Sam Adams may lose 'artisan beer' label

Despite starting a craft beer craze, a 2 million barrel threshold could cost brewer Boston Beer its status

By InvestorPlace Jun 15, 2010 8:36AM

sam adams artisan beerIn the business world, there’s rarely a thing as growing too big. But unfortunately for Sam Adams brewer Boston Beer (SAM), the price of success could be higher costs -- and the loss of its label as an "artisan" craft beer.

That’s not to say a cold bottle of Sam Adams Summer Ale will taste any different to consumers. But according to the Brewers Association," artisan" brewers include small outfits that put out less than 2 million barrels of suds a year. That means the brewer that almost single-handedly sparked interest in smaller batch brews with more flavor could be pushed into the same category as the big beer vendors like Anheuser Buch Inbev (BUD) and Molson Coors (TAP).

That has some at the company pretty frothy. As Jim Koch, president of Boston Beer, told The New York Times, “If we’re not a craft brewer what else are we? We’re certainly not Budweiser.”

SAM stock has soared so far in 2010, up over 50% year to date even as the broader market has slid backwards a bit. That’s partially because Boston Beer’s first quarter earnings report boasted profits that topped Wall Street expectations by over 80% thanks to strong sales. It’s strange then to think that those brisk sales could actually work against the brewer.

The cost to SAM could be much more than just the ability to label its drinks as craft or artisan beer. Specifically, The federal government defines small breweries with a similar mark as the Brewers Association with a 2 million threshold, and grants a lower tax rate to operations under that mark. Putting out more beer could actually hurt Boston Beer when it comes to tax time.

According to company estimates, Boston Beer will surpass the 2 million mark some time in 2011 at current rates. Help could be on the way in the form of a bill introduced last month to the U.S. Senate, increasing yearly production limits to 6 million barrels. The bill would also cut the excise tax rate for small brewers to $3.50 per barrel from $7 for the first 60,000 barrels produced and to $16 from $18 for each additional barrel, according to The New York Times. But with so many more weighty issues at hand in Congress, it’s hard to imagine that the beer bill will get priority any time soon.

Some craft beer connoisseurs are furious over the name game, since the creation of Boston Beer in 1984 is one of the watershed events in changing public tastes away from "mainstream" beers like Bud, Miller and the like. As Jim Koch puts it, a craft beer is all about taste where other beers look to appeal to a broader audience with milder, easy-to-drink brews. Other less charitable beer snobs would call it Sam Adam’s commitment to putting out beer that actually has flavor.

Who knows whether Sam Adams will be able to keep its old title of an “artisan” beer in the mind of beer industry groups. But the bottom line is that Boston Beer has made a name for itself with quality brews that connect with a group of consumers looking for more than just a cold one on a hot day. That type of status and brand loyalty should serve SAM well – no matter what labels the industry wants to put on the company’s beer.

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