Boston Beer must hike capacity to meet hard seltzer demand
USA | Boston Beer, the maker of Samuel Adams beer, saw volume sales rise 24 percent to 5.3 million barrels (6.2 million hl) in 2019, thanks to buoyant demand for its Truly hard seltzer and Twisted Tea brands, plus the addition of the Dogfish Head brands.
Sales were partially offset by decreases in its Samuel Adams beer and Angry Orchard cider brands, Boston Beer reported on 20 February 2020. Analysts estimate that three-quarters of the company’s sales already come from Truly hard seltzer and other non-beer drinks.
Net turnover for the Full Year 2019 rose to nearly USD 1.3 billion, up from USD 996 million in 2018. However, profitability took a hit, as the gross profit margin declined to 47 percent from 52 percent a year ago – despite higher average selling prices.
Surging demand proved costly
The firm explained this by saying that the rising demand for Truly hard seltzer put pressure on its production and supply chains. Boston Beer had to farm out some of its production to third-party brewers, which has pushed expenses higher. The company also spent more money on marketing to support its brands.
Boston Beer’s co-founder Jim Koch defended the investment in hard seltzer, saying that “sometimes growth isn’t cheap, particularly in something as capital intensive like beer.”
Boston Beer’s CEO David Burwick said that margins will continue to suffer as the firm increases capacity. “We expect this programme to run for two to three years and begin showing margin improvement by the first half of 2021.”
More growth in 2020
The firm forecasts volume sales to grow between 15 percent and 25 percent in 2020, which is a wide range. While that forecast implies another year of strong growth, it also reflects what management called a “difficult competitive environment”, that will see several big competitors like Constellation Brands, AB-InBev and Molson Coors barge into the hard seltzer niche.
AB-InBev’s CEO Carlos Brito said on 27 February 2020 that the brewer seeks to become the number two supplier of hard seltzers in the US, which means that it will need to overtake Boston Beer. The segment is dominated by Mark Anthony’s White Claw.
A recent report from analysts at Credit Suisse predict that hard seltzer sales will double this year and reach 8 percent to 10 percent of total US beer sales by 2023.
