Boston Beer Company to Launch National Ad Campaign for Truly Hard Seltzer

Boston Beer Company’s net revenue, shipments and depletions each grew about 17 percent in the second quarter of 2019, the company reported Thursday afternoon.

Boston Beer Company founder and chairman Jim Koch told investors and analysts that he was pleased with the company’s overall growth — driven primarily by Truly Hard Seltzer and Twisted Tea — but “disappointed” with the performance of the Samuel Adams brand.

Koch and Boston Beer CEO Dave Burwick fielded questions primarily focused on the plan for Truly moving forward and this past May’s merger with Dogfish Head Craft Brewery.

Next week, Boston Beer plans to launch a national advertising campaign for Truly, featuring comedian Keegan-Michael Key, whom Burwick said will “bring a little bit of personality” to the brand.

“We want to have somebody who is popular, who is well-known and well-regarded, basically talking about our brand in a way that consumers will be very likely to engage and accept that,” he said.

In addition to the ads, Truly will launch on draft in Q3, with the goal of being nationally available by mid-August. However, Burwick admitted that the company is unsure of the size of the opportunity in on-premise retailers. Convenience stores, though, represent a “huge opportunity,” according to Burwick. He added that C-stores are where the market share gap exists between Truly and the top-selling hard seltzer brand, White Claw.

“They were very smart to get into C-stores early to drive trial and build the brand and that’s something that we have been later in the game to do, and we see a lot of opportunity in C-stores,” he said.

Bruwick also compared the hard seltzer segment to soft drinks, adding that he expects the category to be dominated by “three big players, at most.”

“If you look across FMB and sort of how it plays out,” he said. “I don’t think that the regional appeal that obviously the craft beers have will play in this category at all. I think it’s which brand is the highest quality products.”

Despite building Truly inventories with wholesalers earlier this year, Koch said Boston Beer “didn’t fully anticipate” the demand. Due to the current constraints in Truly’s production, Koch called the margin “kind of ugly.”

“We are buying cans from Arizona, shipping them to Pennsylvania or to a contract packer, who then sends them to a variety packer and then they come back into our Pennsylvania warehouse where we have as many as 300 temps packing stuff,” he said. “At the margin, it’s really ugly because we didn’t put all the capital in there to do that efficiently and the lead times to do can be up to a year.”

Koch said he expects Truly will be produced more efficiently in the future once manufacturing is transferred “in-house or automated.” The company recently installed two automated canning lines, which are now coming online.

According to Burwick, Boston Beer and market research firm IRI recently conducted a survey to determine where hard seltzer drinkers are being sourced. They found that 37 percent came from spirits, 20 percent from wine and 10 percent from light beer.

Still, brand awareness and loyalty remain “low,” with just between 10 and 15 percent of hard seltzer consumers being brand loyal, Burwick said.

“The battle for brand loyalty has just begun, we think,” he said.

Burwick added that there is a “beautiful overlap” in the hard seltzer category between consumers’ desire for variety and products that align with health and wellness trends.

“So it’s coming from outside of beer,” he said. “We like that. It’s got a lot of tailwinds from a consumer perspective, and it’s just getting started.”

In response to an analyst’s questions about what it will take for Boston Beer to “move the dial” in craft beer, Koch explained that growth is more difficult to achieve for established, fully distributed brands in a more mature category that continues to see “a thousand new entrants” annually.

“Right now it’s driven by new, small, local, more than anything else,” he said. “But we view it as a category that is permanent and enduring and can continue to grow a little bit.”

Nevertheless, Koch said Boston Beer’s merger with Dogfish Head Craft Brewery, which was completed on July 3, is a sign that the company is “doubling down on craft beer.” Regarding the merger, Koch said this year is “business as usual,” with integration of production and sales to follow in 2020.

Over the next six months, Boston Beer and Dogfish Head will work to consolidate their respective wholesaler networks, Koch added.

“[The] majority of it is a volume overlap, but there is a lot of work to do,” he said.

Koch added that Dogfish Head is “under distributed” with “three strong assets” to build upon: 60 and 90 Minute IPAs, SeaQuench sour ale and 96-calorie and low-carb IPA Slightly Mighty.

“We view significant distribution opportunities off-premise for SeaQuench, and especially Slightly Mighty,” he said “And we think there is significant run room for 60 Minute IPA on-premise.”

Koch noted that the addition of Dogfish Head’s 60 Minute and 90 Minute brands gives the Samuel Adams franchise something it has lacked: “a successful IPA.”

“That gives us a strong brand to go in and sell into that big chunk of the craft beer category that we didn’t have even a month ago,” he said.

Although year-over-year sales of Angry Orchard have lagged in 2019, Boston Beer is in the process of rolling out Angry Orchard Crisp Unfiltered American cider on draft and in off-premise retailers, Burwick said. The company is also test marketing an 120-calorie Angry Orchard Spritz, which Burwick said may appeal to hard seltzer consumers.

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