General Industry Environment
Boston Beer Company originated in the attic of founder Jim Koch’s home using a family recipe passed down from the 1800’s. The first Samuel Adams beer was sold in April 1985 and sold nearly 500 barrels before the year was over. In 1988, Boston Beer Company opened its first brewery in Boston and continued to open several more across the country. It became public in 1995 and traded on the New York Stock Exchange under the ticker SAM.
Boston Beer Company now competes in the Better Beer subsector of the beer industry, which is made up of craft brewers, microbrewers, and other domestic specialty beers. Boston Beer Company sold over 2.7 million barrels of beer in 2012, making it the largest craft brewer in the United States.
The craft brewing sector of the industry is much more focused on high quality products, meaning firms rarely compete on price. Premium beers are well positioned for increasing growth as consumer preferences shift coming out of the financial crisis in 2008. As consumers become more health conscious, the market will see a shift toward premium beers which are viewed as healthier than lower end beers. According to SAM’s research, the craft brewing sector grew approximately 11% in 2012 compared to the measly 1% growth of the overall industry. Boston Beer currently holds an estimated 19% of the market share within this industry compared to the next closest competitor, Sierra Nevada Brewing Company, holding only 6%. Craft brewers operate on a much smaller scale than the large microbreweries in the industry, meaning that they often have higher input costs. Economies of scale in respect to manufacturing and distribution are extremely tough to achieve at such a small scale. Moreover, barriers to entry for craft brewers are often much smaller than larger brewers. Companies within the industry see margin expansion as more consumers shift demand towards premium beers. The culmination of all of these factors has led to an increasingly competitive landscape for Boston Beer Company.
Products sold by the Boston Beer Company are categorized into two groups: core brands and non-core brands. Core brands consist of Samuel Adams, Twisted Tea, and Angry Orchard product lines. The non-core brands are brewed and packaged under various third party contracts and made up roughly 92% of shipments in 2012.
The Samuel Adams product line is the primary product for Boston Beer Company. Samuel Adams Boston Lager and Samuel Adams Seasonal Beers are the main drivers for sales growth in the craft brew industry. In addition to the popular Sam Adams craft beers, other products have been added to the line over the years, and Boston Beer currently sells over fifty beers under the Samuel Adams label. According to Boston Beer, sales growth within the craft brew industry grew by an estimated 12% in 2012 compared to the total beer industry growth which accounted for only 1%.
The flavored malt beverage, Boston Beer’s Twisted Tea, competes with brands such as Mike’s Hard Lemonade, Smirnoff Ice, and Bud Light Lime. The first Twisted Tea product was launched in 2001, creating a sweeter side to the Boston Beer Company. The Twisted Tea brand currently sells ten different products and makes up roughly 2% of United States beer consumption. The flavored malt beverage category has been rising in popularity for several years, increasing sales volumes by 9% in 2012.
The Angry Orchard product line was released in 2011 and competes with other ciders and various spirit brands. Hard cider accounts for approximately 0.5% of beer consumption in the United States. Currently the company sells five hard ciders under the brand Angry Orchard. Regardless of its small size, this category is expanding rapidly and experienced growth of roughly 65% in 2012.
In order to produce higher quality products that can meet the capacity requirements demanded by consumers, Boston Beer Company…