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- Citation: Ghemawat, Pankaj, and Jan W. 'Adolph Coors in the Brewing Industry (CW).' Harvard Business School Spreadsheet Supplement 703-756, January 2003.
Selected Exhibits from Adolph Coors in the Brewing Industry, Spreadsheet. Rivkin; Pankaj Ghemawat. Published Jan 1, 2003.
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Beer is the oldest alcoholic beverage in the world. It has produced in an artisanal setting for thousands of years, dating back to around 3500 BC (History, 2010). As developments in agriculture and technology occurred, beer production shifted to industrial manufacturing. Beer is produced using a process called brewing. The brewing process involves variable amounts of time in which a source of starch, usually hops, is fermented to produce alcohol. The process can produce countless types of beer, with variable concentrations of alcohol, varying flavors, and appearances. These beverages are packaged into either kegs, glass bottles, or aluminum cans. A building or organization dedicated to this process is known as a brewery.
The brewing industry today is a global business that is made up of several dominant companies. As of 2010, the key players in the industry are MillerCoors and Anheuser-Busch. Anheuser Busch is the largest brewing company in the United States with 32 breweries globally, 12 of which are located in the United States. In late 2007, SABMiller and Molson Coors Brewing Company joined forces in order to better compete with Anheuser-Busch. These major brewing companies make up the largest segment of the brewing industry. There are also thousands of smaller regional breweries often referred to as microbreweries which make up a second segment. Finally, a very small percentage of “homebrews” and domestic production occur. This analysis will focus almost exclusively on the segment that consists of the multinational conglomerates such as MillerCoors and Anheuser-Busch.
The US beer market produced total revenues of $78.8 billion in 2008. Lager sales account for $28.2 billion of the total (Datamonitor, 2009b). Beer accounts for 52.9% of the alcoholic drink industry in the US, with spirits at 29.4%, and Wine at 17.7% (Datamonitor, 2009a).
*A stipulation to this analysis is that it will be based primarily on the Harvard case study “Adolph Coors in the Brewing Industry.” Outside information will be incorporated where necessary for a complete analysis.
*In the absence of specific statistics from past years, current numbers are substituted.
*Brevity is highly valued for this analysis, though not at the expense of a thorough analysis.
PEST
The PEST model is a framework which is used to analyze the macroenvironmental factors that companies within an industry must take into account. This PEST analysis will examine the political, economic, social, and technological factors in relation to the brewing industry.
Political and Government regulation
There are significant rules governing general alcohol consumption. First, drinking in public places such as streets or parks is prohibited. Second, the minimum age of consumption is 21 years old in the United States. There are also restrictions related to the manufacturing, sale and possession of alcohol. In the United States, the sale of alcoholic beverages is controlled by individual states. Finally, the production of spirits is taxed and requires a permit to operate a plant (TTBGov, 2010).
Economic
The brewing industry benefits from having commodity-based inputs. There is little variance in the raw materials necessary for the brewing process, as they are mainly agricultural commodities. Price elasticity of demand for beer is low, ensuring steady demand.
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Social-cultural
Consumer preferences are important in the brewing industry. Consumers have varying tastes, and prefer to be able to choose among the varying types of beer. However, alcohol consumption can have adverse affects on human physical health. Beer is high in carbohydrates, and it can be argued that high consumption can cause weight gain, or even liver-disease. There are also benefits of alcohol consumption. The age of the consumer affects the industry. As baby boomers reach the legal drinking age, the number of beer drinkers rose, and also the amount consumed (Ghemawat, 1992). Additionally, more and more Americans drink more beer at home, whereas they had traditionally had it in bars and restaurants (Ghemawat, 1992).
Technological
Brewing techniques affect the brewing industry heavily. Post WWII developments would allow for less time needed for the aging process. The pasteurization process would allow beer to last up to six months unrefrigerated (Ghemawat, 1992). Capacity and efficiency are highly based on technology of both the brewing, and packaging machinery. Also, the switch from glass bottles to aluminum cans was a large technological development. The technology surrounding television and web marketing have changed, giving firms easier methods for greater exposure, and also shipping and transportation costs fluctuate, affecting value-added (Ghemawat, 1992).
III. Porter’s Five Forces
A. Threat of New Entrants (LOW)
The following elements will help determine the level of threat from new entrants.
1. Economies of scale
Economies of scale are significant for the brewing industry. This represents a high barrier to entry for potential competitors. Large, established firms such as MillerCoors and Anheuser-Busch have enormous brewing capacity, and are able to realize economies of scale that come from mass production and larger contracts. As of 1985, doubling the scale of a brewery cut unit costs by 25% (Ghemawat, 1992). During the rising demand that the industry experienced during the 1960s and 1970s, both Anheuser-Busch and Schlitz, major players at the time, added large breweries to help cope with the demand, and to benefit from economies of scale (Ghemawat, 1992). This allows existing firms to decrease their cost per unit produced. Any new entrant would have to invest a large amount of capital in production facilities. This makes the industry unattractive.
2. Working capital requirements
The cost of operating a brewery is significant. A significant implication of the brewing process is that it takes time. A major development in the brewing process after WWII allowed brewers to cut the aging time from 30 days to 20 (Ghemawat, 1992). Even with this decrease, it is still costly not only to facilitate the brewing process, but to maintain locations in which the beer can be aged. This serves as a deterrent for small firms who wish to enter.
3. Proprietary product differences
Coors, like many most brewers, has a unique taste associated with its beverages. Little information was available as to the nature of the Coors recipe, however, it would not difficult for any knowledgeable entrant to the industry to imitate the taste of the varying Coors lines. Coors does age its product for 70 days, rather than the industry average of 20-30 (Ghemawat, 1992). Imitation of the Coors brewing process would also be easy, and therefore, threat of entrants is increased.
5. Brand identity
Brand identity is important in the brewing industry. For Coors, their marketing expenses as a percentage of sales increased from 3.3% in 1973 to 10% in 1985 (Ghemawat, 1992). This decreases the threat of entrants, as it takes significant investment to establish brand recognition.
4. Absolute Cost Advantages
As stated above, Coors and its major competitors can take advantage of economies of scale, which gives lower manufacturing costs, and also cheaper access to raw materials. Coors produces its own malt through long-contracts with farmers (Ghemawat, 1992). These connections are likely exclusive to large firms, and decrease the threat of entrants.
6. Access to distribution
Coors products reach the market primarily through retailers and wholesalers. As of 1985, Coors’ distribution network consisted of 569 wholesalers, and 5 additional Coors-owned wholesalers. Coors also has its own trucking subsidiary, which takes on a large amount of its transportation needs. This decreases the threat of entrants (Ghemawat, 1992).
The threat of new entrants is low. The capital requirements for starting a brewery, and quickly achieving the necessary economies of scale is a large barrier. Access to distribution networks takes time, and also contracts to obtain necessary shelf-space to sell product. These factors make the industry unattractive for new entrants.
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B. Suppliers (LOW)
1. Supplier concentration
The main suppliers in the brewing industry consist of malted grain and hops for the fermentation process, and bottles or barrels for storage and transportation. Supplier power is weak because of their size, relative to the brewers, and also because farming operations are numerous (Brewing Industry US).
2. Presence of substitute inputs
The presence of substitutes in the brewing industry varies. If aluminum cans are considered a substitute for bottles and barrels, then this factor is an issue. Also, lower quality hops might be substituted for higher quality, more expensive, flavorful hops.
3. Differentiation of inputs
Since ingredients required for brewing have little qualitative differentiation, supplier power is lowered.
4. Importance of volume to supplier
There are few other uses for hops, especially commercially, than brewing beer. The brewing industry purchases a significant percentage of the total hop production, which diminishes supplier power. However, there are alternative uses for barley, which can be integrated in the brewing process, but isn’t as common. This slightly boosts overall supplier power (Brewing Industry US).
5. Impact of inputs on our cost or ability to differentiate
Agricultural inputs account for 20-25% of total raw materials costs for major brewers. The remainder is allocated for packaging (Ghemawat, 1992). This increases supplier power, as the price of their product affects the final product.
6. Threat of forward or backward integration
Since suppliers are small in comparison to breweries, forward integration is uncommon. However, there is evidence of backwards integration by large brewers. For example, Coors acquired a grain-processing plant as well as other operations to protect itself from price fluctuations (Ghemawat, 1992).
7. Access to labor
As of 1985, Coors was the only major brewer that was not unionized (Ghemawat, 1992). The implication is that the brewing industry is unionized. During a strike in 1977, a strike caused Coors to have to shift employees within the company. The production levels were quickly returned to normal, indicating that skilled workers are not necessary (Ghemawat, 1992). Labor supplier power is low.
Supplier power is low because of unfavorable supplier concentration. Suppliers of the brewing industry need the brewing industry as there are little other uses for their products, and their products are considered commodities.
C. Buyers (MODERATE)
1. Buyer concentration
Buyers in this market are highly concentrated. In 1985, 4,500 independent wholesalers existed in the United States (Ghemawat, 1992). Larger buyers are able to negotiate contracts effectively (Datamonitor, 2009b).
2. Buyer switching costs
Buyers do not have particularly high switching costs. Many buyers are willing to switch brands based on price and differentiation. The lack of buyer switching costs increases buyer power, making the brewing industry more unattractive (Datamonitor, 2009b).
3. Threat of backward integration
Beer Industry
There is no indication that buyers are backward integrating, and producing their own product to sell, making the industry more attractive.
4. Pull through
Pull through exists in the brewing industry because brand identity is important. Advertising expense as a percentage of sales over time for the brewing industry has been trending upward. As of 1973, advertising expenditures were 3.3% of sales. That amount increased to 10% of sales by 1985 (Ghemawat, 1992). Therefore, the brewing industry has power over the buyers, making it more attractive.
5. Price sensitivity
The brewing industry is able to pass cost increases on to the buyer as indicted by the existence of multiple beer segments. End consumers are willing to pay more for quality beer. Brewers are not able to pass on shipping costs however, reducing attractiveness (Ghemawat, 1992).
Buyer power is moderate. There are more buyers than firms in this industry, and pull-through from brewers creates power. There are shipping costs and other aspects that the breweries cannot pass on to their customers.
D. Substitute Products (MODERATE)
Substitute products for beer consist of wine, liquor, as well as imported beer. These products constitute a moderate threat. In 2008, Beer had a 52.9% share of the alcoholic drinks market, with spirits at 29.4%, and wine at 17.7% (Datamonitor2009a).
1. Relative price/performance relationship of substitutes
The per-unit-volume price is often affected by alcohol content, which is higher in liquor and spirits. Also, shelf space is more expensive for items such as beer, which must be refrigerated (Datamonitor,2009a). The threat of substitute products is increased.
2. Buyer propensity to substitute
Projections for the industry indicate that consumers may switch away from beer to other alcoholic beverages as consumers become more confident and begin spending their discretionary income. Consumers who may normally drink higher priced alcoholic drinks tend to switch to lower priced beer during a recession (Ibisworld, 2010). This effects the buyers of the brewing industry as their demand will fluctuate.
The threat of substitute product is moderate because of end-user propensity to switch away from beer when possible financially. Other forms of alcoholic drinks are often more potent, making them a better deal for the consumer, depending on their intentions or desires.
E. Rivalry (HIGH)
1. Degree of concentration and balance among competitors
The brewing industry is highly concentrated, and unbalanced. In 1985, the six major players in the industry controlled 75% of market share. In 2009, this number had changed to the two major players controlling 79.2% of the market share. Anheuser-Busch controls 50.1%, and MillerCoors, the remaining 29.1%. This heavy rivalry makes the industry unattractive (Ibisworld, 2010).
2. Diversity among competitors
Anheuser-Busch and MillerCoors are following similar strategies. Both companies are focusing on promoting their largest brands, expanding their geographic reach, and increasing efficiency (Ibisworld, 2010). This makes the industry unattractive.
3. Industry growth rate (past and projected)
The brewing industry is experiencing maturity, growth rates have been slow, and consolidation frequent. From 2010 to 2015, the industry has experienced a -0.3% growth rate. However, it is projected to grow 1.3% by 2025 (Ibisworld, 2010). The industry is unattractive.
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4. Fixed costs to value added
Fix costs are high and economies of scale are possible in the industry. Value-added trended upward until its high point in 2003 of $25,924.3 million, but has since fallen to just over $23,038 million. The industry is at maturity and rivalry has increased, making the industry unattractive (Ibisworld, 2010).
5. Intermittent overcapacity
As of 1985, the 6 major competitors in the brewing industry were operating at an average of 83% capacity. The brewing industry has been plagued with overcapacity issues in the past (Ghemawat, 1992). Rivalry is increased.
6. Product differentiation
Firms differentiate their products in this industry through advertising, segmentation, and packaging. Advertising helps firms reach critical thresholds of exposure, while segmentation increases market share (Ghemawat, 1992). Brewers can differentiate their products by segments, but also can use brand, ingredients, and style. The degree of differentiation makes the attractive (Datamonitor, 2009b).
7. Growth of foreign competition
To what extent are foreign firms able to penetrate the US market? If there is a growth in foreign firm’s penetration, this increases rivalry making the industry unattractive. It also shows that US firms are not being globally competitive.
8. Corporate stakes
As of 1985, 84% of Coors’s revenues came from its brewing division (Ghemawat, 1992). This increases rivalry, making the industry unattractive.
9. Exit barriers
Firms in this industry could exit by converting operations to another product, or as shown by the consolidation of the industry, exit through merger or acquisition.
Rivalry in this industry is high. Since the brewing industry is so highly concentrated and unbalanced, the major firms in the industry have very similar strategies and compete for similar niches. This makes the overall industry attractiveness low.
IV. Conclusion
After analysis of the items above, conclusions can be drawn about the brewing industry.
A. Critical Success Factors
There are a number of critical success factors for this industry:
Economies of scale are a necessity to be profitable in the industry. Firms must have production facilities that are large enough to spread the fix costs of production out of millions of barrels of product. These facilities must also have high capacity to deal with demand fluctuations.
Second, firms must have strong, differentiated brands that fit into multiple segments.
Finally, a strong distribution network is imperative to obtaining sales levels.
B. Prognosis
Entering into the brewing industry would be a uncertain venture. There are many barriers to entry for small firms such as microbreweries, such as economies of scale and capacity. The brewing industry is projected to contract, but the major players will continue to jockey for market share (Ibisworld, 2010). Competitive forces have contributed to consolidation in the past and likely will in the future, as smaller firms merge with larger ones, in order to better compete in the industry.
Part II: Firm Analysis
I. Current Situation
A. Brief firm history
Adolph Coors brewery was founded in Golden, Colorado in 1873. After surviving the prohibition era of the 1920s, Coors would become very successful. After the repeal of Prohibition, Coors sold 90,000 barrels of beer. It also began expansion with its introduction of wholesalers outside of Colorado, in Arizona, and eventually 9 other states. The size of the company would increase exponentially. By 1960, Coors sales volume reached 1.9 million barrels, 7.3 million by 1970, and finally 12.3 million by 1974. In 1975, the Coors family offered non-voting stock to the public (Ghemawat, 1992).
More recently, the Adolph Coors Company became the parent company through a merger with Molson, a Canadian brewing giant. Coors would begin numerous ventures and partnerships, most notably, a joint venture with Miller Brewing to form MillerCoors in June of 2008 (Datamonitor: Coors).
Today, the company operates 18 breweries and distribution centers over 30 countries. The US segment operates 8 major breweries with a capacity of 85 million barrels annually. The brands sold in the US are Coors, Coors Light, the Blue Moon line, Killian’s, Keystone, and Molson among others. Molson operates Coors’s Canadian operations with 6 breweries. Coors also sells around 9 million barrels in the UK (Datamonitor, 2009c).
MillerCoors currently controls 29.1% of market share, behind industry-leader Anheuser-Busch with 50.1%. Coors’ broad portfolio of over 40 brands allows it to reach a wide range of market segments (Ibisworld, 2010).
B. Strategic Posture
The current vision of MolsonCoors is “to be a top four global brewer in profitability, fueled by our people who are committed to delivering exceptional results and creating extraordinary brands” (Molson, 2010). The mission statement was not stated anywhere. The first portion, “to be a top four global brewer in profitability” is quantifiable through revenue. The last 2 parts are more difficult to measure, though Coors does have a large portfolio of successful brands.
II. External Environment (Opportunities and Threats)
The findings of the above industry analysis apply specifically to Coors in the following manner:
A. General Environmental Factors
The issues that affect Coors more heavily are the issues of product differentiation to meet consumer needs, and also the capacity and efficiency factor. The opportunity to market their products more extensively is important to Coors.
B. Task Environment
The Rivalry factor is currently affecting the level of competitive intensity within the brewing industry. Coors faces strong rivalry from Anheuser-Busch. They currently pursue very similar strategies, making competition strong. Currently Anheuser-Busch controls over 50% of the market share. As they compete for the same markets niches, it will be important for Coors to maintain competitive levels of advertising. Also, Coors has been efficient in their production capacities in the past, but as demand grows, they may need to make changes to keep up.
III. Internal Environment (Strengths and Weaknesses)
A. Management
The Coors board consists of nine members, four of which are members of the Coors family. As of 1985, the Coors family continued to hold all of the voting stock (Ghemawat, 1992).
Peter Coors became president of Coors in 1985. There was some dissent between the younger members of the board, including Peter, suggesting that had a differing vision for the direction of the company. It is implied that he thought it was necessary to add effective marketing skills to the manufacturing skills that the company already had (Ghemawat, 1992).
B. Marketing
Coors operates in every segment except for the low-price “popular” segment. In1985, Anheuser-Busch had a particularly strong product mix, much as Coors had, though Anheuser-Busch’s market share was much larger. The most notable major competitors’ products were Anheuser-Busch’s Budweiser, with 25.8% of market share, and Miller’s Lite beer, and High Life which together accounted for 17.5% of market share (Ghemawat, 1992).
Coors’ pricing is appropriate for the market. There are no strong indicators that Coors’ pricing strategy is not competitive. In 1985, domestic producers supplied barrels at $67 each.
Distribution is a major issue for Coors. In 1985, all of the major competitors except Coors functioned in all 50 states, but only had a median shipping distance of 300-400 miles. Coors was shipping their product 1,500 miles. Beyond this, their inefficient trucking system added 10-15% additional cost (Ghemawat, 1992).
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Adolph Coors In The Brewing Industry
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Finally, Coors’ launch of new products called for an increase in advertising. Coors’ “silver bullet” campaign proved successful, as Coors Light had become the 2nd best-selling light beer (Ghemawat, 1992). Coors spends less than the industry average for its promotional efforts. There is also statistical evidence that 90% of the effect of advertising is lost within one year (Ghemawat, 1992).
Coors has not marketed itself as heavily as some of its competitors, which puts it at a disadvantage. It likely has much to do with the smaller size of Coors’ market share.
C. Operations/Production
Productivity improvement has been extremely important to Coors in its history. In 1985, Coors’ capacity utilization was above that of both the top players in the industry at 92%, which is high. The issues Coors is facing pertaining to distribution, and whether or not to open a new brewery would be a result of the firm’s re-invention.
Growth through product development is important to Coors. It has six product lines in varying segments, indicating it is emphasizing product development within the brewing industry. At some points in its history, it was diversified outside of the brewing industry, but decided to focus on core competencies (Ghemawat, 1992).
Coors benefits from high historical efficiency in production, and also strong brands that it can use to differentiate itself.
D. Human Resource Management
Unions have historically had little effect on the operations of Coors in particular, but they are present in almost every other firm in the industry. A strike during 1977, illustrated Coors’ lack of vulnerability to this threat (Ghemawat, 1992).
E. Management Information Systems
This section is not applicable.
IV. Critical Success Factors
This section will briefly outline how Coors is managing the critical success factors in its industry.
Economies of scale are a necessity to be profitable in the industry. Coors’ Golden Colorado brewery is the largest in the industry, capable of producing 25-30 million barrels a year (Ghemawat, 1992). This production facility has allowed them to take advantage of economies of scale and spread the fix costs of production out of millions of barrels of product. Coors brewing facilities have historically had high capacity to deal with demand fluctuations, but future demand may prompt changes.
Second, Coors has strong, differentiated brands that fit into multiple segments. Coors’ broad portfolio of over 40 brands allows it to reach a wide range of market segments (Ibisworld, 2010).
Finally, a strong distribution network is imperative to obtaining sales levels. This is the aspect in which Coors is the weakest. Economics would dictate that an “in-house” operation would increase value-added, but Coors’ distribution network is not strong enough for them to realize financial benefit.
V. Strategic Problem
Management has failed to ensure the longâ€term survival of Coors because they have neglected the importance of strong distribution networks, and shipping expenses associated with proximity to markets, and of refrigeration needs. If Coors wants to successfully compete on a national level, like its competitors, it will need to boost the efficiency of its distribution network.
VI. Strategic Alternatives
Option 1
Construct an additional brewery in the eastern United States such as the location in Virginia. This brewery would serve the eastern United States, and add additional capacity to Coors overall.
The pros of this option are as follows: It would reduce costs associated with shipping from the Golden Colorado site. Coors estimates a $2.50 saving per barrel if it would not have to ship its entire product the average 1500 miles. Although the brewing industry is not projected to grow, it would not hurt Coors to have more resources and capabilities, and not have to base their entire operation on the single brewery.
The cons of this option are as follows: It would take a large investment to establish a new brewery, and maintain its production. A 5-million barrel brewery would cost $200-$250 million (Ghemawat, 1992).
Option 2
A second option would be to begin focusing heavily on marketing. The numbers show that Coors is considerably behind their competitors in advertising spending as a proportion of sales. The company has strong brands that could perform better with additional promotion.
The pros of this option are as follows: Increased brand awareness, and information about the varying brands that Coors produces will result in additional sales volume. Targeting advertising about certain product lines to certain target markets could increase penetration into market niches, and result in additional market share.
The cons of this option are as follows: The additional costs of a national advertising effort will be high. ROI may be low because of statistical data from studies indicating that advertising in this industry does not create lasting impressions (Ghemawat, 1992).
VII. Recommendation
After weighing the alternatives and their pros and cons, it would be most beneficial for Coors to select strategic option one, and construct an additional brewing facility. If they were to select strategic option 2, and the effects of their marketing campaign were favorable, they may not be able to keep up with demand which would be disastrous for the company. It may take them too long to make the necessary expansions in time to capture the additional market share. Constructing another brewery would also serve to drastically lower shipping costs.
VIII. Implementation
There are a number of strategic steps that will need to be implemented.
Coors will need to ensure that it has the necessary funds for completion of the project. If they do not have the necessary funds, they will need to be acquired through efficient channels.
Second, the site will have to be purchased. Any local environmental or social regulations or preferences will need to be planned for. Construction of the brewery will begin.
Finally, the project will need to be completed on time to meet projections of needed capacity from the brewery to satisfy the demand needs of the east coast.
Necessary sunk costs will need to be maintained to aid in startup of the facility including provisions for raw materials and machinery, as well as beginning the brewing process.
Finally, Coors’ distribution network will need to smoothly integrate the new site into the existing framework.
The brewery will allow for additional production of all of Coors’ product segments, using the existing brand recognition and perceived quality that Coors’ brands have. The costs associated with shipping will be reduced drastically.
Coors has an opportunity to further expand its capacity. Coors position within the industry is currently strong, but the company will need to take the necessary steps to facilitate growth. Fierce competition from Anheuser-Busch, the industry leader will only get tougher if Coors does not take a proactive rather than reactive stance. If the company follows the strategic recommendation above, it puts them in a good position to market themselves additionally, but only after they have the necessary capabilities.
IX. Bibliography
Datamonitor, Inc. (2009a). Alcoholic Drinks in the United States: Industry Profile. New York, NY. Retrieved April 19, 2010, from the Datamonitor Company Profiles Authority Database.
Datamonitor, Inc. (2009b). Beer in the United States: Industry Profile. New York, NY. Retrieved April 19, 2010, from the Datamonitor Company Profiles Authority Database.
Datamonitor, Inc. (2009c). Molson Coors Brewing Company: Company Profile. New York, NY. Retrieved April 20, 2010, from the Datamonitor Company Profiles Authority Database.
Ghemawat, P. (1992). Adolph Coors in the Brewing Industry. Boston, MA: Harvard Business School. (Original work published 1987)
History of Beer Brewing. (2010). Wine Making Beer Brewing. Retrieved April 21, 2010, from http://www.winemakingbeerbrewing.com/history/history-of-beer-brewing
IBISWorld, Inc. (2010). IBISWorld Industry Report 31212: Beer Production in the U.S. Washington, DC: Areeb Pirani.
Molson Coors Brewing Company.
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Introduction
Coors Brewing Company was founded by Adolph Coors in 1873. The company has a long history but one of the most significant events that marked Coor’s service excellence happened in 1985. In that year, overall sales report in the brewing industry revealed that most companies were not profiting from operations. However, even during a difficult time, Coors Brewing was able to account for a sufficient percentage in the market in terms of sales. Statistics then also revealed that the sales of the company increased b y 13 percent, amounting to $1 billion in revenue, which is the highest amount the company had ever acquired in its entire operations. From then on, Coors Brewery had undergone various changes in management, marketing, production, and distribution.
The primary objective of the case study analysis is to obtain an overview of Coors Brewery, most importantly during the company’s peak in 1985. The analysis will involve the identification of the company’s management strategies in order to face the various challenges and difficulties experienced during that time, especially in the brewery business. The strategies that were employed will be studied in order to determine how each one rationally addressed the internal and external issues that affected company operations. Questions about the efficiency or inefficiency of these strategies will be asked in order to determine how and in what ways Coors was able to accomplish organizational success.
After assessing Coors Brewery’s management and overall strategies, recommendations will be determined in order to contribute to the improvement of company operations. The analysis and application of different themes and concepts in strategic management are also expected to help in formulating sound and efficient recommendations for strategic management in the company.
Company Background
Before 1985, Coors underwent various changes due to internal or external factors that affect the management of the company. In 1930s, operations were resumed for Coors and the continued distribution of the company’s beverage led to its expansion to ten other states in the Western US. The Great Depression that began in the early 1930s however, disrupted the company’s operations. Coors was only able to make up for its losses in the 1940s, after the Great Depression. Coors modified the company’s marketing strategies and repackaged its bottle in order to obtain a larger consumer base. Repackaging and marketing efforts led to Coors’ wide distribution of its products to the US military (Coors Brewing Company, 2010).
Earlier efforts to repackage the products offered by Coors were continued until the 1950s. Coors Brewery once again repackaged the company’s beer product in order to address sustainability concerns. Thus, Coors Brewery was able to exhibit corporate social responsibility even then. The company’ s beer products were packaged in aluminum cans in order to encourage recycling. In the 1960s, product development strategies were applied. Coors Brewery introduced the company’s newest product, the Yellow Bellies. Along with the expansion of the company’s existing products, distribution expanded to include 16 other states in the country (Coors Brewing Company, 2010).
Coors Brewery continued to expand until the company’s most momentous expansion across the Mississippi River. The company also repackaged its products and added variety, by offering its beer products in different can sizes. Coors Brewery also worked on improving the company’s brand in order to add value to the organization. The company changed its label to primarily appeal to a wider consumer base. After the 1980s, the operations of Coors continued until the company was able to gain recognition in The Great American Beer Festival. The company continued to focus on improving the taste of its beer products and repackaging them to fit branding changes. Expansion continued until the company was able to distribute to Indiana (Coors Brewing Company, 2010).
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Significant social changes in the 21st century, especially in popular culture, led Coors Brewery to include fashion and pop culture as a primary consideration in repackaging the company’s beer and marketing its various products. Thus, Coors Brewery has four different products, which the company describes as “Y2K-friendly redesign in 2000, boasting ‘original’ in proud fashion in 2003, the red and white ‘banquet’ icon makes a comeback in 2004, and a bold, new look that pays respect to its Western spirit and legendary past surfaces in 2007” (Coors Brewing Company, 2010). Since the coming year is the start of another decade, Coors Brewery is expecting to adopt new changes based on the influencers in the company’s internal and external environment.
Company Goals and Objectives
Since the company was founded in the 1980s, the company has undergone continuous transformation in order to increase the company’s revenue. Coors Brewery’s primary strategy then was to expand to various industries “including porcelain, food products, biotechnology, oil and gas, and health systems” (Ghemawat, 1987, p. 1). Although the company has also gained significant amount of revenue from its various ventures, Bill Coors, the Chairman of Coors Brewery emphasized that the foundation and continued growth of the company will always be dependent on its brewery business. As a result, the company underwent drastic changes during the late 1970s and early 1980s with its primary objectives to: (1) gain competitive advantage and (2) continue the company’s transformation and expansion for further improvements and revenue increase.
The competitive environment in the brewery business is a primary factor that affects major decisions in organizational management. The primary concern regarding this issue involves the evaluation of competition in the US brewing industry based on its industry structure, in terms of procurement, production, distribution, and marketing. In the 1980s, the demand for beer in the US was at an all time high. The high demand for beer products has prompted Coors Brewery expand to another location in order to keep up with the increasing consumer demand for beer (DeYoe, 2003). Aside from demand, existing rivals for the company also pushed Coors Brewery to expand to another location in order to add value to the organization and increase its existing consumer base.
Maintaining competitive advantage and fueling a smooth transformation or expansion within the organization also meant that Coors Brewery must be able to change its operations in various areas and divisions, especially marketing. The company did not only need to expand its business to increase its delivery of goods, but Coors Brewery also focused on marketing, and modified practices and strategies in procurement, production, and distribution. In order to change the unfortunate situation of Coors Brewery in previous years, the company had to implement organizational change as its core strategy.
Core Strategy: Organizational Change
Organizational change at Coors Brewery included transformations in the major areas or divisions of brewery – procurement, production, distribution, and marketing. Planned transition began in the late 1970s. Procurement of the company’s raw materials became a meticulous process, as selection was primary based on the quality of products. The management was also specific about how the company’s beer was to be produced and distributed. “Coors beer was not pasteurized, but cold filtered and shipped in specially insulated rail cars and trucks… its special handling, and limited availability led to a mystique attaching to Coors” (Blocker, Fahey & Tyrell, 2003, p. 174). Furthermore, Coors continued to expand distribution to more states and marketing extended to a wider market segment. “As part of the expansion, Coors built a packaging plant in the Shenandoah Valley of Virginia in 1985 and acquired a brewery in Memphis in 1990… introducing a line of Blue Moon specialty beers” (Blocker, Fahey, & Tyrell, 2003, p. 174).
The succeeding discussions will focus on the specific strategies that were implemented by Coors Brewery in terms of procurement, production, distribution, and marketing, that commenced organizational success within the company in 1985.
Procurement
As part of the company’s procurement strategy, Coors Brewery increased its standards to ensure that the it will only acquire the highest quality of raw materials to produce beer. Thus, the company only relied on sources of raw materials that will meet its standards. For 60 years, Coors Brewery maintained that its products are made from “pure Rocky Mountain spring water”, which defined the company’s image for years and branded the high quality of its products. The company has acquired water rights in order to access pure spring water from 60 available springs in Colorado. Thinking ahead, the company also, over the years, added and expanded its reservoir capacity over the years to continue production in the event that its pure spring water sources are affected by dry spells.
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At present time, organizations rely on outsourcing in order to save on operational cost. Coors Brewery, however, was not keen on outsourcing its raw materials as the company believed its strategy will lessen the supplier’s buying power. The strategy also contributed to the company’s strong brand image as it conveyed how the company was willing to spend more by refusing outsourcing just to maintain the quality of its products. Instead of obtaining its supplies of malt from different farmers, Coors Brewery chose to produce its own by developing and maintaining its own grain processing facility.
Even as early as the 1980s, Coors Brewery was already aware of its responsibility to local communities and its stakeholders. Corporate social responsibility and sustainability management practices were already implemented when Coors Brewery spearheaded the use of aluminum cans for packaging instead of bottles. Although the production of aluminum cans was more expensive than the bottles, Coors Brewery was willing to spend more in order to become an advocate for recycling. Again, the company did not rely on outsourced packaging products but also opted to create its own facility that creates aluminum materials. The company also creates its own paper labels and other packaging materials apart from aluminum. Overall, self-sufficiency was Coors Brewery’s strategy in procurement.
Production
Maintaining quality and meeting demands are two of Coors Brewery’s strategies for production. To maintain beer quality, the company ensures that the product is aged appropriately. The company has created value for the organization by ensuring that its products are of higher quality than other companies that age beer within a shorter period o time. Coors Brewery aged its beer appropriately as a means to address consumers’ health concerns. By prolonging the process of fermentation, the company lessens the amount of additives that will be added to the product. The company also maintains an efficient Quality Assurance strategy by checking for bacterial contamination frequently.
Distribution
The company implemented a freshness policy where products that were not sold after 60 days were removed from the shelves. As previously discussed, distribution strategies were improved by extending the company’s reach to more states. Routes were well-planned and channels for transportation were developed to ensure that the products will remain in terms of quality and will be transported to buyers on time. The company was established well meaning relationships with wholesalers in order to earn their trust and gain loyalty. By 1985, the company was able to acquire a significant number of wholesalers and partner companies that carried the brand.
Marketing
Marketing strategies focused on emphasizing the company’s commitment to providing high quality beers and ensuring that it supports important issues, such as environmental and health-related concerns. The company also diversified by targeting other market segments. In previous years, the company’s consumer base primarily consists of middle to upper class White American consumers and members of the military. The company however, decided to expand to other segments such as minorities – Black Americans and Hispanics – and to cater to various ages and segments by introducing different brands and products. The company launched light beer for health-conscious consumers, premium dark brands were introduced as a luxurious product for its elite consumers, flavored beers were also sold for athletes, branded for women, and so on.
Effectiveness of Coors Brewery’s Strategies
(2) evaluate the effectiveness of these strategies;
(3) explain why these strategies are effective or ineffective; and
Recommendations
(4) recommend any changes that should be made to increase the effectiveness of these strategies.