Read the case, using only information from the case, create SWOT analysis.

You should be able to identify a minimum of 3 strengths, 3 weaknesses, 3 opportunities, and 3 threats.

Describe each SWOT factor in enough detail to clearly understand what you are referring to. As an example, a company has high cash levels and low debt. Good description of the strength might be: Strong balance sheet (very low debt, and significant cash reserves), and an inadequate description of the strength might be something like: Strong financials. This is because while the inadequate description is accurate, it is also vague enough that the reader is unsure if you are referring to leverage, liquidity, or perhaps profitability (all of which are on the "financials")

While you will be turning in just the SWOT analysis, you should also think about how it might be used to develop strategy.

Case 19 The Boston Beer Company* * This case was prepared by Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright 2010 by Alan N. Hoffman. The copyright holder is solely responsible for case content. Reprint permission is solely granted to the publisher, Pearson Education, for Strategic Management and Business Policy, 16th Edition (and the international and electronic versions of this book) by the copyright holder, Alan N.Hoffman. Any other publication of the case (translation, any form of electronics or other media) or sale (any form of partnership) to another publisher will be in violation of copyright law, unless Alan N. Hoffman has granted an additional written permission. Reprinted by permission. The author would like to thank MBA students Peter Egan, Marie Fortuna, Jason McAuliffe, Lauren McCarthy, and Michael Pasquarello at Bentley University for their research.

No part of this publication may be copied, stored, transmitted, reproduced, or distributed in any form or medium whatsoever without the permission of the copyright owner, Alan N. Hoffman.

[Return to reference] BREWERS OF SAMUEL ADAMS BOSTON LAGER

Alan N. Hoffman

Company History The Boston Beer Company was founded by Jim Koch in 1984 after the discovery of his great-great-grandfather's family microbrew recipe in the attic of his home in Cincinnati, Ohio. In his kitchen, Jim Koch brewed the first batch of what is today known as Samuel Adams Boston Lager. Through use of the family recipe, Jim handcrafted a higher-quality, more flavorful beer than what was currently available in the United States. Samuel Adams beers were known for their distinct taste and freshness. Although different brewers had access to the rare, expensive Noble hops that Samuel Adams used, its special ingredients remained a secret and were what gave its brews their distinct flavor. Jim Koch refused to compromise on the components that made up the full, rich, flavorful taste of Samuel Adams beer. As his business began to grow, Jim moved his brewing operations into an old, abandoned brewery in Pennsylvania. This was subsequently followed by the opening of the extremely popular Boston Brewery in 1988. In the mid-1990s, Jim further expanded his business operations by purchasing the Hudepohl-Schoenling Brewery in his hometown of Cincinnati, Ohio. In 1995, The Boston Beer Company Inc. went public.

Jim Koch was viewed as the pioneer of the American craft beer revolution. He founded the largest craft brewery, brewing over 1 million barrels of 25 different styles of Boston Beer products and employing 520 people. Nevertheless, Boston Beer was only the sixth-largest brewer in the United States, producing less than 1% of the total U.S. beer market in 2010. Since its inception, Jim Koch has had numerous offers from the large brewing companies to buy him out, but he has consistently declined them. He wanted to remain independent and never compromise on the full, rich, flavorful, and fresh taste of Samuel Adams beer. Jim never altered his great-great-grandfather's original recipe created over a century ago. Corporate Mission and Vision The mission of the Boston Beer Company was "to seek long-term profitable growth by offering the highest quality products to the U.S. beer drinker."1 As the largest craft brewer, the Boston Beer Company had been successful for several reasons: (1) premium products produced from the highest-quality ingredients; (2) an unwavering commitment to the freshness of its beer; (3) constant creativity and innovation that resulted in the introduction of a new flavor of beer every year; and (4) the passion and dedication of its employees. The Boston Beer Company's vision was "to become the leading brewer in the Better Beer category by creating and offering high quality full-flavored beers."2 The Better Beer category was comprised of craft brewers, specialty beers, and a large majority of the imports. As of 2010, Samuel Adams was the largest craft brewer and "the third largest brand in the Better Beer category of the United States brewing industry, trailing only the imports Corona and Heineken."3

In 2007, the Boston Beer Company had revenues of $341 million with COGS of $152 million and $22.5 million of net income. From 2007 to 2009, revenues grew by 22% to $415 million with COGS of $201 million and $31.1 million in net income. Management expected sales to be $430 million in 2010. The Boston Beer Company had no long-term debt and only 14 million shares outstanding. In August 2010, the stock price was $67. The Beer Industry The domestic beer market in 2010 was facing many challenges. In 2010, domestic beer overall sales declined 1.2%. Industry analysts predicted inflation-adjusted growth to be only 0.8% through 2012.4 Decreases in domestic beer sales as a whole were mainly due to decreased alcohol consumption per person. U.S. consumers were drinking less beer because of health concerns, increased awareness of the legal consequences of alcohol abuse, and an increase in options for more flavorful wines and spirits.

To gain more market share in a highly competitive market, the industry was shifting to the mass production of beers, leading to industry consolidation. There were two major players in the brewing industry in the United States: AB InBev (Anheuser-Busch) and SABMiller PLC (SABMiller). SABMiller PLC was a 2007 joint venture of SABMiller and Molson Coors. Anheuser-Busch had been purchased in 2008 by Belgium producer InBev, the second-largest beer producer in the world.

The domestic beer industry also contained some opportunities. Although sales of domestic beer were flat, the past decade showed increases in the domestic consumption of light beer and the craft beer categories. The Better Beer category (comprised of craft, specialty, and import beers) was growing at an annual rate of 2.5% and comprised roughly 19% of all U.S. sales. Beers were classified as "better beers" mainly because of higher quality, taste, price, and image, compared to mass-produced domestic beers. The craft beer segment grew an estimated 9% in 2010. In an industry dominated by male customers, women were viewed as an opportunity. Research showed that women were most concerned about the calories in beer. However, 28% of these same women answered that they were presently drinking more wine.5

The growth in craft beer sales was good news for the Boston Beer Company, which positioned itself in this category and was the largest and most successful craft brewer in the United States. It ranked third overall in the U.S. Better Beer category, trailing only two imports: Corona from Mexico and Heineken from The Netherlands.

Domestic Beers Two major players in the U.S. domestic beer marketAB InBev and MillerCoorsaccounted for roughly 95% of all U.S. beer production and sales, minus imports.

MillerCoors LLC controlled roughly 30% of the U.S. beer market. MillerCoors recently entered the Better Beer category by acquiring, in whole or in part, existing craft brewers and by importing and distributing foreign brewers' brands. In 2010, the company experienced double-digit growth with its Blue Moon, Leinenkugel's, and Peroni Nastro Azzurro brands.

AB Inbev was the number-one brewer in the U.S. market in terms of both volume and revenues. Its dominant position allowed it to exert significant influence over distributors, making it difficult for smaller brewers to maintain their market presence or access new markets. Inbev was created in the 2004 merger of the Belgian company Interbrew and the Brazilian brewer AmBev, and subsequently purchased Anheuser-Busch in 2008.

Craft Beer Segment Sierra Nevada Brewing Company was the second-largest craft beer maker in the United States. Founded in Chico, California, in 1980, the company's mission was to produce the finest-quality beers and ales, and believed that its mission could be accomplished "without compromising its role as a good corporate citizen and environmental steward." Its most successful brands included the hop-flavored Pale Ale, as well as Porter, Stout, and wheat varieties. Sierra Nevada, like Samuel Adams, produced seasonal brews including Summer Fest, Celebration, and Big Foot. Although Sierra Nevada beer had been distributed nationally for some time, sales were still strongest on the West Coast.

New Belgium Brewing Company was founded in 1991 in Fort Collins, Colorado. Its Fat Tire brand made up two-thirds of the company's total sales.6 New Belgium currently had nine total craft beer brands, in addition to seasonal and limited brands. Its products were offered in 25 western and midwestern states. New Belgium, like Sierra Nevada, focused on being eco-friendly and stressed employee ownership in its mission.

Imports Grupo Modelo was founded in 1925 and was the market leader in Mexico. Its most successful product, Corona Extra, was the United States' number-one beer import out of 450 imported beers. AB Inbev held a 50% noncontrolling interest in Grupo Modelo.

Heineken, the third-largest brewer by revenue, positioned itself as the world's most valuable international premium beer. Heineken had over 170 international, regional, and local specialty beers and 115 breweries in 65 countries. It had the widest presence of all international brewers due to the sales of Heineken and Amstel products.

Flavored Malt Beverage Category Samuel Adams also competed in the "flavored malt beverage" (FMB) category with Twisted Tea. The FMB category accounted for roughly 2% of U.S. alcohol consumption. Twisted Tea competed mainly with beverages such as Smirnoff Ice, Bacardi Silver,