Pub Crawl

 
Regular readers of this blog know that I have found my wife's money-saving shopping habits to be a source of both fascination and inspiration. One of her favorite haunts, Dollar Tree (DLTR, $91), has saved us a few bucks and made us even more as an investment--the stock is up some 40% over the past six months. One of the many things I love about my wife is that she is the most responsible person I know when it comes to money, but she will not hesitate to pay up when quality really matters. I thought there might be more to learn from observing her ways, so a few months ago I started paying more attention to the contents of her grocery shopping bags, specifically noting when she chose to buy name brands and when she opted to save by going for the generic or store brands. She still brings home the bacon from Oscar Meyer, Kraft cheese singles (but she gets both of these by the boatload at Costco), and Kellogg's cereals. As the contents of her bags were unloaded onto the kitchen counter recently, I counted store brand versions of the following: aspirin, yogurt, milk, eggs, saltine crackers, pasta, honey, and the canned, condensed soups used in casserole recipes. And then I saw it. Amid the pile of bargains sat the gleaming treasure, a testament to rare brand indulgence: her six-pack of Sierra Nevada Pale Ale. That's when I realized that there is no such thing, at least to my knowledge, of store brand beer. Beer drinkers are fiercely loyal to their brands, and the brewers offer up varieties to appeal to every taste and pocketbook in the marketplace, from Keystone Light to Stella Artois. (I'm actually a Bud Light guy.) Just pick your price point and taste--and drink up!

With St. Patrick's Day coming up, I thought we'd take a look at some of the beer companies, and we can start by tapping the keg of history. Like many iconic American corporations, the beer breweries started out as "Mom and Pop" (mostly Pop) operations. Adolphus Busch immigrated to the United States from Germany in the middle of the 19th century and settled in St. Louis. He married Lilly Anheuser and acquired a father-in-law,  Eberhard Anheuser, who was also in the brewing business. The two men became partners and established the Anheuser-Busch company. About this same time, two other German immigrants, Adolph Coors and Jacob Schueler, were setting up a brewery in Golden, Colorado. A few years later Coors bought out his partner and became the company's sole owner. Students of the American entrepreneurial spirit will take note of how these businesses survived Prohibition. Anheuser-Busch just shifted to the production of non-alcoholic beverages, while Coors had diversified into the porcelain business. Coors also started making malted milk, an operation that they subsequently sold to the Mars candy company after Prohibition ended. For years, Coors was available only west of the Mississippi River, and it just seemed to taste better because it was a rare and unattainable treat (now that it is in all the grocery stores, it doesn't seem to taste as good as it did then). Whenever someone showed up in Memphis with the smuggled contraband it was like some sort of banned caviar had arrived--or a stash of Playboy magazines, given the male adolescent mindset (I was 17). Such Coors-smuggling escapades even made for the plot line of a 1977 movie, Smokey and the Bandit.

Beyond those origins, tracing the genealogy of brand ownership is a bit like figuring out who used to be married to whom in Memphis--it's a bit complicated. When Philip Morris was diversifying away from the tobacco business, they ended up owning everything from Miller beer to Jello-O. Philip Morris later sold Miller to South African Breweries (SAB), now known as SAB Miller. Meanwhile, Coors merged with Molson of Canada in 1995 to form Molson Coors (TAP, $42). About that same time, SAB Miller and TAP combined their U.S. operations in the joint venture known as Miller-Coors. Several years ago Anheuser Busch was bought by Belgium's InBev, which is now known as Anheuser Busch Inbev (BUD, $69), and this combination brought Budweiser and Michelob brands under the same corporate ownership as Stella Artois and Bass. Among the smaller companies known as craft brewers, Boston Beer (SAM, $102) makes Samuel Adams as well as the Twisted Tea malt beverages and hard ciders under the labels Angry Orchard and HardCore. Sierra Nevada Brewing is a private company founded by homebrewers Ken Grossman and Paul Camusi in 1980.

As potential investments, the beer companies offer the brand loyalty that I find very compelling in a stock, and their marketing prowess is evident right down to their choices for ticker symbols (TAP, SAM, BUD). However, the companies also face a few headwinds that keep me from buying shares. Commodity (barley) cost inflation has hurt margins, for one thing. The key demographic beer drinker is the legal-age male, the group where employment issues are most troubling, and the broader market seems to be undergoing a cultural shift towards wine and spirits as the beer drinkers are gravitating more towards the higher-end craft beers. There's a lot of stability here, but not very much in the way of exciting earnings growth. TAP does offer a 3.0% dividend yield, a low 35% payout ratio, and a nice track record of dividend increases, but the stock price has been, well, flat over the past year. TAP did announce last week the launch of Coors Light Iced Tea, a bid to appeal to the wine and cocktail crowd. I owned BUD for years, but sold out when the stock jumped on the Inbev acquisition. I'll stay on the sidelines for now, but any business with such brand loyalty is worth watching.

And here is another bit of trivia. You may be aware of the annual tradition of dyeing the Chicago River green for St. Patrick's Day, but you may not know how that tradition started. It seems that about 40 years ago some plumbers were using dye to detect pollution leaks into the river when they realized that the dye created a hue reminiscent of Ireland. That's the Luck of the Irish for you.

On a personal note, one thing I will say about beer is that I like its self-control mechanism. My tummy gets full long before I get the idea that a lampshade might make a nice fedora, or that my friends really want to see how cute I look in my Lilly Pulitzer boxer shorts. My advice would be to just forget about the investments on St. Patrick's Day and enjoy the beer and revelry. Oh, and take a taxi--unless you want your last stop on the Pub Crawl to be the holding tank at 201 Poplar.

Life is short. Get busy. And Cheers!

Jim


Note: Wikipedia was the source for the historical information in this post. For non-Memphis readers, 201 Poplar is the address of our local jail.

Disclosure/Disclaimer: My family members and/or I own shares in DLTR. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as advice to buy or sell any security.