Boston Beer Company SWOT Analysis
The Boston Beer Company is currently the largest craft beer company in the United States, however, the craft beer industry is growing in an otherwise shrinking market increasing the amount of serious competition that The Boston Beer Company is facing. In order to stay on top of the industry, The Boston Beer Company needs to find new, innovative ways of being the most appealing craft beer available to the average consumer.
While The Boston Beer Company offers many different varieties of seasonal beer, they should begin to shift their focus to year-round specialty beers, such as a line of regional flavors based on their consumer’s regional taste preferences. Different regions across the United States have different taste preferences. American’s taste preferences are learned and tend to be centered on the type of food and flavors they consumed when they were growing up.
Depending on the region that one grew up in, what culture influenced the local cuisine, and what spices were readily available to cook with, consumers will tend to have varying tastes and flavor combinations. Consumers in the New Orleans area might prefer a beer with more of a Cajun-spice undertone while consumers in the Southwest United States might prefer a beer with more of a jalapeno or habanero spice undertone.
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Companies ranging from manufactures of potato chips to BBQ sauce market specific flavors to particular regions across the United States.
If the flavor does especially well, then it is slowly released in other regions across the country. There are many different craft beer companies that provide regional flavors across the United States. These craft brewers tend to be much smaller in size than the Boston Beer Company therefore limiting the scope of their reach. The Boston Beer Company already has developed a presence across the United States, allowing the brewer to reach many more customers than their competitors. However, the Boston Beer Company has a variety of flavors that are available in all markets.
By segmenting the market into different regions and focusing on regional preferences, they will be better equipped to compete with the smaller, regional competitors. By focusing on popular regional flavors, the Boston Beer Company will be able to increase their market share across the United States and compete with the smaller, local craft beer brewers on a more personalized level. Currently Sam Adams has a 19% share of the overall craft beer market but only a 1% share of the overall beer market.
By increasing the overall market share, hopefully the Boston Beer Company will be able to increase their stake in the craft beer company by 6%, bringing their overall share to 25% and increase their presence in the overall beer market by 4%, bringing their share to 5%. As their market shares increase it is reasonable to presume that revenues will also rise. Over the last couple of years Boston Beer Company averaged an increase in revenues of 12% per year. If market share increases, then sales should hopefully increase by 8% bringing their annual revenue increase to 20% from the previous year.
The first step to achieving these goals is to conduct a market study in each designated region (Far West, South East, Rocky Mountains, Plains, Great Lakes, South East, Mid-East and New England) focusing on the target demographic, 21-30 year olds with a disposable income, to determine which large cities would be more likely to support a nano-brewery, a very small brewery that brews several hundred 10 gallon batches of beer for sampling purposes, almost like a test kitchen, and be a viable test market. An outside, nationwide consultant firm should be hired to begin the regional studies.
Market studies should focus on current local craft beers, number of local bars, and current market for new craft beers. Studies should begin at the beginning of the fiscal year and should be completed no later than the end of the second quarter. Each regional study should not exceed $75,000. Representatives from the outside consulting firm will report their finding to a carefully determined committee consisting of representatives from the following departments: Research and Development, Sales, Distribution, Real Estate, Finance, and Operations. The committee will then determine the cities with the most potential to move forward with.
Representatives from the Real Estate Department will search the area for existing small, already existing brewery locations available to lease or rent. If no pre-existing locations are available, then competitors with the potential to buy out will be identified. Ideally, leases will be signed for a 7 year term, with the option to extend the lease after 5 years. All locations should be determined by the end of the third quarter. As soon as the areas are identified, members of the Human Resource Department will begin searching for Brew Master to run and operate each of the new nano-brewery locations.
These Brew Masters can be identified from current brewery locations or from competitors local to the new locations. Training on the methods and policies of the Boston Beer Company should be immediately upon identification. Boston Beer Company should then conduct regional market studies to determine potential flavors for each specific region based off existing local craft breweries and popular regional flavor combinations. Each smaller market study should be conducted by local consulting firms who already have an understanding of the demographics and culture of the region they are studying.
These studies should be completed by the end of the fourth quarter and should not exceed $25,000 each. The representatives of each consulting firms will meet with the existing committee to discuss their findings. Research and Development will look at the feasibility of each potential flavor combination and begin working with the Master Brewers for each nano-brewery location to begin production. After locations are determined and nano-breweries are functioning Boston Beer Company should conduct a test with a sample population from our target demographic to determine which beers should be put into production.
After Master Brewers have several test batches of beer completed a sample population of volunteers will test the beers and provide feedback to the Master Brewers. The surveys and taste tests will be conducted by contracted local market research companies. Potential candidates for the survey and taste tests could be found on local university campuses and military bases, as the members of these groups tend to fall into the desired age demographic and are likely to consume alcoholic beverages in a social setting.
Each study should have at least 200 participants, covering a wide variety of taste preferences and demographic back grounds. Instead of monetary compensation, participants will be paid with free beer samples and a case of any currently existing Sam Adams beer product, thereby cutting down on expenses. The market research company will provide transportation for study participants in order to insure no member of the research party will drive after consumption of alcohol. Each market study should be no more than $5,000 and be completed over the course of a period (one month).
Master Brewers and 5 selected members of the research and development team will then take the compiled feedback and analyze the data provided. The group will be looking for any common trends, such as beers that score high on taste and appeal to decide which beer flavors to pursue and what adjustments, if any, need to be made to less desirable flavors. Lastly, Boston Beer Company should work with local bars and pubs and arrange mutual beneficial agreements where they are able to place newly created flavors on tap for three to six months to determine the beer’s popularity in the regional market.
If the beer flavor remains popular for a year, then it will be sent to the brewery in Georgia and be put into increased production and sold to grocery stores and other outlets in bottled form. Local sales of the flavors available in bottled form will be closely monitored in order to determine overall approval. If the sales continue to grow for an extended period of time, roughly one year, than studies will be conducted in other regions to determine if a national release would be profitable.
Each region should have their own regional sales team to carefully monitor the local markets in order to find key local bars and regional festivals in which the Boston Beer Company will be able to show case their new flavors. Another critical issue faced by Boston Beer Company is maintaining the freshness of the beer as is passes through the distribution system from the breweries to the direct consumers. To maintain the beers freshness, Boston Beer should construct or acquire more company owned breweries throughout the U. S. to align themselves in better geographical positions in order to reduce stockpiling of inventory for wholesalers and distributors.
They should do so through the use of efficient information systems that provide accurate forecasts and real-time data. Boston Beer should work with the distributors on developing and integrating such systems. By constructing and acquiring more company owned breweries, Boston Beer can maintain its superior product quality and always give the customer the freshest beer in their selection choice in any environment.
The initial costs of expanding will be offset by repeat customers who desire quality beer, which will lead to increased revenues and a greater market share in the industry. Without the additional breweries, Boston Beer Company will continue to store inventory for long periods of time in order to keep up with the demand for the product, but with the new breweries, Boston Beer Company will be able to implement more of a Just in Time approach to inventory management.
Also, with the new breweries in better geographical positions Boston Beer will be able to provide its wholesalers and distributors inventory much quicker than before, thus reducing the size of each order. As opposed to ordering enough inventory to get them through to the next shipment, wholesalers and distributors will order less inventory, but at a more constant rate. Since the orders will be more constant, but much smaller, Accounts Receivable for Boston Beer Company will decrease. To achieve these goals, first, a real estate campaign will go into effect in the first quarter of 2014 to identify real estate properties in Texas.
Representatives from the Real Estate Department will search the Texas area for existing already existing brewery locations available to lease or rent. If no such establishment is available, then the representatives will begin searching for possible build locations. Boston will implement the Texas project only if the cost for full implementation is less than $45 million. The company would like to see their new company owned brewery in operation by the fourth quarter of 2014. The campaign will also evaluate breweries in Georgia in the same fashion.
The breweries in Georgia will, hopefully, be leased for 5-7 years with the option of renewing the contract after 5 years to maintain their presence in the supply chain network if their efforts prove successful. They will take their findings to the board and display why they chose those potential properties and breweries. The board will consider the value of each property and brewery to determine what implications the proposed projects in those areas will have on their supply chain network. The board has the final say in whether those projects will be taken.
The Finance Department will undergo analysis of the capital structure of the Texas brewery and determine the level of debt taken as long as the level of equity is within the board’s set limit of 55%-65%. Final authorization will, however, remain with the board. Once the breweries have been either built or leased, production of beer will begin. This action step will be fully integrated with the action step from the previous critical issue. The new Texas brewery will begin production of Boston Beer Company’s core products, including Sam Adams Boston Lager and Rebel IPA, as well as seasonal beers, including Winter Lager and Summer Ale.
Georgia, on the other hand, will focus purely on the specialty beers and the regional beers mentioned previously. Once a new beer from one of the regions has been formulated by the Master Brewers, has passed the taste test by the sample population of volunteers, and then has remained popular for over a year in the local bars and pubs, it is to begin production in bottled form in a different region. The Master Brewer from whichever region the new beer has been produced will be brought to the Georgia brewery to teach the Master Brewer and staff the recipe and how to make the beer.
Georgia will then put into production the new beer and for distribution to other regions. In an effort to coincide with the Freshest Beer Program, once the breweries are operating, Boston Beer will assign its logistics department use linear regression and exponential smoothing forecasts to determine the amount of inventory needed to be shipped to wholesalers on a one to two week basis. The logistics department will then meet with the sales and operations departments and report the results of these tests. The operations department will take these results and begin a plan of action to distribute the beer.
Boston Beer’s sales department will then begin to work with their wholesaler’s sales departments to help aid in the overall forecasting of the supply chain in order to make more efficient forecasts and production planning schedules. The reduction of inventory by wholesalers will significantly reduce the Accounts Receivables while simultaneously reducing the Allowance for Doubtful Accounts and Stale Beer Reserve on the books of Boston Beer and allow them to enter into more reliable collection terms on their sales.
This will also allow them to carry more cash on hand which they should use for marketing their regional flavors to the Far West, South East, Rocky Mountains, Plains, Great Lakes, South East, Mid-East and New England regions to help stimulate sales for the Georgia brewery as well as market their traditional flagship brands to the Midwest to boost sales for the Texas brewery.
In the next step, engineers from the MIS Department will be allocated $150,000 to install operating systems before distribution begins that will be used for the Texas brewery and create e-business tools that allow them to track order and delivery time, manage weather conditions, and respond to quickly changing customer demands. By implementing an effective internal communications system, a team from the Distribution Department will use the data to coordinate its shipping vehicles to their customers and intervene if things drift off course.
Management will implement a DMAIC model of Six Sigma to continuously improve the distribution processes and reduce variability in the performance of their distribution system. Boston Beer Company should then hire an outside national consulting firm to search for potential brokers or agents who will distribute and stock its beer for the Georgia and Texas breweries. Currently Boston Beer Company has only one channel of distribution for its products. Since each and every state is different with its laws pertaining to handling alcohol, more distribution channels will need to be implemented.
Since most states have laws in place preventing beer manufacturers from selling and distributing beer straight to retailers and consumers Boston Beer Company must use the brokers or agents that the consulting firm will search for. The consulting firm will report its findings with the following departments: Finance, Accounting, Sales, and Operations. The committee will then determine which, if any, of the brokers or agents found to begin operations with. Each study, one in Georgia and one Texas, should not exceed $50,000.
Also, with the consolidation of the beer industry, big companies like InBev, SABMiller, and Molson Coors, there is some potential that exists for them to increase their influence with distributors making it difficult to for Boston Beer to maintain favorable contractual agreements with these distributors who carry less Boston Beer products than the bigger company products. To mitigate this risk, Boston Beer will allow $3,000,000 to be invested in order to acquire smaller distributors around their Texas and Georgia brewery.
All acquisitions should be completed by the fourth quarter of 2014 to ensure distribution needs will be met for the new facilities. The last step in the process to ensure the freshness of Boston Beer Company’s beer is for the purchasing department for the Texas brewery will contract their malt ingredients with their current vendor in the U. S. They will conduct multi-term deals with their hops ingredients from English vendors of which they already are in connection. They will, however, hedge their foreign currency commitments to minimize the risk of potential depreciation of the Pounds Sterling.
The apples will be contracted from various vendors on multiyear deals throughout the European market and yeast will continue to be purchased from current vendors. The productions facility will be allotted $150,000 to construct a cold storage facility that can hold a six months’ supply of hops and to maintain storage facilities for yeast, malt, and apples in order to safeguard against catastrophic events that could occur at other facilities within the company. The Georgia and Texas breweries will follow the same approach as the Boston brewery.