best chance to make the biggest mark on the industry.
Still, because brewers are pushing cider now along with their beer, it may provide a clue as to why Boston Beer has achieved its success. A few years back, it started its Freshest Beer Program that sought to have a just-in-time delivery of beer to distributors. While it ate into the brewer's profits, it benefited the distributors so they didn't have beer sitting around aging on their shelves and they were more agreeable when asked to include Sam's seasonal offerings.
Until now, the seasonals were carrying Boston Beer along, but it may be witnessing additional dividends being paid by having its Angry Orchard cider put on the shelves, too, perhaps even pushing Woodchuck and Hornsby off. And for the brewer's investors, that means there's nothing to be angry about here.
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The article You Can't Be Angry About Boston Beer's Cider originally appeared on Fool.com.Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Molson Coors Brewing. It recommends and owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.