Okay, great. Okay, we're gonna get started. So really happy to have Jim Koch, Chairman of the Board, Founder, and brewer from Boston Beer with us today. Now that non-alcoholic is a part of the portfolio, we can move the time of our presentation from the last of the day to any time of day. Jim is tasting to make sure I'm drinking the right one. Okay. We're giving you the alcoholic. Yeah. Keep it fun out here. Yeah. Okay. So, thank you for being here, and thank you to you and your team for always prioritizing this conference. It really is a highlight and important for a lot of people that cover your name, so thank you. So what I wanted to start is just hearing. You know, you always have a unique perspective on the industry broadly, so I thought we could start there. Feels like there's, you call it, an existential debate about the future of alcohol consumption. You know, Gen Z, are they drinking less or not? The rise of other mood-altering, you know, options like cannabis, you know, adaptogenic drinks or GLP-1s, a factor. So how are you thinking about the direction of travel for total beverage alcohol consumption in the U.S.? You know, it's been stable for a really long time, like, you know, centuries almost. So what I'm seeing, we're not gonna have huge, down 5% or anything like that. That would be tectonic. There is... So against that background of long-term, you know, stability in per capita consumption, maybe going down a little, but the capitas go up, so, you know, you're talking about a fairly narrow band. I would, against that background, to me, there are some small things that are chipping away at alcohol consumption. None of them is as much as a point a year. They're fractions of a percent, but you've got, things like weed and Delta-9, so you've got alternatives, though they're usually not in beverage form. You've got moderation being a thing among Gen Zs. And then you've got GLP-1, maybe slightly reducing total calorie consumption among the population. And then you've got the health dialogue has shifted a little bit, partly 'cause you can trace it back 10 years. Brewers used to fund objective, independent research at run out of Johns Hopkins, and we stopped doing that, and I think it was a mistake. So, 'cause there was aspersions cast on any kind of industry-sponsored research, even though, you know, all the drugs that go through our pipeline are based on industry-sponsored trials that meet certain standards. And as a result, you know, most of the research in alcohol over the last ten years have been funded by anti-alcohol groups, so that was a self-inflicted wound. You add those four things up, do you have a point or two of decline? Maybe, and then there's a little bit of population growth, so I see more headwinds than tailwinds, but they're relatively minor. It's pretty stable industry in that respect. Okay. And how do you think about, beer share within that, you know, versus RTDs, FMBs, spirits, right? There's been a proliferation of things in a can. Yep. How do you think about traditional beer share? Well, I think about it a little differently. I think about maybe beer accessible share. You know, to answer your question, traditional beer, and I said this five years ago, it's not gonna grow again. It's gonna be smaller. You take a five-year moving average, it's gonna be smaller. I think, but I think that's true about wine, and I think that's becoming true about traditional liquor. What is growing, and it's the area that we are 80% of our volume is in, is what I call the fourth category. That is, it's beyond beer, but it's also beyond wine, it's beyond liquor. It you know, it blurs lots of lines. You know, in our whole lives, we've all thought about these three sort of separate channels. There's beer, wine, there's spirits. Well, now the growth is in what I'll call a fourth category that blends elements of all of those, and that category is now getting to be pretty significant, depending on how you want to define it, and it's growing, again, depending on how you want to define it, somewhere between 2% and 5%. And what's, I think, very relevant there is, beer should win in that category, and most of the volume from that category will probably not come from beer. So, I mean, it's a category that, you know, regardless of what it comes from, you've got... I mean, you've got all kinds of things out there. You've got BuzzBallz. You know, what's the alcohol in there? It says wine on it, but it's actually made, I believe, from the remnants of squeezing oranges to get orange juice, and that's a fruit, so that's technically a wine and taxed and treated as a wine, but is that a wine? Not really. All these lines are getting blurred, but what they tend to be is beverages that tend to be sweet and fruity. But what's relevant to me is they, in terms of their, you know, making and distributing of them, they look a lot like beer. You know, they're priced at the high end of beer. They need to be sold in the cold box. They have different margin structures than. You know, even if they're vodka-based, they don't look like foolproof spirits. You know, they, they're in a can, they have beer-type prices and margins. You need to have good equipment to manufacture them. You need distributors that have, you know, big trucks that are used to carrying high bulk, low margin products versus a liquor or wine house. Beer should win. Beer, to me, should get, call it, 80% of this growing category, so with all these crosscurrents, I guess our focus is on even though alcohol is not growing, there is a big segment that we are very good at and are set up to access, that is growing, and so that's... We're able to defy the overall industry dynamics by focusing there. Okay, great, so compared to this time last year, the industry is showing similar volume softness, as we saw, down kind of 3% in scanner data, and things ticked up a little bit in the first half of the summer, but slowed again in late July and August, so just want to check more shorter term, how you're feeling about, you know, summer's largely behind us. I know Labor Day weekend just happened, but- Yeah, yeah. Yeah. So just kind of a closer term check-in, and then the U.S. consumer environment as well. You know, I frankly, you know, this month-to-month noise is pretty. It's noise. And everybody's, like, trying to read all these tea leaves, but they're trying to read, you know, relatively random data and get meaning from random data. And so I, you know, I see things fluttering around from week to week, even month to month, but I don't consider it very meaningful. And honestly, with respect to the U.S. consumer and their attitude and so forth, I mean, I don't know. I'm not. There's smarter people, a lot of smarter people in this conference who pay more attention to those kinds of things. I'm not the Delphic oracle. I mean, the consumer is gonna do what they're gonna do. Our efforts are in responding to and taking advantage of trends that we can't control. Okay. Are you seeing anything notable broadly in this promotional environment, though, as the industry's been challenged all year? Yeah. So take out the July or August question. You know, what are you seeing in terms of promotional environment? I would say it's been healthy. Given the volume softness, there's really nobody panicking and pulling the price lever hard, like used to happen, you know, twenty years ago in the beer business. August Busch would like... We lost a tenth of a point of share, we need to, you know, go out and promote and get it back. People are responding rationally to those kinds of short-term variation. I mean, we're seeing, you know, towards... I think our guidance is 1%-2% price increase this year. We're leaning towards the higher end of that range. Okay, that's great. And then I also was just curious about at-home versus away-from-home dynamics, kind of what you've been seeing. I know you've previously acknowledged that on-premise may not have been really adequately supported. So what are you kind of doing differently to support, that channel, if anything? That's a good question. We are. I do feel like on-premise has been somewhat neglected. I think COVID, you know, changed, you know, particularly at the wholesaler level, you know, on-premise is not nearly as profitable as off-premise. A lot of really smart wholesalers would love to see on-premise go away. And, you know, because the drop sizes are smaller, the service levels are higher, so they tend to be, and, you know, things like kegs are a huge pain in the neck for them. In some states, they have to clean draft lines. You know, the keg trucks contribute to their workmen's comp problems. It is hard to find people to do that, but I see that, for us, as an opportunity. We have always been very strong on-premise. That is kind of where we built our brands. So, we see opportunities there. When you look at industry data on, you know, draft handles out in the market, you know, what the number one draft handle is open, meaning there is the retailer has a draft handle and nothing on that line. To us, that's an opportunity for someone with as broad a portfolio as we have. We've got something that can and should go on that line, whether, you know, most on-premise places that have, you know, 10 handles, which is what you'd have to have an open line or two, you know, they should have a seasonal. We have the number one seasonal. They should have a hard cider. We have the number one hard cider. They should have a national IPA along with their local IPAs. Dogfish Head 60 Minute is one of the top national IPAs. So, you know, and we now have Twisted Tea on draft. So we have something that should be appealing to a lot of retailers. So, and we believe that that sampling is how we build brands. So for us, on-premise, even though it's not profitable, I mean, it's expensive. You have a sales force that goes in, and you've got to make three calls to get a draft line, and, you know, they do one keg every two weeks. That might not be profitable, but we consider that, while not profitable, long-term brand building. Okay, great. So also in the vein of doing things differently, in the sense allocating more resource to on-premise, it's been about five months, I think, since Michael took over as CEO. So can you talk a bit more about the types of conversations you've been having, fresh pair of eyes on the business, and, you know, some of the things he's doing or beginning to talk about to refine the strategy? Yeah, I mean, I will be hesitant to put words in Michael's mouth since he's been very careful as he's come in to make sure that he didn't mess anything up, and now really starting to mobilize. Our conversations have been around, you know, the opportunities and the strengths. I think he recognizes what have always been our core strengths. One is just product quality. We've been focused since the day I started on having better tasting products, and we have a. You know, we've got a lot of people now that that's all they do, is make sure that if we put a product out, it is better than the leading competitor. So, we continue to, you know, bring that to the market. And, you know, second is the sales force. I mean, it's always rated the best sales force in the beer business. It's also the largest, so those strengths continue. I would think, maybe, and again, I'm hesitant, but I think he would say we can execute better, we can have accountability better, we can fix a lot of the plumbing, if you will, the processes. You know, when again, Michael's had terrific experience from ranging from, you know, starting his career and basically doing, you know, nitty-gritty businesses with small margins that were on the edge of bankruptcy and saving them. His experience turning around an established brand at Converse, which was a dying brand, and became, you know, trendy, and now it's a big deal for Nike. So, and then he's had experience with Nike and Beaverton, and you know, big company and dealing with processes and making them work like a small company should work. So we're very much, you know, in sync about those things being the opportunities. Is that... Did I get that? Okay, thank you. Let the record show there was a thumbs up from the audience. Great. So the phrase, "fewer things better" came up more than once during second quarter earnings. But at the same time, I think that can feel like a bit at odds with the sort of fickle nature of this beyond beer, the fourth category in the U.S., where there's just, you know, high brand and flavor churn. So how would you say your innovation process has changed or needs to change to be able to do both of these things, right? Keep up with this kind of fickle category, but fewer things better. I would, you know, I'd start with sort of the nature of our business and our interface with the market, if you will. We're kind of our sweet spot, in many cases, is smaller niches, smaller products. And especially smaller products that can develop into, you know, what for us is sizable and meaningful, though for, you know, our competitors, whether it's a Diageo or a Heineken or a Molson Coors or an ABI or a Constellation, you know, they may not be interested in something that's, a couple million case brand. You know, in its first year, it might be a million cases, in its second year, a million and a half, and so forth. So that's always been an opportunity for us. You know, Twisted Tea is now 25 years in, and that was... That took a lot of patience. It failed at the beginning. It failed twice. It was BoDeans, that failed, and it turned out there was a band called the BoDeans, and they sued us. Then it became Twisted Tea, and that failed, but we had a few markets that we nurtured, and now it's a, you know, a top 10 brand... in all of beer, but that's 25 years of patient work, trial and error. Hard cider was the same thing. That was, I think we introduced it in 1998 under the name Hardcore. That failed, and then maybe 14 years later, its cider started to take off, and now it's a category, and we have a little under half of it. So those are kind of the nature of our opportunities. So we have to be careful about not weeding stuff out too soon, and be willing to be patient. So one of the things we've done is, you know, introduce products in a small number of test markets, two, three, four, five, and see if they can scale. And do more of those, but kill them if they don't, you know, if we don't feel that they're promising. But, you know, our experience has been a lot... except for Truly, all of our innovation started slowly and built over a time frame measured in a decade or more. And that's, you know, big companies generally don't have that level of commitment and patience to do that, so that's kind of our niche. To the extent our approach has changed, it's more things smaller, but a pipeline, a continual pipeline of... I mean, our objective would be four products a year, every year. Okay. But kill them if they're not getting traction. Okay. I think that's, that's paying off, and we're very happy with what's going on with Sun Cruiser. We've always wondered, what is the high end of the hard tea market look like? Maybe that's what it is. I mean, Twisted Tea is now a big number. Hard tea is a big market, you know, something that's 20% of that's meaningful to us, and that may be the role of Sun Cruiser, and we're very happy with the results we're seeing. It's only. You know, we launched it in a handful of markets. It did really, really well, so now we're rolling it out nationally. You know, the Surfside was there first. They've done a great job with their product, especially in New Jersey, Philadelphia, and New York. But in the rest of the country, we've just overtaken Surfside. So in the rest of the... You strip out that core market where they've been for years, and Sun Cruiser is not only growing faster, but is, in volume, now the leader. So we feel, you know, and again, that's not gonna be twenty million cases. We all got spoiled by the success of Truly. Yeah. That had never happened before. The hard seltzer category took off faster than anything in my lifetime in the beer business. So, and we're sort of, it grew like this, and, as Michael said, you know, our strategy was growth at all costs in that, 'cause we felt very strongly it's gonna be a two-player market, and we want to be one of those two. So we, you know, we just ignored a lot of other things, put capacity and so forth. We're unwinding all of that. I see the future of our innovation as not, you know, big things that deliver huge numbers right away, but more, what we've seen historically of patient brand building. Where do you think those consumers are going, the people that were drinking all that hard seltzer? Where are they where have they migrated to, and how sticky are they as consumers within a brand or a category? Category. You know, it grew so fast that it drew in a lot of what I would characterize as trier rejectors. Basically, if you drank alcohol, you've, you had to try it. I mean, it was such a thing for a summer or two, that, and we saw it in our data, people were coming in from everywhere I mean, to even things like a scotch drinker, who, you know, at nine at night, when they're, you know, a solitary moment or something, they pour themselves a scotch, they would try a hard seltzer instead, but then they eventually migrated back. So for the most part, it was people who migrated back to what they'd been drinking before. If you were to rank them, it was probably light beer drinkers was number one, but it was mostly people tried it, they might have liked it the first time, then they tried it again, and then... But at some point they said, "Well, this is... I like this, but it's not gonna replace my scotch, or my light beer, or even my craft beer. Yeah. Is it still a point of entry, if you will, for new LDA consumers? Are they still kind of entering the market with hard seltzer, or is it more in the teas and various flavored options? I think the latter. I mean, what I'm seeing is there's just so many choices. One characteristic of the fourth category that you don't find in traditional beer, wine, or spirits is that those beverages are inherently appealing and enjoyable to consumers. They're not acquired taste. Beer, wine, and liquor, all are acquired taste. Very worth acquiring, but you know, beer is bitter 'cause we use hops, and it has that tongue sting of carbonation that is not inherently pleasant. Wine is acidic and tannic. Those are not characteristics that you know we are wired as humans to enjoy. And liquor has you know it has that ferocious ethanol attack on your palate. Again, we're not wired to like ethanol. It's a poison in its pure form. So all of these things developed historically with flavor characteristics that are not inherently enjoyable, but actually will preserve the liquids. They're bacteriostatic, they make it stable, but they're not inherently pleasant to drink. We are wired to like things that are sweet and fruity. That's what our biology wants. And in the fourth category, as a producer there, you have this, the taste plasticity. You can make something taste like what you want it to taste like. You can make something taste like, I don't know, gin and grapefruit juice if you want. I mean, it's, it has this enormous range that you can bring to the consumer, and that's gives you. And And young drinkers, so it's an easier entry point for young drinkers. You don't. It's not an acquired taste to drink, you know, hard seltzer, fruity. There's a tiny bit of sweetness and fruity. They're just inherently likable, much less things like, you know, BuzzBallz and BeatBox. They're the alcohol is hidden. They're, they are the ultimate sweet and fruity things. Yeah. Okay. So stabilizing Truly remains a work in progress, and so I just thought maybe a status report, kind of where things stand today and what gives you confidence you can get the brand back to growth over time? Yep. I mean, honestly, it's been harder than we thought. We would've thought we would be closer to flat now than we are. It, there's, there are some, you know, green shoots, if you will, and what we've - we're migrating out of the fuller flavored end of the spectrum. It turns out that, we were wrong, that we could seltzerize a lot of things. We thought maybe, you know, there could be a seltzer version of hard tea, a punch, a margarita. That, you know, those things were extraordinarily successful at first, but they didn't have the sticking power. It seems like the core for hard seltzer is familiar, fruit-based flavors, maybe a range within those. And, those products in our portfolio are doing much better. We discontinued a couple of flavors this year, so we're cycling, you know, against numbers that are significant last year and zero this year. We introduced Truly Unruly, which is an 8% ABV, that is alongside, I think, a Surge for White Claw, and it's doing... That's doing well. So we have some pockets of success, but I'm being totally honest, it, it's been harder than I thought. Okay. And I just wanted to go back for a moment on tea, 'cause- there is an uptick in competition broadly in hard tea. So do you think there's a risk of this segment seeing the same kind of boom bust that we saw with seltzer, or less so because the size of the category is so different? Much less so. I mean, we're not bringing in tons of trier rejecters. Yeah. This is not the hot new thing. This is something that has grown literally for 25 years. So, I mean, hard seltzer took off after 25 weeks. So I don't. I'm not that worried about boom bust. Yeah. But it has attracted an enormous number of new entries. I mean, we're in a business where it's very competitive. People are very aggressive throwing products out there, 'cause you know everybody's got a product development group, and we've all got a route to market through our distributors. Thank goodness for the three-tier system, where there's independent distributors out there that aren't blocking stuff, and we've seen, I think, this year, over 100 new hard teas of all kinds of shapes, sizes, and names, and so forth, and so as a result, you know, we used to have close to 90% of the shelf space. It was basically us and Arnold Palmer and then, you know, a few kinda non-entities, Hoop Tea or Intensity or, you know, a whole bunch of... Mike's had a hard tea. But we had, you know, well over 90% of the shelf space and 95% of the volume, and we now have 85% of the volume, but only 60%-ish of the shelf space. So what I'm hoping will happen, and I think retailers have gotten much quicker at cleaning out the clutter and crap in a category. So I think we will get share of shelf space back. And with Twisted Tea, we've slightly expanded the portfolio to kind of fill all the niches. So we've added, over the last few years, a Twisted Tea Light, 'cause we felt like that was a competitive entry point, and we want to shut that off. And then Twisted Tea Extreme, which we have in some markets and will be taking national next year at the high end, 'cause there've been a few high-end entries. And so we feel like the retailers will probably look at all these new entrants, and a lot of them are from good companies, good brands, things like Monster Nasty Beast, but they're not cycling their rollout numbers. And, you know, do you? I mean, hard tea is not a huge category. Do you really need a product that has 1% of a relatively small category, 2%? You know, nothing that's come in is over 5%. Okay. Okay, great. Let's just move on to margins. Sorry, it's a complete change, like, change of course. But I think people were struck by the gross margin expansion, achieved in the second quarter, despite the volume decline. So can you talk a little bit more about the drivers there and the kind of key puts and takes for margins, from here? Yeah, you know, in the Truly explosion, we were all about just getting product out the door- regardless of the cost. It was, you know, we felt very strongly, you know, this is ultimately gonna come down to two players, share, we wanna grab share, so we ignored a lot of costs. So we're going back and focusing on that. Michael and Diego, our CFO, have done a really good job on that. The gross margin improvement is basically kind of in three buckets. First is procurement. You know, we paid a lot of money for cans and things like that when we needed them, and they were in short supply, and other things. The second is, you know, brewery operating costs improvement, you know, operating efficiencies on our lines. We've put in a huge amount of new capital, some of it fairly complicated, like automating doing variety packs. I mean, you buy a variety pack, and you think, "Oh, okay, well, it's a 12-pack, it's got four things in it." Well, from the producer's point of view, that's a bitch. It's really hard to automate that kind of operation. At one point, I mean, I think we had 250 people in our Pennsylvania brewery just making variety packs. So we automated that with this big piece of equipment. There's only, like, five of them in the world. We're getting that going, but it took those 250 people down to zero. So those kinds of things within our breweries are happening, and we have a different manufacturing strategy than the rest of... I mean, we're in between the little guys, who are inefficient but flexible, 'cause a lot of it's, you know, manual, and then the big guys, who are super efficient, but, you know, you need to put Bud Light on that can line and run it for, you know, all year doing Bud Light 12 packs, and that sucker will, you know, do 30-plus million cases of that. We're in the middle. And essentially, our strategy is making a complex product mix without losing scale economics. And that's. I won't go into it, but that was essentially Toyota's. That's the Toyota production system. So, we're focused on that, and then the third area is just inefficiencies within the system. You know, for example, with the product mix and the complexity, you know, we basically ship everything from our brewery to a warehouse. The DHL runs, and then they ship it out, they, you know, they mix it, and so forth. Our warehouses weren't big enough. Long term, we can get rid of that. We've got to make our production runs shorter. But so those kind of inefficiencies in the system, we are slowly taking out, and we think there's still quite a bit of running room. You know, my personal objective is to get our gross margins over 50%, where they were, you know, before the product complexity exploded six or eight years ago. Okay, great. I just wanted to end today's conversation by just circling back to this notion of refining the strategy and broadly kind of refreshing the organization. So you have a new CEO, you have two new directors recently appointed to the board, and one was a net new seat added. Are there any more board changes expected in the near term? And do you feel like you've got the leadership, the organizational structure, the capabilities in place so you can deliver on your goals, and it's really just about kind of execution and the macro backdrop from here? The latter is true. I mean, on the board, with Michael's elevation to CEO, we had a board seat open, and we're probably gonna have one open up in the next year or two. So we thought, let's get a second person in so we can have a seamless movement there. We were very fortunate to have two totally different people. I'm a big believer in. I mean, I need the board for good advice and points of view, and I don't want a bunch of sort of people who all think alike, and so we ended up with a super operating guy who runs Domino's, and has done a great job there. And then a super sort of creative talent who actually I think got voted Nerd of the Year named Biz Stone, and Biz is one of the two founders of Twitter and one of the most creative minds in Silicon Valley. So he is fascinated by Boston Beer and our category. So we got both of them to join the board, but that's just a normal kind of refreshment of it. And we have our senior leadership team, executive leadership team is, in my opinion, the best we've ever had. The majority, I mean, almost all of them are new within the last five years. There's a couple of internal promotions, but, we've had a bunch of people who started with me many years ago and retired, and so it's well, flat out the best leadership team we've ever had. That's great. We have to end there, but Jim, thanks so much for being here. This was delicious, and- I'll give you a taste test. I know. You can have the non-alcoholic the alcoholic, and see which one you prefer. Before this gets crazy, will you please join me in thanking Jim and Boston Beer? Thank you.