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Date Submitted: 09/15/2014 08:22 PM
Boston Beer Company Case Analysis
Alex Herrmann Sec 021
1. What do you think of the company’s business model relative to the traditional beer company’s model? Relative to Redhook and Pete’s?
Beer companies have two choices when entering the market: create a low cost, mass-produced beer lacking high quality taste, or craft tasteful, low quantity brews that resonate deeply within beer drinkers.. Boston Beer Company chose the latter strategy and achieved success in the 90’s.
A high quality product was the initial grab to generate sales growth, but their model focusing on the management of costs along with overall manufacturing flexibility was the key to their success. A traditional model used by major and second-tier domestic producers includes producing in house and distributing with other partners. These models include all the direct and overhead costs of manufacturing, while import companies would have to deal with higher shipping and transportation costs.
Where BBC excels is in their lower capital and overhead costs by using a custom brewing method, thus increasing gross margins. They can use the high capacity inventory of second-tier brewers, forgo the manufacturing costs, and focus efforts toward brand awareness and management. These contracts give BBC substantial power in the negotiation process, as there are many substitutes that could produce their beer; they hold the secret recipe others may not have. Moreover, the premium product produces a higher selling cost to make up for the lower breadth of customers. The company can remain profitable enough despite a lower percentage of market share due to their fresh, high quality product, in conjunction with a considerable gross margin.
In comparison to other craft beer companies, such as Redhook and Pete’s, BBC has shared in the same growth capitalization as these competitors. Redhook and BBC take a right and left wing approach in terms of producing their own capacity (Redhook) vs....