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04/26/2019

Seltzer May Take Space from Craft, as Sam Adams Still “Losing to Fragmentation”

Boston Beer no longer needs Sam Adams to grow to put up strong results. That fact was already abundantly clear thru 2018. But Boston’s first qtr results and exec commentary about them crystallized and confirmed it. “Sam Adams will always be at the heart and soul of the company,” chairman Jim Koch reiterated during Wednesday earnings call. But since co “evolved,” now over half hard tea, cider and seltzer, we estimate, co can “deliver nice double-digit growth without Sam Adams contributing to it.” That gives co a “big advantage over the rest of the craft category” too, Jim shared. For most craft cos, “they’ve only got one bet,” he said. “Their stool is only on one leg. And we’ve got four.”

Half a Mil Bbls of Seltzer Oppy in 2019?  One leg, in particular, has gotten significantly stronger in last yr. Boston’s Truly Spiked and Sparkling hard seltzer brand is clear #2 in the sub-segment, behind Mike’s Hard Lemonade Co’s White Claw brand. Boston’s spending lots to keep that position, incurring increased production costs, for example (see yesterday’s issue of sibling-pub Insights Express). That’s in part because Truly specifically and seltzers more broadly all growing faster than Boston expected.

White Claw + Truly held in range of 75-80 share of seltzers for some time, both Jim and CEO Dave Burwick repeated on this week’s call. They’re also bullish on prospect that seltzers could double or more this yr. We estimate seltzer totaled about 2 mil bbls last yr. Suggests about 2+ mil bbls of growth on the table across 2019. Even if the two lead brands hold share, that’s upwards of 400K-500K bbls of potential seltzer growth up for grabs for others. So numerous small, more locally-focused craft brewers wouldn’t even need to make a dent in national seltzer picture to get meaningful growth from participating.

At What Cost? Seltzer “May Be” Taking Shelf Space from Craft, But “Shake Out” Slow, Jim Sez  Seltzer growth won’t come free for anyone, natch. And even craft brewers that don’t jump in could end up paying with retailer and wholesaler attention and space. Asked directly about the amount of space (and aging bottles) on off-premise shelves and whether retailers are starting to clean that up, Jim responded that “we think that is where trends are going. Wholesalers are pruning their portfolios. And retailers are looking at doing the same thing. The growth of hard seltzers means they’ve got to get space from somewhere.” And that “may be” from slower-moving craft brands. But it’s a “trend happening in slow motion,” Jim thinks. “The consolidation in craft that we’re going through is going to be a slow process,” in his view. He also believes “strong, well-supported brands of high quality will eventually emerge from any consolidation and/or shakeout.”

And Boston hasn’t stopped supporting Sam. In fact, co has “maintained roughly the same level of support” behind Sam Adams even as volume declined over last 5 yrs (by about a half-million bbls, over 20%, we estimate). Co is still “losing share to the other 7,000 craft brewers,” Jim said, “losing to fragmentation,” since Sam Adams is “the category leader with the largest volume.” Yet the “vast majority of craft SKUs are selling less than they did last year because of that fragmentation,” he noted.

New News: Ad Campaign, Packaging, Summer Ale  Boston is still “trying to bring enough energy back to the brand to make sure that we get the support from our customers,” or retailers, Dave said. Getting Sam Adams back to growth is “going to take us doing a few things well,” he said. Currently it’s trying to do “a number of things concurrently that reinforce the same idea.” Simply, it’s refocus on “product quality,” “heritage” and “authenticity,” kicked off by ad campaign at end of last yr. That campaign brought “four to five points of trajectory change” in 4th qtr, but that faded early in 2019, he acknowledged. It also “worked very well with our existing customers,” but co needs to find ways for it to “more broadly engage younger, say 21 to 25 year olds.” Recent addition of Lesya Lysyj as Boston CMO encouraging for Dave. She’s proven that “in tough categories, she can find ways to grow brands” and early on is already “pushing things in the right direction.”

New packaging just hitting shelves in last few weeks with Boston Lager and Summer Ale. Sam went “back to blue,” Dave said, believing brands are “much more highly visible” on craft shelves, a “sea of colors and sensory experience.” Existing drinkers also “preferred” new Summer Ale recipe “significantly” in extensive testing before launch, he shared. And that could help keep more folks with the brand. Apparently around 70% of customers who pick up Summer Ale in a given year are new to the brand. Meanwhile, New England IPA “still relatively small business, but growing rapidly,” he said. Co has “some work to do” on Sam ’76, tho.

Publishing Info

  • Year: 2019
  • Volume: 10
  • Issue #: 35
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