Another Reason Why Boston Beer Continues Its Craft Domination

Source:  Wikimedia Commons

Yesterday I strolled over to Red Robin Gourmet Burgers for the first time in nearly several months. As I was walking up to the entrance, I noticed a large sidewalk sign promoting Sam Adams from Boston Beer . I had to chuckle. I eat out several times a week, and (somewhat anecdotally speaking) I keep running into promotions, menu inserts, table tents, and chalkboard specials for Sam Adams at chains and independent restaurants alike.

And it works
I couldn't resist ordering a tall Sam Adams to go with my Banzai burger. What a good pairing -- the restaurant that seems immune to winter and the beer company that has a craft brew for every season.

Clearly I'm not alone. On May 20, Red Robin Gourmet Burgers reported fiscal first- quarter results. Revenue jumped 11.1% to $340.5 million. Same-store sales popped 5.4%. Net income soared 26% to $11.9 million, or $0.82 per diluted share. Red Robin Gourmet Burgers previously stated on its prior earnings conference call that any negative effects from winter storms tend to have a "cabin fever" effect, whereas sales jump up and offset the shortfall once the weather clears.

Source: Red Robin Gourmet Burgers

The point here is that with a restaurant like Red Robin Gourmet Burgers pushing Sam Adams for Boston Beer, it is essentially doing the work for the beer company. Maybe Boston Beer is providing incentives such as marketing materials, discounts, or whatever else on these restaurants, but it's hard to imagine they'd be willing to do it for any incentive if the beer itself quite frankly wasn't very good. Sam Adams excels quite nicely in taste tests, so it's a win-win for everybody.

Beer overboard
While Red Robin Gourmet Burgers and others are busy selling burgers and Sam Adams, Boston Beer continues to have trouble keeping up with demand. On April 30, Boston Beer reported its fiscal first-quarter results. Depletions exploded 34%, even while prices were raised 2%. It was a record quarter of depletions. Net income leaped 20% to $8.3 million, or $0.62 per diluted share.

Part of the reason for the gains was a 41% jump in advertising, promotional, and selling expenses from "increased investments in media advertising, point of sale and local marketing." You've got to figure part of that was from what I saw at Red Robin Gourmet Burgers and seemingly every other restaurant.

It also probably didn't hurt that Boston Beer rolled out a number of new beers nationally during the quarter as well. In the name of journalism, of course, I had to sample them all and confirm that they were of excellent quality. There was the Samuel Adams Cold Snap and the Samuel Adams Rebel IPA. On top of the excellent flavor, the marketing in terms of the names, labels, and descriptions are nothing short of genius, with the Rebel IPA "brewed with hops from the Pacific Northwest." Doesn't that just sound instantly tasty for some reason?

Source: Wikimedia Commons

Conference me in
During the conference call, there was some interesting information revealed. Martin Roper, CEO of Boston Beer, stated,

"Our brands also benefited from increased brand support, including increased media spend, expansion of our sales force, and other brand support investments."

Does brand support refer to initiatives with bars and restaurant chains like Red Robin Gourmet Burgers? As an example, recall back in 2012 Boston Beer and Red Robin Gourmet Burgers partnered to introduce a beer milkshake to the restaurants.

On the more cautious side, Roper warned that Boston Beer doesn't have any other seasonal beers planned for the rest of the year, so the company isn't sure it will "maintain its momentum." And given the popularity of many of Boston Beer's individual brands, Roper said there is some cannibalization going on. This makes sense. No doubt new Sam Adams brews will encourage Sam Adams fans to give them a try instead of ordering the regular brand. Roper still believes the entire portfolio of beer could see momentum for the rest of the year as the new brands gain popularity, but he couldn't make any promises.

Foolish final thoughts
It will be interesting to see how the summer months unfold. Boston Beer's signature Samuel Adams brew has been running strong and getting stronger for more than 30 years. It's hard to imagine the new introductions and national rollouts are running out of steam already. Roper was likely being conservative. I hate to give analysis that I can't back with hard evidence, but as a Samuel Adams beer fan myself for more than a decade I say with confidence that Boston Beer still has a long way to go. Each new beer it introduces seems to outdo the last. The flavors are unparalleled.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Boston Beer. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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