(Boston, MA) – Boston Beer Company reported Q1 earnings earlier this month. Here are a few noteworthy comments from management during the Q&A session of the earnings conference call.
On craft segment climate and competition:
CEO, Martin Roper: “The competition continues to intensify. On one hand, you have the big brewers investing more heavily in their own brands that compete with us from domestic small/craft specialty to niche imports. They appear to be showing more active interest in the high-end. As it relates to craft and local craft, they’re still opening, they’re still innovating, they’re still introducing new SKUs. Retailers are still providing distribution. Wholesalers are still saying “come in, welcome.” It doesn’t appear to be slowing down. Within that, there is only so much retail space available for everybody and you’re beginning to see some signs of churn of brands or SKUs or styles for those who came into the market two years ago that maybe came out a bit farther from home than usual. But there is somebody to replace them. So I would say that you are seeing some sign of brand turnover on the smaller SKU end but in total, it is still very competitive for shelf space and tap handles. At this time, there are probably more competing brands and competing SKUs than this time last year.”
Chairman, Jim Koch: “I would concur with what Martin has said. There are now approximately 1,000 breweries-in-planning in the United States. An extraordinary number that is not quite double the number of shipping breweries but pretty close to it if they all come to fruition. Retailers continue to open up space for craft beer, partly by cutting space for mass domestic brands. Even if push out the beer section to accommodate craft [by cutting into space for things like wine]. Right now, I don’t see craft hitting a wall and I don’t even see envisioning craft beer hitting a while. Craft beer is really the darling of the alcoholic beverage industry at this moment.”
On now versus the 90s:
Chairman, Jim Koch: “[Wholesalers and retailers] are looking for a brand that has some consumer pull, some consumer awareness and buzz. They’re not just grabbing anything from anywhere. I do see this cycle of craft beer growth as healthier, more prudent. It’s also not growing like it did in the 90s [not as unsustainable]. When it slowed down in 1996, it went from 30% to 0% in a month or two. We are not at 30% anymore.
On Twisted Tea:
CEO, Martin Roper: “This year, we will hopefully complete full national distribution. There are still a number of states that we are rolling out and even in those states, our distribution penetration is quite low. Even in states that we rolled out 2-3 years ago, our penetration is quite low. [...] Twisted Tea is at 40-45% ACV (ACV primer) relative to 77-80% on a total US food [distribution channel] basis for other flavored malt beverages. We still have a lot of distribution upside on Twisted Tea. Obviously, it varies enormously by market.”
On Boston Lager’s lackluster performance:
CEO, Martin Roper: “There is probably some effect of cross-trading between the two [drinkers moving from Boston Lager to seasonals]. We would certainly be happier if Boston Lager was stronger so that does get a fair amount of management attention and thought as to what may be going on with any weakness and how to fix that. Our preference would be to have both [Boston Lager and seasonals] growing. You alluded to supermarket class of trade. That’s down. We have some nice growth for convenience stores for our total business. So while our seasonals are growing on a pretty large basis, some of that is cannibalizing [Lager].”
CEO, Martin Roper: “We executed price increases mostly around February 1st (some March 1st and some 4th quarter, 2011) of 3%. We are 2.5 months in. Some competitors have reacted to similar cost pressures that we faced, particularly on the barley side. You see a lot more talk about it. Some competitors haven’t. [...] We’re happy that we’re able to execute. It’s unclear whether it will stick but it looks like most will stick. The time to ask will be on the next earnings call to see what stuck through the summer.”