71: A Key Piece of Information I learned About The Beer Industry During My Trip To Omaha
ABI, Heineken, Boston Beer, and others will benefit from this industry trend
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Bottoms Up, No Hangover!
The best part about the Berkshire Hathaway annual meeting weekend is what you learn — not just from Warren and Charlie but the many other generous people attending the meeting. This year (my 9th) didn’t disappoint.
In fact, I came home with a key insight into the beer industry after talking to Tom Russo and his business partner, Tim Quinn, at the Gabelli/Columbia Business School dinner on Friday evening. I now have a better appreciation for the economics of non-alcoholic beer.
Sometimes referred to NA (non-alcoholic) or NOLO (no-and-low alcohol), the category has been growing for several years. Beer drinkers pining for a pint without the hangover are no longer limited to O’Douls. Heineken has its leading 0.0 product, AB InBev has its Budweiser Alcohol Free, and Boston Beer has its Just the Haze, to name one offering from each brewer. NA products represented 6% of Heineken’s volume in 2021, and sources put ABI’s portion in the high single digits.
Removing the alcohol from beer (and maintaining a flavor profile consistent with the alcoholic version) is an additional step that increases costs by about 10%. Here’s where things get interesting: non-alcoholic beers don’t have alcohol. “Duh!” I hear you say. Well, that means there’s no alcohol excise tax either, which is a significant cost to the brewer. The result is net revenue per hectoliter about 15% higher for NA than for traditional beer. Taken together these produce a 30%-40% greater profit.1
All of this is on top of some wonderful industry economics and a product immune from the internet. The major players enjoy market dominance in certain geographies that, coupled with economies of scale, produce excellent returns on invested capital.
The share prices of all three companies have taken a beating lately. Now is a good time to study up on these wonderful businesses.
Subscribers to Watchlist Investing Deep Dives have access to the recent 36-page analysis of AB InBev and Heineken, in addition to the 16-page analysis of Boston Beer.
Stay rational! —Adam
These, "oh, that was obvious” moments are common for me during my trips to Omaha. Whether it’s from Buffett or Munger, or a fellow value investor, I learn a ton by attending the BRK meetings in person.
Great insight! But I’m not understanding the math here. If it costs the producer an extra 10% to take the alcohol out of the beer, but they effectively save 15% for no alcohol tax, how are you getting 30-40% savings for the producer?