This research comes from my investment blog (http://tedinvests.com/posts/). My Blog is formated a bit differently as it provides more graphs/charts and videos. Hope you enjoy the read!
Note - I wrote this post when the stock was trading at $1058.16.
Company description and History:
Boston Beer Co. engages in the alcoholic beverage market. Its brands include Truly Hard Seltzer, Twisted Tea, Samuel Adams, Angry Orchard Hard Cider, Dogfish Head, and Havana Lager. Jim Koch founded his company in 1984 after finding his great-great grandfather’s recipe for Louis Koch Lager in his father’s attic. In 1988, Jim created consumer-readable freshness which stems from the fact that Samuel Adams has a limited shelf life and begins to change over time. Today, Samual Adams is one of the only brewers with a cooperative program with its distributors to buy back its beer when it goes past the freshness date. This company primarily markets to a niche market of beer aficionados that prefer quality and exceptional products. Boston Beer Company prides themselves on their fresh ingredients and level of skill that is required to brew their products. They went public in 1995, offering 3.1 million shares that November and of those it held back 990,000 shares toward loyal customers. These loyal customers include those businesses and people that distributed their products and at that time every six-pack came with a mail-in coupon for discounted shares of SAM stock. Ever since the founding of this company in 1998, Boston Beer Company has been a tiger in the alcoholic beverage industry by playing as a niche player focused on quality.
Total Addressable Market (TAM)
The global beer market is expected to bring in $651 billion in 2021 with the U.S making up the majority of that at $112 billion. When comparing the U.S beer market to Boston Beer’s revenue, we can see that they make up only .5% of the overall market. Thus, this company still has a lot of room to grow but they face heavy competition. Additionally, the hard seltzer market was valued at $3.8 billion in 2019 and by some estimates is expected to reach $10.9 billion by 2027. All that growth registers a compounded annual growth rate of 12.7% from 2021 to 2027. Although, I’ve seen the hard seltzer market be valued as low as $2.5 billion in 2019.
Samuel Adams – According to beeradvocate.com, this beer received a rating of 85/100 with a total of 9,785 ratings. It was listed under the Vienna Lager category and within that category it ranked #24 out of 100. When ranked against all beers it ranked #33,740, however the website does not tell us how many beers have been rated. Thus, I feel as if looking at the rating against beers within its category is the best way to get a sense of where Samuel Adams stands. Looking at the list of top 100 beers within the Vienna lager category, I wasn’t able to recognize any beers that were as well known as Samuel Adams.
Twisted Tea – While I couldn’t find any website that went in depth on the flavor profile of Twisted Tea, Influenster.com gave them a 4.2/5 stars from 170 reviews. Additionally, they were rated 4.4/5 stars on Amazon with 75% of the reviewers giving it 5 stars. I’ve had Twisted Tea a number of times in the past and it tastes how you’d imagine it would. I would recommend this drink to people that enjoy hard seltzers.
Truly Hard Seltzer – When it comes to Truly, there is no doubt that this is a popular hard seltzer. From what i’ve seen, whenever someone is looking to buy hard seltzer they usually pick between Truly or White Claw. Vinepair.com reviewed every flavor available and it’s interesting to see how many variations of Truly there are. Additionally, businessinsider.com pit Truly and White Claw against one another and White Claw came out on top. There are a large number of reviews on YouTube comparing the two and people seem to have mixed feelings with regards to which they prefer. As of right now, it seems that White Claw is the overall favorite.
Products not written about – Angry Orchard Hard Cider, Dogfish Head, and Havana Lager.
First Quarter 2021 Financial Results
Note – “depletion” refers to the rate at which beer, which has already been shipped from the to the distributer, leaves the distributor’s warehouse and ends up to the end users (i.e. drinkers)
Important points to address
The Boston Beer Company to Begin Research and Development of Non-alcoholic Cannabis Beverages (May 14, 2021)- While cannabis infused drinks may take some time before they become mainstream, this is certainly some exciting news and a step in the right direction. Boston Beer Co. recently stated that they would establish a subsidiary that is dedicated to research and innovation in Canada. These drinks will be non-alcoholic and CEO Dave Burwick stated, “We believe non-alcoholic cannabis beverages could represent a new frontier of innovation and want to be ready for future opportunities in the US.” Paul Weaver was appointed to be the Head of Cannabis and in the past he worked for Molson Coors Beverage Company for close to 7 years and Canopy Growth Company for almost 3 years. Thus, I’m excited to see what this company has in store for the future.
The Boston Beer Company And NHL Announce Multiyear U.S. Partnership Making Truly Hard Seltzer The Official Hard Seltzer Of The NHL (Sept. 23, 2019)- While this news isn’t necessarily new, it is certainly an exciting development that hasn’t really had the chance to play out. Covid really began hitting hard with all the lockdowns in 2020 and as a result many sports leagues were forced to close their doors. As we pass Covid and more people start to return to games, we can expect that sales for Truly will ramp up in a nice way on top of the growth this company is already seeing. This agreement is set to last 5 years and marks the first national sports league partnership for Boston Beer Co. and Truly Hard Seltzer. Under the agreement, Truly Hard Seltzer will receive exposure to NHL fans and that includes the opportunity to try out new flavors.
The future of the industry
To get an understanding of what the next 10 years look like for the beer and hard seltzer industry, I searched the web for what experts and professionals in the beer industry had to say. Specifically, I read up on what Donn Bichsel (former chief commercial officer of Revolution Brewing), Kim Jordan ( Co-Founder of New Belgium Brewing), Harry Schuhmacher (Founder of Beer Business Daily), and a few others had to say. First, they predict that this next decade will be one of consolidation in which the large successful brewers that run strong businesses will buyout smaller breweries in order to enhance their businesses. Additionally, the beer industry is already seeing drinkers shift to lower calorie and alcohol content choices as people are starting to become more health conscious. Also, many brewers are starting to innovate by spending money on developing cannabis drinks as the U.S continues to inch closer to federal legalization. When comparing these trends to Boston Beer Company’s current lineup and future plans, it seems that they are pivoting nicely. Not only has Boston Beer Co. proven themselves in the craft beer market with Dogfish Head and Samuel Adams, but they’ve also established themselves in the hard seltzer market. As talked about in the recent developments section, Boston Beer also has their eyes on developing a cannabis beverage. While the cannabis beverage industry is just starting up, it’s been growing at a rapid pace as shown from the graphic below. Thus, the next two drivers for this industry seem to be lower calorie and alcohol content choices such as Truly, White Claw, and low calorie IPAs and cannabis infused drinks.
Comparison to Competitors
Boston Beer Company’s biggest competitors include the likes of Constellation Brands (NYSE: STZ), Anheuser Busch (NYSE: BUD), Molson Coors Beverage Co. (NYSE: TAP), and a few others. In addition to the companies listed, Boston Beer Co. faces competition from a large number of independent breweries that produce similar products and a few of those companies have been mentioned throughout this post. While I could go in-depth into all of Boston Beer’s competitors, that would require far too much work on my end so I leave that up to you. Additionally, rather than look at the beers of the companies I’m going to talk about, I choose to look at what they’re all doing in the hard seltzer space as that is by far the largest growth opportunity ahead of all of them.
As shown from the chart below, Anheuser Busch is by far the largest company in terms of total enterprise value (TEV). Anheuser Busch owns brands such as Bud Light, Budweiser, Rolling Rock, Busch, and more. They recently invested more than $1 billion into U.S supply chains in order to boost their hard seltzer distribution. Constellation brands is the next largest company of the ones I mentioned in terms of total enterprise value. They own brands such as Modelo, Corona, Mi Campo and more. They recently made a push to double their hard seltzer capacity and launch new products to gain market share. Also, in a tweet they posted they claimed that they are already the #4 hard seltzer brand in the U.S. and seeing high Hispanic penetration rates which will likely boost their sales substantially. Lastly, Molson Coors is the closest competitor to Boston Beer Company in terms of TEV and they boast an exciting lineup of brands as well. They own brands such as Blue Moon, Coors, Miller, ZOA, and more. It was noted that in November 2020 they increased their production capacity in terms of hard seltzer by 400%. With that ramp in production came the launch of their Vizzy and Coors Light Hard Seltzers. In addition, they entered an exclusive agreement with Coca-Cola to manufacture, distribute, and market Topo Chico Hard Seltzers in the U.S which recently launched in the beginning of this year. What all this information tells me is that the hard seltzer market is becoming increasingly saturated. Reading this post you may have already known just how saturated the market was, but perhaps it was brought to your attention just how heavy some of the largest beverage companies are investing in the opportunity they’re seeing.
CEO – David A. Burwick
David has served on the Boston Beer’s Board of Directors since May 2005 and was appointed President and CEO in April 2018. Prior to his current position, he served as President and CEO of Peet’s Coffee and Tea, Inc. since December 2012. From 2010 to 2012 David served as President of WW International, Inc. (Weight Watchers) which is a leading provider of weight management services. Mr. Burwick also held numerous positions in Pepsi Co. including Chief Marketing Officer, Executive Vice President of Marketing, Sales, and R&D, and more. His experience in the beverage industry spans far and wide which is one of the main reasons he was hired into his role today.
Founder and Brewer, Dogfish Head – Samuel A. Calagione, III
Samuel A. Calagione, III is the Founder and Brewer of Dogfish Head Brewery and is responsible for managing the Dogfish Head brand in addition to providing insight into all of the company’s brands. Back in June 1995, Samuel and his wife Mariah Calagione founded Dogfish Head and served as CEO until the merger with Boston Beer Company in July 2019. As a result of the merger, Samuel joined Boston Beer’s Board of Directors. His original style has earned him a James Beard Award for Outstanding Wine, Spirits, or Beer Professional. He has been featured in The Wall Street Journal, USA Today, People, Forbes, Bon Appetit, and many other magazines and newspapers. Additionally, he has authored 5 books, including Brewing Up a Business (2011), Off-Centered Leadership (2016), and The Dogfish Head Book: 25 Off-Centered Years (2021).
Chief Marketing Officer – Lesya Lysyj
Lesya joined the company in April 2019 as Chief Marketing Officer. She has over 30 years of marketing experience within the food and beverage industry. Prior to her current position, she served as President U.S. of Sales and Marketing for Welch’s Foods from 2017 to 2019. In addition to her current role, Lesya worked for Heineken USA for 2 years as well as Kraft Foods for 21 years as Vice President of Marketing and Confectionary and Executive Vice President of Marketing.
Management team not mentioned – John C. Geist (Chief Sales Officer), C. James Koch (Chairman and Founder), David L. Grinnell (Vice President, Brewing), and more.
What could go wrong
The hard seltzer market becomes oversaturated – Once you’ve read the sections above, it’s no doubt that we come to understand that the hard seltzer market is starting to become very saturated. While Truly accounted for 26% of the hard seltzer market in 2019 and that’s a significant share, I can’t deny the fact that the many competitors entering this space will likely take market share. Although, it’s not only Boston Beer Co. that will be affected but all of the players in this space. What I suspect will happen as these next couple years unfold is an increase in competition followed by the weak brands exiting the market. Recently we’ve seen popular celebrities/influencers come out with their own brands such as Nelk boys up and coming Happy Dad Seltzer and Travis Scott’s Cacti Hard Seltzer. While you may think these celebrity seltzers will not be big perhaps due to lack of distribution efforts, lack of capital, etc., I want to note that the Nelk Boys and Travis Scott have huge followings among the youth and significant backing. While I cannot exactly find the statistics as to what demographic drinks hard seltzer the most, I want to point out the fact that Coca-Cola plans to target the youth with their own hard seltzer. The fact that one of the largest multinational beverage corporations is targeting the youth points to the fact that the younger generation is the main consumer of these drinks. We have yet to see how this all shakes out, but I’m worried in terms of Boston Beer Company’s ability to maintain market leadership.
The beer market continues to slow down – As stated in the future of the industry section, consumers are increasingly becoming aware of health trends. As shown from the chart below, we can see that beer doesn’t really provide any health benefits. While hard seltzer is similar in terms of health benefits, consumers are likely to think that it is a solid alternative option to traditional beer. This trend is similar to when the soda companies began rolling out diet options. Diet sodas say they have 0 calories and that sounds great but the fact of the matter is that those sodas provide no health benefits. We’ll have to see how this trend plays out, but I feel quite confident in saying that the beer industry will experience some setbacks in at least the near term.
What we want to see in the future
Boston Beer Co. rolls out their cannabis drink – While this may seem like a repeat of the developments section, Boston Beer coming out with a cannabis beverage is their biggest catalyst besides hard seltzer. Boston Beer hired the industry veteran Paul Weaver and he stated, “This is just the beginning of our journey and, like any craft, requires a continuous commitment to learning. We know cannabis is new for many of our drinkers and they deserve the best, which is why we’re taking the time to do this right.” From what Weaver said, it seems that we may have to wait at least a year for this drink to come out. According to Pr Newswire, the global cannabis beverage industry is projected to reach $2.8 billion by 2025 and grow at a CAGR of 17.8% from 2019 to 2025. As of right now, many of the companies developing these drinks are located in Canada. North America is projected to grow at the fastest rate during the forecasted period. The major players in this industry include The Alkaline Water Company, New Age Beverages Corporation, Koios Beverage Corporation, Phivida Holdings Inc., Dixie Brands Inc., VCC Brand, and Hexo Corp.
After spending the last two weeks taking a deep dive into Boston Beer Company, I have to say that I like this company. They have a somewhat fair valuation, a growth opportunity in the hard seltzer market, and they’re making a push for a cannabis beverage. Also, I like how this company is really focused on providing their customers with premium ingredients. Although, they still face heavy competition and whether they will continue to be a strong player in the beverage space is questionable in some respects. As of recently, this stock has been on a downward trend and when I started writing this post this stock was trading at $1058.16 and now it’s at $1036.78. If this stock were to reach $950 or below I would consider starting a position. If this stock goes below $850 then I would certainly start a position considering none of the business fundamentals change at that time.
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Things to look into to get a better understanding of this company: