Boston Beer Company issued its 2023 annual report Thursday, a 98-page document packed with numbers, operational details and risk factors.
The company estimated that it holds about 23% market share of the beyond beer segment, making it the second-largest producer in the category. Boston Beer estimated that 85% of its 2023 volume was beyond beer offerings such as Twisted Tea and Truly Hard Seltzer.
The company estimated that 2% of its 2023 net revenue came from licensed brands such as Hard MTN Dew, Sauza Agave Cocktails and Jim Beam Kentucky Coolers, as well as royalties from the Truly Vodka and Twisted Tea Whiskey brands licensed to Jim Beam.
The company’s biggest growth driver, Twisted Tea, is now available in more than 400 HMSHost locations and will be available on Carnival Cruise Line’s entire fleet in 2024. The brand will also be sold on Amtrak trains in the Northeast/Atlantic corridor and all Frontier Airline flights.
Boston Beer called out that Truly Hard Seltzer’s portfolio posted “the second-highest sales per point in hard seltzer and the third-highest sales per point in all of beyond beer” as reasons to believe the brand is turning around. Note that the brand is still struggling in scan data, with dollar sales in NIQ-tracked off-premise channels declining -27.4% and volume -29.6% in the last 52 weeks (ending February 24).
Boston Produced 71% of 2023 Volume; City at 22% of Output
Most of Boston Beer’s 2023 volume was sourced from three of its production breweries: Breinigsville, Pennsylvania; Cincinnati, Ohio; and Milton, Delaware. The company fermented and packaged around 71% of its volume in 2023, up from 65% in 2022.
However, Boston Beer’s in-house output was down from 2017, when it produced more than 90% of its volume. The company estimated that contract and packaging facilities will account for 24% of its output in 2024.
Multistate contract producer City Brewing produced 22% of Boston Beer’s volume in 2023, down from 26% in 2022 and 32% in 2021. The company said it expects City to produce around 20% of its 2024 volume. Boston Beer holds annual contract extenders with City through December 31, 2035.
Boston Beer has paid City $113.4 million for capital improvements at City’s facilities and other prepayments. The company also loaned City $20 million to purchase packaging equipment for its Irwindale, California-based production facility on January 2, 2024.
Boston Beer also has a contract production agreement with Rauch North America that it signed in 2022 and runs through December 31, 2031.
Boston Beer paid third-party producers $33.6 million in 2023, down from the $61.3 million paid in 2022.
The company said it expects to incur future shortfall fees for failing to meet annual volume commitments with its third-party producers of around $41 million. The company recorded shortfall fees of $9.5 million in 2023 and $3 million in 2022 and expects future shortfall fees of $13 million in 2024, $13 million in 2025, $3 million in 2026, $3 million in 2027, $2 million in 2028 and $7 million thereafter.
Among the potential risk factors listed in the report include “labor issues.” City’s union workforce’s contract is set to expire in May, although negotiations are ongoing between the company and the Teamsters.
Depletions Down in 2023, But 2x 2017
Although Boston Beer’s depletions (sales to retailers) declined -6% in 2023, the company’s depletions last year were more than two times the company’s 2017 volumes.
Boston Beer shipped 7.678 million barrels in 2023, a -6.2% decline compared to 2022 when the company shipped 8.183 million barrels.
Boston Beer garnered 94% of its revenue from shipments to domestic distributors in 2023, down from the 95% in both 2022 and 2021.The company counted 4% of its revenue from international shipments, mostly to Canada. Around 2% of the company’s revenue was derived from retail sales of beer, cider, food and merch at the company’s retail locations. That marked an increase from 1% in each of 2022 and 2021.
Boston Beer’s costs for shipping its products was $114.7 million in 2023, down from $165.5 million in 2022 and $166.6 million in 2021.
The company has more than 300 distributors in the U.S. Boston Beer’s largest individual distributor accounted for around 3% of its gross sales, and its top three individual distributors were responsible for around 7% of its gross sales.
After inventory builds in 2021 and 2022 led to obsolescence charges, the company believes it improved its inventory levels in 2023. Boston Beer’s distributors carried around four weeks of inventory on hand at the end of 2023, which the company called “an appropriate level for each of its brands” and down from the five weeks on hand at the end of 2022.
$30M in Inflationary Impacts
Boston Beer said inflationary impacts of $30 million included increased material costs of $16 million, third-party production costs of $7.6 million and internal brewery costs of $6.4 million.
The company said its cost of goods sold in 2023 was $150.59 per barrel, a $0.49 increase compared to 2022’s $150.10 per barrel.
The company attributed the increase to inflationary costs of $30 million, increased third-party production shortfall fees of $6.5 million, brewery cost absorption impact due to lower volume of $6.2 million, and contract settlement costs of $4.5 million. Those increased costs were only partially offset by contract renegotiations and “recipe optimization” of $26.6 million and decrease in inventory obsolescence charges of $14.8 million.
Boston in At Least 2 Active Lawsuits
Boston listed two lawsuits as pending in its 2023 annual report.
One included a class action lawsuit filed by an individual shareholder in U.S District Court for the Southern District of New York in September 2021.
The court granted the company’s motion to dismiss an amended complaint in December 2022. However, the plaintiff appealed in January 2023, and the U.S. Court of Appeals for the Second Circuit affirmed the dismissal in November 2023.
In the second lawsuit, Ardagh Metal Packaging USA Corp filed against Boston Beer in December 2022, alleging the company failed to purchase contractual minimum volumes of aluminum cans in 2021 and 2022. Boston Beer denies the claims. The case is now in the discovery phase.
The company also noted that it “has experienced minor cybersecurity incidents in the past,” but said “none have materially affected the company or its financial position, results of operations and/or cash flows.”
Although not included in the annual report, the company is also facing a pair of lawsuits brought by former employees over the company’s enforcement of non-compete clauses.
Dogfish Head Now Valued at $55.6M After Impairment Charge
The Dogfish Head brand is now valued at $55.6 million as of December 30, 2023, following a pair of non-cash impairment charges recorded on the brand. Boston Beer took non-cash impairment charges of $27.1 million in 2022 and $15.8 million in 2023 on the brand.
Boston Beer acquired Dogfish Head in 2019 for $300 million in cash and stock.
The company listed future non-cash impairment charges as potential risk factors going forward.
More by the Numbers
- The transition of Hard MTN Dew distribution to Boston Beer’s network is expected to begin in May and carry over into 2025;
- Boston Beer estimated that 79% of the company’s total volume was packaged in cans, which the company expects to increase in 2024;
- The company sold 2.6 million pints in its taprooms in 2023;
- Boston Beer employed 2,793 workers at the end of 2023;
- More than 475 employees are on Boston Beer’s sales force;
- Boston Beer paid its distributors $62.6 million for customer promotional discount programs. Those costs were previously $54.8 million in 2022 and $72.7 million in 2021;
- Customer incentives and other payment costs reached $43.8 million in 2023, up from $41.1 million in 2022 but down from $53.4 million in 2021;
- Boston Beer’s provision for out-of-code beer in 2023 was $18.8 million, down from $19.6 million in 2022 but up from $9.5 million in 2021;
- The company reported that Boston Beer founder Jim Koch consumed 550 pints of Samuel Adams last year.