The Boston Beer Company Case Analysis

The Boston Beer Company

Abstract

The Boston Beer Company is the largest brewer of handcrafted beer in the United States. Its leading brand of beer is Samuel Adams Boston Lager. (Dess, 2014) The Boston Beer Company is currently competing with the premium beer industry such as Corona and Heineken. Anheuser-Busch Inbev and MillerCoors LLC are two of Boston Beer Company’s leading competitors, which both account for approximately 80% of the beer market in the United States. (Dess, 2014) With the decline of craft brewery industry, beer companies in the United States have noticed a growth and recent popularity for the premium beer industry.  With a projected 6 percent increase in the premium beer industry, all companies are beginning to purchase smaller craft breweries whose products are on the rise. (Dess, 2014) It is encouraged for most beer companies to maintain the status of craft brewery because it is essential to the company’s image and sales. The Boston Beer Company is on the verge of losing its craft brewery status and becoming a major beer company. The three-tier system plays a significant role with all craft breweries because of the difficulty in distribution of their products. This allows larger breweries to have control over independent distributors because they account for most of their business. Currently, the Boston Beer Company is facing a group of difficult competitors. They are facing competition from both small and large breweries and from premium imported beer as well. Small companies such as Deschutes brewery and Rhinegeist brewery are growing at a rapid pace but some do not want to grow as big as the Boston Beer Company out of fear of losing its craft brewery status. The Boston Beer Company must monitor its annual production of barrels in order to maintain its image if it grows into a large company and also to the rise of the premium beer customer base.

Strategic Profile of the Firm

Started in 1984 by Jim Koch, Harry Rubin, and Lorenzo Lamadrid, the Boston Beer Company is now the largest craft brewery in the United States. It holds a 1 percent stake in the overall market share. The first craft beer that was sold was the Samuel Adams Boston Lager, which was named after an American patriot. It started out as a small home brewery where Koch would brew and sell the beer from his kitchen. He would go to local businesses in Boston and ask them to sell it for him. One year later, it was voted “Best Beer in America” at the Great American Beer Festival in Denver, Colorado. After that event, everything went uphill for the Boston Beer Company. They started to grow, having in sales in Massachusetts, Connecticut, and West Germany. The first brewery was opened in 1988 in Boston and started producing 63,000 barrels of Samuel Adams beer annually. An IPO, initial public offering, was created for the company in 1995 with Class A Common stock at a price of $15 to loyal customers and $20 through Goldman-Sachs. (Dess, 2014) With continued growth, Samuel Adams has more awards in international beer tasting than any other brewery in the world. Being one of the largest breweries in the United States, the Boston Beer Company was brewing over two million barrels of Samuel Adams beer since 2013, but merely making up about 1 percent of the total U.S. beer market. A leading competitor in its market, the Boston Beer Company has crafted over 50 beer flavors including seasonal as well as other flavorful beers. Examples would be the Samuel Adams Ale, Cherry Wheat, and Octoberfest. They also create non-beer brands as well such as Twisted Tea, and HardCore Cider. These non-beer brand beverages were created in order to build onto the portfolio of Samuel Adams and to help improve profits and revenue. Revenue jumped from $380 million in 2007 to exceeding $500 million in 2011. Not only that, but the operating costs grew from $150 to $180. Net income also showed a large increase in the same time frame, from $22 million to $66 million. This also led to the company selling their stock in 2012 at $113 compared to the $15 in 1995. (Dess, 2014) Specifically in beers sold, the Boston Beer Company was the largest craft brewery in the country in 2013. However, they were the seventh largest brewery overall in 2013. Most of the beer market contains standard or economy made lagers. This accounts for about 75 percent of volumes sold. The other 25 percent of the volume belongs to the premium lagers, which is where the Samuel Adams beer is categorized at.  (Dess, 2014, C128-C129)

General Environmental Analysis

        The Boston Beer Company is a craft brewery. The craft brewery is defined as “brewing less than six million barrels per year and being less than 25 percent owned or controlled by another economic interest” (Craft Brewer, 2015). Between 2006 and 2011 the beer industry, as a whole, declined by approximately three percent. However, the craft brewery market exploded. Sales for the premium craft brew grew by 67 percent. This means the craft beer was the only beer to expand between 2006 and 2011. According to Euromonitor International, the decline of beer sales in volume is still predicted to drop one percent from 2013 to 2017, but the craft industry is still expected to grow by three percent during this time period. (2014) The craft beer has also found a way to appeal to 49 percent of millennials and 40 percent of generation X. Those that are between the ages of 21 to 35 have shown a higher preference for craft beer. The decline in craft beer has been found between the ages of 36 to 47. The craft beer industry has hit hard with people who are loyal to them. Seventy-three percent of craft beer drinkers already know which beer they will purchase before they arrive at the store. Craft beer also has more room for market share since 45% of beer consumers would try craft beer if they had more information about them. (Craft Beer - US, 2014) Just like large breweries, the Boston Beer Company faces challenges in certain factors. All beer companies cannot freely advertise, sell, or be consumed. The beer industry as a whole abides by the advertising norms. These norms give beer companies specific times when they can advertise on the air to minimize the urge of underage drinking (Lowrie, 2014). There are also regulations on certain days that alcohol may be sold. Sundays are one of the most affected days by this regulation. Also, the beer industry is taxed per barrel of beer, instead of by purely sales. (Lowrie, 2014) The beer industry also works in a three-tier system. Breweries are not allowed to own either off-trade or on-trade establishments. This means their beer needs to be distributed by a third party. This system was put into place after prohibition to dampen monopolies in the sale of beer and the supply. (Dess, 2014, C131)