Twisted Tea continues to be one of the few Boston Beer Company offerings in the green, and the company doesn’t see that changing anytime soon, leadership shared during Thursday’s Q1 2023 earnings call with investors.
The more than 20-year-old flavored malt beverage (FMB) now accounts for 27% of FMB sales in off-premise channels (+3 share points), increasing dollar sales +34% year-over-year (YoY) in Q1. The most recent growth was driven by additional retail programming, with a focus on the Super Bowl, and “better distribution” of 12-packs, CEO Dave Burwick shared.
Although Twisted Tea is more heavily weighted in the off-premise channel than the on-premise, it still accounts for 50% of FMB volume and 82% of the segment’s volume growth year-to-date in the channel year-to-date, according to Burwick, citing a survey from CGA, a NIQ-owned on-premise market research firm.
Boston Beer is “confident” that Twisted Tea will maintain double-digit growth for the rest of 2023, with plans to expand both package and on-premise distribution and increase the brand’s presence in underdeveloped markets. The company is also seeing continued growth in brand awareness and household penetration, as well as a resonance with Latino and Black consumers, bringing more drinkers into the fold.
Several new hard tea competitors entered the market in the past year, including offerings from large beverage brands, such as Lipton Hard Iced Tea from FIFCO USA and PepsiCo and Peace Hard Tea from Molson Coors and Coca-Cola. While the segment has become more diverse, it’s “a bit late to come into a category that’s so owned by one product,” Boston Beer founder and chairman Jim Koch said.
“[Twisted Tea’s] got 90-some percent of the category and the next product might have five,” Koch said. “I don’t see what would differentiate another tea to make significant inroads in Twisted Tea.”
What’s helped maintain Twisted Tea’s dominance in the segment has been its variety of offerings within the brand, including fruit-forward offerings such as Raspberry and Peach, variety packs and Twisted Tea Light, a lower-calorie option that Boston Beer will expand nationally this year.
“We are answering pretty much all the consumers’ needs in the tea category for products that have any kind of volume ,” Koch said. “There are niche tea products, some of them that [have] higher prices, but they’re less than 1% share. I’m not seeing anything that I would consider meaningfully different or better than Twisted Tea.”
More than 50% of Truly Declines from Lapping Truly Margarita, Discontinuing Truly Iced Tea
Boston Beer – whose other brands include Samuel Adams, Truly Hard Seltzer, Dogfish Head and Angry Orchard – recorded a depletions (sales to retailers) decline of -6% and shipments (sales to wholesalers) decline of -7.6% in Q1, with volume and dollar sales declines recorded for all of its brands expect for Twisted Tea and Hard MTN Dew, the FMB it produces under a licensing agreement with PepsiCo.
A significant portion of the decline was credited to Truly, which was lapping the launch of Truly Margarita. The margarita-inspired flavor expansion accounted for about 25% of Truly’s total business in Q1 2022, according to Burwick. Boston Beer has also discontinued its Truly Iced Tea line, which, combined with the Truly Margarita sales, accounts for more than half of the brand’s losses in the quarter.
Boston Beer also recorded a significant obsolescence charge from the rebranding of Truly Vodka Seltzer – its spirits-based, ready-to-drink canned cocktail (RTD) expansion – to Truly Vodka Soda, with a margin impact of 100-150 basis points, interim CFO Matt Murphy said. Boston Beer launched the RTD brand in October, but “early learnings” indicated a rename and packaging refresh was necessary, Burwick said. The company considered holding the refresh until the fall to avoid write-offs, but decided it would be more beneficial to take the “hit” in order to introduce the rebrand before the summer selling season, setting the company up for “greater success and profitability for the balance of the year,” Burwick said.
Truly has continued to be a sore spot for Boston Beer, recording a -21% dollar sales decline and -27% volume decline in NIQ-tracked off-premise channels (total U.S. xAOC + liquor plus + convenience) in the last 52 weeks, ending March 25. However, Boston Beer has seen a stabilization of the brand in recent weeks, gaining share in half of the 63 markets tracked by Circana in the last month, Burwick said.
“We’re starting to see some signs that we’re recovering from the base business as this overlap mitigates and as we start to do other things behind the brand to create some more excitement around the brand,” Burwick said.
Boston Beer announced its new direction for Truly in February, with new packaging and an emphasis on its 2022 reformulation to include real fruit juice. While the company is starting to see some “green shoots” now, it expects to see more of an improved performance starting in the second half of the year.
Truly is also expected to benefit from spring resets, with indications that retailers are prioritizing larger hard seltzer brands as they cut back the segment’s total shelf space. Boston Beer has reset information from about 70% of its retailers so far, and believes the hard seltzer segment will be cut from about 10% of total beer shelf space, to 8% this year. However, Truly is expected to increase its share of that shelf space from 25% to about 27%, Burwick said. Truly, along with Mark Anthony Brand’s White Claw Hard Seltzer – the No. 1 hard seltzer brand in off-premise channels – “are the only two that are really gaining share, as far as we know now, of the segment,” Burwick said.
Twisted Tea is also expected to record a +45% increase in shelf space this spring, up from Boston Beer’s original +30% projections, Burwick said.
Koch Shares Learnings from Sauza; Hard MTN Dew to Continue Slow Rollout
Last week, Boston Beer confirmed the discontinuation of Sauza Agave Cocktails, its first joint venture with Beam Suntory. The cocktail-inspired RTD brand launched in March 2022 as a malt-based extension of Beam Suntory’s Sauza tequila brand.
The “biggest learning” from the brand’s one-year life was “you’ve got to try stuff to see if it gets traction,” Koch said. While the RTD is “certainly a very good brand,” it “really didn’t get consumer traction from the beginning,” indicating that it’s “hard to have a malt-based product that is liquor-branded,” he continued.
Still, the company is trying the approach again with Jim Beam Kentucky Coolers, a new FMB through the strategic partnership with Beam Suntory, which launched nationwide last month.
Koch noted that Boston Beer’s two greatest growth opportunities are holding its share of the beyond beer category and “innovation on top of that with new products,” which is a “core strength” of the company.
“And it does mean that in innovating, most of our products fail,” Koch said. “We feel like we need a fairly robust innovation pipeline to find the next Truly, the next Twisted Tea.”
Boston Beer’s other joint venture, Hard MTN Dew, made through a strategic partnership with PepsiCo, continues to record growth, albeit on a small base. The FMB brand is available in 13 states, primarily in 12-packs. Within those markets, Hard MTN Dew is the No. 2 FMB 12-pack behind Twisted Tea, Burwick said. Hard MTN Dew expanded to Arizona and Kentucky in recent weeks, according to its Instagram profile.
Both Hard MTN Dew and Kentucky Coolers are expected to be “small volume contributors in 2023, as they ramp distribution and find their audience,” Burwick said. He said Boston Beer and PepsiCo agree on a “slow and steady” approach to expand Hard MTN Dew, distributed through PepsiCo’s distribution arm, Blue Cloud Distribution.
“Obviously, [Hard MTN Dew] got huge trial when it launched a year ago, because of the novelty,” Burwick said. “That’s settled down, but it’s still turning really well.”
Koch’s Thoughts on Bud Light Boycott
Koch was asked during the call to comment on the Anheuser-Busch InBev (A-B) controversy making headlines this month, with some consumers calling for a boycott of Bud Light after it was promoted by influencer Dylan Mulvaney, who documents her life as a transgender woman.
“Honestly, this is something we haven’t seen before in beer,” Koch said. “I’ve been making beer for 38 years, this is a first. It has a duration and depth that is nothing that’s happened before.
“We’ve all had missteps, I’ve had mine,” he continued. “We’ve all recovered from them without any permanent damage, so I really don’t know what the duration is going to be.”
Koch said he’s had conversations with wholesalers as recently as Thursday, who have told him the situation is “real” and “large,” and “they don’t know how to predict this.” He added that the boycott hasn’t had any significant effect on Boston Beer’s own business, and he hopes it doesn’t.
“I don’t think anybody in the beer business wants to profit from the misfortune of others, but rather from the fruits of our own labors,” Koch said.
“This is a new world to all of us, maybe in this more polarized society that we’re seeing and the effect of social media,” he continued. “Is this going to be a new phenomenon? I don’t know.”
Analysts also brought up A-B’s recent price rollbacks in some markets – a move that was rumored before the company’s recent accelerated declines. Burwick said Boston Beer is “obviously not price leaders in the market,” but does not expect any radical changes to its pricing strategy. The company expects to increase price between +1% to +3% this year, less than it did in 2022, with Q1 leaning toward the upper end of that range.
“Our goal is just to be competitive,” Burwick said. “As the whole category changes, we obviously have to have to look at that, but we have no intent to do anything different than what we’ve already stated from a pricing perspective.”