Dear Client:

After fielding an hour worth of questions from Wall Street on earnings last week, we hosted a video podcast with Boston Beer founder Jim Koch the following day to ask the real hard-hitting questions, like how does Jim Koch sequester? What he’s been up to? Is your wife tired of you yet? And is he still rocking his signature uniform while in quarantine?

As Jim often does before the first question in an interview comes his way, he poured up a glass of Boston Lager, did his signature swig that leaves a little beer foam on his upper lip and launched into his answer.

“I’m at home here in Boston, it sucks,” Jim said.

“This is the longest time in at least 40 years that I haven’t been on the road,” he said. So, suffice it to say, he’s “going a little stir crazy.” 

He admitted he’s driving his wife a little crazy at home too. “My wife is working just as hard as I am, so we’re in each other’s way and pissing each other off all the time.” But nothing a few tallboys of Twisted Tea can’t fix, am I right?

As for his wardrobe, everyone will be happy to know that even while in quarantine Jim is still sporting his signature look: the denim Sam Adams shirt, and yes even still tucked into his khakis. At first, we thought that was incredible dedication to keep the look going. But according to Jim, he owns “like 30 of these, so I haven’t had to do my laundry in six weeks.”

Anyways, after we hit Jim with the hard-hitting questions we tossed a few “softballs” his way, like forecasting seltzer’s dollar share for 2020, how difficult it’s been aligning the Dogfish Head brands into their wholesaler network, and whether the off-premise can offset the losses in the on-premise. You know, the easy stuff.

FORECASTING SELTZER DOLLAR SHARE. “At some point seltzer is going to slow down,” Jim said, “but we view it as having continued run room.” He noted that it’s close to 8% of dollars in the off-premise right now, and “on a big growth curve so it could absolutely get to 10%.”

Plus, the segment now has big brands in it like Bud Light, Natty Light, Corona, “so elephants are getting into the swimming pool too.” Still, “it’s certainly been interesting that for like three years now, Truly and White Claw have had between 75% and 82% of the category, even though there’s been a lot of turmoil and change – that’s been a steady thing.”

ON ALIGNING DOGFISH HEAD. When asked about the difficulty in aligning the Dogfish Head brands with the Boston Beer wholesaler network, Jim said “there weren’t a lot of surprises, but I’ve always known that it’s not easy.”

“But in general, there’s a lot of goodwill among distributors, they’re generally on one side of a deal one year, and on the other side of a deal in another. So after all the positioning and the bargaining is done it’s generally been a win-win.”

He added that alignment has “gone a little bit faster” than they anticipated. “We thought we would get to 80% by the end of the year and we’re at 78% now with a couple of deals to close. So we may be as high as 85%” at year end, according to Jim.

“There’s always a few guys who hold out,” Jim said, noting how there are still Molson Coors distributors that don’t want to give up Stella Artois, “so you’re always going to have guys that want to piss their competitor off for one reason or another and as a supplier you learn to live with that.”

But for the most part, Jim said, “common sense and common decency has prevailed as you would expect among the distributor community.” As far as a COVID impact on valuations in these deals, Jim said they “haven’t seen any change,” but reminded that all “the deals that are closing now have been in the works for six months.” So stay tuned on that.

TAKING ADVANTAGE OF DFH’s DISTILLERY ANYTIME SOON? We’ve been pressing Jim for quite a while on if/when they’ll look to concoct something like a canned cocktail out of Dogfish Head’s distillery. It seems like they’re definitely looking into it, but whatever ideas they had in the works have obviously been put on hold for now as Dogfish Head has now graciously converted that facility to churn out hand sanitizer for the time being. 

Still, Jim said “we do look longer term to see what we can do with that distillery.

“As you know, we’ve always thought of our business as stuff that you can make in a brewery and it goes through the beer wholesaler network. And something like 70% of our volume goes through wholesalers that can sell canned cocktails, but 30% doesn’t. Though we do have some beer wholesalers who are also wine & spirits wholesalers, so it gets more complicated, the channels get more complicated.” 

“But we’ve been very aggressive at Boston Beer at pushing boundaries and exploring the messy complicated opportunities. And Sam is certainly as innovative and inventive, half-crazy ass as anyone in this business. So that is something that we’re looking very seriously at.”

CAN THE OFF-PREMISE REALLY CARRY US THIS YEAR? I’ve said in many of my conversations with industry folks that I just don’t see that happening, and Jim said his gut tells me I’m right. 

“It’s hard to tell because we had this big blip of pantry loading, but if almost 20% of our industry kind of goes away, it’s just hard to get those occasions back at home,” Jim said. “So far the numbers have been just fine, but I tend to agree with you that a healthy on-premise business is crucial to the success of all of us in the beer industry. I don’t think it’s just going to come back like it was, not this year anyways.”

RETURN TO REGULAR MARKETING? When asked about a timeline of returning to marketing of days past. Jim said that all “is sort of a day by day, week by week reading of the national mood.” If he had to guess, he thinks that return may come in June, “but it’s hard to know,” he said. “I’m hoping that when things get open we just all got to pray that there’s not a second wave, so we’re like everybody just trying to read the tea leaves of the national mood.”

SEE THE ENTIRE video interview with Jim here>>

Until tomorrow,

Harry, Jenn and Jordan

“The brain is a wonderful organ. It starts working the moment you get up in the morning and does not stop until you get into the office.”

– Robert Frost 

———- Sell Day Calendar ———-

Today’s Sell Day: 19

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