Truly Hard Seltzer Boosts Boston Beer Company to Double-Digit Growth

Boston Beer Company reported strong earnings during its third-quarter earnings call Tuesday evening.

“I am tremendously proud of the efforts of all of our coworkers in achieving our sixth consecutive quarter of double-digit growth,” Boston Beer founder Jim Koch said.

As Brewbound reported Tuesday, Boston Beer — whose brands include Samuel Adams beer, Angry Orchard hard cider, Twisted Tea and Truly Hard Seltzer — reported depletions (sales-to-retailers) growth of 30%, 24% of which came from Boston Beer’s core brands and 6% of which came from Dogfish Head offerings. Q3 marked the first quarter following the completion of Boston Beer’s merger with Dogfish Head on July 3. Shipments (sales-to-wholesalers) were up 19.1% for a total volume of 1.6 million barrels during the quarter. The company reported net income of $44.7 million for the quarter.

CEO Dave Burwick credited Truly, Twisted Tea and Dogfish Head as the sources of the quarter’s growth and noted that the performance of those brands was able to offset the declines of Samuel Adams and Angry Orchard.

Hard seltzer continued to drive the lion’s share of Boston Beer’s growth. Truly Hard Seltzer generated triple-digit volume growth during a quarter in which the company launched Truly Draft, announced a new Watermelon Kiwi flavor, reformulated all Truly flavors, revealed plans to launch Truly Hard Seltzer Lemonade in early 2020, struck a sponsorship deal with the National Hockey League, and released a new Truly television campaign featuring actor Keegan-Michael Key.

To accomodate Truly’s growth, Boston Beer will add a canning line to its production brewery in Breinigsville, Pennsylvania, and the company has “significantly increased our available sleek can capacity at third-party breweries,” Burwick said.

Boston Beer’s gross margin in Q3 decreased 1.6%, to 49.6%, as a result of the increased cost of processing Truly variety packs at third-party breweries, CFO Frank Smalla said. Although third-party co-packing will decrease in Q4, it more than doubled in Q3 as Truly’s volume growth was “larger than what we had planned for,” Burwick said.

“We’re putting capacity in, but we are growing the external capacity and the external volume faster than the internal,” he said.

Although the hard seltzer category is growing at a breakneck pace and new entrants emerge almost weekly, Truly has maintained its position as a distant second to Mark Anthony Brands’ White Claw. Asked how Truly’s position in the category aligns with the investments Boston Beer is making, Koch replied that he is confident in Truly’s chances for success.

“We’re showing up with a strong No. 2 brand. Yes, we lost share this summer as the category just exploded in a key demographic,” he said, referring to White Claw’s viral popularity among young male drinkers. “We believe we’re well positioned to benefit from a similar explosion in a broader demographic.”

Koch said he believes the investment behind Truly will help the brand maintain its position in the market, despite competition from new seltzer offerings branded after top beer brands such as Bud Light and Corona, as well as new entrants such as Natty Hard Seltzer.

“If the category doubles, and we just hold our share, we double,” he said. “So that’s kind of the thinking that’s currently in our projections for 2020. But we think that we’re pushing the right buttons. A superior tasting product, it’s a strong brand in hard seltzer, people know us and they know White Claw. We kind of pioneered the category together.”

Koch also praised White Claw for taking advantage of “the bro culture, the meme culture.”

“It’s done great things for the brand and for the category,” he said. “They’ve proven that hard seltzer can be a significant part of the consumption of an important demographic, and we think that’s applicable across pretty much all of the significant demographics.”

However, Koch said the hard seltzer category has evolved from the “young male, bro-y type culture demographic that really put the category on the map” to one with more “broad appeal.” Koch added that hard seltzer drinkers are coming from categories other than beer.

“We think it’s going to be a relevant category for virtually all significant demographics and we want to make sure we have properties that have broad appeal like Keegan-Michael Key, like the NHL, we’re on Monday Night Football,” he said. “So we think that hard seltzer has very high upside we just don’t know where the upside is, but we can we believe that it will continue to grow triple digits next year.

Asked how the increased investment in Truly affects the Samuel Adams and Angry Orchard brands, Koch said it would be unwise to shortchange Truly at a pivotal time in its history.

“Hard seltzer is really once in a generation — there hasn’t been anything like this that got to scale so fast since light beer 40 years ago,” he said. “I would just remind everybody, it’s literally true that ‘beer’ is our middle name. We are the Boston Beer Company.”

Boston Beer’s guidance for 2020 anticipates that neither Samuel Adams nor Angry Orchard will grow, but the company plans to continue investing behind those brands.

“We’re going to retool, rethink, get creative and figure out how we come out of the gate stronger as the year progresses,” Burwick said. “But we’re not putting undue pressure on these brands to do more than what they can do.”

The Samuel Adams seasonal portfolio received a boost from a reformulated Summer Ale recipe, which lightened the beer’s flavor and increased its citrus character. Burwick said lessons from that innovation will be applied in 2020. He added that the company is working on a new campaign for Boston Lager that targets younger legal-drinking-age consumers and the brand’s new packaging is boosting on-shelf visibility. Angry Orchard released a new unfiltered version of its flagship Crisp Apple and will work on new brand communications.

“There are some good things afoot,” Burwick said.

Burwick also pointed to the inclusion of Dogfish Head’s 100-person salesforce as a means to increase on-premise sales both for Truly and for the company’s beer brands. Although Truly Draft is already in an estimated 3,000 accounts, Truly’s biggest on-premise opportunity is in cans.

“When we look at Truly from top to bottom, from investment in capacity to brand activities, to feet on the street, we’re all in,” Burwick said. “We can utilize some of those same resources to help grow our beer business as well.”

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