Company Analysis Essay on Boston Beer Company

Published: 2021-07-08 12:27:47
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Wesleyan University
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Case study
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Boston Beer Company is an American based brewery founded in 1984. The company began as a home brewer that solicited local establishments to purchase and sell its beer. Its pioneer drink was the Samuel Adams Boston Lager whose recipe was passed from generation to generation. Initially, the company contracted several breweries to make its beer. After a continued season of growth, the company opened up a brewery in Boston. The company went public in the year 1995. The focus of this paper is to provide an analysis of Boston Beer Company. It will create a SWOT analysis that identifies problems and provides solutions to the problems.

SWOT Analysis

Strengths

Largest mine craft brewery in America

According to Courtney, Engelson, and Eisner (2013), Boston Beer Company is the largest mine craft brewery in the United States. Over the years, the company has experienced continued success that enabled it to purchase a large brewing facility in Cincinnati in the year 1997. In the year 2008, it bought a high-end brewery located in Pennsylvania that was aimed at supporting its growth efforts. As of the year 2013, the company was brewing two million barrels of the Samuel Adams beer. It has over time expanded to include over 50 beer flavors. The company has over three hundred persons in its Salesforce. The company has grown to a capacity that it brews 90% of its brews in its facilities.

Established distribution system

Boston Beer Company has an established distribution network of 400 distributors despite the challenge of being in an industry that has a distribution system dominated and influenced by major players in the beer industry. Larger brewers such as Anheuser-Busch Ibev and MillerCoors have exclusivity clauses that bar their distributors from engaging in business with any other brewer. The occurrence makes it particularly difficult for smaller brewers that cannot offer distributor's incentives such as a steady supply of products, which will make distributors, treat them as equal partners. It, therefore, makes it difficult for a small brewery to grow and gain recognition in the industry. Despite these challenges, Boston Beer Company has been able to establish a distribution network that serves it.

High ranking

The United States Open Beer Championship is an event that is highly recognized nationally. It is also considered a credible competition that involves both professional breweries as well as home breweries. In the year 2012, there was a competition that included 65 different categories with more than 1650 beers. Boston Beer Company was ranked at 2nd place for receiving the highest overall grade in most of the 65 categories. The ranking was an impressive feat for the company given that many other breweries were participating. The company was also ranked 1st among those with the best portfolios and 11th for being the best brewery.

Weaknesses

Potential of losing status a mine craft brewery

As indicated earlier, Boston Beer Company is one of the largest mine craft breweries in the United States. The size of the company is, however, an issue. A mine craft brewery is defined as a facility that brews less than 6 million barrels a year or less that 25% owned or controlled by another economic interest. Thus with the planned continued growth and expansion, Boston Beer Company could surpass the 6 million barrel threshold thus making it lose its status as a mine craft brewery. It will mean that Samuel Adams, one of its pioneer brands will be removed from the craft beer category.

Commands only 1% of the market

Despite the sheer size of the brewery, it only controls 1% of the market. The occurrence means that it loses 99% of beer sales opportunities to its competitors. The occurrence is a disadvantage for it limits the degree to which the business can profit. It also implies that it has a small exposure and limited authority in the market. As of 2011, Boston Beer Companys market share was far behind that of its rivals, which include Anheuser-Busch Ibev, MillerCoors and Mexican Crown Imports which had 48%, 39% and 6% of the market share in the Unites States respectively. With a command of only 1% in the market, Boston Beer Company lacks a strong presence in the market.

Over dependence on foreign suppliers of raw materials

The Boston Beer Company is dependent on foreign suppliers of raw materials used as ingredients in its beers. The relationship positions it in a possibly detrimental circumstance in the case of a problem in the supply chain. For instance, if there occurs an unexpected shortage of crop from its suppliers, there might be a drop in the volume of production. The result will be a diminishing image of the company if its offerings are not available in the market for its fans. The occurrence may lead to the loss of customers since there are a large number of other craft beer choices that they can choose.

The three-tier system

In the United States, breweries are prohibited from owning establishments that sell beer to customers. They are instead required to the beer producer. The prohibition is meant to discourage monopoly in the sale and supply sale of beer. It, therefore, creates three tier systems that comprise of suppliers, distributor, and retailers who are required to be independent of each other. The three-tier system, however, denies the company an additional stream of income. Boston Beer Company would have had increased revenue if it were allowed to sell its beers directly to customers at a retail price.

Opportunities

Craft beer industry has seen a surge in popularity

The changes in drinking habits in the United States market also serve as a benefit and an opportunity for exploitation for Boston Beer Company. During 2006 to the 2011 period, the volumes of beer consumption declined, the period saw an explosion of the craft brew market. It is projected that the use of mine craft beers will grow by 3% between 2013 and 2017.The occurrence created prospects that encouraged additional investments for the company. The move would bring in additional revenues for the enterprise.

Premium beer industry has experienced growth

The same period also saw an increase in the consumption of dark ales by 67% and an increase in the use of lagers by 27%. Wheat beers, which are part of the dark ales segment, saw an exponential growth by 150% in consumption. The company had brewed Samuel Adams Cherry Wheat beer during the period. The Samuel Adams Cherry Wheat beer is also categorized as a wheat beer, which also became one of the popular beers. The surge in growth also creates an opportunity for exploitation for the company with a potential of having increased revenues. The company can benefit from the exploitation of the projected growth in the consumption of low alcohol beers, dark beers, and domestic premiums lagers.

Leverage Power over Distributors

The three-tier system provides Boston Beer Company the authority to leverage power over distributors. Just like the way Anheuser-Busch Ibev and MillerCoors use their position in the market to maintain a dominant position in the industry, the company can employ their tactics to achieve the same. One of the tactics that Boston Beer Company may use is contracting distributors on the condition that they do not distribute products for any other brewery. Since distributors are major decision makers on what beer taps can be made available in bars and supermarkets, the company can use the exclusivity distribution clause to reduce the distribution chains of other breweries. The tactic has the potential to negatively impact smaller breweries which complain of distribution dominance by major players in the industry.

Threats

Growing threat from other breweries

There are 1989 breweries operated in the United States. Craft breweries account for 97% of all breweries in the country. Despite this, they only produce approximately 25% of beer consumed in the United States. However, with the projected rise in popularity of premium beers craft breweries will continue to grab more of the market.

Beer industry has declined by 3%

Unfortunately, for Boston Beer Company, the industry is faced with changes in drinking habits that could reduce its sales. From the years 2006 to 2011, there was a decline by 3% in the beer industry. The decline was attributed to reduced consumption of beer in the United States market. The types of beer that accounted for the decrease in consumption were standard lager and the economy lager. The percentage decline of regular lager consumption was 10% while that of economy lager was 3%.

Stiff competition from Anheuser-Busch Ibev and MillerCoors

Boston Beer Company predominantly competes with beers from other companies in the United States. Two of the greatest competitors for the enterprise are Anheuser-Busch Ibev and MillerCoors which both account for 8 out of 10 beers sold in the United States as of 2011. The occurrence leaves the company at a reduced position of competing for 2 of the remaining beer bottles with other beer companies that have saturated the market.

Competition from beer imports

Boston Beer Company does not only compete with domestic craft beer producers. It also competes with premium beer imports which as seen to be a growing favorite among beer consumers in the United States. Examples of beer importers that directly compete with the company are Heineken and Corona. Unfortunately, for Boston Beer Company, Heineken and Corona has substantial financial resources similar to that of both Anheuser-Busch Ibev and MillerCoors, which provide it with the muscle to influence the market. The threat is augmented by the fact that it is projected that premium beer imports will increase by 6 percent over the next five years.

Faltering incase breweries are affected by unexpected events

The company has in the past and is in the course of undertaking growth and expansion plans. However, much the ideas are deemed to have positive attributes; the company is aware of the possible dangers that may be accompanied by growth. For instance, the acquisition of Lehigh brewery in the year 2008 meant that the company could brew 90% of its beer. However, with capital injected to such massive investments, there is a possibility that the business will falter if an unprecedented event occurs and affects one brewing facility thus necessitating closure of the facility

Recommended Solutions and Implementation

Increasing Market Share

Boston Beer Company operates in an industry where it has little market share. The company commands only 1% of the total beer consuming population in the United States. Since it is more desirable to have a huge market share, the company can increase its market share using the following ways:

Innovation

The company can leverage innovation as a way in which it can increase its market share. According to Amit and Zott (2012), innovation is one of the methods through which a company can increase its market share. When a firm brings into a market an offering that its competitors have not yet provided, consumers might switch to the enterprise and in the process leaving the opponent. One of the ways through which Boston can implement innovation is through the introduction of gluten-free beers. The innovation would be instrumental in making health conscious consumers leave other brands and settle on the companys brand.

Enhance Customer Relations

Reimann, Schilke, and Thomas (2010), customer relations plays a pivotal role in protecting a business's market share by preventing customers from leaving a business and preferring a competitor. Other than that, it is instrumental in growing a businesss market share by attracting consumers from competitors. One of the ways through which the company can implement an initiative that serves to enhance customer relations is through responding to user quer...

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