Boston Beer Bets Big On Hard Seltzer

We think it speaks volumes about the state of the craft beer biz that Boston Beer, the nation’s second largest craft brewer, is primarily betting on hard seltzer for growth…

Truth is, craft beer just isn’t as hot as it once was…And hard seltzers won’t stay hot forever either.

For the last couple of years Boston Beer’s growth has been fueled by non-beer brands like Twisted Tea and Truly Hard Seltzer… In spite of the introduction of innovative beers Sam ’76 its Samuel Adams beer division is stagnant at best and it remains to be seen if its 2019 acquisition of Dogfish Head Craft Brewery will rejuvenate the company’s beer fortunes.

Although Boston Beer recently reported strong fourth quarter sales and growth in depletions (shipments to distributors and retailers…an industry proxy for demand), its earnings came in below expectations and the drinks company issued guidance for the coming year fell short of forecasts.

And even though the publically-held company is still showing strong sales and growth (especially Truly Hard Seltzer) its plans to build out its infrastructure to keep up with demand is cutting into the company’s gross margins.

As CEO David Burwick explained to analysts, Boston Beer’s effort to produce greater seltzer volumes will limit the company’s profits for a number of years…”We expect this program to run for two to three years and begin showing margin improvement by the first half of 2021.”

Meanwhile the whole world is jumping on the hard seltzer bandwagon, a market that  Boston Beer’s Truly brand and White Claw currently own.

Anheuser-Busch InBev plans to have three hard seltzers on the market. Molson Coors just debuted Vizzy, its second seltzer line, and Constellation Brands will soon be introducing Corona Hard Seltzer.

But as the Motley Fool explains, “even though there’s no guarantee any of these seltzers will make a dent in the dominant market share White Claw and Truly currently claim, drinkers will turn somewhere if they can’t find their preferred drink, and each of the new brands from the large brewers has advantages, whether it’s price, ingredients, or availability.

And with an increasing number of craft breweries also getting into producing hard seltzers, Boston Beer’s cash cow could be undermined by a growing number of new upstarts potentially challenging its dominance…

Bottom line, nothing stays hot forever. Rock stars age, fax machine become unnecessary and craft beer matures…

Will that happen to hard seltzers?  Definitely…it’s just a question of when.

But Boston Beer is betting its future on hard seltzers and throwing the dice that its Truly brand won’t be cooling off anytime soon…