Boston Beer (NYSE:SAM) has been right more often than not about what people want to drink. From craft beer to hard tea, cider, seltzer, and lemonade, the brewer has usually been in the vanguard of beverage tastemakers.
While some miscues have occurred (sorry, I thought the Sam ’76 lager-ale mashup was undrinkable), hits outnumber misses. Which is why Boston Beer announcing a partnership with spirit maker Beam Suntory is a big development. Together, the companies will extend Boston Beer’s Truly hard seltzer brand into spirits.
It could signal hard seltzer’s growth will soon flatten, leaving the brewer with fewer avenues for growth. Creating a crossover brand into hard liquor could ensure Boston Beer continues on an upward trajectory.
The next drink sensation
The two adult beverage makers plan to introduce their first products by mid 2022. In addition to a Truly spirit, the joint venture will also produce ready-to-drink (RTD) beverages under Beam’s Sauza Tequila banner. Because Beam owns the premium Jim Beam and Maker’s Mark bourbons while Boston Beer has a superior distribution network, the marriage could work out quite well.
In a statement released by the two companies, Beam president and CEO Albert Baladi said, “We are each tapping opportunities in adjacent categories by unleashing our shared creativity and respective distribution strengths in spaces that resonate with consumers.”
The distiller began making its move into the RTD category last year, acquiring RTD cocktail brand On The Rocks for an undisclosed sum while also launching a line of Hornitos seltzers and the Jim Beam Highball.
Sailing on a whiskey river
Several years ago I recommended investing in Boston Beer to capitalize on whiskey’s soaring popularity, as it wasn’t a foreign concept to the brewer. It had previous partnerships with craft distiller Berkshire Mountain Distilleries to develop small-batch whiskies infused with Boston Beer’s beer.
I said at the time, “Boston Beer keeps dabbling around the edges of the craft whiskey market, it should probably take the plunge and begin distilling its own line of spirits.”
Recently Dogfish Head, the craft brewer Boston Beer purchased in 2019, launched a line of liquor-based canned cocktails.
Partnering with an established global distiller like Beam is probably even better, as it can readily access Beam’s expertise and facilities to come out with a premium product without investing in distilling equipment. For much the same reason, Beam can use Boston Beer’s knowledge and production capabilities to quickly bring ready-to-drink beverages to a national market.
Beer has a different set of rules to follow than do spirits because of the latter’s higher alcohol content, so the venture can pay high dividends to both parties out of the gate.
A lot of froth in the seltzer market
This is good timing on Boston Beer’s part as there’s a good chance the hard seltzer trend is peaking, and may be reaching a saturation point. There are so many brands on the market now it’s becoming difficult for any one to stand out.
Although the brewer says Truly has about a 28% share of the market, it remains in second place behind market leader White Claw from Mark Anthony Brands with around 40% of the hard seltzer market, and there are dozens and dozens of brands trying to make a mark.
One of the more successful is Constellation Brands‘ (NYSE: STZ) Corona Seltzer, which quickly catapulted into fourth place within months of its release. But now that restaurants and bars are reopening, and on-premise seltzer consumption is dramatically less than carryout consumption, the triple-digit growth the industry has enjoyed for several straight years may begin decelerating appreciably.
The crowded shelf space explains why gimmicks are now needed to attract attention. Molson Coors (NYSE: TAP), for example, just came out with Vizzy hard seltzer fruit-scented swimwear in a bid to gain notoriety. Molson also just killed off its Coors brand of hard seltzer, choosing instead to focus on Vizzy and Topo Chico, the hard seltzer brand it recently launched with Coca-Cola.
The straw that stirs the drink
It could be Boston Beer realizes it needs to find the next new thing now. CEO David Burwick said of the Beam partnership, “Our industry is rapidly evolving, and consumers are looking for new and exciting options that suit a wide variety of occasions, and we couldn’t be happier to have found the perfect partner to extend our brands into the spirits category.”
It could mark a new era for the adult beverage market where we’ll see other brewers and distillers join forces. Yet being out of the gate early as it has often been, Boston Beer could emerge the winner in whatever new innovative drinks the collaboration produces.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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