Company Snapshot:Boston Brewing CompanyMarket Share: …
Company Snapshot:Boston Brewing CompanyMarket Share: 0.58% in the U.S.2009 Revenue: $453.45M Major Markets: United States, CanadaMain Strategic Advantage: Product QualityThe Boston Brewing CompanyCompany BackgroundAlthough The Boston Brewing Company is currently the largest independent American brewery, the company only began in 1984, when the company’s founder: Jim Koch brewed the first batch of Boston Lager in his kitchen. At the time Mr. Koch had been working as a consultant at the Boston Consulting Group after receiving his JD-MBA from the Harvard Business School. The recipe for this eventually legendary brew from his father: Louis Koch who sold the beer during prohibition. With the help of two fellow Harvard MBA’s: Harry Rubin and Lorenzo LaMadrid, Koch decided to leave his career at the Boston Consulting Group to create the Samuel Adams Beer Company. Their timing could not have been better since a backlash against cheap, tasteless macro-brews was underway. Many consider the Samuel Adams brand a pioneer of the craft brewing segment, as 10 years after its founding, there would be over 600 craft breweries in America.To date, the company has nearly 750 employees and as the size of the business increased, pushed the boundaries of the definition of a craft beer maker. In 2009 alone, the company produced over 2 million barrels of beer and shareholders have reaped tremendous rewards from this business since its IPO at roughly $30 per share. On an annualized basis the company has achieved over 34% sales growth since its IPO and continues to achieve growth targets. Major MarketsThe Boston Brewing Company’s operations are solely located within the continental United States with its headquarters located within Boston, Massachusetts. In addition to this facility, the company owns supplemental breweries in Cincinnati, Ohio and Breinigsville, Pennsylvania. Due to the expensive nature of transporting beer, the company sells its products predominantly in the United States in areas near their three breweries. It is important to note however that small amounts of Samuel Adams brand beer is sold in Canada, Europe, Israel, the Caribbean, Pacific Rim and Mexico regions as well. Recent EventsAccording to a 2008 press release the Boston Brewing Company issued a targeted recall of glass bottles made in their Cincinnati breweries due to concerns of glass particle remnants. While the company assured investors that it was only precautionary, the company’s common stock fell over 10% during that week.As of 2009, the Boston Brewing Company celebrated its 25th anniversary. As a result the company released a press report illustrating strong business performance and stated that: “It’s the best time in history to be a brewer in America. We think the history of craft beer in America has a great future.” Main StrategiesRecent Strategic DecisionsPrior to 2007, the Company followed a strategy of owning select breweries as well as scheduling additional production arrangements with third party brewers. This allowed the business handle fluctuations in demand and source excess operating capacity. Over the past 5 years, the number of breweries in the United States has declined which made this strategy riskier. Due to this concern, the Boston Brewing Company decided it would be better to fully own all of their brewing operations to allow for expansion and achieve economy of scale benefits. As a result the company as recently acquired two new brewing facilities, one in Pennsylvania and one in Ohio. Strategic Environment While the Boston Brewing Company is considered a craft brewer, the company currently competes in what is loosely defined as the “The Better Beer Market.” This market segment encompasses all beers that are sold at a premium to traditional macro brews such as Budweiser. Over the past five years in particular, the Better Beer category within the United States has become highly competitive due to the large number of craft brewers and gains in market share by imported brewers. Since craft brewers share most of the same customer base, the introduction of more micro-breweries has made market share gains difficult. Despite the fact that The Boston Brewing Company has been focused on expanding its operations through acquisition of plant, property and equipment and controlling their brewing operations, their competitors have been far more aggressive. In general, the trend in this industry has been consolidation through strategic acquisition of other high-end beer makers and through expansion into this market. For example, in January of 2010, Heineken announced its acquisition of FEMSA Cerveza which will make Heineken the number two brewer internationally by revenue. In addition, the two largest brewers in the United States, MillerCoors and AB Inbev, have entered the Better Beer category recently, either by developing their own beers, or by acquiring existing craft brewers. Strategic and Future Positioning – (High/Low/Moderate) Although The Boston Brewing Company is the largest American craft brewer, the company commands only less than 1.00% of the American beer market. While this may be true, the company’s original philosophies still drive the company’s strategic positioning to this day. Broadly speaking, it is the Boston Brewing Company’s aim to offer beer lovers a better beer, as well as teach consumers what makes a beer great. The Samuel Adams brand itself has earned significant recognition from consumers as a craft beer leader, despite the brewery’s current size. Currently, it has been more difficult for The Boston Beer Company to strategically position itself. This is largely due to the fact that macro and micro-brewers have been entering the craft beer segment vigorously. Such an example of this is Anheuser Busch Inbev’s newly launched line of Bud Light American Ale and Golden Wheat products.Brand Image and Target Customer While the Boston Brewing Company’s image as a small craft brewer provided it a great deal of notoriety with consumers in the past, this appeal has partly worn off due to the brand’s success over the past ten years. As a result of this shift, the company’s target customer has changed as well. In today’s market, Samuel Adams attracts a customer base more similar to those who prefer premium imported beers rather than those who pursue more exotic micro-brews. While the physical Sam Adam’s product has not been cheapened over the years, its perceived quality has declined due to its widened availability.Resources and Special CapabilitiesSpecial Ventures and AcquisitionsAs of 2008 The Boston Beer Company altered his operational strategy, which is now aimed at fully owning and operating their breweries rather than sourcing third party brewers for excess capacity. In 2008, the company decided to purchase the Pennsylvania Brewery from Diageo North America at a cost of $56.5 million to pursue this vision. From 2007 to 2009, core product volume brewed at Company-owned breweries increased from approximately 35% to over 95% reflecting their desire for self-sufficiency. Special Assets and Resources Intangible AssetsWhile there are now many forms of craft beer across the United States, the Samuel Adams brand is recognized as an industry leader and pioneer. This fact, coupled with an extensive advertising campaign has resulted in widespread top-of-mind brand recognition. 3905250173990DifferentiationAccording to the company’s 25th annual press release, the Samuel Adams brand maintains a simple philosophy to differentiate itself from its competitors: offer a high quality beer and teach beer consumers what makes beer great. This philosophy can be observed through Samuel Adams commercials, which explain the importance of using fresh ingredients and making beer the “right way.” Factors That Drive Performance Strong Network of Breweries - Due to the company’s current shift toward “in-house” beer production, the Boston Brewing Company has a far stronger network of brewing operations. As shown in the picture above, the three breweries owned by the Boston Brewing Company are purposefully spread out from each other, which allows for ease of local product distribution in the Northeast United States. These breweries confer several competitive advantages on the company. Due to the fact that they are located close to their end markets, the company is in a position to serve fresh beer to customers and reduce costs.Diversified Distribution Model –As a result of US legislation, the company sells its products in diversified end markets both in terms of end customer base and geography. As the distribution system currently stands, the Boston Brewing Company currently sells its products to a network of approximately 400 wholesale distributors, who then sell to retailers where the products are sold. Such retailers include: pubs, restaurants, grocery chains, package stores, stadiums and other retail outlets. A broad and diversified end market enables the company to hedge its operations by catering to a wide reaching customer base.In terms of geography, the company sells its products in the US, Canada, Europe, Israel, the Caribbean, Pacific Rim and Mexico. While the company’s strategy to implement diversification within its operations makes sense from a product standpoint, implementing geographic diversity does not match up with their current low cost transportation system. Recommendations for Future Competitive AdvantageNew MarketsWhile beer markets outside of the United States are attractive, I strongly believe that the Boston Brewing Company should continue to focus on domestic growth instead. As mentioned earlier, the company’s core competency is providing high quality beer at a fair cost. By shipping long distances the company would be unable to meet these strains. Since the Boston Brewing Company already has a strong presence within the Northeast, I recommend the company expand into the Southeast US to take advantage of weak craft beer presence in the area. Like the Northeast, the pacific coast of the United States is more saturated with micro breweries and would be geographically isolated from the company’s current operations. I do not expect or recommend expansion into this area of the country. New Strategies I recommend that the Boston Brewing Company engage in smart acquisitions of micro breweries to gain exposure to the rapid growth of this market. Since the Samuel Adams brand has become more and more mainstream, it will be necessary to acquire other brands to capitalize on niche production.While I understood the importance of owning the operations in which they brew their beer, I would recommend that the company not discontinue this practice and continue to use this tactic when they enter new markets. For example, if the Boston Brewing Company were to expand further to the Southeastern United States, they could use third party brewers to test the market before committing fully. Improve and ChangeAfter analyzing the company’s operations, I have come to the conclusion that the Boston Brewing Company could improve on its use of achieving economies of scale. As mentioned earlier, as capacity peaks within their business operations, rather than source expensive third party brewers to take on excess capacity, the company can ramp up their operations to drive margin expansion. While I understand the company will not sacrifice on quality, it may make sense to buy larger production facilities. ................
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