Thank you. Good afternoon and welcome to everyone. This is Jim Koch, Founder and Chairman, and I'm pleased to be here to kick off the 2021 Q2 earnings call for The Boston Beer Company. Joining the call from Boston Beer are Dave Burwick, our CEO and Frank Smala, our CFO. I'll begin my remarks this afternoon with a few introductory comments, including some highlights of our results and then hand over to Dave, who will provide an overview of our business.
Dave will then turn the call over to Frank, who will focus on the financial details of our 2nd quarter results as well as our outlook for 2021. Immediately following Frank's comments, we'll open up the lines for questions. During the Q2, we saw a significant growth in the on premise channel and reopened all of our retail locations as most COVID-nineteen restrictions have been lifted across the country. However, our 24% depletions growth for the 2nd quarter decelerated from our Q1 growth of 48% and was below our expectations as the hard seltzer category and the overall beer industry were softer than we had anticipated. Hard Seltzer category growth was negatively impacted by several developments.
1st, slowing growth in household penetration as the market matures and there is less new trial. 2nd, A gradual transition of industry volume to the on premise channel as hard seltzers became more regular option in that channel. 3rd, new hard seltzer brands at retail that have resulted in a proliferation of choices and consumer confusion and 4th, a challenging comparative period of significant pantry loading related to on premise restrictions in the Q2 of 2020. We are encouraged that 4 of our 5 major brands grew in the 2nd quarter, and We continue to expand our market share. In measured off premise channels in the first half of this year, where our brand portfolio represented 4% of total industry volume.
We've delivered Over 45% of industry volume growth, by far the highest of all brewers. We're thankful to our outstanding co workers, distributors and retailers for their continued focus and diligence to continue to operate and help grow our business and achieve our 13th consecutive quarter of double digit volume growth. We will continue to invest behind our brands with a particular emphasis on fueling the momentum behind Truly and Twisted Tea. We recently announced plans to develop new innovative beverages with Beam Suntory that we are planning to launch in early 2022. We believe these new beverages will further demonstrate our ability to innovate and grow our business as drinker preferences evolve.
We remain highly positive about the future growth of our brands and that our diversified brand portfolio We'll continue to fuel double digit growth. I'll now pass over to Dave for a more detailed overview of our business.
Okay. Hey, thanks, Jim. Hello, everybody. Before I review our business results, I'll start with the usual disclaimer. As we state in our earnings release, Some of the information we discuss and that may come up on this call reflect 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 in 10 ks. The company does not undertake to publicly update forward looking statements whether as a result of new information, future events or otherwise. Okay.
Now let me share a deeper look at our business performance. Our depletions growth in the Q2 was a result of increases in our Truly Hard Seltzer, Twisted Tea, Samuel Adams and Dogfish Head brands that were only partially offset by decreases in our Angry Orchard brand. Twisted Tea continues to generate double digit volume growth and is the fastest growing flavored malt beverage brand family in measured off premise channels during the first half of this year. Early in 2021, we launched Truly Iced Tea Hard Seltzer. And during the Q2, we launched Truly Punch Hard Seltzer.
Similar to Truly Lemonade, these new products deliver against drinkers' interest and bolder flavor profiles and demonstrate Truly's distinctiveness and innovation leadership within the hard seltzer category. In measured off premise channels, Truly iced tea is the number one innovation in the overall beer industry over the first half of this year and Truly Punch is the number 2 innovation over the past 4 weeks. The overall Truly brand growth rate improved to 2.7 times the hard seltzer category growth rate in the latest 13 weeks, resulted in a 4 point share gain and closing the share gap to the number one brand to single digits. We're excited about our new Truly advertising campaign, No One is Just One Flavor, featuring Grammy Award winner and pop icon, Dua Lipa, and showcasing Truly's superior variety of flavors and the colorful and adventurous nature of Truly Drinkers. Based on the brand's innovation leadership, With strong brand building and growing cultural relevance, we believe Truly is well positioned to continue to grow share.
We overestimated the growth of the hard seltzer category in the Q2 and the demand for Truly, which negatively impacted our volume and earnings for the quarter and our estimates for the remainder of the year. We increased our production of Truly to meet our summer peak and have had lower than anticipated demand for certain Truly brand styles, Which has resulted in higher than planned inventory levels at our breweries and increased supply chain costs and complexity. At the same time, we've been experiencing out of stocks on certain of our camp products, most significantly on our Twisted Tea brand family. We expect wholesale inventories of Twisted Tea to remain tight for the rest of the summer. Our outlook for the hard seltzer category in the second half of twenty twenty one is uncertain, and we planned our capacity and spending based upon several volume scenarios.
We'll continue to manage our capacity requirements through a combination of internal capacity increases in higher usage of 3rd party breweries. We continue to work hard on our comprehensive program to transform our supply chain with the goal of making our integrated While we're in a very competitive business, we're confident in the continued growth of our current brand portfolio and innovations, and we remain prepared to forsake short term earnings as we invest to sustain long term profitable growth. Based on information in hand, year to date depletions reported to the company through the 28 weeks ended July 10, 2021, our estimate to have increased approximately 32% for the comparable weeks in 2020. Now Frank will provide the financial details. Thank you.
Thank you, Jim and Dave. Good afternoon, everyone. For the Q2, we reported net income of 59,200,000 in dollars or 1.6 percent from the Q2 of 2020. Earnings per diluted share were $4.75 a decrease of $0.13 per diluted share from the Q2 of 2020. This decrease was primarily due to increases in operating expenses, Lower gross margins and a higher tax rate, partially offset by increased revenue driven by shipment growth.
Shipment volume was approximately 2,450,000 barrels, a 27.4% increase from the Q2 of 2020. Shipment volume for the first half was significantly higher than depletions volume and resulted in higher distributor inventory as of June 26, 2021, when compared to June 27, 2020. The company believes distributor inventory as of June 26, 2021 averaged approximately 5 weeks on hand and was at an appropriate level for each of its brands, except for Twisted Tea, which has significantly lower than planned distributor inventory Our Q2 2021 gross margin of 45.7% Decreased from the 46.4 percent margin realized in the Q2 of 2020, primarily as a result of higher processing and other costs due to increased production at 3rd party breweries, partially offset by price increases and cost saving initiatives at company owned breweries. 2nd quarter advertising, promotional and selling expenses increased by $61,300,000 from the Q2 of 2020, primarily due to increased brand investments of $41,200,000 mainly driven by higher media, production and local marketing costs And increased freight to distributors of $20,100,000 that was primarily due to higher rates and volumes. General and administrative expenses increased by $3,300,000 from the Q2 of 2020, primarily due to Increases in external services and salaries and benefits costs.
Based on information of which we are currently aware, We are now expecting full year 2021 earnings per diluted share of between $18 $0.22 A decrease from the previously communicated range of between $22 $26 excluding the impact of ASU 20 sixteen-nine, But actual results could vary significantly from this target. We are currently planning increases in shipments and depletions of between 25% 40%, A decrease from the previously communicated range of between 40% 50%. We're targeting national price to be between 45% 47%. We plan increased investments in advertising, promotional and selling the shipment of products to our distributors. We estimate our full year 2021 non GAAP effective tax rate to be approximately 26%, excluding the impact of ASU 20 sixteen-nine.
We're not able to provide forward guidance on the impact that ASU 20 16-nine will have on our 2021 financial statements and full year effective tax rate as this will mainly depend upon unpredictable future events, including the timing and value realized upon the exercise of stock options versus the fair value when those options were granted. We are continuing to value 2021 capital expenditures and currently estimate investments of between $180,000,000 $230,000,000 A decrease and a narrowing from the previously communicated range of between $250,000,000 $350,000,000 The capital will be spent mostly on continued investments in our breweries and could be higher if deemed necessary to meet future growth. We expect that our cash balance of $103,000,000 as of June 26, 2021, along with our future operating Cash flow and unused line of credit of $150,000,000 will be sufficient to fund future cash requirements. We will now open up the call for questions.
At this time, we will be conducting a question Our first question comes from the line of Bonnie Herzog with
I guess I don't maybe even know where to begin. I understand that the category has been slowing. Everyone Is aware of this. That said, I'm truly struggling, and yes, pun intended, with how meaningfully your results have deteriorated. I guess, I'm saying this because even as recently as May, your tone and comments suggested that even with a slowdown in the You could still deliver relatively strong growth and hit your full year guidance.
So I guess for me, this begs the question, how Confident are you that you're going to be able to hit your new guidance and really how much visibility do you have in your business?
Okay, Bonnie. This is Dave. Let me take a shot at that. I think first of all, when we spoke in our call in April, Everything at that point, we'd hurdled the first that first big COVID stock up period in March April, we hurdled it really well and so did the category. And even to the moment of our call, we felt really confident in where the category was going.
And what seemed to happen really the May June stock up overlap, We really hit we kind of hit that inflection point in the S curve where things went from high double digit growth rate to low double digit growth rate. And that was the first signal really as we got into May June, and we had expected to hit that second bump better. Now If you look at the brand's performance, okay, just for perspective, Truly has outgrown the category for 11 months straight since last September. Truly has outgrown the category by 2x since January. Truly has grown out outgrown the category by 3x in the last 13 weeks.
It's increased it's the one brand that's increased household penetration significantly. So we've grown our user base by almost 40% for Truly, which means the innovation is working, right? So as we mentioned just earlier, Tea has performed very well, Punch has performed very well. So we're growing the business. We're growing we're actually bringing in younger and more multicultural consumers.
We're seeing that with Tea and with Punch. So The category, I think, I guess, to get back to the question, I mean, the categories took it went down to like basically over the last 13 weeks, let's call it 10%, And we were going between 2030. So it did take a more severe drop. But let me give you a couple of other thoughts of why that occurred. Yes, so you hit the S curve, you know that we can see that.
Unfortunately, that's looking backwards. It's kind of hard to see it coming looking forwards. Jim had referenced some things in his opening remarks. What about, I'd say, just the proliferation of brands in this category that has occurred. There's a herd like mentality in this business broadly.
And I think People try to bring new brands into the marketplace and there's a sameness to these brands. There's a lack of originality. And I think what's happened a little bit, a little bit of the luster of the specialist, the excitement for some consumers has been lost. Now there's 220 brands and 1,000 SKUs according to IRI in the category right now. That's about 50% larger than last year.
And we're seeing our retail customers are still trying to support all of them. So there's but that's going to change pretty quickly. The dam is going to break on that one and the long tail will be paired up. But So you have that dynamic going on. Also this move from off premise to on premise, 3% of the mix Within on premise is Hart Seltzer.
It's like 10% or 11% now, however you want to look at it. In off premise, We think it's going to climb. And actually, our team feels very confident we're getting we're actually adding we've added 4,000 Truly Draft lines. We're getting the distribution, but it's not going to overnight all of a sudden switch from one channel to another. But we feel pretty confident that that's going to continue.
And we've always believed we have confidence in that. I'd say maybe we thought it would move more like a light switch than it has been more gradually, but it's moving certainly in that direction. As it relates to just to finish off, I know it's a long answer, but it was an important question. Where's the category goes? How can you guys I have faith in your guidance now.
The category so we're kind of out of the We're going to forecast the category business. That's not what we do well at. We grow brands, we grow businesses. So if you look at the 3rd party data providers though that are out there And you guys all work with them. The range for the full year is about 20% to 50%, okay?
So that's the range you're coming in at 20% to 50%. We believe it's at the low end of that range, if it is, we can continue to grow 2 or 3 times that rate. We've been doing it For a long time now, we feel very confident. If it goes to the high end of that range, we're probably not going to be growing 2 or 3 times 50%, but we know we can grow faster than the category. So again, we think if you look at that range, low end, we can grow significantly more high and we can grow more and We're going to grow share this year.
So that's sort of that we that's just sort of how we're looking at it, and that's how we kind of get to This number. So I don't know if anyone has anything else to say on that one. I think I mean the rest of it, let me say one more thing. Twisted Tea is growing significantly. And it will be a $500,000,000 business this year.
So we have a lot of confidence in that. We've we know a footfall With some of our supply chain activities, we're a little bit short on cans. We're scrambling on that and we're coming back by the end of the summer on that. So we feel very confident in Twisted Tea. And obviously, on premise, as you heard, is really unleashed growth for Dogfish and for Sam Adams.
I'll stop there Bonnie, you can follow-up if you want to do that.
No. I appreciate the color. It's helpful. So thanks for all that. I'll pass it on.
Thank you.
Our next question comes from the line of Vivien Aver with You may proceed with your question.
Hi, good afternoon. Thanks very much for that very fulsome answer. That's a great place to pick up. In terms of the on premise penetration, can you just help dimensionalize that please? Like 4,000 draft lines, it truly compares To what for your beer portfolio?
Or is there an ACV measure we should be thinking about just to understand how incremental that could be?
Yes. So I think well, I mean, there's about to be really precise, it's about 262,000 accounts out there. We're in almost half of with at least one brand. So let's say we're in 125,000 accounts, not a full portfolio, but at least one of our brands. So 4,000 is pretty We think it's pretty significant.
And again, we'll see how it plays out. Certainly, cans are going to be the predominant Form a package that we delivered, but there seems to be a lot of interest among our customers for Julian draft and we switched. If you remember, we're glad when we first test this idea right before COVID, we had a flavorless version that was intended to be mixed by bartenders. The feedback we got was that's too much effort. So we have a wild berry version, which is which our customers are liking a lot better.
So there's no need for mix always or anything like that. So That's Xtend right now. And Truly, and again, we've and one more data point for you, We've more than doubled our penetration for Truly in our accounts. So it's in about 22% to 23% of our accounts more or less at the moment and growing.
On premise.
On premise. Absolutely helpful.
Thank you for that. And then just on the margin side, Given the reduction to your volume outlook for the full year on ships and deplete, Surprised that maybe there wasn't a little bit of improvement in your gross margin outlook. Is that a function of you guys being locked in the contract With 3rd party manufacturers, how do we think about that? Thanks.
Piyush, it's Frank. So We definitely have like when you look at versus prior year, with the volume growth, it was pretty clear that we're going to grow The Truly variety pack more externally than internally because we are full out internally and externally at this point is still more expensive. So there was a margin decline because of that. Now with the volume slowdown that we have experienced in Q2, That relationship or ratio has improved and depending on where the volume is going to go for the rest of the year, We'll probably improve based on the revised guidance that we have given. In Q2, you don't see the full benefit of it because there were certain adjustments costs.
We have Flexible contracts, but the slowdown of the category came pretty suddenly. And so there are some adjustment costs, And we call we adjusted the production and incurred some costs for that. That's why you don't see the full extent of that. But what I can tell you is that we see the benefits in our internal breweries of our cost reduction efforts And the automation efforts that we're putting in. So we haven't changed the full year guidance yet, But we see the savings coming through and expect them definitely for next year.
Understood. Thanks. I'll try to squeeze in one last one. You noted that you'll continue to focus on innovation, but also predicted that there will be Shakeout, I think you guys have been good at predicting cluttered categories Jim's talked about in the past with craft beer proliferation and that certainly Came out as you guys predicted. So how are you guys thinking about innovation in the back half of this Into 2022 given that the category does look very crowded right now.
Thanks.
Yes. Thanks, Vivek. I think Dave again. I think, I mean, first of all, we've gained about 60% more space year over year on shelf. We think we're expecting that we could probably pick up another 25% in the fall.
There will be change in fall resets. We think given our performance By the way, we have the highest penetration of any brand in the category now. And so we I think when our flavor our flavor innovation has been Bring new consumers into the category to the brand. So on that strength, we can get we think we can get more space in the fall. As it relates to innovation in general, And the consumers in this category, they like innovation.
And I think we figured out how to do it different than others have, and we'll continue to bring innovation. And I think the challenge for us is how do we keep doing it in a way that makes it differential and incremental both to the category and to our brand. And thus far, we've been successful in doing that. But we're not going to we're certainly not going to rest on our laurels or that maybe the same formula is going to work going forward. We're going to look at other ways to do it.
And again, because we're a very strong number 2 now, we think and we performed this You significantly outperformed others. We think we have a lot of latitude and support from our customers to do more.
Understood. Thanks very much for the color.
Sure.
Our next question comes from the line of Eric Saroto with Evercore. You may proceed with your question.
Thank you. First quick one for Frank. Your inventories were up pretty substantially, something in the order of $90,000,000 sequentially. I know that I think it was Dave Called out increased inventory at the breweries. How much of that sequential Increase in inventories on the balance sheet was related to finished goods at the breweries and what's the risk Of inventory obsolescence costs here.
And then a follow-up for Dave and Jim afterwards.
Yes. So the inventory, to your point, we have internal inventory that has clearly increased that's a function of the business. So three reasons. One is the function of the business growth that we have experienced in absolute terms, and we're managing it really in terms of weeks of supply. And then the second thing is, as we have done in the previous 2 years, we've prebuilt inventory.
And we have And that's what you see at wholesaler inventory, which has gone up. Now there's a limit to how much wholesalers can take. So we had to Built a little bit more internally rather than passing it to the wholesalers. And then, yes, came the slowdown. So what we have done and typically that was the curve in the previous 2 years, We're building up until April where we reach the peak in inventory and then we start decreasing our inventory as the demand picks up And eclipses our production capacity.
That has happened as well. What has happened though in May June that that pace Has slowed versus what we have predicted. But from a weeks of supply forward looking Perspective, at this point, we don't expect any write offs. Everything is reflected. So There shouldn't be unless there's another significant slowdown, which we don't expect because our guidance as reflected in that's where we increased the guidance a little bit also to the lower end to account for that.
Okay. And then, Jim and Dave, I was a little bit surprised that in your detailed For the slowdown of the seltzer category that you didn't explicitly call out RTDs. Maybe that's partly what you're referring to in terms of some of the consumer confusion, although I think that was referring to within the hard seltzer categories. So the question for you is, do you guys think that Some of the hard seltzer slowdown is related to the explosion that we've seen in RTDs. Grizzly is obviously talking quite bullishly about what they're seeing on their platform for RTDs and what sort of interaction are you seeing and What's the plan to participate in a bigger way?
Sure. Hey, Eric, this is Dave. Actually, right, I'll be honest, right now, you're right, I was referencing hard seltzer proliferation, not RTDs or canned cocktails. At this point, we don't see it having an impact on the hard seltzer category or Truly. And then just to put it in perspective, You have to break it apart.
So High Noon actually plays as a hard seltzer. No question about that. And High Noon, if you were to put that into The hard seltzer category would be about a 2 share. High Noon is also about a quarter of the entire RTD business, Can't cocktail business. So consider the Can't cocktail business about 8%, right, of hard seltzer, of which High Noon has got 2 of it.
High Noon does play in that space. And there's no question. If you look at the occasions, and again, we're still learning because it's obviously very new. It's a nascent thing, but we're talking to consumers and we're learning. High Noon does deliver on sort of sessionability better for you.
But if you look at the other canned cocktails, they do not. And if you look at the it's more special occasions, not the same occasions that hard seltzer are satisfying. And if you look at the repeat data, again, it's early, If you look at the repeat data and the buy rate data on canned cocktails, they are very low compared to hard seltzer. So Again, I would say canned cocktails is kind of like it's just jumble of stuff right now. We're all trying to figure out what is it, where does it go, But they're not all the same.
And honestly, the first thing you got to do is take high noon out of that equation because it plays very differently. Now having said that, We're going to we'll participate there because we have to we have to learn and we're out riding it. But and I think it's we think it's important that we do that And we'll do it in our ways. And we talked about taking Sowza into an FMB format as part of our partnership with Tory, that's one of things we're going to do. Also, of course, we have Dogfish Head out there now.
So we're going to learn and we're going to play. But I think this kind of noise is being created now that, Oh my gosh, canned cocktails are it's got to be bringing down the hard seltzer category. We don't see it in the data. And we talk to consumers, we don't see it either with them.
Great. Thanks for your perspective, and I'll pass it on.
Our next question comes from the line of Laurent Gravant with Guggenheim. You may proceed with your question.
Thanks and good evening everyone. Two questions from me, and one is a photo from Vivienne questions earlier I'm on premise. So I will need to you to help me reconcile the numbers here. I mean, it looks like, I mean, As depletion in the quarter was about 24%, that's pretty much what we are seeing in the Nielsen retail business. So It will mean that actually on premise didn't deliver any upside.
I mean, if you look at those numbers. So maybe you could share, I mean, For the entire company, maybe the performance in on premise by brands. And then more specifically on Trulia, I've Some follow-up question on for the on premise, but let me reconcile basically the growth of Unpremised during the quarter with what we have seen in retail.
So the question is what's happening with on premise if our total number looks like retail, Are we growing it on premise or we're not growing on premise? Correct. You said Yes. Yes.
Go ahead.
Yes.
I'm
sorry. No, so yes, I mean, we're I mean, right now, we're approaching like the last several weeks, we've been selling at the same levels as 2019. And obviously 2020, we were not selling what we were selling in 2019. So we are growing on premise. And One of the primary reasons why both Sam and Dogfish are back to growth is we are we're getting tap handles and we're growing.
So I'm not sure how to other than sharing the data that we don't normally share, how I can kind of reconcile that other than say we are growing it on premise as well. And we use IRI. Am not sure what Nielsen is saying. But he says 24. So there's I'm not sure how to reconcile those two numbers to be on.
In the quarter. We very definitely grew faster on premise than we did off premise pretty much for every brand.
Yes. Okay. Well, difficult to understand this in the numbers. So Then specifically maybe on Truly. Last year, I mean, on price for Truly was about 2% 2% to 3% and you are saying it's about 3%.
So it's not a huge kind of upside versus last year. Where do you think a brand like Truly or Our sales in general could become in terms of size versus retail. And should we think about these being kind of 8%, 10% of the retail sales of Truly or Art Seltzer. I'm not thinking that it would go up to no, 15% like in beer, but should we think about truly being ultimately 8% to 10% of what it is in retail?
I think that's reasonable. I think I would start with the likelihood that AAR and Seltzer in general, including Truly will under index on premise for the foreseeable future, unless the draft takes off as a big volume driver. If you don't play on draft, you're missing a sizable hunk of the on premise low ABV type volume where beer is historically played. So I think your numbers are we're all begging for a crystal ball here and none of us has it. But if on premise historically has been between 15% 20% of the business.
If you held a gun to my head, I'd say It's going to be 10 ish, maybe a little less of the sell through business for the next year or 2. But longer term, there may be upside from innovation that we haven't seen yet.
Thank you. That's very helpful. And then, I mean, it's more on innovation. Sorry if I didn't understand it, but could you please maybe explain the nature of the deal with BimCentury and What we should expect, I mean, from what would be the upside for you? And I'm not trying to understand what's truly in the bottom line is to be frank.
Yes. So I think so. I mean, we deliberately didn't put a lot of information out there because We don't want to share with our competitors, but basically we have a partnership and it's not a licensing deal. It's a partnership where We can take some of their brands into the F and B space. And we do know that there are F and B drinkers who like spirit brands And we'd like to see those Spirit Brands in the FMB space.
So through our distribution network, collaborative R and D, collaborative marketing, But through our distribution network is where we would take those brands. And in return, we think we have a couple brands, the first one being Truly That have a possibility and a potential to live in the spirits world, but to do it the right way, we're going through them and their distribution and use their know how and expertise in helping us craft, in the first case, a version of Truly that could go into the bottle of spirit. So Yes, we're mutually helping each other take some of our iconic brands into other worlds where consumers will recognize them and hopefully gravitate toward them.
And I'd add to that, I think it is our mutual beliefs, us and our partner in Beam Suntory, that a spirits based product We'll find its best route to market through the spirits system of supplier and distributor. So we believe there could be some traction for a Truly vodka, but not through us, not through our production and distribution system. It should go through spirits producer. We're fortunate to have someone of the quality of Beam Suntory to partner with in this endeavor. And similarly a malt based product, even if it has a tequila brand on it, will to find its most success leveraging the beer system.
A beer supplier like us and beer wholesalers like our network. So it kind of keeps despite the brand names, it keeps the products in their most successful lanes, spirits through the spirit system and malt based products through the beer system. Thank
you. Thank you very much for the clarification. I pass it on. Thank you.
Our next question comes from the line of Filippo Saloni with Morgan Stanley. You may proceed with your question.
Hey, good afternoon, guys. So first question, maybe can you explain and Give a little bit more color on your expectations for TRUL in the second half. I know you said for the full year, you expect to at least to grow at the low end, 2 to 3 times the low end of the 20 to 50. But just any thoughts on the second half As you cycle more normalized comparisons, that will be helpful for us to start.
Okay. I think it's I mean, I think the best way to look at it is as a relationship to where the categories go. So at least we have Some good historical data over the last year on how we can how we perform relative to the category. And what I don't want to do is say what the category is actually going to do because we've proven we're Very good at that. So but we do think that, again, we've been for the last 13 weeks, we've been about a 3:one clip versus a category.
So We think whichever the way the category goes, we'll ride it. We do think look, we believe this in our last call, but we do think that that comps the comps is up. We're lapping there's some serious out of stocks that were occurring. On premise, we will start to take hold. The category will winnow out.
So some of this consumer confusion and Retailer supporting everything will start to fade the back half of the year. So and again, we think we've through our innovation and through our brand building, we've established ourselves as a brand with a lot of momentum that should take advantage of these things that will happen back after the year. How that translates into The exact growth we don't know, but we're and by the way, we can go if it goes up, we're ready to go there. We can handle either whatever occurrence happens, we'll be ready to take advantage of that. So I'm sorry that doesn't really give you a definitive answer, but that's sort of the best we can do.
Got it.
Okay. That's
helpful. Yes. Maybe kind of to add on to that. Like, We were expecting a slowdown in May June because it's really hard to predict and that's why it's really hard to answer your question is 2020 was such a roller coaster and had a tremendous volatility. And yes, if you recall, May June was a tremendous stock up, first by the consumer, then by because they wanted to be ready.
And that was reflected in the depletions and in our volumes shipment volumes, of course. So we were expecting a moderation. That was and I think that coincided with a few other factors that Jim and Dave have laid out. So the slowdown was a little bit stronger than what we had expected. Now that is moderating in the back half, but we don't Exactly, no, what the composition is between the natural slowdown of the category and what happened in May, June and going into early July.
So we'll have to see that. What we put out is our range is our best estimate based on what we have seen and what we believe, but we are clearly prepared to go beyond that on the side. So we are ready to move there, if need be. So we're planning for more than what we have or for a broader range than what Pete gave you as a guidance.
Got it. Okay. And then, Dave, you just talked in the past about Wanted to build truly as a mega brand, and you've clearly done a lot of progress in the U. S. Market.
But thinking about internationally and the And the potential there, particularly given the U. S. Categories starting to slow, why not go a little bit more aggressive on try to Internationally, starting with Canada, and then potentially in other markets and whether you can make some investments to do in house or potentially partner with another beverage company on a global basis.
Well, we do have a business in Canada that's growing rapidly. So we feel good about the progress we're making there. We are just now launching in the UK. We have a partner in the UK, Chevenine, is the oldest brewer in the UK and our partner for Boston Beer there, and they are launching in the UK and Ireland right now as we speak, and we'll learn because we're not quite sure Where Hard Seltzer is going to play outside of North America, we're a little bit hopeful, but we're not betting the farm on it. But shepherding is going to go out there.
And the benefit of that is we also have Dua Lipa, who is a U. K. Citizen and obviously well loved in the U. K. So we have a great marketing platform to go out there to see what we can do in the U.
K. And then we'll see from there. I mean, we'll see from there. There are other things obviously out there, But we're focused on winning in North America and that's our goal. And I think you can see the effort we've made in What's happened over the last year is we're in a much different place than we were a year ago because we've been really focused on the market that matters the most.
Got it. Thanks, guys.
Our next question comes from the line of Kevin Grundy with You may proceed with your question.
Hey, good evening, guys. I apologize for the background noise. I'm on the This is a question for Dave and for Jim. I was just hoping you could unpack the I'm coming back to the seltzer category. Maybe you could just unpack the factors a little bit driving the slowdown.
And I hate to belabor this, but I guess going back to your initial guidance to where we are now. As you look at your key performance indicators, household penetration, frequency of consumption, if you could just sort of maybe to compartmentalize this in some order of magnitude, what you think is driving the slowdown at a 20,000 foot level as the industry sort of moves out euphoria phase and we move into more normalized level to growth. And I apologize, Dave, I know you said you don't want to forecast the category anymore, but Being a company that's helped pioneer this category, I think the industry will be curious to hear your views. Where do you think we go now from here? Think the bogey had been like 15% of beer.
Does that still seem like a reasonable ambition? So your thoughts on both of those would be helpful. And then I have a follow-up. Thank you.
Sure. Okay. Well, I can start and then Jim or Frank can jump in. I think in terms of the category, so it is kind of that S curve moment. And I think what's been what makes it even harder to recognize is because of all the weird overlaps with COVID, 1st stock up, 2nd stock up, on premise opening, etcetera.
But if you look at the household penetration, so year to date, the penetration is still growing in the category and so is the buy rate. So you have a lot of people who've come in. Think year to date, I'm using numerator data for those who care, but it's up 7% household penetration Increase now a year ago, it was 73%. Okay. So that's the inflection point.
It's still growing, but it's slowed down. Buy rates are also increasing. So people who are in the category and staying in are actually they're buying more. So that's good. So I think My sense is, I mean, we obviously went from like close to triple digits, not too high 9 months ago, whatever to high double digits.
Now It's low double digits, and we think it will stay and we're banking it's going to stay there. We think it could go up a bit. We said that $20,000,000 to $50,000,000 Again, that's not our forecast. That's all the experts forecast and that seems reasonable to us given all the things we've seen. So I think, yes, I think what's going to make a difference really to getting normalized.
We'll know more obviously, as we get through the summer. But again, there are too many brands out there with not enough shelf space, too much focus, Too much sameness. I think this is I really believe this firmly that in categories like this where there's high growth and everybody jumps in, it's not just in our industry, The more people the more companies try to create something that's different, they create nonessential differences and benefits. And the problem is everything becomes the same and it does from a consumer perspective look the same. And I think A lot of those brands will be gone.
So, I think retailers are seeing that now it's going to start happening in the fall. Still the top two brands are 70 share of the category More or less that will continue. So I think that the smoke will start to clear and what we're hearing from the other third party folks, They're saying basically CAGR 15 to 25 over the next few years coming out of it. But I'm not even going to I don't want to go there yet. Let's just get through the next 3 to 6 months and see where If it ends up where we think it will, we obviously have more information now than we did even 3 months ago, a lot more and hopefully we're closer.
And Kevin, I don't know if
that answers you. I don't know if that came close to answering your question.
No, that's helpful. Jim, did you have anything to add on this front and particularly where you The category goes over time now that you kind of you reassess here with the slowdown, we move out of this euphoria phase. Anything to add?
We're just at a really choppy point. We may be at And to be totally honest, we were surprised at the sharpness and the suddenness of the change in trajectory. It happens as we're lapping crazy times from last year. We're past the 1st month of pantry loading, but when we look at May this year versus May of last year. It was a crazy time last year.
So and all the volume had shifted to the off premise. So the numbers are really hard to read, May, even June of this year versus May June of last year. So we are I mean, we're probably as surprised as you were, it shows up in the inventory numbers. And from our point of view, we launched Truly Punch, which was quite successful. We but it hasn't added as much to our volume as we thought, cannibalized it, some of the other packages, maybe a little more than we thought it would.
So it's a really, really murky crystal ball. It's more like looking into a bowling ball. You can't see much.
Understood. One quick follow-up and then I'll pass it on. Just given the slowdown, there is A major brand extension out there, they've recently decided to pull the plug on it. So one would think that there'll be some interest in the part of holding to take that inventory through the system. Understanding that we're in a difficult commodity cost environment, how do you sort of to view those crosscurrents of the category slowdown with higher input costs.
And specifically, you see the risk that the promotion kind of picks up here. Given the magnitude of investment and the inventory that this channel
I'll give you my guess. Generally, when Brands end up being discontinued like that. There's not that much volume out there. I think the one you're talking about, it was maybe 0.7% share. So a lot of them just dwindle.
So there's not a lot of inventory that gets dumped and puts downward pressure on the category. It's from retailers and wholesalers and suppliers. It's a very attractive category. And we've all made major investments to it. So there's not as we need to pay back.
So I'm not anticipating price wars in the seltzer category. So I'm not that worried about it. We all have more inventory than we would like, but it's still selling a lot of product. So we're not really worried about and it has long shelf life, 6 to 12 months. So we were all able to cut our production and work off that inventory in a relatively short period of time.
Yes. And I think Go ahead. Yes. I will add
to the inventory. Last year, it would have been Yes, more than happy if we had that level of inventory because we ran out. And yes, there's just a lot of seasonality to So that's one thing. The other thing is also on the pricing. You see also in our Q2 financials, I mean, we delivered quite a bit of pricing in the category.
The category so far As shown that it's not really a price driven category. It's not price that It's the quality of the beverage and the strength of the brand, and the innovation that wins. But price hasn't been really a factor. We don't expect that to change.
Okay, very good. I appreciate the time. Thank you. Good luck.
Thank you.
Our next question comes from the line of Nadine Sarwat with Bernstein. You may proceed with your question.
Hi. Thank you for taking my question. I wanted to go back and touch on your comments on the S curve and really taking a step back and looking at the long term. So are you seeing any evidence that the early adopters of the category are switching out of hard seltzers? Or is what we're seeing now in Q2 really just that the rate of attracting new customers has slowed?
Thank you.
And, Adi, I think it's much more of the latter. So the early adopters are actually they're there and as I mentioned, the buy rates are increasing, so they're actually buying more. And And they're moving through the category and they're actually they're experimenting with a lot of different things, but they're there. I'd say it's more the more recent The puzzle penetration is like around 27% now. So it's probably the more recent ones to jump in are more likely to fall out.
Also, when you bring in we're bringing in younger with the good news is we're bringing in younger consumers, we're bringing in Latinos, African Americans. The buy rates for some of those consumers coming in actually a little bit lower than the first ones in. But this is still going to be an $8,000,000,000 There's about business this year in retail. So it's the only real category that's growing within beer and it's growing double digits. And the question is, how far does it go up, hopefully?
So again, just to put that in perspective as well.
All right. Thank
Our next question comes from the line of Eric Saroda with Evercore. You may proceed with your question.
Hi. Just a quick follow-up. You cut the CapEx guidance Pretty significantly for this year. I know you're not going to give us a category forecast For this year or next year, but what sort of range of additional capacity Do you have coming online between your own breweries and your co packers between now year end and now and call it summer of 2022.
Right now, we've got a couple of big pieces of capacity coming on in the next few months. Actually, this month, we're starting to get production out of the at Tiddiebrewery in Irwindale, California, right outside of LA. And in The Q4, we will get production from Rauch, as basically the people who to produce Red Bull all over the world. They have a they're bringing up a greenfield facility in Arizona specializing in slim cans. So one part of the margin improvement that we'll be starting in the second half of this year is those markets we currently supply largely from Memphis and from Pennsylvania, a little bit from a smaller facility in Arizona.
So all of those freight costs We'll be reduced as we begin to supply the western half of the United States from western breweries. And then we put capacity in place for the back half of this year and then especially going into 2022 for very significant growth in seltzer and that is primarily contract capacity. So that was all that contract capacity coming on stream, which is very favorably located and actually well designed to make variety packs at Rauch doesn't involve a great deal of capital compared to building it internally. So one of the Things we have reduced is high capital cost capacity, which is the internal capacity, because we believe we have really good contract partners with favorable terms and locations and very efficient production.
Yes. And Eric, to your question, like we started that in the last earnings call where we had reduced that when we were in this Really extreme growth period. When you plan your capital, you look at different options of putting the capital in. And there are basically 2 big buckets of capital that we're looking at. 1 is increasing capacity And the other one is investments to bring down the cost.
That's the automation of the variety pack. That's the main component, which will drive the cost down. So when you put that in at the beginning, we weren't the plans weren't all specified. As we move through the year, We found better solutions, as Jim said, that allowed to get to the same result with less Capital. So if you look at the capital reduction in the guidance, there's the way I would think about it is 3 quarters It's really because we found better ways in implementing our plans.
And about 1 quarter is a delay, and that depends really on The capacity that we really need, we have sufficient capacity for next year, but everything will go forward that will Decrease our variety packing costs, and that's the major cost block. And that's also the major difference that you see in the current P and L between External manufacturing and internal manufacturing, but those are the plans that we have, and that's going to be a key driver for the margin improvement.
That's helpful color. But just coming back to the risk with all of this additional Capacity that you're going to have access to, could you talk about what degree of flexibility that you have with Your partners in other locations and your own breweries to just make sure that you don't have That you're not too long on capacity or supply next year if the category growth disappoints. Yes,
we believe we have very flexible contracts with our primary partners. There are shortfall fees, but They don't kick in for a while for the first piece of volume. We have to go way below our projections before They kick in and they are reasonable and because our contract partners are very good producers, they're in demand, They make lots of different things. We are the principal customer for most of them and looked at as the most desirable, stable, sizable volume. But If we cut some of that back, we've been told by our contract partners that they've got other demand for it.
So we're lucky in that, that flex capacity, the last third of it, We basically have options on that and the contracts are structured that way because we were uncertain about just how high was up. So we locked in adequate capacity to cover very ambitious upside goals, but the shortfall fees are not sizable.
Well, thank you. I'll pass it on.
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Jim Koch for closing remarks.
Thanks, everyone, for joining us for this call. And we look forward to speaking to you in another 3 months. And we think we'll have a little more clarity. Maybe the bowling ball will have turned a little more translucent. Thanks, everyone.
Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.