Boston Beer Company was established by Jim Koch in 1984. The headquarters of the company are located in Massachusetts, and approximately 780 people are employed at the company. The company uses traditional methods to brew the best quality natural beer. Boston Beer manufactures beverages with low alcohol content and has concentrated on the US market.
Samuel Adams is one of the brands of the company, which is brewed using the traditional methods. This brand has captured a great portion of the American market. In the financial year 2009, the company made $415.1 profits. The profits have been increasing over the years due to the increasing demand for the products of the company (Grant, 2009).
Porter’s five forces analysis
Bargaining power of consumers
There is low bargaining power of consumers because there are large consumers who can influence the prices offered in the market. This has been caused by existence of many customers in the market. In addition, most customers buy in small scale.
Therefore, there is no single customer with absolute control over the marketing decisions that are made by the company. in addition, the geographical spread of various consumer groups does not give customers the power to control the pricing decisions of the company. However, with the increase in number of retail outlets such as Wal-Mart who can buy in large quantities, the bargaining power is increasing. The producers use the forces of demand and supply to price their products (Schmitt, 2011).
Bargaining power of suppliers
The bargaining power of suppliers is low. There is no unique supplier. Raw materials are easily accessible, and this makes it impossible to have monopoly in the supply of supplies. Suppliers are many and there is no single supplier with ultimate control in the market. However, in the last one decade a scenario where suppliers are reducing in numbers has been experienced. For example, suppliers of hops and grains have declined drastically in numbers. This has provided suppliers with more power to control the pricing strategy of the company (Schmitt, 2011).
Rivalry among competitors
Rivalry among competitors is very high. There are many companies in the beverages industry, and this is causing high competition among the existing firms. In addition, the products in the industry are not differentiable. The industry has reached its final growth stages, and this is making it impossible to introduce new differentiated products.
Companies in the industry have differentiated their products and this has increased the level of competition. Beers and breweries have been differentiated to attract the attention of many customers in the market. For instance, craft brewing has seen only an increase in volume and sales over the past 20 years. This has increased rivalry among existing companies in the market (Schmitt, 2011). The graphs below show an increase in competition in the industry.
Source: Brewers Association (2011)
Threat of substitutes
There are many substitutes in the industry, and this increases threat from substitute products. There are many alternatives to beer, such as wine, sprits and liquors. Apart from the alcoholic beverages, consumers can drink coffee, tea, and other non-alcoholic beverages. The number of beverages is increasing in the market ands this makes it possible for consumers to shift from one brand to another.
Even though brand loyalty has effect on the kind of beverage consumed, brand shifting is high in the industry. Consumers are ready to accept new brands in the market, and this makes it possible to shift to new brands. Brand shifting is not costly, and consumers find it possible to use other brands without incurring any costs (Schmitt, 2011).
Threat of new entrants
Due to the attractiveness of the industry, many new companies are being established in the industry. According to Brewers Association (2011) “growth of the craft brewing industry in 2010 was 11% by volume and 12% by dollars compared to growth in 2009 of 7.2% by volume and 10.3% by dollars” (p.1).
This has increased the number of new entrants for the last decade. Many investors prefer to invest in this industry because there are many consumers. Even though the initial capital is high, there are many people willing to take the risk of investing in the industry. Few restrictions and barriers of entry have been placed in the industry, and this makes it possible to penetrate the industry (Schmitt, 2011).
There is a shift in the demographic trends in the market such that the young, middle aged and the old are consuming crafted beer. Consumers in the market are interested in getting quality beer more than the price. With change in culture, many young generations are consuming alcoholic drinks. This has increased the consumers of beer products in the market (Schmitt, 2011).
The number of beer consumers is increasing due to change in social and cultural structures. People have more leisure time to spend their income on leisure products. The consumers have higher expectations on the products in the market. The middle class income groups have excessive concern for foods and drinks. Most of the customers have higher interest on products with natural ingredients. In addition beers brewed naturally and traditionally are more preferred by consumers (Stevens, 2008).
Development in technology
With improvement on technologies, mass production of craft beers is possible. This has made is easy to export craft beers, rather than producing for local or regional consumers. Technology has also developed in the marketing strategies. An example is the e-marketing where companies can access the global markets. This has made it easier for companies to access foreign markets, and to communicate with customers (Remmé, 2008).
With the changes in macroeconomic environments, larger companies in the industry are buying smaller companies. Large companies have the advantage of economies of scale, and this makes them competitive in the market. This has made it impossible for small companies to survive. The global financial crisis that happened in 2008 affected the economies of many countries. There is a decline in the market for most (Schmitt, 2011).
Political and legal pressures
The abuse of alcohol beverages has been criticized by most governments. This has caused increase in taxes on alcoholic products. The laws governing the sale as well as distribution of alcoholic products have been toughened. Various interest groups have called for decrease in beer consumption. For example, MADD advocates that drivers should have low blood alcohol content. Heavy punishments as well as fines have been imposed for those who drive while drunk (Stevens, 2008).
The Boston Beers Company should penetrate the global market. The company operates only in the US craft beer market. There is need to adopt the strategy of extending its operations to other countries. This strategy will increase the market share of the company. In addition, the company will be able to increase its sales abroad. This strategy will require the company to expand its operations so that it can serve the larger market (Remmé, 2008).
The cons for this strategy are that the company will incur more costs in establishing itself in foreign countries, and rivalry among competitors may be high. Since there is high competition in the global markets, there is potential that the company will encounter stiff competition which makes it impossible to penetrate such markets. Another disadvantage is that various countries have imposed strict laws on alcoholic drinks. This is limiting many companies from entering and operating in such countries (Schmitt, 2011).
By penetrating in other countries, the company will be required to produce in large quantities. Mass production will provide the company with economies of scale. This will make it possible to manufacture a unit of any product at a lower cost. Therefore, the company will be able to offer its products at lower prices both locally and globally (The Boston Beer Company, Inc., 2011). The graph below shows that the global the potential to absorb more firms
Source: Krin Holdings (2011).
Boston Beer Company has been operating in the industry for a long time, and has focused on offering customers with high quality beer. The company operates in the US market only. The beer industry has more potential and the management of the company should consider expanding its operations to global markets. The company should consider penetrating into the global markets to expand its operations.
Brewers Association, (2011). Number of breweries. Web.
Grant, T. (2009). International directory of company histories: Volume 100. Detroit, Mich: St. James Press.
Krin Holdings, (2011). Per Capita Beer Consumption by Country (2004). Web.
Remmé, J. (2008). Leadership, change and responsibility. Oxford: Meyer & Meyer Media.
Schmitt, C. (2011). Brewing Industry Analysis. Germany: GRIN Verlag.
Stevens, P. F. (2008). Hidden history of the Boston Irish: Little-known stories from Ireland’s “next parish over”. Charleston, SC: History Press.
The Boston Beer Company, Inc. (2011). Welcome to the Boston Beer Company, Inc. Investor relations website! Web.