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Trouble looms for Boston Beer Co - Analysis

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On Thursday evening, Boston Beer Co released what looked like another solid quarterly performance as margin and volumes increases pushed up Q3 and YTD sales and profits.

Boston Beers upcoming Nitro range could help boost volumes

Boston Beer's upcoming Nitro range could help boost volumes

But founder Jim Koch struck a strongly negative tone around the results, cautioning that growing competition is threatening growth for the Samuel Adams brand. Analysts were quick to agree, and on Friday morning Boston's share price dropped by as much as 13%.

“Anyone who has walked into a liquor store within the past year can sympathise with Boston Beer,” wrote Nik Modi at RBC. “An onslaught of hundreds of SKUs on shelf are impacting Samuel Adams' ability to get shelf space, let alone grow.”

It is not just Boston's beer that is under pressure. The company's cider brand, the market-dominating Angry Orchard, has also seen declines as the cider category cools. According to Goldman Sachs, Angry Orchard's fall has been worse than expected, going from as much as 40% volumes growth at the start of the year to estimated negative growth, now.

Part of this has been down to the rise of the hard root beer category, which has come from almost nowhere in the US to become a national player. Not Your Father's Root Beer, distributed by the Pabst Brewing Co, has spearheaded the category but mainstream brewers have jumped on board, including Boston Beer and its Coney Island Hard Root Beer. Any boost from that launch, however, and its subsequent national rollout, has faded. RBC's Modi added “it is difficult to get constructive on Boston Beer's ability to accelerate growth in 2016”.

One way could be through another innovation - the Samuel Adams Nitro range, which is due out at the start of next year - for example. Nitro uses nitrogen carbonation of the sort usually found in stouts such as Diageo's Guinness. The process is said to deliver a creamier-style product, but it remains to be seen if consumers will latch on.

Analysts are also waiting to be impressed, with Modi highlighting an “increasing uncertainty” in the US market place. “It will likely take some time for the current retail dynamic to play out and SKU rationalisation to take place,” he said.

None of which will sit well with Boston. When the company unveiled Nitro, it described nitrogen as “the missing fifth beer ingredient”.

Management will be hoping it is also what they have been looking for. 
 


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