The Boston Beer Company – identified as the second largest craft brewing company in the US according to figures from the Brewers Association – saw volumes decrease 6% in 2016 compared to 2015. Depletions decreased by 5% for the year.
This reflected decreases in flagship craft beer Samuel Adams, and seasonal Samuel Adams products, as well as hard cider Angry Orchard. The company says its priority in 2017 will be to return these brands to growth.
‘The slowdown has come faster than anybody expected’
Commenting on a ‘craft shakedown’ in the industry, Jim Koch, founder and chairman, Boston Beer Company, suggested that the phase was ‘more likely to be measured in quarters or years rather than months’.
Boston Beer Company’s fourth quarter 2016 net revenue was $219.4m for the 14-week fiscal period ended December 31, 2016, an increase of $4.2m or 2% from the 13-week fourth quarter 2015 fiscal period, mainly due to an increase in shipments of 2%.
Net income for the fourth quarter was $22.2m, or $1.75 per diluted share, an increase of $6.1m or $0.54 per diluted share from the fourth quarter of 2015.
There was a decrease in net revenue for the 53 week period ending December 31, 2016, to $906m, down 6% compared to the 52 week year in 2015.
Fourth quarter depletion trends were driven by a decline in the flagship Samuel Adams brand, attributed to increased competition in the craft beer category. Angry Orchard also saw declines, attributed to general weakness in the cider category.
“There continues to be a flood of new entrants into the craft space, the same sort of thousand plus new breweries,” he said, speaking in yesterday’s earnings call.
“That pace hasn't slowed yet, though, I think the last quarter or two in craft has begun to change the attitudes of people in the industry. The slowdown has come faster than pretty much anybody expected.
“But the shakeout is going to take a couple of years. And we intend to continue appropriate levels of support for Sam Adams, so that we emerge from this transition period with the strongest - or one of the strongest - brands in the craft industry.
“So we basically fundamentally believe that the categories we're in - craft beer, cider, FMBs - are growth categories. And we have strong brands within those growth categories.
“So our best strategy is to continue to support strong brands and growth categories to generate the most shareholder value in the long run.”
Craft beer vs craft beer
The Boston Beer Company was founded in 1984 and now brews 60 styles of Samuel Adams beer, which it heralded as ‘a catalyst of the American craft beer revolution’. Its portfolio also includes Angry Orchard Hard Cider, Twisted Tea, Truly Spiked & Sparkling, as well as several other craft beer brands brewed by A&S Brewing, its craft beer incubator.
The Boston Beer Company identifies a challenge as drinkers turn to smaller, more local, brewers. But Koch says there is still a long-term opportunity for Samuel Adams, which has been going strong for 33 years.
“I think what we have seen in craft in the last two or three years is a momentum shift, which may well be a passing phase towards new, small and local, and Sam Adams has not been new for a long time.
“It's not local in most of the country, and it's not small.
“So craft swung towards new, small and local: as a lot of people sort of flooded into the category.
“I believe that in the long run, the brands that are well supported, that maintained consistent quality, that stand for important societal values, they ultimately prevail.
“We plan on maintaining our distribution strengths, particularly our sales force, both on-premise and off and our supportive retailers and our wholesalers with the belief that in the long run, Sam Adams will return to growth.”
In the spotlight: Samuel Adams and Angry Orchard
Martin Roper, Boston Beer Company president and CEO, said Angry Orchard and cider trends in the year to date are similar to the declines seen throughout 2016.
The performance of the new Samuel Adams Hopscape – a spring seasonal beer – has been deemed to be ‘disappointing’.
But he pledged that the company’s priority in 2017 will be to return Angry Orchard and Samuel Adams to growth with continued packaging innovation, promotion and brand communication initiatives.
“We like our new Samuel Adams packaging and our media advertising message, Pursue Better, and our plans for the summer.
“Angry Orchard and cider trends year-to-date are similar to the declines we saw in 2016. We are prioritizing returning the cider category and Angry Orchard to growth with a new media campaign and the first quarter national launch of Angry Orchard Easy Apple, an unfiltered refreshing hard cider that was well received in limited test markets last fall.”
And he says that he is positive about the craft beer and cider categories in 2017 and beyond. “We are optimistic for future craft beer and cider category growth, and we are taking steps to ensure that we are well positioned to benefit from that growth,” he said.
“We are committed to investing in reaction to the opportunity that we see with all our brands and remain prepared to forsake short-term earnings as we invest to return to long-term profitable growth.”