Boston Beer's (SAM) Beyond Beer & Premiumization Plan Bode Well
The Boston Beer Company Inc. SAM has retained its strong position amid the ongoing uncertainty and difficult macroeconomic conditions. The company continues to benefit from the progress on its Beyond Beer strategy, the premiumization of the beer industry and robust trends for its twisted tea brand. Additionally, the company’s innovation, intensified attention to pricing and product portfolio expansion efforts bode well.
SAM is on track with growth of its Beyond Beer category. Beyond Beer is growing faster than the traditional beer market, and the company expects this trend to continue for several years. Its advancement in the non-beer categories, including ciders and hard seltzer, as well as brand-building efforts, is expected to fortify its position in the market.
Brand Focus
Although the Truly brand has witnessed a downside in recent quarters due to the slowdown in the hard seltzer category, Boston Beer is keen on bringing excitement to its core flavors through innovation. The company expects to improve Truly brand trends through a renewed focus on core business, smart brand innovation, and strong distributor support and retail execution.
Coming to Twisted Tea, the brand drove most growth of Boston Beer in the second quarter. The Twisted Tea brand reported dollar sales growth of 38% in off-premise measured channels in the second quarter. This is mainly driven by physical availability, improved geographic, channel and package distribution, as well as effective brand-building campaigns, increased media investment and optimized packaging design. The brand’s growing brand awareness and household penetration also bode well.
The company further expanded its light portfolio offerings with a new variety pack available in select highly developed markets and received positive feedback for the same. SAM recently announced the testing of the higher ABV version of Twisted Tea, called Twisted Tea Extreme, in select markets this summer. Consequently, the brand is likely to witness strong double-digit growth for the remainder of 2023.
Operational Edge
On the operational front, Boston Beer has been benefiting from strong price realization and procurement savings, which more than offset increased inflationary costs. This has been a boon to the gross margin, which improved 230 basis points (bps) in second-quarter 2023. Additionally, a decline in advertising, promotional and selling expenses on lower freight to distributors due to reduced rates and volumes has been aiding the bottom line.
Things to Watch Out
Declines in shipments and depletions, as well as continued challenges in the hard seltzer category, have been weighing on the company’s top-line performance. Soft performances of the Truly Hard Seltzer, Angry Orchard, Samuel Adams and Hard Mountain Dew mainly hurt sales in second-quarter 2023. For 2023, depletions and shipments are expected to decline 2-8%.
Conclusion
Solid demand, brand strength, the Beyond Beer approach and innovation efforts bode well, and will likely help SAM stay afloat despite rising inflation.
Peer Stocks
The company shares space with Constellation Brands STZ, Brown-Forman (BF.B) and Molson Coors TAP in the Beverages – Alcohol industry.
Constellation Brands is the third-largest beer company and a leading, high-end wine company in the United States. The company has been benefiting from the constant focus on brand building and initiatives to include the latest products. STZ is poised to benefit from its premiumization strategy, driven by the continued strength in the Modelo and Corona Brand Family, as well as growth in the Power Brands.
The Louisville, KY-based Brown-Forman is the leading alcoholic beverages company. It has been benefiting from increased demand for its brands, mainly Jack Daniel’s Tennessee Whiskey, and growth across all regions and the Travel Retail channel. The company is focused on investing in the diversification of its brand portfolio to drive growth. For more than a decade, Jack Daniel's Tennessee Whiskey has been the key contributor to the company’s growth in the United States.
Molson Coors, a global manufacturer and seller of beer and other beverage products, has an impressive and diverse portfolio of owned and partner brands. TAP is on track with its revitalization plan focused on achieving sustainable top-line growth by streamlining its organization and reinvesting resources into its brands and capabilities. Molson Coors has been committed to growing its market share through innovation and premiumization.
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