Boston Beer Company’s efforts to resuscitate its seasonal beer program got off to rough start during the first quarter of 2017.
The company shipped just 707,000 barrels of beer, cider, tea and hard seltzer last quarter, a 15 percent decrease from the comparable period in 2016. It also reported revenue ($161.7 million) and depletions declines of 14 percent during the quarter.
“Our total company depletions continued to decline in the first quarter,” brewery founder and chairman Jim Koch said via a press release. “These declines were mostly caused by weakness in the Samuel Adams brand, especially our seasonal beers, and a general softening of the craft beer category that continues to be very competitive.”
For the quarter, the company reported net income of $5.7 million — a $1.3 million decline from the first quarter of 2016.
During a Wednesday evening call with investors and analysts, Boston Beer CEO Martin Roper also blamed the company’s spring seasonals — Samuel Adams Hopscape hoppy wheat ale and Fresh as Helles — with dragging down the entire Samuel Adams brand in Q1.
Roper also noted that the underperformance of Hopscape forced Boston Beer to adjust its original shipment forecasts for Fresh as Helles, a move that ultimately contributed to the company’s overall declines in Q1.
“It was too late to change a number of things about Fresh as Helles that may have helped,” he said. “So we basically executed the Fresh as Helles plan we had. We added digital, and social, and more education about what it was. But we also operationally sort of adjusted our supply numbers and made sure we ran out.”
By adjusting its original plans for Fresh as Helles, Boston Beer was able to sell through inventory before its next seasonal offering, Samuel Adams Summer Ale, replaced it on the shelf.
Neither Hopscape nor Fresh as Helles performed as well as last year’s Cold Snap white ale, however.
“The weakness in our two new spring seasonals seems to have resulted from a combination of drinker confusion at retail, acceptability of these seasonal beer styles and the timing of our seasonal transitions compared to last year,” Roper said.
During the call, Koch ticked off “multiple [executional] misses” with Hopscape — the packaging, the name, the beer being too hoppy for seasonal drinkers. Nevertheless, Koch said he would stand behind the future potential of his company’s seasonal program.
“We remain committed to our seasonal program as one of the strong pillars of the Sam Adams brand,” he said.
Still, Boston Beer’s hopes for a turnaround in 2017 remain pinned on the success or failure of Samuel Adams Summer Ale, a 22-year-old brand that Koch called “the leading summer seasonal beer in the craft industry.”
Similarly, Roper believes Summer Ale gives Boston Beer “a good chance of stabilizing and returning seasonal business to what it was last year.”
It’s not all grey skies, however. Declines within its Samuel Adams and Angry Orchard portfolios were partially offset by increases in the company’s Twisted Tea and Truly Spiked & Sparkling brands.
“We are excited that Twisted Tea continues to grow distribution and pull, and that Truly Spiked & Sparkling is well positioned as a leader in the emerging segment of hard sparkling water,” Roper said via a press release.
Roper added that the company would make media investments in Angry Orchard, Samuel Adams Summer Ale and Truly Spiked & Sparkling to bolster those brands in the second quarter.
“We are committed to investing in the opportunities that we see with all our brands and remain prepared to forsake short-term earnings, as we invest to return to long-term profitable growth,” Roper said.
Boston Beer’s top priority for 2017 will be to improve Samuel Adams and Angry Orchard trends and return those brands growth, “through continued packaging, innovation, promotion and brand communication initiatives, while maintaining Twisted Tea’s momentum,” Roper said.
The company is also focusing on cost savings and efficiencies to pay for investments needed to grow the company’s brands, Roper said.
“We have adjusted our organization to the new volume environment, while preserving the capability to innovate and return to growth,” Roper said in the release. “This includes adjusting short-term brewery capacity, organizational alignment behind brand and market priorities, changes to our spending policies and behaviors, and significant improvement in yields and efficiency across our supply chain.”
Asked if he envisions a craft beer price war breaking out, Koch said he didn’t anticipate one, noting, however, a “downward pressure on price” with the emergence of canned craft 15-packs.
“The consumer may or may not look at that as price degradation because they may be looking at the cans and thinking, well, that’s kind of equivalent to a 12-pack bottles, except them getting three free beers,” Koch said. “So I don’t see an industry cost structure and cost curve that would support a lot of downward pricing without taking out a big piece of the back end of this supply curve.”
Boston Beer is still projecting the 52-week full-year depletion and shipments changes between minus 7 percent and plus 1 percent. The company is also estimating national price increases of between 1 and 2 percent.