Since my days of pub crawling are long gone, my observance of St. Patrick's Day consists mainly of living vicariously through the antics of others. I'll just be thankful that I am not staggering down Madison Avenue and wondering how much Uber will jack up their rates to get me home. What I find more exciting is that the arrival of St. Patrick's means that spring--or at least the vernal equinox--cannot be far away, and that is especially felt in this late winter of frigid temperatures and wintry mixes. We Memphians are unaccustomed to even the mildest accumulations of snow and ice, making sequestration the inevitable consequence. House arrest makes sense, though, when our fellow motorists show no respect for the dangers of black ice until they find themselves in intimate embrace with a utility pole. But enough is enough. A self-diagnosis of cabin fever seemed appropriate when I realized that I was staring mindlessly at the television, watching a show called Brazil Butt Lift on cable.We all need some springtime. Now, the folks up in Chicago, who take blizzards in stride, know how to set the tone for St. Patrick's Day celebrations. They dump emerald green dye in the river (pictured above), and maybe if I lived there I might feel more enthusiastic about the true roots of the holiday. Nevertheless, I am a Memphian, not a Chicagoan, so when I hear the words "river" and "green" in the same sentence, I think first of Al Green--who, I suspect, is not even Irish.
No observation of St. Patrick's Day would be complete without beer stories, so we'll offer a few today. During my college years (of which there were many, and the legal drinking age was 18), Coors beer was not sold east of the Mississippi River. This gave it the cachet of the unattainable, and whenever some friend would arrive back in town with a trunk-load of the contraband, the stage was set for a celebration. This rare treat of a hops potion would, we believed, cause the ladies on campus to beat a path to our door, that being the front door of the Sigma Alpha Epsilon fraternity house at Rhodes College (then Southwestern at Memphis). Coors later lost its talismanic allure once it became regularly available at the local Seven-Eleven. Beer, it seems, just doesn't taste as good if the acquisition of it doesn't involve dodging the Arkansas Highway Patrol.
I remember learning, at that very same college, about the differences between Busch beer and Budweiser. This was marketing class, though, not chemistry class. The difference in the cost of making those respective brands was slight, but in the marketing world of price and perception, Busch was the "cheap" beer and Budweiser the "premium" brand. The field of beer, if not the field of dreams, is much more crowded today, and we might reasonably think that there are going to be winners and losers. I suspect, though, that the old standards of Budweiser and its brethren will continue to rock along with their loyalists, even as the craft beers chip away at market share. Not compelling growth, but a sort of "hanging in there" stability. The more upscale beers will continue to draw in the adventuresome, those looking for more in the way of taste and, perhaps, status. Who may get consigned to the netherworld in between--or, shall we say, left out in the cold--are the aspirants to premium status who just didn't make the cut.
Shareholders of Boston Beer (SAM, $258), the brewer of Samuel Adams, were probably crying a river of a different sort (in their beers) as the shares took a shellacking after the company reported quarterly earnings in late February. Earnings per share for the fourth quarter came in at $1.40, ahead of Wall Street's consensus of $1.37, but revenues fell short at $232.97 million versus an expectation of $235.96 million. Then the company committed the unpardonable sin of forecasting 2015 earnings per share in the range of $7.10 to $7.50, well short of the consensus view of $7.96. It may be too early to draw too many negative conclusions from this one report, other than to note that the stock market always shoots its prisoners before it interrogates them. Shares of SAM now trade at $258, down from a January high of $325. A reduced earnings outlook does not go down well when a stock is trading at 36 times earnings. If there is more than beer brewing at SAM--trouble, perhaps--then we might look at it this way. My own little world of experience does not constitute anything close to a statistical sample, but if I am going to move on up from drinking Bud Light, I am not going to stop at Samuel Adams--I am going all the way to Sierra Nevada, Anchor Steam, and Founders IPA. And that is exactly what I did, as the evidence sits in my refrigerator (and my recycle bin) today.
I think of the popularity and proliferation of craft beers as another example of a general trend that I call "up-scaling." I view up-scaling as the tendency for goods and services once considered to be out-of-reach or rare luxuries to be adapted, mainly through technology and marketing, for a more mainstream market, and for consumers to expect those former luxuries as increasingly commonplace. Starbucks (SBUX, $92) offers a perfect example. A Cup of Joe at the Barksdale Cafe in Midtown Memphis will set you back $1.50, but at Starbucks a barista will grind up some premium coffee beans, froth up some milk, and charge you about $4.00 for a Venti Latte. Gourmet coffee, once available mainly in high-end restaurants, has come to the masses. And what Starbucks has done with coffee, Nike (NKE, $96) has done with athletic shoes (Are you really going to wear Keds to The University Club Fitness Center?). Hollywood celebrities have probably been shooting up poison in their faces for decades, and now You Too can do the same with Botox, courtesy not of your personal Beverly Hills physician, but of your own doctor and treatments from Allergan (AGN, $233). So now we have, in the mainstream, gourmet beer to go with gourmet coffee and gourmet versions of running shoes and cosmetic treatments. It appears that we are becoming ever more sophisticated, but cynics might say we are just becoming more spoiled.
Boston Beer is the largest craft brewer, a designation that seems like an oxymoron when we consider that the craft side of the beer business is all about small batches from small, independently-owned breweries that emphasize taste and quality. Just recently at The Fresh Market, I counted at least 50 different beers, most of them of the craft variety. If you want to invest in this trend, you might think about starting your own brewing operation. Bosco's has been brewing beer in Memphis for years, and now it is joined by Memphis Made, Wiseacre, and High Cotton. All of these beers are of very high quality. Do you really want that Samuel Adams when you can have one of these local brews?
Better positioned, at least among publicly traded companies in the alcoholic beverage sector, might be Constellation Brands (STZ, $115), which has its own well-stocked bar of brands in wine (Robert Mondavi and Clos du Bois), beer (Modelo and Corona), and spirits (Svedka vodka). In January the company reported earnings and sales numbers that exceeded estimates and offered a 2015 outlook above the Wall Street consensus view. Given the changing nature of consumer tastes, it makes sense to have a broad portfolio of libations under the same roof. As Al Green might say, Let's Stay Together. I will also be on the lookout for the next upscale product to go mainstream. Caviar at the drive-thru, perhaps? I would raise a glass to that.
IN MEMORIAM
This Post is Dedicated To My Friend Patrick Crump
1970-2014
1970-2014
Life is short. Get busy.
Jim
Disclosure/Disclaimer:My family members and/or I own shares of SBUX, NKE, AGN/ACT, and STZ. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.
Copyright MMXV
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