Boston Beer Company Performance and Competition

Topics: Beer, Brewery, Brewing Pages: 4 (1198 words) Published: October 9, 2010
Boston Beer Company Performance and Competition

Boston Beer’s sales performance triumphs over its leading two competitors, Redhook Ale Brewery and Pete’s Brewing Company. As seen in the table (appendix 1), BBC achieved net sales of $114,833,000 in the year ending 31 December 1994. This was a growth of 48.84% from the previous year, compared to Redhook’s 30% growth in net sales to $14,929,000 and Pete’s striking growth of 152.02% to net sales of $30,837,000. Pete’s impressive growth in net sales is evidently the greatest by far, however it does not compare as its net sales is only 26.84% of BBC’s.

BBC utilises contract brewing for its beer production. This was a central part of BBC’s company strategy as it allowed excess capacity among the larger brewers in the beer industry and the permit to strategically select breweries based on geographic location, thus lowering transportation costs. Operating as a contract brewer meant the company incurred lower capital and overhead costs resulting in higher gross margins. This is evident in BBC’s gross profit/net sales of 53.98% in the year ending 31 Dec 1994, compared to Pete’s gross profit margin of 45.20% and Redhook’s 41.82%.

Like BBC, Pete’s also operated as a contract brewer, whereas Redhook owned and operated its own breweries. This required greater capital expenditure and increased fixed assets, resulting in a lower asset turnover. We can see this from Redhook’s net sales/ average assets of 0.55 in the year ending 31 Dec 1994 which is much smaller than BBC’s asset turnover ratio of 4.11 and Pete’s 6.83. Through this we can recognise BBC and Pete’s strategy of contract brewing to minimise the costs of capital investment and remain small asset based, thus resulting in higher asset turnover ratios.

BBC’s high return on equity of 117.57% in the year ending 31 Dec 1994 clearly illustrates its superior performance over its competitors Redhook and Pete’s. Redhook’s low asset turnover led to a smaller,...
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