1.Evaluate the attractiveness of the craft beer segment relative to the market space occupied by the traditional “Big Three”. (tip: use the Five Forces framework). a.High Threat of new competition: over 600 of specialty beer companies were founded over the past five years, approximately 40% growth each years. In addition, the existence of contract brewing companies lead to low entry cost. b.High substitution: The attractiveness of craft brewing industry are majorly based on unique styles and flavors of beer. there are many different brands and styles of beer so the actual threat of substitutes is high.
c.The intensity of competitive rivalry is also high: while there is a major growth of new entry, the market size shows little growth. This creates tremendous competitive pressures among the industry. d.Bargaining power of buyers: Switching cost for buyers are low, as there are many different substitution and options. companies has to consistently maintain high quality in order to retain customers.
e.Bargaining power of suppliers: switching cost for suppliers are high for the traditional Big Three, as their supplies are tied to their own brewies.
Craft brewing companies has the option of switch breweries in a relatively low cost, as the suppliers know they have options to supply other breweries. This allows them to charge higher prices than the big three. 2.Evaluate Boston Beer’s business model relative to Redhook and Pete’s, comparing their business models with respect to specific activities such as procurement, brewing, distribution, and marketing. BBC’s strategy of producing the highest quality of products, the company pursued four initiatives: high quality standards, contract brewing, intensive sales and marketing, and product line innovations.
Unlike BBC and Pete’s, redhook relies on its own breweries. Redhook also established a strategic alliance with Anheuser-Busch whereby Redhook products were sold through the nation-wide network of 700 distributorships in exchange for a 25% equity stake in the company. Similar to BBC, Pete’s operates on a contract brewing basis and stress heavily on marketing. In retrospect, BBC intended to remain a contract brewer exclusively, capitalizing on lower overhead and transportation costs while continuing to invest heavily in its branded products.
Redhook believed that its long-term growth and profitability were best served by assembling the largest company-owned production capacity of any domestic craft brewer, guaranteeing production capacity in more than one geographic region of the United States. Redhook also made a substantial investment in distribution, gaining access to Anheuser Busch’s nation-wide network of resellers. Pete’s, on the other hand, appeared to be following a combination of these two strategies by producing its products at both company-owned and third-party breweries.
3.How realistic analysts’ long-term growth forecasts (25% to 40% for the craft-brewing segment)? Based on the porter five forces analysis, the craft brewing segment has many advantages over the traditional big three, which explains the 40% growth rate. However the large number of new entries companies has already created a tremendous amount of competitions among its own, which retard the long term growth in my opinion and makes the forecasts of 25% to 40% seem unrealistic. 4.What do you recommend to Boston Beer?
a.While the US market size remains somewhat stable. By exporting globally, will introduce BBC to new markets and additional sales b.Forming strategic alliance will help combat the increasing competition among industries.