Boston Beer (SAM 0.45%) recently reported its fourth consecutive quarter of depletions growth after more than two straight years of declines, but none of this improvement was due to its beer. The brewer's flagship Samuel Adams brand has not seen any growth in depletions (a proxy for demand) since the end of 2014. But there are indications this might be about to change.
Data from market research firm IRI confirms Boston Beer has been quick out of the gate this year, with sales at off-premise stores growing 22.3% during January. That figure looks at sales at locations including grocery stores and mass merchandisers. Notably, Sam Adams variety packs saw sales up more than 12%, and sales of Sam '76 surged almost 78% for the period.
While that suggests the company's Samuel Adams premier lager is still declining, it indicates the brand as a whole can still be repaired.
Check out the latest earnings call transcript for Boston Beer.
Everything but beer
Depletions represent shipments from Boston Beer's distributors to retailers, and it's an important metric because it is used as an industry proxy for consumer demand. The Samuel Adams brand has been in free fall for years now, which has meant that Boston Beer's other alcoholic beverages are playing a much larger role in the brewer's operations.
Data source: Boston Beer quarterly SEC filings. Chart by author.
While Boston Beer doesn't break out production numbers for any of its beverages, the ability of beverages other than beer to control the direction that depletions are taking indicates we're fast approaching a time when the majority of Boston Beer's production is not beer, and we may even have crossed that threshold already.
The company reported 11% depletions growth in the fourth quarter and attributed that to "increases in our Truly Hard Seltzer, Twisted Tea, and Angry Orchard brands that were only partially offset by decreases in our Sam Adams brand."
The brewer certainly has no plans to stop the trend of going after other-than-beer beverages, with Chairman Jim Koch announcing during the company's fourth-quarter earnings call with analysts that it will be introducing three new beverages: a gose beer (pronounced "go-suh"); a hard tea, with fewer calories and less sugar, and a kombucha. If nothing else, Boston Beer is attuned to what the current fads are in brewing and beverages.
Image source: Boston Beer.
What's in fashion
Much as it did with its New England IPA, the beer trend that eschews clarity in favor of cloudiness, Boston Beer is capitalizing on the rising popularity of gose, a sour German beer with a 1,000-year history that's made with salt water, malted barley, and malted wheat instead of hops. A good dose of coriander is also included.
In traditional gose brewing, the wort, or the brew that will become the beer, is allowed to ferment in the open air to give the ambient yeast and bacteria a chance to inoculate it. A second open fermentation subsequently lets the yeast form a natural plug to seal the bottle. Presumably Boston Beer will still use bottle caps or cans to seal its beer.
If you like the idea of drinking a bottle of sweat, gose beer is for you. Of course, that's just my opinion. And considering I'm also not a fan of the ale-lager Sam '76 mashup, either, and its sales are booming, you may want to take my palate choices with, well, a grain of salt. Kombucha is another trendy fermented drink that I find distasteful, but Boston Beer looks smart to get a product in that niche out to customers. In the latest conference call, the company said it plans to launch later in the quarter its Tura Alcoholic Kombucha, "an organic, light and refreshing shelf-stable alcoholic Kombucha with live probiotics and real fruit."
Making a beer run
Beyond the IRI data, Koch also hinted at the turnaround that may finally be under way with the Samuel Adams brand. He noted that despite it being too early to make a definitive call, "it appears that our new advertising campaign has noticeably improved Boston Lager's trends." Boston Beer will be investing more into the campaign in a bid to return Samuel Adams to growth, as well as putting significant money into Sam '76 and New England IPA as they enter their second year.
It's also notable that the gose beer, to be called 26.2, will be Boston Beer's first beer without a Sam Adams label, instead being brewed under the auspices of wholly owned subsidiary Marathon Brewing. Marathons are 26.2 miles and the company says the 26.2 is "a thirst-quenching gose beer made with sea salt to fit runners' active lifestyles."
Although Boston Beer seems to be relying mostly on beverages outside the beer category, there looks to be the opportunity for it to return to its roots of being a brewer. The early signs indicate its efforts are finally beginning to pay off, though it may be a quarter or two before the results come to a head.
