Packaged beer sits ready to be shipped to customers inside Boston Beer Co.'s Samuel Adams Brewery in Boston, Massachusetts.
Photograph by Scott Eisen — Bloomberg via Getty Images
By John Kell
April 22, 2016

Shares of Samuel Adams producer Boston Beer (sam) tumbled Friday after the nation’s second-largest craft brewer said first-quarter results were hurt by increased competition and weak demand for ciders.

The declines to revenue and profit for the first quarter of 2016 were far more bruising than analysts had anticipated, as revenue dropped 5% to $188.8 million while net income tumbled to 53 cents per share from $1 a year earlier. Analysts had projected $198 million in revenue and a profit of 96 cents. Boston Beer also cut the company’s shipments target for 2016.

“We believe Samuel Adams has lost share due to the increased competition and continued growth of drinker interest in variety and innovation,” said Jim Koch, founder and chairman of Boston Beer. As Fortune has reported, there has been some lingering concern that the flagship brand Samuel Adams may be considered too big to be considered “craft” by beer lovers that are always on the hunt for something new.

Boston Beer said in the latest quarter, depletions—or distributor sales to retailers—dropped 5% from a year ago, hurt by declines for Samuel Adams and the Angry Orchard cider brands. Twisted Tea and the craft Coney Island brands still grew in the first three months of the year.

The cider category, which had been performing well, is experiencing a slowdown as consumers try other newer alcoholic beverages, including the recent wave of hard sodas that have hit retail shelves. Boston Beer also admitted that the Samuel Adams brand’s volume was dropping even at a time when craft has been performing well.

With 4,269 breweries–more than ever before–the craft industry has become a highly competitive business category where part of the marketing appeal is selling consumers on a new, highly localized brand.

And the success of craft, which is growing far faster than the roughly $100 billion total beer business, has also led to some investments from Big Beer companies. Anheuser-Busch InBev (bud), MillerCoors, Constellation Brands (stz-b), and Heineken—which together control 81% of the U.S. market—all announced deals last year. That makes the environment even tougher for Boston Beer, as AB InBev is going to use existing relationships to push craft brands it has acquired, including Elysian and 10 Barrel. Constellation will more heavily back Ballast Point, while Heineken will push Lagunitas.

In a conference call with analysts, Koch acknowledged that AB InBev has been the most acquisitive of the big beer companies, but he said that the arc of growth for those brands didn’t appear to change too dramatically yet.

“I don’t have a crystal ball nor a great insight into how these craft brands will get prioritized within the portfolio that ABI currently has,” he added.

Looking ahead, Boston Beer is hopeful some innovation can help boost results. The company rolled out some new beers earlier this year, including a line of “Nitro” beers that feature nitrogen in place of carbonation. Samuel Adams also debuted a grapefruit IPA, placing a bet on a flavor that has generated some interest from consumers in recent years.

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