Please conduct a competitive analysis on the following compnies:

1. Craft Brew Alliance

2. Boston beer Company

3. Anheuser -Busch In Bev

CASE Competition in the Craft Beer Industry in 2020 John D. Varlaro Johnson & Wales University seismic shift in the U.S. beer industry during the early 20105 with the gains of the small, regional newcomers coming at the expense of such well- known brands as Budweiser, Miller, Coors, and Bud Light. Craft breweries, which by denition sold fewer than 6 million barrels (bbls) per year, expanded rap- idly with the deregulation of intrastate alcohol dis- tribution and retail laws and a change in consumer preferences toward unique and high-quality beers. The growing popularity of craft beers led to an approximate four percent annualized rate of growth in industry revenue between 2015 and 2020} Despite the continued growth in craft beer popu- larity, the overall beer industry remained at in 2019 with total beer sales dropping by almost two percent in the United States.2 The craft beer industry. too, had begun to show signs of a slowdown going into 2020. Annual growth for the next ve years was pro- jected to be a little over two percent; approximately half of what it had been for the past ve years.3 Part of the slowdown was due to shifting consumer trends away from beer and towards lower caloric alterna- tives, such as hard seltzers, or even abstaining from alcohol completely. Still, there did not seem to be a slowdown in the number of new craft brewers enter- ing the market. In addition, consolidation continued. Led most notably by AB [nBev's acquisition of sev- eral craft breweries, Grupo Modelo, and its acquisi- tion of SABMillermaerobrewers were continuing to battle for the craft beer market share. Established craft brewers responded in kind, as Boston Beer Company Inc. acquired Dogfish Head Brewery. Yet, the most pressing threat to craft brewers may not have been competition, but the coronavirus I ocally produced or regional craft beers caused a John E. Gamble Texas .A&M UniversityCorpus Christi. (COVID19). Beginning in early 2020, COVID19 spread across the world, leading governments to restrict travel and to order citizens to remain at home to try to contain the spread of the virus. Within the United States, shutdowns had led to over 40 states experiencing record-setting unemployment rates.4 For the small, local craft brewers who relied on local bars, tasting events, and other intimate settings to drive awareness and revenue, COVID-l9 and social distancing could be the biggest threat in 2020. THE BEER MARKET The total economic impact of the beer market was estimated to be almost 2.0 percent of total US. GDP in 2018.5 Total revenue for the craft beer industry was estimated at almost $8 billion in 20206, up almost $2 billion from $6 billion in 2017.1 Exhibit 1 presents annual per production statistics for the United States between 2006 and 20l9. Although U.S. production had declined since 2008, consumption was increasing elsewhere in the world, resulting in a forecastcd global market of over $700 billion in sales by 2022.8 Global growth seemed to be fueled by the introduction of differing styles of beer to regions where consumers had not previously had access and the expansion of demographics not normally known for consuming beer. Thus, exported beer to both developed and developing regions helped drive future growth. As an example, China recently saw a number of domestic craft breweries producing beer as well as experimenting with locally Copyright 2021 bylohn D. Varlaro and John 1:. Gamble. All rights reserved. C-ll} PART 2 Cases in Crafting and Executing Strategy Beer is a varied and differentiated product, with over 70 styles in 15 categories. Each style is depen- dent on a number of variables. These variables are controlled by the brewer through the process. and could include the origin of raw materials, approach to fermentation, and yeast used. For example, Guinness referenced on its website how barley purchased by the brewer was not only grown locally, but was also toasted specifically after malting, lending to its char- acteristic taste and color. As another example of dif- ferentiation through raw materials, wheat beers, such as German-style heaweizen, are brewed with a mini- mum of 50 percent wheat instead of barley grain. DEVELOPMENT OF MICROBREWERIES AND ECONOMICS OF SCALE Although learning the art of brewing takes time, beer production lends itself to scalability and vari- ety. For example, an amateur, or home brewer, could brew beer for home consumption. There had been a significant increase in the interest in homebrewing, with over I million people pursuing the hobby in 2017.10 It was also not uncommon for a home brewer to venture into entrepreneurship and begin brewing for commercial sales. However, beer production was highly labor intensive with much of the work done by hand. A certain level of production volume was necessary to achieve breakeven and make the micro- hrewery a successful commercial operation. A small nanobrewery may brew a variety of a- vor experiences and compete in niche markets, while the macrobrewery may focus on economies of scale and mass produce one style of beer. Both may attract consumers across segments and were attributed to the easily scalable yet highly variable process of brew- ing beer. In contrast, a global producer such as AB lnBev could produce beer for millions of consumers worldwide with factory-automated processes. LEGAL ENVIRONMENT OF BREWERIES As beer is an alcoholic beverage, the industry is sub- ject to much regulation. Further, these regulations can vary by state and municipality. One such regula- tion was regarding sales and distribution. Distribution could be distinguished through direct sales (or self-distribution), and two-tier and threetier systems. Regulations permitting direct sales allow the brewery to sell directly to the consumer. Growers, bottle sales, and taprooms were all forms of direct, or retail, sales. There were usually require- ments concerning direct sales, including limitations on volume sold to the consumer. Even where self-distribution was legal, the legal volumes could be very small and limited. Very few brewers were exempt from distributing through wholesalers, referred to as a three-tier distribution system. And often to be operationally viable, brewers need access to this distribution system to generate revenue. In a three-tier system, the brewery must first sell to a wholesalerthe liquor or beer distributor. This distributor then sells to the retailer, who then ultimately sells to the consumer. This distribution structure, however, had ramifi- cations for the consumer, as much of what was avail- able at retail outlets and restaurants were impacted by the distributor. This was further impacted by whether a brewery bottles or cans its beer or distributes through kegs. While restaurants and bars could carry kegs, retail shelves at a local liquor store needed to have cans and bottles, as a relatively small number of consumers could accommodate kegs for home use. Thus, there may only be a few liquor stores or res- taurants where a consumer may find a locally-brewed beer. ln states that do not allow self-distribution or on-premise sales. distribution and exposure to con- sumers could represent a barrier for breweries, espe- cially those that were small or new. The Alcohol and Tobacco Tax and Trade Bureau (TTB) was the main federal agency for regulating this industry. As another example of regulations, brewer- ies were required to have labels for beers approved by the federal government, ensuring they meet advertis- ing guidelines. In some instances, the TTB may need to approve the formula used for brewing the specific beer prior to the label receiving approval. Given the approval process. and the growth of craft brewer- ies. the length of time this takes could reach several months. For a small, microbrewery first starting, the delay in sales could potentially impact cash flow. Employment law was another area impacting breweries. The Affordable Care Act (ACAJ and changes to the Fair Labor Standards Act (FL-SA) greatly affected labor cost in the industry. Where the ACA mandated health care coverage by employers, CASE 2 Competition in the Craft Beer Industry in 2020 C-ll the FLSA changed overtime rules for employees pre- viously classified as exempt or salaried. Finally, many states and municipalities passed or were considering passing, increases to minimum wage. These changes in regulations could lead to significant increases in business costs, potentially impacting a brewery's abil- ity to remain viable or competitive. Lawsuits might also impact breweries' opera- tions. Trademark infringement lawsuits regarding brewery and beer names were common. Further, food-related lawsuits could occur. In 2017, there were potential lawsuits against breweries distributing in California that did not meet the May 2016 require- ment of providing an additional sign warning against pregnancy and EPA (Bisphenyl-A) consumption. BPA was commonly found in both cans and bottle caps, and thus breweries were potentially legally exposed. exemplifying the potential legal exposure to any brewery. SUPPLIERS TO BREWERIES The main suppliers to the industry were those who supply grain and hops. Growers might sell directly to breweries or distribute through wholesalers. Brewers who wish to produce a grain-specific beer would be required to procure the specific grain. Further, reci- pes might call for a variety of grains, including rye, wheat, and corn. As previously mentioned, the deni- tion of craft was changed not only to include a higher threshold for annual production, but it also changed to not exclude producers who used other grains, such as corn, in their production. Finally, origin-specific beers, such as German or Belgian-styles might also require specific grains. The more specialized the grain or hop, the more dil'l'icult it was to obtain. Those breweries, then, competing based on specialized brewing would be required to identify such suppliers. Conversely, larger, global producers of single-style beers were able to utilize economies of scale and demand lower prices from suppliers. Organically-grown grains and hops suppliers would also fall into this category of providing specialized ingredients, and specialty brew- ers tend to use such ingredients. Hops production within the United States grew to almost $640 million in 2019, representing an approximate 10 percent increase over 2018 produc- tion,H which seemed to follow the growing demand due to the increased number of breweries. Hops were grown in the Pacific Northwest states of Idaho, Washington, and Oregon. Washington's Yakima Valley was probably one of the more recognizable geographic-growing regions. There were numerous varieties of hops, however, and each contributes a different aroma and flavor profile. Hop growers have also trademarked names and varieties of hops. Further, as with grains, some beer-styles require spe- cific hops. Farmlands that were formerly known for hops have started to see a rejuvenation of this crop, such as in New England. In other areas, farmers were introducing hops as a new, cash crop. Some hops farms were also dual purpose, combining the grow- ing operations with brewing, thus serving as both a supplier of hops to breweries while also producing their own beer for retail. Recent news reports, how- ever, were citing current and future shortages of hops due to the increased number of breweries. Rising temperatures in Europe led to a diminished yield in 2018, further impacting hops supplies.l2 For brew- eries using recipes that require these specific hops, shortages could be detrimental to production. In some instances, larger beer producers had vertically integrated into hops farming to protect their supply. Suppliers to the industry also include manufac- turers and distributors oi" brewing equipment, such as fermentation tanks and refrigeration equipment. Purification equipment and testing tools were also necessary, given the brewing process and the need to ensure purity and safety of the product. Depending on distribution and the distribution channel, breweries might need bottling or canning equipment. Thus, breweries might invest heavily in automated bottling capabilities to expand capacity. Recently, however. there have been shortages in the 16-ounce size of aluminum cans. HOW BREWERIES COMPETE: INNOVATION AND QUALITY VERSUS PRICE The consumer might seek out a specic beer or brewery's name or purchase the lower-priced glob- ally known brand. For some, beer drinking might also be seasonal, as tastes change with the seasons. Lighter beers were consumed in hotter months, while heavier beers were consumed in the colder months. Consumers might associate beer styles with the time of year or season. Oktoberfest and German-style C-lZ PART 2 Cases in Crafting and Executing Strategy beers were associated with fall, following the German- traditional celebration of Oktoberfest. Finally. any one consumer might enjoy several styles, or choose to be brewery or brand loyal. The brewing process and the multiple varieties and styles of beer allow for breweries to compete across the strategy spectrumlow price and high volume, or higher price and low volume. Industry competitors, then, might target both price-point and differentiation. The home brewer, who decided to invest several thousand dollars in a small space to produce very small quantities of their beer and start a nanobrewery, might utilize a niche competitive strat- egy. The consumer might patronize the brewery on location or seek it out on tap at a restaurant given the quality and the style of beer brewed. If allowed by law, the brewery might offer tastings or sell onsite to visitors. Further, the nanobrewer was free to explore and experiment with unusual flavors. To drive aware- ness, the brewer might enter competitions, attend beer festivals, or host tastings and \"tap takeovers\" at local restaurants. If successful, the brewer might invest in larger facilities and equipment to increase capacity with growing demand. The larger, more established craft brewers, espe cially those considered regional breweries, might compete through marketing and distribution, while offering a higher value compared to the mass pro duction of macrobreweries. However. the consumer might at times be sensitive to and desire the craft beer experience through smaller breweriesso much so that even craft breweries who by denition were craft might draw the ire of the consumer due to its size and scope. Boston Beer Company was one such company. Even though James Koch had started it as a microbrewery, pioneering the craft beer movement in the [9805, some craft beer consumers do not view it as authentically craft. Larger, macrobreweries mass produced and competed using economies of scale and established distribution systems. Thus, low cost preserves mar- gins as lower price points drive volume sales. Many of these brands were sold en masse at sporting and entertainment venues, as well as larger restaurant chains, driving volume sales. Companies like AB lnBev possessed brands within the portfolio that were sold under the percep tion of craft beer, in what Boston Beer Company deems the better beer categorybeer with a higher price point, but also of higher quality. For example, Blue Moon, a Belgian-style wheat ale, was produced by MillerCoors. Blue Moon's market share had increased significantly since 2006 following the rise in craft beer popularity. competing against Boston Beer Company's Sam Adams in this better beer segment. AB lnBev had also acquired larger better- known craft breweries. including Goose Island, in 2011. With a product portfolio that included both low-price and premium craft beer brands, macro- breweries were competing across the spectrum and putting pressure on breweries within the better and craft beer segmentssegments demanding a higher price point due to production. However, a lawsuit claimed the marketing of Blue Moon was misleading and its marketing obscured the ownership structure. Although the case was dismissed, it further illustrated consumer sentiment regarding what was perceived as craft beer. It also illustrated the power of marketing and how a macrobrewery might position a brand within these segments. CONSOLIDATIONS AND ACQUISITIONS In 2015 AB lnBev offered to purchase SABMiller for $108 billion, which was approved by the European Union in May 2016 and finalized in 2016. To allow for the acquisition, many of SABMiller's brands were required to be divested. Asahi Group Holdings Ltd. purchased the European brands Peroni and Grolsch from SABMiIIer. Molson Coors purchased SABMiller's 58 percent ownership in MillCoors LLCoriginally a joint venture between Molson Coors and SABMiller. This transaction provided Molson Coors 100 percent ownership ofMillerCoors. It should be noted that AB lnBev and MillerCoors represented over 80 percent of the beer produced in the United States for domestic consumption. AB InBev had also actively acquired other brands and breweries since the 19905, including Labatt in 1995, Beck's in 2002, AnheuserBush in 2008. and Grupo Modelo in 2013. Purchases of craft breweries by larger compa- nies had also increased during the 2010s. AB lnBev had purchased numerous craft breweries since 2011. including Goose Island, Blue Point and Devil's Backbone Brewing. MillerCoorswhose brands already included Killian's Irish Red, Leinenkugei's, and Foster'sacquired Saint Archer Brewing CASE 2 Competition in the Craft Beer Industry in 2020 (3-15 EXHIBIT 6 Financial Summary for Boston Brewing Company, 2016-2019 (in thousands of $) 2019 2018 2017 2016 Revenue $1,329,108 $1,057,495 $ 921,736 $ 968,994 Excise taxes (79,284) {61 ,846] (58,744] (62,548) Cost of goods sold (635,658: (483,406) (413.091) (446.776) Gross Prot 614.166 512,243 449,901 459,670 Advertising, promotional and selling expenses 355,613 304,853 258,649 244,213 General and administrative expenses 112,730 90,857 73,126 78,033 Impairment of assets 911 652 2,451 [235) Operating Income 144,912 115,881 115,675 137,659 Other expense, net (542) 405 467 [538) Provision for income taxes 34.329 23.623 17,093 49,772 Net Income $ 110.041 $ 92.663 55 99,049 $ 87,349 Source: Boston Beer Company Annual Report, 2019. it resulted from the mergers between Redhook Brewery, Widmer Brothers Brewing, and Roma Brewing Company. Each with substantial history, the decision to merge was to help assist with growth and meeting demand. In 2019, The Craft Brew Alliance was composed of eight other craft beer brands. including Omission Brewing Co., Cisco Brewers, and Square Mile Cider Company. In addi- tion to these brands, Craft Brew Alliance operated five brewpubs. Per its annual report, there were 655 people employed at Craft Brew Alliance across its operations, including brewpubs and production. Its products included craft beer, gluten-free beer, hard ciders and seltzers. Craft Brew Alliance utilized automated brewing equipment, contract brewing and distributed nation- ally through the Anheuser-Busch wholesaler network alliance, leveraging many ofthe logistics and thus cost advantages associated. In November 2019 Craft Brew Alliance and AnheuserBusch announced an expan- sion of the partnership that would result in a merger. The merger was approved by Craft Brew Alliance's shareholders in February 2020.20 Finalization of the merger was slated for later in 2020 and was in the process of review by the US. Justice Department. A summary of Craft Brew Alliance's finan- cial performance from 2016 to 2019 is presented in Exhibit 7. EXHIBIT 7 Financial Summary for Craft Brew Alliance, 2016-2019 (in thousands of $) 2019 2013 2017 2016 Revenue $192,971 $ 206,186 $ 207,456 $ 202,507 Cost of sales 130,122] 137,863) {142,198} (142,908) Gross Prot 62,849 68.323 65,258 59,599 Selling, general and administrative expenses 80,967 62.572 60,463 59,224 Operating Income (18,118] 5,751 4,795 375 Income before provision for income taxes (19,618] 5,429 4,041 [306) Provision for income taxes i6,599] 1,287 55,482) 14 Net Income $ (12,919] $ 4,142 $ 9,523 $ [320) Source: Craft Brew Alliance Annual Report, 2019. (3-16 PART 2 Cases in Crafting and Executing Strategy STRATEGIC ISSUES CONFRONTING CRAFT BREWERIES IN 2020 The vast majority of the craft breweries might pro duce only enough beer for the local population in their area. Many of these breweries started the same way as the larger brewerieshome brewers or hobby- ists decided to start to brew and sell their own beer. Many obtained startup capital through their own sav ings or solicited investments from friends and family. Given their entrepreneurial beginnings, these microbreweries and even smaller nanobreweries were usually located in industrial spaces. They were solely operated by the brewerturnedentrepreneur, or a small staff of two or three. This staff would help with brewing and production, as well as potentially brewery tours and visitsprobably the most common marketing and consumer relations tactic utilized by smaller breweries. While almost all breweries offered tours and tastings, these became ever more critical to the smaller brewery with limited capital for market- ing and advertising. [f onsite sales were available, the brewer could sell growlers to visitors. Social media websites also oil'ered signicant exposure for free and had become a foundational ele- ment of brewery marketing. These websites helped the brewery reach the craft beer consumer, who tended to seek out and follow new and upcoming breweries. There were also mobile phone applica- tions specic to the craft beer industry that could help a startup gain exposure. Participating in craft beer festivals. where local and regional breweries were able to offer samples to attendees, was another opportunity to gain exposure. Some small microbreweries did not have enough employees for bottling and labeling and had been known to solicit volunteers through social media. To gain exposure and boost sales, the brewery might host events at local restaurants, such as tap- lakeovers, where several of its beers are featured on draft. If enough consumers were engaged, local res- taurants were enticed to purchase more beer from the distributor of the brewery. However, any number of variablesraw material shortages. tight retail com- petition, price-sensitive consumerscould dramati- cally impact future viability. The number of beers available to the consumer throughout all segments and price points had con- tinued to steadily climb since the mid-2000s. While the overall beer industry had seemed to plateau, the signicant growth appeared to be in the craft beer, or better beer segments. Further, larger macrobrew cries and regional craft breweries were seizing the opportunity to acquire other breweries as a method of obtaining distribution and branding synergies. while also mitigating the amount of direct competi- tion. Complicating the competitive landscape were increasing availability and price fluctuations of raw materials. These sporadic shortages might impact the industry's growth and affect the production stability of breweries, especially those smaller operations that did not have capacity to purchase in bulk or outbid larger competitors. Overall, the growth in the consumers' desire for craft beer was likely to continue to attract more entrants, while encouraging larger breweries to seek additional acquisitions of successful craft beer brands. However, the shift of consumer trends towards low-calorie alcoholic beverages and beer/ wine alternatives presented not only opportunity for expansion but also a threat to those producers who either relied exclusively on beer sales or could not produce hard ciders and seltzers. Yet, the pandemic still loomed large over the entire craft beer industry. The Brewers Association had announced almost a quarter of its staff would be laid-off, while others would experience salary cuts.2| As craft brewers prepared to open taprooms and begin brewing under social distancing regulations, it appeared the significant growth and expansion of small and medium-sized craft breweries could come to an abrupt stop during 2020.