Q4 2023 Boston Beer Co Inc Earnings Call
Greetings and welcome to the Boston Beer Company fourth quarter 2023 earnings call. At this time, all participants are in a listen only mode.
Operator: Greetings and welcome to the Boston Beer Company fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may be, Thank you.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad and as a reminder, this conference is being recorded.
It is now my pleasure to introduce to you, Mike Andrews Associate General Counsel and corporate Secretary.
Mike Andrews: Mike you may begin.
Mike Andrews: Thank you good afternoon and welcome. This is Mike Andrews Associate General Counsel and corporate Secretary of the Boston Beer Company.
Mike Andrews: Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2023 fourth quarter earnings call. Joining the call from Boston Beer are Jim Cooke, founder and chairman, Dave Berwick, our CEO, and Diego Reynoso, our CF co-founder.
Mike Andrews: Pleased to kick off our 2023 fourth quarter earnings call joining.
Mike Andrews: Joining the call from Boston Beer are Jim Cook, founder and Chairman, Dave Burwick, our CEO and Diego Reinoso our CFO.
Mike Andrews: Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss, and that may come up on this call, reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly forward or publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.
Mike Andrews: Before we discuss our business I'll start with our disclaimer as.
Mike Andrews: As we state in our earnings release, some of the information, we discuss and that May come up on this call reflects the companys or managements expectations or predictions of the future such.
Mike Andrews: Such predictions are forward looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward looking statements additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in the company's most recent 10-Q and 10-K the company.
Mike Andrews: Does not undertake to publicly Ford to publicly update forward looking statements, whether as a result of new information future events or otherwise I will now pass it over to Jim for some introductory comments.
Jim Cooke: I will now pass it over to Jim for some introductory comments. Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Dave who will provide an overview of our business. Dave will then turn the call over to Diego, who will focus on the financial details of our fourth-quarter results as well as our outlook for 2024. Immediately following Diego's comments, we will open the line for questions.
Mike Andrews: Yeah.
Jim Cook: Thanks, Mike I'll begin my remarks. This afternoon with a few introductory comments and then hand over to Dave who will provide an overview of our business. Dave will then turn the call over to Diego, who will focus on the financial details of our fourth quarter results as well as our outlook for 'twenty 'twenty four.
Speaker Change: Or immediately following diego's comments, we will open the line for questions.
Jim Cooke: As I look back on our 2023 performance, I'm encouraged that we saw steady, sequential improvement in depletions as we moved through the year. On a comparable week basis, our depletions improved from a decrease of 7% in the first half to a decrease of 3% in the third quarter and a decrease of 1% in the fourth quarter. We've made progress across the portfolio, and we have innovations that are launching this quarter, which Dave will review in more detail. Gross margins improved by 120 basis points in 2023 as we made progress on our operating plans to generate procurement savings, improve brewery efficiency, lower waste, and optimize our network. Our entire organization is focused on driving margin improvement, and I want to thank all of our cross-functional teams for their continuing efforts.
Dave Burwick: As I look back on 2023 performance I'm encouraged that we saw a steady sequential improvement in depletions as we move through the year on a comparable weeks basis, our depletions improved from a decrease of 7% in the first half two a decrease of 3% in the third quarter and a decrease in.
Dave Burwick: 1% in the fourth quarter, we made progress across the portfolio and we have innovations that are launching this quarter, which Dave will review in more detail.
Dave Burwick: Gross margins improved by 120 basis points in 2023, as we made progress on our operating plans to generate procurement savings improved brewery efficiency lower waste and optimize our network I. Our entire organization is focused on driving margin improvement.
Dave Burwick: And I want to thank all of our cross functional teams for their continuing efforts Diego will provide more details on our gross margin outlook in his remarks, and why we feel good about our long term gross margin potential.
Jim Cooke: Diego will provide more details on our gross margin outlook in his remarks and why we feel good about our long-term gross margin potential. As we move into 2024, we have the strategy and team in place to continue to deliver progress on depletions and margins. We've provided a range of guidance for 2024, with the pace of improvement depending on how the consumer environment plays out and the pace and success of our innovation. We continue to have a highly cash-generative business that delivered over $200 million in free cash flow and ended the year at an all-time high cash balance of almost $300 million and no debt. Our strong balance sheet enables us to invest in our brands and continue to return cash to shareholders, with over $128 million in stock repurchased over the last 14 months.
Dave Burwick: As we move into 2024, we have the strategy and team in place to continue to deliver progress on Depletions and margins. We provided a range of guidance for 'twenty 'twenty four with the pace of improvement depending on how the consumer environment plays out and the pace and success of our.
Dave Burwick: <unk>, we continue to have a highly cash generative business that delivered over $200 million in free cash flow and ended the year at an all time high cash balance of almost $300 million and no debt a strong balance sheet enables us to invest in our brands and continue.
Dave Burwick: You to return cash to shareholders with over $128 million in stock repurchased over the last 14 months.
Dave Burwick: Overall, I'm confident that our diversified portfolio across categories strong brand equities and the best sales force in the industry position us well for long term success.
Jim Cooke: Overall, I'm confident that our diversified portfolio across categories, strong brand equity, and the best sales force in the industry position us well for long-term success. And, finally, I am thankful to our outstanding co-workers, distributors, and retailers who continue to support our business. And I'd like to close with some comments on the press release we issued today regarding Dave's retirement from Boston Beer, which is effective April 1st. I've known and collaborated with Dave for the past 19 years, first as a valued board member and then for the past six years when he served as our CEO for an extraordinary period.
Dave Burwick: Finally, I am thankful to our outstanding coworkers distributors and retailers, who continue to support our business and I'd like to close with some comments on the press release, we issued today regarding Dave's retirement from Boston Beer, which is effective April 1st.
Speaker Change: I've known and collaborated with Dave for the past 19 years first as a valued board member and then for the past six years. When he served as our CEO in an extraordinary period during that time, Dave has had a tremendous impact on our company we've grown from 850 million.
Jim Cooke: During that time, Dave has had a tremendous impact on our company. We grew from $850 million in revenue when he began as CEO to more than $2 billion in revenue with a portfolio of powerful brands and attractive categories. He's built a strong team across the company, and his deep beverage industry expertise and brand building and innovation skills have fortified our portfolio to successfully compete in the broader alcoholic beverage environment. Dave has positioned the company very well for ongoing success in 2024 and beyond. I can't thank Dave enough for his partnership with me over the last two decades, and I wish him the very best. And I know many of you on this call have known Dave for years and have experienced his intelligence and integrity.
Speaker Change: Dollars and revenue when he began as CEO to more than $2 billion in revenue with a portfolio of powerful brands and attractive categories. He's built a strong team across the company and his deep beverage industry expertise and brand building and innovation skills have.
Speaker Change: Fortified our portfolio to successfully compete in the broader alcoholic beverage environment, Dave has positioned the company very well for ongoing success in 'twenty 'twenty four and beyond I can't Thank Dave enough for his partnership with me over the last two decades and I wish him the very.
Speaker Change: Best and I know many of you on this call have known Dave for years and have experienced is intelligence and integrity I have certainly been proud to have him represent Boston beer company to the community of investors and analysts and I look forward to introducing you to our income.
Dave Berwick: I have certainly been proud to have him represent Boston Beer Company to the community of investors and analysts. And I look forward to introducing you to our incoming CEO, Michael Spillane, on the April earnings call. Michael joined Boston Beer's board in 2016 and has been our lead director since May of last year. He has a broad business background with extensive consumer products experience and has spent the past 17 years at Nike. Given his already extensive knowledge of our company and our culture, we expect Michael to hit the ground running as he steps in to help lead us into our next chapter. I will now pass the call over to Dave. Thanks, Jim, and good evening, everyone.
Speaker Change: <unk> CEO, Michael Spillane on the April earnings call, Michael joined Boston Beer's Board in 2016 and has been our lead director since May of last year. He has a broad business background with extensive consumer products experience and has spent the past 17.
Speaker Change: 10 years at Nike given his already extensive knowledge of our company and our culture, we expect Michael to hit the ground running as he steps in to help lead us into our next chapter I will now pass the call over to Dave.
Thanks, Jim and good evening everyone.
Dave Berwick: It's been my privilege to be connected to the company since I joined the board of directors in May 2005, and I've greatly enjoyed adding whatever value I could to build our people capabilities and improve our growth prospects over the years, whether as a board member or in the last six years as CEO. My tenure as CEO has included the pandemic, as well as significant shifts in consumer behavior and the competitive dynamics in our category. We've had our ups and downs during that time as we've adjusted our approach and our organization to meet the challenges. With great plans lined up for 2024, I believe we're poised for growth, and now is the right time for me to move on. I'd like to thank Jim for giving me the wonderful opportunity to lead this organization, as well as our wholesalers, for their dedication and partnership.
Dave Burwick: It's been my privilege to be connected to the company since I joined the board of directors in May 2005, and I've greatly enjoyed that and whatever value I could to build our people capabilities and improve our growth prospects over the years, where there was a board member or in the last six years as CEO.
Dave Burwick: My tenure as CEO was included the pandemic as well as significant shifts in consumer behavior and the competitive dynamics in our category.
Dave Burwick: We've had our ups and downs during that time as we've adjusted our approach and our organization to meet the challenges.
Speaker Change: With great plans lined up for 2024, I believe we're poised for growth and now is the right time for me to move on.
Speaker Change: I'd like to thank Jim for giving me the wonderful opportunity to lead this organization as well as our wholesalers for their dedication and partnership I'm, especially grateful for the talented committed and passionate people Boston beer, who taught me much about leadership and myself over the past six years.
Dave Berwick: I'm especially grateful for the talented, committed, and passionate people at Boston Beer who've taught me much about leadership and myself over the past six years. I'd also like to thank our investors and analysts who've supported the company during my tenure. Boston Beer has a very unique and powerful culture, and I'm confident the organization is in great hands to take advantage of the opportunities ahead of it.
Speaker Change: I'd also like to thank our investors and analysts who have supported the company during my tenure.
Speaker Change: Boston Beer is a very unique and powerful culture and I'm confident the organization is in great hands to take advantage of the opportunities ahead of it.
Speaker Change: And now I'll turn to a discussion of our business results.
Dave Berwick: And now I'll turn to a discussion of our business results. As Jim mentioned, our fourth quarter volume showed continued improvement, and we remain focused on sustaining Twisted T's industry-leading growth and turning Truly's volume trends while improving our supply chain performance to enhance our gross margin and provide more funds to invest in our brands and our top-ranked industry sales force. I'll now provide some color on our brand. Twisted Tea in the fourth quarter had 29% dollar sales growth while adding 2.4 dollar share points and expanding its overall share leadership to 28% of total F&B dollar sales and measured optimum channels. The sustained demand is a result of balanced efforts at growing both physical availability via improved geographic channel and package distribution and mental availability via a highly effective advertising campaign, increased media investment, expanded college football tailgating platform in the fourth quarter, and optimized packaging design that highlights the brand's distinctive assets. Twisted Tea Party Pack is now the third largest and the fastest-growing SKU among all F&Bs, and our wholesaler service levels are in a very good position to support further growth.
Speaker Change: As Jim mentioned, our fourth quarter volume showed continued improvement we remain focused on sustaining Swiss cities industry, leading growth and turning true as volume trends.
Speaker Change: While improving our supply chain performance to enhance our gross margin and provide more funds to invest in our brands and our top ranked industry sales force.
Speaker Change: I'll now provide some color on our brands.
Speaker Change: Twisted tea in the fourth quarter at 29% dollar sales growth, while adding 2.4 dollars share points and expanding as overall share leadership to 28% of total F. N B dollar sales in measured channels.
Speaker Change: This sustained demand as a result of balanced efforts at growing both physical availability, the improved geographic channel and package distribution and mental availability via <unk>.
Speaker Change: Billy effective advertising campaign increased media investment expanded college football tailgating platform in the fourth quarter and optimize packaging designs that highlights the brands distinctive assets.
Speaker Change: Twisted Tea Party pack is now the third largest and the fastest growing SKU among all F N B's and our wholesale where service levels are in very good position to support further growth importantly.
Dave Berwick: Importantly, our superior product quality and brand relevance have sustained our success as the fastest growing major brand in beer for the past three years. We intend to invest heavily in 2024 with a goal of continuing Twisted T's trajectory in the face of more competition. We remain confident that Twisted Tea will accomplish this goal in 2024 for many reasons.
Speaker Change: Importantly, our superior product quality and brand relevance have sustained our success as the fastest growing major branded beer the past three years.
Speaker Change: We intend to invest heavily in 2024 with a goal of continuing twisted tea trajectory in the face of more competition.
Speaker Change: We remain confident that twisted tea will accomplish this goal in 2024 for many reasons.
Dave Berwick: First, there remains upside in growing brand awareness and household penetration, and our ad campaign is working. Second, there's still ample room to broaden distribution through shelf space gains and new channels. As I mentioned in our last call, Twisted Tea continues to increase shelf space, and those benefits will further fuel the business of 2024. Having said that, while it holds a 28% dollar share in FMVs, it still only has 18% of FMV shelf space. Twisted Tea is underpenetrated versus other F&B competitors.
Speaker Change: First there remains upside and growing brand awareness and household penetration and our AD campaign is working.
Speaker Change: Second there is still ample room to broaden distribution through shelf space gains and new channels.
Speaker Change: As I mentioned on our last call twisted tea continues to increase shelf space and those benefits will further fuel the business in 2024.
Speaker Change: Having said that while holds a 28% dollar share in F. N fees is still only has 18% of F N b shelf space.
Speaker Change: The on premise channel twisted tea is underpenetrated versus other F&B competitors that has a 60 share and drove 96% of the volume growth in beyond beer for the full year in 2023.
Dave Berwick: for the full year in 2023. Third, the brand is underdeveloped with Black and Hispanic and Latino consumers. We enjoyed a 55% household penetration increase within these demographics in 2023 as a result of our marketing efforts, and we plan to aggressively expand our investment this year. Fourth, there's opportunity to widen the brand's presence in underdeveloped markets, and we're making great progress in places like Texas and California, where our household penetration among Hispanic and Latino consumers is above 40%. Underscoring the future potential of this emerging new consumer brand. Finally, last year represented the early stages of Twisted Tea Light's national launch, and we've seen the sales per point accelerate and exceed our expectations. It's approximately 85% incremental to the TwistedTea portfolio. Given the excellent response among consumers, retailers, and wholesalers, we believe light is an X-factor for brand growth in 2024 and therefore plan to more aggressively expand our distribution and marketing support. Lastly, in the second half of 2023, we began testing in several markets Twisted Tea Extreme, a higher ABV version of Twisted Tea. Twisted Tea Extreme is part of our efforts to increase drinking occasions and add new drinkers, and we will expand distribution during 2024. Now on to Truly.
Speaker Change: Third the brand is underdeveloped with black and Hispanic and Latino consumers, we enjoyed a 55% household penetration increase within these demographics in 2023 as a result of our marketing efforts and we plan to aggressively expand our investment this year.
Speaker Change: Fourth theres opportunity to widen the brand's presence in underdeveloped markets and we're making great progress in places like Texas, and California, where our household penetration among Hispanic and Latino consumers is above 40%.
Speaker Change: Underscoring the future potential with this emerging new consumer group in France.
Speaker Change: Fifth last year represented the early stages of twisted tea lights National launch and we've seen the sales per point accelerate and exceed our expectations its approximately 85% incremental to the twisted tea portfolio.
Speaker Change: Given the excellent response, among consumers retailers and wholesalers, we believe light as an X factor for brand growth in 2024, and therefore plan to more aggressively expand our distribution and marketing support.
Speaker Change: Lastly in the second half of 2023, we began testing in several markets twisted tea extreme a higher ABV version of twisted tea.
Speaker Change: Twisted tea extreme as part of our efforts to increase drinking occasions, and that new drinkers, and we will expand distribution during 2024.
Speaker Change: Now onto truly.
Speaker Change: We remain confident in the changes we made to the brand proposition starting in the second quarter of 2023 and have seen sequential improvements in our results in essence, we're re crafting a new truly brand to stand for light refreshments versus bolder flavors and are shifting the mix in that direction.
Dave Berwick: We remain confident in the changes we made to the brand propositions started in the second quarter of 2023 and have seen sequential improvements in our results. In essence, we're re-crafting a new Truly brand to stand for light refreshment versus bolder flavors and are shifting the mix in that direction. This takes patience and time, and we're seeing progress in our efforts.
Speaker Change: This takes patience and time and we're seeing progress on our efforts for.
Speaker Change: For example.
Speaker Change: During this time the brand has moved from a 35% mix of lightly flavors styles to 55% and the likely flavored part of the portfolio is actually growing 2% year to date. It has gained two full share points versus year ago.
Speaker Change: Given twisted tea strong growth truly continues to become a smaller part of our portfolio mix with twisted tea now one nine times larger than truly and measured off premise channels in the fourth quarter.
Dave Berwick: During this time, the brand has moved from a 35% mix of lightly-flavored styles to 55%, and the lightly-flavored part of the portfolio is actually growing 2% year-to-date and has gained two full share points versus a year ago. Given Twisted Tea's strong growth, Truly continues to become a smaller part of our portfolio mix, with Twisted Tea now 1.9 times larger than Truly and measured off-premise channels in the fourth quarter. We expect hard seltzer category volumes to decline in the low teens in 2024 compared to a decline of 21% in 2023 and remain focused on investing in innovation, advertising, and growing fiscal availability of our lightly flavored portfolio to hold share. In the fourth quarter and measured off-premise channels, Truly's dollar sales declined 22% and a loss of $2.9 share points versus a 27% decline in dollar sales and a loss of $3.4 share points for the full year of 2023.
Speaker Change: We expect hard seltzer category volumes to decline low teens in 2024 compared to a decline of 21% in 2023 and remain focused on investing in innovation advertising and growing physical availability of our lightweight flavor portfolio to hold share.
Speaker Change: In the fourth quarter and measured off premise channels truly dollar sales declined 22% and our lost $2 $9 share points versus a 27% decline in dollar sales and a loss of $3 $4 share points for the full year of 2023.
Speaker Change: Underlying this improved trend is much better performance in our Lightwave flavor variety packs in 24 ounce single serve cans.
Speaker Change: I'll, let me flavor variety packs gained 0.4 dollars share points in the fourth quarter and grew share broadly in almost every <unk> multi outlet market.
Speaker Change: Meanwhile, our 24 ounce single serve cans from 5% in the fourth quarter, while gaining 0.7 dollars share points, while velocity also increased additionally.
Speaker Change: Additionally, variance citrus variety pack trends are improving across the country as our new party pack is now starting to hit the market.
Dave Berwick: Underlying this improved trend is much better performance in our lightly flavored variety packs and 24 ounce single serve cans. Our lovely flavored variety packs gained $0.40 share points in the fourth quarter and grew share broadly in almost every Circana multi-outlet market. Meanwhile, our 24-ounce single-serve cans grew 5% in the fourth quarter while gaining $0.7 share points, while velocity also increased. Additionally, berry and citrus variety pack trends are improving across the country as our new party pack is now starting to hit the market. Lastly, our rotator strategy of offering new flavors in a variety pack three times a year, utilizing the same UPC, is building momentum. Our newest entry, the Getaway Pack, has exceeded forecast and, in the latest four weeks, is Truly's number four selling SKU and has the fastest sales per point in the portfolio.
Speaker Change: Lastly, our rotator strategy of offering new flavors in a variety pack three times a year utilizing the same UPC is building momentum.
Speaker Change: Our newest century, the getaway pack has exceeded forecast and in the latest four weeks is truly number for selling SKU and has the fastest sales per point of the portfolio.
Speaker Change: Over the past nine months, our packaging refresh merchandising and innovation focus on light flavors, New rotator program push behind single serve in the convenience channel New AD campaign and higher media spend all have contributed to these improved brand trends.
Speaker Change: As previously announced we're planning some innovations for the truly brand launching this quarter that include a new 8% ABV truly unruly variety pack, which will replace our chewy Margarita pack and a new truly party pack, which will replace our chewy tropical pack.
Speaker Change: In addition, we've approved the recipe of both truly eliminated fruit punch to create a lighter more refreshing finish addressing the key issue with lapsed drinkers.
Dave Berwick: Over the past nine months, our packaging refresh, merchandising, and innovation focus on light flavors, new rotator program, push behind single server in the convenience channel, new ad campaign, and higher media spend all have contributed to these improving brand trends. As previously announced, we're planning some innovations for the Truly brand that will launch this quarter that include a new 8% ABV Truly Unruly Variety Pack, which will replace our Truly Margarita Pack, and a new Truly Party Pack, which will replace our Truly Tropical Pack. In addition, we've approved the recipe for both Truly Lemonade and Fruit Punch to create a lighter, more refreshing finish, addressing a key issue with lapsed drinkers.
Speaker Change: Also late this quarter, we will start the national launch of truly tequila soda, which tested successfully in several markets in the fall.
Speaker Change: We believe these innovations will better position the truly brand offering and set us up well for continued improved trends in 2024.
Speaker Change: Yeah.
Speaker Change: While maintaining twisted tea is double digit growth in approving truly trajectory remain our top priorities as we enter 2024.
Speaker Change: We have a broad portfolio and we will continue to support and build out our smaller brands.
Speaker Change: Our Samuel Adams brand grew its share of craft by 0.2 points across all channels in the fourth quarter. According to the beer Institute.
Speaker Change: We will continue to invest behind Boston Lager, and our seasonal <unk>. In addition to our non alcohol portfolio, including just the haze in gold Rush Golden Lager, which grew 79% in dollars and $1 $1 share points in the fourth quarter and measured off premise channels.
Speaker Change: We're very excited to share today that in May we will start to broadly expand the hard mountain dew distribution footprint beyond the existing 17 states currently serviced by Blue cloud to all 50 states serviced by our own beer wholesaler network.
Dave Berwick: Also, late this quarter, we will start the national launch of Truly Tequila Soda, which tested successfully in several markets in the fall. We believe these innovations will better position the Truly brand offering and set it up well for continued improved trends in 2024. While maintaining Twisted T's double-digit growth and improving Truly's trajectory remain our top priorities as we enter 2024, we have a broad portfolio and will continue to support and build out our smaller brands. Samuel Adams grew its share of craft by 0.2 points across all channels in the fourth quarter, according to the Beer Institute. We'll continue to invest behind Boston Lager and our seasonals, in addition to our non-alcoholic portfolio, including just the Hays We're very excited to share today that in May, we'll start to broadly expand the Hard Mountain Dew distribution footprint beyond the existing 17 states currently serviced by Blue Cloud to all 50 states serviced by our own beer wholesaler network.
Speaker Change: There is tremendous excitement within our distribution network about this move from Blue cloud to beer to wholesalers and we believe it puts us in a great position to expand the reach and consumption of our dew, which has demonstrated very strong sales per point and repeat but has not yet benefited from extensive distribution it.
Speaker Change: It will take some time to fully transitioned to the Boston beer wholesaler network and we expect to benefit primarily in the second half of 2024 and into 2025.
Speaker Change: While currently a small part of our portfolio, we see incremental opportunities in spirits spaced our Tds.
Speaker Change: Truly blocker soda has strong repeat and continues to gain distribution and chewy tequila soda and demonstrated good results in test markets in the fourth quarter.
Speaker Change: Meanwhile, Dogfish Head's award, winning canned cocktails of gain a solid foothold in the traditional canned cocktails segment, and we have new packaging styles, including 12% ABV offerings coming to market in the first half of 2024 to enhance our brand offering and drive growth.
Speaker Change: To add to our spirits based Archie portfolio, we're very excited about the launch of Sun cruiser, a new vodka based hard tea brand, which has been enthusiastically embraced by wholesalers and retailers. While we originally had planned to launch in only 15 markets across the U S. Late in the first quarter.
Dave Berwick: There is tremendous excitement within our distribution network about this move from Blue Cloud to Beard Wholesalers, and we believe it puts us in a great position to expand the reach and consumption of Hardew, which has demonstrated very strong sales per point and repeat but has not yet benefited from extensive distribution. It will take some time to fully transition to the Boston Beer and Wholesaler Network, and we expect to benefit primarily in the second half of 2024 and into 2025. While currently a small part of our portfolio, we see incremental opportunities in spirits-based RTDs. Chewy Vodka Soda has strong repeat and continues to gain distribution, and Chewy Tequila Soda demonstrated good results in test markets in the fourth quarter.
Speaker Change: Given the opportunity we now see we've decided to launch it starting next week with the intent to be national by the end of the year.
Speaker Change: Turning to our supply chain.
Speaker Change: We continue to modernize our supply chain through investments in equipment capacity and improved systems and processes.
Speaker Change: We're maintaining our focus on our three key areas of savings procurement brewery performance and waste in overall network optimization and have multiyear savings plans across each of these categories, which we expect will generate significant long term gross margin expansion.
Speaker Change: Diego will discuss gross margin in more detail in his remarks.
Speaker Change: We're also closely managing our operating expenses, we expect to use the cost savings that these efforts generate to nurture new innovation and support increased brand support and within brand spend both converting non working to working dollars and shifting our mix from traditional to digital and social media.
Dave Berwick: Meanwhile, Dogfish Head's award-winning canned cocktails have gained a solid foothold in the traditional canned cocktail segment, and we have new packaging and styles, including 12% ABV offerings coming to market in the first half of 2024 to enhance our brand offering and drive growth. To add to our spirits-based RTE portfolio, we're very excited about the launch of SunCruiser, a new vodka-based hard tea brand which has been enthusiastically embraced by wholesalers and retailers. While we originally planned to launch in only 15 markets across the U.S. late in the first quarter, given the opportunity we now see, we've decided to launch it starting next week with the intent of being national by the end of the year. Turn it into our supply chain.
Speaker Change: In summary, we are optimistic about the long term outlook for our diversified beverage portfolio. Our company has exceptional innovation and brand building capabilities. The top sales organization and PR and a cash generative business model with an excellent balance sheet to support long term growth.
Speaker Change: We're building Depletions momentum and we believe our focus on twisted tea and truly in an exciting innovation offering across multiple brands, including Sun cruiser, The heart Mountain Dew rollout into our beer wholesaler network angry Orchard Crisp light and other has not yet announced put us in a very strong position to continue to improve our volume trends.
Speaker Change: And return to growth later in 2024.
Speaker Change: I'll now hand, it over to Diego to discuss our detailed financial results and our 2020 for guidance.
Dave Berwick: We continue to modernize our supply chain through investments in equipment, capacity, and improved systems and processes. We're maintaining our focus on our three tiers of savings, procurement, brewery performance, and waste and overall network optimization, and have multi-year savings plans across each of these categories, which we expect will generate significant long-term gross margin expansion. Diego will discuss gross margin in more detail in his remarks.
Diego Reinoso: Thank you Dave good afternoon, everyone.
Diego Reinoso: Before I discuss our fourth quarter results in detail I'd like to give an overview of 2023 performance.
Diego Reinoso: We delivered depletions down 6% for the year, which was at the midpoint of our guidance.
Diego Reinoso: Shipments were slightly below the midpoint as wholesale inventories declined by one week in the fourth quarter.
Gross margin expanded 120 basis points for the year to 42, 4%.
Diego Reynoso: We're also closely managing our operating expenses. We expect to use the cost savings that these efforts generate to nurture new innovation and support increased brand support and within brand spend, both converting non-working to working dollars and shifting our mix from traditional to digital and social media. In summary, we're optimistic about the long-term outlook for our diversified beverage portfolio. Our company has exceptional innovation and brand-building capabilities, the top sales organization in beer, and a cash-generative business model with an excellent balance sheet to support long-term growth. We're building Depletion's momentum, and we believe our focus on Twisted Tea and Truly and an exciting iteration offering across multiple brands, including Suncruiser, the Hard Mountain Dew Rollout into our Beer Wholesaler Network, Angry Orchard Crisp Lite, and others not yet announced, put us in a very strong position to continue to improve our volume trends and return to growth later in 2024. I'll now hand it over Thank you, Dave. Good afternoon, everyone.
Diego Reinoso: Excluding the increases in contractual prepayment expenses and shortfall fees, which I will discuss in more detail later in my remarks gross margin was 44, 3%.
Diego Reinoso: non-GAAP EPS of $7 17.
What's at the lower end of our guidance due to the volume impact of lower than estimated wholesaler inventories at year end and our fourth quarter income tax adjustment.
Diego Reinoso: Turning to fourth quarter results.
Diego Reinoso: Our 2023 fiscal fourth quarter included 13 weeks compared to the 2022 fiscal either which included 14 weeks. We've included the full details of our fourth quarter performance in today's earnings release so.
Diego Reinoso: So I'll just briefly discuss the key drivers.
Diego Reinoso: Fiscal calendar Depletions for the quarter decreased 9% from the prior year.
Completions on a 13 week comparable basis decreased 1% from the prior year.
Diego Reinoso: Primarily due to declines in truly hard seltzer, partially offset by growth in twisted tea.
Diego Reinoso: Adams nonalcoholic offerings, and dogfish head Ken cocktail.
Diego Reinoso: Fiscal calendar shipment volumes for the quarter was approximately $1 5 million barrels.
Diego Reynoso: Before I discuss the fourth quarter results in detail, I'd like to give an overview of 2023 performance. We delivered depletions down 6% for the year, which was at the midpoint of our guidance. Shipments were slightly below the midpoint, as wholesale inventories declined by one week in the fourth quarter.
Diego Reinoso: At 12, 2% decrease from prior year.
Diego Reinoso: On a 13 week comparable basis shipments decreased three 5% in the fourth quarter.
Diego Reinoso: We believe distributor inventory as of December 30, <unk> 2023 averaged approximately four weeks on hand compared to five weeks on hand at the end of the third quarter.
Diego Reynoso: Gross margin expanded 120 basis points for the year to 42.4%, excluding increases in contractual prepayment expenses and shortfall fees, which I will discuss in more detail later in my remarks. Gross margin was 44.3%. Non-Gap EPS of $7.17 was at the lower end of our guidance due to the volume impact of lower than estimated wholesaler inventories at year end and a fourth quarter income tax adjustment. Turning to the fourth quarter results, Our 2023 fiscal fourth quarter included 13 weeks compared to the 2022 fiscal year, which included 14 weeks. We've included the full details of our fourth quarter performance in today's earnings release. So I'll just briefly discuss the key drivers. Fiscal calendar depletions for the quarter decreased 9% from the prior year.
Diego Reinoso: Our fourth quarter gross margin of 37, 6% increased 60 basis points from the 37% margin realized in the fourth quarter of 2022.
Diego Reinoso: As we mentioned on our last earnings call. The majority of our shortfall fees are booked in the fourth quarter.
Diego Reinoso: Excluding shortfall fees and third party production prepayments that I'll discuss in more detail later in my remarks gross margin was 47%.
Diego Reinoso: Advertising promotional and selling expenses for the fourth quarter of 2023.
Diego Reinoso: Decreased $10 6 million.
Diego Reinoso: Or seven 6% from the fourth quarter of 2022.
Diego Reinoso: With lower freight costs fully offsetting increased brand investment and then selling cost.
Diego Reinoso: We reported a net loss of $18 1 million or.
Diego Reinoso: Or $1 49 per diluted share.
Diego Reinoso: The year over year change in.
Diego Reinoso: Net loss and loss per diluted share was driven by lower revenues, including the loss of the 50 <unk> week.
Diego Reynoso: Depletions on a 13-week comparable basis decreased 1% from the prior year, primarily due to declines in Truly Hard Seltzer, partially offset by growth in Twisted Tea, Sam Adams' non-alcoholic offerings, and Dogfish Head Canned Cocktail. Fiscal calendar shipment volumes for the quarter were approximately 1.5 million barrels. A 12.2% decrease from the prior year, on a 13-week comparable basis, shipments decreased 3.5% in the fourth quarter
Partially offset by higher gross margins and lower operating expenses.
Diego Reinoso: Now I'd like to provide some detail on the components of our gross margin.
Diego Reinoso: And why we feel confident we can improve our margins over the long term.
Diego Reinoso: The key operational drivers of our gross margin are volume commodities labor costs, and our productivity efforts around procurement savings brewery performance and waste and that worked optimization.
Diego Reinoso: Additionally to the extent, we experienced significant growth and partnership brands and variety packs.
Diego Reynoso: We believe distributor inventory, as of December 30, 2023, averaged approximately four weeks on hand, compared to five weeks on hand at the end of the third quarter. Our fourth quarter gross margin of 37.6% increased 60 basis points from the 37% margin realized in the fourth quarter of 2022. As we mentioned on our last earnings call, the majority of our shortfall fees are booked in the fourth quarter. Excluding shortfall fees and third-party production prepayments, that I'll discuss in more detail later in my remarks, gross margin was 40.7 percent. Advertising, promotion, and selling expenses for the fourth quarter of 2023 decreased $10.6 million, or 7.6% from the fourth quarter of 2022, with lower freight costs, fully offsetting increased brand investment and selling costs. We reported a net loss of $18.1 million, for $1.49 per diluted share.
Diego Reinoso: There will be some mix headwinds.
Diego Reinoso: Most of our productivity savings during 2023 came from procurement and reducing waste at our breweries.
Diego Reinoso: In 2024 and beyond we export we expect more equal contributions.
Diego Reinoso: All three savings buckets for which I'll provide some color.
Diego Reinoso: We continue to see opportunities for procurement savings on material impacted tree.
Diego Reinoso: Primarily due to the price negotiations and recipe optimization.
Diego Reinoso: Brewery performance in absolute volumes as well as the mix of internal versus external production impacts our ability to leverage fixed costs in our plants.
Diego Reinoso: We experienced volume declines in 2023 and our margin.
Diego Reinoso: <unk> for 2024 reflects a range of potential outcomes for volume.
Diego Reinoso: We had a 71% internal and 29% external volume mix in 2023.
Diego Reinoso: And plan to continue to move more volume internal over time, while balancing our commitments to external manufacturers.
Diego Reinoso: With more consistent and predictable volumes and improved supply chain processes and systems.
Diego Reinoso: We have more savings opportunities in waste and network optimization.
Diego Reinoso: In the first half of 2024, we are implementing an automated customer ordering and inventory management system.
Diego Reynoso: The year-over-year change in net loss and loss per diluted share was driven by lower revenues, including the loss of the 53rd week, partially offset by higher gross margins and lower operating expenses. Now, I'd like to provide some detail on the components of our gross margin and why we feel confident we can improve our margins over the long term. The key operational drivers of our gross margin are volume, commodities, labor costs, and our productivity efforts around procurement savings, brewery performance, and waste and net worth optimization. Additionally, to the extent we experience significant growth in partnership brands and variety packs. There will be some mixed headwinds.
Diego Reinoso: We believe along with other improvements in our supply chain processes will help further reduce waste and optimize our network.
Diego Reinoso: In addition, as previously discussed.
Diego Reinoso: Before the decline in volumes related to hard seltzer in the second half of 2021.
Diego Reinoso: We entered certain contractual agreements to access third party production capacity.
Diego Reinoso: Which continued to impact our gross margin.
Diego Reinoso: The costs associated with these agreements include shortfall fees for not meeting contractual production minimums and third party production prepayments that are expensed over the estimated life although related agreements.
Diego Reinoso: Together these contractual items negatively impacted gross margins by 185 basis points in 2023 and.
Diego Reynoso: Most of our productivity savings during 2023 came from procurement and reducing waste at our brewery. In 2024 and beyond, we expect more equal contributions from all three savings, for which I'll provide some comments. We continue to see opportunities for procurement savings on materials and packaging, primarily due to price negotiations and recipe optimization. However, brewery performance in absolute volumes, as well as the mix of internal versus external production, impacts our ability to leverage fixed costs in our plant. We experienced volume declines in 2023, and our margin, Guidance for 2024 reflects a range of potential outcomes for volunteers. We had a 71% internal and 29% external volume mix in 2023, and we plan to continue to move more volume internal over time while balancing our commitments to external manufacturing, with more consistent and predictable volumes and improved supply chain processes and systems. We have more savings opportunities in waste and network optimization.
Diego Reinoso: And are expected to have 175 to 225 basis points negative impact in 2024.
Diego Reinoso: Excluding excluding these two items the midpoint of our gross margin guidance for 2024 would be approximately 46%.
Diego Reinoso: As these contractual terms expire we will reassess our capacity needs and commitments with like third party production partners.
Diego Reinoso: The multi year operational improvements, we are making in our business together with the diminishing impacts of the contractual items I just discussed give.
Diego Reinoso: Give us confidence that we have a strong pathway to significantly improve our gross margin overtime to high forty's to 50% dependent on volume product mix and commodity inflation.
Speaker Change: Now I'll discuss our 2024 guidance in detail.
Diego Reinoso: Our fiscal week depletion trends for the first eight weeks of 2024 have decreased 2% from 2023.
Diego Reinoso: We are currently planning 2024, depletions and shipments to.
Diego Reinoso: To change between a decrease of low single digits to an increase of low single digits.
Diego Reinoso: We expect price increases of between 1% and 2%.
Diego Reinoso: Full year 2024 reported gross margins are expected to be between 43% and 45%.
Diego Reynoso: In the first half of 2024, we are implementing an automated customer ordering and inventory management system that, we believe, along with other improvements in our supply chain processes, will help further reduce waste and optimize our network. In addition, as previously discussed, before the decline in volumes related to hard seltzers in the second half of 2021, we entered into certain contractual agreements to access third-party production capacity, which continues to impact our gross margin. The costs associated with these agreements include shortfall fees for non-meeting contractual production minimums and third-party production prepayments that are expensed over the estimated life of the related agreement.
Diego Reinoso: We expect commodity inflation in 2024, but at a lower rate that in 2020 three.
Diego Reinoso: Primarily driven by sweeteners and flavorings.
Diego Reinoso: We expect to cover commodity inflation with pricing and expect some additional margin headwinds from higher labor costs in our breweries in 2024.
Diego Reinoso: Our investments in advertising promotional and selling expenses are expected to change between a decrease of $5 million.
Diego Reinoso: And then increase of $15 million.
Diego Reinoso: This does not include any changes in freight costs for shipments of products to our distributors.
Diego Reinoso: We estimate our full year 2024 effective tax rate to be approximately 27, 5%.
Diego Reinoso: We are currently targeting full year 2024 earnings per diluted share of between $7 and $11.
Diego Reynoso: Together, these contractual items negatively impacted gross margins by 185 basis points in 2023 and are expected to have a 175 to 225 basis points negative impact in 2024. Excluding these two items, the midpoint of our gross margin guidance for 2024 would be approximately 46%. As these contractual terms expire, we will reassess our capacity needs and commitments with our third-party production partners. The multi-year operational improvements we are making in our business, together with the diminishing impacts of the contractual items I just discussed, give us confidence that we have a strong pathway to significantly improve our gross margin over time to the high 40s to 50%, dependent on volume, product mix, and commodity inflation. Now I'll discuss our 2024 guidance in detail. Our fiscal week depletion trends for the first eight weeks of 2024 have decreased 2% from 2023.
Diego Reinoso: This projection is highly sensitive to changes in volume projections.
Diego Reinoso: Particularly related to the hard Seltzer category.
Diego Reinoso: Mix of owned versus partner brands supply chain performance and inflationary impacts on consumer spending.
Diego Reinoso: As you model out the year. Please keep in mind that our business is impacted by seasonal volume changes with the first quarter and the fourth quarter being lower volume quarters in the fourth quarter typically our lowest absolute gross margin rate of the year.
Diego Reinoso: Turning to capital allocation, we ended the quarter with a cash balance of $298 5 million and then unused credit line of $150 million.
Diego Reinoso: Which provides us with the flexibility to continue to invest in our base business fund future growth initiatives and return cash to our shareholders through our share buyback program.
Diego Reinoso: For the full year of 2024, we expect capital expenditures of between $90 million and $110 million.
Diego Reinoso: Investments will primarily relate to our own breweries to build.
Diego Reinoso: Capabilities and improve efficiencies.
Diego Reinoso: Yeah.
Diego Reinoso: During the 52 week period ended December 32023, and the period from January three 2024 through February 23 2024.
Diego Reynoso: We are currently planning 2024 depletions and shipments to change between a decrease of low single digits to an increase of low single digits. We expect price increases of between 1% and 2%. Full year 2024 reported gross margins are expected to be between 43% and 45%.
Diego Reinoso: We repurchase shares in the amount of $92 9 million.
Diego Reinoso: And $35 $6 million respectively.
Diego Reinoso: For a total of $128 5 million of repurchase since January 2023.
Diego Reinoso: As of February 23, 2024.
Diego Reynoso: We expect commodity inflation in 2024, but at a lower rate than in 2023, primarily driven by sweeteners and flavorings. We expect to cover commodity inflation dollars with pricing and expect some additional margin headwinds from higher labor costs in our breweries in 2024. Our investments in advertising, promotional, and selling expenses are expected to change between a decrease of $5 million and an increase of $15 million. This does not include any changes in freight costs for shipments of products to our distributors.
Diego Reinoso: Approximately $230 million remaining on the $1 2 billion of share repurchase authorization.
Speaker Change: This concludes our prepared remarks.
Speaker Change: And now we'll open for a line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Diego Reinoso: One moment, please pull for questions.
Diego Reinoso: And the first question comes from the line of Nik Modi with RBC. Please proceed with your question.
Diego Reynoso: We estimate our full year 2024 effective tax rate to be approximately 27.5%. We are currently targeting full year 2024 earnings per diluted share of between $7 and $11. This projection is highly sensitive to changes in volume projections, particularly related to the hard-sell ship category, mix of own versus partner brands, supply chain performance, and inflationary impacts on consumer spending. As you model out the year, please keep in mind that our business is impacted by seasonal volume changes, with the first quarter and the fourth quarter being lower-volume quarters, and the fourth quarter typically being our lowest absolute gross margin rate of the year. Turning to capital allocation, we ended the quarter with a cash balance of $298.5 million and an unused credit line of $150 million, which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to our shareholders through our shared buyback program.
Sunil Harshad Modi: Yes. Thank you good evening, everyone and Dave Best of luck going forward and Diego welcome.
Sunil Harshad Modi: I guess the.
Sunil Harshad Modi: Couple of questions actually just maybe this is on for Jim.
Sunil Harshad Modi: When you think about Michael is it.
Sunil Harshad Modi: A permanent fix.
Sunil Harshad Modi: Sure or is it more of an interim situation would just love your thoughts on that.
Sunil Harshad Modi: And then getting to the whole gross margin dynamic.
Sunil Harshad Modi: It strikes me.
Sunil Harshad Modi: Visibility on on volume has been pretty weak and innovation has been such a critical part of Boston beer.
Sunil Harshad Modi: Both.
Sunil Harshad Modi: Historically, and so I'm just how do you guys think about.
Sunil Harshad Modi: That you know in terms of really trying to get more consistency.
Sunil Harshad Modi: In terms of hydro volume since it's such a critical part of the profitability and the margin progression of the company. Thank you.
Speaker Change: Thanks, Nick.
Speaker Change: Ill take the first part of that question Mike.
Speaker Change: Michael is.
Speaker Change: A permanent fixture.
Speaker Change: It's not.
Speaker Change: Ill fill in a gap for a year.
Speaker Change: This is a significant commitment for him so.
Diego Reynoso: For the full year 2024, we expect capital expenditures of between $90 million and $110 million. These investments will primarily relate to our own breweries to build capabilities and improve efficiency. During the 52-week period ended December 30, 2023, and the period from January 3, 2024 through February 23, 2024, we repurchase shares in the amount of $92.9 million and $35.6 million, respectively, for a total of $128.5 million of repurchased since January 2023. As of February 23, 2024, we had approximately $230 million remaining on the $1.2 billion share repurchase authorization.
Speaker Change: It.
Speaker Change: This does not interim caretaker situation.
Speaker Change: Okay.
Speaker Change: I'll take the second part Nik.
Sunil Harshad Modi: You are correct that volume is one of our biggest pieces in our gross margin journey. So we've done a few things as I mentioned before we implemented a new system to help us integrate with our distributors and really work on our volume forecasting but the second thing is we've got a lot of exciting innovation coming down our path.
Sunil Harshad Modi: As you saw the announcement today on mountain Dew, we've got some strong innovations coming with some cruiser and some other brands that we haven't talked about yet so I think as we go forward I feel positive that those will help us down the path.
Sunil Harshad Modi: Again on the operations part of that volume forecasts, but also on the branded side of that forecast.
Speaker Change: Nick I'll just build on <unk> vehicles comments too I think we need to get to broad based growth across the entire portfolio. Obviously, we have electricity.
Operator: This concludes our prepared remarks. And now, we'll open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate that your line is in the queue.
Sunil Harshad Modi: <unk> made progress with truly it's not going to grow this year, but we're making progress there, but when you look at first.
Sunil Harshad Modi: First of all it comes down to Brent building those five brands that we have they are very strong brands and we need to grow them without innovation.
Sunil Harshad Modi: There is line extension innovation this year and new to World innovation in the case of Sun cruiser arguably.
Operator: You may press star 2 if you'd like to remove your question. For participants using speaker equipment, it may be necessary to pick up your hand set before pressing. One moment, please, while we pull. And the first question comes from the line of Nick Modi with RBC. Please proceed with your question. Yeah, thank you. Good evening, everyone. And Dave, best of luck going forward. And Diego, welcome.
Sunil Harshad Modi: Our wheelhouse, which is fast.
Sunil Harshad Modi: Fast follower innovation and when you look at it we feel as we enter this year, we have broad based avenues for growth. So again on twisted tea will probably get into a pot twisted tea light.
Sunil Harshad Modi: Only 14% of the ECB, there's a big opportunity, which you might be interested he extreme which we're going to broaden Diego mentioned, we have argue which now goes to our wholesalers is a lot of interest there.
Jim Cooke: I guess a couple of questions actually, just maybe this one for Jim, just when you think about Michael, is this a permanent fixture, or is this more of an interim situation? We'd just love your thoughts on that. And then getting to the whole gross margin dynamic. You know, it strikes me that visibility on volume has been pretty weak, and innovation has been such a critical part of Boston Beer's growth historically. And so I'm just wondering how you guys think about that, you know, in terms of really trying to get more consistency in terms of how you grow volume since it's such a critical part of the profitability and the margin progression of the company. Thanks, Nick. I'll take the first part of that question. Michael is a permanent fixture.
Sunil Harshad Modi: The southern cruiser brand is something that we've always viewed this regionally, but theres been so much interest.
Sunil Harshad Modi: From wholesalers and retailers that we're going to as I mentioned in the script, we're going to go nationally on.
Sunil Harshad Modi: We truly.
Sunil Harshad Modi: Unruly is coming in the IBD product is going to replace Margarita.
Sunil Harshad Modi: Party pack, which is replacing the tropical pack, we have three sort of LTE or we call them rotator packs, they're all likely flavored and the reformulation of lemonade and fruit punch and I could go on.
Sunil Harshad Modi: So we feel like Theres a lot of innovation.
Sunil Harshad Modi: It's a nice combination of building our brands.
Sunil Harshad Modi: The core brands, adding smart line extension to those brands and then when we see the opportunity going coding new to world and to US like we feel like this is the year, we got to demonstrate that we can get growth not just from one brand. It's not truly that is not towards the T. It's it's across more than more than one or two brands in the portfolio and we.
Jim Cooke: It's not a, you know, fill in the gap for a year. This is a significant commitment for him. So this is not an interim caretaker situation. I'll and I'll pick the second part, Nick.
Diego Reynoso: You are correct. Volume is one of our biggest pieces in our gross margin journey. So we've done a few things. As I mentioned before, we implemented a new system to help us integrate with our distributors and really work on our volume forecasting. But the second thing is we've got a lot of exciting innovation coming down our path. You saw the announcement today on Mountain Dew.
Sunil Harshad Modi: We set the table to do that.
Speaker Change: Thank you best of luck again, Dave I'll pass it on thanks, Nick.
Speaker Change: And the next question comes from the line of Kamil <unk> with Jefferies. Please proceed with your question.
Kamil: Hey, guys, Dave Congratulations.
Kamil: And over the next coming days I'm sure you're going to get this.
Diego Reynoso: We've got some strong innovations coming with SunCruiser and some other brands that we haven't talked about yet. So I think as we go forward, I feel positive that those will help us down the path, both again on the operations part of that volume forecast, but also on the branded side of the forecast. And Nick, I'll just build on Diego's comments too.
Kamil: Question privately, but maybe I'll just do it publicly as well as one of the many things that you did you've done is increase your outreach to investors and just helping you investors and analysts out maybe a little bit more.
Speaker Change: We hope that continues.
Speaker Change: As it relates to business.
Speaker Change: Maybe you talked about the success of our Tds and such can you just talk maybe a bit about how big that is as part of your portfolio and.
Dave Berwick: I think we need to get to broad-based growth across the entire portfolio. Obviously, we have it with Twisted Tea. We've made progress with Chuy. It's not going to grow this year, but we're making progress there. But when you look at, first of all, it comes down to building those five brands that we have. They're very strong brands, and we need to grow them without innovation.
Speaker Change: Maybe what that those businesses are growing kind of collectively.
Speaker Change: Sure sure I think you're right I mean, just as I mentioned in the script too. It's a small it's a small part of the portfolio obviously rtd's.
Speaker Change: And the next wave thats kind of come in to the shore and so we're competing in a quiet and across multiple areas. So we talked I think that's a really interesting point for that brand.
Dave Berwick: But there is line extension innovation this year and new-to-world innovation. In the case of SunCruiser, arguably in our wheelhouse, which is fast follower innovation. And when you look at it, we feel, as we enter this year, we have broad-based avenues for growth. So again, on Twisted Tea, we'll probably get into it, but Twisted Tea Lite is only 14% of the ACV.
Speaker Change: Mentioned, we have a 12% ABV products coming out this year, which is an important part of that can cocktail piece, obviously, we're truly parka seltzer.
Speaker Change: Barca soda, it's done it's done okay. It hasn't it's not big right now.
Speaker Change: And you know high newness continues to dominate that space, we have to Cuba coming out and then some provision which we think is really interesting play on <unk>, which obviously, we know T. R T very well so.
Dave Berwick: There's a big opportunity with Twisted Tea Lite. We have Twisted Tea Extreme, which we're going to broaden. Diego mentioned we have Hardew, which now goes to our wholesalers.
Speaker Change: We're making a big push it starting now with all of these <unk>.
Speaker Change: It's still not going to be a huge part of our portfolio. It's probably we're saying I don't know three to three 4% of the business in total, but it's a place we have to play and we'll see.
Dave Berwick: There's a lot of interest there. The Suncruiser brand is something that we had planned to do regionally, but there's been so much interest from wholesalers and retailers that we're going to, as I mentioned in the script, we're going to go national on. We truly, you know, and really, it's coming in as a high ABV product that is going to replace the margarita. We have the Party Pack, which is replacing the Tropical Pack. We have three sorts of LTO; we call them Rotator Packs. They're all lightly flavored and the reformulation of Lemonade and Fruit Punch.
Speaker Change: Played so far with existing brands like in dogfish and truly now we're going to launch a new one in <unk>, we will see how that how that works for us.
Speaker Change: Got it. Thank you it sounds like you might have the free time now so we can I would love to see you in Nantucket.
Speaker Change: I might just be their call.
Speaker Change: Okay, I might add a little bit of color to how we view.
Speaker Change: RTD space and.
Dave Berwick: And I could go on. So we feel like there's a lot of innovation. It's a nice combination of building our brands, the core brands, adding smart wine extension to those brands, and then when we see the opportunity, going new to the world. And to us, like we feel like this is the year we got to demonstrate that we can get growth, not just from one brand. It's not truly that it's not twisted tea.
Speaker Change: It's obviously early days.
Speaker Change: That's it.
Speaker Change: In sense of many things take a decade or more to gel in this business right now.
Speaker Change: They're roughly two and a half percentage of beer volume when you put them all together all the spirits based.
Speaker Change: Canned products ranging from.
Speaker Change: Crown Royal and <unk>.
Speaker Change: <unk>.
Speaker Change: High noon.
Speaker Change: It's interesting Lee.
Dave Berwick: It's across more than one or two brands, the portfolio. And we feel we've set the table to do that. Thank you. Best of luck again, Dave. I'll pass it on.
Speaker Change: Not.
Speaker Change: <unk> in any way by.
Speaker Change: The traditional spirits companies.
Operator: Thanks. And the next question comes from the line of Kamil Gajrawala with Jefferies. Please proceed with your question. Hey, guys, Dave, congratulations.
Speaker Change: From.
Speaker Change: Our data it looks like they have less than 10%.
Speaker Change: Of that volume.
Speaker Change: And of course, the Big winner is a wind company Gallo with high noon in second place actually goes to.
Dave Berwick: And over the coming days, I'm sure you're going to get this question privately, but maybe I'll just do it publicly as well. One of the many things that you've done is increased your outreach to investors and just helping, you know, investors and analysts out maybe a little bit more. And we hope that continues. As it relates to business, can you maybe, you talked about the success of RTDs and such; can you just talk maybe a bit about how big that is as part of your portfolio and maybe how those businesses are growing kind of collectively? Sure, sure, Kamal.
Speaker Change: The folks at Anheuser Busch, with cutwater, and neutral and Devil's backbone and a few other things.
Speaker Change: So we view that as actually a significant opportunity that will not necessarily fall to the spirits companies and it's very much wide open to us.
Speaker Change: People in our situation. These products basically have made in our brewery because you need a high speed can line in mixed Blaine and things like that and we believe.
Speaker Change: May be best sold by our wholesalers because they werent the cold box.
Dave Berwick: I think, right, I mean, just as I mentioned in the script too, it's a small part of the portfolio. Obviously, RTDs have been the next wave that's kind of come to shore. And so we're competing across multiple areas. So with Dogfish, I think that's a really interesting play for that brand. And I mentioned we have 12% ABV products coming out this year, which is an important part of that canned cocktail piece. Obviously, with Vodka Seltzer, and Vodka Soda, it's done, it's done okay.
Speaker Change: Our our.
Speaker Change: A really attractive opportunity for a player like us foods.
Speaker Change: It's really been focused on the beyond beer space.
Speaker Change: And new to world brands seem to be winning in that space are new to world brands are probably 80% of the volume so.
Speaker Change: We view it as a place where we can and should play and where we have some real competitive advantages over the entrenched competitors, especially the spirits companies.
Speaker Change: That's really good color. Thank you.
Speaker Change: And the next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
Dave Berwick: It hasn't, you know, it's just not big right now. And, you know, High Noon has continued to dominate that space. We have Tequila coming out, and then Suncruiser, which we think is a really interesting play on RT, which obviously we know RT very well.
Steve Powers: Hey, Thanks, Good evening guys, Dave Best of luck for me as well.
Steve Powers: A couple of questions probably for Diego actually if I could.
Steve Powers: First one just a little bit of cleanup I think coming into the quarter.
Dave Berwick: So we're making a big push. It's starting now with all of these. Still not going to be a huge part of our portfolio. It's probably, we're saying, I don't know, three, maybe two, three, 4% of the business in total. But the place we have to play, and we'll see, you know, we have played so far with existing brands, like Dogfish and Truly. Now we're going to launch a new one, Suncruiser. We'll see how that works for us. Got it, thank you. Sounds like you might have some free time now, so we'd love to see you in Nantucket.
Steve Powers: You guys had guided the extra week to be a six point impact I think it ended up being more of a nine point impact just talk me through the math there.
Steve Powers: What caught you by surprise.
Steve Powers: Yes.
Speaker Change: I think as we mentioned before one of the things that we saw was.
Speaker Change: Wholesaler inventories being lower than we expected and that was specifically in the last couple of weeks of the year.
Speaker Change: That extra week that we dropped off ended up being significantly more a bigger delta that we had originally guided to and that's what took the guidance from $6 two nine points.
Dave Berwick: I might just be there. I might add a little bit of color to, you know, how we view RTD space. And, you know, it's obviously early days with it, in the sense that many things take a decade or more to gel in this business. Right now, they're roughly two and a half percent of beer volume when you put them all together, all the spirits-based canned products, ranging from, you know, Crown Royal in a can to High Noon. It's interestingly not dominated in any way by traditional spirits companies.
Speaker Change: Okay perfect. Okay. That's helpful and then as we can.
Speaker Change: Think about 24 gross margin step up.
Speaker Change: Embedded in the guide.
Speaker Change: You talked about inflation.
Speaker Change: Some some pricing offsetting that but not a lot of pricing.
Speaker Change: And it sounds like the shortfall fees in the third party production payments are going to be.
Speaker Change: Round about the same year over year, if not maybe a little bit more so what drives the gross margin expansion as it all productivity or are there other levers that you have.
Speaker Change: But youre seeing that maybe I'm not thinking about.
Jim Cooke: From, you know, our data, it looks like they have less than 10 percent of that volume. And, of course, the big winner is a wine company, Gallo, with High Noon. And second place actually goes to the folks at Anheuser-Busch with Cut Water and Neutral and Devil's Backbone and a few other things. So we view that as a significant opportunity that will not necessarily fall to the spirits companies. And it's very much wide open to people in our situation. These products are basically made in a brewery because you need a high-speed can line and mixed blend and things like that.
Speaker Change: No I think you've read it really well so we have pricing to 1% to 2% that should help us offset the majority of the inflation, but we will continue with the savings agenda that we talked about last year.
Speaker Change: Initially a lot of our savings we thought came from scrap and other pieces now we're really focusing on the other areas which is the.
Speaker Change: The network optimization and some of the some of our purchasing contracts pieces. So we think those pieces will continue in the next two years three years to provide some opportunities for growth and gross margin.
Jim Cooke: And we believe it may be best sold by beer wholesalers because they work the cold box and are a really attractive opportunity for a player like us who's traditionally been focused on the beyond beer space, and new-to-world brands seem to be winning in that space. The new-to-world brands are probably 80 percent of the volume. So, you know, we view it as a place where we can and should play and where we have some real competitive advantages over the entrenched competitors, especially the spirits companies. That's really good color.
Speaker Change: Okay very good alright ill leave it there thank you.
Speaker Change: Okay.
Speaker Change: And the next question comes from the line of Rob Ottens time with Evercore ISI. Please proceed with your question.
Rob Ottens: Great. Thank you very much and all the best Dave.
Rob Ottens: Jim.
Rob Ottens: I'm wondering.
Rob Ottens: Sure.
Rob Ottens: Really good at it.
Rob Ottens: Examining and understanding competition and I don't I don't know if this is competitively sensitive or not but love to get your thoughts.
Rob Ottens: On you know why high noon has been so successful and what you've kind of learned from that and maybe how you can pivot from that.
Rob Ottens: So that that would be question number one.
Operator: Thank you. And the next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question. Hey, thanks. Good evening, guys. Dave, best of luck for me as well. A couple of questions, probably for Diego, actually, if I could.
Rob Ottens: And then and then the second question.
Rob Ottens:
Speaker Change: Maybe for it for anybody.
Speaker Change: How do you see the hard tea category developing.
Speaker Change: A lot of new entrants now you know or are you seeing just kind of the overall category getting a lot of shelf space.
Diego Reynoso: The first one's just a little bit of a clean-up. I think coming into the quarter, you guys had guided the extra week to be a six-point impact. I think it ended up being more of a nine-point impact, so if you could just talk me through the math there and what caught you by surprise.
Speaker Change:
Speaker Change: How how do you see that.
Speaker Change: That moving over time and are you going to have to make any sort of changes in terms of your competitive activity to hold on to your.
Diego Reynoso: Yes, I think as we mentioned before, one of the things that we saw was wholesaler inventories being lower than we expected, and that was specifically in the last couple of weeks of the year. So that extra week that we dropped off ended up being significantly more, a bigger delta than we had originally guided to, and that's what took the guidance from 6.0 to 9.0. Okay, perfect. Okay, that's helpful.
Speaker Change: You know very significant leadership position.
Speaker Change: Yeah.
Speaker Change: Well I'll start with high noon.
Speaker Change: My view on it is.
Speaker Change: You did a bunch of things right I'm going to start out with Gallo is a really excellent company.
Speaker Change: We in the early days modeled our sales force on them 35 years ago.
Speaker Change: They executed retail well.
Diego Reynoso: And then, you know, as we think about 24, the gross margin step-up. You talked about inflation, some pricing offsetting that, but not a lot of pricing. And it sounds like the shortfall fees and the third-party production payments are going to be around about the same year over year, if not maybe a little bit more. So what drives gross margin expansion? Is it all productivity, or are there other levers that you're seeing that maybe I'm not thinking about? No, I think you've read it really well.
Speaker Change: I think.
Speaker Change: The first thing they did is they realized that there was a potential to premium is hard seltzer.
Speaker Change: And they did that.
Speaker Change: Uh huh.
Speaker Change: Quite correctly with a simple proposition of real vodka real fruit so.
Speaker Change: Hats off to them for that and then they.
Speaker Change: I haven't really bad.
Speaker Change: Dominated liquor channel and gone to link our wholesalers.
Speaker Change: In that channel liquor wholesalers are often able to do things that you can't do with beer and.
Diego Reynoso: So, we have set prices at 1.2%. That should help us offset the majority of the inflation, but we will continue with the savings agenda that we talked about last year. Initially, a lot of our savings, we thought, came from scrap and other pieces.
Speaker Change: Yes.
Speaker Change: Beer wholesalers, you'll probably not.
Speaker Change: We used to doing big discounts.
Speaker Change: Our IP and New Jersey, as a QD in Massachusetts et cetera.
Diego Reynoso: Now, we're really focusing on the other areas, which is the network optimization and some of our purchasing and contract pieces. So, we think those pieces will continue for the next two years, three years to provide some opportunities for growth and gross margin. All right, I'll leave it there. Thank you.
Speaker Change: That's been part of their excellence.
Speaker Change: Excellent.
Speaker Change: And execution and.
Speaker Change: I think a good role model for all of us to learn from them.
Speaker Change: With the second question is a.
Speaker Change: How do I see hard developing.
Speaker Change: Right now.
Speaker Change: Clearly hard twist.
Speaker Change: Twisted tea.
Jim Cooke: And the next question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question. Great, thank you very much, and all the best, Dave.
Speaker Change: Nominate and they've been in over the years lots of competitors that have been thrown at it and none of them really even made much of a dent.
Speaker Change: Today, everybody is piling into it there is literally hundreds of new competitors.
Jim Cooke: So, Jim, I'm wondering, you know, you're really good at examining and understanding competition, and I don't know if this is competitively sensitive or not, but I would love to get your thoughts on why High Noon has been so successful and what you've kind of learned from that, and maybe how you can pivot from that. So that would be question number one. And then the second question... Um, maybe, um, for anybody, you know, how do you see the hard tea category developing? A lot of new entrants now, you know, are you seeing just kind of the overall category getting a lot of shelf space? You know, how do you see that moving over time, and are you going to have to, you know, make any sort of changes in terms of your competitive activity to hold on to your, you know, very significant leadership position? Well, I'll start with High Noon.
Speaker Change: I don't see much traction from the vast majority of them, what I don't know as well something.
Speaker Change: Begin to get traction.
Speaker Change: With a brand name from somewhere else.
Speaker Change: Like Arizona or a monster.
Speaker Change: But they have a big high hill to climb 'cause twisted tea is the original we defined the flavor profile, so too hard tea drinker.
Speaker Change: It should take like twisted tea and.
Speaker Change: Hard flavor profile to duplicate T is an interesting.
Speaker Change: Thing to work with flavor wise, it's Scott.
Speaker Change: The matane ends in polyphenol is you've got to account for so.
Jim Cooke: My view on it is, you know, they did a bunch of things right. I mean, to start out with, Gallo is a really excellent company. We, in the early days, modeled our sales force on them 35 years ago because they did retail well. I think, you know, the first thing they did was realized that there was a potential to premiumize hard seltzer. And they did that, quite correctly, with a simple proposition of real vodka and real fruit. So hats off to them for that.
Speaker Change: Oh.
Speaker Change: I mean, we continue to believe that.
Speaker Change: Twisted tea can grow with the category growth rate, which means and I don't know what we have 85% of the category now and the rest is split among a bunch of people I just don't.
Speaker Change: I don't see a strong number two emerging but.
Speaker Change: We've got great competitors out there everybody from.
Speaker Change: You know Fremont and meet people, we don't normally face monster to Coca Cola Gallo.
Jim Cooke: And then they have really...dominated the liquor channel and gone through liquor wholesalers, and in that channel, liquor wholesalers are often able to do things that you can't do with beer, and beer wholesalers are probably not used to doing big discounts, you know, RIPs in New Jersey, QDs in Massachusetts, etc. So I think that's been part of their excellence in execution, and they've been, I think, a good role model for all of us to learn from. The second question is, how do I see hard tea developing?
Speaker Change: Pretty much its the biggest growth pocket outside of Mexican imports. So we expect to see everybody come in.
Speaker Change: But 25 years into this so we've got a 25 year head start.
Speaker Change: But where we're expanding our brand support I think we've quadrupled it over the last few years.
Jim Cooke: Right now, clearly, twisted tea is dominant, and over the years, lots of competitors have been thrown at it, and none of them really even made much of a dent. And today, everybody is piling into it. There are literally hundreds of new competitors. I don't see much traction from the vast majority of them. What I don't know is, will something begin to get traction with a brand name from somewhere else, like Arizona or Monster? But they have a big, high hill to climb because twisted tea is the original. We define the flavor profile. So to a hard tea drinker, it should taste like twisted tea.
Speaker Change: So we're over investing to maintain that leadership I know, who will share some of it with some of the.
Speaker Change: Excellent competitors that we have but.
Speaker Change: We're going to continue to fuel that fire.
Speaker Change: Yeah.
Speaker Change: Great. That's very helpful. Thank you so much.
Speaker Change: Okay.
Speaker Change: And as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. The next question comes from the line of Eric Cerrado with Morgan Stanley. Please proceed with your question.
Eric Adam Serotta: Good afternoon, guys and congratulations and best of luck, Dave will Miss I hearing from you on these calls.
Eric Adam Serotta: A question for Jim and one for Dave.
Jim Cooke: And it's a hard flavor profile to duplicate. Tea is an interesting thing to work with flavor-wise. It's got some tannins and polyphenols you've got to account for.
Eric Adam Serotta: I'm just wondering to get your latest thoughts in terms of beer category growth, particularly in traditional beer as opposed to beyond beer.
Jim Cooke: So we continue to believe that twisted tea can grow at the category growth rate, which means, and I don't know what we have, 85% of the category now, and the rest is split among a bunch of people. I don't see a strong number two emerging, but we've got great competitors out there. Everybody from people we don't normally face, Monster to Coca-Cola, Gallo, pretty much it's the biggest growth pocket outside of Mexican imports.
Eric Adam Serotta: If you want to talk total beer category, that's fine too one of your competitors recently has talked about.
Eric Adam Serotta: Moving trends in the category exiting 2023.
Eric Adam Serotta: And certain expectation, but the category would get to back to historical trend line.
Eric Adam Serotta: Kind of flat to down 1% this year.
Speaker Change: So that's for Jim and then for Dave I Am hoping you could give some color on that.
Dave Burwick: Slowdown in twisted tea growth in scanner.
Jim Cooke: So we expect to see everybody come in, but we're 25 years into this. So we've got a 25-year head start, but we're expanding our brand support. I think we've quadrupled it over the last few years, so we're over-investing to maintain that leadership. I know we'll share some of it with some of the excellent competitors that we have, but we're going to continue to fuel that fire. Great. Very helpful. Thank you so much.
Speaker Change: Over the past couple of months.
Dave Burwick: Probably some weather impact over the past month or two.
Eric Adam Serotta: And to be fair you guys have been very upfront that twisted isn't going to grow 30%, 40% forever.
Eric Adam Serotta: But.
Eric Adam Serotta: Do you think we are sort of down shifting into a more sustainable rate of growth here or is there something.
Eric Adam Serotta: Else going on in terms of distribution or velocity that you would point out.
Jim Cooke: And as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. The next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed with your question. Good afternoon, guys, and congratulations and best of luck. Dave, we'll miss hearing from you on these calls.
Eric Adam Serotta: Great.
Eric Adam Serotta: Hum.
Speaker Change: Give you some comments on both of your questions and then.
Speaker Change: Hand, it over to Dave.
Dave Burwick: In terms of beer category growth.
Dave Burwick: I think we've seen some slowdown in the first eight weeks of this year and so.
Jim Cooke: Jim, just wondering, can you get your latest thoughts in terms of beer category growth, particularly traditional beer as opposed to beyond beer? And if you want to talk about the total beer category, that's fine, too. One of your competitors recently talked about, you know, improving trends in the category, exiting 2023 and, you know, certain expectation that the category would get back to its historical trend line of, you know, kind of flat to down one percent this year. So that's for Jim.
Eric Adam Serotta: It is reflected in at least the circon of numbers that we're looking at.
Eric Adam Serotta: Category growth has dropped a bit from a reasonably strong finish to 2023 I would attribute that to three things.
Eric Adam Serotta: Two of which are.
Eric Adam Serotta: Transitory and the other.
Eric Adam Serotta: Permanent in fact of life sort of thing.
Eric Adam Serotta: The permanent one I think is January and there was a dry January and I think that.
Jim Cooke: And then for Dave, I'm hoping you can give some color on the slowdown in twisted tea growth in scanner over the past couple of months, probably some weather impact over the past month or two. And to be fair, you guys have been very upfront that twisted tea isn't going to grow 30, 40 percent forever. But do you think we are sort of downshifting into a more sustainable rate of growth here? Is there something else going on in terms of distribution or velocity that you would point out?
Eric Adam Serotta: Movement.
Eric Adam Serotta: Is slowly growing.
Eric Adam Serotta: On my numbers, we're looking at is maybe.
Eric Adam Serotta: 1.5% slowdown in the category.
Eric Adam Serotta: Eight weeks may be to that order of magnitude and maybe a third of that is the dry January.
Eric Adam Serotta: Transitory phenomenon.
Eric Adam Serotta: Are the continued.
Eric Adam Serotta: Leakage out of the beer category as a result.
Jim Cooke: Great. I'll give you some comments on both of your questions and then hand them over to Dave. In terms of beer category growth, I think we've seen some slowdown in the first eight weeks of this year, and that's reflected in at least the Cercana numbers that we're looking at. You know, category growth has dropped a bit from a reasonably strong finish in 2023. I would attribute that to three things, two of which are transitory, and the other is a permanent and fact-of-life sort of thing.
Eric Adam Serotta: Bud light.
Eric Adam Serotta: Issues.
Eric Adam Serotta: From our numerator data.
Eric Adam Serotta: Obviously some of that went to <unk>.
Eric Adam Serotta: Stayed within the beer category might have gone to <unk>.
Eric Adam Serotta: Molson Coors or some of them may be patched and gangling, but a fraction of it.
Eric Adam Serotta: Left the beer category either for spirit to just.
Eric Adam Serotta: No no alcohol consumption so.
Eric Adam Serotta: That's maybe a third of the 1.5% to 2% and then the third factor is last year, we had a big price increase.
Jim Cooke: The permanent one, I think, is that it's January, and there was a dry January, and I think that movement is slowly growing. My numbers we're looking at are maybe a one and a half percent slowdown in the category in the last eight weeks, maybe two, that order of magnitude, and maybe a third of that is the dry January. The transitory Phenomenon is, you know, the continued leakage out of the beer category as a result of the Bud Light issues from our numerator data. You know, obviously, some of that went to, stayed within the beer category, might have gone to, you know, Molson Coors or some to maybe Pabst and Yangling, but a fraction of it left the beer category either for spirits or just no alcohol consumption.
Eric Adam Serotta: It was about 6% and that caused load in.
Eric Adam Serotta: At retailers in the very beginning of last year, which we then gave back as the year went on this year, we did not.
Eric Adam Serotta: Have that bump so I think that's the third component. So two out of those three are transitory.
Eric Adam Serotta:
Eric Adam Serotta: In terms of overall beer category.
Eric Adam Serotta: Yeah.
Eric Adam Serotta: We're probably I'm, probably a little less rosy.
Jim Cooke: So that's maybe a third of the one and a half to two percent, and then the third factor is that last year we had a big price increase. It was about six percent, and that caused load-in at retailers at the very beginning of last year, which we then gave back as the year went on. This year we did not have that bump, so I think that's the third component. So two out of those three are transitory.
Eric Adam Serotta: And then.
Eric Adam Serotta: What we heard from Molson Coors I was very happy to hear that their analytics are probably way better than ours. So that's.
Eric Adam Serotta: I was very happy and I hope they're right.
Eric Adam Serotta: The way I would.
Eric Adam Serotta: I'll just give you some numbers of kind of.
Eric Adam Serotta: What happened in the beer category that we find very relevant.
Eric Adam Serotta: Last year.
Eric Adam Serotta: I mean, I think if you think of a traditional beer, which is 80% of the volume attributed to the beer category and then beyond beer, which is about 20% traditional beer.
Jim Cooke: In terms of the overall beer category, I'm probably a little less rosy than what we heard from Molson Coors. But I was very happy to hear that. Their analytics are probably way better than ours, so I was very happy, and I hope they're right. I'll just give you some numbers of what happened in the beer category, which we found very relevant last year. If you think of traditional beer, which is 80% of the volume attributed to the beer category, and then beyond beer, which is about 20%, traditional beer last year, that 80% probably dropped by 4%. And then that was offset by Beyond Beer growing, and these are volume numbers, about 7%. So you do the math on that, and that leaves you a drop from traditional beer of 3.2 and a gain from Beyond Beer of 1.4. So you end up with a net fall in the beer category of falling close to 2%.
Eric Adam Serotta: Last year that 80% probably dropped by 4%.
Eric Adam Serotta: So and then that was offset by beyond beer growing and new volume numbers about 7%. So you do the math on that.
Eric Adam Serotta: That leaves you a drop from traditional beer 3.2, and again from beyond beer of 1.4.
Eric Adam Serotta: So you end up with a net in the beer category of falling.
Eric Adam Serotta: Close to 2%.
Eric Adam Serotta: I think that dynamic will probably continue.
Speaker Change: I'd say Ah indeed here.
Speaker Change: Parsing some things that are not huge numbers, but there is continued growth opportunity for <unk>.
Jim Cooke: I think that dynamic will probably continue, I would say, parsing some things that are not huge numbers, but there's continued growth opportunity for brewers like us, AB, Molson Coors, etc., from this RTD base. I do believe that that's fertile ground for creativity. There's some sort of blue ocean nature to it; there may be some very interesting categories that come out of spirits-based, high-flavor drinks, and I believe those should be added to the quote-unquote beer category. I think of beer as stuff that's made in a brewery, it's sold through a beer wholesaler, and that's an opportunity for us that somewhat offsets what the traditional beer and Beyond Beer categories are doing. Quick thoughts on Twisted Tea.
Speaker Change: Broers.
Speaker Change: Like us.
Speaker Change: The most.
Speaker Change: Most of the quarters et cetera.
Speaker Change: From this RTD base I.
Speaker Change: Do believe that that's a fertile ground for creativity, there's some sort of blue ocean.
Speaker Change: Nature to it there may be some very interesting categories that come out.
Speaker Change: Our spirits based high flavor drinks and I believe those should be added.
Speaker Change: To the quote unquote beer category I think of beer is stuff that it's made in the brewery, it's sold through a beer wholesaler.
Speaker Change: And that's an opportunity for us that somewhat offsets.
Speaker Change: What the traditional beer and beyond beer categories are doing.
Speaker Change: Quick thoughts on twisted tea.
Jim Cooke: I do see double-digit growth for Twisted Tea this year, maybe into next year, depending on what we can do to not so much line-extend it, though things like Twisted Tea Extreme and, more importantly, Twisted Tea Light, I think, open up more drinking occasions and more customers to Twisted Tea. But I also think there is considerable growth still in the base. Twisted Tea is a product that has very wide appeal, from upscale college kids to blue-collar NASCAR fans, and we have, again, some demographic groups that are quite significant, especially Hispanics and also African Americans, where we're underpenetrated, and I think just increasing the appeal of the base proposition of Twisted Tea to more people. It's a unique product. It's fun to drink, and it's not carbonated, and it has just the image of fun in the sun. I think we have multiple avenues, as Dave said, for double-digit growth. Yeah, I think I think Jim sort of answered that. I think he's got it.
Speaker Change: Bob.
Bob: I do see again double digit growth for twisted tea this year, maybe into next year depending on.
Bob: What.
Bob: We can do to.
Bob: Not so much align extended those things like twisted tea extreme and more importantly, twisted tea light I think.
Bob: Open up more drinking occasions, and more customers to twisted tea, but I also think there is considerable growth still in the base twisted tea is a product that has very wide appeal.
Bob: From upscale College kids.
Bob: Blue collar NASCAR fans are.
Bob: And we have.
Bob: Again, some demographic groups that are quite significant.
Bob: Especially Hispanics.
Bob: And also African Americans, where we're underpenetrated and I think just increasing that appeal.
Bob: The base proposition of twisted tea to more people.
Bob: Yeah, and it's a unique product its funded during.
Bob: And it's not carbonated so it's and it has.
Bob: Uh huh.
Bob: Just an image of fun in the Sun, So I think.
Bob: We have multiple avenues as Dave said for double digit growth.
Bob: Yes, I think I think Jim sort of answering I think he got it I think.
Dave Berwick: I think, Eric, the deceleration you called out is sort of expected. I think we were minus, if you look at the, sorry, we're plus 27, the latest 52 weeks and plus 22, the latest 13. It is, but that's still above where we expected to be for the year. We're still gaining share, and this is a, we're kind of, this is sort of a reloading time for this brand. We have a lot of activity ahead of it for the spring that will be coming soon, so we feel like we are looking at the numbers.
Speaker Change: Eric the deceleration you called out as sort of as expected.
Speaker Change: I think we were minus if you look at that.
Speaker Change: Sorry, we were plus 27 latest 52 weeks and plus 22, the latest 13, it existed, but thats still above where we expect it to be for the year, we're still gaining share and this is where kind of this sort of a reloading time for this brand we.
Speaker Change: We have a lot of activity ahead of it for the spring.
Speaker Change: That will be coming soon so we feel like when you look at the numbers. We know we're not going to stay in the high Twenty's all year. So we feel okay with it and we feel very confident for the reasons Jim mentioned.
Dave Berwick: We know we're not going to stay in the high 20s all year, so we feel okay with it, and we feel very confident for the reasons Jim mentioned, like there are different ways to grow through the year. Jim talked about some of the consumer pieces, but the Hispanic, African-American, you know, also, we expect. We gained a fair amount of shelf space last year. But we're still underspaced.
Speaker Change: Different ways to growth here.
Speaker Change: Jim talked about some of the consumer pieces.
Speaker Change: Hispanic African American.
Speaker Change: Yes.
Speaker Change: Also we expect we gained a fair amount of shelf space last year, we're still under space We've got.
Dave Berwick: We have about 28% of the category and 18% of the space, and we expect in spring; the numbers aren't in yet fully, but we expect to have probably 20% or more shelf space gains in large format for Twisted Tea. And the last thing I'll say, as we look at it across developed, you know, different BDIs, so low, middle, and high, we're still growing and gaining share in all of those right now. So, not taking anything for granted, as Jim mentioned, there's a lot of competition, and we are. We're investing a lot across every avenue we can, and I think importantly, when we think about innovation for this brand, we talked about light, we talked about extreme. We're not going to make the mistake of over-innovating on this brand either.
Speaker Change: 8% of the category and 18% of the space and we expect in the spring the numbers aren't in yet.
Speaker Change: Fully but we expect to have probably 20% or more more shelf space gains in large format.
Speaker Change: For twisted tea and the last thing I'll say is we look at them across.
Speaker Change: Different different VDI, so moving all that high.
Speaker Change: Hi.
Speaker Change: Growing and gaining share in all of those right now so.
Speaker Change: Not taking anything for granted as Jim mentioned, there's a lot of competition and we are.
Speaker Change: We're investing a lot across every avenue, we can and I think importantly, when we think about innovation for the spring we've talked about like you talked about extreme we're not going to make the mistake of over innovating on this brand either we're going to Theres a theres a lot as Jim said, there's a lot of growth in that core business, the original and half-and-half flavors.
Dave Berwick: We're going to, there's a lot, as Jim said, there's a lot of growth in that core business, the original and half-and-half flavors, and we've got a lot behind that as well, so we feel, as we enter the year, we feel good. We'll see how it goes, but in the last couple of days, we know we're not going to sit back and rely on trust and see that we do everything this year without a unit of support, and that's the goal, that's what the plan is all about: support. Great Thanks so much.
Speaker Change: And we've got a lot behind that as well so we feel.
Speaker Change: We feel good we'll see how it will still have it goes but the last thing I'll say is we know we're not going to sit back and you are interested to see that you do everything this year without any support.
Speaker Change: <unk>.
Speaker Change: That's the goal that's what the plan is all about supporting floor.
Speaker Change: Great. Thanks, so much good luck guys.
Dave Berwick: Good luck, guys. And the next question comes from Brett Cooper with Consumer Edge. Please proceed with your question. Thanks. Good evening.
Speaker Change: And the next question comes from Brett Cooper with consumer Edge. Please proceed with your question.
Brett Cooper: Thanks, Good evening I would add my congratulations Dave and thanks to the humble and Frank commentary over the ups and downs in the last six years. So the question is on the portfolio can you just speak to Boston Beer's capacity to operate with a portfolio of brands, but I don't know it could be 10 to 15 brands or whatever the right number is versus the five or so that you do today and I guess on that.
Jim Cooke: I would add my congratulations to Dave and thanks for the humble and frank commentary over the ups and downs in the last six years. So the questions on the portfolio, can you just speak to Boston Beer's capacity to operate with a portfolio of brands that, I don't know, could be 10, 15 brands or whatever the right number is versus the five or so that you do today? And I guess I'm asking this from both a production standpoint and then how your brand support budgets will need to change to address those. Thanks.
Brett Cooper: And that's for both the production standpoint, and then how your brand support budgets will need to change to address those thanks.
Brett Cooper: Okay.
Brett Cooper: Don't think I can do.
Jim Cooke: Yeah, I can do the production side of it. You know, we have a unique set of capacities in our brewery. We do have a very complex product mix, and it's gotten more so over the last five years.
Brett Cooper: Reduction side of it.
Brett Cooper: We.
Brett Cooper: Okay.
Brett Cooper: A unique set of capacities and our brewery.
Brett Cooper: We do have a very complex product mix.
Brett Cooper: And.
Brett Cooper: It's gotten more so over the last five years so our.
Jim Cooke: So our manufacturing strategy is essentially to make a complex product mix at scale economics. Within the beer business, you know, the manufacturing strategy is kind of long runs and don't make the portfolio too complicated, maybe outsource some of the complications. And the packaging and equipment are made for long runs, and, you know, the manufacturing strategy is built around that. We don't have that luxury.
Brett Cooper: Our manufacturing strategy.
Brett Cooper: Is essentially to make a complex product mix at scale economics.
Brett Cooper: Within the beer business.
Brett Cooper: The.
Brett Cooper: The manufacturing strategy is kind of long runs.
Brett Cooper:
Brett Cooper: And don't make the portfolio too complicated maybe outsource.
Brett Cooper: Some of the complications and the packaging equipment is made for long runs.
Brett Cooper: The manufacturing strategy is built around that we don't have that luxury we cant put Miller lite on a can line in February and run it for 12 months.
Jim Cooke: We can't put, you know, Miller Lite on a can line in February and run it for 12 months. So we have equipment that you won't find elsewhere for doing things like automating variety packs. We have what are, very, very short runs on our canning, bottling, and kegging equipment.
Brett Cooper: So we.
Brett Cooper: We have equipment that you won't find elsewhere for doing things like.
Brett Cooper: Automating variety packs.
Brett Cooper: We have what are very very short runs on our.
Brett Cooper: On our Canning in bottling and <unk>.
Brett Cooper: And we are reducing.
Jim Cooke: And we are reducing our finished goods inventory. We're implementing, in the next two weeks, actually, a new ordering system and sales and operations planning that feeds into that. And it's all about a replenishment model for how we're managing, you know, our inventory. So... Our breweries are different than big company breweries. Our hope is that we can do that without losing the economy's scale. And it's very much a Toyota production system philosophy. Toyota, you know, pioneered all this stuff 40 years ago, and I started my career as a manufacturing consultant trying to figure out what Toyota was doing.
Brett Cooper: Reducing our finished goods inventory were implementing.
Brett Cooper: And the next two weeks actually.
Brett Cooper: New ordering system.
Brett Cooper: And sales and operations planning that feeds into that.
Brett Cooper: And it's all about.
Brett Cooper: Replenishment model.
Brett Cooper: For our managing.
Brett Cooper:
Brett Cooper: Inventory so.
Brett Cooper: Our breweries are different than big company breweries, our hope is that we can.
Brett Cooper: Do that.
Brett Cooper: Without losing.
Brett Cooper: The economies of scale and it's very much the Toyota production system philosophy Toyota pioneered all this stuff 40 years ago. When I started my career as a manufacturing consultant.
Brett Cooper: Trying to figure out what Toyota was doing.
Jim Cooke: And by taking, you know, they had higher quality, shorter runs, and lower costs. So we're kind of mimicking that. And I'll build on Jim's point. We also talk a little bit about shortfall fees sometimes.
Brett Cooper: And by taking.
Brett Cooper: Had higher quality shorter runs and lower costs. So we're kind of mimicking that.
Brett Cooper: So I'll build on <unk> point, So we also talk a little bit about shortfall fees sometimes.
Brett Cooper: What that is.
Diego Reynoso: What that allows us externally is that complexity and that flexibility we have externally in our network. So part of the reason we do have that 30-70-30 mix is so that we can allow to push some of that complexity out to people that can manage it really well. So we feel confident that we can, on the operation side, and distribution side, produce what we are planning and guiding to. And, Brent, I'll pick up on the 15-brand portfolio. I don't think we're going to—we don't need to have 15 brands. I do think, first of all, consumers are—there's no question they're demanding more. We have five great brands right now.
Brett Cooper: Laos is externally is that complexity and that flexibility, we have externally and not network. So a part of the reason we do have that 30 70 30 mix. So that we can allow us to push some of that complexity out to people that can manage it really well. So we feel confident that we can.
Brett Cooper: On the operations side distribution side, we can produce to what we are planning and guiding to.
Brett Cooper: And Brett I'll pick up on the <unk>, the <unk> brand portfolio.
Brett Cooper: We're going to we don't need to have 15 brands I do first of all consumers are no question are demanding more we have five great brands right. Now then this year, we're going to have mountain dew nationally and with some cruisers a new brand that we're launching nationally we have certainly have the bandwidth within our sales organization to sell these brands support them in the <unk>.
Dave Berwick: Then this year, arguably, we're going to have Mountain Dew nationwide, and Suncruiser is a new brand that we're launching nationally. We certainly have the bandwidth within our sales organization to sell these brands and support them in the marketplace. I think the other thing we need clearly is that we need to be able to invest in those brands, and all the gross margin initiatives enable us the flexibility to invest more to build a broader portfolio, if you will, because we do believe that we need to start to win. We need to satisfy changing needs in the marketplace across many segments. And the last thing I'll just say is, as it relates to innovation, we do feel that we're set up— to, you know, we have been a terrific fast follower, and we were set up to do that. But we also think, I mean, when you look at the company, we have a long-term orientation. We have a sales force that can drive the execution. We have wholesaler and retailer relationships.
Brett Cooper: Place I think the other thing clearly we need to be able to invest in those brands and that all the growth the gross margin initiatives.
Brett Cooper: Enable us the flexibility to invest more to build a broader portfolio. If you will because we do believe that we need to.
Brett Cooper: We need to set to win we satisfy changing needs of the marketplace across many segments and lastly, I'll just say is as it relates to innovation.
Brett Cooper: We do feel that we're set up to.
Brett Cooper: We have been a terrific fast forward.
Brett Cooper: And we were set up to do that we also think when you look at the company. We have a long term orientation. We have that sales force that can drive the execution, we have the wholesaler and retailer relationships and I would say years and certainly in the form of Jim years of pattern recognition of the marketplace. So I think we are.
Dave Berwick: And I would say years, certainly in the form of Jim, years of pattern recognition in the marketplace. So I think we are uniquely able to see maybe even sometimes hidden demand signals in the marketplace and then quickly turn those demand signals into ideas, into concepts, into products, into tests, and into the marketplace. So that engine of finding innovation, in addition to building our core brands, we're going to need to rely on that muscle as well. And ultimately, it goes through that selling organization and is backed by the production capabilities that Jim talked about. Perfect. Thank you. And the next question comes from the line of Peter Grom with UBS. Please proceed with your question. Thanks, Operator. Good afternoon, everyone.
Brett Cooper: And equally April to see maybe.
Brett Cooper: Maybe even sometimes hidden demand signals in the marketplace and then quickly turn those demand signals into ideas concepts into products into test and into the marketplace. So that that engine of finding and innovation. In addition to building our core brands, we're going to need to rely on that muscle as well and ultimately goes through.
Brett Cooper: It goes to that selling organization and through the.
Brett Cooper: With respect by the production capabilities at some Jim talked about.
Speaker Change: Perfect. Thank you.
Speaker Change: And the next question comes from the line of Peter Grom with UBS. Please proceed with your question.
Peter K. Grom: Thanks, operator, and good afternoon, everyone, Dave, which youre talking about the best of luck moving forward.
Operator: Dave, I wish you nothing but the best of luck moving forward. So, two questions for me. Diego, maybe the first one for you.
Peter K. Grom: Two questions from me dig in maybe the first one for you just on the long term gross margin comment I know this is minor, but I think the prior commentary in terms of the long term target was solidly 50% I think you mentioned high 40% to 50% has something changed in your expectations that Youre now incorporating a lower end of the range or am I kind of reading too much into that.
Diego Reynoso: Just on the long-term gross margin comment, I know this is minor, but I think the prior commentary in terms of the long-term target was probably 50%. I think you mentioned high 40s to 50%. Has something changed in your expectations that you're now incorporating a lower end of the range, or am I kind of reading too much into that comment? And then... Jim, I wanted to ask about... a big picture question.
Speaker Change: Comment and then.
Speaker Change: Jim I wanted to ask about.
Speaker Change: A big picture question, but I wanted to ask about your January comments, and I think you mentioned the movement is growing but I wanted to get your thoughts on consumers exiting beer or alcohol more broadly you read a lot about the younger consumer being less interested in alcohol. So what's your perspective on whether this movement that coincides with John in January expand beyond.
Jim Cooke: But I wanted to ask about your Dry January comment, and I think you mentioned the movement's growing, but I wanted to get your thoughts on consumers quitting beer or alcohol more broadly. You read a lot about the younger consumer being less interested in alcohol. So what's your perspective on whether this movement that coincides with Dry January expands beyond just kind of the start of the year? And it is really kind of a sign of things to come. And how do you think the industry is going to evolve? Thanks for watching!
Speaker Change: Just kind of kick start to hear it is really kind of a sign of things to come and how do you think the industry is going to evolve this does become a bigger threat to growth. Thanks.
Diego Reynoso: Perfect. So first of all, I'd say we're still on the same path we were before. We want to return to the profitability we had in 2019. So the reason we have a range is because there are quite a few things in there.
Speaker Change: Perfect.
Speaker Change: First of all I'd say, we're still in the same path, where before we want to return to the profitability. We had in 2019. So the reason we have a range is because there is theres quite a few things in there part of it will be the mix.
Jim Cooke: Part of it will be the mix of brands. Part of it will be just how commodities and some of the inflationary piece behave in the next few years. But our target continues to be the same, to return to previous profitability, and I think we have a plan to get there. So I wouldn't read more than that into it. And I'd second that.
Speaker Change: <unk> brands.
Speaker Change: Part of it is just how commodities and some of the inflation will behave in the next few years, but our target continues to be the same two returned to previous profitability and I think we have a plan to get there so I wouldn't read more than that into it.
Speaker Change: Yes.
Speaker Change: Second that.
Jim Cooke: 50% is still our goal. We've been there before. We were over 50% at one point, so there's no reason that we can't get back to that, especially given the capital we put into our breweries and the transformation in our manufacturing system that we're really on just the first year of that journey. And second, about dry January, you know. I don't have a crystal ball here. I'm only, you know, intuiting it. I'd say two things.
Speaker Change: 50% is still our goal we've been there before we grew over 50% at one point so.
Speaker Change: No reason that we can't get back to that especially given the capital we put into our breweries and.
Speaker Change: The transformation.
Speaker Change: Our manufacturing system.
Speaker Change: We're really on just the first year of that journey.
Speaker Change: And second.
Speaker Change: The about dry January.
Speaker Change: I don't have a crystal ball here I'm I'm only intuitive.
Speaker Change: I'd say two things one alcohol consumption per capita is one of those rock steady statistics over the last like 70 years, so any movement in that up or down.
Jim Cooke: One, alcohol consumption per capita is one of those rock-solid statistics for the last like 70 years. So any movement in that up or down is going to be glacial. I do feel, and this is just a wild guess, that there is a somewhat different attitude among 20-somethings. I have two 20-something kids. Alcohol is a part of their life, I mean, it's a part of their socializing and so forth, but they are somewhat more aware of, you know, just overall wellness. There's, it's the margins; it's not a dramatic shift. And there's no telling how that will change as they move out of their 20s.
Speaker Change: <unk> is going to be glacial.
Speaker Change:
Speaker Change: I do feel like there and this is just a wild guess that there is.
Speaker Change: A somewhat different attitude among 20 somethings up to 20 something.
Speaker Change: Uh huh.
Speaker Change: Kids are.
Speaker Change: And.
Speaker Change: Alcohol is.
Speaker Change: A part of their life.
Speaker Change: It's a part of this just socializing and and so forth, but they are.
Speaker Change: What more aware.
Speaker Change:
Speaker Change: Just overall wellness and so.
Speaker Change: There is.
Speaker Change: The margins, but it's not a dramatic shift.
Speaker Change: And there's no telling how that will change as they move out of their twenty's. So I don't know.
Jim Cooke: So, I don't know, but, you know, there is some leakage to moderation rather than abstinence. We've seen some mild leakage to cannabis, but they're not big numbers. You know, on a year-to-year basis, they may not be, you know, even 1%. Time will tell, but, you know, it's just a very slow glacial thing when you look at what's happened over the last 70 years. No, that's really helpful.
Speaker Change: But there is some leakage.
Speaker Change: To moderation.
Speaker Change: Rather than abstinence.
Speaker Change: We've seen some mild leakage too.
Speaker Change: Cannabis, but they're not big numbers on a year to year basis, they may not be.
Speaker Change: Even 1% time will tell but.
Speaker Change: It's just a very slow glacial thing when you look at what's happened over the last.
Speaker Change: 70 years.
Speaker Change: No that's really helpful.
Dave Berwick: And the next question comes from the line of Filippo Filorni with Citi. Please proceed with your question. Hey, good evening, guys. A quick question, Dave. You mentioned in the prepared remarks that you expect our software category to decline at a low teens rate in 2024. You also mentioned a lot of initiatives in Truly. So are you expecting Truly to grow in line with the category to gain share? And then, longer term, when do you think we're going to see a kind of new moderation or something like a new normalization in our software category? Do you think it's something that could happen at the tail end of 24, maybe 25? Just a sense of how you see our software evolving from here. Sure.
Speaker Change: Pass it on.
Speaker Change: And the next question comes from the line of Filippo for <unk> with Citi. Please proceed with your question.
Filippo: Hey, good evening guys.
Speaker Change: <unk>.
Filippo: Quick question, Dave you mentioned in the prepared remarks that you expect.
Speaker Change: The.
Filippo: Seltzer category to decline at a low teens rate in 2024.
Filippo: You also mentioned a lot of initiatives in truly so are you expecting really to grow in line with the category to gain share.
Filippo: And then longer term one.
Filippo: When do you think we're going to see.
Filippo: Kind of a new moderation or like a normalization into our seltzer category do you think it's something that could happen.
Filippo: On the tail end of 'twenty for maybe 25, just just our <unk>.
Filippo: How you see ourselves sort of evolving from here.
Speaker Change: Sure I think if you look at it.
Dave Berwick: I think if you look at, So last year, the category was maybe down minus 20, minus 21, something like that in volume. We are seeing improvements, gradual but improvements. I think the latest 13 might be minus 14.
Speaker Change: So last year the category was maybe down minus 20 minus 21, something like that in volume.
Speaker Change: Seeing that we are seeing improvements gradual but.
Speaker Change: I think the latest 13 might be minus 14, so we're thinking of minus 10 to minus 15, probably.
Dave Berwick: So we're thinking minus 10 to minus 15, probably, in that category. I've seen projections that are more optimistic than that, but You know, I wouldn't necessarily go there, like low single-digit declines or low to mid-single-digit declines, but it is improving a bit for truly. We're now almost a year into the journey of kind of redefining what we want the brand to stand for, and the brand really is going to stand for lightweight flavor variety and not the bold flavor as much, because bold is a part of the category, but it' I mentioned in the opening remarks that, I think, a year ago, the business was 65% weighted toward bold flavors and 35% light. Now it's in favor of light, 55%, 45%.
Speaker Change: Category.
Speaker Change: I've seen projections are that are more optimistic than that but.
Speaker Change: I Wouldnt necessarily go there like low single digit declines low to mid single digit declines, but it is improving a bit for truly.
Speaker Change: We're now almost a year into this into the journey of kind of redefining what we want the brand to stand for.
Speaker Change: And the brand really is.
Speaker Change: He's got a Stanford.
Speaker Change: Lightly flavor variety and not the bold flavors much because both as a part of the category, but it's not nearly as big as we thought it would be so we have made progress I mentioned the industry in the opening remarks, I think a year ago. It was the business was 65% weighted towards flavors and 35 right now it's in favor of 150 545. So.
Dave Berwick: So we're making that move, and if you look at just our light flavor SKUs, including our single serve packages, we're actually, you know, our sales are up 9% year-to-date. So that part, you know, that part of our business, again, it's 45% of our business, but it's up 9%. So we're getting validation that people want lighter flavors. And by the way, we do this three times a year. We call it a rotator.
Speaker Change: We're making that move and if you look at just our wild flavors skus, including our single serve.
Speaker Change: <unk>.
Speaker Change: Packages, we're actually.
Speaker Change: Our sales were up 9% year to date, so that that part of our business Dennis it's 45% of our business, but its up 9%. So we're.
Speaker Change: We're getting validation that the people want lighter flavors and by the way we do this three times a year, we call. It a rotator, it's one UPC three times a year and in the past had been all bold flavors, we moved to the all light started last summer with Red White and true then celebration pack was in tier three and tier one is to getaway pack and we're seeing much better response.
Dave Berwick: It's one UPC, three times a year, and in the past, they've been all bold flavors. We moved to all white starting last summer with red, white, and true. The celebration pack was in T3, and T1 is the getaway pack.
Dave Berwick: And we're seeing much better response. We're seeing very good repeat. We're bringing about 10% of the new consumers that come in through that. So, the last thing I'll say is we've made a big push on single serve in convenience stores. It's up 23% a year to date, and it's basically light flavors. Its pineapple, and its wild berry are really driving it, and a new flavor called citrus
Speaker Change: We're seeing very good repeat we're bringing about 10% of the new consumers that come in come through that.
Speaker Change: The milestones we've put a big push on single serve and convenience stores is up 23% year to date and is basically light flavor pineapple is wild Berry are really driving it.
Speaker Change: And a new flavor call central squeeze so we like where we're going it takes it's going to take a patient so.
Dave Berwick: So we like where we're going. It's going to take patience, though, as we turn the mix within the brand toward lighter flavors. Now, having said that, let's say the category is minus 10 for the year, which is used as a number. We're not going to be minus 10. We're going to be we're not going to we don't expect and certainly, in our in our guidance, we're not expecting to be flat share for the year. We will be We will be south of that, maybe worse than minus 10.
Speaker Change: As we turn the mix within the brand toward lighter flavors now having said that let's say the category is minus 10 for the euro versus yours is a number we're not going to be minus that we're going to be we're not going to we don't expect and it's certainly in our in our in our guidance, we're not expecting to be flat share for the year will be we will be south of that.
Speaker Change: Meaning worse than minus 10, but for.
Dave Berwick: But for me to be happy, personally, I want to see this brand continue to deliver better growth rates. And it has been getting gradually better. So a year ago, it was in the low minus low 30s. Now it's around minus 20, minus 21, hopefully heading south of minus 20.
Speaker Change: For me to be happy personally I want to see that brand continue to deliver better.
Speaker Change: Growth rates and it has been getting gradually better so a year ago was in the long term minus low thirties now is around minus 20 minus 21.
Speaker Change: Hopefully heading south of minus 20 so.
Jim Cooke: So I would just say from a share perspective for the year, it's probably unlikely we're going to gain any share with truly. But if we get into the summer and beyond, if we're holding shares starting then, then I think that would be a really, a really good, a really good sign. And I would add, you know, thinking about this long term, the fundamental factors that drove the success of seltzer are still out there. And it is very much in tune with long-term consumer trends in alcoholic beverages, which are movement to flavors, to lower-calorie drinks, and hard seltzer is a quintessence of those. And it also represents a very drinkable, refreshing alternative to beer, to hard liquor, to wine. It offers category benefits that you really only get in hard seltzer in just the consumption experience: interesting, varied, light, refreshing, low calories, and a very drinkable, poundable level of alcohol.
Speaker Change: I would just say from a share perspective for the year is probably unlikely we're going to gain share with rich truly but if we get into the summer and beyond if we're holding share starting men than I think that that would be a really really good a really good sign.
Speaker Change: And I would add.
Speaker Change: Thinking about this long term the fundamental factors that drove the.
Speaker Change: The success of.
Speaker Change: Seltzer.
Speaker Change: Are still out there.
Speaker Change: And it is very much in tune with long term consumer trends and alcoholic beverages, which are movement to flavors.
Speaker Change: Two lower calorie drinks.
Speaker Change: And then our telco quintessence of those and it also represents a very drinkable refreshing alternative to bear to hard liquor to wine.
Speaker Change: It offers category benefits that you really only get and hard seltzer in the just the consumption experience of interesting varied light refreshing low calories and a very drinkable patentable level of alcohol. So.
Jim Cooke: So in the long term, I think we're thinking that, you know, there can be a second act for seltzer. Very much like craft beer had, it grew like crazy for, like, the first 12 years. The category was, you know, started in 1984, and then it had a flat period for some years, and then it, I think, quadrupled when it started growing again in 2004.
Speaker Change: And long term I think were thinking that.
Speaker Change: There can be a second act for yourself, so very much like.
Speaker Change: Craft beer had it grew like crazy.
Speaker Change: For the first 12 years.
Speaker Change: The category was started in 84.
Speaker Change: And then ahead.
Speaker Change: A flat period for some years and then.
Speaker Change: Think quadrupled when it started growing again in 2004. So I think we've just seen the first act for this this is a.
Jim Cooke: So I think we've just seen the first act for this hard seltzer space, and the last thing I'd add is that this is a category where you have two strong creative players, us and Marc Anthony, very committed to it, and who see a long-term future if we can innovate around new consumer needs and occasions. Thank you, guys, and best of luck, Dave. Thank you. There are no further questions at this time, and I would like to turn the floor back over to Jim Cooke for any closing comments. I just want to thank you all for joining us and thank you for your kind thoughts about Dave who has done an outstanding job here. You know, when he joined, we were eight hundred fifty million dollars, and now we're over two billion, so that's pretty damn good in six years. So, thank you Dave, and we'll talk in a couple of months. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Hard seltzer space.
Speaker Change: The last thing I'd add is and.
Speaker Change: It's a category where you have two strong creative players us and Marc Anthony very committed to it.
Speaker Change: <unk>.
Speaker Change: Uh huh.
Speaker Change: See a long term future if we can innovate around new consumer needs.
Speaker Change: And occasions.
Speaker Change: Okay. Thank you guys and best of luck there.
Speaker Change: Thanks.
Speaker Change: There are no further questions at this time and I would like to turn the floor back over to Jim Koch for any closing comments.
Speaker Change: Okay.
Jim Koch: I want to thank you all for joining with US and thank you for your thoughts about Dave.
Jim Koch: Who has done an outstanding job here.
Jim Koch: When he joined we were $850 million and now we're over $2 billion.
Jim Koch: It's pretty damn good in six years.
Speaker Change: Dave and we'll talk.
Speaker Change: And a couple of months.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: [music].
Speaker Change: Yeah.