Adolph Coors and the brewing industry Case study 4 Aditya Ishan 30/09/2014

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Introduction The following report presents an analysis of the beer industry as well as a study of Coors. First, an

overview of the business will be presented followed by the analysis of the current market. The third

chapter is dedicated to the study of Porter’s forces. Then, the segmentation of the market will be

detailed followed by a SWOT analysis. The sixth part will explicate the value chain. Then, the core

competences of the firms will be presented followed by the consistency tests. Finally, the business

model canvas and the balanced scorecard of Coors will be explained. The recommended strategy will be described before concluding this document.

I Overview of the current situation

A) Brewing market evolution

Since World War II, beer prices had declined a lot. Indeed, input costs were a large part of the price,

from 35% in 1945 to more than 50% in 1985. The can making is also a trend of the brewing industry

between 1945 and 1984. The proportion of cans, as regards to bottles and kegs, rose from 3% to 57%

in 1985. Can making is more expensive than bottles, but it is lighter, and thus appreciated by the

customers.

Scale economies in packaging had increased since World War II, because of lines were more efficient

at filling the bottles. So the minimal efficient production scale increased fast: from 100,000 barrels in 1950 to 5 million barrels in 1985.

There were 4,500 independent wholesalers in 1985. They usually distributed their beer directly in

their local markets. In 1985, wholesalers made 28% margin. Total advertisement represented 50

million USD in 1945, 255 million USD in 1965 and 1200 million USD in 1985. This skyrocketing rose is due to the competition in the brewing industry.

B) Coors history

Adolph Coors opened his first brewery in 1873. Due to Prohibition, it started to expand in 1933.

Then, Coors’ son took over the company and the Prohibition was over. The next years, Coors sold 90

000 barrels of beer and began to sell outside Colorado.

The brewery developed fast after that, it expanded in 11 states in 1975. The sells jumped from 137

000 barrels in 1940 to 666 000 in 1950, 1.9 million in 1960 and 7.3 mil lion in 1970. At that time,

Coors was described as “the best private company in America” and was very popular. Important

political personalities and celebrities bought it and students outside of the 11 states imported it.

The year 1975 mark the beginning of the difficulties. Coors’ volume dropped by 4%, and its attempt

to sell stocks to the public was not a success: the stock dropped from 25 USD in 1975 to 21 USD in 1985. The company has to recreate itself.

Joe Coors, the new CEO, wanted to continue the expansion. Coors entered in three states each year,

to reach 44 states through 1985, and all the states in 1987. They spent more money in advertising,

hiring marketers, launching new brands such as light beer and premium beer.

The year 1985 was exceptional. Coors beer volume had jumped by 13%, reaching 14.7 million barrels. Its revenue had topped one billion USD.

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II Environment analysis

A) PEST

1) Political factors

Tax policy

State and federal laws on selling alcohol

Federal Trade Commission

Age restriction on alcohol consumption

Inspection by Health Authorities

Water rights

License to prepare alcohol

2) Economic factors

Raw materials cost

Energy dependence of the industry and the energy crisis of the 70’s

World War II

3) Social factors

Baby boomers reached the legal drinking age

Consumers preference of premium beers over primary beers

Emancipation of women

The war and the hippies movements

4) Technological factors

Innovation in packing and manufacturing technologies

Brining variance in the container size

Marketing via television

Shipping and transportation cost fluctuation

B) Analysis

1) Political First of all, the taxes impact the industry. Indeed, these increased at one point to 12% per barrel. The age restriction on the sales and consumption of the alcohol varies in different states in United States. Moreover, to prepare and sell alcohol the companies needed some licenses. The same is required by restaurants and bars to sell it. These are regulated by States and federal laws. The Federal Commission is also pressuring the brewing industry as well as the Health Authorities in the United States. Indeed, they are making regular inspections of facilities to monitor the brewing companies. To use some water in the brewing process companies need rights on the water.

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2) Economic The brewing industry is dependent of the raw materials, like cereals, needed to brew the beer and

their cost is impacting the business, they represent over half of the business expenses. Moreover, the

industry is dependent of the coal, which is used as energy. The price of the coal is very high du to the energy crisis of the 70’s.

World War II account for reduction in beer price forcing major brewers for backward integration and

impact the industry.

3) Social

In the 80’s, the Baby boomers (born between1946 and 1964) reached the legal drinking age thus the

demand for beer increased. Moreover, different kinds of beer are released, like light and high beer,

and attract new customer segments. About women, they gained a status in the society since the

Equal Credit Opportunity Act of 1974, and it becomes socially normal that they consume beer.

The Cold war, and more precisely the Vietnam War (1965-1975), had a great impact on the attitude.

For example, the hippie culture developed itself during the same years and with how people look through the effect of the alcohol.

4) Technological

The new innovation in packing and manufacturing technologies increase shelf life. Moreover, it

optimizes storage space and permits to transport more liquids for the same price. The same happen

because of the variance in the container size, which was a huge technological development. On the other hand, the Shipping and transportation cost fluctuation add value to the costs.

Besides, new media spread around the world, like the television which are in every house. The use of

the television for the marketing campaigns give firms an advantage over the exposure of their brand.

III Segmentation A) Market segmentation -- Geographical

- America: east and west America (utilizer le graph pour donner les regions fortes)

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-- Demographical

- beer being an alcoholic content was restricted for 18 or above.

- female were too attracted to beer

- young segment of the market.

- niche marketing

-- Psychological

- copper lager is very new for this category and seems to fit with trend of drinkers

preferring richer, more alcoholic beers.

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- no watery beer, people want flavor

- high number of growing employers in other companies

-- Behavioral

- everyday beer drinker

- economy beer buyers

- people choose between variety of kinds of beers.

-- Others

-distribution segmentations

B) Targeting Product:

• Placing a variety of products in domestic as well as foreign markets

• Catering to different tastes and styles of consumers

• Distinguish its own products from that of the competition

Price:

• Lower, competitive prices

• Different prices for different brands

• Price levels: Keystone, Coors, Blue Moon

Distribution:

• International placement

• Specific beers for specific areas

• 6 packs, 40 oz bottles, 12 packs, 24 packs

• Blue moon’s seasonal brews

• (Pale moon, Full moon, Rising moon, Honey moon, Harvest moon)

Promotion:

• Memorable commercials

• NASCAR sponsorship

• Alcohol responsibility, environmental responsibility, personal responsibility

• 4% water and energy reduction across the enterprise

C) Positioning So how will you position yourselves? Who are you targeting? And get into strategic plan.

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• Coors sees itself as being a socially responsible and well rounded company. They take pride in

their American history and market themselves to other proud Americans. Coors and all its products

are seen as being high quality while affordable if not priced more competitively. However, some

individuals look for beer price while others look for a name with respected quality. Coors looks to

improve its product delivery. For instance; the wide mouth cans, frost brew liner, cold activated

bottles. Main competition was coming from Miller and Budweiser. Now, with the creation of

MillerCoors the competition has been reduced to Budweiser, whom is the #1 Domestic American

beer company. Coors overseas competition is dealt with by the specific production of lesser known

but marketable beer. Budweiser and Coors alike do not make an extensive variety of well known beer but they do stick to their guns and create consistent products.

Product Strategy:

• Coors indefinitely sells more Coors Light than Coors Original. Light beer in general seems to be

more of a trend right now.

• Blue Moon is looked upon as more of an import, being that it is a Belgian White Ale. Blue moon is growing in popularity and is becoming a familiar entity to be seen on draft in bars.

• Keystone Light, Ice, and Premium are all lower in price than other Coors products and seem to be marketed to a younger market looking to save money and sacrifice taste

Price Strategy:

• Coors Light can be found more readily than Coors Original and is generally priced lower and in

more of a uniform manner around the country.

• Coors itself doesn’t mention price in any advertising, they choose to promote the taste and quality of its products.

• Keystone brands are the cheapest, Coors light is in the middle, and Blue Moon is the most expensive.

Distribution Strategy:

• Coors light is marketed widely and can be found in nearly all restaurants, bars, and convenience stores.

• Coors products are delivered via independent distributors (L.T. Verrastro)

Promotion Strategy:

• In terms of personal selling, the beer sells itself. Customers remain loyal and don’t leave it to

the company to push itself upon them.

• Advertising is massive. Commercials, billboards, free merchandise are all used heavily to get the brand name out in public.

• Sales aren’t much of a factor though, prices remain the same and rarely, if ever, will you see a sale for any beer products.

• Coors looks to reduce water and energy consumption by 4% in 2008 alone. They promote

responsible use of their products, and look to be more environmentally friendly in its operating areas and abroad.

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Customers

- On premise retailer (-) - Off premise retailer (+) - Wholesaler (++)

Suppliers

- Agricultural supplier (-) - Packaging supplier (-) - Energy suppliers (+) - Unions (-) - Media (-) - State (+)

Substitutes

- Soda (-) - Juice (-) - Wine (-) - Strong alcohol (-)

Entrants

- Companies from other states (+)

- New venture (-)

Rivals

- Coors (+) - Miller (+) - Stroh (+) - Heileman (+)

- Domestic microbrewers (-)

IV Porter’s forces

A) The five forces

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B) Analysis

1) Average threat of new entry

The brewing industry has an average threat of new entrants due to several factors. The first one is

the huge costs of entry. To make and sell beers, a new entrant needs partnerships with the different

suppliers on the business, like the raw material suppliers or packaging one. Moreover, he needs a lot

of money to buy facilities and machineries to make the beer. Additionally, a conception knowledge is required to control the fermentation process.

American brewing companies that would like to expand their market to other states are more

dangerous. They already have a brand name and the required means to enter in the market and

conquered market shares. For example, AB expands in the southeast region in 1985 stealing shares

to Coors. Indeed, since 1983 the market is a red ocean, there is a saturation of the total sales, and expanding means now stealing shares to the current rivals.

2) High bargaining power of customers

The high bargaining power of the customers is due to the importance of the competition and to the

availability of different beer varieties. The main customers are the wholesalers with who the brewing

companies work very closely in order to secure market shares. They can promote or not a brand and this make them very strong.

On the other hand, the on premise retailers, such as bar and restaurants, and the off-premise

retailers, such as supermarkets and groceries, don’t have a strong bargaining power. They have less

power because they are less profitable for the brewing companies. Moreover, the one premise

retailers are marking a lot of money (average margin of 190 % in 1985) on the sales and are

depending of the brand required by their customers. And with the Baby Boom generation the

demand has increased.

3) Low bargaining power of suppliers The brewing industry is depending of many suppliers. First of all, the agricultural suppliers , they don’t have a strong bargaining power as the cereals used for the beer conception are not rare and can be found very easily. The packaging suppliers, providing cans and bottles, lost their power when the brewing companies started to have their own cans facilities. Besides, the unions don’t have a strong bargaining power neither as it was shown during the Coors’ strike. Indeed, the social movement didn’t impact the sales. Additionally, the advertisement campaign don’t last more than one year so the media don’t have a strong power over the business but this could change with the adoption of the television by most of the people. On the other hand, the energy supplier have a strong bargaining power as without them they could not produce anything. The brewers are well aware of this since the energy crisis of the 70’s. The States are also very powerful as they are responsible for delivering the water rights, the tax policy and the licenses to prepare alcohol. The states are also stating the legal age for drinking alcohol.

4) Low threat of substitutes

The substitutes are not a big threat in the brewing industry. Of course, the customer could buy other

drinks like juices or soda but these existed for a longer time and they didn’t threat the brewing

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industry so far. Moreover, these kind of drinks don’t have alcohol and the taste is very different. On

the other hand, the wine and the other strong alcohols could be a threat, but beer is a cultural beverage in America.

5) High competition

The beer market is already mature in America, as said previously the sales became constant in 1983.

There are many competitors proposing different kinds of beer and targeting many different

segments. Next to these main brewers, there are also the small domestic microbrewers that are not

strong enough to fight back the main brands as they don’t have the same packaging and manufacturing technologies.

V SWOT analysis

A) Coors

1) Strengths

Unique brewing process

Known and recognized by the beer customers

Control of the production chain

Target different customer segments

Independent from can maker suppliers

Good to reach customers in United States

Almost self-sufficient

Good utilization of its brewery

2) Weaknesses

Negative publicity

Can’t produce beer fast

Poor at communicating with employees

Its beer spoil quickly and need to be kept cold

High transportation costs

3) Analysis TODO The first strength of Coors’

Strenghness

Unique brewing process

Known and recognized by the beer customers (Brand reputation, Agressive marketing

strategy)

Control of the production chain

Target different customer segments (Many different beers)

Independent from can maker suppliers (factory + recycling program)

Good to reach customers in United States (Good location, Huge distribution network around

United States)

Almost self-sufficient (posse resources)

Good utilization of its brewery

Weakness

Negative publicity (Bill Coors)

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Can’t produce beer fast (Long beer production process)

Poor at commutating with employees (Not unionized)

Its beer spoil quickly and need to be kept cold

High transportation costs

B) Anheuser-Busch

1) Strengths

They can reach customer easily

Can’t be paralyzed by an incident in a breweries

Well known by the customers

Target many segments

Can stock their beers for a long time

Small transportation costs

2) Weaknesses

Not present in media

Don’t optimize production expenses

No control other its resources

Relying on can and bottles suppliers

No exclusive distributors

3) Analysis TODO

) Strengths

They can reach customer easily (Spread all over the United States)

Can’t be paralyzed by an incident in a breweries (Many breweries)

Well known by the customers (Market leader with a strong brand name, but poor

advertisement)

Target many segments (Makes different types of beers)

Cans tock their beers for a long time (Pasteurized their beers)

Small transportation costs

2) Weaknesses

Don’t optimize production expenses

Not present in media (Poor advertising investment)

No control other its resources

Relying on can and bottles suppliers

No exclusive distributors

C) Industry

1) Opportunities

Internationalization

Increase of the consumption habits

New customers niches

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Avoid third party involvement

2) Threats

Restriction with new legislation

Loss of the brand image

Limited support from distributors

Increase in energy price

Apparition of new beverage

3) Industry analysis

TODO o

Internationalization (shipping + container size)

Increase of the consumption habits (tv, packaging)

New customers niches (woman, young, baby boom)

Avoid third party involvement (on premise outlet)

T

Restriction with new legislation (tax, license, water…)

Loss of the brand image (du to controversy, poor quality)

Limited support from distributors (no brand mise en avant)

Increase in energy price (crisis)

Apparition of new beverage (long term threat, redbull New substitutes)

D) Coor's potential

1) Relative strengths

Control of the production chain Independent from can maker suppliers

Almost self-sufficient

2) Relative weaknesses

Negative publicity

Can’t produce beer fast

Poor at commutating with employees Its beer spoil quickly and need to be kept cold

High transportation costs

Brewerie dependant

3) Strategy table

TODO Actions: avoid third party involvement Strategic opportunity: should try to push the supplier to increas cost, legislation, limited support from distributor, increase energy price Temptation: internationalization, increase eof consoption habit, new niches Problem: loss of the brand image

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VI Value chain

A) Primary Activities

1) Inbound logistics

IKEA works with many products manufacturer all around the world

The logistics functions represents a quarter of the jobs in each store

2) Operations

IKEA has operations are done all around the world

IKEA outsource the product fabrication

It stores its products in its warehouses

3) Outbound logistics

The client is in charge of the transportation of the product or it can pay a supplement to

receive it

The product are contain in flat packaging

Client can order online or by phone

4) Marketing and sales

It has a strong advertising policy to push people to change behaviors

Target mainly low and middle class customers

Unique customer experience inside the store without any trouble

Not many sales assistants in the stores

Use of a catalogue to guide the client

5) After sales

It has a 90 days return policy

It doesn’t offer reparation of the furniture

Delivery and assembly services with supplement

It provides home furnishing advice

B) Support Activities

1) Organization

Hierarchical organization

The IKEA Group has a complicated structure with different companies and foundations linked to each other

2) Human resource management

Involvement of the employee in the company vision

Staff training and development programs in every country where IKEA is present

3) Research and development

Focus on design, quality and functionality

Collaboration between designer and manufacturer

Information system network relying the information across the whole company

4) Procurement

IKEA doesn’t need to have raw material as everything is outsourced

It is very close from all its suppliers

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VII Core competences and core products

A) Core competences

Its unique brewing process: it uses a natural fermentation process and the beer is not pasteurized

Location: the company is distributed in many states at some strategic point like in Colorado

Independence: the company is controlling the whole process, it has a lot of water right, long term contract with the farmers, it holds machinery and it possess its own coalfield.

Unique relationship with the wholesaler: they have to keep the beers refrigerated and to destroy them after 60 days at their own expenses if they didn’t sell it

Advertisement: it’s the most recalled beer in advertisement

Innovator: they created the first two-piece cans for beverage and they started a can recycling program

B) Core products

Quality beer: they use superior ingredients, natural water (Pure rocky mountain spring

water) and with few additives

Unique packaging

C) End products

Pure rocky mountain beer

VIII Strategies

Three strategies have been identified for Coors. The first one is to invest on lobbying to push States

to increase the taxes on coal, on raw materials and prices on water rights. With this strategy, Coors

would exploit its main strength, it independence toward suppliers, to weak its competitors. They

would have to pay more taxes as they have more intermediaries. Of course this strategy would

impact also Coors but less than its competitors.

Another identified strategy would be

- Ntégrer le marketing

The last strategy is

- Limit the expansion to only the best region

Finally, we choose to apply the second strategy for Coors

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IX Consistency test

A) Coors’ wheel of consistency Target market: Students and adult male.

Marketing: Traditionally, Coors relied on its beer to market itself by virtue of its “drinkability”. But they hired marketers next.

Sales: Coors sold its beers to wholesalers, on premise retailers and off premise retailers. They sold 14.7 million barrels in 1985.

Distribution: Coors distribute its products through wholesalers. Because the beer is not pasteurized,

they have to obey a strict freshness policy. The distributor monitoring program is said to be one of the most expensive in the world.

Manufacturing: it manufacture two kinds of beer: premium and regular Coors Banquet.

Labor: Coors has 8200 employees.

Purchasing: Coors made its own malt out of proprietary strains barley grown by 2000 farmers. The

cans come from a captive can making facility, the largest of the world.

Finance and control: In 1985, Coors’ revenues topped one billion USD. A new brewery will be built in Virginia’s Shenandoah Valley.

R&D: Coors created a large range of new products, such as light beer, which was less expensive than

regular beer. It finally accounted for more than 40% of Coors’s total volume. It also created a recycling can program.

Product line: Emphasis on quality and scale. An interesting point is that Coors does not pasteurize its

beer. The asset per barrel is 57USD.

Goals: Be the number one in “drinkability”.

B) Components Anheurer-Busch analysis Future goals: TODO

Current strategy: Anheuser-Busch is conducting an aggressive expansion through economies of scale.

They want to remain strong on their network of wholesalers that are the only one not to carry other

beer brewers. The company charge higher than average prices in order to not weaken their premium brands.

Assumption: As the leader, Anheuser Busch is confident in its strengths, it has the possibility to

achieve its goals.

Capabilities: Anheuser-Busch is able to sell in all the United States with low transportation costs. It

has a great production capacity with a wide range of products but they don’t own a can making factory and have a weak advertising strategy.

Anheurer-Busch’s response profile: Anheuser Busch seems to be satisfied with its position on the

market as the leader. It may be vulnerable because of its weak advertisement policy. The loss of its wholesaler network would be a huge retaliation.

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X The business model canvas TODO

XI Balanced scorecard TODO

Conclusion

TODO