Boston Beer Company

Boston Beer Company, which is one of America’s leading brewer of high-quality beer (Boston Beer Company). The company was founder in the year 1884 by Jim Koch in Boston, Massachusetts. The company started its operations as a microbrewery and used to sell its beer caters only to the local bars of Boston. The expansion started soon, and by the later years of 1980s the operations had extended to the east coast and to the entire country by 1992. By 1995 the company had been incorporated and listed in the New York Stock Exchange.

The one thing that has remained constant throughout the growth is the Samuel Adams Lager product line, which has not changed since the company’s inception (Cleary et al p. 2). The company own almost 50% of its breweries which are located in Cincinnati, Ohio and Boston, Massachusetts. Of the remaining breweries many others are contacted. These are located in Eden, North Carolina, Rochester, New York, and La Crosse, Wisconsin (Reuters 2) The company has a network of over 400 distributors who operate wholesale over the entire country.

The distributors then resell the products to various bars & pubs, restaurants & hotels, and various other retails outlets. While the company predominantly operates in the United States it has quite a few international operations in countries like Canada, Europe, the Caribbean, and the Pacific Rim (Reuters 4) This paper presents a strategic analysis of the company, the problems it faces and proposes certain measures to counter it.

Boston Beer SWOT Analysis

The following section gives the strengths weaknesses opportunities and threats of the Boston Beer Company.

It analyses both the external and internal environment, including the conditions of the brewing industry in America. The internal environment is highlighted by the Strength and Weakness segments, which highlight the strong areas or the company as well as the area it needs to work on. The external environment is analyzed using opportunities and threats which give the possible avenues of strategies available with the company. The opportunity section give the possible avenues of expansion and the threat section gives the areas the company needs to guard itself against.

Company Strengths

1. Brand Image – The biggest strength of the company is the brand image it has among the consumers. Boston Beer, specifically the Samuel Adams, well known from the superior quality and expensive ingredients used along with the traditional brewing techniques which give it an excellent flavor, which cannot be easily copied by the other competitors. In addition the use of less water in its products also has given it a positive advantage in terms of product quality. In fact the fact the company makes unadulterated beer using only barley, bops, yeast and water, Samuel Adams brand became the first beer to be sold in Germany. You may also be interested in PESTEL Analysis beer industry. This in turn gave the company an additional stamp of quality. The consumers always expect the brew coming from Boston Beer to be “better-beer”, because of this favorable brand image(Isom et al p. 23)
2. Product Innovation – With a view to promote the Samuel Adams Product line, the company creates and sells a variety of traditional beverages and other alcoholic beverages. These help the company in exploring newer market areas and also expand to newer markets using any of the wide range of products. In addition the wide product range also give stiff competition of other fellow brewing companies who have to come up against the company in almost all ranges of beer (Isom et al p. 23)
3. High Quality – The commitment of the company to produce high-end and premium beer by using better quality process started from company’s founder Jim Koch whose commitment to produce only hand crafted traditional beer using traditional processes is well known. Craft beer industry is meant only for companies who have extensive experience in this field. Jim Koch, being a sixth generation brewer has this experience in plenty and this comes to fore while competing with its competitors (Isom et al p. 23)
4. Distribution Strategy – The Company has always focused its distribution in the national market and has made a few strategic international attempts. This makes sure that the company does not lose its primary market and also extends it as and when the time is good. Many of its competitors do not get to use the distribution channel Boston Beer uses, because of their obscure brands (Isom et al p.23)
5. Product Strategy – The company always keeps its seasonal products has single SKUs, so that the transfer/ordering of the products in the transitional periods between seasons is easy. This keeps the product sales at an optimum level even in the off-season period (Isom et al p. 23)

Company Weaknesses

1. High Overall Unit Costs – One logical outcome of any handcrafted industry si the cost of product, and craft brewing industry is no exception. Hence, the problem Boston Beer faces is not unique, and is universal among other craft brewers. While Boston Beer remains the undisputed leader of this field, the problem comes when it competes with American companies like Budweiser, Coors and Miller or foreign companies like Corona, Heineken, and Guinness (Isom et al p. 23)
2. Distribution Companies – While the distribution network of the company is one of the very best among the craft beer industry, it is still weak as compared to the larger rivals mentioned above. There is a lack of integration among the various channels. The networks are usually fragmented and also not widely distributed, with most of the distributors being local (Isom et al p.23)
3. Export Market – The strategy of the company has been to mostly be in the national market, making occasional forays into the international market. With many foreign companies entering the national market, the Boston beer too needs to expand. Unfortunately Boston Beer Co. does not have financial or physical resources to export their products en masse. In addition their brand image is not very popular outside the US market and also American beer market is very weak outside US probably because of poor brand image (Isom et al p. 23)
4. Economies of Sale – In comparison to the major brads, Boston Beer Co. also enjoys smaller economies of sale, meaning lower profit margins(Isom et al p. 23)
5. Production times – In addition to the higher end product cost, handcrafted beer also has another disadvantage of increased production times. Using traditional methods to increase the beer quality does increase the quality and taste but the process rules out faster production or cheaper methods of production (Isom et al p. 23)

Opportunities

1. Acquisitions – One very favorable opportunity available o the company is to acquire smaller breweries to further distance themselves within the craft brewing industries. The smaller brewing industries operate under a much lower scale than the Boston Beer Co. and can be easily acquired (Isom et al p. 24)
2. Financial backing – The company could focus on getting more finance for its expansion plans. The reserves of the company are really small as compared to the one required for an international expansion. One way to do this to either take on a professional financial backer who would stay away from the company’s way of operation giving it the required freedom of operation to make its own strategic decisions. Another way is to go in for some kind of tie up with the major brewing industries. These companies will enable Boston Beer to expand in newer markets in addition to providing the financial backing it needs (Isom et al p. 24)
3. International Market – The international market is a largely uncharted one with many newer economies cropping up. Boston Beer Co. can extend this operation into some of the newer markets by either taking on distributors abroad or tying up with the foreign companies who have not yet made an huge international impact. The hand crafted beer is still a novelty which can be explored to a larger extent if the strategy is good (Isom et al p. 24)

Threats

1. Buyouts, takeovers – The take over or buy out strategy which is an opportunity for Boston Beer can also be taken as a threat as the same ploy can be used by its competitors on the companies. This threat is posed not only by the larger American companies, but also the other foreign giants which are foraying into the US market and are looking for local partners for extending their base in America (Isom et al p.24)
2. Government regulation – Of late the government regulations have become strict with plans to introduce newer taxes and other regulations on the sales of alcohol. This is a very potent threat and this could really damage the already-narrow profit margins held by the craft breweries. The bigger companies would not be so much affected, but the smaller companies would really take the most of the brunt (Isom et al p. 24)
3. Distribution Problems – As mentioned earlier, the distribution network is a problem with the beer industry.
4. The lack of willing carriers is one such problem which the distributors face which in turn translates as problems for the parent company (Isom et al p. 24)
5. Counter Advertisements – There have been major advertising campaigns by macro-breweries targeting the micro-breweries specifically the Boston Beer Co. This does not necessarily damage the markets outright, but the outright defense again the company by the other major companies might prove to be a problem (Isom et al p. 24)

Current Strategies of the Boston Beer Company Initially the strategy of the Boston Beer Company was based on growth. The strategy helped it immensely to gain a fair share of the national market and entry into the international market. At the time of expansion, the company emphasized on the superior quality of beer it made and as there were fewer companies catering to this segment. It gained an enviable growth rate. To maintain this growth rate in the later year the company’s next strategy was to increase the demand for craft beer. This led to large scale advertising, the most significant step being the introduction of light beer bringing in the light beer drinker towards its segment.

This enabled it to become one of the leading companies in the beer business. The present strategy of the company is to give more emphasis on the growth of the Sam Adams Lager product family. The company is concentrating its efforts to push the entire family on products by focusing on the brand reputation of its one major brand. This is reverse of what it had done in its earlier years, focusing on making newer brands to promote the Sam Adams brand. The company thinks that it is necessary to give a push to all its products so that they achieve the best possible market expansion.

The overall aim to do this is to increase the sales figures of the company by getting revenues from all the products in the family. They also plan to make an overall cut in advertising and other expenditures in promotion to drive the expenses down which would leave a more opportunity for increasing the profitability of the company .

Core Issues

The major problem faced by Boston Beer Company is the competition and high production costs. The company must cut down on its production costs. In addition the company needs to be streamlined and also downsize the product line. The dominant product line should be used so that its market positioned is strengthened. In addition it also should be able to counter the competition it faces from both national and international companies. The market share needs to be increased along with the profit amount (Isom et al p. 20)

Recommendations

At one look Boston Beer might be said to have major problems in sustaining and marinating growth. However, there is one major advantage. The company has achieved its growth without really trying to incorporate major business strategy decision.

The focus was merely on product innovation, distribution and advertising, and the high-end quality of the product. Hence there is wide scope of increasing the market share using better strategies (Isom et al. p 29) The first measure which the company should take is to streamline its product line. For promoting the Sam Adams Lager product family, there were many product innovations done. The company should focus on only those products that have a market and stop the production of the others. Having a good distributor network will help the company considerably in this.

A survey carried out can really help the company to find the taste of the customers and focus its products in the area. This will also significantly lower the production costs. The streamlining products and survey will tell the company, the present taste choices. After this the company can focus its attention on strategically buying the other craft breweries that sell products in this area. This will give the company a better market share and also more controlling power in the market.

The production facilities of the newer breweries will be an additional advantage which will in turn reduce the production costs, by cutting down on the contracted breweries. Apart from this the company should seriously focus its attention on the international market. Leveraging on the number of award the company has received and using the strategy of bringing the light beer drinkers to the unique taste of Sam Adams brand could again prove as the winning hand in the international ventures also.

The light beer industry is experiencing a high growth rate, another factor which could be taken into consideration which international marketing.  An additional influx of money should be planned for the international venture, so the company can take help from a venture capitalist instead of tying up with the larger beer companies. This is because the company is fairly free to pursue its own venture ideas and also there is no danger of the market strategies being usurped. For gaining a better coverage on the national front the company could tie up with restaurant chains or pub chains.

These would bring added markets and also increase visibility. The option seems to be a necessity now that the company plans to reduce its advertising costs. Offering package deal with the existing restaurant products will be a very good strategy for achieving increased sales. To increase the sales of seasonal drinks the company can plan beer-drinking events. The event could be based in different cities, and would help both in the sales and the advertisement of the brand. Finally the research and innovation of the products should be continued band should be combined with market researches to get an idea of the customer tastes. These could be segmented into either age or cultural or gender basis, which would help in both product innovation and product marketing.

References

1. Boston Beer Company, “About Us”, Website accessed on 25th June 2007, http://www. bostonbeer. com/phoenix. zhtml? c=69432&p=irol-overview
2. Cleary B, Luxenberg S, Seidel P, Van de Water B, “The Boston Beer Company”, 28th May 2004, Website accessed on 25th June 2007, http://www. mcafee. cc/Classes/BEM106/Papers/2004/SamAdams. pdf
3. Isom B, Beaman J, Cormier S, McMullen R, McKinney J, “The Boston Beer Company: Leading the Craft Brewing Revolution”, 30th April 2004, Website accessed on 25th June 2007, http://www. geocities. com/jeffbeaman/BostonBeerBusinessStrategy. pdf
4. Reuters, “Boston Beer Company Inc. SAM (NYSE)” http://stocks. us. reuters. com/stocks/fullDescription. asp? symbol=SAM&WTmodLOC=C5-Profile-1
5. Thomson & Gale, “BUSINESS & COMPANY RESOURCE CENTER CURRICULUM SUPPORT DEMONSTRATION”, 2006, Website accessed on