Craft Brewing Case Study

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  • Topic: Beer, Microbrewery, Brewery
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  • Published : November 16, 2009
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[THE CRAFT-BREWING INDUSTRY CASE-STUDY]

Submitted By
Andrew Bankui
Laith A.Rahim
Sergio Mattos

TABLE OF CONTENTS

EXECUTIVE SUMMARY.................................................................................................3 a)PURPOSE OF THE REPORT………………………………………….3 b)CRAFT-BREWING INDUSTRY ANALYSIS ……………….3

c)RECOMMENDATIONS ………………………………………………….4

INTRODUCTION….............................................................................................................5

CASE ANALYSIS...............................................................................................................6 a)MARKET ANALYSIS……………………………………………….6 b)CONSUMER ANALYSIS………………………………………….7 c)SWOT ANALYSIS……………………………......………………….8

SUGGESTED QUESTIONS WITH ANSWERS …….………………………………………….………..9

WORKS CITED ..................................................................................................................11

Executive Summary

PURPOSE OF THE REPORT

This study examines craft brewers as a niche market for the malting industry. Results suggest that catering to craft brewers' needs and preferences offers potential opportunities for malt suppliers. Through our study, a detailed analysis of the industry is reported. Opportunities, its possible threats and proposed solutions for the industry are documented as well.

CRAFT-BREWING INDUSTRY ANALYSIS

Mass production, product uniformity, and mass marketing are characteristics of the brewing industry. The brewing industry can be analyzed using Porter's five competitive forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, substitutes and rivalry among existing competitors. All five competitive forces jointly determine the intensity of industry competition and profitability. Furthermore, the five forces narrow in on why the brewing industry became more concentrated and key features defining industry success.

In the brewing industry, barriers to entry were high. The bargaining power of suppliers is medium since the removal of price controls for aluminum led to sharp increase in can prices and therefore raised cost of packaging materials and for the brewers. Bargaining power of buyers was high as the independent wholesalers who purchased the beer, and sold and delivered to retail accounts earned low profits. The average return on sales for wholesalers had fallen from 3 percent in 1981 to 2.1 percent in 1984. In addition, the increasing production capacity, desire for companies to enter new markets and promote new products and cost reductions led to a 30 percent decrease in beer prices between 1960 and 1980. Pressures from substitute products was minimal as advertising affected consumers willingness to substitute among beers. Finally, the rivalry among existing competitors was high as the number of brewers making less than one million barrels per year decreased from 90 percent in 1959 to 45 percent in 1983. Furthermore, since the domestic beer consumption was flat, rivalry among brewers was intensified because any gains in sales by one brewer resulted at the expense of its competitor rather than through growth of the overall market. Hence, the industry analysis provides an initial explanation for the consolidation of the brewing industry.

Other factors that decreased the number of brewing firms include the increase in number of baby-boomers. The brewing industry's capacity utilization had been in the 60 percent range but this changed dramatically in the 1960s and 1970s. Large brewing companies reacted to this new demand by adding relatively large breweries and sold them quickly, which led to smaller breweries being closed. Another factor that decreased the number of small brewers was that wholesalers who supplied to off-premise outlets (supermarkets, grocery and liquor stores) usually carried only one brand. This caused difficulty for competitors as they were unable to find large wholesalers to carry...
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