Dear Client:
Boston Beer covered the gamut on their Q1 earnings call (see recap of results here), from the finer points of Truly and Twisted – the former, recently gaining share of seltzer in about half of scanning markets, chief Dave Burwick says; the latter, which the company expects to grow double digits for at least the remainder of the year.
Of course there was also talk about Hard Mountain Dew, and even Bud Light Gate. And speaking of such disruption – a few callers tried to dig into plans for Boston’s next big brand.
But who knows? Maybe the next Truly — or Twisted Tea — is Twisted Tea, for now. (For what it’s worth, they’ve been saving their Truly bullets for closer to summer season, taking the hit in Q1.)
TWISTED NOW 27% OF OFF-PREMISE FMB SALES, AND 50% OF ON-PREMISE FMB VOLUME. As noted above, Twisted Tea is perhaps as hot as it’s ever been in its 22-year existence. The brand saw its growth accelerate in Q1, up 34% in dollars, and added 3 points of share to take it to 27% of total FMB sales in the off-premise.
And though the brand is still nascent in the on-premise, Dave noted that Twisted holds a 50 share of FMB volume within the channel, and has delivered 82% of the on-premise FMB volume growth YTD, per a Nielsen CGA Consumer Survey.
EYEING 45% MORE SHELF SPACE FOR TWISTED IN ’23. Dave later added in the Q&A that they’re looking at close to a 45% increase in space for Twisted this year, surpassing their goal of +30% stated earlier this year. He believes they will not only get that increase in shelf space, but also expects to get it with “more feature display activity” than they did a year ago.
WHY THEY’RE CONFIDENT IN ANOTHER DOUBLE-DIGIT GROWTH YEAR WITH TWISTED. Dave said they “remain confident that Twisted Tea will sustain its strong double-digit growth for the remainder of 2023,” for a number of reasons, like:
- Its “upside in growing brand awareness and household penetration” (Last year, it saw about 15% growth in household penetration, and in Q1 of 2023 that growth was closer to 28%);
- Its “room to expand package distribution across channels, including on-premise”;
- The progress it is making in “bringing new drinkers, such as Latinos and African-Americans into the fold”;
- The opportunity to “widen” its “presence in underdeveloped markets such as California and Texas”;
- And last but not least, there’s the recent national launch of Twisted Tea Light, which has seen “very strong” repeat and “proven to be highly incremental” in its “early days” thus far.
So double-digit growth seems to be the floor for Twisted this year, but what about the current 30%-plus growth rate seen in Q1? Is that sustainable?
“That would be wonderful … but I think it’s going to be a challenge,” Dave said, nodding to the size of its base now. Still, he noted that they don’t have to sustain a 30%-plus growth rate on Twisted to achieve their guidance. “But if we can hold it, we will… Everything is in place on Twisted Tea to do that for the balance of the year.”
A LITTLE LATE TO COME AFTER TWISTED TEA, SAYS JIM. And what about the influx of competitors entering into the hard tea space — can they protect the brand from all these products and saturation? One caller asked.
Founder Jim Koch fielded that one, saying he’s seen many competitors come at Twisted Tea over its 20-plus years in market.
But now nearly a quarter of a century after Twisted’s launch, Jim thinks “it’s a bit late to come into a category” that’s dominated by one product, noting that Twisted owns 90% of the hard tea category.
Then too, with Twisted Tea evolving its line to now hold a Half and Half, multiple flavors, a variety pack, and even a lighter version, he struggles to “see anything that [he] would consider meaningfully different or better than Twisted Tea.”
TRULY SEEING “GREEN SHOOTS”? As for Truly, well, the brand continues to be a sizable drag on Boston’s overall results, but that drag for now is owed to two main things, Dave said.
First, over half of the declines on the trademark can be attributed to the Truly Margarita lap in Q1 (the brand accounted for 25% of the total Truly business in Q1 of last year). And then, there’s the discontinuation of Truly Tea.
If you look at the core VP business, however, they’re actually seeing “green shoots” in the franchise. “Over the past four months, we’ve seen sequential improvement in our core variety packs performance as market share stabilized and sales per point has improved while more recently total Truly brand has gained share at almost half of the 63 markets,” Dave said, citing latest four-week Circana data.
So, “we’re starting to see some signs that we’re out of recovery from the base business as this overlap mitigates and as we start to do other things behind the brand to create some more excitement around the brand.”
However, it sounds like shelf space for seltzer at large may be contracting.
“We probably have about information [from] maybe 70% of our customers right now on shelf resets,” Dave said, pressed on shelf space gains and losses.
The hard seltzer category “looks like it’s going to go from about 10% of beer to maybe closer to 8% of beer. So it’s going down. … Within the category, the good news for Truly is that Truly is going to go from about 25% of that hard seltzer to about 27% of hard seltzer.”
BRINGING THE HEAT FOR TRULY IN Q2. As they shared on their previous earnings call back in February, they’re gearing up to launch a big Truly refresh in Q2, which will see “a simplified product lineup; real fruit juice; new, easy to shop packaging; more emotive versus product-centric brand communication; elevated media spend with a focus on digital and social media; and aggressive marketplace support to improve product availability and visibility,” Dave said.
He added that they expect to have “full distribution” of the new Truly packaging and a new ad campaign “running before Memorial Day” and the new rebranded “Truly Vodka Soda” packaging and SKUs to hit “the market in early June.”
Additionally, they’ll have a Red, White and True LTO VP variety pack “tied to the US soccer team” hitting the market in the next few weeks, which has “received a lot of wholesaler and retailer support,” and could ” help the brand gain displays and inventory heading into the summer.”
WILL TAKE A LOT OF SPAGHETTI THROWING TO MAKE A PERFECT BOWL OF PASTA. Twisted runway notwithstanding — there were a few questions pointing toward Boston’s quest to find the next Truly, as the company has always hit a new growth wave every 3-5 years or so, often through a new or rediscovered product.
Nodding to that cycle, one caller asked Jim his thoughts on “where the biggest pockets of opportunity” are in the beyond beer category, particularly noting their current market “experiments.” (We’re guessing he means everything from the partnerships with everyone from Beam to Blue Cloud, to their regional tests like Slingers.)
Jim noted that beyond beer, which of course includes wine and spirits, has driven Boston’s business for “the last 10 years and especially the last five,” to become the “vast majority” of their business.
Overall, Jim says the “alternative adult beverages” category is expected to grow in the “low- to mid-single digits.”
But there’s a lot of noise — a “tidal wave of new products coming from literally everywhere,” including from soft drink and energy producers. But only “some” of the “flood” of products will succeed.
Amid that backdrop he looks at their growth opportunities two ways: “One, holding our share of this growing beyond beer category, and then second, innovating on top of that with new products — and that is a core strength of Boston Beer Company.”
Still, he admits: “in innovating, most of our products will fail.” They’ll “need a fairly robust innovation pipeline” to find the next Truly or Twisted. But with their “credentials” as a craft maker and their “very effective sales force and great distribution network,” they seem confident.
JIM ON LEARNINGS FROM THE SAUZA PLAY. On the topic of new experiments, one caller inquired more about the news we broke earlier this month that Boston and Beam are nixing their Sauza Agave Cocktails partnership play.
Pressed on “learnings” from that foray, Jim said: you’ve “got to try stuff to see if it gets traction.”
But more specifically, the Sauza RTD play “really didn’t get consumer traction from the beginning. It’s certainly a very good brand.” But he also noted that the exercise “probably indicate[s] that it’s hard to … have a malt-based product that is liquor branded.”
That’s a particularly interesting comment, considering their current malt-based Kentucky Coolers brand partnership with Beam that has just started rolling.
Early in the call, Boston said they expect Jim Beam Kentucky Coolers and Hard Mountain Dew to be “smaller volume contributors in 2023, as they ramp distribution and find their audience.”
And speaking of such big, new disruptive plays with outside partners, we were almost surprised that it took toward the call’s end for someone to ask about Hard Mountain Dew.
ON HARD MTN DEW: SLOW AND STEADY WINS THE RACE. Toward call’s end, someone asked how Hard Dew was performing vs. expectations, and whether Monster’s Beast Unleashed was taking a bite out of the brand’s trends.
Dave answered with some stats from Hard Dew’s 13-state footprint, where the brand is primarily in 12-packs.
“Actually if you look in those markets, it’s the no. two 12-pack, to Twisted Tea,” while its velocities are around “three or four in the market.”
“So: there’s interest, there’s pull,” he said.
Dave also referenced Pepsi chief Ramon LaGuarta’s earnings comments from earlier this week [see yesterday’s BBD].
For Pepsi, the approach to Blue Cloud is “‘slow and steady kind of wins the race’”; there’s “not a rush. … They want to do it right. And we agree with that.”
Dave noted the brand had “huge trial when it launched a year ago” because of the “novelty.”
That’s “settled down.” But it’s “still turning really well.” But they “aren’t betting on huge growth” this year; they’ll go at the “same pace PepsiCo wants to go at.”
As it relates to Monster — hard to say. “Neither brand has energy components in it,” Dave said; it’s more about refreshment and fitting into beer occasions. It’s hard to tell where that brand will source volume. But “by the end of the year we’ll know more.”
FINALLY: JIM KOCH ON IMPACT OF BUD LIGHT GATE. Finally, one caller asked Jim to reflect on the recent Bud Light blowback, and whether Boston was getting any fly balls from the fallout.
“Honestly, this is something we haven’t seen before in beer,” Jim said. “I’ve been making beer for 38 years; this is a first,” in “duration and depth.”
“We’ve all had missteps… I’ve had mine,” Jim reflected, and “we’ve all recovered from them without any permanent damage. … “
“I was talking to some wholesalers today who told me that it’s real and it’s large” and even they “don’t know how to predict this.”
He continued: “I don’t think it’s really had an effect on our business,” as they don’t compete in the premium or below-premium-esque space.
And he’s “kinda hoping it doesn’t, ’cause I don’t think anybody in the beer business wants to profit from the misfortune of others, but rather from the fruits of our own labors.”
But, Jim noted sagaciously: “I’ve never seen anything like this. This a new world to all of us, maybe in this more polarized society,” and with the “effect of social media, [maybe] this is going to be a new phenomenon? I don’t know.”
Until Monday,
Harry, Jenn, Jordan, Bianca
“Change your thoughts and you change your world.”
– Norman Vincent Peale
———- Sell Day Calendar ———-
Today’s Sell Day: 20
Sell days this month: 20
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1
