BOSTON BEER STUMBLES

Sam Light selling well, but at the expense of Sam

The Boston Beer Co. posted Q1 results, and it appears that the success of Sam Adams Light is heavily cannibalizing Sam Adams and BBC’s other brands. Jim Koch said during a conference call Tuesday that Sam Light presents a tremendous opportunity, but at a cost.

“We believe…that the investment behind the entire Sam Adams family is necessary at this point to sustain the overall long-term growth of the company and to maintain our strong brand umbrella, so that Sam Adams as a total brand can reach its full potential,” said Jim.

THE PROBLEM. The big problem for Sam is that this “investment” behind the brand is hurting profitability in the short run because while Sam Light is getting the lift, Sam is getting pounded, losing not only sales but cold box space and distributor focus. Jim said the non-light brands were “neglected.”

The company posted a per-share loss of 1 cent, missing the analyst estimate of a profit of 2 cents a share. Q2 doesn’t look to be any better as advertising spends will continue to be high while volume numbers will be tough to hit. Boston experienced a 0.7% decline in dollar sales in Q1, although revenue per barrel increased by 1.1%. STRs were up about 2%.

Jim said in a statement that Q1 “was a challenging quarter for the beer industry, driven primarily by soft on-premise business. Wholesaler-reported depletion volume for Boston Beer brands grew at a rate below that expected during the first quarter, probably due to a combination of weak economy and consumer confidence, tough weather conditions in the Northeast, and recent world events. This shortfall to expectations has impacted orders in-hand for April and May.

“Shipment volume during the first half of 2003 is now anticipated to be down single-digits as compared to the first six months of 2002, due to declines accross all Samuel Adams brands, except for Sam Adams Light, resulting from difficult business conditions and other inventory build factors in the first half of 2002. Sam Adams Light continues to contribute approximately 20% of the Company’s volume and we were delighted that Sam Adams Light has been chosen by Market Watch magazine as a “Hot Brand” in 2002. We are actively working to minimize the cannibalization of Samuel Adams Boston Lager and Seasonals by Sam Adams Light which has affected our total growth rate, and to grow the entire Samuel Adams Family in this difficult business climate. We continue to expect earnings improvement for the full year of 2003 as compared to 2001.”

BEER INSTITUTE/NBWA ISSUE REPORT ON INDUSTRY’S ECONOMIC IMPACT. The beer industry contributes over $144 bil to our economy and creates 1.6 mil jobs, not small beer, according to a new report. Check out the entire report at www.beerservesamerica.org.

ALSO, Sen Rick Santorum (R-PA) has intro’d a bill in the Senate to roll back the excise tax, noting that 44% of the cost of beer is taxes. A similar bill in the House has garnered 132 sponsors.MTD Sell Day: 13 Sell Days This Month: 22 Sell Days This Month Last Year: 22 YTD Over/Under Sell Days: 0 This Month Ends on a: Wed. Last Year This Month Ended on a: Tue.