Samuel Adams: Boston Beer Company Analysis Research Paper

Company Mission

The Boston Beer Company and its brand Samuel Adams were started only in 1985 by James Koch a fifth-generation brewer from Boston. James did not initially take up the mantle of running the family craft beer business and took a business degree to take up a career. But he had a vision for the future of the business, not as a family-run unit, but as a corporate entity. He started off making craft beer from a recipe invented by his ancestor in the 1850s. The beer was an instant hit among Americans used to mass-produced beer due to its taste and quality. The company steadily grew and is now the largest manufacturer of craft beer and the sixth-largest manufacturer of beer (in general) in the United States. The main difference from other major beer companies in the country is that the focus remains on craft beer. It is often said that the company is largely responsible for changing the beer preference among aficionados in the country. The company’s mission statement can be gathered from the founder’s own words which are given below. “Our company, like our beers, is the result of a combination of history, tradition, human chemistry, creativity, and wonder.” (A Message From Jim Koch, Our Founder: Company culture, 2008). The name Samuel Adams was that of a firebrand and revolutionary thinker and freedom fighter from Boston. Samuel Adams was also a brewer by profession. The company’s simple philosophy can be seen from the words “America’s best beer” displayed prominently on the company website and in other prominent places.

Industry analysis

Industry analysis is mainly done to understand the basic foundation of competition and the main causes of profitability Boston Beer Company is occupied in the business of producing and selling low alcohol beverages, mainly for the domestic market and also in some selected international markets. They are placing high quality and higher-priced products in the market and stand third among the major beer producers of the USA, especially in the better beer category. The company earns its profit by selling the products to its distributors, which in turn will sell it to the wholesalers and retailers.. There are mainly five forces that must be taken into consideration for the industrial analysis. The main forces include the bargaining power of the buyers, the rivalry among the existing competitors, the threat of new entrants, threat of substitutes and bargaining power of the suppliers. Bargaining power of customers are very high since there are a lot of players in the market segment is which the company operates. Its buyers are the shops, the retail chains, the pubs, outlets in sports centers etc. although the ultimate customer is the individual beer drinker. Its main rivals are Anheuser-Busch, Inc., SAB Miller PLC, and Molson-Coors. Apart from this the craft beer market has about 1400 players. There are no barriers to entry in the market since there is no real restriction on alcoholic beverages. There are laws which prevent companies in marketing the product to minors. But that is applicable to every competitor also. There are substitutes in the form of hard liquor, wines and even non alcoholic beverages like carbonated drinks, fruit juices energy drinks etc. The company makes its own beer as well as outsources it from smaller breweries in the country. With regard to raw materials and malt, the company has ensured that enough quantity is available from its existing suppliers.

Competition

This product is competing along with other imported beers and craft beers. The main competitors of the Boston Beer company are Anheuser-Busch, Inc., SAB Miller PLC and Molson-Coors Brewing Company, all these constitutes more than 90 percent of the domestic beer production. Boston Beer companies product are mainly categorized under Better Beer category of the beer industry, which are determined by higher price, quality, image and taste compared with other domestic beers. The Best Beer category is consumed by approximately 18 percent of the consumers. Even though Boston Beer Company was considered as the third largest brand in the better beer category, it has faced a down turn in the shipments over some past years due to the decline in the alcohol consumption per person and also due to the increased competition from the wine and spirit companies.

The Company also competes with other alcoholic beverages like wine and spirit for more drinker attention and consumption, since beers and spirits are competing directly with beer. In order to strive from the competition, the Company is implementing different strategies which will stimulate drinker’s interest and to better position the Company among the competitors. The Company is mainly operating through a three tier distribution system in order to compete in the market and also to gain attention, time and selling efforts. In the retail establishments, they are competing for shelf space. From the view point of the buyer of the products, the main competition exists in the brand loyalty and brand loyalty. The main factors of competition include product quality, taste, brand advertising, trade promotions, drinker promotions, pricing, packaging, and also development of new products. Moreover the beverage industry is now facing lot of societal and political affairs now days due to increasing political concerns from the misuse of alcohol and other health consequences. So the beer industry is showing a declining trend. Beers with fewer calories have heavy market when compared to highly flavored traditional beers. According to the customer’s needs and preference, the company is trying to innovate new styles of malt beverages. It is continually testing different beers and malts under different brand names. Its distribution channel consists of approximately 400 wholesale distributors. But the company’s product is not among the primary brands and distributors list. So the company has to compete with other malt beverages and brewers for a share of the attention of the distributors and their selling efforts. USA is the main market where the products of the company are sold. Other markets include Canada, Europe, Israel, the Caribbean and the Pacific Rim.

Sustainable advantages enjoyed by Samuel Adams

Samuel Adams is one of the major Craft brewery industry in the United States and has more than 21 different varieties of beers in its current product profiles.

The Boston Beers are the largest crafter brewery and one of the largest brewery in the US, which carries out its own brewery production as well as undertaking contractual brewing arrangements for third parties. Thus, one of the primary sustainable advantages enjoyed by this company would be in terms of its size of operations and capacity utilization. It is not deterred from owned bulk brewing for local and global markets, and at the same time, it is also taking up brewery contracts for Third parties.

Its distribution system is also a major sustainable advantage in the sense that it conducts operations through 400 distributors, who, in turn, merchandizes beer products through “pubs, restaurants, grocery chains, package stores, stadiums and other retail outlets.” (Samuel Adams: Sales, Distribution and Marketing, 2006, P. 4)

One of the major sustainable advantages of the company could also be in terms of having the largest sales force for beer industry, around 200 sales personnel, who contribute a lot towards turnover and profitability of the company.

Another sustainability factor would be in terms of ready availability of raw materials required for production. The major ingredient malt, hops, yeast and others are available from good and reliable sources, and it is believed that the company is in a position to stock one year’s inventory of different raw materials in order to avoid any exigencies or procurement issues in future. In the manufacture of consumer products, quality assurance and control is critical and this company is aware of its implications and the tremendous responsibilities that go with providing most exciting and excellent items for beer drinkers. Its market supremacy could be judged from the fact that it provides fresh beer, under clearly labeled “Freshness Codes” on very bottle and every keg of beer. (Samuel Adams: Sales, Distribution and Marketing, 2006, P. 6).

It is seen that the Company has strong and robust disaster plans in the event of dislocation, or suspension of brewing at any of its locations. However, the occurrences of dislocation could seriously detriment the economic status of the company.

This Company enjoys strategic advantages, which could characterize and sustain its long term growth potentials and its market standing Vis-a –Vis, its competitors and business rivals. This could be seen in terms of a long history of recognition for its quality products, greater deployment of resources, and finally an excellent and economical distribution system that could be the envy of competitors and trade rivals.

Globalization: Critical environmental factors

Besides the domestic US Markets, the company also caters to markets in Canada, Europe, Israel, Caribbeans and the Pacifica Rim. It is however in the US markets, “where 99% of its beer is sold.” (Samuel Adams: Sales, Distribution and marketing: The company is dependent on its distributors, 2006) and therefore global marketing is not of large significance in as much as this company’s marketing strategies are concerned.

The major aspects that are of relevance with regard its environment could be seen, mainly as follows:

1. Advertisement and sales promotionals: It is seen that perceptions that advertising costs go to increase additional revenues or sales off takes may not prove correct, and often, there is no certainty that increased advertising spending would generate more revenues for this brewery company. Therefore, cost benefits analysis need to be carried out before advertisement budgets are sanctions, and disbursed.
2. Increased brewing costs: This Company also needs to consider the implications arising from heightened costs of contractual brewing for third parties, which could impair its revenues; it could also be seen in terms of decline in brewing capacity due to infra-structural or other reasons. This would affect the cash flow and revenues of the company which need to be safeguarded.
3. Distribution networks: This Company is heavily dependent upon its distribution networks, and their performance is critical for the future of the company. Having acquired a fleet of 200 sales personnel, it is now necessary to deploy them in high profit areas, which could cover costs and enhance incomes for company in all serving brands
4. Packaging costs: A sizeable chunk of costs is earmarked for bottling and distribution, including procuring of bottles, labeling, primary and secondary packaging items. In the event of hike in packaging costs, it is unsure whether such enhanced costs could be passed on to the ultimate beer consumer.
5. Government dictates and controls: The future of Government policy towards the beer industry, although a revenue spinner needs to be handled with care and circumspection, due to the adverse impact of underage drinking, drinks related driving accidents and other social misconduct caused by binge drinking. Should the Government enhance its control systems, it may not augur too well for this company in terms of greater accountably with lesser sales off takes.
6. Hike in energy costs: This could be critical for the business operations, since most of the brewery processes are mechanized. Further, a larger energy bill could hike the total cost of selling operations, which would then necessitate increase in price of beer products. How this would affect operations are matters that need to be assessed individually and decision taken, keeping the selling capacities and overall profitability in mind.

Samuel Adams (Boston Beer Company) SWOT Analysis

Strengths

• Samuel Adams (Boston Beer Company) is the largest craft beer manufacturer in the country. Craft indicates beer is different from regular beer. Unlike regular beer which is mass produced, craft beer is made in the traditional way beer used to be made. This industry is usually habited by small companies and pubs. Craft beer is richer and more varied in taste. Overall, the company is the sixth largest brewer in the United States and the third largest in the better beer category.
• The company has a wide portfolio of beers which includes regular, craft and better beers. It has nearly twenty four flavors spread among the above classification. In an effort to be different and innovative, the company has a new line classified as malternatives. An example would be the chocolate flavored beer and a product line referred to as twisted tea. The company is aggressively bringing out new mixes (in alcohol %) and flavors.
• The company has a strong distributor network of nearly 400 dealers and outlets. They include shops, pubs, sports venues, retail chains etc. The company has a 200 strong sales representative force equipped with all the knowledge about products and malts and also with samples. They have the infrastructure to give training and impart knowledge about the various facets of beer to retailers and customers. There exists a strong advertising policy and uses every possible media to advertise its products. The company ensures publicity by regularly entering into industry competitions and winning prizes.

Weaknesses

• In spite of being one of the largest manufacturers, Samuel Adams has only 1% share in the market.
• The company depends too much on independent distributors for marketing its product. It does not have its own well established retail network. The present distributors also market rival beers and also competing beverages like fruit juice, coffee and other non-alcoholic drinks.
• The company outsources a large portion of its manufacturing to many independent small distilleries. Hence it is now dependent on their quality and liquidity to maintain its current production levels.
• The craft beer industry is a low investment one and many players are now competing with Samuel Adams. It is estimated that nearly 1400 craft beer makers are there in the United States.

Opportunities

• Beer is one product that seems to be resistant to recession. The recent recession in the country has not really affected the sales of the company.
• Craft beer now can be mass produced. The company should now look at mass production to decrease its prices and increase market share. The popularity of craft beer and malternatives is increasing and the company should make use of this trend to increase market share.
• The company should evolve its own distribution channel in a phased manner. It should also increase its own production capacity without depending on outsourcing its production.

Threats

• The beer industry is highly competitive, both from domestic and international brands.
• Competition from other alcoholic drinks like wine, hard liquor and even non-alcoholic beverages is high.
• Statutory controls and taxes are very high in this industry.
• There is no guarantee that the company’s current distribution channel will switch over distribution of other competing products.
• Contamination or spoilage of raw materials like yeast and malt is highly possible in this industry.
• Packaging is a high cost component in the beer industry. Any changes in price of packaging can affect the financial performance of the company. Public tastes in beverages are quite fickle and any major change can be a big threat to the company.
• 100% common stock of Class B Company shares are held in the name of a single individual. In such a case major decisions of the company will depend on the decision of one single individual.

Long term outlook

The beer industry itself is quite a buoyant one. It appears that even the recession in the country has not really hit the industry in real terms. The one change that is seen that customers are buying canned or bottled beer more than drinking in pubs in order to save some money. But the volume of drinking has not gone down. This is good news for Samuel Adams since its packaging consists mainly of bottled beer. There is a paradox in the company’s market share because in spite of being the number one manufacturer of craft beer in the country, the total share of beer retail for the company is only 1%. In an interview with New York Times, Jim Koch, one of the founders of the company, “Ninety-five percent of the beer made in the United States is controlled by two companies, one based in Belgium and one in South Africa.” (Cortese, 2008). The company should pursue its current policy of innovation and focus on the better beer and craft beer segment. An ideal long term strategy should include the following components (Chapter 6: Formulating long-term objectives and grand strategies, 2003, Slide no 4)..

As long as the company’s strategies are in line with the above objectives, there would be no major problem for the company in the long run. Another factor that is in favor of the Samuel Adams brand is that the popularity of craft beer is increasing. People want new tastes and the standard beer that is now available does not distinguish itself across any brand or manufacturer. “According to a study of the American Journal of Sociology, the surging popularity of ‘craft brewing’ was in part due to consumer reaction against established industrial brewers’ lack of attention to new consumer preferences for more variety of flavor characteristics, color, freshness, foam, and other qualities of beer.” (Business & company resource center, Curriculum support demonstration: What factors in the general environment led to the growth in Craft Beer sales, p. 2). There are also other positive trends in the industry. According to Jim Koch, beer is now fast catching up with wine as a connoisseur’s drink. What was once a beverage to quench the thirst or enjoy with a game of football is now enjoying rising attention with regard to the subtle changes in flavors among different brands just like in the case of wine. The industry is also a heavy contributor towards the economy in terms of jobs, opportunities and taxes that it generates. The highly competitive industry seem to be set for a positive growth and Samuel Adams is right in the thick of action.

References

1. A Message From Jim Koch, Our Founder: Company culture. (2008). Samuel Adams – America’s world class beer.
2. Samuel Adams: Sales, Distribution and Marketing. (2006). Annual Report, P. 4.
3. Samuel Adams: Sales, Distribution and marketing: The company is dependent on its distributors. (2006). 2006 Annual Report: P. 12.
4. Cortese, Amy. (2008, December). Business: It’s all about the beer, and independence: It’s an interesting time in the beer market, wouldn’t you say? The New York Times. Web.
5. Chapter 6: Formulating long-term objectives and grand strategies. (2003). The McGraw-Hill Companies.
6. Business & company resource center, Curriculum support demonstration: What factors in the general environment led to the growth in Craft Beer sales? (2006). Thomson Gale, p. 2.