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The Boston Beer Company Poised For Growth Case Study

Essay Instructions:

Assignment #3 Case 14 – The Boston Beer Company

The case objective is to recognize that industry and internal issues drive strategy, and then show how the internal and external environment can affect options for growth. Specifically:



To examine how the competitive forces in an industry affect choice of strategy.



· What business level strategy does Boston Beer follow in the beer market?



· What internal assets does Boston Beer have that may help it deal with its challenges?



· Discuss the Boston Beer’s business-level strategy Within the firm’s industry environment generic strategies include basic types of business level strategies based on breadth of target market (industrywide versus narrow market segment) and type of competitive advantage (low-cost versus uniqueness).



(Length: 3-5 pages excluding tables, charts, appendices, work cited if applicable.)





The article below has also been attached so that it is easier to read.



CASE 14

THE BOSTON BEER COMPANY: POISED FOR GROWTH*

As the Boston Beer Company continued its growth momentum into 2015, Martin Roper, the company's president and CEO, stated, “Our depletionsa growth remained strong and benefited from the growth of our Samuel Adams, Twisted Tea, Angry Orchard and Traveler brands. With the launch of several new beers and ciders in the first quarter of 2015, and our planned increased investment behind Samuel Adams, Twisted Tea, Angry Orchard and Traveler brands, we believe we are well-positioned to maintain our momentum.”1

Roper admitted that while the supply chain had improved, there was still plenty of room for further optimization. The company had completed a number of significant capital and efficiency projects in 2014 to increase its capacity and capabilities.

The focus in 2015 was on taking full advantage of these increased capabilities through improved operator training and on making supply chain improvements for improved product quality and customer service. Capital expansion was expected to slow in 2015, as the company sought to optimize its big investments from prior years.1

The Boston Beer Company, known for its Samuel Adams brand, was the largest craft brewery in the United States, holding a 1 percent stake in the overall beer market.2 It faced growing competitive threats from other breweries, both large and small. In the past several years, the beer industry as a whole had been on a decline, while sales of wines and spirits had increased. The Boston Beer Company competed within the premium-beer industry, which included craft beer and premium imported beers like Heineken and Corona. Although the beer industry had been on a decline, the premium-beer industry had seen a small amount of growth and the craft-beer industry had seen a surge in popularity. Because of the success of the craft breweries in particular, the major breweries had taken notice and many new craft breweries had sprung up.

Anheuser-Busch Inbev and MillerCoors, LLC, accounted for over 80 percent of the beer market in the United States.3 They had caught on to the current trend in the beer industry toward higher-quality beers and started releasing their own higher-quality beers. For example, Anheuser-Busch Inbev released Bud Light Wheat and Bud Light Platinum in an effort to provide quality beers to its loyal customers. MillerCoors introduced Blue Moon beer, and Anheuser-Busch Inbev released ShockTop to combat the popularity of Blue Moon. These companies also began to purchase smaller craft breweries, whose products had been rising in popularity. Anheuser-Busch Inbev purchased Goose Island Brewing Company in March 2011. MillerCoors started a group within the Tenth and Blake Beer Company for the purpose of creating and purchasing craft breweries. According to MillerCoors CEO Tom Lang, the plan was to grow Tenth and Blake Beer Company considerably in the coming years.4 The two major companies used their massive marketing budgets to tell people about their craft beers.

According to the Brewers Association, 1,940 craft breweries and 1,989 total breweries operated in the United States. While craft breweries accounted for over 97 percent of all the breweries in the United States, they produced only approximately 25 percent of all beer sold.5 However, with the rise in popularity of premium beers, the craft breweries were expected to continue to grab more of the market. As the country's largest craft brewery, the Boston Beer Company had revenue of over $900 million in 2014 and sold over 2 million barrels of beer. Other large craft breweries included New Belgium Brewing Company and Sierra Nevada Brewing Company.6 In addition, some smaller breweries had been merging to take advantage of economies of scale and enhance their competitive position.

According to the Boston Beer Company, there were approximately 770 craft breweries that shipped their product domestically, up from only 420 a decade earlier. There were also an estimated 800 craft breweries in the planning stage, expecting to be operational within the next two to three years. Boston Beer Company assumed that 300 of those 800 would be shipping breweries (i.e., breweries that sell their product beyond their local market). Thus, within the next few years, Samuel Adams beer would be competing with over 1,000 other craft breweries around the country.

The Boston Beer Company competed not only with domestic craft breweries but also with premium-beer imports, such as Heineken and Corona, which sold beer in a similar price range. Like Anheuser-Busch Inbev and MillerCoors, Heineken and Corona had large financial resources and could influence the market. It was projected that premium imported beers would grow by 6 percent over the next five years.

Page C-100

The Brewers Association defined a craft brewery as brewing less than 6 million barrels per year and being less than 25 percent owned or controlled by another economic interest. Maintaining status as a craft brewery could be important for image and, therefore, sales. Thus, MillerCoors purchased less than a 25 percent stake in Terrapin Beer, still allowing it to maintain its craft brewery status.7 The size of the Boston Beer Company, however, was an issue. With continued growth, the brewery could potentially increase its volume output to more than 6 million barrels per year, thus losing its craft brewery status. Furthermore, with the size of the company and its ability to market nationwide, the company ran the risk of alienating itself from other craft breweries that could believe Samuel Adams no longer fit the profile. Many craft breweries already believed that the company, which had been public since 1995, was more concerned with making money than with providing quality beer and educating the public on craft beers.

Size did have advantages, of course, providing more money for marketing and, especially in the beer business, facilitating distribution. A heavy complaint among all craft breweries was the difficulty they had distributing their product in the current three-tier system (discussed in a later section). The large breweries had power over the independent distributors because they accounted for most of their business. Thus, they could influence the distributors and make it difficult for craft breweries to sell their product. Because of its size, the Boston Beer Company had fewer problems with distributors than its smaller competitors did. Consequently, the company had less in common with other craft breweries and more with the major breweries in regard to distribution. This was good for Boston Beer Company's distribution but might have been bad for its image. One brewer from the Defiant Brewing Company in Pearl River, New York, said that the Boston Beer Company was becoming too large to be considered a craft brewery and that its substantial connections with distributors contributed to this notion.8

Clearly, the Boston Beer Company was facing a difficult competitive environment. It faced direct competition from both larger and smaller breweries and from premium imported beers. Some of the smaller craft breweries were growing quickly and wanted to be larger than the Boston Beer Company. Other craft breweries felt that the Boston Beer Company was too large already. Thus, while further growth would be beneficial in terms of revenue, growing too large could negatively affect the company's status as a craft brewery and the perceptions of its customers. The company had to pay close attention to maintaining its image among the growing customer base of premium-beer drinkers.

Company Background

Jim Koch started the Boston Beer Company in 1984 along with fellow Harvard MBA graduates Harry Rubin and Lorenzo Lamadrid. The company began with the sale of the now popular Samuel Adams Boston Lager, named after the famous American patriot who was known to have been a brewer himself. The recipe for the lager was passed down from generation to generation in Koch's family, dating back to the 1860s. Koch began home brewing the beer in his own kitchen and soliciting local establishments in Boston to purchase and sell it. Just one year after its initial sales, Samuel Adams Boston Lager was voted “Best Beer in America” at the Great American Beer Festival in Denver, Colorado. In 1985 Samuel Adams grew immensely and sold 500 barrels of beer in Massachusetts, Connecticut, and West Germany.9

To avoid the high up-front capital costs of starting a brewery, Koch contracted with several existing breweries to make his beer. This allowed the production of the Boston Lager to grow quickly from the relatively small quantities Koch could brew himself. Growth continued after that, and in 1988 the Boston Beer Company opened a brewery in Boston. By 1989 the Boston Beer Company produced 63,000 barrels of Samuel Adams beer annually.

The company went public in 1995, selling Class A common stock to potential investors. The stock was sold at two different prices, $15 to loyal customers and $20 through an IPO run by Goldman Sachs. Koch decided to reward his loyal customers by advertising the stock offering on the packages of his six-packs, estimating that 30,000 buyers would be interested. He believed that those who enjoyed the beer and supported it should be the ones to have a stake in the company. After 100,000 potential investors sent checks in, Koch randomly chose 30,000.10 Managers from Goldman Sachs were upset that they did not receive the lowest-price offering. Koch owns 100 percent of the Class B common stock, which confers the right to make all major decisions for the company. This was seen as a risk to potential investors because Koch could make important decisions on the strategy of the company without receiving approval from them.

Continued success for the business led to the purchase of a large brewery in Cincinnati in 1997. Since 2000, Samuel Adams had won more awards in international beer-tasting competitions than any other brewery in the world. In 2008 the Boston Beer Company purchased a world-class brewery in Lehigh, Pennsylvania, to support growth.

As of 2015, the Boston Beer Company was the largest craft brewery in the United States, brewing over 2 million barrels of Samuel Adams beer, but it still served only a fraction of the total U.S. beer market. The company had expanded its selections to over 50 beer flavors, including seasonal and other flavorful beers, such as Samuel Adams Summer Ale, Samuel Adams Cherry Wheat, and Samuel Adams Octoberfest, as well as the nonbeer brands Twisted Tea and HardCore Cider. The Boston Beer Company planned to use the profits gained from its nonbeer brands to invest in Samuel Adams and build a stronger portfolio. Revenue for the company grew from $628 million in 2012 to over $966 million in 2014, while operating costs grew from $219 million to $318 million. Net income increased from $59 million to $90 million in the same period (see Exhibits 1 and 2). In January 2015, the company stock was selling at $301, nearly $200 over the initial public offering in 1995.

EXHIBIT 1 Boston Beer Co., Inc., Income Statements ($ thousands, except per-share and net-revenue-per-barrel data)





Year Ended:

Dec. 27, 2014 Dec. 28, 2013 Dec. 29, 2012

Income Statement Data:

Revenue $966,478 $793,705 $628,580

Less excise taxes 63,471 54,652 48,358

Net revenue 903,007 739,053 580,222

Cost of goods sold 437,996 354,131 265,012

Gross profit 465,011 384,922 315,210

Operating expenses:

 Advertising, promotional and selling expenses 250,696 207,930 169,306

 General and administrative expenses 65,971 62,332 50,171

 Impairment of long-lived assets 1,777 1,567 149

Total operating expenses 318,444 271,829 219,626

Operating income 146,567 113,093 95,584

Other (expense) income, net (973) (552) (67)

Income before provision for income taxes 145,594 112,541 95,517

Provision for income taxes 54,851 42,149 36,050

Net income $ 90,743 $ 70,392 $ 59,467

Net income per-share basic $6.96 $5.47 $4.60

Net income per-share diluted $6.69 $5.18 $4.39

Weighted-average shares outstanding basic 12,968 12,766 12,796

Weighted-average shares outstanding diluted 13,484 13,504 13,435

Balance Sheet Data:

Working capital $ 97,292 $ 59,901 $ 73,448

Total assets $605,161 $444,075 $359,484

Total long-term obligations $ 58,851 $ 37,613 $ 25,499

Total stockholders equity $436,140 $302,085 $245,091

Statistical Data:

Barrels sold 4,103 3,416 2,746

Net revenue per barrel $ 220 $ 216 $ 211

Source: Boston Beer Company.

EXHIBIT 1

Boston Beer Co., Inc., Income Statements ($ thousands, except per-share and net-revenue-per-barrel data)Boston Beer Co., Inc., Income Statements ($ thousands, except per-share and net-revenue-per-barrel data)

EXHIBIT 2 Boston Beer Co., Inc., Balance Sheets ($ thousands, except per-share and net-revenue-per-barrel data)





Year Ended Dec. 27, 2014 Dec. 28, 2013

Assets

Current Assets:

Cash and cash equivalents $ 76,402 $ 49,524

Accounts receivable, net of allowance for doubtful accounts of $144 and $160 as of Dec. 27, 2014, and Dec. 28, 2013, respectively 36,860 42,001

Inventories 51,307 56,397

Prepaid expenses and other current assets 12,887 9,606

Income tax receivable 21,321 1,038

Deferred income taxes 8,685 5,712

Total current assets 207,462 164,278

Property, plant and equipment, net 381,569 266,558

Other assets 12,447 9,556

Goodwill 3,683 3,683

Total assets $605,161 $444,075

Liabilities and Stockholders Equity

Current Liabilities:

Accounts payable $ 35,576 $ 34,424

Current portion of debt and capital lease obligations 55 53

Accrued expenses and other current liabilities 74,539 69,900

Total current liabilities 110,170 104,377

Deferred income taxes 50,717 32,394

Debt and capital lease obligations, less current portion 528 584

Other liabilities 7,606 4,635

Total liabilities 169,021 141,990

Commitments and Contingencies

Stockholders Equity:

Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,452,375 and 8,785,343 issued and outstanding as of Dec. 27, 2014, and Dec. 28, 2013, respectively 95 88

Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 3,617,355 and 3,962,355 issued and outstanding as of Dec. 27, 2014, and Dec. 28, 2013, respectively 36 40

Additional paid-in capital 224,909 173,025

Accumulated other comprehensive loss, net of tax (1,133) (417)

Retained earnings 212,233 129,349

Total stockholders equity 436,140 302,085

Total liabilities and stockholders equity $605,161 $444,075

Source: Boston Beer Company.

EXHIBIT 2

Boston Beer Co., Inc., Balance Sheets ($ thousands, except per-share and net-revenue-per-barrel data)Boston Beer Co., Inc., Balance Sheets ($ thousands, except per-share and net-revenue-per-barrel data)

Page C-101

The goal of the Boston Beer Company was to become the leading brewer in the premium-beer market. As of 2015, it was the largest craft brewery, but it trailed Crown Imports, LLC, and Heineken USA in the premium-beer market. The company planned to surpass the large importers by increasing brand availability and awareness through advertising, drinker education, and the support of its over 300-member sales force. The salespeople for the company had a high level of product knowledge about beer and the brewing process and used this to educate distributors and the public on the benefits of Samuel Adams. The Boston Beer Company formed a subsidiary called Alchemy & Science to seize new opportunities in the craft brewing industry. The purpose of this group was to identify better beer ingredients, methods for better brewing, and opportunities to purchase breweries that would help the business grow. One such opportunity, for instance, led to the group's purchase of Southern California Brewing.

Page C-103

Over the years, the company had continued to invest in efficiency initiatives to lower costs within its breweries and increase margins. One large program that the company was employing was its Freshest Beer Program. Typically, bottled and canned beer sat in a distributor's warehouse for three to five weeks, while kegs sat for three to four weeks. In an effort to reduce storage time in the distributor warehouses by approximately two weeks and consequently increase freshness of the beer at retailers, the company focused not only on better on-time service, forecasting, and production planning but also on great coordination and cooperation with distributors. The company soon had 50 percent of its beer in the Freshest Beer Program, with the goal of expanding that number to 75 percent within a year by investing $50 million in the program.

While expansion and growth were more commonly deemed positive attributes, the Boston Beer Company was aware of the many possible risks in the growth of its business. With the acquisition of the Lehigh brewery, the Boston Beer Company now brewed over 90 percent of its beer at its own breweries. With capital tied up in large investments, there was a potential for the business to falter if an unexpected event affected one of the breweries and halted production at that facility. The company had also put forth a sizable investment to increase product offerings and another to keep its beer fresh during distribution. However, with its reliance on independent distributors, a mishap in its relationship with major distributors could lead to complications within its supply chain. The Boston Beer Company also depended on foreign suppliers of raw material ingredients for its beer. An unexpected shortage of a crop might lead to a drop in production volume. In effect, the image of the company would diminish if its products were not available to loyal fans whose enjoyment of the brand relied on the wide accessibility of its craft beer. With the surge of an enormous number of other craft-beer choices, customers had many options to choose from.

Industry

Although Samuel Adams was sold in other countries, the United States was where the majority of the product was sold and where the brand held the most prominence in the beer market. Within the beer industry, Samuel Adams fell into the craft-beer category (see Exhibit 3). In terms of volume of beer sold, the Boston Beer Company was the largest craft brewery in the country. The beer market consisted mainly of standard and economy lagers, which accounted for nearly 75 percent of all volume sold. Samuel Adams brand beers were more costly than standard lagers and were counted with the premium beers, which together account for the other 25 percent of all beer sold.

EXHIBIT 3 Top Craft Beers in the U.S., by Brand Family



Dollar Sales % Change vs. Prior Year Case Sales % Change vs. Prior Year

Samuel Adams $ 329,422,200 12.2 10,453,300 11.4

Sierra Nevada 190,116,300 11.0 5,799,218 10.4

New Belgium 137,241,000 9.8 4,199,610 10.1

Shiner 116,655,600 13.4 3,820,370 10.7

Lagunitas 56,247,280 84.9 1,433,315 84.6

Deschutes 53,422,040 13.4 1,727,256 13.7

Redhook 40,980,740 9.0 1,434,310 10.6

Widmer 39,497,740 −5.2 1,286,111 −5.3

Kona 34,705,940 29.2 1,113,577 27.5

Stone 34,467,000 39.5 641,476 39.4

Category total* $1,882,415,000 19.4 55,316,610 16.6

Source: Information Resources Inc.

EXHIBIT 3

Top Craft Beers in the U.S., by Brand FamilyTop Craft Beers in the U.S., by Brand Family

Page C-104

There were over 200 million barrels of beer sold in the United States. Anheuser-Busch Inbev dominated the domestic beer industry, totaling over 48 percent of the market. MillerCoors also had a large share of the market at just over 30 percent. Together these two companies sold approximately 8 out of every 10 beers purchased in the United States. (See Exhibit 4.)

EXHIBIT 4 Top Domestic Beers in the U.S., by Individual Brand



Dollar Sales % Change vs. Prior Year Case Sales % Change vs. Prior Year

Bud Light $ 5,946,776,000 −0.5 294,749,300 −1.1

Coors Light 2,360,430,000 3.1 118,469,600 1.8

Budwelser 2,110,352,000 −2.5 104,390,500 −3.3

Miller Lite 1,868,866,000 −3.1 94,262,870 −4.3

Natural Light 1,122,770,000 −6.5 72,203,900 −7.5

Busch Light 844,276,000 2.0 56,008,580 1.3

Michelob Ultra Light 777,196,700 10.6 31,626,370 6.5

Busch 673,394,400 −4.6 43,374,170 −5.2

Keystone Light 493,993,600 −3.9 33,586,780 −4.4

Miller High Life 476,895,100 −8.5 30,260,060 −9.8

Category total* $23,707,870,000 0.8 1,198,722,000 −1.3

Source: Information Resources Inc.

EXHIBIT 4

Top Domestic Beers in the U.S., by Individual BrandTop Domestic Beers in the U.S., by Individual Brand

The third-largest brewer in terms of volume of beer sold was Mexican-owned Crown Imports, LLC, which accounted for less than 6 percent of the market. (See Exhibit 5 for the top imported beers.) As the seventh-largest brewery in the country, the Boston Beer Company had a 1.1 percent share of the market.

EXHIBIT 5 Top Imported Beers in the U.S., by Individual Brand





Dollar Sales % Change vs. Prior Year Case Sales % Change vs. Prior Year

Corona Extra $1,221,351,000 7.1 41,170,180 5.6

Heineken 669,337,000 −0.5 22,449,080 −1.3

Modelo Especial 574,636,300 24.5 21,648,650 19.9

Dos Equis XX Lager Especial 236,406,800 23.1 7,910,841 21.3

Corona Light 216,736,800 5.6 7,610,628 4.5

Stella Artols 194,844,500 17.7 5,591,031 15.7

Tecate 155,522,500 −4.1 8,017,746 −5.3

Labatt Blue 99,702,080 −2.3 5,220,015 0.1

Labatt Blue Light 97,494,690 −4.6 5,258,278 −2.0

Newcastle Brown Ale 77,033,940 −8.2 2,452,254 −8.1

Category total* $4,454,768,000 6.0 159,583,500 4.5

Source: Information Resources Inc.

EXHIBIT 5

Top Imported Beers in the U.S., by Individual BrandTop Imported Beers in the U.S., by Individual Brand

Changes in Drinking Habits

The consumption habits of beer drinkers appear to have changed in recent years. The beer industry as a whole was declining gradually over the years.11 This was mostly due to the decline in the consumption of standard lager and economy lager. Even though the volume of beer sold declined, the craft brew market had in fact exploded. Within the same period, dark ales and premium lagers grew considerably. Wheat beers (a segment of dark ales) experienced an especially large growth of over 150 percent. One of the Boston Beer Company's popular beers, Samuel Adams Cherry Wheat, was in this category. Hard ciders also increased in popularity, and the company's Angry Orchard line performed exceptionally well. (See Exhibit 6.)

EXHIBIT 6 Top Flavored Malts and Hard Ciders in the U.S., by Brand Family



Flavored Malts

Dollar Sales % Change vs. Prior Year Case Sales % Change vs. Prior Year

Bug Light Lime $ 461,965,000 209.6 13,146,440 210.4

Mike's Hard 389,984,100 −1.4 11,855,950 −0.5

Smirnoff Ice 206,452,700 −5.9 6,072,160 −5.7

Redd's 151,928,000 56,777.3 4,630,883 56,090.8

Four Loko 138,494,400 −5.3 4,207,976 −6.6

Twisted Tea Hard Iced Tea 123,470,200 12.3 4,111,125 12.9

Smirnoff Premium Malt Mixed Drinks 44,264,050 −5.2 1,303,707 −5.5

Sparks 24,373,400 −21.0 1,076,292 −18.7

Bacardi Silver 16,716,480 −38.2 519,723 −39.6

Margaritaville 15,280,470 8.4 534,678 8.7

Category total* $1,642,405,000 33.6 49,211,810 31.5

Hard Ciders

Angry Orchard $107,737,800 334.7 3,229,955 341.0

Woodchuck 42,786,700 10.8 1,254,826 10.6

Hornsby's 9,924,088 −29.2 316,551 −30.1

Michelob 8,772,720 46.8 289,008 41.9

Strongbow 8,471,371 56.5 229,508 60.3

Category total* $211,930,800 100.7 6,083,067 101.0

Source: Information Resources Inc.

EXHIBIT 6

Top Flavored Malts and Hard Ciders in the U.S., by Brand FamilyTop Flavored Malts and Hard Ciders in the U.S., by Brand Family

The Three-Tier System

Seventy-five percent of the volume of beer sold was sold at off-trade value in supermarkets, beer distributors, and such, while the other 25 percent was sold in bars and restaurants. Despite the vast difference in the volumes sold, the values of beer sold at off-trade and on-trade sites were equal because of the premium charged for beer at a bar or a restaurant.

Breweries were not permitted to own either off-trade or on-trade establishments, so their beer had to be distributed. Before Prohibition, however, beer was sold in tavernlike establishments called “tied houses,” which supplied and sold their own beer. There were no regulations regarding brewing companies owning all of the retail tied houses and selling only their own beer. After Prohibition, a system was put in place to discourage monopolies in the supply and sale of beer. This system was called the Three-Tier System, and it divided the beer industry into suppliers, distributors, and retailers, all independent of each other. Aside from the brewpub, breweries could not own retailers or distributors, thus ensuring a level of competition in the brewing industry.12

Although the three categories of the industry were separate, they each had a large influence on one another. For instance, Anheuser-Busch Inbev and MillerCoors sold 80 percent of the beers in the country. That meant that 80 percent of distributors' volume, and consequently revenue, was from these two companies. Hence, the distributors valued the business of Anheuser-Busch Inbev and MillerCoors to a higher degree, in fear of losing their business. In an effort to maintain its dominant position in the industry, Anheuser-Busch Inbev had contracted with several distributors on the condition that they would not work with any other breweries. Likewise, the other large breweries imposed restrictions on their distributors regarding which other breweries they could work with.

Page C-106

The distributors acted as the intermediary in the beer industry, providing the beer to retailers. The beer that was available from retailers was a result of the products that their distributors carried. The distributors were major decision makers for what beer taps would be available in bars, as well as the location of beer selections in supermarkets. Small breweries did not like the system because the distributors were heavily influenced by the major breweries. Since distributors had little incentive to treat them as equal business partners, small breweries found it difficult to compete and achieve growth. Consequently, it was a challenge for a small brewery to gain widespread recognition in the industry. Despite this challenge, the Boston Beer Company made a name for itself and sold its beer to a network of approximately 400 distributors.

Competition

The Boston Beer Company mainly competed with other beers sold in the United States. Samuel Adams belonged to the craft-beer category, which had been rapidly growing over the previous several years. The company faced competition from other craft brewers, premium import brewers, and the two major domestic breweries, Anheuser-Busch Inbev and MillerCoors.

The U.S. Open Beer Championship was a highly recognized nationwide beer competition that included professional breweries as well as home brewers. In 2014 more than 3,000 beers in 81 different categories were submitted. The top 10 brewers were chosen on the basis of receiving the highest overall grade in the most categories collectively. Exhibit 7 lists the top 10 brewers in 2014 according to the U.S. Open Beer Championship. The Boston Beer Company received the fourth-place ribbon, an impressive feat with so many breweries participating. For the first time in 2014, the U.S. Open also judged three styles of ciders. The Boston Beer Company took home three medals and was named “Cidery of the Year” for its Angry Orchard ciders.13

EXHIBIT 7 Top 10 Brewers, U.S. Open Beer Championship, 2014



The top 10 breweries based on the number of beers placing first (3 points), second (2 points), or third (1 point) are:

1. Wormtown Brewing—Massachusetts

2. Stone Brewing—California

2. Deschutes Brewery—Oregon

4. Blue Point Brewing—New York

4. Sprecher Brewing—Wisconsin

4. Black Tooth Brewing—Wyoming

4. Rahr & Sons Brewing—Texas

4. Reuben's Brews—Washington

4. Boston Beer Company—Massachusetts

9. Green Bench Brewing—Florida

9. Peticolas Brewing—Texas

9. Big Island Brewhaus—Hawaii

Source: U.S. Open Beer Championship.

EXHIBIT 7

Top 10 Brewers, U.S. Open Beer Championship, 2014Top 10 Brewers, U.S. Open Beer Championship, 2014

Home brewing had become an extremely popular hobby, and in many instances it led home brewers to pursue their passion in the form of an actual brewery. The Homebrewers Association was founded in 1978 and includes more than 30,000 beer-enthusiastic members. Its rankings of the top 10 beers, top 10 breweries, and top 10 most diverse breweries are shown in Exhibit 8.14

EXHIBIT 8 Top 10 Home-Brewed Beers and Breweries, 2014





Top-Ranked Beers

For the sixth consecutive year, Russian River Brewing Company took the top-ranked beer title for its double IPA, Pliny the Elder.

 1. Russian River Pliny the Elder

 2. Bell's Two Hearted Ale

 3. Ballast Point Sculpin IPA

 4. Bell's Hopslam

 5. The Alchemist Heady Topper

 6. Lagunitas Sucks

 7. Dogfish Head 90 Minute IPA

 8. Stone Enjoy By IPA

 9. Founders Breakfast Stout

10. Goose Island Bourbon County Stout

Brewery Rankings

 1. Russian River Brewing Company, Santa Rosa, Calif.

 2. Bell's Brewery, Kalamazoo, Mich.

 3. Stone Brewing Co., Escondido, Calif.

 4. Dogfish Head Craft Brewery, Milton, Del.

 5. Sierra Nevada Brewing Co., Chico, Calif.

 6. Founders Brewing Co., Grand Rapids, Mich.

 7. Firestone Walker Brewing Co., Paso Robles, Calif.

 8. Lagunitas Brewing Co., Petaluma, Calif.

 9. Deschutes Brewery, Bend, Ore.

10. New Belgium Brewing Co., Fort Collins, Colo.

Best Portfolio

(T indicates tie)

  1. New Belgium Brewing Co. | 60 beers

  2. Boston Beer Co. (Samuel Adams) | 53

  3. Sierra Nevada Brewing Co. | 49

  4. Dogfish Head Craft Brewery | 48

  5. Stone Brewing Co. | 46

 T6. Bell's Brewery | 41

 T6. Short's Brewing Co. | 41

  8. Deschutes Brewery | 40

  9. The Bruery | 38

T10. Avery Brewing Co. | 37

T10. Boulevard Brewing Co. | 37

T10. Goose Island Beer Co. | 37

Source: Homebrewers Association.

EXHIBIT 8

Top 10 Home-Brewed Beers and Breweries, 2014Top 10 Home-Brewed Beers and Breweries, 2014

The Boston Beer Company also competes with the noncraft breweries that sell premium imports and standard and economy lagers. In regard to dollar sales, a list of the top 10 beers in the United States is shown in Exhibit 4, followed by a list of the top imports in Exhibit 5. Samuel Adams did not crack the top 20 list.15

EXHIBIT 9 Comparison of Domestic Beer Brands 2014





Domestic Beers Alcohol by Volume (%) Average Price (six-pack) Market Share*

Bud Light 4.20 $4.99 0.198

Coors Light 4.20 4.99 0.097

Budweiser 5.00 4.99 0.074

Miller Lite 4.20 4.99 0.041

Corona Extra 4.60 7.99 0.035

Natural Light 4.20 3.49 0.035

Busch Light 4.10 3.99 0.032

Busch 4.60 4.49 0.029

Miller High Life 4.70 3.99 0.024

Keystone Light 4.13 3.49 0.022

Blue Moon Belgian White 5.36 8.49 0.015

Heineken 5.00 5.99 0.010

Samuel Adams Boston Lager 4.90 8.49 0.009

Shock Top Belgian White 5.20 8.49 0.008

Sierra Nevada Pale Ale 5.60 8.49 0.008

New Belgium Fat Tire 5.20 8.99 0.007

Yuengling Lager 4.40 6.49 0.005

Dogfish Head Pale Ale 5.00 8.99 0.004

Brooklyn Brewery Lager 5.20 7.99 0.004

Source: Global Market Information Database.

EXHIBIT 9

Comparison of Domestic Beer Brands 2014Comparison of Domestic Beer Brands 2014

Sierra Nevada Brewing Company

Ken Grossman and Paul Camusi started the Sierra Nevada Brewing Company in 1980. It was the largest private craft brewery behind the publicly traded Boston Beer Company. Sierra Nevada made the highest-selling pale ale in the United States. The company sold approximately 1 million barrels of beer in 2014 and distributed its beers in all 50 states. Sierra Nevada was one of the earliest craft breweries, and its founders were consequently referred to as pioneers in the craft brewing industry. The company planned to open another brewing facility within the next few years to continue growth of the business. Sierra Nevada created goodwill by promoting the craft-beer industry and by striving to be environmentally friendly in its beer's production. One of Sierra Nevada Brewing's goals was to overtake the Boston Beer Company as the largest craft brewery in the country.16

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New Belgium Brewing Company

Jeff Lebesch founded the New Belgium Brewing Company in Fort Collins, Colorado, in 1991. New Belgium Brewing was the third-largest craft brewery in the United States, behind the Boston Beer Company and Sierra Nevada. The company's flagship beer was an amber ale called Fat Tire, but it had over 25 different beers in production. In recent years the company had sold over 700,000 barrels of beer, which were distributed in 29 states. Over the last several years, the company had growth of approximately 15 percent. New Belgium had plans to build a $100 million brewery in North Carolina by 2015 to compete with the other major breweries. Like Sierra Nevada, New Belgium focused on energy-efficient practices. The company also hoped to become the largest craft brewery in the country.17

Crown Imports, LLC

Crown Imports, LLC, was a joint venture between Grupo Modelo and Constellation Brands. Crown Imports had a portfolio of beers that included Corona Extra, Corona Light, Modelo Especial, Pacifico, and others. Crown Imports controlled approximately 6 percent of the market and had the number-one import into the United States, Corona Extra, which brought in over $1 billion in revenue in 2014. It had the third-largest market share in the United States, behind Anheuser-Busch Inbev and MillerCoors. The beer brands were owned by the public company Constellation Brands. Constellation owned over 200 brands of beer, wine, and spirits and had sales of almost $4.8 billion in 2014. With such a large financial backing, Crown Imports wanted to remain the number-one import in the country and close the gap in market share between it and the top two breweries. Due to its large amount of capital, Crown Imports was able to advertise its brands nationally. Crown also hosted several charitable events.18 Crown recently started a campaign to make Corona Extra the most liked beer in America.

Heineken

Heineken was the second-largest import brewing company and the fourth-largest brewing company in the United States. The company had approximately 4 percent of the market for the last several years. The company was founded in 1873, and its beers were sold in 71 countries worldwide. Heineken imported popular brands such as Heineken, Amstel Light, Sol, Dos Equis, and Newcastle. Company sales exceeded $26 billion in 2013.19 With Heineken's large size and reputation, it had the ability to advertise its products nationally. The Dos Equis brand had grown by over 10 percent since the popular “Most Interesting Man in the World” commercials began airing. Most of the brands offered by Heineken were in the price range of Samuel Adams, making them a close competitor.20

Anheuser-Busch Inbev NV

Anheuser-Busch Inbev was one of the largest beer companies in the world, with roughly $43 billion in revenue in 2014. The brewing portion of the company remained the largest brewery in the United States and had an approximate 50 percent stake in the U.S. beer industry.21 It had the two best-selling beers in the country, Bud Light and Budweiser, and the fifth-best-selling beer, Natural Light. However, the company saw the sale of its products decline over the last several years. In an effort to combat the lower volume of sales, it had raised the prices of its beer products.

Additionally, the company had witnessed the explosive growth of the craft-beer industry. Although it could never be considered a craft brewery because of its size, Anheuser-Busch planned to make more craftlike beers, as it had done with its brand Shock Top. The company also planned to invest in and purchase small craft breweries, like Goose Island, which made the popular beer 312. Anheuser-Busch was not opposed to merging with other large breweries. The company was reported to be in talks with the maker of Corona to purchase that company. The size and influence of Anheuser-Busch posed a threat to the Boston Beer Company because of its substantial lead in available capital.

MillerCoors, LLC

MillerCoors, LLC, was the second-largest brewing company in the country, a joint venture between the Miller and Coors brands, accounting for approximately 30 percent of the market. It had two of the top five most popular beers, Miller Lite and Coors Light, and wanted to catch up with Anheuser-Busch Inbev. The company traded publicly as Molson Coors Brewing Company and SABMiller, whose stock sold for over $75 and $3,389, respectively, in January 2015. MillerCoors wanted to push its craft beers after witnessing the growth in the market. It had a popular craftlike beer called Blue Moon Belgian White. The company had also started the group Tenth and Blake to focus on the craft-beer industry and premium imports, and it planned to expand the group by 60 percent over the next few years. Some of its premium beers were Leinenkugel's Honey Weiss, George Killian's Irish Red, Batch 19, Henry Weinhard's IPA, Colorado Native, Pilsner Urquell, Peroni Nastro Azzurro, and Grolsch.22

Thinking about the Future for Beer

The Boston Beer Company created high-quality craft beers and sold them at higher prices than standard and economy lagers. It was the largest craft brewery in the United States and the seventh-largest overall brewery. While Boston Beer was delighted to be the largest craft brewery, its goal was to become the third-largest overall brewery in the country. Brand recognition is key to any business, and it was especially obvious in the beer industry. Anheuser-Busch Inbev and MillerCoors spent enormous amounts of capital each year to advertise their products. Due in large part to Anheuser-Busch Inbev and MillerCoors, beer had become synonymous with sports, and nowhere was this more apparent than the Super Bowl. Anheuser-Busch Inbev was one of the main sponsors of the Super Bowl in 2015, and beer commercials were apparent throughout the game. The challenge for craft brewers was that they needed to gain the attention of potential customers while the large brewers were spending a great deal of money vying for the same consumers. One might have argued that the larger brewers' beers did not encompass the same amount of flavor or high-quality taste as the craft beers did, but it was hard to be heard in a crowded space.

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Jim Koch and the Samuel Adams team emphasized the amount of hops and flavor that their products had, and they wanted to get “better beer” to potential customers. Boston Beer even tried to help the craft-beer movement as a whole, with the potential of hurting its own Samuel Adams line of business. For instance, the company sold excess hops to small brewers that were struggling to pay for the rising cost. Boston Beer also partnered with Accion to provide microloans to small businesses trying to start up breweries and to help small breweries in distress.23

Over the last several years, the craft brewing industry had grown at the expense of standard and economy lagers. The major breweries had taken notice, and they started to build up their craft-style beer portfolios. In the past, the Boston Beer Company had the advantage of being one of the only craft breweries that was nationally recognized. With other craft breweries on a steady rise, the Boston Beer Company has to position itself to remain in front. Exhibit 9 shows the pricing and alcohol by volume for popular U.S. beers.

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The Boston Beer Company made an effort to move away from contract brewing and toward brewing its own beer with the purchase of the large brewery in Pennsylvania. The company had also put a focus on growing the brand in countries outside the United States. For example, Boston Beer established a relationship with Moosehead Breweries in Canada to expand the Samuel Adams brand presence there. In addition, with the increased popularity of alcoholic beverages besides beer, Boston Beer positioned its Twisted Teas and HardCore Cider products to be recognized nationwide.

Boston Beer Company was in a tough position, as both the smaller craft breweries and the larger breweries wanted to compete with it. Only time would tell whether Boston Beer would continue to brew flavorful beers that people enjoy, in order to maintain a loyal customer base and see continued growth in the future.

ENDNOTES

1. 1. Boston Beer Company Q4 2014 earnings call transcripts.

2. 2. Global Market Information Database. 2012. The Boston Beer Company, in alcoholic drinks (USA). February.

3. 3. Global Market Information Database. 2012. Beer in the US. February.

4. 4.Los Angeles Times. 2011. MillerCoors CEO Tom Long seeks growth with craft beers. August.

5. 5.www(dot)brewersassociation(dot)org.



6. 6.Washington Times. 2012. Top ten: Craft beers of 2011. January.

7. 7. Rotunno, Tom. 2011. MillerCoors crafts small beer strategy. CNBC.com, October 31, www(dot)cnbc(dot)com/id/45079554.



8. 8. Personal interview with Woody from Defiant Brewery in Pearl River, NY, June 2012.

9. 9.www(dot)bostonbeer(dot)com.



10. 10.New York Times. 2012. An IPO that is customer-friendly. February.

11. 11. Euromonitor International and author estimates.

12. 12.www(dot)abdi(dot)org.



13. 13.www(dot)usopenbeer(dot)com.



14. 14. The Homebrewers Association.

15. 15.Dayton Business Journal. 2012. Top 20 selling beers of 2011. January.

16. 16.www(dot)sierranevada(dot)com; and Solomon, B. 2014. King of craft beer: How Sierra Nevada rules the hops world. Forbes, March 3.

17. 17.www(dot)newbelgium(dot)com.



18. 18.www(dot)crownimportsllc(dot)com.



19. 19. Van Daalen, R. 2014. Heineken sees profits fall on weaker beer sales. Wall Street Journal, February 12.

20. 20.www(dot)heineken(dot)com.



21. 21.www(dot)ab-inbev(dot)com.



22. 22.www(dot)millercoors(dot)com.



23. 23. Anonymous. 2008. Sharing beers: Largest craft brewer offers scarce hops to rivals. Associated Press, April 6, www(dot)pantagraph(dot)com/business/article_3f06ff0a-44a8-53c2-bd18--52b5e6e25977.html.

Essay Sample Content Preview:

Case 14 the Boston Beer Company
Name:
Institution:
Introduction
The Boston Beer Company incorporation was established in 1995, and it is recognized as the best craft brewer in the United States. The company has been committed to producing, marketing and selling alcoholic beverages in the domestic market as well as in a few selected international markets. The company has set up its breweries in different locations which include Boston, Cincinnati, Breinigsville, and Brooklyn and in Miami among other different places. Some of the products produced by the Boston Beer Company include Samuel Adams, Truly Spiked, and Twisted Tea and Sparkling brands among others. Boston Beer Company has become successful in the industry that some of its products have dominated the beer market. For example, the company brews more than sixty styles of Samuel Adams beer and the company is relentlessly pursuing the development of other styles. This paper examines Boston Beer Company internal assets that may help the company deal with its challenges and also evaluates its business level strategy.
Boston Beer Company internal assets
Internal assets have enabled Boston Beer Company to handle and overcome some of the problems in the beer industry. Some of the essential internal assets in the firm are the training of operators and the company secrets that make it possible for the firm to compete competitively. Boston Beer Company has increased its capabilities by improving operator training and enhancing the supply chain improvements which promotes the quality of its products and customer service.
Additionally, Boston Beer Company has applied its operations secrets to ensure that it maintains its brewery status. As per the Brewers Association, a company is recognized as a craft brewery if it produces less than six million barrels per year. Since Boston Beer Company has registered sustained growth, the company could probably increase its production to more than six million barrels per year. This would result in losing its craft brewery status. Losing craft status would alienate the company from other craft breweries that could believe Samuel Adams brand no longer fit the profile. Therefore, the company has established its secrets that could ensure that it maintains the craft brewery status.
Boston Beer Company business level strategy
Four generic strategies may be applied in an organization to...
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