After a “soft” quarter, Boston Beer executives laid out the company’s plans for growth in the second half of 2024 and beyond during a conference call on Thursday with investors and analysts.
“In summary, we saw soft volume trends early in the second quarter, which we have reflected in our revised volume guidance,” founder and chairman Jim Koch said. “But we’re confident in our plans to grow our brands over time and have our brands reach their full potential.”
Boston Beer – whose portfolio includes Twisted Tea, Truly Hard Seltzer, Samuel Adams, Angry Orchard, Dogfish Head and Hard MTN Dew – recorded shipments (sales to wholesalers) declines of -6.4% and depletions (sales to retailers) declines of -4.% in Q2. This followed a Q1 with shipment growth of +0.9% and flat depletions.
Twisted Tea, the company’s best selling brand, and Sun Cruiser, its new vodka-based hard tea offering, were the only brands to grow in the quarter, but their gains could only “partially offset” losses from Truly, chief financial officer Diego Reynoso said.
For the second half of 2024, the company’s investments “will be particularly focused on supporting those brands that are driving growth, which include category leading Twisted Tea, Sun Cruiser and Hard MTN Dew,” CEO Michael Spillane said.
Boston Beer is expecting to take price increases between +1% and +2% and projects full-year gross margins to land between 43% and 45%, Reynoso said. The decline in margin is in part driven by increased costs in flavorings and sweetener, labor at breweries and contractual shortfall fees at contract producers.
The company plans to “reassess” its commitments with third-party producers as contracts expire, Reynoso added.
See previous Brewbound coverage for a closer look at margin, revenue and Boston Beer’s updated full-year guidance.
Below are highlights from the call:
On the launch of Surfside challenger Sun Cruiser … Boston Beer launched Sun Cruiser earlier this year as a fast follower to Surfside, the vodka-based hard tea and lemonade brand from Philadelphia-based Stateside Vodka. Sun Cruiser has “come out of the gates pretty strong,” Koch said.
“We’re seeing very good results where we have fully launched it,” he continued. “In New England, we’re outselling Surfside two-to-one. In some of the other markets like Ohio, we’re seeing similar numbers. We just got put into MetLife Stadium and replaced Surfside, so we’re getting great support from retail and wholesalers for Sun Cruiser.”
The brand has “fully launched” in about six states, with more to come, Koch said.
On a disappointing April … Several factors combined to make April 2024 a challenging month for comps, as the Easter holiday was on April 9 in 2023 and on March 31 in 2024. In addition, April 2023 marked the beginning of the conservative-led Bud Light boycott, which Koch called a “black swan event” during the Goldman Sachs Global Staples Forum in May.
“Our current assessment is that demand appears to be improving from April lows and April trends likely reflect the comparison against significant dislocations in the beer industry that began in April of last year,” Koch said during the Q2 earnings call. “Our shipments for the second quarter reflect the impact of shipping ahead of depletions in the first quarter and not fully shipping into improving demand in the latter weeks of June.”
Since April, however, both the beer category and Twisted Tea have begun to “recover,” Reynoso said.
“We are expecting the back of the year to look more like Q1, less like Q2,” he said.
On Hard MTN Dew’s distribution shift … Other factors dragging down volume include a slower than expected roll out of Hard MTN Dew following the brand’s transition to Boston Beer’s wholesaler network, which was announced in February after PepsiCo’s Blue Cloud Distributing ceased its distribution business.
“It was more complex than we thought, and it took longer than we thought,” Spillane said of the move.
Hard MTN Dew has launched in Indiana, Pennsylvania, West Virginia, Kansas, Rhode Island, Maine and New Hampshire since May, according to its Instagram account.
“It’s still early,” Spillane said. “We’re seeing fairly consistent results across all the territories, so we’d probably have a better handle on it after next quarter.”
On new Samuel Adams American Light … In addition to Sun Cruiser, Boston Beer has rolled out new Samuel Adams American Light, a light lager that they “have high hopes for from a volume point of view,” Spillane said.
After a May launch in can 6- and 12-packs in independent retailers in New England, American Light is expanding to large format stores in the region and to Texas and Florida.
“Early feedback is promising, and we expect sales per point to increase as distribution moves more fully into the large format channels,” Spillane said. “We’re pursuing a measured launch strategy, and will further expand distribution and increase marketing support as we have more data on the consumer acceptance.”
On the company’s mostly flagging beer business … EverecoreISI managing partner Robert Ottenstein asked executives what they “think is missing on the beer side of the business” amid volumes that “keep going down” despite Boston Beer offering “phenomenal liquids” and employing “the best sales force, arguably, out there.”
Beer only accounted for 18% of the company’s shipment volume last year, according to a report from financial services firm Bernstein. Samuel Adams’ share of volume has been declining steadily since 2012, when Angry Orchard launched, and those declines only accelerated with the launch of Truly in 2016 and a renewed focus on Twisted Tea when Truly slowed.
Spillane admitted the company could have “given more attention to the rest of our portfolio.” Koch pointed to a lack of focus on draft beer sales.
“We in particular took our eye off of draft, along with our wholesalers,” he said. “So we are making changes in the priorities for our salespeople to move some of the calls that they made with the explosion of Truly and now the rise of Tea – those are off-premise brands as Michael alluded – we neglected the on-premise. So, we are reorienting our sales force and expect to see more draft lines and more on-premise business for Sam Adams and for Angry Orchard.”
On keeping Twisted Tea ahead of the hard tea pack … Twisted Tea, which launched more than two decades ago, has long been the largest brand in tea-centric flavored malt beverages (FMB). With an estimated market share of 84.5% according to NIQ data cited by Bernstein in its recent report, Twisted Tea is still at the top, but competition increased in recent years from offerings that include New Belgium’s Voodoo Ranger Hardcharged Tea and AriZona Hard Iced Tea.
Boston Beer is working to expand Twisted Tea’s base with innovations such as a revamped Twisted Tea Light and Twisted Tea Extreme, an 8% ABV version, both of which are “highly incremental and bringing in new drinkers,” Spillane said.
In addition to product innovation, Twisted Tea is spending more on advertising, sponsorships and programming. The brand has increased penetration with drinkers in the Black and Hispanic communities, Spillane said.
The company is betting on Twisted Tea’s simplicity as a selling point.
“[It’s] well noted that there is a lot of clutter out there, much like the seltzer area,” Spillane said. “We’ve grown this brand in a cleaner way with fewer flavor extensions, and we feel very strong that the core of it will be there and continue to perform, so [we] control the rest of it. The marketplace will behave as it does, but we like our positioning, and we like our plan going ahead.”
Retailers will likely use what they learned after the hard seltzer segment’s crash in building hard tea assortments, Koch said.
“Retailers believe they hung on to the long tail of seltzer too long and they’re going to prune the hard tea category more quickly,” he said, adding that Twisted Tea accounts for nearly 85% of hard tea’s volume but only nearly 65% of its shelf space.
On what future innovations might look like … Boston Beer’s nearly 40-year journey has been “very much littered with failures,” Koch said in response to a question about the company’s innovation strategy.
“For a conference, they asked about our failures, and I started writing the list and I got to 24 different brands that had failed,” he said. “It was just too depressing and I stopped.
“So you need to just constantly be trying things, probing the market and innovating and then innovating on the innovation, which is the case with Angry Orchard. We had a cider, it failed, but we finally hit it. It was the case with Twisted Tea. It was originally BoDeans, and we finally hit it and we grew slowly. So it’s a lot of trial and error. I really can’t tell you what is the next big thing,” Koch continued.
The company’s current innovation slate includes line extensions, such as Sam Adams American Light, Twisted Tea Light, Twisted Tea Extreme and Truly Unruly, an 8% ABV hard seltzer.
“Those are predictable,” Koch said. “But our strength has been in totally new ideas.”