The Boston Beer Company Essay Example for Free

The capital of Massachusetts Beer c all in aller-up sampleThe capital of Massachusetts Beer Company has had amazing success in its transition from a fine home base microbrewer to a oversized scale national brewery. Al virtually all of the partys success is due to the surface-to-air missileuel Adams laager product line, which has hardly changed from the founding of the beau monde in 1984, to the IPO in 1995, to the present day. In fact, overmuch of the raise of surface-to-air missileuel Adams comes from its microbrew image and the founder, Jim Kochs, commitment to the create from raw material process and a subsidy beer. In recent years, however, the conjunction has implemented a new schema for growth which has included introducing a light beer that go a itinerary give way more than mainstream appeal. slice this has increased profits for the caller-up, it has also left the come with vulner able to entry by diluting its brand name. For this reason, the familys d odge for the immediate future has to make a significant shift, from a system of growth to a strategy of protection. It must counsel on saying its current profits by preventing entry both(prenominal) from small breweries looking to copy the BBCs strategy and from self-aggrandising breweries looking to engage their noble-minded resources to steal some of BBCs food market sh atomic bout 18. History of Boston Beer The Boston Beer Company began as a microbrewery in Boston, Massachusetts in 1984.Its first cases of beer were whole sold to Boston restraints, plainly the high society quickly branched out geographically. Fueled by awards and recognition from prestigious beer festivals, surface-to-air missileuel Adams Boston Lager was unattached on much of the East Coast by the late 1980s and nationally by 1992. The club went public on the New York Stock Exchange in 1995. The Boston Beer Companys strategy for growth was one of differentiation. The society created a spunkyer typesetters case beer than the studyity of American beers by use more expensive ingredients and less water, and it used its packaging and its commercials to advertise this commitment to uality.In fact, because of its use of only barleycorn, hops, yeast, and water as its ingredients, Samuel Adams won the honor of being the first American beer to be sold in Germany, a distinction that serveed its image in America even more. One business strategy that the partnership employed as it started to grow was using extra brewing space in a nonher(prenominal) companys breweries to brew their beer. Since the company was growing at a double digit rate, it didnt drop a lot of extra capital to build its own breweries, so this was a good strategy for them during their period of growth.And, since these breweries were distributed throughout the country, this strategy allowed the Boston Beer Company to maximize the freshness of the beer it sold. In fact, the now celebrated practice of printing a freshness label on bottled beer was started by the Boston Beer Company on its Samuel Adams Boston Lager. The company ensured spirit production in these disperse breweries by hiring experienced brewmasters to oversee the develop brewing. The company also brewed some beer on its own property, both in Boston and later in a plant they purchased in Cincinnati, Ohio.In 2002, the company took a risk by introducing Sam Adams demoralise, a light beer version of their Samuel Adams Lager. They had never produced a light beer before, and it was Kochs stance that the company couldnt brew a light beer that would be up to their standards of flavor. The expanded customer base that the company would target with the trade of a light beer was too lucrative a market to ignore, however, and the light beer market was almost bleak of any em residuum Beers, so after three years of development Sam Adams clear up was born.The denote expenditures for 2002 increased by 25. 7% or $20. 6 million over 2 001 due to the promotion of Sam Adams arc2, which magnified the financial risk of producing and selling it. The new beer had the short term effect of attracting new consumers to the Samuel Adams brand, although the tenacious term effect has yet to be seen. The growth of the Boston Beer Company was very impressive, and can be attributed to a superior product, good business strategy, and an unsaturated market for high-quality beer. But now in that respect be new challenges facing the company.There are always new fads in the beer industry current trends are low-carb beers and fruityflavored malt drinkables. The Boston Beer Company needs to decide which of these trends to respond to, and how to respond to each. Above all the company needs to continue its strategy of differentiation that allowed it to achieve its current profitability. It is its image for quality above major American beers like Budweiser, Coors, and Miller that allows it to keep its prices, and its profits, high. Cu rrent Industry Analysis The Boston Beer Companys product is a break off beer.A better beer is defined as each a wiliness beer or an import, and is characterized by higher prices and quality. A trick beer is defined as one which is brewed with 100% process barley as its grain. The major American beer companies typically use a mixture of malted barley along with other grains much(prenominal) as rice or corn, since these are less expensive and postulate less full-bodied flavors. Rivals in the better beer industry include such foreign companies as Corona, Heineken, and Guinness, as advantageously as domestic companies such as Sierra Nevada, Petes, and a number of microbreweries around the country.While the beer industry overall is very rivalrous, the better beer industry is not so, as evidenced by high profit margins (the Boston Beer Company routinely posts profit margins of over 50%). The contention that does exist tends to wheel around quality competition rather than price c ompetition. There are numerous substitutes for better beer. each(prenominal) alcoholic beverages are substitutes for the Boston Beer Companys product, although the two closest substitutes are major American beers and flavored malt beverages wine and spirits are less relevant substitutes for the purposes of this analysis.Budweiser, Coors, and Miller are all large brand name beers which have low prices and low quality compared to better beers. Price sensitive consumers typically buy these beers. Smirnoff Ice, Skyy Blue, and Bacardi Silver are all similarly priced to the better beers, but they have fruitier flavors and thitherfore appeal to consumers with a different taste preference. The suppliers for the Boston Beer Company are similar to the suppliers for any brewery. Supplies that must be purchased include the ingredients like water, barley and hops, the equipment for brewing, and the transportation for distributing beer around the country.The ingredients are actually very inexpen sive compared to the other two costs, and suppliers of barley and water enduret have a lot of bargaining effect since these industries are fragmented. The hops industry, however, is more centralized. In order to ensure adequate hops supplies at prices cognise in advance the company regularly purchases hops futures. The company also employs an aggressive contract brewing strategy. Under this policy almost 60% of the companys products are brewed at noncompany owned breweries.By utilizing the excess capacity of geographically distributed reweries, the company can keep equipment and transportation costs low part providing a fresher and thus higher quality product. This brewing approach carries inherent risks by good-looking potential rivals some control over the companys production capacity. Indeed the company is soon involved in a lawsuit with Miller after Millers attempt to ass out of a brewing contract early. To protect itself from these risks the company enters into contracts with a diverse set of brewers for a much larger meat of beer than they actually produce.This redundant capacity is meant to shield the company from any number of contract brewers defaulting on their contracts. Buyer bargaining power doesnt have significant influence on the Boston Beer Company since their buyers are grocery stores and bars. The grocery industry and the bar industry are both fragmented, so each store or bar that buys from the Boston Beer Company comprises a very small amount of total company sales, and the loss of any one buyer wont significantly hurt the company.Complements in the better beer industry include the popularity of bars, snack foods like pretzels and nachos, and sporting events like football game games. While the Boston Beer Company doesnt provide any of these complements, they do provide some amount of customer education. node education includes advertise awards the company has won, advertising their brewing processes, and calling attention to thei r premium ingredients. This serves to convince people of the superior quality of Samuel Adams, thereby convincing them to pay a premium price.Customer education is a fairly clever and successful strategy for a number of beer companies, but it benefits better beers more than lower quality beers, so the Boston Beer Company could probably take advantage of this by focusing more on customer education. The BBC also has an advantage over small high-quality breweries because its economy of scale allows more customers to be reached per dollar spent on customer education. Any company in the beverage industry has the potential to enter Samuel Adams market, and it is always crucial for a company to be sensible of practicable entry from all sides.Companies that make wine, spirits, or malt beverages could all enter the market, and we have actually seen in recent years that spirits companies have been expanding into new markets by producing malt beverages under the name of the nourish spirits company. However, the most dangerous potential entrants would be other beer companies. Other craft breweries that sell their beer on a small scale might attempt to copy the BBCs strategy to grow into a national brand and steal some of BBCs market share.Also, major American breweries could use their expansive resources to brew high quality beers that could compete with Samuel Adams on a national level. A third, and even more threatening possibility, would be the combination of these two forces a major brewery could buy a high quality microbrewery and use their national advertising and distribution infrastructure to market the microbrew to the public on a large scale. Given the Boston Beer Companys high profit margins and the relatively low level of rivalry within their market, it is very likely that entry will occur and erode away at BBCs profits if BBC is unprepared.We believe that responding to this possibility should be at the forefront of the companys business strategy for the im mediate future. The Boston Beer Companys Strategy Using Reputation as an Entry prohibition The BBCs initial strategy was one of growth. This was fitting for it when it was a microbrewery looking to gain national and world-wide sales. During its expansion in the early 1990s, the company took advantage of the fact that consumer demand for craft beers was increasing, while there were few other companies doing the same.Since the new market was unsaturated, the Boston Beer Company was able to earn an inexpensive constitution for its Samuel Adams brand name by being the first large scale mover into the national craft beer market. By the late 1990s, the BBCs growth rate had begun to gloaming. In an effort to keep up growth, the company switched to a strategy of trying to increase the demand for craft beer. It did this through large scale advertising, and most significantly through the first appearance of a light beer that brought light beer drinkers over to the better beer market.The Boston Beer Companys strategy was an effective one for many years, and enabled it to become the profitable national company that it is today. However, if the BBC wants to maintain its profitability, it will need to find a way to protect its market share from entrants, and this will imply a shift in the companys strategy back to increasing its share of the Better Beer market rather than of the mainstream market. The biggest threats to the BBC are the major American beer companies, which have massive resources that would allow them to compete with the BBC.The BBCs two advantages over these major companies are experience and reputation, and the major companies could easily gain experience by buying an existing craft beer company and utilizing its brewing procedures. Therefore, the BBC must protect its reputation at all costs, since its reputation is the only formidable entry barrier preventing Budweiser, Coors, and Miller from successfully invading Samuel Adams market. The companys be st strategy would be to slow their growth in order to work on alter their Samuel Adams Boston Lager brand name.Additionally, if the BBC diminishes its focus on growth, it could very well have the effect of simplification the incentive for these three major companies to enter the craft beer market, since the BBC will not be seen as so significant a threat. While there is a risk that slowing growth will submit the company vulnerable to entry by smaller companies, it is the large companies that have the most resources to compete with the BBC, so reducing the incentive for large companies to enter is worth the possible risk that more small companies will enter.The uniqueness and integrity that allowed the Samuel Adams brand to gain popularity are starting to be overshadowed by the companys attempts to gather more mainstream consumers, and this is hurting the companys brand name. The strategy for the future needs to focus on building back customer loyalty for the companys core product line, i. e. Samuel Adams Boston Lager. First and foremost, the Boston Beer Company needs to continue reducing its expenditures on Sam Adams swallow.During the introduction of Sam Adams Light in 2001-02, revenues and gross profit increased, but expenditures on advertising Sam Light were exceedingly high, and much of the sales of Sam Light were thought to be due to cannibalism of Samuel Adams Boston Lager. In 2003 when advertising of Sam Adams Light was decreased, sales of the light beer dropped significantly. Although Samuel Adams Boston Lager sales increased during the period amidst the fourth quarters of 2002 and 2003, overall shipments dropped 6% during this period3 because of the lowered demand for Sam Light after the decline of the Sam Light marketing campaign.However, even though sales were lower, net income was higher after the end of the marketing campaign4. The company should therefore continue to keep its advertising levels for Sam Adams Light low. In admittance to the high financial cost of advertising Sam Adams Light, it is likely that the large-scale marketing of Sam Adams Light could hurt the company in the long run by diluting the Samuel Adams brand name. The purpose of Sam Light is to appeal to mainstream beer drinkers, but the companys consumer base is comprised of individuals who pride themselves on drinking a beer that is not mainstream.With potential entrants looming from above and below, the Boston Beer Company can not afford to lose its reputation for uniqueness. Still, Sam Light is a good revenue stream as a supplement to Samuel Adams Boston Lager, but it should cease to be the companys main focus. The Twisted Tea and Hard Core products are malt beverages that the company produces on a small scale. These brands are unnecessary for the companys success, and if the company adopts a strategy to focus on Samuel Adams Boston Lager then it would be advantageous to hap these products.While the products dilute the companys brand name in a si milar way to Sam Adams Light, they dont provide nearly the revenue that Sam Light does. By either selling or closing down these brand names, the Boston Beer Company can distance itself move on from the malt beverage industry and improve its positioning as a Better Beer company. Dumping these products would help the BBCs image of integrity in the eyes of their consumers, and this image will be crucial if the company is to protect its market share from entrants.There have been a number of attempted entries into the Sam Adams market which demonstrate the need for quality and reputation. Coors owns Killians Irish ruddy and Anheuser-Busch owns Michelob and has a stake in Red Hook, all brands that have had poor success in the Better Beer Market. Most consumers are well aware of the fact that Michelob is just another domestic beer sold at a high price, and so its a brand without much of a quality image. On the other hand, its not well known that Coors owns Killians since its brewed in Ca nada and has an import label.While this abel might signal some quality in many consumers eyes, Killians has no reputation and no customer base. Finally, Red Hook was a quality microbrew ale with a good reputation and customer base that was bought by AB. Since this purchase in 1994 the origination price of Red Hook has plummeted from 30 to 2 and sales have been poor. While the reason for this is not exactly clear, its possible that this failure is due to a loss of integrity that occurred when the microbrew became owned by a major domestic brewer, or that AB simply wasnt able to operate that type of brewery.ABs failure in this attempt doesnt indicate that they will give up on entering the craft beer industry, however, especially if craft beers grow to be more of the national market. With such high profit margins and a strong market position, the BBC might be tempted to increase sales by decreasing prices, but this strategy should definitely be avoided. The high prices for Samuel Adam s Boston Lager and Sam Adams Light signal to consumers and other companies that these beers are of higher quality, and since demand in the Better Beer market is relatively inelastic, there would likely be no increase in net income if prices were reduced.Reducing prices would cause the BBC to appear more of a threat to the three major American beer companies, and could therefore expedite the entry of one of these companies into the market. collectible to the nature of the Better Beer industry, the company needs to strive for quality competition over price competition. With the introduction of Sam Light in 2002 the percentage of BBCs sales comprised of bottles vs. kegs increased since most Sam Light is sold in bottles, and since Boston Lager sales declined slightly. While revenues are lower per barrel of delineate beer, profit margins are higher due to lower costs per barrel.Additionally, beer served on tap is usually able to retain a higher quality than beer served from a bottle. F or these reasons and others, it would be a good strategy for the Boston Beer Company to increase its emphasis on selling its beer in kegs to bars. While most grocery stores already carry Samuel Adams Boston Lager, there are still a large number of bars that dont have Boston Lager on draft, and this deprives many consumers of being able to drink the beer in its highest quality form while also depriving the company of the added revenue that bar sales bring in.Since the companys new focus needs to be on emphasizing the quality of its beers, increasing the availableness of its draft beer is in line with its strategy. An added benefit of increasing prevalence in bars is the opportunity for mixologist education and consequent consumer education. The company should seriously consider providing literature about their beer along with the kegs that they sell to bars, since educating bar owners and bartenders about the premium ingredients and freshness standards that the company holds will ha ve a trickle-down effect to the beer drinkers.