Boston Beer Co Inc (SAM) September 2026 Conference Transcript

So we're going to get started. It is always such a treat to close out our conference with Chairman, Founder, and Brewer, CEO Jim Cook of Boston Beer. It's also a treat to have him pour a beer for me because not many people get to have the opportunity of a truly professionally poured beer. So thank you again so much for joining us at the conference. It's always such a highlight. Right. So, Jim, over the last year or two, you've increasingly described Boston Beer less as a beer company and more as a participant in what you've described as the fourth category. And you've been talking about the fourth category for a long time, with more and more time dedicated to Beyond Beer.

So how do you define the company you're trying to build over the next decade, and what would success look like from here? um well let's see it when i think about that uh i kind of i go back to uh our mission statement that we actually wrote in the 90s early 90s so we had a i guess a portend of what the market was going to be like in 20 or 30 years our mission is to seek long-term profitable growth by offering the highest quality products to the U.S. beer drinker. And we haven't really changed. That is our mission. It was our mission in 1992. It's our mission tomorrow. And luckily, I think the future that we saw came true, that there were wonderful, delicious, desirable beverages that were out there, but nobody had yet made. And I think that opportunity continues to exist for us. We're really, as a company, built around and finding it in many different ways. And I see the beer category and the beyond beer category as continuing to be both mature and dynamic. So it's kind of like this box, and it's, you know, you look at it at the outside, it's the same height, width, depth, not really moving around or anything, but then you open it up and all hell is breaking loose in there. So that's what I see going on. And if I were to be more specific, what I would use as our success metrics is that revenue growth and expansion and continuing to return cash to the shareholders.

You have previously talked about a belief in the company's unique right to win in emerging beverage categories because of your existing manufacturing capabilities, distributor relationships, and route-to-market advantages. How much of that advantage remains proprietary today versus five years ago, and particularly in the context of RTDs really proliferating and lines blurring at the distributor tier?

Yeah. I guess I'm not totally sure what proprietary means here. We don't have patent protections on anything, but more know-how. But to build an innovation engine is not easy, particularly at any kind of scale. And my experience in doing that is it's a combination of, like, culture, processes, manufacturing capabilities, systems, habits. You know, it starts with a growth culture and a growth mindset. but then you've got to build a lot of different capabilities around that. Speed doesn't go on, and it's not easy to duplicate all of those. And it's a common phenomenon that big companies struggle to innovate, and the way they end up doing it is finding companies that are about to be successful and make them more successful, but they're internal, and that's true in beverages, and it's true in life sciences. You know, the big pharma companies, they're not that innovative, but they know how to buy technology, and in some ways it's probably economically rational for them because their hurdle rate may be higher than the return rate from the entire ecosystem of small innovators.

If we stick with the bigger picture, something else you've also suggested over time is that the future of alcohol will look more fragmented than in past decades. So inside the box, chaos. Fewer mega brands, more premium niche brands. If that's right and that's how the market continues to evolve, how does it change the way that Boston Beer allocates resources? Maybe it's not as much about a handful of billion-dollar brands, but rather a more fragmented and diverse portfolio.

Yeah, I think that Reed is exactly right, and in some ways it's inherent in premiumization. Premiumization generally means fragmentation, and maybe a model is the hard liquor market. and you look at that and what the biggest brand in, you know, in spirits is Tito's, and Tito's is less than 4% of the volume. And you add up, like, the top 20, and I don't think you get to 50%. You may be, you know, when you add up the top 10, like down at the bottom of that list of the top 10, And the first digit is 1%. Maybe it's 1.5%, but that's very fragmented. And also, you know, Spirits has been really good at premiumizing. So I think that is a model for the fourth category and alcoholic beverages. And to your question about how do we then allocate resources, to me, a very advantageous market for us because, you know, something that is half a percent of the beer market is transformative. If we can bring out a product that's a half a percent of the beer market, that's more than 10 percent growth just there. So we're willing to over-invest in things that we know can't be the next Michelob Ultra. But if they're the next Sun Cruiser, that's a big deal for us. And as part of that philosophy, we lean very heavily towards making a margin. For example, Sun Cruiser, it's 30% higher price than Twisted Tea and commensurately higher margins. If it's going to fragment, our philosophy would be it also has to premiumize.

I hadn't heard that before. Now, premiumization is fragmentation, but it's so true. So true. Okay, so in this vein, you've often described Boston Beer as a company willing to fail quickly, and that fits with your comment that, like, you'll over-invest in something that you think has that potential. How would you say your innovation process has evolved over the last several years, you know, whether it's focusing more on new-to-world concepts or brand renovation, but overall, how has the innovation process evolved?

That's a good question. I'm still sort of struggling with the idea of one of our special capabilities is our ability to fail but I guess that's true it was built out okay, good so we have over the last five years, three years spent a lot of time and effort structuring, building a system capability and so So we have a dedicated team. For a company our size, it's quite large. And we are adding capabilities to that team, things like today, really AI-driven, deep social listening, for example, to really highlight trends earlier is something we spent a lot of money on. And just having a very cadenced and structured process, which is basically the innovations team, their job is to come up with a viable new product every three months with the expectation that one out of ten will hit and become a Suncruiser-type product. And for us, so that's failing whatever, 9 out of 10 products, but having a lot of kind of shots on goal. And as a result, if we're successful like that, that is a, you know, I don't know, high-mid, low-mid-digit volume growth rate for us, which, if the margins are also increasing, is a very successful compounding model of financial returns.

You've recently become more selective around advertising investment, including pulling back on about $20 million of lower return spend. Are there any new data sets or analytical tools that have helped you better understand where returns were subpar? And what lessons, if there's like a through line, you know, on kind of where you've decided to dial back to spend, kind of what's the through line if there is one?

There are several. And the answer to your first question is yes. There is a new tool that we've been working on since 2012. So it ended up being called the Holy Grail because it was quite a search. and it's essentially advertising research at scale. Single source means you get a real individual, measure what ads they were exposed to, and then you match that up with their purchase, their actual purchase behavior. And that, for decades, I mean, that's been known, that's the gold standard, but it's super expensive. And so you couldn't really afford to do it. But in today's world, and finally, you know, this has all come together with big data meeting AI. But you can think of it like this. You have an IP address. And today, you know what ads got served to that IP address. And today, that IP address is linked to loyalty card data and credit card data, and that covers 80-plus percent of the purchases in the grocery channels and the other measured channels that we serve. And so you can take that and you can look at an individual IP address, look at their purchase behavior before exposure to the ad and subsequent to exposure to the ad to determine the delta, the increase or lack of increase in their purchase behavior. And with AI, you can match that set of people up to a theoretically identical clone that did not see the ad. And so the difference between the people who saw the increase in purchases from the people who saw the ad or were served the ad relative to the ones who didn't gives you volume. you know your gross profit, you can calculate the incremental gross profit generated by the money you spent exposing people to the ads and get a legitimate ROI on that. And we're not the only ones, I'm sure, doing this, but it's something that we've been working on since 2012. and some of the through lines on that are most advertising doesn't work. Somewhere between 20% and 30% of CPG-type advertising, so sophisticated, really quality advertising, 70% to 80% doesn't work. 20% to 30% works. So that's one. So the odds are against you when you spend money on a hat. The second one is that changes our philosophy about where we put our money. Traditionally, you have an advertising budget for your product line, and each brand gets this much advertising support. And there's a lot of thought, I'm sure, that goes into that, and some politics and some judgment and so forth. but you're advertising against brands. Well, if only 20% or 30% of the advertising out there works, you shouldn't be doing that. You should be advertising against an ad campaign and have an ROI. And as a result, we've taken out all the advertising support for brands until we can demonstrate that the creative generates incremental sales.

How do you then balance maximizing near-term returns and maintaining a level of support needing to keep them culturally relevant? Because you remove all the ads, and maybe it's not incremental growth, but you still have to remain visible?

Or maybe you don't. if it's not generating if it's not changing consumers purchase behavior it's a waste of money I don't know what that means awareness is good but it has to be the right kind so what we've done is then if we had to take that money and invest in other things it might be dealer-loaders, it might be distributor incentives, it might be sponsoring a highly visible team. It might be a sales force incentive. It might be really good point-of-sale material that will get displays built. You have to get into the really grassroots tactical stuff, which works. It works very well. For us, a key way of creating visibility is, through our sales force, getting our products on premise. They are seen and when people can sample them. Just being in the cooler today with this kaleidoscope of fragmentation isn't really going to get you visible. Because, you know, the cooler at a liquor store here in, you know, Boston or Massachusetts or, you know, a grocery store up in New Hampshire, there's just too many brands. And the average consumer probably spends 30 seconds, maybe 60 seconds in the beer aisle in total. So you can't get seen that easily there, but in a bar, they've only got, you know, 10 packaged, you know, beer and fourth category brands, maybe 12 or something. So I'd rather be on that menu than be on the History Channel.

Okay, as an example. Okay, let's now drill down to talk about some specific brands. So let's start with where you're seeing some great success, SunCruiser, which you mentioned earlier. Clearly, the brand's exceeded expectations. But one thing that stands out is this discipline you've shown around keeping it really focused. As you think about the next phase of growth for SunCruiser, how do you balance optimizing near-term opportunities but then still maintaining that long-term health of the brand?

Well, we generally are more focused on the long-term health of the brand. because you can't get there without short-term health. So we've always, as I said with the mission statement, long-term profitable growth. And I think for SunCruiser in particular, this year was the first year where we were fully represented in the chains. I mean, it's only effectively a three-year-old brand. So we have expanded opportunities for more SKUs in the chains, more packages, because we've proliferated packages to address certain needs rather than as much line extensions and flavors as we've done in the past. So we'll do 18 packs so that we can hit a price point at Costco. That creates a lot of visibility. So that's the kind, we believe there is further upside next year. Suncruiser will roughly double this year. I mean, at retail, it's a kind of half a billion dollar brand from nothing three years ago. So I'm very happy about that because it demonstrates our continuing to successfully innovate new-to-world brands and create significant volume and gross margin dollars and so forth from thin air, essentially. But there's still, and there's geographic, the geography, the share that Vodka Tees in general and certainly Sun Cruiser in the Northeast is maybe multiples the size that it is on the West Coast, in California in particular. So there's a lot of growth still to be had geographically. Okay.

So I'm just curious to talk a little about the interaction with Twisted Tea. You've talked about that there's been a little bit of some interaction between the two. How do you think about Optimized Tea Portfolio as a whole rather than looking at the brands individually?

Well, we kind of look at them individually. I'm a big believer in, I guess it was Steve Jobs' aphorism, about, well, if we don't cannibalize ourselves, somebody else will. So go full blast on Twisted Tea. Don't worry about hurting Suncruiser and vice versa. Just maximize meeting consumer needs through the portfolio and recognize there's going to be interaction and don't hold back to try to protect one brand over another.

Great. So, but in that vein, Twisted Tea has faced some headwinds the last couple of years. Your recent commentary has talked a bit about, you know, executional fixes, whether it's like pricing in certain markets, price pack architecture, supporting faster growing line extensions. Do you think that the path back to healthier trends for Twisted Tea is really a matter of execution? Or do you think that, like, consumer preferences have changed and you want to, you know, you need to rethink some of the positioning of the brand?

Both are true, and I think what has happened is that it's not that Suncruisers stole a lot of twisted tea drinkers. We had reasonably good data on that, and it was like 20%. However, something subtler happened, which is the advent of vodka teas sort of depositioned Twisted Tea. And by that I mean a lot of people thought Twisted Tea was from vodka, for example. Even more people didn't care. It tasted good. and the vodka teas are 100 calories. So they raise questions about, well, what's in Twisted Tea? And the exact same thing happened to Mike's Hard Lemonade. Their exact, their numbers track Twisted Tea. People said, huh, oh, it's malt and malt beverage. And that historically has meant like malt liquor and low-end stuff. So that was a depositioning. And then 100 calories, people said, well, what's in Twisted Tea? And the Twisted Tea Light's 110, but Twisted Tea Original is 190. And it hit Mike's similarly, I think they're like 230. So it was that depositioning more than a direct migration of one drinker who was Twisted Tea replacing it with Sun Cruiser.

And so from here, Dan, I know a couple of things. One is you started a Hispanic retail program, oriented retail program this summer. So I'm just curious about how that's gone. Maybe it's a little too early to say, but any read on that consumer cohort and just execution things specifically that you may be doing on Twisted 2. You mentioned light, but things that you're doing to kind of try to get the brand back.

Well, the first question, from what I can see, the Hispanic consumers come back a little bit. They're no longer sending their kid out to buy their groceries because they're worried that ICE is going to scoop them up. So there's a little bit less of that concern. but they are also hit probably more badly than the rest of the population with the increase in, like, fuel and, you know, basic staples. Then the second question was about executional things. And, you know, I think everybody, you know, in this conference is always worried about executional things. You can always get better, and they should be because, you know, and particularly for us, we're in a route to market business. So how we show up at retail, how we get the distributors to, you know, merchandise our product, all those kinds of things really matter. And one of our issues is as this past summer and through this whole year, as vodka teas took off, they became, and other RTDs, they became the hot category, so we lost display space. So, you know, we're always fighting for display space. The pricing kind of, the shelf price in some markets got away from us. I mean, basically, we were growing 20%, so we took price. And then our distributors took even more price than the retailers. So we got to the point where Twisted Tea historically has been a more, you know, middle America type of brand, and it got to the point where it was priced above Stella and Modelo and some of the bigger imports, and that's not really where it should be positioned. So a $19.99 12-pack is the right price point, and we were at even $22.99 in some places. The margins were quite attractive, and we tried to jawbone people down. We were successful in some markets, and we actually saw the volume respond. And then we did some, we're just starting to dip our toe into the revenue growth management, and that led us to say, well, we need a $9.99 price point, but the six-packs aren't going to make that. So we had a four-pack of 16-ounce, and that got us into several thousand dollar type of stores because it hit a $9.99 price point. So things like that.

Okay, great. Just while we're on the topic of kind of closer in trends and what's been going on with these brands, any thoughts on how the balance of the summer trended versus your expectations? Obviously, we had an amazing few weeks for beer in Boston. But do you think the World Cup might have, I'm an optimist at heart, might have helped remind people that it's, like, fun to socialize and meet up with friends outside the home and enjoy the fourth category or the beer category?

I mean, it obviously reminded us in Boston that that was a true story. The Tartan Army literally drank us out of Boston Lager at our tap room twice in one night. We had to send a bartender down to the brewery to load up his station wagon with more kegs, twice. We were pouring a Boston lager every 12 seconds for a couple of hours there. But to your point, I don't know if it carried over. I have to believe it did in some ways. And hopefully that expanded beyond the original 11 host cities. So at the headline, fun story level, it was very cool. It takes a lot to change fundamental habits, but I believe we're slowly rolling back the COVID slumber. and people are realizing that it's part of a happy lifestyle to have friends and to socialize with them, and alcohol has been a part of that for at least 10,000 years. But it's going to take, unfortunately, more than just the World Cup. The summer did not, at least from our point of view, and I think nobody really knows what the real numbers are, but I think the trend has not been good.

So investors naturally spend most of their time talking about Suncruiser, Twisted Tea, and Truly. I was just curious, what brand or business within the portfolio do you think is the most underappreciated today?

Oh, well, Angry Orchard is sort of a sleeper, but it started growing again over a year ago and it's well over 40% of the hard cider category it's kind of angry orchard there is no number two so that's driving category growth for angry orchard it's exciting to me because again it shows that we can take a 30-year-old category. I mean, we've been making hard cider since, I think, 96 or something like that, and bring growth back to it. To me, to bring growth back to Sam Adams. I mean, craft categories struggled for a bunch of reasons. It's mature. There's 10,000 craft brewers. You know, everything got centered around IPA, and so there's not really other growth vehicles for it. But I'm encouraged by, with Sam Adams, we will see. I believe we have very effective advertising. Our Holy Grail methodology is indicating that we're getting a two-to-one ROI on advertising expenditures, so we're going to be expanding that. And then we validated that in some matched market testing. So much better about Sam Adams, so it hasn't shown up in the truck.

Let's shift gears and talk about the margin transformation, which has been a significant part of the story. Spoken about procurement savings, brewery efficiencies, network optimization, and now revenue management is another element. As those earlier productivity areas mature, Or what do you see as the next wave of kind of self-help coming? Where does that come from over the next three to five years?

Well, I think all of them have some ways to go. There is still a lot of what the Japanese would call muda, waste, in our systems. And I began my career as a manufacturing consultant. That was what I did for seven years. I knew nothing about marketing and CPG and so forth, but I knew a lot about foundries and things like that. And it is not unrealistic in today's world where Kaizen and continuous improvements and Six Sigma, all those lean manufacturing, all those basically variations of the Toyota production system, you sort of expect real dollars to come out of your supply chain. So that in and of itself, I think, can continue to drive our margins up. I mean, I know there are some already significant savings for next year that are, you know, in our contracts, in pricing, cans. We have had these extra warehouses outside of the breweries. At one point, we were spending $50 million on them. That is complete mood. Nothing good happens to beer when it's sitting in an unnecessary warehouse. We will be fully out of those. We're out of them almost fully in Cincinnati and working on it in Pennsylvania. And there's other things. There's a lot of million or $2 million items that will continue with momentum next year. Beyond that, it may settle. I mean, we've been taking more than 3% out of our cost structure every year for a few years. And that's where I want to end up is percent a year out of the cost.

So one visible outcome of these productivity efforts has been a significant increase in the percentage of volume you're producing internally. as you continue optimizing the network how do you think about balancing manufacturing efficiency against the flexibility that third party production can give you in a business particularly where consumer trends can change so quickly we've always had backup capacity I think of the third party production you know you have to pay for it you have shortfall fees or you buy equipment there's lots of ways we end up paying for it, but it's not free.

To me, some of it justifies itself because it's in, I mean, we use a city brewery outside of, well, it's in Los Angeles. We don't have any breweries close to Los Angeles. The closest one's Cincinnati, otherwise it's Pennsylvania, so that justifies itself. Then there are capabilities that we don't have. I mean, we just set up two manufacturing sites to make a new, our newest innovation product, which is called LITT, L-Y-T-T. It's a little out there. It's a light bulb, like a 60-watt. Think of a little light bulb, and that little light bulb has 200 milliliters of 15% alcohol liquid. The concept is pre-gaming, which our kids have done, but now you have adults doing it. Because before you go out and you're in a bar where you're buying $18 cocktails, you get a head start. or if you're going into a venue where, I forget what a Sam Adams in Fenway is, maybe it's over $20, you might sneak in a Lit. It's the equivalent of two light beers, and it's also, it tastes delicious. It's a really good mixer, and consumers are taking, we put out capabilities and then they figured out how to use them. So consumers are just mixing it with LaCroix or Polar to make what tastes like a mixed drink. It's a lot of fruit base in most of them, though we're working on a milk base like an espresso martini. It's very pliable in terms of the flavor profile that we can create in those. I don't know how big it will be, but we have now set up to accommodate a reasonably significant demand with two facilities, and it's like $15 million worth of equipment. But we didn't want to put them in our brewery because it's just so different. Nobody's got conveyors to convey light bulbs, and it's different. You know, we're set up to bring in cans and fill in this stuff. You bring in little plugs and injection mold them into the container itself. So when there's weird things like that that we don't want to mess up otherwise quite efficient breweries with, we will do that with a co-packer.

Okay, great. We only have a few minutes left, so just before we conclude today, and hopefully everyone here will join us outside for some delicious Boston beer beverages, I would just love to get your perspective on what you think investors are most likely underestimating today about the business.

I would say our ongoing capabilities that set us apart and make us kind of different. I mean, it's a lot of different things. I mean, we still have an entrepreneurial culture after 40 years. I'm still there driving things and working with an incredibly talented team. We have clearly very strong, if not best-in-class, innovation capabilities. We are becoming the low-cost producer of our very complex product mix. We have a product mix that would cripple, you know, one of the big breweries because they're set up for long runs and economies of scale and everything. We're set up to be flexible, adaptable, but not lose efficiency. We've got what is almost universally acknowledged as the best sales force in the business. That gives us a route to market, especially through on-premise and through independence that nobody else has. We have a great distributor network that's been hand-picked and really great relations with them. I don't know if anybody in this room has heard of the Tamron survey, but the beer distributors rate their suppliers every year. I think they've done it for 18 years, and we've been rated as the number one supplier, I believe, 14 of those 18 years. And this is a route to market business. Distributors are super important. we have a very healthy balance sheet we've never borrowed money we generate cash so we're not distracted by the financial things that most companies we're not good at it maybe we should have been more leveraged but we don't have distractions like that we're just focused on growth Well, thank you so much for being here again this year.

Everyone, please join me in thanking Jim and the rest of the Boston Beer team for being with us.