Boston Beer Company reported its 2023 full-year and fourth-quarter earnings amid a flurry of news, including that CEO Dave Burwick will retire, a Nike exec will supplant him and that its Hard MTN Dew brand will shift to beer wholesalers from PepsiCo’s erstwhile Blue Cloud Distribution.
The company’s earnings report, issued yesterday before a conference call with investors and analysts, revealed -6% declines in shipments (sales to wholesalers) and depletions (sales to retailers) for the full year. Shipments (-3.5%) and depletions (-1%) improved in Q4.
So far in 2024, Boston Beer has experienced a “slowdown” in the first eight weeks, contrasted with “a reasonably strong finish to 2023,” founder and chairman Jim Koch told investors. He attributed the sluggishness to Dry January, continued beer category “leakage” driven by Bud Light’s continued catastrophic declines, and the calendar cycling a price increase Boston Beer took in 2023 that drove increased load-in at the retail tier.
To end 2023, the “traditional” part of the beer category, which Koch estimated accounts for 80% of volume, declined -4%, while the 20% that includes beyond beer grew volume +7%.
For Boston Beer, those ratios are inverse, as beyond beer has long dominated its portfolio. Twisted Tea accounted for 49% of the company’s dollar sales at multioutlet retailers and convenience stores in 2023, according to market research firm Circana. Truly Hard Seltzer accounted for 31%. The remaining 20% was primarily split among Samuel Adams, Angry Orchard and Dogfish Head.
During the call, Burwick highlighted the performance and opportunities for Twisted Tea and Truly Hard Seltzer.
In Q4, Twisted Tea dollar sales increased +29% and the brand gained +2.4 sharepoints, accounting for 28% of the total flavored malt beverage (FMB) segment in the off-premise channel, Burwick said. He attributed this growth to the brand’s Q3 college football tailgate campaign, increased media spending and optimized packaging.
A standout for Twisted Tea has been its variety pack, which was the third-largest and fastest-growing SKU in the FMB segment, Burwick said.
Opportunities for the brand include increasing shelf space, as the company estimates it accounts for 18% of FMB space at retail despite having a 28% share of total FMB dollars and 85% of hard tea dollars.
Twisted Tea remains “underpenetrated” in the on-premise channel, where it has a 60-point share of FMB volume. The brand is “underdeveloped” with Black and Hispanic drinkers, although household penetration among these communities increased +55% in 2023, Burwick said.
Geographically, Twisted Tea is deepening its roots in large markets such as California and Texas, where it is still underdeveloped. This progress has helped introduce the brand to Hispanic drinkers, Burwick said.
Twisted Tea Light, a 4% ABV offering, accelerated its sales per point of distribution last year; so far, its sales have been 85% incremental to the brand’s portfolio, and its ACV is 14%, with lots of runway ahead.
“We believe Light is an X-factor for brand growth in 2024,” Burwick said.
This year, Twisted Tea faces a tidal wave of competitors from all corners of the beverage-alcohol industry, including AriZona Hard Iced Tea, Monster’s Nasty Beast, FIFCO’s Lipton Hard Iced Tea, New Belgium’s Voodoo Ranger Hardcharged Tea and many more.
“Today, everybody is piling into it – there’s literally hundreds of new competitors,” Koch said. “I don’t see much traction from the vast majority of them. What I don’t know is, will something begin to get traction with a brand name from somewhere else, like AriZona or a Monster? They have a big, high hill to climb because Twisted Tea is the original. We defined the flavor profile, so to a hard tea drinker, it should taste like Twisted Tea.”
Koch doesn’t envision “a strong No. 2 emerging,” but he admitted the segment is beginning to include “great competitors,” which makes sense given the hard tea segment’s trends.
“It’s the biggest growth pocket outside of Mexican imports, so we expect to see everybody come in,” Koch continued. “But we’re 25 years into this, so we’ve got a 25-year head start. But we’re expanding our brand support. I think we’ve quadrupled it over the last few years, so we’re overinvesting to maintain that leadership.”
Twisted Tea’s continued growth will depend on the company’s ability to recruit new drinkers to its wide base which ranges “from upscale college kids to blue collar NASCAR fans,” Koch said.
“We know we’re not going to stay in the high 20s all year so we feel OK with it,” Burwick added.
Truly Pivot to ‘Lightly Flavored’ Underway
Truly, both Boston Beer’s and the hard seltzer segment’s second-largest brand, recorded double-digit declines in 2023 (-27% in dollar sales, -3.4 in dollar share points), but its trends slightly improved in Q4 (-22% in dollar sales, -2.9 in dollar share points), Burwick said.
“We expect hard seltzer category volumes to decline low teens in 2024, compared to a decline of -21% in 2023, and remain focused on investing in innovation, advertising and growing physical availability of our lightly flavored portfolio to hold share,” he said.
Truly’s innovation pipeline cranked out flavored options at a fast clip for years: Lemonade in 2020, Iced Tea and Punch in 2021, Margarita in 2022. But the company realized drinkers had burnt out on bigger flavors and discontinued Iced Tea and Margarita.
Boston Beer is “recrafting a new Truly brand to stand for light refreshment versus bolder flavors” and is “shifting the mix in that direction.” Truly’s portfolio is now 55% lightly flavored (the traditional seltzer-plus-fruit combination) and 35% bolder flavors, Burwick said.
The company’s lightly flavored portfolio has grown +2% and gained 2 share points year-to-date, he added. These wins are concentrated among lightly flavored variety packs, which gained +0.4 dollar share points in Q4.
Truly 24 oz. single-serve cans increased dollar sales by +5% and gained +0.7 share points in Q4, Burwick said.
Two new Truly variety packs are launching in Q1 2024, Truly Unruly, an 8% ABV offering that will replace the Margarita-style variety pack, and the Truly Party Pack (Watermelon, Citrus Squeeze, Raspberry, Pineapple), which will replace the Tropical variety pack.
In addition, the company has reformulated the Lemonade and Punch lines to feature a “lighter, more refreshing finish,” which addresses a “key issue with lapsed drinkers,” Burwick said. Boston Beer will also roll Truly Tequila Soda nationwide.
Elsewhere in Boston Beer’s portfolio, Samuel Adams non-alcoholic beers (Just the Haze IPA and Gold Rush lager) grew dollar sales +79% and gained 1.1 share points in Q4. The brand’s portfolio gained +0.2 share points across all off-premise channels in Q4, according to Beer Institute data, Burwick said.
Dogfish Head canned cocktails have gained a “solid foothold” and will roll out new packaging and 12% ABV offerings this year.
Boston Beer will speed up its launch timeline for vodka-based hard tea Sun Cruiser, which will roll out to 15 test markets next month, as planned, but will scale to nationwide distribution by the end of the year due to wholesaler and retailer enthusiasm, Burwick said.
RTD Innovation
Boston Beer’s executive team has evolved its thinking on spirits-based RTDs in recent years, from skeptical to accepting. The company has tried its hand at spirits-based offerings under the Dogfish Head and Truly brands, as well as new Sun Cruiser and the defunct Loma Vista tequila soda.
Burwick estimated RTDs account for 2-4% of the company’s total business. Looking across the overall segment, about 90% of the volume comes from suppliers other than “traditional spirits companies” and “new-to-world brands” account for 80%, Koch said.
“Of course the big winner is a wine company, Gallo with High Noon, and second place actually goes to the folks at Anheuser-Busch with Cutwater and NÜTRL and Devil’s Backbone and a few other things,” he said.
“We view that as actually a significant opportunity that will not necessarily fall to the spirits companies, and it’s very much wide open to people in our situation,” Koch continued. “These products basically are made in a brewery, because you need a high-speed can line and mix blend and things like that, and we believe may be best sold by beer wholesalers because they work the coldbox, and are really attractive opportunity for a player like us who’s traditionally been focused on the beyond beer space and new-to-world brands seem to be winning.”
It is a bit of a change of tune from Koch’s comments last fall, when he said that doesn’t “believe that spirits-based and spirits-branded RTDs have a big future.” However, at the time, Koch had also noted that the segment operated more like beer than spirits.
While innovation is important – and Boston Beer has tempered its approach since the ill-fated national rollout of Bevy Long Drink in 2022 – the company will have to lean on its established core brand families (Twisted Tea, Truly Hard Seltzer, Samuel Adams, Angry Orchard and Dogfish Head) for longevity, Burwick said.
“It comes down to building those five brands we have. They’re very strong brands and we need to grow them without innovation,” he said. “There is line extension innovation this year and new-to-world innovation in the case of Sun Cruiser, arguably in our wheelhouse, which is fast-follower innovation.
“We feel, as we enter this year, we have broad-based avenues for growth,” he continued. “It’s a nice combination of building our brands, the core brands, adding smart line extensions to those brands. And then, when we see the opportunity, going new-to-world. And to us we feel like this is the year we’ve got to demonstrate that we can get growth not just from one brand – it’s not Truly, it’s not Twisted Tea – it’s across more than one or two brands in the portfolio and we feel we’ve set the table to do that.”