Boston Beer Dumped “Millions of Crates” of Really Strong Seltzer Surplus, Chairman Says

Boston Beer chairman Jim Koch told CNBC on Friday that the company has decided to dump its surplus stock of truly hard seltzer rather than devalue it, in response to declining sales across the category.

“We were very aggressive about increasing production capacity, increasing inventories, sourcing raw materials like cans and flavors, and to be honest, we outbid,” said Koch, who also founded Samuel Adams’ parent company, in an interview with Closing Bell “. “And when growth stopped, we had more of this than we were going to use because there is a shelf life.”

“We want Truly to have this fresh, vibrant flavor, so we’re going to crush millions of crates of product before it’s stale,” he said, explaining why the company lost profit in the third quarter.

Boston Beer reported a surprise loss of $ 4.76 a share after the market closed on Thursday, although revenue of $ 561.6 million exceeded its projected $ 531.5 million, according to StreetAccount. The company’s net income was affected by $ 102.4 million in direct costs associated with the decline in alcohol sales, as well as $ 30.6 million in indirect costs. According to the financial statement, both figures are shown excluding tax breaks.

When asked by CNBC’s Sarah Eisen why Boston Beer decided to ditch the product instead of offering promotions to try to stimulate demand, Koch said the company has doubts about the strategy.

“You know, this is not at all what we do at Boston Beer Co.,” Koch said. “Our mission is to sell high quality products and build high quality brands. So instead of risking them going to market and becoming obsolete and consumers having a bad experience, we decided to make the tough decision and eat. a lot of product, just to make sure consumers don’t get outdated and bad Truly. “

Boston Beer’s second-quarter results, released in July, also came under pressure from weaker-than-expected Truly sales. However, the company is not the only alcoholic beverage company that has suffered financially from a lack of strong seltzer, which has provided brewers with a golden opportunity to grow.

Constellation Brands has incurred a $ 66 million obsolescence penalty related to excess alcohol stocks in its quarter ending Aug.31, which prevented parent company Corona and Modelo from reaching Wall Street’s earnings estimates.

Constellation’s Corona Hard Seltzer debuted last year, as did competing products from Molson Coors and Anheuser-Busch InBev. New brands have also been launched this year, such as Anheuser-Busch’s Cacti Agave Spiked Seltzer.

The hard seltzer category has become a “crazy gold rush,” Koch said, but added that he expects it to “cleanse” and develop in a similar fashion to energy drinks. This is consolidated into a financially healthy space, he says, where Red Bull and Monster Beverage are the clear leaders with a combined market share of around 70%.

“I think we and [Mark Anthony Group’s] White Claw together is close to that 70% and then there will be a lot of clutter, and I think most of this clutter with a long tail will go away, ” said Koh. – I think it will be very beneficial for long-term growth. tough seltzer categories because consumers don’t get so confused. “

Boston Beer closed Friday’s session up 1.63% at $ 525.64 a share. Since the beginning of the year, the stock has fallen by about 47%.

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