The Boston Beer Company continues to print money this year amid the pandemic with third quarter 2020 net revenue hitting $492.8 million, an increase of $114.3 million or 30.2%, year over year. The way to keep this momentum going? Further development of their non-beer product categories.
What’s next? Iced Tea Hard Seltzer, canned cocktails
Company leadership is already hyping their new 2021 brands: Truly Iced Tea Hard Seltzer, Samuel Adams’ Just the Haze (a non-alcoholic beer), Dogfish Head Scratch-Made Canned Cocktails and Angry Orchard Hard Fruit Cider. And they are hyping them with good reason – these are the brands and categories that are crushing it right now.
“Our depletions growth in the third quarter was the result of increases in our Truly Hard Seltzer and Twisted Tea brands, partly offset by decreases in our Samuel Adams, Angry Orchard and Dogfish Head brands,” stated Dave Burwick, the Company’s President and CEO. “The growth of the Truly brand, led by Truly Lemonade Hard Seltzer, continues to be very strong and we expect the Truly brand to continue to lead the growth of the business into 2021. We believe that Truly Iced Tea Hard Seltzer, which combines the refreshment of hard seltzer with real brewed tea and fruit flavor at only 100 calories and 1 gram of sugar, will further strengthen our position in the category.”
Since early in 2020, Truly has grown its velocity and its market share sequentially despite other national, regional and local hard seltzer brands entering the category. Truly is the only national hard seltzer, not introduced earlier this year, to grow its share during 2020.
COVID impact and pivot
The company began seeing the impact of the COVID-19 pandemic on its business in early March. The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company’s breweries. The total amount consists of a $3.4 million reduction in net revenue for estimated keg returns from distributors and retailers and $10.8 million of other COVID-19 related direct costs, of which $7.4 million are recorded in cost of goods sold and $3.4 million are recorded in operating expenses.
In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins.
“We believe that our depletions growth is attributable to our key innovations, quality and strong brands, as well as sales execution and support from our distributors,” stated Jim Koch, Chairman and Founder of the Company. “As the COVID-19 pandemic continues, our primary focus continues to be on operating our breweries and our business safely and working hard to meet customer demand.”
“The Samuel Adams, Angry Orchard and Dogfish Head brands have been most negatively impacted by COVID-19 and the related On-Premise closures, but we are pleased that they all finished the month of September with strong growth in the measured Off-Premise channels compared to last September,” Burwick said. “For the remainder of 2020 and into 2021, we plan to build upon our success and work to drive our brands to their full potential, with a particular focus on our Truly brand. We’ve adjusted our expectations for 2020 full-year depletions growth and our earnings guidance to reflect our trends for the first nine months and our current view of the remainder of the year, which is primarily driven by the year-to-date performance of Truly.”
The company expects all of its brands to grow in 2021 and is targeting overall volume growth rates to be between 35% and 45%.
“We have been operating our breweries at full capacity for many months and, like our competitors, we have had out of stocks during the quarter,” Mr. Burwick said. “We expect wholesaler inventories to return to normal levels in the fourth quarter, as we recover from our summer seasonal peak. Improving our supply chain performance continues to be our top priority and we are in the process of doubling our internal and third-party brewery can packaging capacity for 2021.”
The company’s new can line at its Cincinnati Brewery began production late in the third quarter and they have recently added additional third-party brewery sleek can capacity. The increased usage of third-party breweries and an increasing percentage of variety packs does come at a higher incremental cost.