Boston Beer chucks millions of cases of Truly as sales slow

USA | It must have been a tough decision to take: Boston Beer, the maker of Truly hard seltzer, threw away excess stock, instead of discounting it. This was in response to a category-wide sales slowdown.

As Jim Koch, the Chairman of Boston Beer told CNBC on 22 October 2021, “we were very aggressive about adding capacity, adding inventory, buying raw materials, like cans and flavours, and, frankly, we overbought.” When the forecasted sales did not materialise, Boston Beer decided to crush millions of cases of product because there is a shelf life.

For the past quarter, Boston Beer reported an unexpected loss of USD 4.76 per share, although revenue of USD 562 million topped projections of USD 532 million. Still, the firm’s bottom line was hurt by USD 102 million in direct costs related to the hard seltzer slump, as well as USD 31 million in indirect costs.

No promotions

So why did Boston Beer toss the product instead of offering sales promotions to spur demand? Mr Koch said the company had reservations about that strategy.

“Our mission is to sell high-quality products and to build high-quality brands. So rather than take a chance of it getting out into the market and going stale and consumers having a bad experience, we decided to make the hard decision and eat a lot of product, to make sure consumers didn’t get a stale product and have a bad Truly,” he explained.

Boston Beer is not the only alcoholic beverage maker to suffer financially from the weakness in hard seltzer. Constellation Brands, which makes Corona hard seltzer, took a USD 66 million obsolescence charge related to excess hard seltzer inventory in its quarter to the end of August.

A two-horse race

The hard seltzer category became a “crazy gold rush”, Mr Koch said, but he thinks it will “clean up” and evolve in a manner similar to that of energy drinks. In this segment Red Bull and Monster Beverage are the clear leaders with a combined market share of around 70 percent in the United States.

Per Mr Koch, Truly and Mark Anthony’s White Claw together are close to 70 percent market share in the US, followed by plenty of other brands. He expects “a lot of that long-tail clutter” to go away, which will be very helpful for the long-term growth of the hard seltzer category because consumers will not get so confused.