Boston Beer Company emerged with a “buy” rating following the results of financial services firm Jefferies’ 11th bi-annual beer distributor survey. Jefferies equity analyst Kaumil Gajrawala cited Twisted Tea’s dominance of the flavored malt beverage (FMB) segment, and the “stabilization” of Truly Hard Seltzer trends leading to less volatility, among the reasons for the improved rating.
This led to “speculation” about a potential sale of the company, although Jefferies’ report called a “takeout by a foreign brewer … unlikely.”
Other quick takeaways from the survey included:
- Anheuser-Busch InBev (A-B) is expected to lose less shelf space than expected;
- On the flipside, Molson Coors is expected to gain less shelf space than anticipated;
- Constellation Brands’ depletions are expected to grow +7% in calendar year 2024;
- Hard seltzer is expected to “stabilize, while [hard] tea/FMB/RTDs keep thriving;”
- Industry volumes are expected to decline -1% this year;
- And promotional activity is expected to be equal to last year.
On the case for Boston Beer … Gajrawala wrote that Boston Beer is expected to return to volume growth for the first time since 2021. Twisted Tea now makes up the largest chunk of volume for the company (41% in 2023), followed by Truly (31%), Samuel Adams (16% ), Angry Orchard (7%), Dogfish Head (3%) and other brands (3%).
Market leading Twisted Tea is now a $1 billion-plus brand in off-premise tracked channels over the last decade, and “double-digit growth” for the brand is expected to continue,” Gajrawala wrote.
Hard “seltzer declines are slowing” and Truly “seems to be finally finding its floor,” Gajrawala added. The brand has been “a longstanding drag” on Boston Beer’s valuation due to “uncertainty around the category’s floor, which brands would remain post retailer rationalization, and the company’s over-indexation to the category,” Gajrawala added.
Additionally, the rest of Boston Beer’s portfolio of beer and cider brands, which collectively account for 28% of its volume and are declining in the low-single digits, is “too small to matter” compared to the collective size of Twisted Tea and Truly.
“[G]iven their relative size to Twisted/Truly, their headwinds should have minimal effect on total company trends going forward,” Gajrawala wrote.
The firm also expects emerging beyond beer offerings such as Hard MTN Dew, which is expected to receive national distribution through Boston Beer’s network, and spirit-based Sun Cruiser Iced Tea Vodka to help offset beer and cider declines, he added.
On A-B shelf space losses … beer distributors expect a -7% loss in shelf space on average. A-B wholesalers themselves expect to lose -5% of shelf space. Gajrawala noted these projections beat Wall Street expectations of “high-single digit/low-double digit” losses.
Additionally, more than 55% of the wholesalers polled expect A-B to maintain or gain distribution for brands such as Michelob and Busch. The number is even more optimistic among A-B wholesalers at more than 70%.
Around 30% of distributors surveyed believe A-B has done enough to course correct its issues, compared to around 15% last year. Gajrawala noted that A-B is making its “highest level of investment ever” and the company is posting growth in three-fourths of U.S. states.
On Molson Coors’ shelf space gains … distributors anticipate the company gaining “low-to-mid-single digit shelf space gains” as A-B losses less space than expected and Constellation Brands remains on track to deliver +7% depletions growth or better in 2024.
Although 75% of distributors expect Molson Coors to hold onto space this fall, Gajrawala is “skeptical” as A-B trends improve, scan data slips into the red and year-over-year (YoY) comps get harder.
On weak depletions trends and summer promotions … Gajrawala wrote that March marked an improvement over January and February trends, but April saw a slow down. Around 70% of distributors surveyed say they expect promotion and pricing to remain unchanged through the summer, which Gajrawala sees as “good news given the comparison” to last year.
Distributors expect consumers to either trade down to brands such as Busch or trade up to Michelob Ultra and Modelo Especial, which will likely put pressure on mainstream brands Bud Light, Miller Lite and Coors Light. Those trades follow “inflation, low-income consumer pressure and narrowed price gaps.”