C’mon, someone pop my top and drink me. Please? I’m still good, I swear.
For a summation of the 2018 beer market right now — a continued rise in interest in craft beers amid a decline in overall beer sales — look no further than the second quarter earnings of the Boston Beer Co., which continues to increase revenue and depletions amid declining interest in its flagship brand.
What were the results?
The Sam Adams parent company saw second quarter 2018 net revenue hit $273.1 million, an increase of $25.2 million or 10.2 percent, from the same period last year. Net revenue for the 26-week period ended June 30, 2018, was $463.6 million, an increase of $53.9 million, or 13.2 percent, from the comparable 26-week period in 2017. Depletions increased 12 and 11 percent from the comparable 13 and 26 week periods in the prior year. Full year 2018 depletions growth is now estimated to be between 7 and 12 percent, an increase from the previously communicated estimate of between zero and plus 6 percent.
How’d we get here?
The company attributes depletions growth in the second quarter to increases in its Truly Spiked & Sparkling, Twisted Tea and Angry Orchard brands that “were only partially offset by decreases in our Samuel Adams brand.” Basically, Its full portfolio is in a pretty good spot right now except for the continued drop in sales for its flagship.
“Our Samuel Adams volume has continued to decline, despite the early success of our launches of Sam ’76 and Samuel Adams New England IPA,” noted Jim Koch, chairman and founder. “We continue to work hard on our Samuel Adams brand messaging, particularly around Samuel Adams Boston Lager and seasonals, with the goal of significantly improving these trends and returning Samuel Adams back to growth.”
It’s definitely not for lack of effort in promotion. Advertising, promotional and selling expense increased by $18.7 million, or 27 percent, in the second quarter over the comparable period in 2017 and increased $32.4 million, or 27 percent, from the comparable 26-week period in 2017.
Executives maintain that they will continue to try and push Samuel Adams through continued innovation, promotion and brand communication initiatives.
“We have done a lot of consumer work over the past few months and believe we have some new insights and ideas to reverse Samuel Adams’ trends,” Burwick said.
Just looking at drinking trends, we at CBB remain skeptical that the Sam Adams sales trend is reversible, but will be interesting to monitor over the next few years.
What’s next? (And a note on operation issues)
“During the quarter, our operating expenses increased significantly, primarily due to the timing of our planned brand investments,” said Dave Burwick, the company’s president and CEO. “Brand investment increases for the remainder of the year will moderate, as we maintain our annual spend guidance. Based on our first half results, we have increased our expectations for full year depletions growth, reflecting our view of the most recent trends. We will continue to invest in capacity increases and our brewing and packaging capabilities to support our product innovation and brand growth.”
These improvements include a new can line in its Pennsylvania brewery that began production this quarter. Also worth noting how big increases in depletions are an issue even for a company with the operational muscle of Boston Beer:
“We have been operating at capacity during peak weeks and have increased our usage of third party breweries during the quarter, in response to the accelerated depletions growth.” Burwick said. “The growth has been challenging operationally, which has resulted in higher supply chain costs. The new can line will help relieve these pressures as it ramps up during the third quarter. Further, based on our rapid growth and to address current capacity bottlenecks, we are accelerating capacity and efficiency improvements at our breweries and accordingly are raising our capital spend expectations for 2018.”
