USA: Boston Beer’s return to growth continues for a second consecutive quarter
Boston Beer Company’s return to growth continued for a second consecutive quarter, Brewbound reported on July 27.
The company — which makes the Samuel Adams, Angry Orchard, Twisted Tea, and Truly Spiked & Sparkling products —reported on July 26 its second-quarter earnings results, which were highlighted by a 10.2 percent increase in net revenue to $273.1 million. For the 26-week period ending June 30, Boston Beer’s net revenue was up 13.2 percent, to $463.6 million.
Boston Beer’s year-to-date depletions are up 11 percent due to increased demand for Truly, Twisted Tea and Angry Orchard products, the company said, and only partially offset by Samuel Adams’ declines. In the last 13 weeks, depletions increased 12 percent.
As a result of those double-digit depletion trends, Boston Beer has adjusted its full-year depletion guidance. It is now expecting depletions (sales-to-retailers) to grow between 7 and 12 percent in 2018.
“I am tremendously proud of the efforts of our people in achieving double-digit growth and record total depletions, while maintaining a focus on quality and innovation,” Boston Beer founder and chairman Jim Koch said during a call with investors and analysts. “I believe that our depletions growth is attributable to our key innovations, quality and strong brands, as well as sales execution and support from our distributors.”
However, shares of SAM were down around 14 percent in early morning trading.
During the first 26 weeks of 2018, shipments of Boston Beer’s beer, cider, tea and hard seltzer offerings increased 11.4 percent, to about 2 million barrels. Shipments in Q2 increased 9 percent, to 1.2 million barrels.
And the company believes there is an opportunity to deliver even more. CFO Frank Smalla noted that distributor inventory levels as of June 30 were lower than planned due to the increased demand.
Koch called 2018 “a really good year for innovation,” noting that Boston Beer has three of the top six innovations in the beer space. He added that the company is “very pleased” with repeat purchase rates of Samuel Adams’ Sam ’76 and New England IPA offerings, Angry Orchard Rosé, and Truly Spiked and Sparkling Berry variety packs and 6-packs.
“They look sticky,” he said. “They look like quite viable products.”
A lot of “distribution upside and consumer upside for this year’s innovations” still exists, Koch added. Although Twisted Tea and Truly remain primarily off-premise offerings, the company is seeking more on-premise placements for Truly, which Koch called a “long-term” project.
According to Koch, the success of Truly and Angry Orchard Rosé is coming at the expense of wine and spirits, with up to 40 percent of those brands’ volume coming from the other alcohol categories. Still, the company has questions about Truly’s seasonality.
“Our experience is maybe that seasonality diminishes as the category and the brand get entrenched in consumers’ consideration set,” Koch said.
Still, much of Boston Beer’s focus is on reversing negative Samuel Adams trends. Koch said the company will continue its attempt to improve the health of Boston Lager and Samuel Adams seasonal offerings. Asked what gives Boston Beer confidence that it can “move the dial” in the beer category moving forward, Koch responded by saying that “Sam Adams is the heart and soul of Boston Beer Company.”
“We are absolutely committed to returning it to growth and everybody in the company feels that same commitment, and we also believe it is possible to do that,” he said.
“Having that broader portfolio provides the resources that we can commit to Sam Adams,” he continued. “And it will always be over-resourced because it is essential to the spirit and heart of the company.”
Recently appointed CEO Dave Burwick said one of the keys to doing so is making Boston Lager relevant to the next generation of drinkers.
“It may not be the biggest growth contributor in the future, but it’s going to contribute a lot more than it’s contributing today,” he said.
Part of that plan includes replacing the Samuel Adams “Fill Your Glass” TV ads, developed by outgoing CMO Jon Potter, who departs on July 31. Burwick said the campaign “wasn’t delivering” what the company needed. Instead, the company will roll out a new campaign highlighting the differences between Boston Lager and other lagers.
Nevertheless, due to the increased demand for Boston Beer’s products, its production facilities have been operating “at capacity during peak weeks,” Burwick said.
Smalla added that the company’s volume produced at third-party brewers is “more than doubling this year.” The increased supply chain costs led to a gross margin decrease, to 51.4 percent, midway through the year.
To meet increased demand, the company is investing in capacity and has installed a new canning line at its Pennsylvania manufacturing facility, which became operational in Q2.
Meanwhile, Burwick said the search for a new chief marketing officer is “aggressively underway” and moving quickly. In the interim, Burwick is filling the role, which he said should be filled “very soon.”
29 July, 2018
