7-Eleven Private Label Beer May Drain Big Brewers

The marriage could be a perfect fit of a premium brand with a low price point, connecting with consumers and helping privately held 7-Eleven rake in the dough and eat into already hurting U.S. beer giants Anheuser-Busch InBev (BUD), Molson Coors (TAP) and SAB Miller (SBMRY).

Conventional wisdom holds that "sin stocks" perform well when times are tough. With less money to spend on a new car or a big vacation, the small pleasures tend to provide relief. Some studies even suggest that drinking beer is good for your health. But as with so many things in the Great Recession, beer sales didn't follow conventional wisdom. The main U.S. beer companies have really been hurting.

Take Molson Coors. The fifth-largest brewer on earth sold 4% less beer by volume worldwide in 2009 compared with 2008. Shares are up a measly 15% in the past year, compared to a nearly 40% gain in the S&P since April of 2009. TAP has also been struggling so far in 2010, actually trading in the red year-to-date.

Things are even worse for shareholders of Anheuser-Busch InBev. Though the company reported a rise in full-year 2009 profits compared with 2008, the brewing giant is down over 27% since September of 2009 when the two corporations merged. Even worse, BUD warned that beer markets are weak right now and expected to stay rocky in 2010.

It's worth noting, however, that brewer Boston Beer (SAM) saw full-year profit quadruple in 2009, and SAM stock is up over 130% in the last year. Industry experts say this is part of a trend boosting "craft beer" sales. Smaller companies with more flavorful brews made in smaller batches actually saw success in 2009 with sales of microbrews and craft beers up 12% on the year.

So, if 7-Eleven can straddle that line between a premium beer and a low-cost brew, it could see big success. Retail sales may be rising, and this would help the company ride that trend to big profits. That would be very bad news for BUD, TAP and others that continue to struggle to sell their brands.

7-Eleven has visited private label beers before. The company launched Santiago beer in 2003, but it was positioned as a high-end beer and consumers were reluctant to shell out big bucks for a brand they hadn't heard of. If the company is smart, it won't make that mistake again. However, it must be careful not to position its new private label offering as too low-brow. After all, Game Day sounds like the target audience is more football fan and less foodie.

The real question, then, is taste. If the folks who pop a 7-Eleven private label beer like what they drink, they may come back. But if it's just more cheap and tasteless brew like BUD brands Busch and Natural Ice, the convenience store may find itself just as disappointed as the major beer stocks.