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Boston Beer Co Inc (SAM), The Coca-Cola Company (KO), Will Craft Soda Erupt Like Craft Beer?

As craft beer takes the nation by storm — making kings out of once-small brewers like Boston Beer Co Inc (NYSE:SAM) — the same trends that are driving sales of the alcoholic beverage may soon drive sales of its non-alcoholic counterpart: craft soda.

Boston Beer Co Inc (NYSE:SAM)

The craft soda industry has emerged on the same formula that brought craft beer to the forefront of American interests. Namely, the product’s high-quality, natural ingredients give it a richer, more flavorful finish than the mass-produced, high fructose corn syrup-laden sodas made by The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP). Besides being a better-tasting drink, craft soda is also much healthier. Instead of using high fructose corn syrup, craft sodas use cane sugar — a natural ingredient.

Although many craft sodas are concocted on-site by local restaurants, there are a few craft soda producers that distribute their products nationwide, including Reed’s. Reed’s has several product lines, including Reed’s Ginger Brews, Virgil’s Cream Soda, and Sonoma Sparkler Sparking Juices. The company is small — sales totaled just $30 million in 2010 — but is growing quickly; sales were just $6.78 million in 2003, so they have grown at an 18% compound annual rate even through a deep recession. Sales have doubled since 2009.

Such impressive growth is a testament to the category’s growing popularity among mainstream consumers. So popular, in fact, that premium coffee giant Starbucks is developing its own line of sodas to be made by baristas upon request.

Craft beer points the way
Craft sodas are popular with the Whole Foods crowd that wants natural options with real ingredients that are also better-tasting and more exclusive than mass-produced beverages. This is the same crowd that drives demand in the craft beer market, which may be an indication of where the craft soda market is headed.

Boston Beer Co Inc (NYSE:SAM) began in 1984 when its founder, Jim Koch, brewed the first batch of Samuel Adams in his kitchen. The hand-brewed beer that uses all-natural ingredients was immediately successful, catching the craft beer wave at its beginning, and has since grown into America’s largest craft brewer.

Even after its tremendous success over nearly three decades, Boston Beer Co Inc (NYSE:SAM) has a long runway for growth. Consumers are willing to pay a higher price for craft beer than for its mass-produced counterpart, which makes the category a significant threat to America’s largest brewers. As a result of consumers’ growing preference for full-flavored beer, Boston Beer Co Inc (NYSE:SAM)’s revenue has more than tripled revenue since 2003 and will likely experience high single-digit annual revenue growth over the next decade.

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