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You'll Never Guess Who's Jumped Into the Craft-Beer Business

Can Wal-Mart (NYSE: WMT) save the craft-beer industry? Few are aware that the deep-discount retailer has been selling its own craft beer for almost a year now, but as more people discover it, there's the potential for it to revive industry sales.

No laughing matter

Before you laugh, there might be some very good reasons this could happen. After years of double-digit growth, craft breweries are expected to post just single-digit gains for 2016. Even though there are more than 5,000 U.S. craft breweries in existence today, more than at any other time in the country's past, the Brewers Association industry trade group estimates that volumes grew only around 8% last year. Others think it could be even lower.

Image source: Wal-Mart.

The market analysts at IRI, for example, say its channel checks indicate fourth-quarter volumes rose only 3% from the year-ago period, leaving full-year volumes up just 5%. 

Much of the weakness is due to reports of soft sales from the largest names in the industry. Boston Beer (NYSE: SAM), which many consider to still be the face of craft beer, suffered an 8% drop in depletions in the third quarter and expects them to fall by as much as 6% for the full year, compared with previous guidance that saw them as possibly being flat. (Depletions are shipments to distributors and retailers and are considered a reliable industry proxy for consumer demand.)

Similarly, Craft Brew Alliance, New Belgium Brewing, and even Anheuser-Busch InBev's Shock Top brand are all suffering from slack sales. While a few of these might not fit the industry definition of what constitutes a craft brewer, beer drinkers still view their beer as craft.

That showing would coincide with IRI's data showing that brewers such as Boston Beer and Pabst were down sharply in the last three months of 2016, with Craft Brew Alliance, New Belgium, and Gambrinus down by low- to mid-single-digit rates.

It's not all bad news, as brewers such as Lagunitas and Dogfish Head, among others, were up by double-digit percentages. Constellation Brands (NYSE: STZ) also surged, and though much of that increase might be attributable to its imported Corona brands, it also has its Ballast Point craft brand to thank, as it's been living up to its reputation as the fastest-growing craft beer.

Wal-Mart to the rescue?

So how is Wal-Mart going to save the industry? First, the retailer isn't actually brewing beer on its own in Bentonville, Ark., but rather contracts with WX Brands, which describes itself as developing "exclusive brands of wine, beer, and spirits for retailers around the world." It packages Wal-Mart's craft beers under the Trouble Brewing brand and offers a number of beer labels such as Cat's Away IPA, After Party Pale Ale, and California-only Pacific Drift. A 12-pack of a Wal-Mart craft brew sells for around $13.

Image source: Wal-Mart.

While you might not find many hipsters shopping Wal-Mart's craft-beer aisle looking to pick up some 'Round Midnight Belgian White, with more than 4,600 stores nationwide it remains the most heavily trafficked grocery store in the country, and stocking its shelves with "craft beer" has the potential to introduce more people to craft labels than just about any other outlet. The mass merchandiser might not break any sales records or have Boston Beer worrying it will be stealing market share from it, but as the supermarket giant told The Street last year, "We want to bring craft beer to the masses."

Although there's a level of snobbery in the craft-beer market that would exclude a Wal-Mart beer from being considered truly craft, the retailer has a unique ability to put craft beer front and center for the American consumer in a way no one else is able to. Beer drinkers who might normally not consider anything other than some mass-produced suds might now join the traditional craft-beer crowd that's constantly on the prowl for new flavors and tastes. And anything that introduces more people to craft beer can't be all bad.

Even if what they're drinking is a Wal-Mart Red Flag Amber, it's a development that might very well reverse the craft-beer industry's sinking fortunes.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Boston Beer. The Motley Fool has a disclosure policy.