Boston Beer Company

Pest & Industry Analysis

Jonathan Klingenberg

Boston Beer Company

Company Overview

Financial Information

The company went public in 1995, with a growth strategy of creating and offering the highest quality of full-flavored beers.

In 2010 their market value was 1,285 million dollars, which grew more than 8 times from their 147 million dollar value in 2000.

They have no bonds, preferred stock, or debt; and they have 13.6 million shares of common stock.

For year ending Dec 25th, 2010

Barrels sold 2,272,000

Revenue $505,870,000

Gross Profit $256,327,000

Net Income $50,142,000

Pest AnalysisPest Factor O/T Impact :

1=low5=high

Rank1=biggest4=smallest

Political Strict rules against alcohol related crimes and incidents

High taxes on beer sales in US

Threat

Threat

3

4

2

Economic Struggling Economy

Highprices of fixed costs like barely and hops

Threat

Threat

2

3

3

Social Popularity of beer

Health Concerns

Opportunity

Threat

5

1

1

Technological Brewing process

Spends no money on R&D

Threat

Opportunity

2

3

4

Pest AnalysisPolitical

Factors Analysis

Pest AnalysisEconomic

Factors Analysis

Pest AnalysisSocial

Factors Analysis

Pest AnalysisTechnological

Factors Analysis

Industry Analysis

The Boston Beer Company is in a very unique situation when it comes to defining their industry. They are an American craft brewer which requires them to be small, independent, and traditional:

Small Annual production of less than 6 million barrels a year

Independent Less than 25% of the craft brewery is owned by an alcoholic beverage industry member who is not themselves a craft brewer.

Traditional At least 50% of its volume must be malt beers.

Industry Analysis

Porter’s Five ForcesForces Analysis

Threat of New Entrants

It is easy to start a small brewery in the US, currently 1,525 small breweries, but hard to be big enough to be competitive and threaten a craft brewery as large as BBC, which makes this a moderate threat level.

The Power of Suppliers

Since BBC has such high standards for their beer and such a small group of suppliers who have the exotic ingredients that they require it makes this a high threat level.

The Power of Buyers

BBC’s ability to differentiate their product and the fact that they sell to so many consumers makes outweighs the low switching costs and makes this a moderate threat.

The Threat of Substitutes

The endless amounts of other options for consumers, including other beers, wine, and spirits makes this a high threat level for BBC.

Intensity of Rivalry

The intensity of the beer industry as a whole is incredibly competitive, but since BBC has been able to create their own niche market where they make up 24% of the market it makes this a moderate threat level.

Gray = low threat levelGold = moderate threat levelRed = high threat level

Threat of New Entrants:Barriers to Entry

Nature of Barrier Extent AnalysisSupply-side economies of scale

High Larger breweries have a big cost advantage.

Demand-side benefits of scale

High The more customers a brewer has the more likely others are to buy that product.

Capital requirements Low Small craft breweries are cheap and easy to start.

Incumbency advantages independent of size

High BBC enjoys both great brand loyalty and access to raw materials incumbents could not get.

Customer-switching costs Low It is easy for buyers to switch suppliers and comes at little to no cost to them.

Unequal access to distribution channels

Medium To get the highest quality ingredients is very difficult however most breweries do not use the highest level ingredients and substitutes are not hard to find.

Restrictive Government Policy

Low The government does not impede new entrants from joining the market.

Bargaining Power of Suppliers

BBC has such high standards for their ingredients that they will only get two-row malted barely and their hops from small family owned farms along the “hop belt”, along the 48th latitude. BBC insists they will never lower their standards to save money so as a result:

Bargaining Power of Buyers

Threat of Substitutes

Intensity of Rivalry

Intensity of Rivalry

Issue Within Entire Beer Industry

Within Craft Breweries

Competitors are numerous and equal in size and power

Few competitors equal in size but face ones much bigger and more powerful

Many competitors in this market but none even close to their size, BBC’s sales are larger than the next five companies combined.

Industry growth is slow US beer sales declined approximately 2.7% in 2010 and the top three brands competed for over 80% of the market share.

The craft brewing industry increased its sales by roughly 12% in 2010, with BBC taking 24% of that market.

Exit barriers are high Since assets are highly specified it makes it hard to leave this particular industry.

Since assets are highly specified it makes it hard to leave this particular industry

Rivals are highly committed to the business and seek market leadership

The top brands in the beer industry and very committed and definitely seek market leadership.

Most new craft breweries are small and don’t have the means to sell outside of their regions or cities.

Blue Ocean Strategy

Almost every bit of success that BBC has experienced over the years can be attributed to the fact that it was based on a complete blue ocean strategy idea when it was created in 1984.

When BBC started they marketed themselves as a domestically brewed premium beer, creating their own niche and allowing them to avoid direct competition with the giants of the beer industry.

They have kept this approach over the years and used it to become the largest US owned brewery.

Conclusion

Boston Beer Company

Competitor & Market

Analysis

Jonathan Klingenberg

Who is Boston Beer Company’s Competitors

What Beers are People Drinking?

Most Popular Beers in US Percentage of Sales in US by Company Bud Light Inbev

Budweiser Inbev

Miller Lite MillerCoors

Coors Light MillerCoors

Corona Extra Import

Natural Light Inbev

Heineken Import

Mich Ultra Inbev

Busch Light Inbev

Miller High Life MillerCoors

Guinness Import

Sam Adams Craft Brew

50.10%29.10

%

7.00%

6.00%

7.80%

Sales

InBevMiller CoorsCraft BrewsImportsOther

Domestic Beers

Popular Brandswith sales rank in US

Key Demographic it markets to

Percentage of US market

Production in 2010

Recent Market Trend

Resources

Bud Light 1

Budweiser 2

MillerLite 3

Coors Light 4

Mich Ultra 8

21-27 year olds; young men they hope they can keep drinking their product

Over 80%180.024 million barrels

Fell 2.1% from last year

-Strong brand loyalty-Owned by large companies-Lower prices-Ability to expand market abroad

Analysis

Imported Beer

Popular Brands with sales rank in US

Key Demographic it markets to

Percentage of US market

Production in 2010

Recent Market Trend

Resources/ limitations

Corona 5

Heineken 7

Guinness 11

St. Pauli Girl N/A

Beck’s N/A

Business professionals; men looking for a higher quality beer

Roughly 6%

27.142 million barrels

Declined 6.9% from last year

-Already established abroad-Part of larger companies-Higher priced due to transportation costs

Analysis

Craft Beers

Popular Breweries

Key demographic it markets to

Percentage of US market

Production in 2010

Recent market trend

Resources/ limitations

Sierra Nevada

New Belgium Brewing Company

Spoetzl brewery

Pyramind Breweries

Matt Brewing CO.

25-34 year old males

Roughly 7%

9,951,956 million barrels

11% market growth

-Emerging trend in beer consumption-Small companies with little capital-Limited availability

Analysis

Size of American Market

This makes for a very large American beer market.

Market Analysis

The US consumes the second most beer in the world.

In 2009 they consumed 2.877 billion cases, 80% of which was consumed by men.

They make up part of an expanding worldwide beer market expected to consume more than 2 billion hls by 2013.

46.20%

22.90%

14.10%

6.10% 5.60%

ChinaUSRussiaBrazilGermanyRest of World

Percentage of Beer Con-sumed on Global Market

State by State Breakdown of Consumption

Map of US Regional Drinking Groups. North Central, blue; New England, yellow; Middle Atlantic, orange; Pacific, red; South Coast, dark grey; Dry South, light gray. Groups are also identified as Wet, Moderate or Dry based on the % reporting 5+ drinking day in the past month and per capita apparent consumption of alcohol.

Key Trends

Target Market

Although BBC’s regional sales are not disclosed they have been very open with the fact that the New England region still makes up for a large part of their sales and they continue to try and promote to that with their marketing efforts.

Social Media

Conclusion

The American beer market is fiercely competitive. It consists of three primary players: Domestics Imports Craft Beers

Domestics account for the majority of this market with the two largest companies (Inbev and MillerCoors) accounting for roughly 80% of it.

This makes entrance into the American market incredibly difficult for smaller companies and virtually impossible if they have to compete with these larger companies on a direct level.

BBC has been able to be successful by creating their own unique market and minimizing their direct competitors.

Conclusion

In this effort to minimize their competitors they have avoided strong points like: The low price of domestics The enormous amounts of money the larger

companies have available to them

This means that BBC directly competes with higher priced imports and a select group of craft beers.

Which enables them to experience a market stronghold and continued success.

Boston Beer Company

Internal & SWOT

Analysis

Jonathan Klingenberg

The Boston Beer Company has established itself as a powerhouse in their own niche market. They have been able to do this by:

As a result of these efforts BBC has established Sam Adams as the leader in craft beers, a product that routinely wins award after award, and one of the

most recognizable brands in America.

BBC’s 5 Year Performance

Year 2006 2007 2008 2009 2010

Barrels Sold

1,162 1,876 2,341 2,222 2,272

Revenue 315,250 380,575 449,554 453,446 505,870

Gross Profit

164,276 189,359 183,887 213,818 256,327

Net Income

18,192 22,491 8,088 31,118 50,142

*All numbers are in thousands*In 2008 a product recall occurred and is the reason for the lower numbers that year.

23.6% N/A 284.7% 61.1%

% increase

Distribution Chain

In the US, the alcohol is a 3-tier structure by law: producer, wholesaler, and retailer.

Distribution Current

Distribution History of Distribution

Sam Adams does not specify sales by region but two things are known:1) Over 99% of their sales

comes from the US

2) A majority of their US sales comes from where the beer first started in the Northeast region

3) Even though the majority of Sam Adams sales are in the US they still distribute to over 20 other countries

1987-Sam Adams first became available in Boston and the New England market

1988-They expanded to the New York Market

1990-They moved into the DC and Chicago markets

1992-Started distributing to the western states like Oregon and California

1996-Established itself abroad for the first time selling in places like Germany, Ireland, Japan, and Hong Kong

Functional AnalysisBusiness Unit Analysis

Marketing/Sales BBC has a sales force of roughly 265 people, all of which go through extensive training on the brewing process so they can better explain any potential questions that consumers may have. The sales force generally develops strong relationships with its distributors and retailers in order to successfully compete against other beers for a share of the distributors attention, time, and selling efforts. This enable BBC to gets its product out to the public and generate enough sales revenue to stay successful.

Human Resources

BBC polices itself by following a code of business conduct and ethics. The HR department is the group in charge of making sure all company employees follows this code. In addition they handle all hiring for the company and oversee all training new employees go through.

Finance/Accounting Keeps records of all the necessary financial data in order to relay this info to company executives, stockholders, and all the required government agencies.

Procurement Acquires the necessary materials and service in order for Sam Adams to be produced and distributed to the public in the most smooth and financial friendly way possible.

BBC’s Product Line BBC will routinely both put out and retract one of their many varieties

of beer they produce; they currently have 39 different varieties of beer including their two most popular Sam Adams and Sam Adams Light.

Traditional Beers

Seasonal Beers

Brewmaster’s Collection

Imperial Series

Barrel Room Collection

Specialty Beers

•Sam Adams•Sam Adams Light

•ChocolateBock•CranberryLambic•Dunkelweizen•Harvest Pumpkin Ale•Holiday Porter•Noble Pils•Octoberfest•Old Fezziwig Ale•Summer Ale•White Ale•Winter Lager•East West Kolsch•Rustic Saison

•Black Lager•Blackberry Witbier•Boston Ale•Cherry Wheat•Coastal Wheat•Cream Stout•Honey Porter•Irish Red•Latitude 48 IPA•Revolutionary Rye Ale•Scotch Ale

•Double Bock•Imperial Stout•Imperial White•Wee Heavy

•American Kriek•New World Tripel•Stony Brook Red

•Imperial Pilsner•Infinium•Millennium•Triple Bock•Utopias

Company ResourcesResource Explanation BenefitStrong financial position BBC has shown continued

growth over the years all the while having no debt.

Since BBC has no debt and strong financials they have access to a 50 million dollar line of credit if needed but they have never used it.

Strong Reputation BBC uses only the highest quality ingredients, forces the strictest freshness dating requirements on themselves, and has won countless awards for both quality and taste.

When people think of Sam Adams they associate it with the highest quality beer. This has led them to become the largest American owned brewery in the world.

Domestically brewed and distributed

Since BBC brews their beer domestically they are able to produce the freshest product in their niche market.

In turn BBC uses this in their marketing ploy against imported competitors and it gives them a distinct advantage.

Solid relationship with suppliers

Since BBC will only use the highest quality ingredients they are limited to specific locations throughout the world where they can purchase the necessary materials.

Having a good relationship with the farmers in these locations ensures BBC that they will always be able to get the ingredients that they need.

BCG Matrix Stars Question Marks

Cash Cow

Market Growth Rate

High

Low

Relative Market ShareHigh Low

*The bottle of Sam Adams represents BBC within their small niche beer market.*The bottle of Sam Adams light represents BBC within the entire US beer market. Dogs

BCG Matrix

Sam Adams within their niche market

Within the niche market that BBC has worked hard to establish itself in that consists of select craft beers and a few high priced imports Sam Adams has positioned itself towards the top left corner. They take over 21% of this market share and have shown a continued growth rate since its creation in 1984.

BBC within the entire American beer market

Within the entire American beer market BBC is positioned more towards the lower right side of the matrix. The US beer market has declined slightly the last few years despite continued growth in the craft market. In addition they consist of approximately 1% of all beer sold in the US.

Value Chain AnalysisProcess Activity

Raw Materials & Logistics

Malt, hops, yeast, water, and certain spices, fruits, and herbs are brought in according to taste to production facilities in Massachusetts, Ohio, or Pennsylvania.

Production At these locations the ingredients are put through a brewing process that consists of brewing, fermentation, finishing, and packaging. Each step has several phases and takes time, but they all add their own unique and special flavor to the beer.

Distribution Once the product is finished it is distributed to one of over 400 wholesalers who then passes it along to the retailers and then ultimately the final consumer.

Marketing & Sales BBC has a sales team of approximately 265 people who are all educated and trained on the brewing process in order to have a better understanding of the product. Each member of the marketing and sales team also carries a sample of hops, barely, and other ingredients with them in an effort to better educate the consumer on just how high the level of quality is for Sam Adams.

SWOT Analysis

SWOT AnalysisStrengths/Weaknesses

Analysis

Brand Name/Loyalty Since BBC uses only the highest quality ingredients they have established themselves as brand known for quality and taste. This has inspired incredible brand loyalty from consumers and just hearing the name Sam Adams gives people assurance that they will be getting the highest quality product available.

Strong Financials BBC has no debt. They have access to a 50 million dollar line of credit, although they have never had to use it. This gives them great stability and an assurance that a bad year or failed product will not bankrupt them.

Relationships with Suppliers/Distributors

BBC is very loyal to both their suppliers and their distributors. This strong relationship they have created ensures them that they will always keep their suppliers and distributors.

Limited Suppliers Even though BBC has a strong relationship with their suppliers they are a very limited amount of them. Since they will not sacrifice quality for price they can only get certain supplies in certain regions of the world which means they are totally dependent on the few small farms they get their hops and barely.

Key Assets

*All numbers are in thousands

Generic Strategy

Low Cost Higher Cost

Broad

Narrow

Competitive Scope

Competitive Advantage

Generic Strategy

Grand StrategyExisting New

Products

Existing

New

Markets

Grand Strategy

Concentrated growth

BBC has such a high percentage of their sales come from Sam Adams beer in not only the US but the northeast region specifically that they should continue to increase their efforts and resources in targeting this specific region for continued growth and success.

Product development

BBC puts continued efforts and resources towards developing new styles of Sam Adams with their seasonal beers. This has become a key strategy of theirs and allows them to stay ahead of their competitors and produce additional revenue.

Vertical integration

Since BBC is so dependent on the few suppliers that they have it would make sense for them to look into acquiring them and making sure that they are guaranteed exclusive rights to the necessary supplies they need.

Conclusion

BBC has experienced enormous success over the years sticking to their business model.

They have made Sam Adams a brand synonymous with quality and great taste and a brand recognizable throughout the entire US.

However BBC has experienced about as much growth as they can have within the US and if they ever want to see substantial growth then they are going to have to find better ways to market abroad.