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TEACHING NOTE
CASE 5
Competition in the
Craft Beer Industry in 2016
Overview
The appeal of locally-produced or regional craft beers during the early-2010s had given a dramatic boost to
the long-mature beer industry. Craft breweries, which by definition sold fewer than 6 million barrels (bbls)
per year, had 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
had allowed the total beer industry in the United States to increase by 6.7 percent annually between 2011 and
2016 to reach $39.5 billion. The production of U.S. craft breweries had more than doubled from 11.5 million
bbls per year to about 24.5 million bbls per year during that time. In addition, production by microbreweries,
which produced less than 15,000 bbls per year, had almost tripled to 4 million bbls from 1.5 million bbls between
2011 and 2016. Much of this impressive industry growth had come at the expense of such well-known brands as
Budweiser, Miller, Coors, and Bud Light, which experienced sluggish sales during the early-2010s because of a
growing perception of mediocre taste.
Suggestions for Using the Case
The case is an ideal follow-up to a course lead-off case such as Airbnb in 2016, Mystic Monk Coffee, Amazon.
com’s Business Model and Its Evolution, or Robin Hood. We recommend using the case immediately following
your coverage of Chapter 3, but may also be used to illustrate concepts as found in Chapter 5. The case is closely
linked to the industry and competitive analysis concepts presented in Chapter 3 and includes ample material
to allow students to perform a Five Forces analysis, determine the strategically-relevant aspects of the macro-
environment, examine strategic positioning through the use of a strategic group map, and evaluate industry key
success factors.
*
*This teaching note reflects the thinking and analysis of the case author Professor John D. Varlaro, Johnson & Wales University. We
are most grateful for his insight, analysis and contributions to how the case can be taught successfully.
Case 5 Teaching Note Competition in the Craft Beer Industry in 2016
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Videos for Use with the Competition in the Craft Beer Industry in 2016 Case. There are two videos
you can show (or let students view on their own) when having class discussion of the Competition in the Craft
Beer Industry case:
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
To facilitate your use of assignment questions and making them available to students, we have posted a file
of the Assignment Questions contained in this teaching note in the instructor resources section of the Connect
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that follows Case 31 and is posted in the Instructor Resources
section of the Connect Library. The content of this Guide is particularly helpful to students if your course is their
first experience with cases and they are unsure about the mechanics of how to prepare a case for class discussion,
oral presentation, or written analysis.
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. The
case can be used effectively for a written assignment early in the term, but we advise against using the case for
group presentations scheduled just prior to finals since the issues are relatively easy to sort out and address. Our
recommended questions for written assignments are as follows:
1. Anheuser-Busch InBev is considering you for an entry-level brand management position. You have been
asked to prepare an analysis of the U.S. craft beer industry as part of the selection process. Please prepare
a 5-6 page report that includes a description of the industry’s strategically relevant macro-environmental
components, evaluates competition in the industry, assesses drivers of change and industry dynamics, and
lists industry key success factors. The company’s management also asks that you propose the basic elements
of a strategic action plan that will allow the company to improve its competitive position in the market for
craft beer.
Case 5 Teaching Note Competition in the Craft Beer Industry in 2016
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Assignment Questions
1. What are the strategically relevant components of the U.S. and global craft beer industry macro-environment?
2. What is competition like in the craft beer industry? Which of the five competitive forces is strongest? Which
is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the
potential profitability of new entrants?
3. What does your strategic group map of the craft beer industry look like? Which strategic groups do you think
are in the best positions? The worst positions?
4. What key factors may determine the success of a start-up or smaller, craft brewery?
5. What recommendations would you make to a smaller, craft brewery to improve its competitiveness in the
market while mitigating any current and future risks?
Teaching Outline and Analysis
1. What are the strategically relevant components of the U.S. and global craft beer industry
macro-environment?
Students should be able to identify the following from within the case:
Market size and growth. The total U.S. beer market was estimated to be around $106 billion. The total
economic impact of the beer market is estimated to be 1.5% of the total US GDP. In the case, exhibit 1
lists the barrels produced in the US for the past 10 years. Although showing a slight decline over the past
10 years, U.S. production remained relatively constant for the past 5 years. Globally, while consumption
may have slowed in developed regions, growth was expected in developing countries, resulting in a
global market of almost $700 billion in sales by 2020. This global growth seems to be fueled by the
introduction of differing styles of beer to regions where consumers have not previously had access, and
the expansion of demographics not normally known for consuming beer. Thus, exported beer to both
developed and developing regions was expected to help drive future growth. As an example, China had
recently seen a number of domestic craft breweries produce beer as well as experiment with locally and
regionally known flavors, enticing the domestic palette with flavors such as green tea.
Case 5 Teaching Note Competition in the Craft Beer Industry in 2016
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2. What is competition like in the craft beer industry? Which of the five competitive forces is
strongest? Which is weakest? What competitive forces seem to have the greatest eect on
industry attractiveness and the potential profitability of new entrants?
Competitive pressures coming from the
market attempts of outsiders to win
buyers over to their products
Substitutes for
Craft Beer
Potential New
Entrants into the
Craft Beer Industry
The bargaining power and leverage of buyers—a strong competitive force
Students should recognize that due to the regulatory environment, the need to sell to distributors is a
significant competitive force faced by craft breweries. Students may discuss how the three-tier system
disadvantages small producers, while potentially benefiting larger producers as they have better negotiating
power with distributors.
Case 5 Teaching Note Competition in the Craft Beer Industry in 2016
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Competition from substitutes—varies dependent on definition of consumer, a weak or high competitive
force
There may be many substitutes to craft beer, including any other type of alcoholic beverage. However,
students are likely to suggest that other beverages represent a weak competitive force if they identify the
consumer as a focused or dedicated craft beer drinker and analyze the market as a niche market. If not, then
students may identify how the consumer may shift their purchasing dependent on both what is available and
the price, and thus represent a high competitive force.
3. What does your strategic group map of the craft beer industry look like? Which strategic
groups do you think are in the best positions? The worst positions?
Students may use any grouping on the matrices, but the case provides the justification for a price/quality and
geographic distribution juxtaposition. In developing a strategic group map similar to what is shown in Figure
1 below, students should recognize that:
a) Nano- and micro- breweries are in a very narrow/local distribution. Local nano- and micro-breweries
generally occupied a high price/quality position, which could vary from above average price /quality to
exceptional price/quality.
Case 5 Teaching Note Competition in the Craft Beer Industry in 2016
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FIGURE 1. Strategic Group Map of the Craft Beer Industry
Scope of Geographic Distribution
Local Regional National International
Low
AB InBev
It should be recognized that global producers are the dominant competitors, and presented significant threat
to the regional and local producers. As found in the case, the regional producers maintained success through
either a regional affinity and distribution (Boston Beer) or through agreements with larger distributors
4. What key factors may determine the success of a start-up craft brewery?
Factors that are necessary for competitive success for a start-up or small, craft brewery:
Access to, and mitigation of distribution issues. Students may identify how smaller breweries are at a
disadvantage with distributors; yet distribution represents the key factor as small and large producers
compete for shelf and tap space. Especially at the local level, there is insufficient space to accommodate
the current producers, as well as the anticipated entry of future breweries.
Case 5 Teaching Note Competition in the Craft Beer Industry in 2016
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Use of social media for marketing and exposure. To keep costs low, free or relatively-free marketing as
available through social media became a necessary tactic. Social media also helped by fostering the craft
5. What recommendations would you make to a craft brewery to improve its competitiveness
in the market while mitigating any current and future risks?
Students should note that without distribution and sales, the craft brewery will not be competitive.
Thus, negotiation with distributors is a must. Further, students may identify how a push strategy; where
awareness by consumers and establishments may force distributors to carry a craft brewery; is also
necessary.
Further focus on both quality and experimentation may help bolster the differentiation of the brewery
from both larger producers, as well as the local smaller producers. Thus, investments in seasonal and
experimental beers may be identified by students as viable options, as long as operating costs are also
considered.
Epilogue
There was nothing new to report at the time this teaching note went to press.
