Corona virus raises Boston Beer’s costs

USA | With consumer demand for beer shifting to off-premise retailers, Boston Beer’s breweries had to change production from kegs to cans and bottles. Because most of its packaged beers are produced by third-party contract brewers, this led to increased costs.

Boston Beer reported on 22 April 2020 that in the first quarter its turnover surged 31 percent, or USD 79 million, from the year-ago period to USD 330.6 million. This came on the back of a 32 percent increase in volume sales to 1.4 million barrels. Even excluding the shipments that were brought in by the acquisition of Dogfish Head Brewing last year, they rose over 27 percent year-on-year.

However, Boston Beer recorded nearly USD 10 million in increased costs, not least because it had to farm out more volume to contract brewers and saw labour and safety related costs rise at the company’s breweries. Like other breweries, Boston Beer has implemented a regime of Hygiene, Separation and Segregation  to prevent workers from contagion.

Cost hike hits profits

Because of higher costs, Boston Beer’s operating income for the quarter was USD 21.5 million, down from USD 29.4 million a year ago.

Boston Beer’s CEO Dave Burwick said that in light of the current crisis the firm had to defer some of its new marketing campaigns. Nevertheless, demand for its brands continues to be very strong, particularly for Truly, a hard seltzer, and its Twisted alcoholic tea. Yet, Boston Beer can’t say whether the new demand for its products is temporary because of the pandemic, or more long-term.

Boston Beer had to admit that its beer brand Sam Adams is now into its sixth year of decline. Likewise, Boston Beer’s Angry Orchard cider has registered its fifth consecutive quarter of lower depletions.

Still, as the demand for Truly hard seltzer continues to rise, investors don’t seem all that concerned.