THE GIST
In some of the strongest evidence yet of the blurring lines between traditional alcohol categories, Boston Beer Co. and global spirits company Beam Suntory on Thursday announced a “long-term, strategic partnership” to produce new spirits and ready-to-drink (RTD) beverages bearing the Truly Hard Seltzer and Sauza tequila brand names. Boston Beer Co., the ninth-largest brewery in the U.S., will handle production, packaging, and distribution of a line of Sauza-branded RTD products. Beam Suntory, which owns brands including Jim Beam whiskey, Effen vodka, and Courvoisier cognac, will handle distillation and help launch Truly-branded bottled spirits.
The move is strategic for Boston Beer on several levels. Primarily, it further diversifies the company’s lineup of products beyond the traditional beer category, which was once critical to Boston Beer’s growth but has lost luster—the company’s flavored malt beverages (FMBs), including Truly and Twisted Tea, overtook Samuel Adams as the company’s powerhouses starting in 2019.
Samuel Adams beers made up more than 40% of Boston Beer’s dollar sales in chain retail stores tracked by market research company IRI six years ago. Today the beer portfolio makes up about 10%. Truly Hard Seltzer (57.9%) and Twisted Tea (28.6%) now account for the majority of dollars made in those chain stores. With about 27% share of the hard seltzer market, Truly is the country’s second-largest hard seltzer brand behind White Claw.
With the Beam Suntory deal, Boston Beer is signaling its faith in Truly, betting it could entrench itself as the company’s lead brand for the future. It’s a strategic push given the increased attention consumers and beverage alcohol producers have given toward spirits and spirits-based cocktails.
U.S. consumers on the whole have been choosing liquor over beer for about two decades, causing the beer category’s share of the alcohol market to decline relative to spirits. In an April letter written to beer industry trade groups urging a pushback against proposed alcohol tax reform that would benefit spirits, Boston Beer founder and chairman Jim Koch acknowledged the threat in stark terms: “For twenty years, spirits companies have eaten our lunch. … Let’s not let them eat our dinner.”
Now Boston Beer has invited Beam Suntory for a seat at its table.
WHY IT MATTERS
With the Beam partnership, Boston Beer is hedging its bets. Recent history has shown that beer can’t beat spirits in the marketplace, so a company once known for beer may as well join forces with a distiller for mutual benefit.
This announcement mirrors similar moves from large, traditional brewing companies that have expanded beyond the beer category in recent years—most notably Molson Coors, which in 2019 renamed itself Molson Coors Beverage Company to reflect a focus on beyond-beer products. Since then, Molson Coors has formed partnerships with non-beer brands like Topo Chico mineral water, La Colombe coffee, and Truss CBD USA. Anheuser-Busch InBev also signed a deal similar to the Boston Beer-Beam Suntory partnership with another spirits producer, Sazerac, in 2020.
These partnerships, and the Boston Beer-Beam agreement, reflect drinkers’ demand for new alcoholic beverages that cross traditional category lines. New RTD canned versions of the ranch water cocktail, for example, are made from either a hard seltzer base or a tequila base, depending on the brand. In March, multinational beverage company Diageo purchased Far West Spirits LLC, maker of the Lone River line of ranch water hard seltzers.
Data shows drinkers don’t know, or particularly seem to care, exactly what type of alcohol forms the base of such products, as long as those drinks deliver on flavor expectations. The 2021 Consumer Report, released by alcohol e-commerce marketplace Drizly in July, concluded that “Competition is heating up between hard seltzers and RTDs as the lines between the two blur.” Drizly issued a survey of 1,000 U.S. alcohol consumers in conjunction with ENGINE Insights’ CARAVAN, and found that only a third of respondents could correctly define hard seltzer as a malt- or sugar-based product. The same percentage (32%) answered that hard seltzer is a “carbonated drink made with liquor like vodka or tequila.”
These blurred lines are exactly where Boston Beer and Beam Suntory can capitalize via spirits-based RTDs branded with already popular product names like Truly or Sauza. Traditional spirits companies, like Beam Suntory, also see the appeal of dabbling in this fuzzy categorical space: Alcohol industry analysts at IWSR report that last year, U.S. drinkers purchased more RTD products by volume (which, in IWSR’s analysis, include canned cocktails and hard seltzer) than traditional spirits products.
Another critical piece of the two companies’ strategy: distribution power. A press release announcing the partnership cites both Boston Beer and Beam Suntory’s strong distribution networks as foundational to the joint venture.
“We are each tapping opportunities in adjacent categories by unleashing our shared creativity and respective distribution strengths,” Albert Baladi, Beam Suntory president and CEO, stated in the release.
In April, a Boston Beer spokesperson told Good Beer Hunting that the company had consolidated 80% of its distributor network nationally since it merged with Dogfish Head Brewery in 2019. (Notably, Dogfish Head itself already produced spirits and RTD cocktails.) In major states including California and Maryland, Boston Beer has aligned with Reyes Beverage Group, the nation’s largest beer distributor. Reyes has lately been on a buying spree, acquiring millions of cases of beer from other distributorships across the country over the past few years. In California alone, the U.S.’s largest beer market, Beer Marketer’s Insights reports Reyes controlled 43% of all the beer sold in-state last year. Reyes just announced another deal to acquire a Maryland distributor on June 30.
Baladi told CNBC that Boston Beer has an advantage spirits makers don’t have, in that beer can legally be sold in more retail locations than spirits can, owing to regulatory restrictions on sales of products made with distilled spirits. It raises the question of whether Beam Suntory brands could potentially cross over into malt-based RTDs—picture a Jim Beam hard seltzer that isn’t made with actual whiskey—to reach more retail outlets via Boston Beer’s distributors. (Jim Beam recently launched RTD cocktails.)
“Boston Beer, as a beer company, has a lot greater access than we have, so it can put the brand into the hands of many, many consumers,” Baladi told CNBC.
This isn’t to say that Beam Suntory’s distribution network is anything to sniff at: It’s nationally distributed across 43 markets via Southern Glazer’s Wine & Spirits, the largest wine and spirits distributor in the U.S. This gives the Boston Beer-Beam Suntory partnership access to both the U.S.’s largest beer distributor and its largest wine and spirits distributor.
According to CNBC, the entire venture originated with an inquiry from Boston Beer CEO Dave Burwick, who had worked with Baladi at PepsiCo nearly 20 years ago.
“I gave Albert a call as we saw the category change, consumer shifts,” Burwick told CNBC. “So I thought it might be a good idea to call over at Beam Suntory to see if there might be ways we could collaborate.”
Words by Kate Bernot