Five years ago, Sam Adams parent, Boston Beer Company, decided to go all in on hard seltzer. And the clear bubbly stuff soon became one of the craft beer pioneer’s fastest-growing products.
But Boston Beer executives woke up Friday with an expensive hangover. Fizzling demand for their Truly Hard Seltzer led to weak earnings and revenue results, and the company’s stock plunged more than 26 percent, wiping out $2.5 billion in market value in a day.
That came after chief executive Dave Burwick told investors Thursday evening that Boston Beer had “overestimated the growth of the hard seltzer category.”
Expecting a “summer peak,” he said, Boston Beer had increased the production of Truly. But sales didn’t follow, and now the stuff is piling up. Profits at Boston Beer fell 1.6 percent to $59.2 million in the quarter, the company said, and overall sales fell below analyst expectations.
It was a notable miss for the craft beer giant, which had seen its stock price roughly double since the start of the COVID-19 pandemic. And it prompted Goldman Sachs to downgrade Boston Beer’s rating to “Neutral” from “Buy,” with analyst Bonnie Herzog writing that the results came in “well below expectations despite [management’s] consistently confident tone.”
“Bottom line, we believe today’s results could see investors question [Boston Beer’s] growth strategy and expect the stock to pull back as a result,” Herzog said.
Boston Beer chairman Jim Koch cited several reasons for the miss. Sales were hard to predict this year, he said, especially when the same period last year featured widespread “pantry loading” by homebound consumers who were stocking up. And seltzer shelves are getting crowded as more brewers launch their own brands, prompting what he called “consumer confusion.”
Still, the slowed growth came as a shock.
“We were surprised at the sharpness and the suddenness of the change in trajectory,” Koch said. “So it’s a really, really murky crystal ball. It’s more like looking into a bowling ball. You can’t see much.”
And growth in the hard seltzer sector — while still strong — is slowing. IWSR, a London firm that follows drinks markets worldwide, says the hard seltzer market in the US grew 130 percent in 2020, compared to the 200 percent in 2019. This year, it expects 70 percent growth.
“It is still growing, just to not the extent Boston Beer thought,” said Harry Schuhmacher, publisher of Beer Business Daily. “They were caught a little flat footed on the expectation for how big it was going to get.”
Brewers have capitalized on hard seltzer in recent years, with everyone from industry giant Anheuser-Busch InBev to local craft brewers such as Night Shifting Brewing and Wachusett Brewing Co., launching their own takes on bubbly booze. There are signs the market may be getting too crowded: Molson Coors Beverage Company said earlier this month that it would stop making Coors Seltzer.
But Schuhmacher said he doesn’t think that competition is really hurting Boston Beer. Truly and White Claw Hard Seltzer, made by the Mark Anthony Group, still represent about 70 percent of the US hard seltzer market, according to market researcher IRI. Three of every ten cans sold the week of June 11 were Truly’s.
“To me the most important metric is market share,” Schuhmacher said. “You can take it to the bank.”
Rather, he said it’s natural that hard seltzer sales would slow as COVID eased and people began eating out more.
“Seltzers in a can do not lend themselves to being served in bars and restaurants,” he said. “There is not an incentive to push a Truly or White Claw over a Tito’s and soda.”
Despite its name, Boston Beer has become more reliant on seltzer in recent years, as growth has slowed for its flagship Sam Adams beer and Angry Orchard hard cider. Since 2018, Truly and Twisted Tea have helped the company reverse an overall sales slump, and last year consumers bought 37 percent more of Boston Beer’s products than they did the year before.
David Park, manager at Gary’s Liquors in Chestnut Hill, said he hasn’t seen demand for hard seltzer wane, but he admits “everyone and their sister” is trying to get a new drink to the market. Still, his biggest orders — up to 80 cases per week — are for Truly and White Claw, which continue to be the brands of choice.
“The whole category has literally exploded,” he said. “I have not seen it slowing down, if anything it is picking up.”
Burwick hopes so.
He doesn’t know if hard seltzer sales will pick up later this year, calling the company’s outlook “uncertain.” But at this point, Boston Beer has made a big bet.
“Whichever way the category goes,” he said, “We’ll ride it.”