Boston Beer's Change to Rebel IPA's Recipe Is a Sign of Desperation

By Rich Duprey Markets Fool.com

Altering the recipe for its Rebel IPA beer is a sign of desperation at craft brewing giant Boston Beer (NYSE: SAM), which is suffering from a protracted sales slump across much of its beer lineup. That the brewer felt the need to "completely reformulate" the recipe for this once-popular brew is an indication of how much Boston Beer is worried about the decline. The company says "Project Lupulus" brought in hops that were not readily available when Rebel IPA was introduced. "Rebel IPA now has a more intense juicy, tropical and citrus flavor supported by a leaner body and a crisp, clean finish to optimize the hop character," according to a company press release.

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Rebel yell

Rebel IPA was introduced in 2014 during an industry thirst for India pale ale (IPA) that couldn't be quenched. IPAs had rocketed to the front of the craft beer industry, with 39% growth in 2012, andby 2015 the style had captured more than 26% of all craft beer sales, according to the market analysts at IRI. Seasonal beers came in second with less than a 14% share, while lagers, such as Boston Beer's Samuel Adams, came in seventh at just 3.8%.

Image source: Samuel Adams.

It's clear why the craft brewer'sfortunes fellas its flagship brand stumbled, and why it needed to introduce its own IPA style. When it was launched, Samuel Adams Rebel IPA was considered one of the most successful craft launches of the year, and it caused Boston Beer to spawn several variants, including Rebel Rouser, Rebel Rider, and a double IPA featuring a higher content of malt, hops, and alcohol by volume.

Yet despite the enduring popularity of the IPA style, Rebel IPA itself started to falter, with sales reportedly tumbling 23% last year,seemingly keeping in line with much of the rest of Boston Beer's results.

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Drying out

In the third quarter, the craft brewer said depletions, or sales to distributors and retailers, a reliable industry proxy for demand, fell 8% year over year. When it reports earnings on Feb. 22, it expects depletions to be down anywhere between 2% and 6%, worse than the guidance it had previously given of being flat to down 4%.That outlook apparently led Boston Beer to rejigger the taste profile of Rebel IPA, the first time it's changed a flagship-beer recipe in its history.

The Boston Globe recently quoted company founder and Chairman Jim Koch as saying "the status quo sucks" -- a philosophy he also likes to apply to his beer as well. In the press release, Koch was quoted as saying, "As hop varieties evolve, we want to use the new varieties to keep brewing the best beer possible. ... It's wild to think how far the brewing industry has come and that today, a beer can evolve."

Behind the talk about a hop's "lemony-lime, orange and eucalyptus notes" is the implication that the brewer is worried about slipping further behind the competition in this burgeoning category.

Image source: Samuel Adams.

Hop to it

Industry site Brewbound says Rebel IPA was originally crafted using the hops varieties IPA Chinook, Centennial, Cascade, Simcoe, and Amarillo, but now Boston Beer is dropping the Amarillo hops in favor of two proprietary ones, called HBC 566 and HBC 682, that were developed in the Pacific Northwest specifically for Boston Beer. Additionally, the popular Mosaic hops have been included, while the brewer also eliminates the caramel malt. In its place, an exclusive two-row malt blend will be added.

The brewer has made a variety of attempts over the years to juice sales, though they've been largely cosmetic. Recently it updated the packaging on its Samuel Adams brand, and it's scheduled to do the same for its seasonal beers and Rebel IPA, too. But no one's going to buy a beer simply because it has a new label, at least not long term, and Boston Beer needs to confront a changing craft beer drinker.

Millennial drinkers are exhibiting little brand loyalty these days, preferring to seek out the latest in taste and flavor no matter the source. So it may be that while altering Rebel IPA's recipe is an act of desperation by Boston Beer, it's exactly what the brewer needs to do to reignite sales. And if it's successful in spurring new growth, don't be surprised to see other recipes change as well, though whether that would mean its Samuel Adams Boston Lager also gets an update might depend on how far sales for the flagship beer have fallen.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool has a disclosure policy.