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NOTE – ADDITIONAL BACKGROUND READING AND VIDEO:
Historically, the global beer industry has looked to acquisitions or product innovations to
fuel growth in the past. In this report from 2008 it appears that the opportunities for
continued acquisitions were becoming limited. This meant major players would have to
look at regional/local brewers if they wanted to grow through acquisition – or they would
have to do internal development:
http://www.businessweek.com/globalbiz/content/jul2008/gb20080714_615944.htm
In June 2013, Anheuser-Busch InBev audaciously completed its acquisition of Grupo
Modelo. This means the brands Corona, Modelo Especial, and Pacifico, which occupy
top places in market share of U.S. imported beer sales, will now add clout to the A-B
InBev stable of products. A-B InBev now has Corona to add to Budweiser, Stella Artois,
and Beck’s, positioning the company as a global powerhouse in beer products. See
http://online.wsj.com/article/SB10001424052702303649504577495921266834262.html
for the history of this merger, which gives A-B InBev considerable ability to see
synergies in its overall operations. The merger had been delayed by the U.S. antitrust
watchdogs, who prevented A-B InBev from taking control of the U.S. distributor Crown
Imports. This means the Grupo Modelo/InBev products will still be sold in the U.S. under
the Constellation Brands/Crown Imports. But control over brewing the beer itself now
resides with A-B InBev. See http://www.stltoday.com/business/local/a-b-inbev-
completes-grupo-modelo-deal/article_c6c7cfd1-883b-5d1d-bdea-dc7a0111bac2.html for
more details.
From early 2013, here is a story about this consolidation in the beer industry. See this
video discussing Anheuser-Busch InBev’s acquisition of Mexican’s Modelo:
http://www.bloomberg.com/news/videos/b/b96f37ba-d801-44fa-b549-ada5fc44eaa5
According to this report, it takes only 5 minutes of work in the U.S. to be able to afford a
beer, which is why this is a competitive market. Corona is the top brand in 36 countries,
so no wonder A-B InBev was so anxious to acquire it.
Here’s a fun facts graphic on A-B InBev: http://www.businessweek.com/articles/2012-10-
25/99-facts-about-beer-on-the-wall-dot-dot-dot
The merger of Modelo and A-B InBev left Molson Coors SABMiller at a disadvantage.
To compete, in 2013 Molson Coors said it planned to restructure the business, including
the international segment, reduce overhead expenses, and execute global procurement
and global standardization. But then in September 2015 InBev announced it had
approached SABMiller about a takeover, “a potential move that would combine the
world’s two biggest beer makers and mark the biggest shakeup in the industry in nearly a
decade amid a growing craft beer expansion.” See the full story here
http://www.usatoday.com/story/money/business/2015/09/16/sabmiller-takeover-
approach/32488403/
This proposed merger would have implications for Molson Coors, due to its joint
venture with SABMiller. Speculation was that “Molson Coors likely would stand to
profit greatly from the deal, despite not actually truly being a part of it… If there were to
be a merger of SABMiller and Anheuser Busch in the near future, U.S. regulators would
likely force SABMiller to dispose of their stake in the joint venture, and with Molson
Coors having the right to first refusal, Molson Coors could buy the business at a
reasonable price. This would be a major positive for Molson Coors for two main
reasons. First, the purchasing of SABMiller's stake by Molson Coors would allow it to
take strategic control over its operations in its biggest market. The second reason would
be that with the purchase, Molson Coors would have the chance for significant potential
synergies, which would allow for the company to quickly cut costs. As the U.S. beer
market grows slowly, a cutting of costs is key for Molson Coors to grow its profits in the
coming years.” Read more: http://www.nasdaq.com/article/why-an-anheuser-busch-
sabmiller-merger-could-be-huge-for-molson-coors-cm520764
Molson Coors had been receiving criticism from small beermakers regarding its Blue
Moon brand, for not “spelling out their corporate parentage in ads or on their
packaging.” The fear was that the public would think this beer was truly a “craft beer”,
when, from the perspective of the real craft beer makers, this was “a phony artisanal
brew created by a mega-company to exploit a rapidly expanding market.” For their part,
Molson Coors was “taking credit for helping popularize the craft beer movement. ‘We
should be proud to make beers that grow and are popular—that’s the American way,’
says MillerCoors Chief Executive Officer Tom Long. ‘Being small and unpopular,
what’s the utility in that?’… The fight over Blue Moon’s legitimacy peaked in 2013
when the Brewers Association, craft beer’s primary U.S. trade group, published a list of
companies, including MillerCoors, that didn’t fit its definition of a ‘craft brewer.’ The
association knocked some brands for excluding parent companies from their labels.
Craft brewers are ‘small, independent, and traditional,’ according to the group’s
definition. That means they produce fewer than 6 million barrels a year—it used to be
2 million until Samuel Adams maker Boston Beer got too big to qualify. They also must
be less than 25 percent-owned by a megabrewer and meet certain ingredient thresholds.”
Some wonder if those designations make the craft breweries “snobs” – why not let
everyone benefit from flavorful beer, no matter who makes it? See
http://www.businessweek.com/articles/2013-08-08/blue-moon-vs-dot-craft-beer-rivals-
millercoors-strikes-back?campaign_id=yhoo for the whole story. ALSO see additional
articles and video in the sidebar that accompanies this article.
Here’s a video story about this battle for the craft beer designation. THIS IS GOOD TO
WATCH TO ILLUSTRATE THE STATEGIC GROUPS INVOLVED:
http://www.bloomberg.com/news/videos/b/475f9df2-1683-4f5a-b29b-5a963a2e3361
In addition, here’s a report from the Beer Institute on the demographics of beer drinking
in the U.S., explaining why “the top five states for beer consumption per capita are North
Dakota, New Hampshire, Montana, South Dakota and Wisconsin,” which drank about
45.8 gallons of beer per resident 21 and older in 2012 (partly explained by the large
numbers of young males with blue-collar jobs in these states). In contrast, residents of
Utah, with its large Mormon population, drank about 20.2 gallons of beer. See the article,
plus two interesting embedded videos at http://finance.yahoo.com/blogs/big-data-
download/states-drink-most-beer-183941283.html
Regarding the global socioeconomic challenges of beer, here’s a story issued by Russia's
biggest beer brand, Baltika, a division of international brewer Carlsberg about the outlook
for beer and alcohol consumption in Russia. Macroeconomic issues reduced opportunity
in Russia in 2015, and the brand's long-term growth opportunities in the region are very
uncertain. http://www.themoscowtimes.com/article/520630.html
3. What internal assets does Boston Beer have that may help it deal with its
challenges?
Referencing Chapter 3: Analyzing the Internal Environment -
When one firm attempts to outperform others, it’s important to figure out how this could
be done. The answer may lie in how that firm arranges its activities and creates unique
Remember, value-chain analysis is a strategic analysis of an organization that uses value-
creating activities. Value is the amount that buyers are willing to pay for what a firm
provides them and is measured by total revenue, a reflection of the price a firm’s product
Every activity should add value. Take a look at Chapter 3, Exhibit 3.1 to see the value
chain activities. Based on the relationships between these elements, Boston Beer can
As it says in the case, beer distribution in the U.S. is regulated with a “tier” structure.
This means that brewers have limited options for vertical integration within the industry.
The supply chain in the industry can look like this:
raw material grower (hops, barley, etc.) ➔ supplier (aggregator of raw
materials) ➔ brewer (can be the actual company, or can be outsourced
to a contracted brewer) ➔ bottler (can be the actual company, or can
NOTE: see the end of this teaching note for an Appendix entry explaining exactly how
beer is made.
The only activities that a brewer can “own” are the brewing and/or bottling activities. All
Boston Beer’s value chain is captured visually in the diagram below:
Value chain activity How does Boston Beer create value for the
customer? What challenges does Boston Beer have in
its value chain?
Primary:
Inbound logistics (distribution
systems, warehouse layouts)
Hard to assess. Need information on inbound raw
Operations (efficient work flow
Invested in brewery production efficiencies to lower
Outbound logistics
processing)
Focused on on-time service, forecasting, production
Marketing and Sales (motivated
effective pricing, proper ID of
customer segments &
distribution channels)
300 member salesforce with high level of product
Service (ability to solicit
Rewarded loyal customers in the past by advertising
Secondary (or support):
Procurement (win-win
relationships with suppliers,
Relied on about 400 distribution partners for selling
products, multiple foreign suppliers for raw material
Technology development (state
personnel)
Creation of Alchemy & Science to research brewing
Human resource management
& retention mechanisms)
Anecdotal reports are that employees support the
General Administration
Jim Koch owns significant stock in the company, able to
access to capital, effective top
stakeholders)
good decisions so far. Has tried to help other small
Primary Activities
In terms of primary activities, the key to Boston Beer’s ability to differentiate itself in the
market appeared to reside in its operations, outbound logistics, and marketing. In all three
Support Activities
With regards to support activities, a competitive advantage can be achieved by
developing a strong general administration that is built around visionary leadership and a
culture that pushes for technological innovation. Jim Koch appeared to be able to inspire
In addition, see the concept of the resource-based view of the firm, and the three key
types of resources: tangible resources, intangible resources, and organizational
capabilities. A firm’s strengths and capabilities – no matter how unique or impressive –
do NOT necessarily lead to a competitive advantage. The resource-based view of the firm
An important issue to focus on here is the importance of intangible resources like
innovation and reputation. Especially in mature brands, sustaining reputation is essential.
Tangible Resources:
Financial: Financially sound. However, capital was tied up in large investments in
brewing facilities.
Physical: Owned significant brewery capacity – 90% of products could be produced in
Technological: Creation of subsidiary Alchemy & Science to research brewing
Organizational: Good relationships with its subsidiary and distributors indicate it has the
Intangible Resources:
Human: Knowledgeable sales people able to increase brand awareness, educate
distributors and the public on the benefits of craft beer in general and Boston Beer
products in specific.
Innovation and creativity: Appears to be a strength based on the continual expansion of
Reputation: So far, a real strength based on awards won in competition against both
Determining whether the internal resources are valuable, rare, difficult to imitate, or
difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See
Chapter 3, Exhibit 3.6. Applying the VRIN concept, it’s hard to identify any true in-
APPENDICES:
Exhibit 5 - Top Imported Beers/Brewers in U.S.
Ran
k
Brand Brewer/Importer
1 Corona Grupo Modelo/Crown
2 Heineken Heineken
3 Modelo especial Groupo Modelo/Crown
4 Dos Equis XX Lager
Cuauhtémoc-Moctezuma
5 Corona light Groupo Modelo/Crown
6 Stella artois InBev
7 Tecate Cuauhtémoc-Moctezuma
8 Labatt blue Labatt Brewing/InBev
8 Labatt blue light Labatt Brewing/InBev
10 Newcastle brown ale John Smith’s Brewery/Heineken
11 Heineken premium Heineken
UNRANKED Order from 2011 Results
Guinness draught St. James Gate/Guinness &
Co./Diageo
Beck’s InBev
Pacifico Groupo Modelo/InBev/Crown
Amstel light Heineken
Foster’s lager Fosters/Molson/SABMiller in the
Red stripe Desnoes & Geddes/Diageo
Dos Equis amber lager Cuauhtémoc-Moctezuma
St Pauli girl Becks/InBev
Exhibit 9 - U.S. Domestic Beer Brands, including Brewers
Beer Brewer $ Price/6 pack Market share
Bud Light InBev 4.99 .198
Coors Light Molson Coors/SABMiller 4.99 .097
Budweiser InBev 4.99 .074
Miller Light Molson Coors/SABMiller 4.99 .041
Corona Extra Crown 7.99 .035
Natural Light InBev 3.49 .035
Ale
Brooklyn Brewery
Lager
Brooklyn Brewery 7.99 .004
HOW DOES BEER GET MADE?
For fun, see National Geographic’s Ultimate Factories Budweiser episode at
http://channel.nationalgeographic.com/channel/videos/budweiser/
The steps in brewing:
What processes do you think Anheuser-Busch InBev might outsource?
See http://www.budweiser.com/en/our-beer/default.aspx#/our-beer/five-ingredients-no-
compromise/index for more info on the Budweiser process. See
http://www.howtobrew.com/section1/chapter2-3.html for info on how to brew beer at
