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Shakeups At Boston Beer, Including a CEO Swap and Hard MTN Dew Distro Changes

This year has begun with a trove of news from Boston Beer Company, including the announcement that CEO Dave Burwick will step down and retire from the company’s board of directors, effective April 1.

Michael Spillane, a Nike executive and lead director on Boston Beer’s board of directors, will replace Burwick.

Burwick took the reins in 2018 following the departure of long-time CEO Martin Roper. He joined Boston Beer’s board in 2005. Prior to taking the top role at Boston Beer, Burwick was the CEO of Peet’s Coffee and served as president of WW International Inc. (formerly Weight Watchers) and CMO of PepsiCo.

“Dave has positioned the company very well for ongoing success in 2024 and beyond,” founder and chairman Jim Koch said in a press release. “I can’t thank Dave enough for his partnership with me and for his contributions to Boston Beer over the past two decades.

“His steady leadership, talent, work ethic, values, guidance, and motivation have been unwavering, and I appreciate all he did to make Boston Beer a more successful company and a better place to work,” he continued.

Burwick’s tenure includes the transformation of Twisted Tea and Truly Hard seltzer into billion-dollar brands, the acquisition of Dogfish Head, and the formation of partnerships with PepsiCo and Beam Suntory.

When Burwick stepped into the role, the company’s revenue was $850 million and has grown to $2 billion, according to Koch’s remarks in the release.

Spillane’s most recent role at Nike is president of consumer creation, before which he served as president of product and merchandising, according to the release. Other roles at Nike included president and CEO of subsidiary brands Umbro and Converse.

“After nearly eight years on the Boston Beer board – and as a native of the Boston area – I’m thrilled for the opportunity to help advance Boston Beer’s long-term goals as we enter a new growth phase,” Spillane said in the release. “I am grateful for Dave’s leadership and partnership and I’m looking forward to working with Jim and so many other great people at Boston Beer to build on the strong foundation and culture that Jim, Dave and all of our coworkers have built over the course of four decades.”

Spillane joined Boston Beer’s board in 2016 and became lead director last year.

A few weeks before Burwick’s announcement, BostonBeer filed a Form 8-K with the U.S. Securities and Exchange Commission (SEC) detailing salaries, raises and bonuses for named executive officers (NEOs). All of Boston Beer’s NEOs except for Burwick received raises for 2024.

Burwick “opted not to be considered for a base salary increase” in 2024, maintaining a salary of $860,503. He received a +3% increase in 2023, below the 5% increase first promised to him when hired in 2019. He forwent his raise in 2022.

Burwick is the latest Boston Beer leader to leave the company in the past year. Former CFO Frank Smalla stepped down from the role in March 2023, staying on with the company in an advisory role through April 14. In the 8-K filing announcing Smalla’s departure, Boston Beer said his exit “is not related to any disagreement with the company or any matter relating to its operations, policies or practices.”

CFO Diego Reynoso received the largest percentage increase in the latest filing: +4%, to $624,000. Reynoso was named CFO and treasurer in July, effective September 5.

Boston Beer chief sales officer John Geist also announced he would be leaving his executive role in 2023, retiring after 26 years with the company. His last day in the role was December 31. However, he is staying with the company in a senior advisory role, and will maintain his executive salary of $608,650. Geist was “not eligible for a salary increase” in 2024, according to the filing.

All other NEOs received +3% salary increases for 2024, effective March 4:

• Chief accounting officer and VP of finance Matthew
Murphy (new base salary of $393,756);

• Chief supply chain officer Philip Hodges ($633,450);

• Chief marketing officer Lesya Lysyj ($545,432).

Boston Beer Depletions -6%, Shipments -6% in 2023

News of Burwick’s retirement came moments before the company’s Q4/full-year 2023 earnings call with investors. In it, Boston Beer revealed -6% declines in shipments (sales to wholesalers) and depletions (sales to retailers) for the full year. Shipments (-3.5%) and depletions (-1%) improved in Q4.

Boston Beer experienced a “slowdown” in the first eight weeks, contrasted with “a reasonably strong finish to 2023,” founder Koch told investors. He attributed the sluggishness to Dry January, continued beer category “leakage” driven by Bud Light’s continued catastrophic declines, and the calendar cycling a price increase Boston Beer took in 2023 that drove increased load-in at the retail tier.

Despite the declines, all NEOs received 2023 bonuses, except for Smalla, who was not eligible, according to the 8-K filing. Cash bonuses are determined by whether the company meets projected goals, including depletions growth (50% of the goals), EBITA targets (30% of the goals) and “resource efficiency” (20% of the goals) – the latter of which will be referred to as “cost savings” in future filings “for the sake of clarity.”

Company performance against these goals determines the “bonus scale” and how much of the bonus pool NEOs actually receive.

“The committee has retained the discretion to increase or decrease an officer’s bonus payout by up to 10% from the baseline target bonus, if the officer was deemed to have performed ‘successfully’ in 2023, and by up to 30% if the officer was deemed to have performed ‘exceptionally,’” Boston Beer wrote in the filing. “The committee had also retained the discretion to decrease an officer’s 2023 bonus payout to as low as $0 if the officer was deemed to have performed ‘unsatisfactorily.’”

Boston Beer’s compensation committee determined that the company achieved 95% on the bonus scale in 2023 – significantly above the 38% Boston Beer achieved in 2022. As a result, NEOs were scheduled to receive the following cash bonuses on March 6:

• Burwick: $1,032,605 (was eligible for 120% of his base salary);

• Murphy: $189,850 (was eligible for 50% of his base salary as of May 3, 2023, after taking on the interim CFO tag from March 7 through September 4);

• Geist: $432,000 (was eligible for 75% of his base salary);

• Lysyj: $332,500 (was eligible for 60% of her base salary);

• Hodges: $214,500 (was eligible for 60% of his base salary);

• Reynoso: $111,000 (was eligible for 60% of his base salary).

For 2024, the bonus target eligibility will remain the same percentage for Murphy (50%) and Hodges (60%). Reynoso and Lysyj each received a +5% increase to their bonus target eligibility percentages, now both at 65% of their base salaries. Geist received a -15% reduction, to 50% of his base salary.

All other executives have a 2024 bonus target eligibility of 50% to 100% of their base salaries.

To end 2023, the “traditional” part of the beer category, which Koch estimated accounts for 80% of volume, declined -4%, while the 20% that includes beyond beer grew volume +7%.

For Boston Beer, those ratios are inverse, as beyond beer has long dominated its portfolio. Twisted Tea accounted for 49% of the company’s dollar sales at multioutlet retailers and convenience stores in 2023, according to market research firm Circana. Truly Hard Seltzer accounted for 31%. The remaining 20% was primarily split among Samuel Adams, Angry Orchard and Dogfish Head.

During the call, Burwick highlighted the performance and opportunities for Twisted Tea and Truly Hard Seltzer.

In Q4, Twisted Tea dollar sales increased +29% and the brand gained +2.4 sharepoints, accounting for 28% of the total flavored malt beverage (FMB) segment in the off-premise channel, Burwick said. He attributed this growth to the brand’s Q3 college football tailgate campaign, increased media spending and optimized packaging.

A standout for Twisted Tea has been its variety pack, which was the third-largest and fastest-growing SKU in the FMB segment, Burwick said.

Opportunities for the brand include increasing shelf space, as the company estimates it accounts for 18% of FMB space at retail despite having a 28% share of total FMB dollars and 85% of hard tea dollars.

Twisted Tea remains “underpenetrated” in the on-premise channel, where it has a 60-point share of FMB volume. The brand is “underdeveloped” with Black and Hispanic drinkers, although household penetration among these communities increased +55% in 2023, Burwick said.

Geographically, Twisted Tea is deepening its roots in large markets such as California and Texas, where it is still underdeveloped. This progress has helped introduce the brand to Hispanic drinkers, Burwick said.

Twisted Tea Light, a 4% ABV offering, accelerated its sales per point of distribution last year; so far, its sales have been 85% incremental to the brand’s portfolio, and its ACV is 14%, with lots of runway ahead.

“We believe Light is an X-factor for brand growth in 2024,” Burwick said.

This year, Twisted Tea faces a tidal wave of competitors from all corners of the beverage-alcohol industry, including AriZona Hard Iced Tea, Monster’s Nasty Beast, FIFCO’s Lipton Hard Iced Tea, New Belgium’s Voodoo Ranger Hardcharged Tea and many more.

“Today, everybody is piling into it – there’s literally hundreds of new competitors,” Koch said. “I don’t see much traction from the vast majority of them. What I don’t know is, will something begin to get traction with a brand name from somewhere else, like AriZona or a Monster? They have a big, high hill to climb because Twisted Tea is the original. We defined the flavor profile, so to a hard tea drinker, it should taste like Twisted Tea.”

Koch doesn’t envision “a strong No. 2 emerging,” but he admitted the segment is beginning to include “great competitors,” which makes sense given the hard tea segment’s trends.

“It’s the biggest growth pocket outside of Mexican imports, so we expect to see everybody come in,” Koch continued. “But we’re 25 years into this, so we’ve got a 25-year head start. But we’re expanding our brand support. I think we’ve quadrupled it over the last few years, so we’re overinvesting to maintain that leadership.”

Twisted Tea’s continued growth will depend on the company’s ability to recruit new drinkers to its wide base which ranges “from upscale college kids to blue collar NASCAR fans,” Koch said.

“We know we’re not going to stay in the high 20s all year so we feel OK with it,” Burwick added.

Hard MTN Dew Moves to Beer Network, Going to All 50 Markets as Blue Cloud Changes Course

Burwick also announced during February’s call that Hard MTN Dew is transitioning to Boston Beer Company’s beer distributor network and will expand to all 50 states.

The move marks the end of distribution by PepsiCo’s Blue Cloud Distribution, which had been a fissure between Boston Beer and its distributor partners since the brand’s launch.

PepsiCo confirmed the shift in its ready-to-drink alcohol business model, moving to brand licensing and flavoring sales model and away from distribution. The company said this move would help accelerate growth and speed up national distribution of brands such as Hard MTN Dew with Boston Beer and Lipton Hard Iced Tea with FIFCO USA.

PepsiCo also confirmed that Blue Cloud Distribution would transfer the distribution rights of both brands to its partners’ distribution networks “over the coming months as agreements are reached with suppliers and distributors, ensuring continued service to customers.”

“PepsiCo has always been a company that prides itself on innovation – charting new pathways for growth,” Sylvia Dong, PepsiCo SVP of strategy and transformation, said in a statement shared with Brewbound. “In only two years, the Blue Cloud Distribution team stood up a malt alcohol distribution network across 18 states. This network was leveraged to grow two successful brands in Hard MTN Dew and Lipton Hard Iced Tea. We are proud of the Blue Cloud associates who pioneered a new business model in a new space.

“Our commitment has always been to delight consumers at every beverage occasion with an ambition of reaching a national footprint,” she continued. “This means evolving our business model to extend the footprint of these brands, making them available to consumers nationwide.”

The new model for Blue Cloud is similar to that of competitor Coca-Cola’s Red Tree Beverages. Red Tree leadership has continually emphasized that the wholly owned subsidiary has no interest in being a bev-alc distributor.

“One thing I want to be very clear about is that Red Tree will not distribute alcohol in the United States, nor will Coca-Cola,” Red Tree president Jenny Dowdy said last fall. “The creation of Red Tree was really just a way to formalize the way that we operate. It just underscores that we operate as a distinct entity from our non-alc business.”

Coca-Cola’s bev-alc ventures include Topo Chico Hard Seltzer, Simply Spiked, and Peace Hard Tea with Molson Coors; Fresca Mixed with Constellation Brands; Absolut & Sprite with Pernod Ricard; and Jack & Coke with Brown-Forman.

The contentious issue of Hard MTN Dew distribution manifested in Virginia where the company’s existing distributors challenged the appointment of Blue Cloud for Hard MTN Dew.

The Virginia Alcoholic Beverage Control Authority sided with Blue Ridge Beverage and Reyes Beverage Group subsidiary Premium Distributors of Virginia, ruling in late 2023 that Boston Beer was prohibited from appointing any distributor other than Premium and Blue Ridge to distribute Hard MTN Dew in those distributors’ respective sales territories.

The distribution model was also heavily criticized by the National Beer Wholesaler Association (NBWA), which claimed the organization skirted the three-tier system, and opened up the possibility of large soda giants using their existing retailer relationships – and inherent slotting fees – to get better shelf space for bev-alc products.