Boston Beer Company’s first quarter 2021 earnings call quickly turned into the Truly Hard Seltzer and Twisted Tea hour, as analysts probed company leadership about hard seltzer’s continued growth opportunities and the potential of the FMB tea.
As Brewbound reported yesterday, Boston Beer’s depletions and shipments increased 48% and 60%, respectively, as the company prepares for the summer selling season.
Here are a few highlights from Thursday’s earnings call with investors and analysts.
Boston Beer Execs: Hard Seltzer Segment to Grow 60-90% in 2021
After initial projections that the hard seltzer segment would grow at a rate of 70-100%, Boston Beer CEO Dave Burwick said the expectation is now in the 60-90% range, with Truly outpacing the segment.
Hard seltzer’s tailwinds remain strong, including health and wellness trends, consumers’ desire for variety and premiumization, Burwick said. Additionally, the segment is getting more shelf space — Burwick estimated about 30% more, with Truly claiming about 45% more shelf space compared to last year.
As on-premise occasions return, Burwick sees opportunity for the on-trade’s “Summer of Seltzer” to finally materialize in 2021 after a one year delay. His optimism stems from Boston Beer’s on-premise team’s efforts to sell into the channel and drive distribution. The expectation is consumers will be asking for Truly and other hard seltzers when they return to bars and restaurants, while also toting the cans along for outdoor occasions this summer.
New Products Will Drive Those Occasions
Truly’s velocity has continued to outpace new entrants into the hard seltzer segment. Although Burwick admitted that new entrants such as Anheuser-Busch’s Cacti partnership with Travis Scott and Molson Coors’ Topo Chico Hard Seltzer will garner a lot of trial, it’s too soon to know how well those products — or even Truly Iced Tea, which hit the market in January — will perform over the long term.
Thus far, Truly Iced Tea’s velocity is 2X other new entrants, and early repeat rates are in the mid- to high-teens, which is “a little south” of last year’s hit brand Truly Lemonade, Burwick said.
Comparing Truly Iced Tea to Truly Lemonade is tough though, as lemonade was “the valedictorian of the 2020 class,” posting the company’s highest trial and repeat rates, Burwick said.
Truly Lemonade remains the third best-selling SKU in the hard seltzer segment and No. 3 brand in terms of velocity, with 2X the velocity of competing lemonade seltzer brands, he added.
As Boston Beer layers on new innovations, its approach is to find “vastly different” flavor profiles to ensure that they’re incremental to existing offerings.
New Truly products include 8% ABV Truly Extra, which is now in market, and Truly Punch, which rolls out in May. With no other nationally distributed Punch brands on the market, Burwick said it “helps optimize the incrementality.”
And to understand just how big Truly has become, Burwick said it is now the No. 5 brand in terms of beer category penetration, and boasts a larger consumer base than Corona Extra.
“The bigger you build the base, I think the more incremental it can become when you bring new things to the base,” he said.
Making Twisted Tea the No. 1 FMB
Boston Beer’s goal in 2021 is to make Twisted Tea the No. 1 FMB brand. According to Burwick, Twisted Tea thrived during last year’s COVID-19 shopping environment, increasing household penetration 35%.
“The hard seltzer brands are the only brands that grew penetration more,” he said, adding that the growth was focused within the convenience channel.
Since then, Twisted Tea brand has attracted more consumers by increasing distribution of 12-packs in grocery stores, boosting its points of distribution by about 25% year-to-date and velocity by 31%. Part of Twisted Tea’s growth has come from taking the brand from rural venues to more urban venues has attracted more multicultural consumers.
Additionally, Twisted Tea’s social media presence and engagement has increased, as well as its involvement with SEC college football, which Burwick said “broadened the shoulders of the brand.”
Opportunity to Expand Gross and Operating Margins Over 2 Years
Boston Beer has a “significant opportunity” to expand its gross and operating margins over the next year as the company transforms its supply chain, founder Jim Koch said.
Koch explained that the company’s focus has been on getting more sleek cans for the Truly brand and packing them in variety packs, rather than operating efficiencies, which has led to drag on the company’s gross margin as it produces more at third-party co-packers such as City.
“Those cost 10 bucks a case or whatever the loss gross margin happens to be on that SKU,” he said of out of stocks. “So a $0.50 a case higher cost doesn’t look very big when you’re looking at out of stocks.”
Over the next couple of years, the company will turn its focus to cost savings from automating the variety packaging process, Koch said, adding that Boston Beer can produce the packs for a quarter of the cost externally due to capital investments and operating techniques.
“So things like that, we can roll out to the co-packers,” he said.
Spirits Groups’ Tax Equalization Efforts
Boston Beer is open to exploring the ready-to-drink, spirits-based canned cocktail space beyond the recently released Dogfish Head canned cocktails, which Koch called “a start.” He added that the company would jump on an opportunity if the company sees a consumer need that isn’t being met and if the company sees “a competitive advantage in terms of costs and effectiveness in getting it to the market.”
Even as Boston Beer enters the RTD spirits market, Koch reiterated his opposition to spirits groups’ efforts to equalize tax rates on lower ABV, spirits-based RTDs. He said the so-called “fourth category” of offerings that don’t neatly fit into the beer, wine or spirits lane, remains up for grabs, and the spirits companies could win if they gain equalization.
“I do think there will be over the next couple of years some contests over who’s going to get that terrain,” he said. “Is it going to go to beer companies? Or are the spirits companies going to be able to change some of the rules and tilt the current playing field in their direction in terms of changing the rules of access or the tax rates? But unless they’re able to do that, I think beer can win. If they can change the rules, all bets are off.”
Koch said spirits companies’ ask for lower tax rates in line with beer products is “a very hard argument.”
“It’s gotten pretty much zero traction at the federal level, but there have been some small traction at the state level, usually very quietly stuck into a bit of an omnibus bill, and frankly the beer industry was not really awakened to it,” Koch said.
That’s changed, however. The beer industry’s three major trade groups — the Beer Institute, Brewers Association, and National Beer Wholesalers Association — are now engaged in snuffing out equalization, Koch said, leaving him “very optimistic our arguments will prevail.”
The Samuel Adams Restaurant Strong Fund Raises $7.5M
Boston Beer and the Greg Hill Foundation have raised $7.5 million through the Samuel Adams Restaurant Strong Fund, with all proceeds going to grants for bar and restaurant workers across the country who were impacted by the COVID-19 pandemic.