Despite an extended bull market, shares of Boston Beer Company (NYSE:SAM) have averaged an annual return of only 8% in the last five years.
In this segment from Industry Focus, the cast breaks down the factors which have crimped the growth of the Samuel Adams brand and other beverages within Boston Beer's portfolio.
A full transcript follows the video.
This video was recorded on Jan. 9, 2018.
Vincent Shen: I'm going to start this conversation with a bit of a juxtaposition of Boston Beer and the broader craft industry. For a time, Boston Beer was the face of the craft beer movement. And the Brewers Association even changed its definition for what qualifies as a craft brewer to accommodate Boston Beer's incredible growth.
But on the industry side, for the past five years, we've seen the number of craft brewers more than double to about 5,600. We've seen the volume share for craft beer approximately double to about 12% to 13%. Its share of beer sales is almost 25% by dollar value. And by most metrics, craft beer is still an area of strength for the overall beer industry. Then, if we turn our attention to Boston Beer, in the past five years, the stock has trailed the broad market, with less than half of the return of the S&P 500. Sales declined in full-year 2016 and will likely go down again in 2017. Depletions, which are the sales from distributors to retailers, are down mid-single digits in 2017. Results for the company have definitely hit a wall, and they're trending downward. CEO Martin Roper, he's leaving this year, and the search for his replacement has been going on for some time now, has yet to be finalized. There's lots of uncertainty here. What's your take on the situation, Asit?
Asit Sharma: This company, great company, Boston Beer is a traditional craft beer, a pioneer in the industry. I am 40-something, let's say -- it's the new year, I don't want to give too much away here. But I can remember in college, when it was "the" craft beer. This is the part of the universal comment that you just made, that for a while, everyone identified Boston Beer as "the" craft beer company. And I think what we're seeing is this huge fragmentation, not just in the craft side of the industry but the beer industry as well, as we go for beers that have flavor, beers that are super light, beers that delve into the craft space, beers of a particular geographic focus, like Constellation Brands' Mexican beers, that we've talked about on this show. There's so much fragmentation that it becomes hard to get volume growth and depletion growth. Depletion growth, to remind listeners, is the measurement of beer leaving a distributor's warehouse versus when the manufacturer sells it to the distributor.
I think the big problem that's plagued Boston Beer Company over the last five years is, it has identified itself as the craft industry, but that industry has changed underneath it. I don't know if any of our listeners read French philosopher Montaigne, sort of meaty essays to read, but everyone should read these. The common thread running through each of these essays is, this philosopher is always trying to suss out his place in the world -- where he's going, where he's been. He understands that his identity is always changing. The sin, perhaps, that Boston Beer committed was not acquiring some of these small, rapidly growing craft breweries. Constellation Brands, of course, bought Funky Buddha Company, it bought Ballast Beer Company. But Boston Beer's capital allocation has remained consistent. It's invested in itself. And I think that some millennial consumers may perceive the brand as a bit tired, and maybe their dad's idea of craft beer.