Can a New CEO Save Boston Beer?

By Rich Duprey Markets Fool.com

Boston Beer's (NYSE: SAM) long-serving president and CEO announced he would be retiring next year, giving the craft brewer plenty of time to find a replacement, but can a new top executive do what the current one was unable to: Turnaround the beer maker's declining fortunes?

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A steady hand on the wheel

Martin Roper has been the only chief executive Boston Beer has known since it became a public company after founder Jim Koch relinquished the role to him in 2001. Over his 16-year tenure, the brewer became the biggest name in the industry and is still regarded by many as the face of craft beer.

Founder Jim Koch. Image source: Boston Beer.

The brewer of the flagship Samuel Adams brand went from selling over 1.2 million barrels over the course of a year at the end of 2000 to shipping that amount in a single quarter. Revenue has similarly grown from $212 million annually to almost $1 billion annually (it generated $271 million in the third quarter), and profits have widened from $11 million to around $90 million a year.

While Koch often gets the credit for Boston Beer's triumph (and it's not completely undeserved), as the man in charge of the brewer's day-to-day operations, Roper has been key to its success. But Boston Beer is going flat as the once expanding craft beer industry matures. The 1.13 million barrels sold last quarter was down 12% from the year-ago period, and revenue was down 13%. Sales are set to fall for the brewer for the first time in 13 years.

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Profits have contracted as well, tumbling 18% to $31.2 million, while depletions, or sales to distributors and retailers, a reliable proxy for industry demand, fell 8% last quarter and they're expected to be down as much as 6% for the year.

Weathering the storm

The craft beer industry itself is slowing, though it hasn't reached the point of contraction yet. After years of enjoying double-digit growth, the trade group Brewers Association anticipates we'll see just high-single-digit growth, though other analysts think it may be in the low single digits. With more than 5,000 breweries operating today, the vast majority of which are craft, the health of the industry seems fine, but it likely means everyone is getting a narrower slice of the pie.

Image source: Samuel Adams.

Is there anything Roper or Koch could have done that a new CEO will be tasked with doing? It's arguable some of the actions they'vetaken on behalf of Boston Beer to halt its decline have been ineffective at best.

From trying to cash in on every fad that hit the market, such as hard soda and seltzer, to changing the packaging on the products, Boston Beer has seemingly ignored the problems that have been cutting sales of its important Samuel Adams brand.

Familiarity breeds contempt

Part of the sagging sales issues simply has to do with the brewer's success over the years. It is now so ubiquitous in bars and packaged goods stores that it no longer is new and unique, qualities today's beer drinkers are particularly seeking out. That's probably the same problem afflicting megabrewer Anheuser-Busch InBev (NYSE: BUD), whose volumes also remain in decline, and not only for its own flagship Budweiser beer, but also its craft-like Shock Top brand.

The two are also confronted with the problem of being considered old and staid. The Boston Globe recently quoted one small craft rival as saying: "My dad was drinking Sam Adams when I was a kid. For a lot of people who are drinking craft beer right now, it was their dad's beer."

That's why craft beers from the likes ofConstellation Brands' (NYSE: STZ) Ballast Point Brewing are enjoying rocketing sales. Its transformation from a regional beer to a national brand helped Constellation boast that Ballast Point is the fastest-growing craft beer today. Yet that also means it may one day soon face the problem Boston Beer is staring down today.

Image source: Samuel Adams.

Yet Roper's replacement may be able to do something. Boston Beer recently announced it was changing the recipe for its Rebel IPA beer, the first time it has done so for one of its big brands. Like Samuel Adams and Angry Orchard cider, Rebel shot out of the gate as the cool new beverage, but it now sees sales waning. The brewer is trying to juice sales by giving it a different flavor profile. That may be what Boston Beer needs to do to reignite sales for its flagship brand, though it would represent a huge change of direction. It would also likely be met with resistance in many quarters, but a fresh face at the helm might also be the one that's able to make a big decision like that.

Right now the craft brewer isn't doing much different from what it's done before, and like the definition of crazy, it would be nuts to expect a different outcome. But a new executive making bold choices could be the jolt Boston Beer needs to start seeing frothy sales growth once again.

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