Boston Beer Company has “many different ways” to reach the 4%-10% growth range it is targeting for 2022, even if Truly Hard Seltzer fails to grow amid the continued slowdown of the hard seltzer segment, CEO Dave Burwick said during the company’s fourth quarter and full-year earnings call.
“To hit that in the range, Truly doesn’t have to grow,” he said. “We want to grow and that’s the intent, which would put us toward the higher end of the range, but we have a lot of momentum behind Twisted Tea. We have some really nice momentum behind Sam Adams. Angry Orchard has been hurt a little bit by these out-of-stocks that we talked about, but it shows some good momentum in Q4. Dogfish, we have canned cocktails coming that we’re hopeful about.
“So basically, we’re placing a lot of bets this year, and again, there’s a lot of different permutations in terms of how it could come out,” he continued.
Boston Beer – whose brands include Truly, Twisted Tea, Samuel Adams, Angry Orchard, Dogfish Head and others – finished the 2021 fiscal year with depletions (sales to retailers) up 22% and shipments (sales to wholesalers) up 15.4% compared to 2020. However, the segment-wide slowdown of hard seltzer sales that began last summer took its toll in the fourth quarter, and Boston Beer’s shipments declined -24.5% compared to Q4 2020.
Over the course of the full 2021 fiscal year, those slowdowns cost the company $102.9 million in direct volume adjustment costs ($59.5 million in inventory obsolescence and destruction costs, $30.7 million in contract termination costs, “primarily for excess third-party contract production,” and $12.7 million in equipment impairments).
Boston Beer paid $93.5 million in indirect volume adjustment costs ($38.8 million in “unfavorable absorption impacts at company-owned breweries and downtime charges at third party breweries,” $28 million in increased raw materials and warehousing, $19.7 million in “customer return provisions for out-of-code or damaged products,” and $7 million in other costs.
CFO Frank Smalla explained that much of the charges were due to overstocked products in warehouses at wholesalers and retailers.
“What happened is that we were building up to significantly higher weeks of supply that then suddenly doubled because the demand didn’t come through,” Smalla explained. “So, the product stayed a very long time in inventory, and it wasn’t really visible. It didn’t turn, so, when we had certain damage and the product was leaking, the damage was growing and it was invisible.”
Boston Beer has kicked off 2022 with two new products in the Truly brand family: a margarita-style variety pack, which has reached a 5.3% share of the hard seltzer segment with limited distribution, and Truly-branded flavored vodka (60 proof, 100 calories per serving) – one of the first products to come out of Boston Beer’s joint venture with spirits giant Beam Suntory – which will roll out next month. This summer, Truly will release Truly Poolside, a variety pack of cocktail-inspired flavors made in collaboration with recording artist and Truly spokesperson Dua Lipa.
Asked how incremental sales of the margarita-style pack will be, Burwick said it would be difficult to comment, but added the company is “optimistic.”
“We believe it will be because it’s really a hybrid,” he said. “It’s a hard seltzer, but it also plays in the can cocktail space, and it provides a margarita drink, which is as you know the most popular spirit, at a much-reduced calorie count versus a traditional margarita.”
Truly Punch, which launched in May 2021, “had at least a 50% incrementality,” Burwick said, meaning that at least half the sales of that package did not cannibalize other Truly products.
For the 52 weeks that ended December 26, off-premise dollar sales of the hard seltzer segment increased +25.9% over the same period the prior year, according to market research firm IRI. The Truly brand family outperformed that, increasing dollar sales +35.6%, to $1.264 billion. Mark Anthony Brands’ White Claw, the only hard seltzer larger than Truly, posted a decline in off-premise dollar sales for the first time ever, declining -2.6%, to $1.933 billion.
Asked how and if the company is confident that Truly will outperform the segment again, Burkwick pointed to the brand’s household penetration rate (second only to Bud Light in the beer category, according to insights firm Numerator), among other metrics.
“We built an important brand that has a large consumer following,” Burwick said. “We have really strong social media sentiment and it continues to grow. Our aided awareness levels are still below the No. 1 player. So, there’s definitely opportunity to improve that.
“We have the highest repeat rate and we have the highest buy rate. So, we’re starting from a position of strength,” he continued. “But, really, it’s up to us though to find the right ways to innovate and also to build the core business as well.”
Since January 2020, Truly’s innovation has been in fuller-flavored offerings, such as lemonade, iced tea, punch and, now, margarita. Sales of its original fruit-flavored hard seltzers have declined, but the company will be launching a campaign later this year to support those packs, which Burwick dubbed “the OGs.”
“The challenge with this category is that … consumers want news and innovation,” he said. “The further you go out on the innovation limb, the more you have to support where you started.”
Founder and chairman Jim Koch described the hard seltzer segment as “fairly fragmented,” and pointed out that most innovation in the segment now happens beyond “LaCroix with alcohol.” He noted that the beer category has endured “two huge, really disruptive pure innovations” in the last 50 years: light beer, which took about a decade to reach a 10% share of the market, and hard seltzer, which reached the same share in fewer than five years.
Future innovations are unlikely to capture such share again, because drinkers’ attention has splintered into sub-segments, Koch said.
“As I’m thinking about our innovation going forward, we’re innovating into a fairly fragmented category,” he said. “Consumers are getting more and more niches as they choose beverages by occasion and by cost and who they’re drinking with and what time of day. The innovations may take longer to develop. And they’re not going to turn into 10% of the beer category.”
Replicating the success of Truly seems unlikely in these conditions, he added.
“With Truly, we hit a grand slam home run. We’ve never done that before. We’ll probably never do it again,” Koch said. “Our business has historically been built on retail execution, the blocking and tackling, high quality products that slowly find their place in the marketplace. And we score and run by singles, occasional doubles, maybe a bunt or a sacrifice fly. And I think that’s more going to characterize the future than pulling another rabbit out of the hat like we did with Truly.”
Innovation Across the Portfolio
Truly isn’t the only Boston Beer brand family launching new products and campaigns in 2022. Twisted Tea Light rolled out nationwide this month after being available in select markets for years. The flavored malt beverage checks in at 4% ABV, 110 calories and 6 grams of sugar. For the first time, Boston Beer is investing in winter-themed advertising creative to boost the brand year-round, rather than just during warmer months.
Dollar sales of the Twisted Tea brand family increased +31.9%, to $678 million, in IRI tracked channels last year. The brand was the second fastest-growing brand in 2021 in measured off-premise channels, Burwick said.
Other innovation products from Boston Beer include:
- Bevy Long Drink, a malt-based take on the Finnish cocktail, launched in 20 markets in November and continues to expand.
- The Sauza-branded ready-to-drink, malt-based cocktails made in conjunction with Beam Suntory will roll out nationwide at the end of February.
- Hard Mountain Dew, produced under a partnership with PepsiCo, will debut in three states next week and spread to 13 more by May.
- Dogfish Head expanded its canned cocktail line with vodka and gin crush styles.
- Dogfish will roll out Kernza Pils in April as part of a collaboration with Patagonia Provisions.
Projected Price Increases Between 3%-5%
During the Q3 earnings call in October, Boston Beer executives said they were planning nationwide price increases between 3%-6%, but the company has nudged the high end of that range down to 5%.
“As we see what makes sense for our product and also as we look at the inflation that we have in our cost base, we see that 3% to 5% is more realistic,” Smalla said. “It’s more unlikely to get to 6% on an average – there will be markets that have a little bit more.”
The downward adjustment on pricing “stands out” to Cowan equity analyst Viven Azer, who noted that the investment firm has “generally heard a reasonably high degree of confidence from companies in their ability to pass along pricing.” Azer pointed to Koch’s comments about inflationary pressures and the beer category’s slow start to 2022.
Year-to-date through February 12, Boston Beer’s depletions (-9%) and shipments (-26%) are both down compared to the same seven-week period in 2021, the company noted in its press release. Koch pointed to this “softness” as a reason behind the company’s disinclination to increase its prices more than its 3%-5% range.
“It’s a competitive industry. So, pricing may be a little more restrained than a lot of other CPG categories,” he said. “We all want to grow share, we’re all very mindful of volume and it’s just competitive in some ways.”
In her report following the call, Goldman Sach equity analyst Bonnie Herzog called Boston Beer’s price increase target “ambitious,” and maintained her “conservative” estimate that the company’s shipments would fall below the midpoint of its guidance.
“The uncertainty surrounding the hard seltzer category still begs the question whether the bar is set low enough,” Herzog wrote.
Samuel Adams Family Gains Share ‘For the First Time in Years’
Samuel Adams depletions increased by double-digits in Q4 and “grew faster than all other national craft brands in measured channels,” Burwick said. The brand has been buoyed by its “Your Cousin, From Boston” ad campaign, which earned 1.8 billion impressions and $17 million in ad equivalence with a regional Super Bowl commercial.
Boston Beer’s advertising, promotional and selling expenses declined -2.6% in Q4 2021 compared to Q4 2020, but increased +35.6% for the full year due to increased brand investments in media, production and local marketing. Sam Adams’ recent success is illustrative of Boston Beer’s evolving approach to advertising, Burwick said.
“We’re focused very much on the brand positioning, who we’re targeting, how to reach them,” he said. “We’ve also done a lot of work in the last couple of years to really improve the quality of our creative that we put out there, and we have a highly analytical approach to measuring the impact of creative and we feel like it’s working harder for us.
“Sam Adams is a good example, honestly, because we’re not spending crazy dollars on Sam and it’s having an impact on the business,” he continued.
Boston Beer will continue leading Sam Adams marketing in 2022 with the “Your Cousin” campaign, which has been particularly successful in introducing younger legal-drinking-age consumers to the beer brand, Sam Adams director of marketing Matt Withington told Brewbound earlier this month. He said the company has seen “steady increases month-after month” of younger LDA consumers since the initial campaign launch.