Executive Summary
It has come to our attention that Three Brothers Brewing Company is currently looking for a new firm for representation. We have not, as of yet, had any experience in marketing this industry. This opportunity could potentially be high risk, but also high reward. In this proposal, everything from the segmentation of the craft beer market, financial and competitive issues, as well as social problems will be discussed. The main goal of this proposal is to present an overview of the industry and give factual information so that the firm may make an informed decision about choosing to pursue this marketing opportunity.
All of the facts and information that will be given are helpful in the process of educating the firm. The craft beer industry is a very competitive one. According to the Brewers Association (BA), as of July 2010, there are nine hundred and ninety-four Brewpubs and five hundred and thirty-four Microbreweries. Those two segments give a total of 1,599 US Craft Breweries. By adding the forty-one Large and Non-Craft breweries in the US, the total comes to 1,640 (BA, 2011). This means there is a big competitive market here in the US for craft beer companies. Keep in mind that this proposal is written with Three Brothers Brewing Company, as well the State of California, the firms immediate industry market.
Don’t let the numbers make the decision. This is an industry that is growing at an incredible rate. Throughout the rest of this proposal there will be numerous pieces of fact and information that will assist in the decision of this firm to either go ahead with a proposal or choose to decline.
Trade Association Information
This industry has an association with a very strong presence. The Brewers Association of America “is an organization of brewers, for brewers and by brewers” (BA, 2011). The association is “joined by members of the ailed trade, beer wholesalers, individuals, other associate members, and the Brewers Association staff” (BA, 2011). This association held its first meeting in 1942, eight years after the repeal of prohibition, and at the time was known as the Small Brewers Committee. It wasn’t until 1976 that the association was named the Brewers Association (BA). By 2005 it had merged with two other groups, the American Home Brewers Association and the Brewers’ Association of American, to form the Brewers Association that we know of it today. The main purpose of the BA “is to promote and protect small and independent American brewers, their craft beers and the community of brewing enthusiasts” (BA, 2011).
Environmental Scan
Before continuing on, it is important to understand a few definitions used in this proposal. One used earlier is Brewpub. A Brewpub is an establishment selling beer brewed on the premises and often includes a restaurant. Another term is Craft Brewery. This term is defined as a brewery with a distinctive style, producing small quantities and distributing to a particular region. Both do the same thing, the only one is a brewery and restaurant, the other, only a brewery (BA, 2008).
Social
There is an impressive social side to this industry. In California alone, there are over two hundred and twenty total craft and other breweries, which make up the firms closest industry market. There are over two hundred and twenty, total craft and other breweries (BA, 2008). There is a nonprofessional side to the social aspect of the industry. There is a large accelerant in the craft beer industry and it seams to be the rapid growth in home brewing. The American Home Brewers Association (AHA), a branch of the BA, does for the home brewers in the country what the BA does for the professional brewer. With the AHA and growth of home brewing has come a large group of “brewing clubs”. On the AHA website, there is a directory with a list of all the brewing clubs registered with the association. Just in the California there are over one hundred clubs (AHA, 2008). Keep in mind this is only a list of the clubs associated with the AHA.
Economic
When looking at the economics of the industry, it seems like it has its ups and downs just like any other. According to the stock market, breweries all across the country have seen their good days and bad. If we review the highs and lows of the brewing industry it does look as though everything the craft brewing market is trending upwards. Market caps of the top fifty breweries in the US are in the multi-million dollar range or higher. Take The Boston Beer Company, also known as Samuel Adams, as an example. According to Google Finance, the company was -1.57 points at the close of January 2011 (Google, 2011). This is a company that has a market cap of 1.2 Billion dollars with a fifty-two week range from 43.24 to 100.93. So, yes they are down a bit through the end of January, but look at where they came from in the last year. The rest of the top fifty breweries look as though they are the same trending rise in the market.
Technological
The technology in this industry is impressive. The equipment and computer systems that run these breweries are not child’s play. Some of the equipment used will do more than just brew large batches of beer. This is equipment is designed to squeeze every last drop of potential profit from the process; as well as run at its greenest potential. There are processes in places in facilities like Sierra Nevada Brewing Company that recover steam to preheat water, use fuel cells and solar to power the brewery, and recover CO2 for use in various stages through the facility (Sierra Nevada, 2011). Computer systems control this equipment so well, that the only reason people are still involved is to add some ingredients. Computer assisted temperature controls keep boiling and mash temperatures in a range of plus or minus a couple degrees. All of this is possible because of companies like GEA Brewery Systems. According to their website, they are the technology leader in 90% of its business market. GEA Group has more than 250 sister companies in over 50 countries and is represented worldwide through out the industry (GEA, 2010).
Competitive
In the craft beer market, there are some big competitors. This industry is filled with names like Samuel Adams, Dogfish Head, Sierra Nevada, Blue Moon, Flying Dog, and New Belgium Brewing Company. When looking at their size and market share in the craft beer industry, it becomes clear that no matter how big you think a company is it means nothing when compared to the beer industry as a whole. Take Dogfish Head as an example, they produce seventy-five thousand barrels, or 2.3 million gallons of beer per year. That sounds like it would equal a big market share; well it doesn’t. Dogfish head has a market share of only 0.0002 percent with that production size (Beer Wars, 2009). Samuel Adams is a larger company with six million barrels a year and a market share of one percent (Advertising Age, 2010). If you look at the top fifty breweries in the US, those two market shares just discussed get even more interesting. Samuel Adams, also known, as Boston Beer Company happens to be number four on the list. The three ahead of Samuel Adams are Pabst at number three, Miller Coors at number two, and Anheuser-Bush at number one. DogFish Head is on the list too, even with their .0002 percent share of the market, they are at number thirty-three.
Political/Legal
The beer industry is putting up the good fight with legislation and other political issues. One example comes from the owner of DogFish Head, Sam Calagione. He started opening a brewery in Delaware. Come to find out, it was illegal to run a brewery in the state of Delaware. In 1995 Sam fought legislation and won, overturning the law prohibiting the operation of a brewery. He did all of this while still building the small brewery and won just three days before opening the doors (Beer Wars, 2009). He had some help in his adventure by way of the Brewers Association. They have become a powerful voice and step in where needed in order to help protect the rights of professional and home brewers. The BA lists all the current issues under their government affairs tag on their website (BA, 2001).
Market Segmentation
There are two large segments in the beer industry and each one has its own segments. The brewery segment has six that cover the whole industry. The consumer segment has four that make up the rest of the industry. The first in the brewery segment is the Micro Brewery. This is a brewery that produces less than fifteen thousand barrels of beer per year with seventy-five percent or more of its beer sold off site. Micro Breweries sell to the public by one or more of the following methods. First is the traditional three-tier system (brewer to wholesaler to retailer to consumer). Next is the two-tier system (brewer acting as wholesaler to retailer to consumer), and lastly, directly to the consumer through carry out and or on-site taproom or restaurant sales (BA, 2001).
The second segment for the brewery side is a Brewpub. This is a restaurant-brewery that sells twenty-five percent or more of its beer on site. The beer is brewed primarily for sale in the restaurant and bar. The beer is often dispensed directly from the brewery’s storage tanks. Where allowed by law, brewpubs often sell beer “to go” and or distribute to off site accounts (BA, 2001). Another segment to catch on is the Contract Brewery. This is a business that hires another brewery to produce its beer. It can also be a brewery that hires another brewery to produce additional beer. The contract brewing company handles marketing, sales, and distribution of its beer, while generally leaving the brewing and packaging to its producer-brewery (BA, 2001).
The last three segments on the brewery side are Regional Breweries which have an annual beer production of between fifteen thousand and six million barrels of beer per year, Regional Craft Breweries which are independent regional breweries that have either an all malt flagship or have at least fifty percent of it’s volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor, and lastly Large Breweries which have an annual beer production over six million barrels of beer per year (BA, 2001).
The four segments in the consumer side of the industry are lights, imports, domestic specialties, and super premium (Apex, 2009). The light segments are the most significant and unstoppable trends in the beer industry and is the continued momentum of light beer. Since the creation and marketing of the first light brands in the mid-1970s consumers have increasingly been attracted to these beers for their smooth, mild taste and lower calories (Apex, 2009). The imports, another segment, have made significant incursions into the U.S. beer market, mostly at the expense of domestic brands. Indeed, imports made a major impact on the U.S. beer market in 2007 and did so despite uncharacteristically slow volume growth that actually lagged that of the market overall. In 2007, the market share of imports was fourteen percent with a volume of thirty million barrels of beer per year (Apex, 2009).
Domestic Specialties, although relatively flat in growth, except for light beer, the domestic specialty segment has shown strong double-digit growth that should continue in the foreseeable future. This segment includes brewpubs, microbreweries, and regional special breweries (Apex, 2009). As for the super premium segment, like imports and domestic specialties, has experienced strong growth over the past several years. This too can be attributed to the fact that Americans are becoming more yuppified and “trading up” to better products across the board in food and beverage (Apex, 2009).
Background/References
All of the references through out this proposal are taken from sources within the beer industry. All sources come from webpages, websites, or movies. There are a few that do come from book on the industry; however, they are all found and used through webpages and websites. One of the sources with the most information in this industry is the Brewers Association. This group has stood with the brewers of the US from the beginning to fight for the rights brewers deserve. A great documentary, Beer Wars, gives an in depth look into the industry. Everything from market shares to distribution, all the ins and outs of the competition between the different breweries in the industry; mainly between the big three in the US, Anheuser-Bush, Coors, Miller, and all the small craft breweries. From all the information out there with a look into the industry, none is better than going straight to the source. Webpages of the different breweries throughout the industry share the information about their company and markets with more enthusiasm then expected. The owners, investors, and consumers, love their industry and want to share it with the masses.
Financial Forecast
Beer has a lot to fight for. Everything from the threat of another prohibition, to the legislation and taxes the government want to enforce. Through all of that, the financial forecasts in the subject of financials don’t look bad. Looking at the market stocks and shares, the beer industry is a strong one. Comparing Samuel Adams to some of the other companies in the industry gives a good look into health of the market. There are some companies falling and some gaining. Again, there are industries out there that have the same problem. As a whole, the beer industry is strong and alive, growing exponentially through the years and forecasted to do so on into the future (Google, 2011).
Ethical Issues
Now, we can move onto some big issue with the beer industry, ethics. To start, let’s go back in time. We are going to an era between 1925 and 1930. This time period is in the heart of prohibition. Prohibition was ratified on January 16, 1919 and effected on January 16, 1920. Known as the “Noble Experiment,” prohibition was a ban on the sale, manufacture, and transportation of alcohol for consumption nationally as mandated in the Eighteenth Amendment to the United States Constitution. Now, let us fast forward to December 1933. On this date, President Roosevelt signed the repeal of prohibition. When asked how he felt while signing the twenty-first amendment, he was quoted as saying “I believe this would be a good time for a beer” (Gorey 6).
Today, beer companies have to worry about web access to minors. Companies like Samuel Adams and Sierra Nevada have implemented a security feature on their web pages that protects them from making beer information accessible to minors. This feature is called an age gate. When you got to Samuel Adams’ or Sierra Nevada’s website the page will always go to the age gate first. This is a page that requires the user to enter their birthday to make sure they meet the twenty-one years of age requirement (Adams, 2008, Nevada, 2010). This is just one of the many noble programs beer companies are putting in motions to protect not only themselves, but the consumers in their markets as well as meet Federal Law.
Discussion
The most significant attribute about this industry is the ability for a person with a dream to own his or her little slice of the beer market. The US market is slowly getting to the point that some other countries have been for hundreds of year. Every little neighborhood has its own small mom and pop run brewpubs for the passer by to stop and enjoy the beers they have to offer. Each one a little different, offering their twist on the simple beverage called beer. That brings up another point. Beer in itself is a simple thing. Beer is water, wheat or barley, hops, and yeast. Take that simple recipe, and you can add, change, manipulate, and create as many varieties as the mind can think of. There are so many styles of beer to choose from. This proposal doesn’t even scratch the service when it comes to these styles. According to the Beer Judging Certification Program or BJCP, there are twenty-eight main styles with at least two sub-categories and up to seven in each style (BJCP, 2011). That is a lot of beer, with more than enough room in the market to create beers that tickle the little taste buds on the tongue.
Conclusion
If everything covered in this proposal is taken into consideration, the firm should strongly consider a bid to Three Brothers Brewing Company for the opportunity to take the company to a whole new level of marketing. After looking through all of the resources, the industry is a lucrative one. Working in this industry would greatly improve the firm’s portfolio and open the doors of opportunity to work with other beer companies in the future. With strong legislative backing, a desire to be good environmental stewards, and the advancement in technology throughout, the beer industry would be a fantastic opportunity for this firm to be apart of for many years to come.
References
Brewers Association. (2011). Retrieved from http://www.brewersassociation.org
Brewers Association. (2008). Breweries pre capita. Retrieved from http://www.brewers
association.org/pages/breweriespercapita.pdf.
American HomeBrewers Association. (2011). Find a club in your area. Retrieved from http://
www.homebrewersassociation.org/pages/directories/find-a-club.html.
Google. (2011). The Boston Beer Company Inc. Retrieved from http://www.google.com/
finance?q=SAM.
GEA. (2011). Brewery Systems. Retrieved from http://www.geabrewery.com/geabrewery/
cmsdoc.nsf/webdoc/misy739bju.
Advertising Age. (2010). Samuel Adams wants to show you just how small it really is.
Retrieved from http://adage.com/article?article_id=143086.
Beer Info. (2010). Top 50 Breweries in Production in the United States. Retrieved from http://
www.beerinfo.com/index.php/pages/top50breweries.html.
BA. (2011). Current issues. Retrieved from http://www.brewersassociation.org/pages/
government-affairs/current-issues.
Apex. (2009). US Beer Industry: Beer Segments. Retrieved from http://beer-brewing.com/
beer-brewing/US_beer_industry/beer_segments.htm.
BA. (2001). Market Segments. Retrieved from http://www.brewersassociation.org/pages/
business-tools/craft-brewing-statistics/market-segments.
Google. The Boston Beer Company Inc. http://www.google.com/finance?q=SAM.
Gorey, Hays. F.D.R.’s Disputed Legacy. Time Feb. 1982.
Beer Judges Certification Program. (2008). BJCP Style Guidelines. Retrieved from http://
www.bjcp.org/docs/2008_stylebook.pdf.
