This report will provide an industry analysis for the beer brewing industry, discussing the attractiveness of the industry in regards to sustainable profitability and investment risk. First, we will start with an introduction to familiarize you with the three-century old beer brewing industry. We will discuss the ins and outs of the brewing industries operations, along with various industry products. We will analyze historic growth and earnings and make predictions for the next two years. Next, we will analyze macroeconomic conditions that can potentially affect consumer spending on alcohol. We will discuss industry and firm specific factors that may affect the profitability and sustainability of each company, and the industry as a whole. Additionally, a full industry analysis will be performed. We will discuss potential threats to the beer brewing industry, including how concentrated the industry is, competition from wine and liquor, and the possibility of another recession. Lastly, we will perform a company analysis on three specific firms within the beer brewing industry: Molson Coors, The Foster Group, and Boston Beer Co. For each company, we performed a ratio analysis on an Excel spreadsheet to compare figures between firms. We then analyzed the data, and discuss our findings when comparing companies. We researched both fundamental and technical indicators to guide us in our investment recommendation. After discussing our findings, we make individual recommendations on our three companies in the brewing industry.
The US brewery industry includes nearly 1,700 breweries with combined annual revenue of over $21 billion in 2009. The three largest producers are Anheuser-Busch, InBev, and Miller Coors. The industry is highly concentrated, with the three largest breweries making up for over 90 percent of US market share. The profitability of individual companies depends on marketing, distribution, and operating efficiency. Though the big 3 dominant the market, smaller breweries can still compete effectively by developing specialty products and serving a local or regional market.
Products & Operations
Major brewery products are malt beverages, primarily beer and ale. The brewing process takes two to three weeks, depending on the product. Large breweries strategically locate plants near major distribution centers to minimize shipping costs. For example, InBev, the largest brewery in the US, has 12 production facilities and approximately 550 independent wholesalers. In comparison, most breweries have one production facility and several wholesalers. Also, breweries have contracts with each wholesaler that specify the distributor’s rights and responsibilities, including geographical sales territory, brands they can sell, and sales performance standards. Breweries obtain raw materials through contractual agreements and on the open market. Grain crops are subject to adverse weather, so most companies have secondary sources as alternatives. Packaging materials include aluminum cans bottles, kegs, and paperboard. The cost of aluminum can be volatile, causing firms to negotiate long term contracts, and hedging to manage supply and costs. Industry Growth
The key industry production metric is volume, measured in number of barrels a brewery produces per year. US breweries produce around 185 million barrels annually. As shown in Table 1, the beer brewing industry has been increasing since 1860, with the exception of the 1920’s and 1930’s when it was illegal to produce and distribute alcohol. The growth of the brewing industry in 2009 was 7.2 percent by volume and 10.3 percent by dollars, equating to more than 35 billion gallons of beer sold and producing total global revenues of 294.5 billion.
Table 1: Decennial Production 1860 – 2000 |
Year | Barrels (In Millions) | % Difference |
1860 | 3,812 | - |
1870 | 6,574 | 72.5 |
1880 | 13,347 | 100 |
1890 | 27,561 |...