Boston Beer Company executives are now expecting hard seltzer growth for 2022 to be near the lower end of its previously communicated projections of flat to +10%, but they reaffirmed confidence in the long-term staying power of the segment, founder Jim Koch shared this week during the Global Staples Forum, according to a recap compiled by Goldman Sachs managing director Bonnie Herzog.
Although Boston Beer’s Truly Hard Seltzer “has benefited from the category shakeout,” grabbing an additional 10% share of distribution, Boston Beer management reiterated that the company doesn’t need Truly to grow this year to hit its shipment and depletions guidance of +4% to +10%.
Year-to-date through mid-April, Truly brand family dollar sales (-10.1%, to $287.5 million) and case sales (-15.3%) have both declined in off-premise retailers tracked by market research firm IRI. The Truly family, the second best selling hard seltzer brand behind White Claw, holds a 2.37% share of the overall beer category, a decline of -0.18%.
So where will the company’s growth come from this year? Boston Beer is keeping it Twisted in 2022.
Boston Beer sees opportunity in the “beyond beer” space, a 50 million barrel opportunity annually (5-7% CAGR) “where there are no strong, established market leaders and where management believes it has a right-to-win,” Herzog wrote.
Twisted Tea is Boston Beer’s biggest growth opportunity moving forward. The 20-plus-year-old hard tea brand is “a consistent [double-digit] grower with a significant distribution runway still ahead,” Herzog wrote.
Twisted Tea brand family dollar sales are up +18.6%, to nearly $210.2 million, and case sales are up +14.1%, year-to-date through April 17, according to IRI. The Twisted Tea family holds a 1.73% share of the beer category YTD (+0.32%), the firm added.
So far this year, Truly and Twisted Tea rank as the No. 10 and No. 12 beer category brand families, respectively, according to IRI. Although Truly’s off-premise sales through mid-April were down nearly $32.3 million compared to the same time in 2021, Twisted Tea has picked up the slack, with sales growing more than $32.9 million year-over year.
Other beyond beer opportunities for Boston Beer in 2022 include Bevy Long Drink, Sauza Agave, and Hard MTN Dew, Herzog wrote. Of those brands, Hard MTN Dew has shown “significant promise with strong trials and positive early repeat rates,” Herzog wrote.
“Where available, the brand has achieved strong market share positions, averaging ~27% of the FMB off-premise share in states where the brand is available, and a ~2% share nationally,” Herzog wrote.
Hard MTN Dew is expected to be in 15 states by the end of summer.
Herzog offered additional perspectives from Boston Beer in her report, including:
Pricing Expected on High Side of Guidance: In regards to pricing, Boston Beer execs believe they’ll hit the higher side of their 3%-5% guidance, which remains below the Consumer Price Index (8.5%) and wages (5.5%). Herzog wrote that Boston Beer “should still be perceived as more affordable on a relative basis.”
Wholesaler Inventory Levels Returning to ‘Normal Levels’: On supply chain challenges, the company is working through them and “starting to feel better.” Q1 out-of-stock issues are improving, with wholesaler service and inventory levels returning to “normal levels,” Herzog wrote. The company also increased its capacity to produce Truly on the West Coast this summer.
Boston Maintains Gross Margin Guidance, Concentrates Production to 4 Breweries: Boston Beer leaders are “confident” in delivering its gross margin guidance of 45%-48% due to many of the remaining supply chain pressures being “well-within management’s control, such as unfavorable production mix for SAM’s internal/external breweries specifically on variety packs, which drove up” use of third-party contact breweries. The company believes it will benefit from concentrating production at four anchor breweries, including the City Brewing-owned Irwindale Brew Yard, which features variety pack technology that should lower production costs.
Optimism in the On-Premise Channel: Boston Beer execs are optimistic the on-premise channel recovery will continue, although “maybe not fully,” Herzog wrote. Koch sees “significant untapped opportunity for hard seltzer” in bars and restaurants, which could amount to “upwards of 7% of total hard seltzer volume” compared to greater than 30% for craft beer, 25% of which is draft.
Samuel Adams Gaining Craft Share: Following up on Q1 comments that Samuel Adams could be a growth contributor this year, execs noted that the brand was flat in Q1 but ahead of the overall craft segment, “implying it continues to gain share in a slowing market for craft beer,” Herzog wrote. Helping drive Sam’s performance is the “Your Cousin from Boston” campaign. Samuel Adams’ outlook in the on-premise “also looks promising” due to the brand’s share of larger national, multi-store accounts, which Herzog wrote “should help improve its share of draft beer as the on-premise channel continues to recover.”