Tiny glass splinters, big expensive recall
Following April’s recall of defective 12 ounce beer bottles, Boston Beer, the brewer of Samuel Adams, reported a net loss of more than three million dollars during the first quarter.
The Boston Beer Company reported a net loss for the quarter of USD 3.7 million, a decrease of USD 9.5 million compared to net income in the first quarter of last year, primarily as a result of provisions taken for the voluntary product recall announced on 7 April.
Excluding the impact of the recall, first quarter 2008 net revenue was USD 85.2 million, an increase of USD 12.8 million or 18 percent over the same period last year.
Jim Koch, Chairman and Founder of the Company, was quoted as saying: “We achieved 12 percent depletions growth in the first quarter over a very strong first quarter last year. We feel good about this growth and the continued overall positive craft beer category trends, even as our whole category has raised prices in the face of significant cost pressures.” This is the 9th quarter of Boston Beer achieving double-digit growth.
Martin Roper, Boston Beer Company President and CEO, added, "Our first quarter depletions growth reflected double digit growth in the Samuel Adams brand family… We are happy with these results, driven by drinker interest in craft beers and our investment in brand support for Samuel Adams." On 7 April Boston Beer had to announce a voluntary product recall of certain glass bottles of Samuel Adams products. These bottles were from a single glass plant that supplies bottles to the brewer. The glass plant in question supplied approximately 25 percent of Boston Beer’s glass bottles year-to-date. Within two weeks of the announcement, the brewer had secured approximately 750,000 cases of this product for destruction, of which approximately 200,000 cases were under its control at its breweries or warehouses. The full costs of this effort include drinker rebates, product credits, fees and incentives to retailers and wholesalers for the recall, lost product, freight and destruction charges for returned product, warehouse and inspection fees, repackaging materials, POS materials and other costs.
Moreover, Boston Beer also faces the potential for lost sales at retail. Boston Beer carries a product liability insurance, but it does not carry a product recall insurance.
Currently, beer prices, or rather the raising of prices is very much a hot topic among brewers. Because of increased raw materials and energy costs many of the smaller craft brewers had to bring up prices. A cursory price check at a Florida supermarket during the last week of May showed: Sierra Nevada USD 8.49, Samuel Adams USD 7.99, Corona Extra USD 7.99, Heineken USD 7.99, Miller Chill USD 6.49, Bud Light Lime USD 6.49 (prices for a six-pack).
Jim Koch was quoted as saying that the consumer will not mind paying more than USD 8 for a six pack of a craft beer. That remains to be seen.
Boston Beer’s share price has dropped from USD 45 per share on 7 April to USD 39 at the end of May.
When Jim Koch launched his Samuel Adams Light in 2002 the craft brewing community shouted “treason”. Today he is celebrated as the major craft brewer in the U.S. Never mind that his company was floated on the stock exchange ages ago and Wall Street’s bigwigs hold about 53 percent of his outstanding shares.
