Craft Beer Brewers Taste Success As Team

BOSTON (TheStreet) -- Craft beer brewers may look like small, easily picked-off minnows to their big-brew competitors, but they're deceptively dangerous when grouped into a school of nearly 1,700.

Cooperation and collaboration among craft beer brewers is perhaps the biggest reason their sector grew 11% by volume and 12% in revenue last year after a 7.2% spike in production and a 10.3% jump in the overall craft beer take in 2009, according to the Brewers Association.

Cooperation and collaboration among craft beer brewers boosted growth by volume and revenue in the past two years despite a 1% decline in overall beer sales by volume last year and a 2.2% loss the year before.

That growth is more impressive in the context of a 1% decline in overall beer sales by volume last year, according to the Treasury Department's Alcohol and Tobacco Tax and Trade Bureau, compounded by a 2.2% loss in 2009. The craft beer brewing industry's biggest players, Anheuser-Busch InBev(BUD) and MolsonCoors(TAP), each saw shipments drop 3% last year as their market share fell by nearly a percentage point apiece. A-B's recent acquisition of the Craft Brewers Alliance's(HOOK) Goose Island Beer Company and television chef Anthony Bourdain's recent accusation that "big beer" threatened to pull ads from the Discovery Channel(DISCA) unless it pulled a documentary series featuring Delaware-based craft brewer Dogfish Head have only further demarcated the disparate fortunes of the two beer sectors.

"There's no question that the 'little guys' are scaring the bejesus out of the macro beer companies right now," says Matt Simpson, also known as "The Beer Sommelier" and editor of TheBeerExpert.com. "I also wouldn't say they're scaring the big producer off; I think it's more akin to waking them up."

While the big boys were sleeping, the biggest of the little guys at Samuel Adams, HardCore Cider and Twisted Tea brewer Boston Beer(SAM) and 182-year-old Pottsville, Pa.-based regional brewer Yuengling saw shipments improve 11.8% and 6.6%, respectively and inched their market shares up to 1.1% and 1%. Craft beer's entire market share is still only 4.9% by volume compared with A-B and MillerCoors' combined 78.4%, but its upward trajectory is something the big brewers aren't matching.

"We've always been the underdog from when I started brewing in my kitchen to today, when the Sam Adams brand is not yet 1% of the U.S. beer market," says Jim Koch, chairman of Boston Beer, which he co-founded in 1984. "That gives you sort of a different mentality about things, and I think there's a realization among craft brewers that we're are all of us small and we will all be better off if we help each other, because all 1,700 of us make up just 5% of the beer business."

A hand up
Koch and Samuel Adams' sizable portion of that 5% gives Boston Beer more largess and leverage than some of its smaller craft siblings. Since 2005, Boston Beer's output from its Boston, Pennsylvania and Ohio facilities bulged from 1.35 million barrels to nearly 2.26 million last year while its share price swelled from $26 to nearly $100 in that same span. Even before it became a company of nearly 780 employees, however, Boston Beer tried to help other craft brewers through its annual LongShot brewing competition. Since that program started in 1995, it's spawned craft brewers in 1996 winner Bob Gordash's Greenville, S.C.-based Holy Mackerel Beers and 2006 winner Don Oliver's Turlock, Calif.-based Dust Bowl Brewing.

When weather in Europe and reduced production in the Pacific Northwest endangered the supply of hops -- those sweet flowers that give beers much of their flavor and just about all of their aroma -- Koch and Sam Adams stepped in to lend a hand by giving away 40,000 pounds of its surplus hops to 200 small brewers. Koch says the small brewers could have saved themselves some trouble by contracting out their production to hops growers as his company does instead of buying hops on the "spot" market, but that going a different way shouldn't allow larger competitors such as Samuel Adams to crush their business.