identify important general environmental trends that has contributed to the growth of the craft beer industry, Discussion Board Case Study help

C128 CASE 20 :: THE BOSTON BEER COMPANY CASE 20 THE BOSTON BEER COMPANY * The Boston Beer Company, known for its Samuel Adams brand, is the largest craft brewery in the United States, holding a 1 percent stake in the overall beer market. 1 It faces growing competitive threats from other breweries, both large and small. In the past several years, the beer industry as a whole has been on a decline, while sales of wines and spirits have increased. The Boston Beer Com- pany competes within the premium beer industry, which includes craft beer and premium imported beers like Heineken and Corona. Although the beer industry has been on a decline, the premium beer industry has seen a small amount of growth, and the craft beer industry has seen a surge in popularity. Because of this success of the craft breweries in particular the major breweries have taken notice and many new craft breweries have sprung up. Anheuser-Busch Inbev and MillerCoors, LLC, account for over 80 percent of the beer market in the United States. 2 They have caught on to the current trend in the beer industry toward higher quality beers and have started releasing their own higher quality beers. For example, Anheuser-Busch Inbev has released Bud Light Wheat and Bud Light Platinum in an effort to provide quality beers to their loyal customers. MillerCoors makes Blue Moon beer, which is the most popular craft beer in the United States.

Anheuser-Busch Inbev released ShockTop to combat the popularity of Blue Moon. These companies have also begun to purchase smaller craft breweries, whose products have been rising in popularity. Anheuser-Busch Inbev pur- chased Goose Island Brewing Company in March 2011.

MillerCoors has started a group within the company titled Tenth and Blake Beer Company for the purpose of creating and purchasing craft breweries. According to MillerCoors CEO Tom Lang, the plan is to grow Tenth and Blake Beer Company by 60 percent within the next three years. 3 The two major companies plan to use their massive marketing budgets to tell people about their craft beers. According to the Brewers Association, 1,940 craft breweries and 1,989 total breweries operated in the United States for some or all of 2011. While craft brewer- ies account for over 97 percent of all the breweries in the United States, they only produce approximately 25 percent of all beer sold. 4 However, with the rise in popularity of premium beers, the craft breweries will continue to grab more of the market. As the country’s largest craft brew- ery, the Boston Beer Company had revenue of over $500 million in 2011 and sold over 2 million barrels of beer.

Other large craft breweries include New Belgium Brewing Company and Sierra Nevada Brewing Company, which sold over 580,000 and 720,000 barrels of beer in 2011, respectively. 5 In addition, some smaller breweries have been merging to take advantage of economies of scale and enhance their competitive position. According to the Boston Beer Company, there are approximately 770 craft breweries that ship their prod- uct domestically, up from 420 in 2006. There are also an expected 800 craft breweries in the planning stage, expect- ing to be operational within the next 2–3 years. Boston Beer Company assumes that 300 of those 800 will be shipping breweries (i.e., breweries that sell their prod- uct beyond their local market). Thus, within the next few years, Samuel Adams beer may be competing with over 1,000 other craft breweries around the country. The Boston Beer Company competes not only with domestic craft breweries but also with premium beer imports, such as Heineken and Corona, which sell beer in a similar price range. Like Anheuser-Busch Inbev and MillerCoors, Heineken and Corona have large financial resources and can influence the market. It is projected that premium imported beers will grow by 6 percent over the next five years. The Brewers Association defines a craft brewery as brewing less than six million barrels per year and being less than 25 percent owned or controlled by another economic interest. Maintaining status as a craft brewery can be impor- tant for image and, therefore, sales. Thus, MillerCoors purchased less than a 25 percent stake in Terrapin Beer, still allowing it to maintain its craft brewery status. 6 The size of the Boston Beer Company, however, is an issue. With con- tinued growth, the brewery could potentially increase its volume output to more than 6 million barrels per year, thus losing its craft brewery status. Furthermore, with the size of the company and their ability to market nationwide, the company runs the risk of alienating itself from other craft breweries who believe Samuel Adams no longer fits the profile. Many craft breweries already believe the company, which has been public since 1995, is more concerned with making money than with providing quality beer and edu- cating the public on craft beers. Size does have advantages, of course, with more money for marketing and, especially in the beer business, with distribution. A heavy complaint for all craft breweries is CASES *This case was developed by graduate students Peter J. Courtney and Eric S.

Engelson and Professor Alan B. Eisner, Pace University. Material has been drawn from published sources to be used for class discussion. Copyright © 2013 Alan B. Eisner. des6252X_case20_128-136.indd 128 des6252X_case20_128-136.indd 128 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer CASE 20 :: THE BOSTON BEER COMPANY C129 at two different prices, $15 to loyal customers and $20 through an IPO run by Goldman-Sachs. Koch decided to reward his loyal customers by advertising the stock offering on the packages of his six-packs, estimating that 30,000 buyers would be interested. He believed that those who enjoyed the beer and supported it should be the ones who have a stake in the company. After 100,000 potential investors sent checks in, Koch randomly chose 30,000. 9 Managers from Goldman-Sachs were upset that they did not receive the lowest-price offering. Koch owns 100 per- cent of Class B Common stock, of which all major deci- sions for the company are made. This is seen as a risk to potential investors because Koch can make important decisions on the strategy for the company without receiv- ing approval. Continued success for the business led to the purchase of a large brewery in Cincinnati in 1997. Since 2000, Samuel Adams has won more awards in international beer tasting competitions than any other brewery in the world.

In 2008 the Boston Beer Company purchased a world- class brewery in Lehigh, Pennsylvania, to support growth. As of 2013, the Boston Beer Company was the larg- est craft brewery in the United States, brewing over two million barrels of Samuel Adams beer, but still only made up approximately 1 percent of the total U.S. beer market.

The company has expanded its selections to over 50 beer flavors, including seasonal and other flavorful beers, such as Samuel Adams Summer Ale, Samuel Adams Cherry Wheat, and Samuel Adams Octoberfest, as well as the non- beer brands Twisted Tea and HardCore Cider. The Boston Beer Company planned to use the profits gained from its non-beer brands to invest in Samuel Adams and build a stronger portfolio. Revenue for the company grew from $380 million in 2007 to over $500 million in 2011, while operating costs grew from $150 million to $180 million.

Net income tripled from $22 million to $66 million in the same period (see Exhibits 1 and 2 ). In July 2012, the com- pany was selling at $113, nearly $100 over the initial pub- lic offering from 1995. The goal of the Boston Beer Company was to become the leading brewer in the premium beer market. As of 2013, it was the largest craft brewery, but it trailed Crown Imports, LLC, and Heineken USA in the premium beer market. The company planned to surpass the large import- ers by increasing brand availability and awareness through advertising, drinker education, and the support of its over 300-member salesforce. The salespeople for the company have a high level of product knowledge about beer and the brewing process and use this to educate distributors and the public on the benefits of Samuel Adams. In 2011 the Bos- ton Beer Company formed a subsidiary called Alchemy & Science to seize new opportunities in the craft brew- ing industry. The purpose of this group will be to iden- tify better beer ingredients, methods for better brewing, and purchasing opportunities for any breweries that would help the business grow. One of these instances occurred in the difficulty they have distributing their product in the current three-tier system (discussed in a later section). The large breweries have power over the independent distribu- tors because they account for most of their business. Thus, they can influence the distributors and make it difficult for craft breweries to sell their product. Because of its size, the Boston Beer Company has fewer problems with dis- tributors than its smaller competitors do. Consequently, the company has less in common with other craft breweries and more with the major breweries in regards to distribu- tion. This is good for Boston Beer Company’s distribution, but might be bad for its image. One brewer from The Defi- ant Brewing Company in Pearl River, New York, said that The Boston Beer Company was becoming too large to be considered a craft brewery and that their substantial con- nections with distributors contributed to this notion. 7 As the above discussion makes clear, The Boston Beer Company is facing a difficult competitive environment.

They are facing direct competition from both larger and smaller breweries and from premium imported beers.

Some of the smaller craft breweries are growing quickly and want to be larger than the Boston Beer Company.

Other craft breweries feel that the Boston Beer Company is too large already. Thus, while further growth would be beneficial in terms of revenue, growing too large could negatively affect the company’s status as a craft brewery and the perceptions of its customers. The company must pay close attention to maintaining its image for the grow- ing customer base of premium beer drinkers. C o m p a n y B a c k g r o u n d Jim Koch started the Boston Beer Company in 1984 along with fellow Harvard MBA graduates Harry Rubin and Lorenzo Lamadrid. The company began with the sale of the now popular Samuel Adams Boston Lager, named after the famous American patriot who was known to have been a brewer himself. The recipe for the lager was passed down from generation to generation in Koch’s family, dat- ing back to the 1860s. Koch began home brewing the beer in his own kitchen and soliciting local establishments in Boston to purchase and sell it. Just one year after its initial sales, Samuel Adams Boston Lager was voted “Best Beer in America” at the Great American Beer Festival in Den- ver, Colorado. In 1985 Samuel Adams grew immensely and sold 500 barrels of beer in Massachusetts, Connecti- cut, and West Germany. 8 To avoid the high up-front capital costs of starting a brewery, Koch contracted with several existing brewer- ies to make his beer. This allowed the production of the Boston Lager to grow quickly from the relatively small quantities Koch could brew himself. Growth continued after that, and in 1988 the Boston Beer Company opened a brewery in Boston. By 1989 the Boston Beer Company produced 63,000 barrels of Samuel Adams beer annually. The company went public in 1995, selling Class A Common stock to potential investors. The stock was sold des6252X_case20_128-136.indd 129 des6252X_case20_128-136.indd 129 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer C130 CASE 20 :: THE BOSTON BEER COMPANY A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 BCD Dec 28, 2012 Income Statements Period Ending Dec 30, 2011 Dec 24, 2010 Total Revenue 580,222 513,000 463,798 Cost of Revenue 265,012 228,433 207,471 Gross Profit 315,210 284,567 256,327 Operating Expenses Selling General and Administrative 219,477 180,246 174,849 Nonrecurring 149 666 300 Operating Income or Loss 95,584 103,655 81,178 Income from Continuing Operations Total Other Income/Expenses Net (98) (209) (149) Earnings Before Interest And Taxes 95,517 103,500 81,108 Income Before Tax 95,517 103,500 81,108 Income Tax Expense 36,050 37,441 30,966 Net Income From Continuing Ops 59,467 66,059 50,142 Net Income 59,467 66,059 50,142 EXHIBIT 1 Income Statements All numbers in $ thousands Source: Boston Beer Company. A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 BCD Dec 28, 2012 Balance Sheets Period Ending Dec 30, 2011 Dec 24, 2010 Assets Current Assets Cash And Cash Equivalents 74,463 49,450 48,969 Net Receivables 36,890 27,596 23,665 Inventory 44,361 34,072 26,614 Other Current Assets 6,628 14,605 12,756 Total Current Assets 162,342 125,723 112,004 Property Plant and Equipment 189,948 143,586 142,889 Goodwill 2,538 1,377 1,377 Other Assets 4,656 1,802 2,260 Total Assets 359,484 272,488 258,530 Liabilities Current Liabilities Accounts Payable 88,832 67,049 72,199 Short/Current Long Term Debt 62 – – Total Current Liabilities 88,894 67,049 72,199 Long Term Debt 566 – – Other Liabilities 4,470 3,345 3,656 Deferred Long Term Liability Charges 20,463 17,349 17,087 Total Liabilities 114,393 87,743 92,942 Stockholders' Equity Common Stock 128 128 134 Retained Earnings 88,541 47,119 43,876 Capital Surplus 157,305 138,336 122,016 Other Stockholder Equity (883) (838) (438) Total Stockholder Equity 245,091 184,745 165,588 Net Tangible Assets 242,553 183,368 164,211 EXHIBIT 2 Balance Sheets All numbers in $ thousands Source: Boston Beer Company.

Go to library tab in Connect to access Case Financials.

Go to library tab in Connect to access Case Financials. des6252X_case20_128-136.indd 130 des6252X_case20_128-136.indd 130 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer CASE 20 :: THE BOSTON BEER COMPANY C131 market. MillerCoors also had a large share of the market at just over 30 percent. Together these two companies sold approximately 8 out of every 10 beers purchased in the United States. The third largest brewer in terms of volume of beer sold was the Mexican-owned Crown Imports LLC, which accounted for less than 6 percent of the market. As the seventh largest brewery in the country, the Boston Beer Company had a 1.1 percent share of the market. Changes in Drinking Habits The consumption habits of beer drinkers appear to have changed in recent years. From 2006 to 2011, the beer indus- try as a whole declined by approximately 3 percent. 10 This was mostly due to the decline in the consumption of stan- dard lager by 10 percent and economy lager by 3 percent.

Even though the volume of beer sold declined, the craft brew market had in fact exploded. Within the same period, dark ales grew by 67 percent and premium lagers grew by 27 percent. Wheat beers (a segment of dark ales) expe- rienced an especially large growth of over 150 percent.

The Boston Beer Company brewed the Samuel Adams Cherry Wheat beer in this category, which was one of the company’s popular beers. According to Euromonitor Inter- national, projected beer volume sales would decline by 1 percent during 2013 to 2017, but craft beers were pro- jected to grow by 3 percent. As shown in Exhibit 3 , dark beers, low-alcohol beers, and domestic premium lagers were the only beer categories to grow from 2007–2011. The Three-Tier System In 2011, 75 percent of the volume of beer was sold at off- trade value in supermarkets, beer distributors, and such, while the other 25 percent was sold in bars and restau- rants. Despite the vast difference in volume sold, the value of beer sold for both off-trade and on-trade were equal because of the premium charged for purchasing beer at a bar or a restaurant.

Breweries are not permitted to own either off-trade or on-trade establishments, so their beer has to be distributed.

Before prohibition however, beer was sold in tavernlike establishments called “tied houses,” which supplied and sold their own beer. There were no regulations regarding brewing companies owning all of the retail “tied houses” and only selling their own beer. After prohibition, a sys- tem was put in place to discourage monopolies in the sup- ply and sale of beer. This system was titled the Three-Tier System and divided the beer industry into suppliers, dis- tributors, and retailers, all independent of each other. Aside from the brewpub, breweries cannot own retailers or dis- tributors, thus ensuring a level of competition in the brew- ing industry. 11 Although the three categories of the industry are sepa- rate, they each have a large influence on one another. For instance, Anheuser-Busch Inbev and MillerCoors sell 80 percent of the beers in the country. That means that 80 percent of distributors’ volume, and consequently early 2012, when the group purchased Southern California Brewing.

The company continues to invest in efficiency initiatives to lower cost within its breweries and increase margins. One large program that the company is employing is its Fresh- est Beer Program. Typically, bottled and canned beer sits in a distributor’s warehouse for three to five weeks, while kegs sit for three to four weeks. In an effort to reduce stor- age time in the distributor warehouses by approximately two weeks and consequently increase freshness of the beer in retailers, the company focused on better on-time service, forecasting, production planning, and great coordination and cooperation with distributors. In 2011 the company had 50 percent of its beer on the Freshest Beer Program, with the goal of expanding that number to 75 percent in 2012 by investing $50 million into the program. While expansion and growth are more commonly deemed positive attributes, Boston Beer Co. is aware of the many possible risks in the growth of its business.

With the acquisition of the Lehigh brewery in 2008, the Boston Beer Company now brews over 90 percent of its beer from its own breweries. With capital tied up in large investments, there was a potential for the business to falter if an unexpected event affected one of the breweries and halted production at that facility. The company had also put forth a sizable investment to increase product offer- ings and another to keep its beer fresh during distribution.

However, with its reliance on independent distributors, a mishap in its relationship with major distributors could lead to complications within their supply chain. The Bos- ton Beer Company also depended on foreign suppliers of raw material ingredients for its beer. An unexpected short- age of a crop might lead to a drop in production volume.

In effect, the image of the company would diminish if its products were not available to loyal fans whose enjoyment of the brand relies on the wide accessibility of a craft beer.

With the surge of an enormous number of other craft beer choices, customers had many options to choose from. I n d u s t r y Although Samuel Adams was sold in other countries, the United States was where the majority of the product was sold and where they held the most prominence in the beer market. Within the beer industry, Samuel Adams fell into the craft beer category. In terms of volume of beer sold, the Boston Beer Company was the largest craft brewery in the country, but only the seventh largest brewery overall in 2013. The beer market consists mainly of standard and economy lagers, which account for nearly 75 percent of all volume sold. Samuel Adams brand beers were more costly than standard lagers, and were counted with the premium beers, which together account for the other 25 percent of all beer sold.

In 2011 there were over 200 million barrels of beer sold in the United States. Anheuser-Busch Inbev domi- nated the beer industry, totaling over 48 percent of the des6252X_case20_128-136.indd 131 des6252X_case20_128-136.indd 131 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer C132 CASE 20 :: THE BOSTON BEER COMPANY A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 BC D E FG Total Sales of Beer, 2007–2012 (Millions of Barrels) Type of Beer 2007 2008 2009 2010 2011 2012* Amber Ale 0.78 0.81 0.97 1.10 1.11 1.12 Other Ale 1.57 1.60 1.63 1.78 1.94 2.09 Pale Ale 1.32 1.35 1.37 1.51 1.73 1.86 Wheat Beer 1.69 1.95 2.26 2.97 3.30 3.70 Other Dark Beer 0.08 0.08 0.08 0.08 0.08 0.08 Subtotal Dark Beers 5.45 5.80 6.32 7.44 8.17 8.85 Domestic Premium Lager 13.76 15.55 15.74 15.40 15.58 15.76 Imported Premium Lager 27.29 26.75 25.04 25.40 25.71 26.03 Standard Lager 110.28 109.71 105.37 100.11 98.07 95.60 Economy Lager 50.88 51.68 52.66 51.43 48.85 44.40 Subtotal Lagers 202.22 203.69 198.81 192.34 188.21 181.79 Low Alcohol Beer 1.06 1.08 1.93 2.73 2.57 2.41 Stout 1.15 1.16 1.14 1.16 1.27 1.35 Total 209.88 211.72 208.20 203.67 200.21 194.40 EXHIBIT 3 Total Sales of Beer, 2007–2012 (Millions of Barrels) *Author estimates.

Source: Global Market Information Database. Rank Brewery Location 1 Sweetwater Brewing Georgia 2 Boston Beer Company Massachusetts 3 Deschutes Brewery Oregon 4 Cigar City Brewing Florida 5 Black Tooth Brewing Wyoming 6 Niagara College Ontario 7 Full Sail Brewing Oregon 8 Sprecher Brewing Wisconsin 9 Morgan Street Brewing Missouri 10 Maui Brewing Hawaii EXHIBIT 4 Top 10 Brewers, U.S. Open Beer Championship, 2012 Source: U.S. Open Beer Championship. revenue, is from these two companies. Hence, the dis- tributors value the business of Anheuser-Busch Inbev and MillerCoors to a higher degree, in fear of losing their busi- ness. In an effort to maintain its dominant position in the industry, Anheuser-Busch Inbev has contracted with sev- eral distributors on the condition that they cannot work with any other breweries. Likewise, the other large brewer- ies impose restrictions on their distributors on what other breweries they can work with as well.

The distributors act as the intermediary in the beer industry, providing the beer to retailers. The beer that is available from retailers is a result of the products that their distributors carry. The distributors are major decision mak- ers for what beer taps will be available in bars, as well as the location of beer selections in supermarkets. Small breweries do not like the system because the distributors are heavily influenced by the major breweries. This makes it difficult for the small breweries to compete and achieve growth if distributors have no incentive to treat them as an equal business partner. Consequently, it is difficult for a small brewery to gain widespread recognition in the indus- try. Despite the challenges, the Boston Beer Company had made a name for itself and sold its beer to a network of approximately 400 distributors. Competition The Boston Beer Company mainly competes with other beers sold in the United States. Samuel Adams belongs to the craft beer category, which has been rapidly growing over the last several years. The company faces competition from other craft brewers, premium import brewers, and the two major domestic breweries, Anheuser-Busch Inbev and MillerCoors. The U.S. Open Beer Championship is a highly rec- ognized nationwide beer competition that includes professional breweries as well as home brewers. In 2012 more than 1,650 beers in 65 different categories were sub- mitted. The top 10 brewers were named based on receiving the highest overall grade in the most categories collec- tively. Exhibit 4 shows the top 10 brewers for 2012 accord- ing to the U.S. Open Beer Championship. The Boston Beer Company received the second-place ribbon, an impressive feat with so many breweries participating. 12 Home brewing has become an extremely popular hobby and in many instances has led home brewers to pursue their passion in the form of an actual brewery. The Homebrew- ers Association was founded in 1978 and includes more than 30,000 beer-enthusiastic members. Exhibit 5 shows a Go to library tab in Connect to access Case Financials. des6252X_case20_128-136.indd 132 des6252X_case20_128-136.indd 132 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer CASE 20 :: THE BOSTON BEER COMPANY C133 Best Beer Best BreweryBest Portfolio Russian River Pliny the Elder Sierra Nevada Brewing CompanyBoston Beer Company (41 beers) Bell’s Two Hearted Ale Dogfish Head Craft BreweryDogfish Head Craft Brewery (34 beers) Dogfish Head 90 Minute IPA Stone Brewing CompanyNew Glarus Brewing Company (28 beers) Sierra Nevada Pale Ale Russian River Brewing CompanyRogue Ales (27 beers) Stone Arrogant Bastard Ale Bell’s BreweryBell’s Brewery (26 beers) Bell’s Hopslam New Belgium Brewing CompanyNew Belgium Brewing Company (26 beers) Sierra Nevada Celebration Firestone Walker Brewing Company Sierra Nevada Brewing Company (25 beers) Stone Ruination IPA Deschutes BreweryThree Floyds Brewing Company (25 beers) Sierra Nevada Torpedo Lagunitas Brewing CompanyGoose Island Brewing Company (23 beers) North Coast Old Rasputin Founders Brewing CompanyGreat Divide Brewing Company (23 beers) Samuel Adams Boston Lager (31st) Boston Beer Company (11th) EXHIBIT 5 Top 10 Beer Categories in 2012 Source: Homebrewers Association. A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 BCD Top Dollar Sales of Beers in the United States Rank Beer Dollar Sales Brewery 1 Bud Light $5,327,145,000 Anheuser-Busch Inbev 2 Budweiser $2,072,380,000 Anheuser-Busch Inbev 3 Coors Light $1,946,762,000 MillerCoors 4 Miller Lite $1,672,598,000 MillerCoors 5 Natural Light $1,089,709,000 Anheuser-Busch Inbev 6 Corona Extra $ 964,968,900 Crown Imports 7 Busch Light $ 735,397,100 Anheuser-Busch Inbev 8 Busch $ 684,463,700 Anheuser-Busch Inbev 9 Heineken $ 577,453,300 Heineken USA 10 Michelob Ultra Light $ 518,075,100 Anheuser-Busch Inbev 11 Miller High Life $ 498,743,900 MillerCoors 12 Keystone Light $ 484,396,900 MillerCoors 13 Natural Ice $ 363,154,400 Anheuser-Busch Inbev 14 Modelo Especial $ 331,697,700 Crown Imports 15 Bud Light Lime $ 299,320,300 Anheuser-Busch Inbev 16 Icehouse $ 239,119,900 MillerCoors 17 Bud Ice $ 221,357,000 Anheuser-Busch Inbev 18 Pabst Blue Ribbon $ 204,409,400 Pabst Brewing Company 19 Yuengling Lager $ 185,332,400 Yuengling Brewery 20 Corona Light $ 168,556,600 Crown Imports EXHIBIT 6 Top Dollar Sales of Beers in the United States Source: SymphonyIRI Group.

ranked list of the top 10 beers, top 10 breweries, and top 10 most diverse breweries. 13 The Boston Beer Company also competes with the noncraft breweries that sell premium imports and standard and economy lagers. In regards to dollar sales, a list of the top 20 beers in the United States is shown in Exhibit 6 , followed by a list of the top imports in Exhibit 7 . Samuel Adams did not crack the top 20 list. 14 Sierra Nevada Brewing Company Ken Grossman and Paul Camusi started the Sierra Nevada Brewing Company in 1980. It is the second largest craft brewery behind the Boston Beer Company and the 10th largest brewery in the United States. It was also voted the best craft brewery by the Homebrewers Association.

Sierra Nevada makes a pale ale that is the highest-selling pale ale in the country. The company sold approximately Go to library tab in Connect to access Case Financials. des6252X_case20_128-136.indd 133 des6252X_case20_128-136.indd 133 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer C134 CASE 20 :: THE BOSTON BEER COMPANY Crown Imports, LLC Crown Imports, LLC, is a joint venture between Grupo Modelo and Constellation Brands. Crown Imports has a portfolio of beers that includes Corona Extra, Corona Light, Modelo Especial, Pacifico, and others. Crown Imports controls approximately 6 percent of the market and has the number one import into the United States with Corona Extra, which brought in almost $1 billion in rev- enue in 2012. It is the third largest brewing company in the United States behind Anheuser-Busch Inbev and Miller- Coors. The beer brands are owned by the public com- pany Constellation Brands. Constellation owns over 200 brands of beer, wine, and spirits and had sales of almost $3 billion in 2012. With such a large financial backing, Crown Imports wants to remain the number one import in the country and close the gap in market share from the top two breweries. Due to its large amount of capital, Crown Imports is able to advertise its brands nationally. Crown also hosts several charitable events. 17 Crown recently started a campaign to make Corona Extra the most liked beer in America. Heineken Heineken is the second largest import brewing company and the fourth largest brewing company in the United States. The company has had approximately 4 percent of the market for the last several years. The company was founded in 1873 and resides in 71 countries worldwide.

Heineken imports popular brands such as Heineken, Amstel Light, Sol, Dos Equis, and Newcastle. The Heineken beer alone collected more than $590 million in sales in 2012. With Heineken’s large size and reputation, it has the ability to advertise its products nationally. The Dos Equis brand has grown by over 10 percent since the popular “Most Interesting Man in the World” commercials began airing. Most of the brands offered by Heineken are in the price range of Samuel Adams, making them a close competitor. 18 Anheuser-Busch Inbev NV Anheuser-Busch Inbev is one of the largest beer compa- nies in the world, with roughly $40 billion in revenue in 2012. The brewing portion of the company remains the largest brewery in the country and has an approximate 50 percent stake in the United States beer industry. 19 They have the two best-selling beers in the country with Bud Light and Budweiser and the fifth best-selling beer with Natural Light. However, they have seen the sale of their products decline over the last several years. In an effort to combat the lower volume of sales, they have raised the prices of their beer. Additionally, the company has also been witness to the explosive growth of the craft beer industry. Although it could never be considered a craft brewery because of its size, Anheuser-Busch plans to make more craftlike beers, as it has done with its brand Shock Top. They also plan Source: Global Market Information Database, “Sales of the leading imported beer brands of the United States in 2011,” www.statista.com.

865,000 barrels of beer in 2012 and distributes in all 50 states. Sierra Nevada was one of the earliest craft breweries, and its founders are consequently referred to as pioneers in the craft brewing industry. The company plans to open another brewing facility within the next few years to continue growth of the business. They create goodwill by promoting the craft beer industry and by their efforts to be environmentally friendly in their beer’s production.

One of Sierra Nevada Brewing’s goals is to overtake the Boston Beer Company as the largest craft brewery in the country. 15 New Belgium Brewing Company Jeff Lebesch founded New Belgium Brewing Company in Fort Collins, Colorado, in 1991. New Belgium Brew- ing Company is the third largest craft brewery in the United States behind the Boston Beer Company and Sierra Nevada, and the 8th largest brewery in the country. The company’s flagship beer is an amber ale called Fat Tire, but it has over 25 different beers in production. In 2012 the company sold over 700,000 barrels of beer and was dis- tributed in 29 states. Over the last several years, the com- pany has seen growth of approximately 15 percent. New Belgium has plans to build a $100 million brewery in North Carolina by 2015 to compete with the other major breweries. Like Sierra Nevada, New Belgium focuses on energy-efficient practices. New Belgium Brewing also hopes to become the largest craft brewery in the country. 16 A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 BC Top Dollar Sales of Imported Beers in the United States (millions of dollars) Beer Sales 1 Corona Extra $422.90 2 Heineken $275.40 3 Corona Light $129.10 4 Tecate $ 95.90 5 Modelo Especial $ 90.50 6 Stella Artois Lager $ 67.80 7 Heineken Premium Light Lager $ 58.30 8 Dos Equis XX Lager Especial $ 56.40 9 Newcastle Brown Ale $ 56.20 10 Guinness Draught $ 47.20 11 Beck's $ 45.00 12 Pacifico $ 42.70 13 Labatt Blue $ 42.10 14 Labatt Blue Light $ 33.40 15 Amstel Light $ 30.20 16 Foster’s Lager $ 27.30 17 Red Stripe $ 24.80 18 Negra Modelo $ 22.40 19 Dos Equis XX Ambar Lager $ 20.40 20 St. Pauli Girl $ 19.90 EXHIBIT 7 Top Dollar Sales of Imported Beers in the United States (millions of dollars) Go to library tab in Connect to access Case Financials. des6252X_case20_128-136.indd 134 des6252X_case20_128-136.indd 134 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer CASE 20 :: THE BOSTON BEER COMPANY C135 Domestic BeersAlcohol by volume (%) Avg. Price for a 6 Package of Beer Market Share Bud Light 4.20$4.990.198 Coors Light 4.20$4.990.097 Budweiser 5.00$4.990.074 Miller Light 4.20$4.990.041 Corona Extra 4.60$7.990.035 Natural Light 4.20$3.490.035 Busch Light 4.10$3.990.032 Busch 4.60$4.490.029 Miller High Life 4.70$3.990.024 Keystone Light 4.13$3.490.022 Blue Moon Belgian White 5.36$8.490.015 Heineken 5.00$5.990.010 Samuel Adams Boston Lager 4.90$8.490.009 Shock Top Belgian White 5.20$8.490.008 Sierra Nevada Pale Ale 5.60$8.490.008 New Belgium Fat Tire 5.20$8.990.007 Yuengling Lager 4.40$6.490.005 Dogfish Head Pale Ale 5.00$8.990.004 Brooklyn Brewery Lager 5.20$7.990.004 EXHIBIT 8 Map of Domestic Beer Brands* *Some shares are estimated due to undisclosed information.

Source: Global Market Information Database.

to invest in and purchase small craft breweries, like that of Goose Island, which makes the popular beer 312. The company is also not opposed to merging with other large breweries. In June of 2012, the company was partaking in talks with the maker of Corona to purchase the company.

The size and influence that Anheuser-Busch has pose a threat to the Boston Beer Company because their substan- tial lead in available capital. Millercoors, LLC MillerCoors, LLC, is the second largest brewing com- pany in the country, a joint venture between the Miller and Coors brands, accounting for approximately 30 percent of the market. They have two out of the top five most popular beers with Miller Lite and Coors Light, and would like to catch up with Anheuser-Busch Inbev. The company trades publicly as Molson Coors Brewing Company and SAB Miller, and were sold for over $40 and $2,600 respec- tively in July of 2012. MillerCoors would also like to push its craft beers after witnessing the growth in the market.

They have the most popular craftlike beer with Blue Moon Belgian White. They have also started the group Tenth and Blake to focus on the craft beer industry and premium imports and plan to expand the group by 60 percent over the next few years. Some of their other premium beers include Leinenkugel’s Honey Weiss, George Killian’s Irish Red, Batch 19, Henry Weinhard’s IPA, Colorado Native, Pilsner Urquell, Peroni Nastro Azzurro, and Grolsch. 20 Thinking about the Future for Beer The Boston Beer Company created high-quality craft beers and sold them at a higher prices than standard and economy lagers. It was the largest craft brewery in the country and the seventh largest overall brewery. While Boston Beer was delighted to be the largest craft brewery, the goal was to become the third largest overall brewery in the country. Brand recognition is key to any business, and it is especially obvious in the beer industry. Anheuser- Busch Inbev and MillerCoors spend enormous amounts of capital each year to advertise their products. Due in large part to Anheuser-Busch Inbev and MillerCoors, beer has become synonymous with sports, and nowhere is this more des6252X_case20_128-136.indd 135 des6252X_case20_128-136.indd 135 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer C136 CASE 20 :: THE BOSTON BEER COMPANY alcoholic beverages besides beer, Boston Beer has posi- tioned their Twisted Teas and HardCore Cider products to be recognized nationwide as well. Boston Beer Company was in a tough position, as both the smaller craft breweries and the larger breweries wanted to compete with them. Only time will unfold whether Boston Beer will continue to brew flavorful beers that peo- ple enjoy, in order to maintain a loyal customer base and see continued growth in the future. ENDNOTES 1. Global Market Information Database. 2012. The Boston Beer Company, in alcoholic drinks (USA). February.

2. Global Market Information Database. 2012. Beer in the US. February.

3. Los Angeles Times. 2011. MillerCoors CEO Tom Long seeks growth with craft beers. August.

4. www.brewersassociation.org. 5. Washington Times. 2012. Top Ten: Craft beers of 2011. January 6 Rotunno, Tom. October 31, 2011. MillerCoors Crafts Small Beer Strategy. CNBC.com, http://www.cnbc.com/id/45079554 7. Personal Interview with Woody from Defiant Brewery in Pearl River, New York, June 2012.

8. www.bostonbeer.com. 9. The New York Times. 2012. An IPO that is customer-friendly.

February.

10. Euromonitor International and author estimates 11. www.abdi.org. 12. www.usopenbeer.com. 13. The Homebrewers Association 14. Dayton Business Journal. 2012. Top 20 selling beers of 2011.

January.

15. www.sierranevada.com. 16. www.newbelgium.com. 17. www.crownimportsllc.com. 18. www.heineken.com. 19. www.ab-inbev.com. 20. www.millercoors.com. 21. Anonymous. 2008. Sharing beers: Largest craft brewer offers scarce hops to rivals. Associated Press, April 06, 2008. In http:// www.pantagraph.com/business/article_3f06ff0a-44a8-53c2- bd18- 52b5e6e25977.html. apparent than the Super Bowl. Anheuser-Busch Inbev was one of the main sponsors of the Super Bowl in 2012, and beer commercials were apparent throughout the game.

The challenge for craft brewers is to gain the attention of potential customers while these large brewers spend a great deal of money vying for these same consumers. One might argue that the larger brewers’ beers do not encom- pass the same amount of flavor or high-quality taste as the craft beers do, but it is hard to be heard in a crowded space. Jim Koch and the Samuel Adams team emphasize the amount of hops and flavor that their products have and they want to get “better beer” to potential customers.

Boston Beer even tried to help the craft beer movement as a whole, with the potential of hurting their own Samuel Adams line of business. In 2008 the company sold excess hops to small brewers who were struggling to pay for the rising cost. Boston Beer also partnered with Accion to provide microloans to small businesses trying to start up breweries and to help small breweries in distress. 21 Over the last several years, the craft brewing industry has grown at the expense of standard and economy lagers.

The major breweries have taken notice and have started to build up their craft-style beer portfolios. In the past, the Boston Beer Company had an advantage as being one of the only craft breweries that was nationally recognized.

With other craft breweries on a steady rise, the Boston Beer Company has to position itself to remain in front.

Exhibit 8 shows the pricing and alcohol by volume for popular U.S. beers. The Boston Beer Company made an effort to move away from contract brewing and toward brewing its own beer with the purchase of the large brewery in Pennsyl- vania. They had also put a focus on growing the brand in other countries outside the United States. In 2009 the com- pany established a relationship with Moosehead Breweries in Canada to expand the Samuel Adams brand presence there. In addition, with the increase in popularity of other des6252X_case20_128-136.indd 136 des6252X_case20_128-136.indd 136 8/19/13 7:39 PM 8/19/13 7:39 PM Final PDF to printer