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Craft Brewing Case Study Essay

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[THE CRAFT-BREWING INDUSTRY CASE-STUDY] Submitted By Andrew Bankui Laith A. Rahim Sergio Mattos TABLE OF CONTENTS EXECUTIVE SUMMARY……………………………………………………………………………………. 3 a)PURPOSE OF THE REPORT…………………………………………. 3 b)CRAFT-BREWING INDUSTRY ANALYSIS ………………. 3 c)RECOMMENDATIONS …………………………………………………. 4 INTRODUCTION…………………………………………………………………………………………………. 5 CASE ANALYSIS………………………………………………………………………………………………… a)MARKET ANALYSIS………………………………………………. 6 b)CONSUMER ANALYSIS…………………………………………. 7 c)SWOT ANALYSIS………………………………… …………………. 8 SUGGESTED QUESTIONS WITH ANSWERS ……. …………………………………………. ……….. 9 WORKS CITED …………………………………………………………………………………………………… 11 Executive Summary PURPOSE OF THE REPORT This study examines craft brewers as a niche market for the malting industry. Results suggest that catering to craft brewers’ needs and preferences offers potential opportunities for malt suppliers.

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Through our study, a detailed analysis of the industry is reported. Opportunities, its possible threats and proposed solutions for the industry are documented as well. CRAFT-BREWING INDUSTRY ANALYSIS Mass production, product uniformity, and mass marketing are characteristics of the brewing industry. The brewing industry can be analyzed using Porter’s five competitive forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, substitutes and rivalry among existing competitors.

All five competitive forces jointly determine the intensity of industry competition and profitability.

Furthermore, the five forces narrow in on why the brewing industry became more concentrated and key features defining industry success. In the brewing industry, barriers to entry were high. The bargaining power of suppliers is medium since the removal of price controls for aluminum led to sharp increase in can prices and therefore raised cost of packaging materials and for the brewers.

Bargaining power of buyers was high as the independent wholesalers who purchased the beer, and sold and delivered to retail accounts earned low profits. The average return on sales for wholesalers had fallen from 3 percent in 1981 to 2. 1 percent in 1984. In addition, the increasing production capacity, desire for companies to enter new markets and promote new products and cost reductions led to a 30 percent decrease in beer prices between 1960 and 1980. Pressures from substitute products was minimal as advertising affected consumers willingness to substitute among beers.

Finally, the rivalry among existing competitors was high as the number of brewers making less than one million barrels per year decreased from 90 percent in 1959 to 45 percent in 1983. Furthermore, since the domestic beer consumption was flat, rivalry among brewers was intensified because any gains in sales by one brewer resulted at the expense of its competitor rather than through growth of the overall market. Hence, the industry analysis provides an initial explanation for the consolidation of the brewing industry.

Other factors that decreased the number of brewing firms include the increase in number of baby-boomers. The brewing industry’s capacity utilization had been in the 60 percent range but this changed dramatically in the 1960s and 1970s. Large brewing companies reacted to this new demand by adding relatively large breweries and sold them quickly, which led to smaller breweries being closed. Another factor that decreased the number of small brewers was that wholesalers who supplied to off-premise outlets (supermarkets, grocery and liquor stores) usually carried only one brand.

This caused difficulty for competitors as they were unable to find large wholesalers to carry their product as the lead brand. Big brewers also had greater success in launching new brands as they were able to leverage their existing brand in conjunction with production and distribution capabilities, which were so vast that sales volume was achieved quickly. Finally, the large brewers were increasingly successful by creating another point of differentiation.

They attracted more consumers as the big brewers had the capacity to package beers in different sizes and therefore also appeal to consumers who drank beer in small amounts or slowly as well as packaged in different numbers to cater to the growing population of drinkers who consumed at home. RECOMMENDATIONS The following recommendation was concluded by the team members : •Craft beer should not only be sold as premium beer among graduates and people with income of more than 75000 USD but also to people with moderate income. Brewing substitute products, for example, flavored-premium craft beer •Take over of companies that produced alcoholic beverages (spirits and champagne) and non alcoholic beverages (such as soft drinks, juices and coffee) •Microbrewers should concentrate more on the following attributes of the beer: quality, freshness, distinctiveness and variety of product offers, in order to gain more customers. •Craft beer companies should focus more on young professionals, since they are in the target group of those identified to consume much craft beer. Furthermore, white Americans should e targeted as well. •Craft beer companies should do much publicity to raise awareness of craft beer among beer drinkers. •Microbrewers should continue to produce beers with distinctiveness, because this is what creates the trade mark of the micro band in the consumer’s perception. This could also be offered by producing products with different styles and flavors. •Microbrewers could also undertake some distribution of their products since most well-established distributors were not ready to distribute products from microbrewers – reason being that the quantity is too small to make margins.

Introduction The American brewing structure began to change by the end of the 1970’s, thus by the end of the decade the beer industry had consolidated to only 44 brewing companies. Industry experts predicted that soon there would only be 5 brewing companies in the United States. At the same time as American brewing landscape was shrinking in taste and size a grassroots homebrewing culture emerged. The homebrewing hobby began to thrive because the ONLY way a person in the United States could experience the beer traditions and styles of other countries was to make the beer themselves.

These homebrewing roots gave birth to what we now call the “Craft Brewing” industry. The homebrewing hobby began to emerge in the American market , due to the shrinking in taste and size this hobby has been developing over the years and now it is what we call it “Craft Brewing “ As a result of the evolution of this industry the quality of the beers where improving over years which has increase it market share and customer loyalty. “Craft Brewing can be classified as: 1)Microbrewery: A brewery that produces less than 15,000 barrels (17,600 hectoliters) of beer per year.

Microbreweries sell to the public by one or more of the following methods: the traditional three-tier system (brewer to wholesaler to retailer to consumer); the two-tier system (brewer acting as wholesaler to retailer to consumer); and, directly to the consumer through carryouts and/or on-site tap-room or restaurant sales. 2)Brewpub: A restaurant-brewery that sells 25% or more of its beer on site. The beer is brewed primarily for sale in the restaurant and bar. The beer is often dispensed directly from the brewery’s storage tanks.

Where allowed by law, brewpubs often sell beer “to go” and /or distribute to off site accounts. Note: BA re-categorizes a company as a microbrewery if its off-site (distributed) beer sales exceed 75 percent. 3)Contract Brewing Company: A business that hires another brewery to produce its beer. It can also be a brewery that hires another brewery to produce additional beer. The contract brewing company handles marketing, sales, and distribution of its beer, while generally leaving the brewing and packaging to its producer-brewery (which, confusingly, is also sometimes referred to as a contract brewery). )Regional Craft Brewery: An independent brewery with an annual beer production of between 15,000 and 2,000,000 barrels who has either an all malt flagship or has at least 50% of it’s volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor Case Analysis MARKET ANALYSIS The market consists of many competitors, some being very large and some operating on a very small scale. The competitive rivalry is broken up into three segments, National, Regional , and Microbrewers. National competitors have wide market coverage and generally a large company.

Regional competitors are smaller than National in the fact that they only distribute in certain regions. Microbrewers are the smallest of the three because their size and capacity limit them to only distribute to small geographic areas. The market growth rate of the beer industry is perplexing. In domestic brands, from 1983 to 1984 there has been a decline in consumption of -1. 2%. In the imported section there has been an increase of 14. 3%. The total industry as a whole declined . 7% from 1983 to 1984. As a result of the decline in consumption of beer a similar result in production occurred with a decline of 1. %. The estimated forecast for 1985 will continue along the same trend as did 1984. The long term outlook for the industry is that sales will remain flat for the next 10 to 20 years. There are many companies in the industry. Through the years the industry has slimmed down quite a bit. The National market consists of ten major competitors. The Competitors in this market are Anheuser-Busch, Miller, Stroh, G. Heileman, Adolphs Coors, Pabst, Genesee, C. Schmidt, Falstaff, and Pittsburgh. The National companies have 51 plant locations across the United States.

Market share in the Domestic market ranges from a low of . 5% to a high of 34%. The Import market consists mainly of ten major brands also. They are Heineken(Netherlands), Molson(Canada), Beck’s(Germany), Moosehead(Canada), Labatt(Canada), St. Pauli Girl(Germany), Dos Equis (Mexico), Foster’s Lager(Australia), Amstel Light(Netherlands), and Corona(Mexico). These ten brands hold about 87% of the imported market share. The individual companies range in market share from 34% on down. A few regional companies and many small microbrewers make up the rest of the companies in the industry.

CONSUMER ANALYSIS The customers for the beer industry are highly diverse. They range from being highly educated to non-educated, and male to female. Income ranges for those who drink beer are also very diverse. Single people drink more beer than married according to 1983 U. S. beer drinker demographics. College professors are known to be customers also. Restaurants and pubs were also known to be customers of craft beer. This help to create craft beer awareness among the local population which in turn create a larger customer base for the industry when the craft beer companies will grow big.

Following this consumption pattern, there has recently been some data to tract to the consumer profile. For example the American Demographics showed that at the end of 1994, education and income were the two main indicators to tract how the determinants for consumer base. From this demographic study it could be seen that most of the consumers of craft beer were high graduates from the high school. Secondly there was a tendency that most of the the consumers of beer were workers with a household income of more than 75,000 USD. That notwithstanding, 30% of the younger people, between the ages of 25 and 34, have tried a microbrew.

On the other hand, 27 % of the beer drinkers between the ages of 34 and 45 have tried beer brewed by craft beer companies in contrast to only 20% of the people who were already above 45 years of age. This was a clear indication that young graduates from higher institutions of learning were ready to spend part of their high incomes on beer that was brewed by the craft companies. Looking on the other hand, white Americans consumed as twice as more beer from microbrewers than black beer drinkers. This could be as a result of high income among the white Americans.

Moreover, craft beer was being consumed in certain regions more than in others. For example, 32 % of the beer drinkers in the Northeast have tried microbrews meanwhile 25% and 18% of the beer consumers have tried microbrews in the Midwest and South respectively. Looking at the gender differences of the consumers, men have tried more microbrews than female beer drinkers. 18 % of the men who drink beer have tried microbrews in contrast to only about 8% of women of do drink beer. This was somehow exaggerated because about 70% of the beer drinkers in the US in 1994 were men.

From the other 30% of the beer drinkers, which are women, they have the tendency to try a microbrew. SWOT ANALYSIS STRENGTH •Quality Uniqueness – flavorful and fresher tasting because craft brewery is distinguished from standard industrial beers by their flavor and brewing styles •High profit margin •Exclusive image WEAKNESS •Higher price than mass-production beer •Its beer that it’s not nationally distributed. Craft beer targets only local area. •Quality of beers depends on the freshness. It cannot be kept for long time. OPPORTUNITY •Consumer demand in craft beer increased.

Demand shifts from mass-production beer consumption to craft beer consumption. It is called “Test revolution”. Because they want full- flavored beers. •Sales volume increased •Few competitors. •Beer industry – high growth, low failure. THREAT •Type of business- capital needed for start up is not substantial, beer-making know how is widely dispersed so entering by other microbreweries or large microbreweries or imitators in the same area is easy. •High substitution rates, it competes with all kind of beverages. Direct competitors are imports.

Indirect competitors are alcoholic drinks such as wines and non-alcoholic drinks such as juices, drinking water. Suggested Questions with Answers What did the consumers buy? List all the varieties of craft beer bought by the consumers. Consumers of beer in the US mostly bought mainstream premium brands like Budweiser and Miller. Budweiser was somehow a specialty beer consumed by beer drinkers. The second class of beer consumed by beer drinkers was quality imports, for example, Heineken. The last type of beer that was consumed by consumers in the US in 1993 was composed of other microbrews that were both regional and national.

These microbrews were consumed less frequently because they served somewhat a different taste. Furthermore craft beers were consumed by beer drinkers because of they were perceived to have a high quality image. Anheuser-Busch alone accounted for 44. 1% of the beer consumed in the US in 1993, closely followed by Miller with 22% of the market share. Other producers like Coors (10%), Stroh’s (6. 4%), craft beers from Boston Beer, Pete’s Brewing, Sierra Nevada, Anchor Brewing, Redhook (0. 9%) and others (11. 4%) accounted for the rest of the market shares of leading beer breweries in the US in 1993.

Basis for market segmentation of craft beer in the US in 1994 The basis of market segmentation was due to demographic factors. High school graduates that earn salaries of over 75000 USD were the main consumers of the craft beer. Also consumers were segmented on regional basis. Most of the craft beer consumers were located in the West Coast, Northeast, Midwest and South. That notwithstanding female beer drinkers consumed more of craft beer than female beer drinkers, though male beer drinkers accounted 70% of beer drinkers in the US.

The last basis for market segmentation of microbrewers was the issue of the age groups. 36% of beer drinkers of ages between 25 and 34 years of age have tried a microbrew. This was closely followed by the age group 34 and 45 years old which accounted for 27 % of beer drinkers that have tried microbrews. The last 20% of the beer drinkers that have tried a microbrew are those who are 45 years and above. In addition to demographic segmentation, there are also brewpubs, microbreweries, regional craft breweries, and contract brewing companies.

Microbrewery produced less than 15,000 barrels (17,600 hectoliters) of beer per year with 75% or more of its beer sold off site. Brewpub is a restaurant-brewery that sells 25% or more of its beer on site. The beer is brewed primarily for sale in the restaurant and bar. The beer is often dispensed directly from the brewery’s storage tanks. Contract Brewing Company is another form of market segmentation. This is a business that hires another brewery to produce its beer. It can also be a brewery that hires another brewery to produce additional beer.

The contract brewing company handles marketing, sales, and distribution of its beer, while generally leaving the brewing and packaging to its producer-brewery. Regional Brewery also serves as one of the market segmentation channels of craft beer. It is a brewery with an annual beer production of between 15,000 and 2,000,000 barrels. Regional Craft Brewery on the other hand is an independent regional brewery who has either an all malt flagship or has at least 50% of its volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor

How did the consumers make their choices? Consumers of beer in the US made their choices based on the attributes of the beer. Most consumers took into account the quality, freshness and distinctiveness. Considering quality as the first attribute to consumers, this was considered to be consistent with the beers. That means consumers expected their local beer to taste the same every time they drink it without any change. Freshness was also one of the aspects that consumers used to make their choices.

Most start-up craft beer producers could easily produce fresh beers and so this was not much of a problem especially if the beer could be stored in fridges. The last aspect that was considered by consumers was the issue of distinctiveness, which was considered by many consumers as an issue of trade mark by micro brands. Some producers of craft beer achieved this by producing beers that had a variety of flavors and styles. Works Cited 1)Victor J. Tremblay and Carol H. Tremblay, The US Brewing Industry Data and Economic Analysis, © 2005 Massachusetts Institute of Technology. )Sara Doersam, The Craft Brewing Renaissance, http://www. sallybernstein. com/beverages/beer/renaissance. htm, visited 2. 11. 2009 Brewers Association, A Passionate Voice for Craft Brewers, on http://www. brewersassociation. org/pages/business-tools/craft-brewing-statistics/market-segments, visited 2. 11. 2009 3)www. jstor. org/stable/1349898 4)www. beertown. org 5)Niche market potential : the case of the U. S craft brewing industry , review of agricultural economics , Vol. 21 , No. 2 (autumn-winter, 1999 ) retrieved on the world wide web on October 31,2009

Cite this Craft Brewing Case Study Essay

Craft Brewing Case Study Essay. (2018, Feb 09). Retrieved from https://graduateway.com/craft-brewing-case-study/

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