Good News: Craft beer is a bad investment

Stock price is a bad KPI for craft beer

No one expects CNBC to understand syllogisms, but when I see a mediocre one, it makes me prick up my ears. The one they constructed goes like this:

Goldman Sachs downgraded Boston Beer and Constellation Brands*** because they say people under 35 are drinking less beer than other generations.

Beer penetration dropped one percentage point, while wine and spirits remained flat.

Millennials are drinking less alcohol than other generations.

Therefore Millennials prefer wine to beer. QED

Logic aside, I feel like this is excellent news for craft beer in the long run and hope to see these numbers (if not the logic) hold. I don’t doubt for a second that Goldman Sachs has good reasons for downgrading Sam Adams and Constellation (makers of, among other brands, Ballast Point and Modelo) from “buy” to “neutral.” The signal they’re sending is: if you want to invest in a large, publicly traded, craft beer company, now’s not the time. Further, maybe you missed the boat altogether and the days of investing in large beer companies with the hope of significant dividends well into your golden years have passed. None of that says anything about craft beer’s popularity. If mass market beer no longer is worth investing in, maybe we’ll start to see the Macro gobble-up wane. And that’s good news for everyone except people who got into brewing to sell out.

Whether it is a good time to have a massive independent brewery in your portfolio says very little about beer on the ground. Taking the evidence that people are drinking less Boston Lager than last year and reaching the conclusion that people under 35 prefer wine to beer just doesn’t scan. The problem that governments and (I guess) investment houses keep running into is that craft beer isn’t built like other industries.

Sure, wine prices have come down a bit, and beer prices have seen a bump, cocktails are finding their way into more and more hands, but all of this is fantastic news for craft brewers. I feel as if they have disrupted their industry in an almost brand new way. People will tell you the craft beer bubble of the 1990s was tied to inconsistency or overleveraged breweries. There might be some truth in that. The real reason, though, had to do with a model. Breweries generally tried to compete with multinationals at their own game, setting up bottling plants and distribution networks based on the models that turned Frederick Miller into a beer baron, and most couldn’t. Too many of the brewers were trying to create the industry that existed in the 1920s, but the 1820s was where the better model lived.

See also: Three Brewers talk shop

Craft beer needed a plan to be sustainable as local independent businesses rather than as regional ones. Brew pubs thrived because they weren’t built on the premise that beer was a manufactured thing that only could succeed on volume. That is the 20th century model. The 21st century model was closer to the 19th century model. People sold beer to their neighbors. The last decade has seen the return of the taproom where people congregate for beer at a single place. That is eminently sustainable.

It isn’t that craft beer can’t exist as a commodity, but the mass market isn’t its friend. Most of the brewers I know are making as much beer as they can and it isn’t enough. Some of them have investors to whom they answer, but none of them have to also answer to the stock market. Craft beer mostly is isolated from the financial markets. In fact, it was the financial crash that gave beer room to grow. It lives in a place where hard work and attention to one’s community pay off in a way that no index can describe, which keeps it insulated.

That said, bigger breweries like Sam Adams and New Belgium that haven’t been scared by margins in the past certainly won’t worry about them in the future. A couple of years ago, Dogfish Head wasn’t thriving in the west and pulled out to regroup before returning. Growing a large business slowly over decades makes it easier to absorb small fluctuations in the market.

Mostly what their report says is that Boston Beer Company is probably worth as much as it is going to be for awhile. As always, the specter of greed and arrogance can entice smaller breweries to over-mortgage their future, but in general terms local craft beer is healthy here on the ground.
 Buy Disney and drink local.

***No one besides Goldman Sachs and CNBC thinks Constellation Brands is a craft beer maker (they have more wineries than breweries in their portfolio).

Originally published at on July 26, 2017.