Analysis - Boston Beer Co's innovations offer optimism
Boston Beer is innovating with a range of products
Boston Beer Company’s CEO resisted getting carried away after his group’s first-quarter figures a few weeks ago. Though the firm reported a rise in profits and sales, the US’ leading craft brewer is aware of the growing competition in the segments it operates in - which include cider and flavoured tea, as well as the beer market.
But Boston’s management may take heart from an optimistic note this week by CLSA analysts who expect its second-quarter and full-year earnings to come in above the current consensus.
So why the optimism?
CLSA brands the Samuel Adams brewer as “a reliable innovator with distribution strength”. The analysts note Boston’s “great success” with Twisted Tea and Angry Orchard cider.
In addition, the company has invested in a “a number of promising craft beer brands and styles” that CLSA suggests “could generate the next big hit”. This is being done through its Alchemy & Science subsidiary. The unit acquired New York craft brewer Coney Island recently, according to the analysts. Separately, the unit launched its own brand called ‘Just Beer’, specialising in low abv brews.
Alchemy & Science already has Angel City Brewing in LA, which it acquired in 2012, and a brand called Travelers, which makes shandies. These brands are aimed at the growing Hispanic population in cities such as LA and Miami, CLSA notes. It plans to open a new brewery in Miami called Concrete Beach in “late 2014”.
The company also has the advantage of getting new products to market fast. Boston’s “strong relationships with wholesalers enable it to get new products almost as quickly as BUD’s (Anheuser-Busch InBev), the note says.
CLSA is further encouraged by IRI data showing that Boston’s off-premise sales grew 33% for the 12 weeks to 18 May. This was led by its still flying Angry Orchard, which saw sales up 140% in the period, meaning the brand now accounts for nearly 30% of the firm’s sales in US channels that are measured.
However, Boston’s beer portfolio is still ticking along nicely. CLSA points to figures showing its sales have grown “double digits” in measured channels, helped by Rebel IPA, now the US’ third biggest-selling IPA.
Turning to risks to the business, the key factors CLSA identifies is that an expansion of the group’s sales force could “prove more costly” than estimates. Another threat is if US consumers began trading down to less expensive alternatives.
But, the way the US craft beer market is still performing, this, in my view, seems unlikely. Craft beer may be a bruising battle, but with its diversfied portfolio, Boston looks like it could be winning it for some time to come.
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