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Case Study As the Boston Beer Company continued its growth…
Case Study
As the Boston Beer Company continued its growth momentum into 2015, Martin Roper, the company’s president and CEO, stated, “Our depletions” 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.”! 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.! 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.? 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 completed 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.§ 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.* 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. 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. 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 that 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 non beer brands Twisted Tea and HardCore Cider. The Boston Beer Company planned to use the profits gained from its non beer 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. the planning stage, expecting, to be operational within the next two to three years. Boston Beer Company assumed that those would be shipping breweries .c., breweries that sell their product beyond their local market. Thus, within the next few years, Samuel Adams beer would be competing with other craft breweries ground the country.
The Boston 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 beers would grow by 6 percent over the next the cats. 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 L 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 wear, 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, was more concerned with making money than with providing quality beer and educating the public on craft beers. Sure, did have advantages, of course, providing more money for marketing and, especially in the beer business, facilitating distribution, A heave complaint among cos 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 distributors contributed to this notion. 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 stowing 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 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 Sam F Adams beer annually.
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Recommended Alternative
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