...We're gonna get started. It's wonderful to have Chairman, Founder, Brewer, and CEO, Jim Koch, joining us in Boston once again. Jim, as you know, and I say it every year, enjoying a beer with you on stage is the highlight of my September-
Good.
And a wonderful way to end the conference. So thank you so much for being here again and prioritizing this event for us and for Barclays. So it's your first time in the CEO seat in nearly twenty-five years, but obviously you've remained highly active in the company and the industry since founding Boston Beer in 1984 . How would you say your leadership style has evolved? What are you doing to ensure a strong succession plan?
Yeah, you're right. It's the first time in this century that I've been CEO. I've sort of avoided it for a long time. And it hasn't been a big change. It's, you know, it's not like I left. I mean, I've been engaged more than full-time all through the executive chairman-type thing. To answer your question, evolved, I think I've learned to delegate more. And I very much focus my role not on things that come with the title, but on sort of a matrix, a two-by-two matrix of, can I add value or not? Yes or no. And is it important to the company's success, yes or no?
So I try to focus on the upper right-hand quadrant, and don't do things that maybe I should do, like meet with analysts or something like that, where I'm not really adding any value to the company. So does that make sense? And I am. I don't want to do this for a long time. So I'm, it's gonna be a few years, but I'm working on developing multiple CEO candidates internally, because my experience has been, and the statistics are, very much in favor of internally promoted CEOs. I believe the success rate for internally promoted CEOs, success defined as, "Are they still here in 18 months?" is about 80%, and for external hires, it's 50%.
Okay. Yeah. Okay, that's great. I kept on doing my second question, but I am. The debate among the investment community around soft U.S. alcohol consumption and whether it's cyclical or structural, we've been trying to wait until, like, the tenth minute or so of these conversations.
We worry about it, too.
We're jumping right in.
Yeah.
Yeah. So, when we were here together last year, you were probably the most direct and open-minded, frankly, of any of the other CEOs or leaders in the alcohol industry, around the chance that there are some things here that are sustaining. And you, at the time, talked about the various structural headwinds as amounting to, like, a one- to two-point drag to the industry, to consumption, maybe some offset from population growth. How do you think about these puts and takes today? You know, we've got a year later, we've got this challenged Hispanic consumer base that could weigh on population growth and socioeconomic, you know, social behaviors over the next couple of years. So how has your thinking evolved?
You know, I think those are real. It's the issues, you know, last year I felt like they're not going away and we should, you know, recognize, and I think that's still true, and I don't know whether you'd categorize them as cyclical or structural. There's definitely cyclical, that is we had the weather sucked in the second quarter. Okay, and then we're seeing a little bounce back from decent weather, but there are, and maybe to simplify it, we could think of three Hs. The most important is health, health. The dialogue on the alcohol causes cancer is at a much higher and more pervasive level than it was a year or two ago for, and that, to me, is probably the biggest thing.
But the pressure, social, economic pressure on the Hispanic population, which was the contributor to population growth, is probably reversed. So I don't know whether you... I don't know how you classify that. We get an, you know, a new administration, maybe, you know, the current one satisfied, and they're and they let up. But that's not something that's gonna go away next quarter. And that's affected everybody. And then there's hemp, and that's very spotty. It depends on which state you're in, but you get places like Minnesota, Louisiana, where it's clearly taken a, you know, mid-single digits or something like that out of beer. It's different than marijuana.
You know, weed is not sold in the beer cooler, but hemp-based THC is in some states, and I mean, it just ranges this gamut. Here in Massachusetts, the government just said: "Doesn't matter where the THC comes from. We don't care about the Farm Bill. You're selling THC, it's got to go through a dispensary." So it's out of the mainstream. It's not on your shopping trip. You gotta make a special trip to a dispensary, and when you get there, they don't have big coolers. You know, they don't have space. They wanna sell bud, they wanna sell gummies. Take Louisiana or New Jersey. In New Jersey, in a Total Wine, you may see thirty feet of hemp-based THC products, and they're totally unregulated.
You literally could sell a can of hemp-based THC with a hundred milligrams of THC in there next to the crayons at a Toys "R" Us, and put it in your child's lunchbox, and they could share it with their friends. It is. That's the range that you have, and it's very uncertain. There's a lot of flip-flopping. We've all watched Texas. You know, first it was legal, and then Lieutenant Governor Patrick went after it, and they passed a bill through the House and Senate, got to Governor Abbott's desk to just ban it, the same as any other THC. Abbott decided, "No, we'll regulate it. We'll call a special session back." You know, then they decided they're gonna redistrict, and THC gets off the...
And they never really revisited it, so it's you know it went from unregulated and legal to banned and regulated, and all the way back to unregulated and legal. So it's hard for us to deal with that kind of stuff. I don't know whether is that structural? Is it cyclical? It's out there, and it's real, but it could go away tomorrow.
Yeah. So we got health, Hispanic, hemp. We're missing one.
No, just three.
Oh, I thought you said four. That's okay.
Oh, okay.
We've got three. No.
I could make up one.
You...
Okay.
Okay. Thinking about medium-term growth for beer versus beyond beer, or as you put it, the fourth category, how do you think about that?
I think, traditional forms of the three, you know, traditional alcoholic beverages, the beer, wine, and liquor, I think they are all three gonna be under some pressure, for a bunch of reasons. You know, one is they've been around for a long time, and so they're a little stable, but, you need innovation within those. The other is, they're inherently, acquired tastes. They all have a flavor structure that our, physiology evolved to not like. You know, beer is bitter. It's supposed to be bitter. It's got hops. First time you taste beer, "Oh, that's, that's bitter," particularly a good beer, because, you know, evolution-wise, things that were bitter tended to be bad for you. So we evolved not to like it, but you can overcome that and begin to appreciate it. Same thing with wine.
You know, it's tannic, and it's acidic. Your first sip of wine is not, again, what we evolved as humans to like, and of course, you know, liquor has that ferocious ethanol attack on your palate that you reject. Your first swig of vodka, you, it's not something enjoyable. And liquor maybe was the first ones to figure out, "Well, let's not sell them liquor. Let's sell them mixed drinks," where you have a whole, you know, different flavor profile drinking, you know, a margarita than a swig of a shot of tequila. And that enables the producer to make things that people are wired to like, which is basically, I'm oversimplifying it, but sweet and fruity. We're kinda wired to like sweet and fruity.
In the fourth category, you're getting, as a maker, I can make. I'm not limited by the structure of the alcohol, the base, underlying alcoholic beverage. I can make things of almost infinite flavor plasticity and adapt to consumers and move with consumer taste. To me, the fourth category is inherently advantaged in terms of innovation. And it's, for us, you know, we've came to recognize this quite early, twenty, thirty even years ago and began evolving. In addition to craft beer, you know, we've made hard cider, which was once the biggest form of alcohol in America before the Civil War. And it's, you know, it's sweeter and fruitier, though it does have some tannins in it, but they're modified, and then Twisted Tea and so forth.
And today, that's by far the biggest part of our volume base, is this fourth category, which is, this year, will it grow? Not sure, but it's gonna outgrow traditional beer. It's gonna outgrow traditional wine. It's gonna outgrow traditional liquor. And finally, those products want to be sold, they want to be made and sold by brewers. 'Cause they're, you know, they have the price structure, they're in the cooler, you need efficient logistics. You know, a beer wholesaler's truck carries a thousand cases. A wine wholesaler's truck carries three hundred. I mean, the logistics, the economics, and you wanna produce them in a place that, you know, has high speed can lines, has mixed blend technology, that maybe has pasteurization.
Only brewers have all this stuff, so brewers should win in the fourth category, and so forth. That's where we've focused.
Okay, great. The beer industry is on track for a mid-single digit decline this year, following a few years of outsized declines even before twenty twenty-five. How would you assess the industry's response to the slowdown? You know, what more can or should be done from an industry standpoint?
A couple of things. One goes back a long way. For many years, the beer industry funded an institute at Johns Hopkins, whose mission was, research, medical research in alcoholic beverages, and, we were a tiny, tiny part of it. It was based on your volume, so we were, like, 1% of it. Most of it was the big, you know, the big brewers, and it produced a lot of studies. Some of them said alcohol is good, some said alcohol is bad. I'm oversimplifying it, but that was the whole point, is fund studies so that there is neutral research out there.
Eleven years ago, the beer industry stopped doing that, and we are now kind of seeing the results, because the research in the health effects of alcohol has basically been funded by anti-alcohol groups and gone to researchers who were more likely to produce, you know, negative stuff based on their previous research. So there's been an absence, to me, of balanced research, and that's a self-inflicted wound that the beer industry did to save a trivial amount of money. So that's, you know, I think we should be thinking about that, and that's not gonna make a difference for the next four years, but, you know, all of our... At least, you know, I care about where we're gonna be. I'm not gonna be in another company, in another job.
So, and I think there are other people in this industry that feel the same way, so maybe it's, we can get it revived. The advertising needs to be good, and I think just, you know, continuing to execute at retail. And I think the industry's gotten a little bit away from that and into, you know, marketing, social media, but they've pulled back, and the distributors, same way, they've pulled back their resources from, executing at retail, especially on- premise, which is where fun happens, where people build great memories, where brands get built. Wholesalers in COVID discovered, you know, it's only 10 or 15% of our volume, but it's, you know, but it takes up 30% of our sales force time.
When making a call, make a call on this hotel. It's a couple hour call, and if you really, there's four people you gotta see. There's, you know, there's the guy who runs the bars, there's a person who runs catering, which is actually the biggest, there's the one that stocks the mini bars, and there's somebody else who does the restaurants, so I mean, and the volumes aren't that huge, so I think the industry has, and this is more true at the distributor level, has withdrawn support for the on-premise, and we've stepped up our sales force. We've tried to fill some of that gap, and we very much focus on on-premise. Sun Cruiser, here in New England, is very successful, and it was built on-premise. We went there first, and it's more expensive, but it builds a stronger brand.
Okay, great. Just closer in for a moment. I know we talked about the terrible weather in June, you mentioned earlier. But overall, what would you say about the U.S. consumer environment through the end of the summer? You know, do you think more promotion is needed to drive volume improvement if the consumer backdrop deteriorates, if we get the anticipated inflation broadly, you know, coming off of tariffs through the end of the year?
You know, I will preface this with, I'm not the expert on this. I mean, we don't do tons of research at that level. We just read what everybody else is reading. You know, I live in Newton and Palm Beach. I mean, that's a bubble. So I'm opining about a world that I don't necessarily see. So with that caveat, my sense is, you know, the top quintile of the income spectrum is doing reasonably well, has confidence. The other 80%, which is a lot of our drinkers, is uncertain, anxious. I mean, you know, there's a lot of turmoil in our country right now. We're really not sure where we're gonna be in a year.
You know, Trump puts in tariffs, and then, you know, the court says this. Well, you don't have the authority to do that, but then it's gonna go to another court. I mean, these things are. There's a lot of instability that causes, you know, fear, uncertainty, doubt at the consumer level, and especially, I think, in the 80% that is less economically secure. I mean, I do see that in when you're calling on retailers.
Yeah.
There is that fear.
Correct. You mentioned Sun Cruiser, so let's talk a little bit about that. You've had great early success with it. I'm curious how you're applying lessons learned from Truly. You know, Truly had a really rapid rise, but then a subsequent decline. So, you know, how do you apply lessons learned from the Truly experience to Sun Cruiser?
There's a couple of lessons. One of them is, you know, build it from the bottom up, put roots down. So we're, with the rollout of Sun Cruiser, we're not doing it with, like, national advertising and national programs. We're doing it in. We're looking market by market in the 30 major metros that make up probably 70% of our demand. So it's, you know, we're looking at what's going on in Orlando, and why is that different from what's going on in Jacksonville? And, you know, south of Delray, we're seeing a different set of circumstances than we are, you know, in Broward and Palm Beach counties. So, we're. And we're very focused on on-premise, which I think gives it more durability.
Second, we are being more hesitant about SKU proliferation, flavor proliferation. We basically got with Truly at its peak, I think we had seven different, you know, flavor families. We've got two, lemonade and tea, with Sun Cruiser.
Okay, great. And then, on the flip side, Twisted Tea has, you know, carefully scaled that brand over several decades now, but more recently, it has had some challenges. Can you talk a little bit about the action plan to optimize Twisted Tea's pricing and retail presence to get back that historical growth rate and also preserving brand equity while you address-
Yeah.
-those dynamics?
Yeah, well, we're not gonna Twisted Tea was a, you know, a very long-term build that grew double digits for over twenty years. I don't think we're gonna grow at double digits. It's just too big at this point. It's, I think, the number 10 brand in beer. And to be totally honest, we were surprised by the slump. I mean, we came into this year with, you know, it's growing at high single digits, and in six months, it's down to low single digits. So, it, I mean, honestly, it caught us by surprise. So, we've spent the last couple months trying to sort out what's going on. The responses that we have are multiple. One, we need to strengthen, even in these hard times, the Hispanic connection.
So, you know, we have now a Hispanic Twisted Tea ad in literally in Spanish. We have a sponsorship with boxing, which over indexes among Hispanics, particularly Mexican Hispanics. We are extending it into the Anglo population. We've we're renewing our sponsorship with NASCAR. That was the first real big sponsorship, and then we moved on to college football. We're gonna we're adding, as I said, boxing for Hispanics and NASCAR for the traditional Twisted Tea blue-collar base. And we, we in some markets raised price too high and too fast, particularly on twelve packs. And then what we're seeing is singles are fine, but twelve packs are off, you know, 15%, 18%, 20%, depending on the week and circumstance you look at.
That tends to happen most where the price went over $20 a 12-pack, and we got close to craft beer pricing. Historically, it's been lower than that. So we're looking at those markets where we got. I mean, it was growing 20%. It's, you can't raise price when you're growing 20%. When are you gonna raise price? So now we're going back and addressing those markets where the gap between mass domestic and Twisted Tea got almost as big as the gap with, you know, mass domestic and craft, and Tea needs to be in the middle. There are trades off against, you know, mass domestic, Bud, Bud Light, Coors, Coors Light, and the gap got too big in some markets. So we're gonna surgically, you know, set that back to where it was, the gap was earlier.
Okay. And do you have a sense for time horizon for that? So when, you know, people can sorta expect or I guess, gauge whether or not that is the answer, you know?
Yeah. Well, when we simulate it, you-
Okay.
You know, numerator data and so forth. It's like 20% of the answer, 15% of the answer. It's not the full answer, but it's a lever we can pull. We'll start, and we, you know, we'll meet with our distributors, explain it, show them the data, and get their consent and agreement on it, because we don't want to just reduce the price to the wholesaler, and they pocket it.
Yeah.
So, it'll take a little while to undo it and measured in months. But other than, I mean, the rest of the... So that's, you know, a fraction. It's one package in maybe a third of the markets.
Yeah.
But we do believe, I mean, that's, it's clear in the data that we overreached. So, I mean, we're starting these actions now.
Okay.
We'll see them. We lost display activity over because, frankly, RTDs took it. I mean, you'd go into a store, and there'd be a display of High Noon and Lucky One and Sun Cruiser and Surfside, and a smaller display of Twisted Tea. A year ago, we had that display, so, hopefully, we're going to focus over the summer of 2026 for getting those big displays back.
Okay, great. So gross margins have emerged as a key achievement, and you recently raised the 2025 margin guidance. How do you plan to sustain and build upon these gross margin improvements, this year, while still addressing challenges that you have, like the 70 to 100 basis point hit from tariffs, ongoing inflationary pressures? So maybe talk about ongoing, you know, some of the productivity programs and initiatives that you're focused on.
Yeah. Yeah, those obviously have been a significant success and fueled a lot of the resources to support the brands. I think there's still significant savings to come out. You know, they're sort of in three buckets. One is procurement. And we're now just getting out of some of the legacy contracts, especially for cans, that we put in place five years ago when there was a can shortage. We were bringing, you know, seltzer exploded. We were literally bringing in cans from China. I mean, we were shipping 40-foot containers of basically air. You know, there's maybe 300 pounds of aluminum in there, and you know, the rest of it was air. So those contracts are rolling off. So you're seeing some of that, and there's still some more to be done on that.
The second is just production efficiencies in the breweries. Again, there's a lot of this after effect of Truly. I mean, our volume doubled in three years. You know, we weren't worried about cost-effective or anything. It was a once, literally, in a lifetime opportunity, this explosion of hard seltzer. So I've always said our margins can get over 50%, maybe even in the mid-50s. So I believe there's still some run room there. And then there's these network optimizations. It's a bunch of stuff, but you know, we... In the Truly explosion, we needed outside warehouses, and so things get handled lots of times.
You know, we'll make it in the brewery in Pennsylvania, but then we load it on a truck and ship it to a DHL warehouse ten miles away, where it you know gets sits and gets handled. And then gets back on a truck and gets shipped back to the loading dock of the brewery and goes out. So over the next couple of years, we're going to get rid of all of that. And that's a lot of money. We have that in all of our breweries. We believe we'll get out of those warehouses in the next six to 12 months in Ohio, completely, and then Pennsylvania comes after that, and we have the same things at Cincy. So there are still significant pockets of savings.
You know, what we do with that is maybe a little different, but you know, we believe and have demonstrated over you know, our forty years of existence. I mean, we're a growth company. We were able to find growth when nobody else you know, when it was rare in the beer business. That's been driven by effective innovation and by you know, the largest sales force in the beer business that can execute innovations at retail. So we're built around growth, and the fuel for that is you know, continued cost savings that will enable us to properly you know, to realize the potential of our existing brands and to get incremental growth on top of that, through innovation. So that's kind of my standard is in our core brands. We should hold share.
And in general, we're weighted to the fourth Category, so holding share is pretty healthy. And then our innovation brands, that should give us volume on top of that.
Yeah. Okay. And to this point, you're increasing advertising investment meaningfully this year, which I think is largely driven by Sun Cruiser and then the Truly Refresh. How are you measuring return on investment? And should we think about twenty twenty-five as an elevated year, or is this a reset to a more appropriate run rate level of support?
Think of it as the latter.
Okay.
Yes, we spent a lot of money on Sun Cruiser, but we got a payback. So, it didn't fall to the bottom line, but you know, we suddenly got a significant new brand without having to invest more than the gross margin. So I consider that, you know, if you're the first real year of national rollout, where you're investing in advertising heavily, yet it still has some small contribution to the bottom line, that's very successful. We believe we have a pipeline that has similar potential. Sun Cruiser was a holy shit thing. But we believe that we can generate further innovations. Now, we have lots and lots of failures. I mean, hopefully you haven't heard of Loma Vista or General Admission. No.
Okay, that's good. In market now, we have, what do we have? We have, a product called Sinless, which is vodka cocktails, with no carbs. So you can get, a cocktail knowing it's 100 calories, it's, 4.5% alcohol, it tastes great, and, it's carb-free. We have, Just Hard Squeezed, which is a 10% real juice product. We'll see. We've got, Social Pop, which is an alcoholic version of Poppi and, and these are just... They're in test market. And I guess, as from my point of view, if we do 10 of those, and one becomes a 10 million case, you know, $250 million brand, I'm good with that.
So, and we're kind of built around regular failure as a company. We're built to generate those, we're overweighted in the skill sets that it takes to do that, and but growth is expensive, so we will take most of those savings and put them behind maintaining share in our existing brands and growing the overall volume of the company, not just share. And, yeah.
Great. We just have time for one more question, so I wanted to end talking about capital allocation. You repurchased $110 million of stock in the first half of the year and recently announced a $50 million share buyback, through the end of this year. How are you thinking about the priorities in terms of uses of your healthy cash balance?
It's, you know, I mean, I'm the biggest shareholder, so I tend to want to think as a shareholder. So to me, it's like, okay, we have, we're cash generative, and we have a pretty good model that way. We have no debt, and we're generating, you know, a nine-figure number of cash, which we then return to shareholders. But the needs of the business come first, and when we get to the point where we say, "I don't know if we're gonna get a payback on this $20 million investment in, you know, sponsorships for Twisted Tea or, you know, advertising for Sam Adams," and so we don't spend that. And we, if the proposal comes to me, and I don't see a payback, it's okay.
Let's give it to the shareholders, and we believe the share buyback is the most tax-efficient way to do that.
Okay, great. We're gonna wrap it there. We're gonna have our traditional annual closing reception slash breakout outside. Boston Beer has provided us with some drinks, so please join us outside and join me in thanking Jim and the rest of the team for being here.
Thank you.