Boston Beer’s shipments declined again in Q2 – down -4.5%, to 2.3 million barrels. However, the company is still confident in its projections and its “strategic priorities remained unchanged,” founder Jim Koch said Thursday during the company’s call with investors.
For full-year 2023, Boston Beer is projecting depletions and shipments to each be -2% to -8%, with gross margin between 41% and 43%. Interim CFO Matt Murphy admitted that the company could narrow that range, but chose to play it safe, as projections are “highly sensitive to changes in volume, particularly related to the hard seltzer category, supply chain performance and inflationary and recessionary impacts on consumer spending.”
The three core strategies for the remainder of the year, according to Koch, include:
- Focusing resources on sustaining Twisted Tea’s “industry leading growth;”
- Turning Truly’s volume trends around;
- And improving supply chain performance to “enhance gross margin” and provide more funds to invest behind brands and Boston Beer’s sales force.
Boston Beer already recorded improvement on the third strategy in Q2, which was a “pleasant surprise,” Bernstein analysts wrote in a report following Thursday’s call. Q2 gross margins improved 230 basis points, to 45.4%, driven by supply chain savings and lower freight costs, which more than offset inflationary pressures.
“This was a pleasant surprise, as one of the first concrete data points that management’s supply chain optimisation plan is bearing some fruit,” Bernstein analysts wrote. “This will be welcomed by investors after several quarters of margin disappointment.”
Boston Beer is taking its savings from those improvements and immediately investing them in media spend behind Twisted Tea and Truly Hard Seltzer. The company is now expected to increase brand spend for the year to between $20 million and $40 million, a significant increase from its previous guidance of -$5 million to +$15 million.
Analysts shared slight concern for this approach, questioning if media spend for Twisted and Truly was the best use of the freight savings, as “Twisted Tea is already growing +35% YoY in the last 12wks in Nielsen [NIQ], and it is unclear if greater media spend can fix Truly at this point.”
Twisted Tea Competing in Total FMB Space, Not Just Hard Tea
Twisted Tea dollar sales improved +38% in Q2, gaining 3.3 share points, to 27% share of total flavored malt beverage (FMB) dollar sales, Boston Beer CEO Dave Burwick shared.
The company continues to look at the hard tea brands’ performance in total FMB, having already dominated the hard tea segment with more than 90% share, Burwick said.
Boston Beer projects continued double-digit growth for Twisted Tea through the rest of 2023, with several growth opportunities for the brand still, including:
- Increased household penetration with Black and Latino consumers that started to improve in Q2, but is still “underdeveloped;”
- Overall brand awareness that continues to grow each quarter;
- Growing the brand in under-developed markets such as California, Texas and Florida;
- And brand expansion across channels and packages, including the on-premise.
Twisted Tea finished spring resets with a +49% increase in shelf space, according to Burwick. Additionally, the brand now has 60% share of FMBs in the on-premise and is the fifth most incremental case in the channel YTD of “any brand family across total beer.”
Similar to Truly, Boston Beer has started to extend Twisted Tea with new variety packs, including its Party Pack, launched in Q2. The company admittedly struggled to keep up with demand for the pack, which is now the second largest and the fastest growing SKU among all FMBs, according to Burwick.
Boston Beer is also “still in the early stages” of its national launch of Twisted Tea Light. So far, the lower calorie hard tea offering is exceeding leadership’s expectations and has “proven to be 85% incremental to the Twisted Tea portfolio,” Burwick said. The company also expanded the extension with a new variety pack in select “highly developed” markets and is seeing early success.
Additionally, Boston Beer recently announced the addition of Twisted Tea Extreme, an 8% ABV extension, as part of the company’s “efforts to find future pathways to growth for all our brands by increasing occasions and adding new drinkers,” Burwick said.
Boston Beer leadership added that it’s learned from the trends of hard seltzer and “overextending Truly” and plan to handle Twisted Tea expansions more carefully.
“One of the strengths of Twisted Tea is that it’s a very simple idea,” Burwick said. “And there’s always a risk to overextend.”
“The consumer base is much tighter in what they’re looking for with Twisted Tea,” Koch added.
All the ‘Necessary Changes’ Have Been Made to Set Truly ‘Up for Success’
Q2 marked the launch of Truly’s 2023 refresh, including new packaging, media campaigns and wholesaler execution priorities, with renewed focus on Truly’s “lightly flavored” offerings and core 12-packs: Berry, Tropical and Citrus.
“The intent of the Truly refresh program was really to slow down on the hyper innovation behind the brand and make the brand just easier to understand,” Burwick said.
The company also launched its new Red, White and Tru variety pack, a limited-time offering (LTO) that coincided with Truly becoming the “official hard seltzer” of U.S. soccer. The pack has “received strong in-store wholesaler and retailer support,” Burwick said.
Koch added that he expects LTO variety packs to be a “permanent part of the brand” moving forward.
At the conclusion of Q2, Truly remained down 3.3 volume share points year-to-date (YTD). However, Boston Beer is “seeing green shoots that we expect will have an accumulated impact in the balance of summer and into the fourth quarter,” Burwick said.
Those greenshoots include:
- Lightly flavored variety packs gaining volume and dollar share of hard seltzer in the last four and 13 weeks in Circana-tracked off-premise channels;
- 24 oz. single-serves gaining 0.6 share points in Q2, driven by its leading Wild Berry flavor, “which grew +16% in the L4 weeks,” Burwick said;
- And losses from Truly Lemonade and Truly Fruit Punch extensions becoming “stabilized” in Q2.
Truly also continues to lap the launch of Truly Margarita. Those overlaps, as well as the discontinuation of Truly Iced Tea, account for 75% of Truly’s total share losses YTD, Burwick said. The overlaps are expected to continue to moderate through the rest of the summer and will drop off in Q4, he said.
“While we’re disappointed that we’ve not yet stemmed Truly’s share losses, we believe we’ve made the necessary changes to set the brand up for success and now need to keep our focus on the execution we know our wholesalers are capable of achieving,” Burwick said.
Burwick added that the company doesn’t “have some high hurdle, or unrealistic expectation for what’s going to happen in the second half versus what’s happened in the first half.”
“The idea is to basically, by the fourth quarter, as I mentioned, we should be at least holding share across the board, ideally in the fourth quarter,” he continued. “That’s a little bit aspirational. It depends on where the numbers come in. But we’re not expecting a big huge change in the second half in terms of Truly depletions.”
As a bit of a “insurance policy,” Boston Beer is focused on keeping Truly in consumers minds through the previously mentioned increased media spend, making sure “Truly is on air every single week” through the rest of the year.
Spirits-based RTD Shakeup Expected in 2024, Says Jim Koch
Leadership was also asked to comment on the health of the spirits-based ready-to-drink canned cocktail (RTD) space, which Boston Beer participates in through Truly Vodka Soda, Truly Tequila Soda and Dogfish Head canned cocktails.
While Burwick characterized the space as a “street fight,” he noted that Dogfish Head canned cocktails increased volume +81% across all channels in Q2. He also shared excitement about Truly Tequila Soda, which the company is testing in select markets this summer.
Koch shared similar feelings about the competitive nature of the space.
“It’s obviously a crowded and confused space with a lot going on,” Koch said. “It’s probably getting more attention, because it’s new and nobody’s really sure where it’s gonna go, than the actual volume will merit for it.”
Beyond E. & J. Gallo’s High Noon Sun Sips – which passed Tito’s over the July 4 weekend as the No. 1 spirits brand in Circana-tracked off-premise channels – the volumes from RTD brands are “quite small,” Koch continued. Because of this, he expects many brands – including those from large spirits and non-alc beverage brands – will not be able to sustain placement in the cold box.
Koch predicted many brands will end up on the warm shelf – something that’s a “kiss of death” for brands – leading to a shakeout next year.
Bud Light Declines Not Benefitting Truly
Leadership was also asked about the impact of Bud Light’s recent declines on future resets.
“We’re not hearing back from retailers that there’s anything significantly different that’s going to happen,” Burwick said.
He noted that it’s “not really” a surprise that volume is not shifting to hard seltzer, as the consumer base isn’t exactly the same.
“It seems like the beneficiaries of the ‘Bud Light issue’ I’ll call it are near-in: Coors Light, Miller Lite, even Pabst, Yuengling,” Koch added. “We never had that much interaction with the hardcore light beer drinkers with Truly.”
No Comment on Hard MTN Dew
Unlike previous earnings calls, Boston Beer did not dive into trends or strategy for Hard MTN Dew, its FMB offering made through an agreement with PepsiCo and distributed through the soda giant’s distribution arm, Blue Cloud Distributing.
The one mention of the brand was in a rundown of quarterly depletions, which decreased -3% versus Q2 2022. The decrease reflected decreases from Truly, Angry Orchard, Hard MTN Dew and Samuel Adams, partially offset by increases from Twisted Tea and Dogfish Head, Murphy said.
Samuel Adams is “holding its own in a difficult craft beer category,” Burwick said. The company plans to continue to invest in its remastered Boston Lager campaign and its Samuel Adams seasonals, as well as its non-alc portfolio.
Samuel Adams’ non-alc offerings now include two flavors: Just the Haze and Gold Rush. The latter increased dollar sales +94% in Q2, Burwick said. Boston Lager Remastered improved volume trends by 6 points in the quarter, with the total brand gaining 0.3 share points of craft, Burwick said, citing numbers from the Beer Institute.