Competition in The Craft Beer Industry Case Analysis Questions, an example, and the case will be found below. I want to be similar to the example. Competit

Competition in The Craft Beer Industry Case Analysis Questions, an example, and the case will be found below. I want to be similar to the example. Competition in the Craft Beer Industry in 2018
Submit a copy of your case analysis (3 page max exclusive of
appended graphics or tables) to Brightspace before 10:30 AM
on Wednesday, September 18th and come to class very familiar
with the facts of the case and prepared to state and defend
your answers to the following:
?
?
What are the strategically relevant components of the U.S. and
global craft beer industry macro-environment?
Produce a five forces analysis and use that analysis to inform
your answers to the following questions:
–
–
–
?
?
?
What is competition like in the craft beer industry?
Which of the five competitive forces is strongest; Which is weakest?
Is this an attractive business to be in? Why?
What does a strategic group map of the craft beer industry look
like? Which strategic groups do you think are in the best
positions? The worst positions?
What key factors may determine the success of a start-up or
smaller, craft brewery?
What recommendations would you make to a smaller, craft
brewery to improve its competitiveness in the market while
mitigating any current and future risks?
Competition in the Craft Beer Industry in 2018
1. What are the major segments of the US beer market? How big are each of those
segments in number of breweries, production, and sales?
Are those segments
growing, contracting, or staying about the same?
The United States’ main beer market segments are four in number; regional craft breweries,
brewpubs, contract brewing companies together with microbreweries. The microbrewery every
year produces a beer that is less than fifteen thousand barrels, representing seventeen thousand-six
hundred hectoliters, having 75% as well as more beer sold to the off-site. Brewpub sells 25% as
well as more beer to the site. The contract brewing company its beer is produced by another
brewery on its behalf, as well as, the craft brewery of regional has more of its amount in the form
of traditional as well as innovative beer with a sales volume of 25%. The four segments are still
growing rapidly.
2. Produce a five forces analysis and use that analysis to inform your answers to the
following questions: What is a competition like in the craft beer industry? Which of
the five competitive forces is strongest; which is weakest? Is this an attractive business
to be in? Why?
Entry barriers; these barriers are in a medium at the industry of craft beer, i.e., a steady level.
Competitive rivalries; because of the high growth in the industry of craft beer, its product demand
is increasing on the global scale that is still accelerating the competition amount within the
industry. Suppliers; while the industry of craft beer keeps on growing, the suppliers as well
distributors are also increasing in number. Buyers; in the industry of craft beer, the primary buyers
are the distributors who increase in the event of little or no competition. Substitutes’ threat; the
highly produced beers are the ones who control the beer market. In the industry of craft beer, the
competition amount is accelerating. Among the five forces, the competitive rivalries are the
strongest since it controls the competition in the industry while the substitutes’ threat is the weakest
since it only deals with substitute products.
3. What key factors may determine the success of a start-up or smaller, craft brewery?
This may only be determined by the amount of beer prod uced along with the amount of beer which
is sold both off-site and site.
4. What recommendations would you make to a smaller, craft brewery to improve its
competitiveness in the market while mitigating any current and future risks?
They should find out the way other companies in the industry of craft beer are innovating, upgrade
their relationship with the customers, invest in the training of employees as well as the
development of the product. Also, they should decrease the lead delivery time through enhancing
their procedures, invest within the plan of marketing together with have more thoughts about their
production model. With this in practice, they will be able to grow and be able to compete with
other companies within the industry.
Graphs and tables
Barrels of Beer Produced in the United States, 2006–2017 (millions of barrels)
Year
Barrels produced (in millions)*
2006
198
2007
200
2008
200
2009
197
2010
195
2011
193
2012
196
2013
192
2014
193
2015
191
2016
190
2017
186
Total Grain Usage in the Production of Beer, 2010–2014 (in millions of pounds)
Grain Type*
2010
2011
2012
2013
2014
Corn
701
629
681
593
574
Rice
714
749
Barley
88
Wheat
Malt
717
724
604
128
136
158
169
22
24
26
30
33
4,147
4,028
4,117
3,916
3,689
Final PDF to printer
CASE 5
Competition in the Craft
Beer Industry in 2018
John D. Varlaro
John E. Gamble
Johnson & Wales University
Texas A&M University–Corpus Christi
L
ocally produced or regional craft beers caused a
seismic shift in the U.S. beer industry during the
early 2010s 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 definition sold fewer than
6 million barrels (bbls) per year, expanded rapidly
with the deregulation of intrastate alcohol distribution
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 5 percent sales volume increase in craft beer in 2017.1
Yet, the overall beer industry had remained flat
in 2017 with total beer sales dropping by 1.2 percent
in the United States.2 The craft beer industry, too,
had begun to show signs of a slowdown going into
2018. While volume sales had increased by 5 percent
in 2017 and annual growth had averaged 13.6 percent
from 2012 to 2017, projections had slowed dramatically to 1.3 percent from 2017 to 2022.3 Yet there did
not seem to be a slowdown in the number of new
craft brewers entering the market. Industry competition was increasing as grain price fluctuations
affected cost structures and growing consolidation
within the beer industry—led most notably by AB
InBev’s acquisition of several craft breweries, Grupo
Modelo, and its acquisition of SABMiller—and created a battle for market share. While the market
for specialty beer was expected to gradually plateau
by 2020, it appeared that the slowing growth had
arrived by 2017. Nevertheless, craft breweries and
microbreweries were expected to expand in number
and in terms of market share as consumers sought
out new pale ales, stouts, wheat beers, pilsners, and
lagers with regional or local flairs.
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THE BEER MARKET
The total economic impact of the beer market was
estimated to be 2.0 percent of total U.S. GDP in
2016 when variables such as jobs within beer production, sales and distribution were included.4 Total
revenue for the craft beer industry was estimated at
$6 billion.5 Exhibit 1 presents annual per production statistics for the United States between 2006
and 2017.
Although U.S. production had declined since
2008, consumption was increasing elsewhere in the
world, resulting in a forecasted global market of over
$700 billion in sales by 2022.6 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
and regionally known flavors, enticing the domestic
palette with flavors such as green tea.
The Brewers Association, a trade association
for brewers, suppliers and others within the industry, designated a brewery as a craft brewer when
output was less than 6 million barrels annually and
the ownership was more than 75 percentindependent of another non-craft beer producer or entity.
The rapid increase in popularity for local beers led
to the number of U.S. brewers to reach over 6,000
Copyright ©2018 by John D. Varlaro and John E. Gamble. All rights
reserved.
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Cases in Crafting and Executing Strategy
EXHIBIT 1?Barrels of Beer Produced in
the United States, 2006–2017
(millions of barrels)
Year
Barrels produced (in millions)*
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
198
200
200
197
195
193
196
192
193
191
190
186
*Rounded to the nearest million.
Source: Alcohol and Tobacco Tax and Trade Bureau website
in 2017—nearly triple the number in 2012. Of these
breweries, 99 percent were identified as craft breweries with distribution ranging from local to national.
While large global breweries occupied the top positions among the largest U.S. breweries, three craft
breweries were ranked among the top-10 largest U.S.
brewers in 2017—see Exhibit 2. Exhibit 3 shows the
production volume of the 10 largest beer producers
worldwide from 2014 to 2016. The number of craft
breweries in each U.S. state in 2015 and 2017 are
­presented in Exhibit 4.
THE BEER PRODUCTION
PROCESS
The beer production process involves the fermentation of grains. The cereal grain barley is the most
common grain used in the production of beer. Before
fermentation, however, barley must be malted and
milled. Malting allows the barley to germinate and
produce the sugars that would be fermented by the
yeast, yielding the sweetness of beer. By soaking the
barley in water, the barley germinates, or grows, as it
would when planted in the ground. This process is
halted through the introduction of hot air and drying
after germination began.
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EXHIBIT 2
Rank
Top 10 U.S. Breweries in 2017
Brewery
1
2
3
4
5
6
7
8
9
10
Anheuser-Busch, Inc
MillerCoors
Constellation
Heineken
Pabst Brewing Company
D.G. Yuengling and Son, Inc
North American Breweries
Diageo
Boston Beer Company
Sierra Nevada Brewing Company
Source: Brewers Association.
After malting, the barley is milled to break open
the husk while also cracking the inner seed that has
begun to germinate. Once milled, the barley is mashed,
or added to hot water. The addition of the hot water
produces sugar from the grain. This mixture is then
filtered, resulting in the wort. The wort is then boiled,
EXHIBIT 3?Top 10 Global Beer
Producers by Volume,
2014–2016 (millions of
barrels)*
Rank
1
2
3
4
5
6
7
8
9
10
Producer
2014
2015
2016
Ab InBev**
Heineken
Carlsberg
CR Snow***
Molson Coors
Brewing Company
Tsingtao (Group)
Asahi
Beijing Yanjing
Castel BGI
Kirin
351
180
110
N/A
54
353
186
107
N/A
54
435
195
102
100
82
78
26
45
26
36
72
24
41
26
35
67
60
38
26
24
* Originally reported as hectoliters. Computed using 1 hL = .852
barrel for comparison; to nearest million bbl.
** Now includes SABMiller; previous volumes for SABMiller in years
2014 and 2015 prior to acquisition were 249 and 353, respec tively, ranking it as second for both years.
*** Was not in top 10 for 2014 and 2015.
N/A: Not available.
Source: AB InBev 20-F SEC Document, 2015, 2016, 2017.
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Case 5
Competition in the Craft Beer Industry in 2018
EXHIBIT 4?Number of Craft Brewers
by State, 2015 and 2017
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
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2015
2017
24
27
78
26
518
284
35
15
151
45
13
50
157
115
58
26
24
20
59
60
84
205
105
8
71
49
33
34
44
51
45
208
161
9
143
14
228
178
14
36
14
52
34
36
96
35
764
348
60
21
243
69
18
54
200
137
76
36
52
33
99
73
129
330
158
12
91
75
49
40
58
90
67
329
257
12
225
27
266
282
17
61
16
82
State
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
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2015
2017
189
22
44
124
305
12
121
23
251
30
55
190
369
23
160
24
Source: Brewers Association.
which sterilizes the beer. It is at this stage that hops
are added. The taste and aroma of beer depend on the
variety of hops and when the hops were added.
After boiling, the wort is cooled and then poured
into the fermentor where yeast is added. The sugar
created in the previous stages is broken down by
the yeast through fermentation. The different styles
of beer depend on the type of yeast used, typically
either an ale or lager yeast. The time for this process
could take a couple of weeks to a couple of months.
After fermentation, the yeast is removed. The process is completed after carbon dioxide is added and
the product is packaged.
Beer is a varied and differentiated product, with
over 70 styles in 15 categories. Each style is dependent 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 characteristic taste and color. As another example of differentiation through raw materials, wheat beers, such
as German-style hefeweizen, are brewed with a minimum 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 variety. For example, an amateur; or home brewer; could
brew beer for home consumption. There had been
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PART 2
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Cases in Crafting and Executing Strategy
a significant increase in the interest in home brewing, with over 1 million people pursuing the hobby in
2016.7 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 microbrewery a successful commercial operation.
A small nanobrewery may brew a variety of flavor 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 brewing beer. In contrast, a global producer such as AB
InBev could produce beer for millions of consumers
worldwide with factory-automated processes.
LEGAL ENVIRONMENT OF
BREWERIES
As beer was an alcoholic beverage, the industry was
subject to much regulation. Further, these regulations could vary by state and municipality. One such
regulation was regarding sales and distribution.
Distribution could be distinguished through
direct sales (or self-distribution), and two-tier and
three-tier systems. Regulations permitting direct sales
allow the brewery to sell directly to the consumer.
Growlers, bottle sales as well as tap rooms were all
forms of direct, or retail, sales. There were usually
requirements 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 wholesaler—the liquor or beer distributer.
This distributor then sells to the retailer, who then
ultimately sells to the consumer.
This distribution structure, however, had ramifications for the consumer, as much of what was available 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
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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 restaurants where a consumer may find a locally-brewed
beer. In states that do not allow self-distribution or
on-premise sales, distribution and exposure to consumers could represent a barrier for breweries, especially 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, breweries, were required to have labels for beers approved by
the federal government, ensuring they meet advertising 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 breweries, 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 (ACA) and
changes to the Fair Labor Standards Act (FLSA)
greatly affected labor cost in the industry. Where the
ACA mandated health care coverage by employers,
the FLSA changed overtime rules for employees previously 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 ability to remain viable or competitive.
Lawsuits might also impact breweries’ operations.
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 requirement of providing an additional sign warning against pregnancy
and BPA (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 direct to
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Case 5
Competition in the Craft Beer Industry in 2018
breweries or distribute through wholesalers. Brewers
who wish to produce a grain-specific beer would be
required to procure the specific grain. Further, recipes might call for a variety of grains, including rye,
wheat, and corn. As previously mentioned, the definition 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
difficult 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 brewers tend to use such ingredients.
Exhibit 5 illustrates the amount of grain products
used between 2010 and 2014 in th…
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