Beyond beer has been a key growth driver for bev-alc companies, and it’s the beer category’s battle to win, according to Boston Beer Company founder Jim Koch.
Koch spoke in a one-on-one conversation Thursday at the Barclays Consumer Staples Conference. The majority of the conversation was centered around beyond beer, or, as Koch defines it, the “fourth category.”
Beer’s share of bev-alc should be 25% bigger than it is, but it has lost too many battles to spirits, Koch said.
“Fundamentally, we, all three of us – beer, wine and liquor – make products that humans are not wired to actually enjoy the taste of,” Koch said. “The liquor guys figured something out before the rest of us did, which is don’t encourage people to drink your product per se, make it sweet and fruity.”
Trends in the fourth category – “where the growth is” – are a prime example of focusing on flavor over the alcohol base, and it’s beer’s category to win, according to Koch.
“[It’s] this category where we’ve taken our traditional base and made it taste like something more pleasant and different,” Koch said, highlighting Boston Beer’s offerings Truly Hard Seltzer and Twisted Tea as examples.
The category plays into beer’s strengths: Most offerings are made through a brewing process, use high-speed canning lines and are distributed and sold through the beer system. Plus, laws are more prohibitive towards spirits-based products, Koch said.
“Beer may stop losing share of ethanol if you define beer as things made in a brewery, going through a beer wholesaler to a beer retailer,” he continued.
Koch also doesn’t see much traction happening for spirits-based ready-to-drink canned cocktails (RTDs), despite Boston Beer having its own offerings in the space with Truly Vodka Soda and Dogfish Head canned cocktails.
“I don’t believe that spirits-based and spirits-branded RTDs have a big future,” Koch said. “I know everybody’s throwing stuff at it. I know some of the strongest, best spirits companies with really strong brands are coming in. … But I don’t believe that they will be a significant threat, or even volume, for a bunch of reasons.”
One of those reasons is that RTDs do not fit into spirits companies’ “bread and butter,” Koch said. The segment sells more like beer with a focus on the cold box and margins are more “crappy” versus traditional spirits margins.
Additionally, spirits-based RTDs from spirits companies are stuck in “verticals” of the spirit they are made from – i.e. “this is vodka, this is tequila” – rather than the RTD as its own product, Koch said.
“It’s fine over in the liquor department where you merchandise with a feather duster to get the dust off the bottles,” he said. “It’s not going to earn your place in the cold box and they’re going to be stuck on a warm shelf, and that’s death.”
Spirits-based RTDs that do have some sticking power are offerings where the spirit isn’t the brand, Koch said, highlighting Anheuser-Busch InBev’s Cutwater Spirits as an example. He also included Dogfish Head canned cocktails in this definition.
“I believe the successful RTD brands will largely be new-to-world brands,” Koch said.
Asked about the performance of Truly Vodka Soda, Koch said the spirits-based hard seltzer has been “a nice addition” to Boston Beer’s portfolio, “but still small,” and he expects it to stay that way.
“It’ll be enough volume to get cold box space, so it’s going to outsell 90% of spirits-based products,” Koch said. “But it’s dominated by [E. & J. Gallo’s] High Noon.”
Truly Hard Seltzer Leveling Out
Boston Beer refocused Truly Hard Seltzer this summer with refreshed packaging and a new emphasis on lighter-flavored core offerings. Those core packs – that are “basically La Croix with alcohol” – have “started to gain share,” Koch said.
The share gains continue to be canceled out by the “bleeding out” of Truly Margarita and share loss by Truly Punch, as well as the discontinuation of Truly Iced tea. But things are beginning to level out.
“It’s slowly getting better, the rate of decline is slowly improving, but there’s nothing dramatic or discontinuous that we’re seeing yet in the data,” Koch said.
Twisted Tea Competitors Have No ‘Reason for Being’
Twisted Tea continues to be the biggest growth driver for Boston Beer, despite a myriad of hard tea entrants attempting to claim share.
“Frankly, it’s been a tsunami of new tea entrants,” Koch said. “Two weeks ago it almost got comical; we have Dunkin’ Donuts hard tea and I’m waiting for Jiffy Lube to come out with a hard tea.
“There must have been 50 new hard teas this year and, so far, it hasn’t really slowed down Twisted Tea,” he continued.
The reason the new competition hasn’t been able to find much footing is because “none of them have a reason for being” and are instead “me-toos to Twisted Tea,” Koch said.
He highlighted specific brands such as Loverboy “from a social media influencer” or Happy Dad hard seltzer made by “drinking buddies.” The most serious competition is from non-alcoholic tea brands entering the space, such as AriZona, but they are “not known for alcohol,” so they are disadvantaged in the space, Koch said.
“I just don’t see a strong consumer reason to pick that instead of Twisted Tea,” he continued.
Still, Boston Beer tries to be “mindful” of shutting off “entry points for competition,” Koch said. The company has launched Twisted Tea Light to offer consumers a lower-calorie hard tea, and has launched Twisted Tea Extreme, an 8% ABV offering, in select markets to cater to consumers who want higher ABV offerings.
Koch Confident in Marketing Spend Decisions
Koch was also asked to rationalize Boston Beer’s marketing investments in Truly and Twisted Tea. The company is expected to increase its spend behind both brands this year between $20 million and $40 million – a significant increase over its previous estimates of -$5 million to +$15 million – leadership shared during the company’s Q2 earnings call with investors.
Twisted Tea’s continued growth and Truly’s “greenshoots” have made Koch “happy that we spent the money on advertising.”
“We as a company very much lean into growth, and if we can spend the money and break even or even lose money, but we get growth, we do that,” Koch said.
He noted that the company’s philosophy is to focus on long-term growth. He said he doesn’t “worry about what stock value will be next year,” but instead worries “a whole lot” about where the company will be in five years.
Additionally, Koch said the company is still learning best practices when it comes to marketing and acknowledged mistakes it has made in the past, including “throwing stuff against the wall” during the early days of Truly and spending tens-of-millions of dollars on sponsorships that “we probably shouldn’t have done.”
Boston Beer now leans more into digital marketing over TV to be “more cost effective” and are “more selective” when it comes to sponsorships.
“We’re like John Wanamaker was 150 years ago: Half my advertising doesn’t work, I just don’t know which half,” he said. “It’s 150 years later, and there hasn’t been that much progress on it.”
Boston Beer is also becoming more cost effective with its purchasing savings, brewery operations and system efficiencies, repairing things haphazardly put in place during Truly’s initial boom, Koch said.
“During the boom of Truly, we didn’t care what it cost. … It was a once in a lifetime opportunity, it was transformative for Boston Beer Company,” Koch said. “Our strategy was at the end of the day, there’s going to be two viable competitors in hard seltzer: We want to be one of them. We will do whatever we need to do to make sure we’re one of them.
“We incorporated a lot of waste into our system,” he continued. “Now we’re going back.”
Boston Beer has negotiated some of its supply contracts for purchasing savings, and will continue to do so in 2025 once its glass and can prices are no longer locked in place. The company has also invested in new equipment, including a new variety pack system, to increase brewery operations.