Presentation on theme: "Pest & Industry Analysis"— Presentation transcript:
1Pest & Industry Analysis Boston Beer CompanyPest & Industry AnalysisJonathan Klingenberg
2They have roughly 750 employees. Boston Beer CompanyEstablished in 1984 in Boston, Mass by Jim Koch with the idea of offering the highest quality full-flavor beers.The Boston Brewing Company, BBC, brews over 30 styles of beer, Twisted Tea, and Hardcore Cider but are most known for Samuel Adams beerThey have roughly 750 employees.They are an American Craft Brewer, which means they are defined as being small, independent, and traditional.They distribute locally through a network of 400 wholesalers and then to Canada, Europe, Israel, Mexico, the Caribbean, and the Pacific Rim.They are the number one craft brewer in the US and are now the largest American owned brewery.Their products are available in all 50 states and more than 20 foreign countries, but the US accounts for more than 99% of their sales.The headquarters are in Boston and they have breweries their, Cincinnati, and Pennsylvania.CompanyOverview
3Financial 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, 2010Barrels sold2,272,000Revenue$505,870,000Gross Profit$256,327,000Net Income$50,142,000
4Pest Analysis Pest Factor O/T Impact : 1=low 5=high Rank 1=biggest 4=smallestPoliticalStrict rules against alcohol related crimes and incidentsHigh taxes on beer sales in USThreat342EconomicStruggling EconomyHighprices of fixed costs like barely and hopsSocialPopularity of beerHealth ConcernsOpportunity51TechnologicalBrewing processSpends no money on R&D
5Pest Analysis Political FactorsAnalysisStrict LawsThe US has a zero tolerance policy when it comes to crimes such as drinking and driving.High TaxesA 2003 study showed that taxes on alcohol represented 40.8% of the retail price; in comparison total taxes for all other products in the US was 24.2%. However since BBC is a craft brewery they pay a $7 excise tax on the first 60,000 barrels produced and $18 per barrel there after, large breweries pay $18 for every barrel produced which saves BBC $660,000 dollars a year.
6Pest Analysis Economic FactorsAnalysisStruggling EconomyThe beer market has essentially proven recession proof over time, however some consumers have switched from premium beers to a less expensive domestic beer.Fixed CostsHigh Prices ofSince BBC will only use the highest quality ingredients they have to travel all across the world to get the best hops and barely.
7Pest Analysis Social Factors Analysis Popularity of Beer Beer is the third most popular beverage in the world, and the US consumes the second most in the world(over billion cases in 2009).Health ConcernsWhile alcohol can have some negative side affects if consumed in bulk, it is generally accepted as a social norm and the US is second in the world in beer consumption.
8Pest Analysis Technological FactorsAnalysisBrewing ProcessBBC uses a traditional four vessel brewing process with each step having several phases. The extra time, man power, and money spent on this process is necessary for them to make the highest quality of beer.R&D CostsBBC has high zero R&D costs which allows them to spend more money on things like marketing, the brewing process, and quality of ingredients and stay profitable.
9Industry AnalysisThe 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:SmallAnnual production of less than 6 million barrels a yearIndependentLess than 25% of the craft brewery is owned by an alcoholic beverage industry member who is not themselves a craft brewer.TraditionalAt least 50% of its volume must be malt beers.
10Industry AnalysisBBC has worked incredibly hard to try and avoid head to head competition with the major players in the American beer market and compete against the premium imports.This has enabled them to create their own niche market: domestically brewed premium beer.So even though BBC has to indirectly compete against all forms of alcohol available to consumers they are directly competing for a small specialty market that makes up just 6% of alcohol sales in the US.
11Porter’s Five Forces Forces 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 SuppliersSince 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 BuyersBBC’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 SubstitutesThe endless amounts of other options for consumers, including other beers, wine, and spirits makes this a high threat level for BBC.Intensity of RivalryThe 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
12Threat of New Entrants: Barriers to Entry Nature of BarrierExtentAnalysisSupply-side economies of scaleHighLarger breweries have a big cost advantage.Demand-side benefits of scaleThe more customers a brewer has the more likely others are to buy that product.Capital requirementsLowSmall craft breweries are cheap and easy to start.Incumbency advantages independent of sizeBBC enjoys both great brand loyalty and access to raw materials incumbents could not get.Customer-switching costsIt is easy for buyers to switch suppliers and comes at little to no cost to them.Unequal access to distribution channelsMediumTo 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 PolicyThe government does not impede new entrants from joining the market.
13Bargaining Power of Suppliers There are no substitutes available.It means the suppliers’ products are differentiated.It makes switching costs irrelevant because BBC refuses to lower standardsBoth the suppliers and the buyers are completely dependent upon each other.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:
14Bargaining Power of Buyers Weak for BuyersThere are so many buyers, even though Sam Adams has a small portion of the US beer market they still sell to millions of buyers.BBC attempts to differentiate itself from the rest of the market.Buyers do not have the means to the ingredients to produce this product or the exact recipe required.Strong for BuyersThe buyer’s low switching costs.While buyer’s cannot produce BBC’s product exactly millions of beer drinkers do brew their own beer at home.
15Makes the threat of substitute products very high. Threat of SubstitutesNumerous other alcoholic options including other varieties of beer and wine and spiritsNo switching costsMakes the threat of substitute products very high.
16Intensity of RivalryThe intensity of the rivalry within the beer market as a whole is incredibly intense with the top three brands fighting for 80% of the market.However BBC has worked to avoid these top brands and meet the needs of a small niche within this bigger market.
17Intensity of Rivalry Issue Within Entire Beer Industry Within Craft BreweriesCompetitors are numerous and equal in size and powerFew competitors equal in size but face ones much bigger and more powerfulMany 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 slowUS 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 highSince 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 industryRivals are highly committed to the business and seek market leadershipThe 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.
18Blue Ocean StrategyAlmost 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.
19ConclusionBy directly attacking the premium imports and avoiding competition with lower costing domestic beers BBC created their own niche market, domestically brewed premium beer.This has enabled BBC to become the largest US owned brewery and dominate in their market and among all other craft breweries.BBC was ambitious and worked hard to market themselves as having the highest quality full flavored beers and advertising that foreign beers have less premium ingredients and are not as fresh as beer brewed domestically.
21Who is Boston Beer Company’s Competitors Sam Adams consists of over 99% of all Boston Beer Company’s sales.Over 99% of that is sold in the US despite the fact that they are sold in over 20 countries.So beer sold in the US seems to be their market, however BBC has made a very conscious effort to stay away from low priced domestics and compete directly against high priced imports and other craft beers.But it is fair to say that BBC competes against three different kinds of competitors:1. all beer sold in the US2. high priced imports3. all other craft brewers
22What Beers are People Drinking? Most Popular Beers in USPercentage of Sales in US by CompanyBud Light InbevBudweiser InbevMiller Lite MillerCoorsCoors Light MillerCoorsCorona Extra ImportNatural Light InbevHeineken ImportMich Ultra InbevBusch Light InbevMiller High Life MillerCoorsGuinness ImportSam Adams Craft Brew
23Domestic Beers Popular Brands with sales rank in US Production in 2010 Key Demographic it markets toPercentage of US marketProduction in 2010Recent Market TrendResourcesBud LightBudweiser 2MillerLiteCoors Light 4Mich Ultra 821-27 year olds; young men they hope they can keep drinking their productOver 80%million barrelsFell 2.1% from last year-Strong brand loyalty-Owned by large companies-Lower prices-Ability to expand market abroad
24Analysis Domestics make up huge proportion of American beer sales . BBC has strategically avoided head to head combat with these giants time and time again.Indirect Threat.This makes companies like Inbev and MillerCoors anAnalysis
25Imported Beer Popular Brands with sales rank in US Key Demographic it markets toPercentage of US marketProduction in 2010Recent Market TrendResources/ limitationsCoronaHeinekenGuinnessSt. Pauli Girl N/ABeck’s N/ABusiness professionals; men looking for a higher quality beerRoughly 6%million barrelsDeclined 6.9% from last year-Already established abroadPart of larger companiesHigher priced due to transportation costs
26BBC has strategically avoided head to head combat with domestic giants. They have instead attacked the quality of high priced imported beers, insisting they are not as fresh as Sam Adams.Direct Threat.This has led them into a market where they compete directly with popular imported beers making them aAnalysis
27Craft Beers Popular Breweries Key demographic it markets to Percentage of US marketProduction in 2010Recent market trendResources/ limitationsSierra NevadaNew Belgium Brewing CompanySpoetzl breweryPyramind BreweriesMatt Brewing CO.25-34 year old malesRoughly 7%9,951,956 million barrels11% market growthEmerging trend in beer consumptionSmall companies with little capitalLimited availability
28BBC is larger than any other craft brewery (making up over 21% of the market) and are larger than the next 5 combined.Indirect ThreatThis has enabled them to separate themselves and make most craft breweries anDirect ThreatHowever a select few craft breweries have been able to reach a size big enough to be considered aSierra NevadaNew Belgium Brewing Co.Analysis
29Size of American Market There are currently over 310 million people living in the US.According to the 2000 census only 14.6% of the population was under the age of ten.If the percentages stay the same then there are roughly 265 million people in the US of legal drinking age.This makes for a very large American beer market.
30Market Analysis The US consumes the second most beer in the world. In 2009 they consumed 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.
31State 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.
32Key TrendsDespite the fact that the American market is generally dominated by lower-priced domestics craft beer saw a 11% increase in volume and a 12% increase in sales last year even though beer sales as a whole fell 1%.This can be attributed to both Americans newly acquired appreciation of high quality beers and the sheer number of craft breweries in the US.There were over 1,753 breweries that operated in the US last year 1,525 of which were considered small breweries.Craft breweries sold an estimated 9,951,956 barrels last year and their retailer dollar value was an estimated 7.6 billion.
34Target MarketBBC started out being solely in the New England market as is common for most small craft breweries to stay regional.They eventually made their way into the New York, Chicago, DC, and Philly regions as their product grew and became more popular.In 1992 they made their way out to Oregon and California and established themselves across the country.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.
35Social MediaSo in this case BBC seems a little behind the curve and this could be a way for them to improve themselves and become even more visible to the public.BBC is available on both facebook and twitter. You can also sign up to receive their newsletter on their website.However even though you can find them on these popular social networks they don’t have their own page on either one.Lots of companies today have their own page where you can follow them and receive promotions on specials and new products.
36ConclusionThe American beer market is fiercely competitive. It consists of three primary players:DomesticsImportsCraft BeersDomestics 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.
37ConclusionIn this effort to minimize their competitors they have avoided strong points like:The low price of domesticsThe enormous amounts of money the larger companies have available to themThis 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.
39Using only the highest quality ingredients The Boston Beer Company has established itself as a powerhouse in their own niche market. They have been able to do this by:Using only the highest quality ingredientsSpending no money on R&D and instead using extra time and money on the quality of ingredients, the brewing process, and a thorough marketing campaignContinually developing new seasonal styles of Sam Adams beer to stay ahead of their competition with the latest trends and styles in the beer industryEmploying a marketing strategy that avoids the giants in the beer industry and directly attacks high priced importsUsing a combination of creativity and tradition with their brewing style giving their beer its own unique flavorAs 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.
40BBC’s 5 Year Performance 20062007200820092010Barrels Sold1,1621,8762,3412,2222,272Revenue315,250380,575449,554453,446505,870Gross Profit164,276189,359183,887213,818256,327Net Income18,19222,4918,08831,11850,142% increase23.6%N/A284.7%61.1%*All numbers are in thousands*In 2008 a product recall occurred and is the reason for thelower numbers that year.
41Distribution ChainBBC has 3 brewing locations:*Boston, Massachusetts*Cincinnati, Ohio*Breinigsville, PennsylvaniaFrom there the beer goes through a network of over 400 wholesalers and roughly 265 sales people.They then sell the beer to retailers such as:*bars*taverns*restaurants*grocery stores*stadiumsAt this point the beer has made it to its final destination where the consumer can enjoy it at their leisure.In the US, the alcohol is a 3-tier structure by law: producer, wholesaler, and retailer.
42History of Distribution Current DistributionHistory of DistributionSam Adams does not specify sales by region but two things are known:Over 99% of their sales comes from the USA majority of their US sales comes from where the beer first started in the Northeast regionEven though the majority of Sam Adams sales are in the US they still distribute to over 20 other countries1987-Sam Adams first became available in Boston and the New England market1988-They expanded to the New York Market1990-They moved into the DC and Chicago markets1992-Started distributing to the western states like Oregon and California1996-Established itself abroad for the first time selling in places like Germany, Ireland, Japan, and Hong Kong
43Functional Analysis Business 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 ResourcesBBC 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/AccountingKeeps records of all the necessary financial data in order to relay this info to company executives, stockholders, and all the required government agencies.ProcurementAcquires 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.
44BBC’s Product Line Sam Adams Light Pilsner Infinium Millennium 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 BeersSeasonal BeersBrewmaster’s CollectionImperial SeriesBarrel Room CollectionSpecialty BeersSam AdamsLightChocolateBockCranberryLambicDunkelweizenHarvestPumpkin AleHoliday PorterNoble PilsOctoberfestOld FezziwigAleSummer AleWhite AleWinter LagerEast WestKolschRustic SaisonBlack LagerBlackberryWitbierBoston AleCherry WheatCoastal WheatCream StoutHoney PorterIrish RedLatitude 48 IPARevolutionaryRye AleScotch AleDoubleBockImperialStoutWhiteWeeHeavyAmerican KriekNew WorldTripelStony BrookRedPilsnerInfiniumMillenniumTriple BockUtopias
45Company Resources Resource Explanation Benefit Strong financial positionBBC 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 ReputationBBC 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 distributedSince 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 suppliersSince 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.
46BCG Matrix Stars Question Marks Cash Cow High Market Growth Rate *The bottle of Sam Adams representsBBC within their small niche beermarket.*The bottle of Sam Adams lightrepresents BBC within the entire USbeer market.LowDogsHighRelative Market ShareLow
47BCG 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 marketWithin 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.
48Value Chain Analysis Process 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.ProductionAt 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.DistributionOnce 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 & SalesBBC 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.
49SWOT Analysis ordered by importance BBC’s SWOT Analysis; Strengths Brand nameHigh quality productStrong financialsBrand LoyaltyStrong relationship with both suppliers and distributorsWeaknessesLimited amount of suppliersCompetes with other brewers for distributors attention and selling effortsAlmost entirely dependent of male consumers and the domestic marketOpportunitiesNiche target marketHigher volume of beer consumed in USIncreasing popularity of craft beerChanges in craft brewery requirementsNumerous marketing opportunitiesThreatsHigh taxes on alcohol in USUncertainty of economyDependence on its distributorsIncreasing popularity of brewing one’s own beerPotential increase in energy and other fixed costsEnvironmental Regulations
50SWOT Analysis Strengths/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 FinancialsBBC 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/DistributorsBBC 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 SuppliersEven 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.
51*All numbers are in thousands Key AssetsCash/Cash Equivalents$55,481Accounts Receivable$17,856Inventories$25,558Goodwill$1,377Other Assets$1,508Deferred Income Tax$4,425Prepaid Expenses & Other Assets$9,710Property, Plant, & EquipmentBrewery in PennsylvaniaBrewery in OhioLand in Freetown, Massachusetts (currently on the market)Totaling $147,021Total Assets$262,936*All numbers are in thousands
53Generic StrategySam Adams has established a generic strategy of differentiation focus. Within their narrow segment they have achieved differentiation by establishing themselves as the highest quality domestic beer.This enables Sam Adams to not have to worry as much on price and put more effort and focus on acquiring the highest quality ingredients and their own creativity during the brewing process.With an industry that is flooded with seemingly unlimited options and Sam Adams having no way to compete with other domestics through pricing, their focus on quality, creativity, and freshness enables them to achieve differentiation and be successful.
54Market penetration consolidation Grand StrategyProductsExistingNewMarket penetration consolidationProduct developmentMarket developmentDiversificationExistingMarketsNew
55Grand 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 developmentBBC 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 integrationSince 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.
56ConclusionBBC 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.