Could Boston Beer Acquire its Way Into More Capacity?

Dear Client:

Yesterday Boston Beer reported another great quarter for depletions — up 36% in Q1. But with current uncertainties, they suspended providing full year guidance. 

Indeed, the crisis has been costly for the brewer, which has had to shift more operations to third party brewers as they reduce their own brewery worker capacity for safety. They’ve also been saddled with the price of keg returns. 

And so, the company shared (and CBD reported yesterday) that Q1 gross margin was 44.8%, 4.7 percentage points below YA. They attributed that to “higher processing costs due to increased production at third party breweries and higher processing costs and finished goods keg inventory write-offs at Company-owned breweries, of which $3.6 million was direct costs related to COVID-19, partially offset by price increases and cost saving initiatives at Company-owned breweries.”

For Q1 alone, the company pegged COVID-19 net revenue reductions and cost increases to total $10 million (pre-tax). 

That includes “a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $4.2 million of other COVID-19 related direct costs, of which $3.6 million are recorded in cost of goods sold and $0.6 million are recorded in operating expenses.” 

But just as COVID is putting pressure on Boston, it is debilitating the resources of much smaller brewers, many of which could be up for sale soon.

To that end, one analyst asked about Boston’s appetite to acquire.

“We are always looking at opportunities,” Jim said, though “we’d prefer to own our own capacity if the economics are equal. 

“But we’ve been fairly agnostic if the economics are superior. In that framework, we do anticipate there will be opportunity. They haven’t yet surfaced, but there are craft brewers that borrowed money and expanded.” 

But as craft in general skews roughly 30% on premise (vs. 18% for total industry), which has been shuttered unceremoniously over the last couple of months, Jim surmises: “There will be craft brewers who overextended and now don’t have demand, and will be under some pressure.” Again, Boston will look at such opportunities. 

But it’s an unlikely solution for them. Because what they really need, is canning capacity.

“What’s happened to our business is, we’ve had very strong growth — but all in cans,” Jim said. “And 12% of our business was in kegs … we’ve more than offset that with cans … but we don’t need more keg capacity and we don’t really need the brewing capacity.” Bottom line: “canning capacity” is what would be useful, but that’s “generally not what craft brewers have.” 

So they’ll look at those things where the “total economics of purchasing, maybe building out [and/or] putting in a can line are better” than doing those things at a Boston brewery, or at City Brewing, their primary contract brewer.  So an acquisition “may happen, probably not”; Jim said. But it’s “not out of the question.” 

As for Boston’s recent capacity efforts, Jim said they’re indeed doubling (or better) their capacity for Truly’s sleek cans, when more resources come online next month in Memphis. That gives them the ability to “more than double our production of Truly.” 


ON PREMISE WON’T JUST “SNAP BACK,” SAYS JIM. Asked to quantify the hit to their on premise operations, Jim was frank. 

They’ve seen”complete devastation of our keg business — damn near zero,” and it happened “very quickly.” 

In lockdown states, “our keg business is a trickle. How much of that will come back?” It’s “anyone’s guess.” 

In a normal year, he points out, bars and restaurants already see a decent amount of turnover. 

“So there will be a lot that don’t reopen; but some would have closed anyway. It’s probably beyond my capacity to predict how much lower the on-premise business will be in the short and long term, other than to say it’s going to be lower, and significantly lower.”

But if he “had to guess,” he mused, “a lot of this is driven by who wants to go out and rub elbows with people until there’s a vaccine or … effective treatment. So we’re anticipating that the on-premise business is not gonna just ‘snap back.’ It may be a matter of a year or two before it gets anywhere near what it was at the end of February. “

But: “We do feel like, as opposed to many other craft brewers, we have developed a portfolio and business model that’s able to prosper even in this new normal.”

More tomorrow in CBD from the call. 


The latest round of state shipments hit yesterday, and there are some interesting hills and valleys. Overall, during the month of March where shelter in place orders started to hit midstream and many restaurants across the nations were closed for regular business, shipments for the month were actually flat, and YTD shipments are down only 0.4%. 

While most states shipments are depressed, some were flying high in this March data set. California — which started to institute stay-at-home measures in the Bay Area before most of the country, in mid-March — was up 12% in shipments for the month. So maybe the data reflect overshipments later in the month to serve pantry loading. 

The only other state to fare better in this data was Nebraska, which was up 23% for the month. But that state’s shutdown situation was almost opposite  that of California: It did not close regular restaurant sales until April, when it levied other quarantine measures.  Midwesterners likely saw what was coming and got prepared. 

Meanwhile, Oregon shipments, quizzically, were down almost 30%. An on-premise state?

Other states are easier to explain: New York shipments were down 3.5%, but also got hit harder than any other state in the nation with COVID illness. Texas is down a bit, but as Lester Jones mentioned on the NBWA/BI call this week, it’s also impacted by oil industry volatility. 


A-B is using its top brands to try and bring some traditions and routine back into everyday life. Bud Light, Bud Light Seltzer, and Michelob Ultra are all working on projects to unite people virtually and continue engaging in hobbies like watching the NFL draft, playing video games, and working out while benefiting some charitable groups. 

Bud Light’s first project is bringing back the age-old tradition of booing commissioner Roger Goodell at the NFL Draft, which begins this evening. The beer giant is sending out a call for people to post videos of them booing using the hashtag #BooTheCommish and tagging @budlight. For each video submitted through April 25, Bud Light is pledging to donate $1 to the NFL Draft-a-Thon, up to $500,000.

Bud Light Seltzer is also hooking up with professional athletes by hosting a Charity Royale Call of Duty tournament consisting of six teams of four athletes from the MLB, NFL, NHL, Women’s Soccer, and the NBA. The round-robin style tournament will be hosted on Bud Light’s Twitch channel from every Tuesday, Thursday, and Sunday night at 9:00 pm (EST) until May 7. The first place winner will receive a $50,000 donation to a charity of their choice, second place a $25,000 donation, and all other players $15,000 for a total of $500,000 to benefit “those helping on the frontlines and affected by the current climate.”

Then Mich Ultra is hoping to get people up and moving with their MOVEMENT by Michelob ULTRA Live workout series. The workout sessions will be hosted by “top trainers and private gym owners from around the country who have been impacted by COVID-19,” and will feature a couple of celebrity guests per session (the last session featured Grammy-nominated DJ Steve Aoki). Funds for the trainers will be raised through a “virtual tip jar,” filled by participants logging in, and a dollar for dollar match from Mich Ultra and their partner Optimum Nutrition up to $7,500 each week.  Workouts will be streamed at 6:00 pm EST every Thursday night.

CLARIFICATION: While the original White Claw Variety Pack sat as the third-highest selling SKU in the data we shared yesterday from IRI’s multi-outlet and convenience channel for the week ending April 12; the original Variety pack from White Claw was indeed the highest selling SKU during the week when you look at the broader IRI scan data from MULC plus liquor. The original variety pack posted $16.7 million in sales during the week, while Corona 12-pack bottles raked in $16.6 million, and Bud Light 24-pack cans brought in $16 million.

Until tomorrow,

Harry, Jenn and Jordan

“The great thing in this world is not so much where you stand, as in what direction you are moving.” – Oliver Wendell Holmes

———- Sell Day Calendar ———-

Today’s Sell Day: 17

Sell days this month: 22

Sell days this month last year: 22

This month ends on a: Thurs.

This month last year ended on a: Tues.

YTD sell days Over/Under:  +1