A week from today, leadership overseeing the Boston Beer suite of brands – most notably Samuel Adams beer – will present their Q1 earnings report. If recent hints by founder Jim Koch are any indication, there’s reason to suspect (conspiratorially or not) that it may not be all sunshine and roses.
The last few years have been tough for Boston Beer. Declining interest across a variety of brands accounted for a 7% drop in dollar sales for the Sam Adams portfolio in 2016, sentiment that has only continued into this year.
Through nearly the first quarter of 2017, Boston Lager dollar sales dropped around 8% compared to the same timeframe last year. Rebel, the IPA that was supposed to reinvigorate interest in the brand, got remade to start this year. It’s down 20% in dollar sales so far in grocery, convenience and other bread-and-butter stores for the company.
I, like many others, see Sam Adams as the brand that launched a lifetime of beer geekdom. But things are changing rapidly for the company. For longtime devotees, it’s not much for better as it is worse.
According to figures shared by Beer Marketers Insights at the recent Craft Brewers Conference, Nielsen is tracking the entire Sam Adams franchise as down 20% during the first few months of 2017. Revenues and operating income are declining. Boston Beer’s stock price continues to tread water, hovering around a three-year low in recent weeks.
These changes come at a time in which AB InBev, which now owns Vienna-lager flagships from Devils Backbone and Blue Point, continues to encroach in territory, shelf space and consumers’ minds for Sam Adam’s longtime #1, Boston Lager. Even seasonal beers, once a core area of interest for Sam Adams, has had it rough, with reports of its Hopscape (hoppy wheat ale) seasonal release dragging down sales. In 2015 and 2016, Sam Adams’ main seasonal SKU was down double digits compared to the year prior, including nearly 16% in 2016 vs. 2015.
The trick to keep things from capsizing has been differentiation. Outside of beer, Angry Orchard and Twisted Tea have long helped to buoy Boston Beer’s non-beer sales, and last year, the company jumped into the suddenly popular hard seltzer market, releasing Truly Spiked & Sparkling with a national release.
What this has done to beer production, however, threatens a core credo of the craft industry.
Boston Beer, a pillar to “craft,” continues its slide toward no longer maintaining that designation. According to Brewers Association definitions, a “craft” brewer “has a majority of its total beverage alcohol volume” produced in beer. According to estimates, here’s how beer has fared as part of the Boston Beer portfolio alongside cider and flavored malt beverages in the last seven years:
|% of barrels as beer production|
If trajectory holds, it’s ironic that we may hit 2020 when Boston Beer is hovering around that majority beer production mark, potentially losing “craft” status, at the same time the Brewers Association was once hoping to achieve 20-share of the beer market.
Since Boston Beer’s beer production hit a peak in 2014 with an estimated 2.55 million barrels, overall beer volume has been declining. In 2017, things may be closer to production we saw in 2012, when 2.15 million barrels were made. As other brands grow, the beer percentage continues to decline. It’s part of company leadership’s acknowledgement that funding and attention has to shift toward “highest growth initiatives” that simply are no longer just beer.
And, most important, the competition Sam Adams is now facing isn’t just AB InBev or MillerCoors. It’s from all the small upstarts Jim Koch inspired through his 30 years of success. “Perhaps there is no room for the middle ground,” was something posed on the most recent episode of Jeff Alworth and Patrick Emerson’s Beervana podcast. Emerson, an economics professor at Oregon State University, ruminated:
On one end, you have the big, macro brewers who can brew perfectly good beer, but just at massive scale which gives them enormous cost advantage, and they can brew decent versions of lots of these beers. Then on the other end, you’ve got this incredibly robust, but very local, very … nimble craft beer scene, so you can get lots of stuff that’s local, that’s relevant to you, that’s constantly changing – new flavors, new varieties – and beer drinkers are willing, potentially, to pay a premium for that … Then for the macro beer drinkers they’re excited about a price point that’s very manageable.
In this instance, Boston Beer finds itself getting “beat up” by the robust craft beer scene, Emerson said, noting that Sam Adams, along with other breweries like Sierra Nevada, have turned to flagship variants of Pale Ale (Sidecar Orange Pale Ale) or Rebel IPA (Grapefruit) as a reactionary way to try and gain interest once again.
“These beers suggest what they’re trying to do is stay relevant in the craft beer market rather than chisel away at the macro brew,” he said. “Early on it was all a war about wedging your way into the macro brew world … now its all about staving off competition from below.”
Life comes at you fast.
Naturally, the question is, “what comes next?” Well, there’s that earnings call on April 26. On April 27, Jim Koch is the keynote at The Beverage Forum, where he’ll “address what he and other brewers in the market are doing to bring those growth numbers to where they were as well as what the future holds for craft beer in the America.” There was also that recent NYT op-ed. Jim Koch is a busy man.
BUT. As a fan of Sam Adams (really, they do make good beer that changes beer-focused lives), I understand that Koch deserves to be heard. He’s a goddamned American hero, apparently, but a public tour like this seems more aligned with a book release, like the one from Koch last year, not just for fun. Any investigation on my part is as much pure curiosity as scene setting for what may come next.
And what that is … we’ll get a better idea in a week.
“Don’t drink to get drunk. Drink to enjoy life.” — Jack Kerouac