With the proliferation of microbreweries in the past three decades, the beer business is booming. In the 1980s, just 200 breweries were in operation. Today, the number is upwards of 1,600. The question on everybody’s mind, then, is whether it’s time to buy shares.
This isn’t a new question. The beverage industry has, quite frankly, always been a sexy business to be in, even before big breweries like Anheuser-Busch grew from from local businesses to global giants.
But is a sexy investment also a smart investment?
“My own investing experience has been to simply follow a very interesting rule — vice pays,” said Jim Cantwell, an investor and former resident of St. Louis, where Anheuser-Busch was founded. Cantwell noted that back when the brewery was locally owned, families of every economic stratum saw beer’s success and bought shares.
In short, the beer business looks promising, although perhaps only for the big few breweries. “As long as there are college students, beer/alcohol-related stocks will always do well. Lower-cost brands, like most InBev products, will do increasingly well in tougher times, as costlier premium brands suffer,” said Bruce Specter, a Reno-based advisory mortgage planner with New American Mortgage, who also advises his clients on wealth management. InBev, the company to which Specter refers, is a subsidiary of Anheuser-Busch, and it produces popular brands like Budweiser, Stella Artois and more.
“Beer stocks will always be a good play, regardless of our economic condition,” he added.
He’s not far off from the truth. Domestic production has dipped slightly since 2010, but, minor hiccups aside, American barrel production has hovered around 200,000 units every year since 1980.
Can you invest indirectly, in parts and ingredients manufacturers?
Apart from conglomerates like Anheuser-Busch, though, investment in the beverage industry isn’t easy. Even Dogfish Head, one of the most popular craft breweries in the nation, isn’t publicly traded.
The principle contenders for your attention are as follows: Anheuser-Busch, InBev, SAB-Miller, Molson Coors and two craft brewers: Boston Beer Company and Craft Brewers Alliance.
Short of finding an upcoming brewery and becoming a partner yourself, it’s extremely difficult to invest in those promising, young microbreweries.
It is possible, however, to invest indirectly, in the companies that manufacture equipment and ingredients. So, to begin, let’s break down the brewing process: essentially, it incudes flavoring and, finally, fermenting, so your ingredients convert into alcohol and CO2. To make that happen, you need water, a starch, like malted barley; a flavoring, like hops; and yeast.
To find those manufacturers, your best bet is to look at a brewery’s Form 10-K, which details a public company’s business and financial condition. Unfortunately, some breweries are nonetheless discreet about their suppliers. Boston Brewing, for example, is one of the big guns, and although it mentions suppliers throughout the report, it only names one in particular: its glass provider, Anchor Glass Container Corporation. Anchor, though, isn’t even publicly traded.
Your best bet, it seems, is simply to look at the big few breweries, mentioned above. And that’s hardly a bad option: the beverage industry, if anything, is recession-proof.
Investing in Privately Owned Companies: For the Wealthy Few
If you really do want to invest in a startup, and you do find one you believe in, then you have to have deep pockets. And patience.
“Much like any other share purchases in privately owned companies, an investor should likely only get involved in the equity side for a long term – at a minimum 5-10 years – given how capital intensive the needs are to achieve and sustain growth,” said Jeremy Cowan, a proprietor of Shmaltz Brewing Company.
“Craft beer is a fantastic example of artisinal [sic] manufacturing with the additional benefit of tasting delicious and being a lot of fun,” he added. “But the returns are likely only very long term and always precarious given the competitive beer world and the ever-growing capital needs to build brewing capacity and increase sales and marketing budgets.”
However, unless you’re Warren Buffet, the most feasible investment is in one of those publicly traded companies.
Disclaimer: The views and recommendations in this piece are held by the contributor alone and do not necessarily reflect the opinions of NerdWallet.