New Boston Beer CEO Michael Spillane said the company’s “highest priority” moving forward “is to return to delivering sustainable volume growth.”
Throughout Boston Beer Company’s first-quarter 2024 earnings call Thursday, Spillane said the company is focused on achieving “long-term sustainable growth.”
[Brewbound Insiders can read more about the earnings, including shipments and depletions data from the quarter, which showed an improvement compared to the previous two Q1s.]
The company expects to do so by “protecting and nurturing” its core brands so they reach their full potential, while innovating in the beyond beer space, “which we expect to drive the category,” he said.
“Boston Beer has powerful brand equities, the best sales force in beer and a strong team with a unique entrepreneurial culture,” he said in his first call since becoming CEO. “The cash generation of this business is powerful and allows us the optionality to invest in our brands and long-term innovation. We remain focused on implementing our strategy to deliver long-term sustainable growth and improve our operational efficiency while being disciplined stewards of capital.”
The main growth driver for the business remains flavored malt beverage (FMB) Twisted Tea, which the company has line extended with lower-calorie Twisted Tea Light and high-ABV Twisted Tea Extreme.
Beyond Twisted Tea, Boston Beer is aiming to stabilize Truly Hard Seltzer’s trends, however the company acknowledged that the seltzer segment remains under pressure and the company expects it to decline in the “low teens” in 2024, Spillane said.
“Truly is now a smaller part of our business mix given Twisted’s strong growth, but remains a 20% share of hard seltzer in measured channels, and we’re working diligently to improve its trajectory,” Spillane said.
Core brands Samuel Adams, Dogfish Head and Angry Orchard have “areas of opportunity” and the company is “focused on nurturing these brands, which remain an important part of our portfolio and the company’s craft legacy.”
New Samuel Adams packaging rolled out in late Q1. The company is also investing behind Boston Lager, Sam seasonals and new offerings. Notably, Samuel Adams’ non-alc portfolio increased dollar sales +52% in Q1 in measured channels, Spillane said.
New-to-world products such as Sun Cruiser vodka-based hard tea are in their early days, so far “well received” by retailers and wholesalers, while 2-year-old Hard MTN Dew is transitioning to the company’s wholesaler network, which will eventually take the brand nationwide, Spillane said.
Here are some highlights from the Q&A with analysts following Thursday’s prepared remarks:
On Truly’s shelf space … Spillane called it “a very fluid situation,” as the attention turns to lighter flavors and the launch of Truly Unruly, a pack of 8% ABV hard seltzers, picking up shelf space, and other flavors that “aren’t tracking” losing space.
Asked about his priorities as CEO … Spillane emphasized his board tenure, familiarizing him with the team and the strategy. His focus for the first few months with the company will be “on further refining our product roadmap and innovation process.”
“Where I’m leaning in is making sure that we’re truly executing that strategy and making sure that we have end-to-end alignment,” he said. “We’re really focused on growth, and getting back to that long-term sustainable growth. And then probably trying to get a little bit sharper on our innovation, making sure that it’s distinctive, it’s profitable and it’s scalable.”
Asked what the right level of advertising spend as a percentage of sales moving forward … Spillane said Twisted Tea continues to receive “strong investment,” while the rest of the portfolio is assessed “as we see fit.”
“Where we see upside in the performance, we will probably choose to reinvest in marketing,” he said.
Founder and board president Jim Koch added that Boston Beer is “a growth company” and the rule of thumb for the company is to “have a higher share of voice via our advertising than our share market. Because in the long haul, that generates share gain, and we’re in growing categories.”
Brand investments decreased by -$1.6 million in Q1. The company is projecting full-year advertising, promotional and selling expenses to be between -$5 million and +$15 million versus full-year 2023.
On Hard MTN Dew … the transition from Blue Cloud to the Boston Beer wholesaler network to be a “longer transition” with “ups and downs along the way,” CFO and treasurer Diego Reynoso said.
“In the long-term, we feel it’s a strong brand that has really good equity,” he continued. “And I think bringing it into our distribution networks will be really strong.”
On Twisted Tea’s “slowdown” to growth in the mid-teens … Spillane said it’s a short period of time for measurement and the company is “continuing to assess it.”
“We’re paying attention, but we don’t see it right now as a longer-term trend for business,” he added.
Boston Beer will invest in marketing “at the appropriate levels” when the time is right. The company also expects new products such as Twisted Tea Light and Twisted Tea Extreme to bring in additional customers, along with new marketing directed toward Black and Hispanic consumers. Boston Beer is also now rolling out a Twisted Tea Rocket Pop Party Pack, which Spillane called “a big driver of the business” in 2023.
Asked about the company’s innovation playbook … Spillane said he agreed to take the CEO role “because we’re a great innovation company.” He promised a balanced approach between core offerings and new-to-world products.
“To be honest, sometimes we maybe chose to do one or the other, and we’re going to find the balance to make sure that we have both pillars reaching their potential,” he said.
On the company’s capacity utilization … Reynoso said the company has previously been an 85%/15% mix of production inside versus outside. However, the company is working toward a 90%/10% mix, with contract partners used for “high complexity products.”
Koch added that reaching 90% in-house production “is a longer-term goal.” City Brewing is the company’s “exclusive contract partner” and “a key piece going forward.”
“It’s going to be awhile before we get to 90/10,” Koch continued. “Not this year. Probably not next year, but longer-term, we could certainly see that.”