boston beer company strategic analysis

RUNNING HEAD: STUCK IN THE MIDDLE 1

Stuck in the Middle

Strategic Analysis of Boston Beer Company

Joseph Somervell

Azusa Pacific University

BUSI 450

Professor Daniel Kipley

December 18, 2015

Stuck in the Middle 2

Executive Summary

Boston Beer Company is wrapped up in the booms of the Craft beer, hard cider, and

flavored malt beverage industries. Boston Beer Company is at a rough position because it is

flanked by large multi-billion dollar beverage multinationals and by small, local breweries. This

creates Boston Beer with an interesting market niche, which also causes them to be beaten in two

directions. They are beat in differentiation by small companies, and in cost leadership by the

multinationals. This report compares Boston Beer Company against Anheuser Busch InBev and

Craft Brew Alliance. Although not normally in Boston Beer Companies playing field, since it

has about twenty five times the market share in the overall beer category, AB InBev will be used

as a comparison to the large multinational beer companies, which also includes Molson Coors,

and formally SABMiller, until AB InBev acquired them. Craft Brew Alliance is used to compare

Boston Beer Company to the smaller breweries in the Craft beer industry. Boston Beer Company

is an aggressive company commanding the hard cider industry, growing steadily in flavored malt

beverages, and maintaining market share in craft beer. Boston Beer Company has great financial

position in growing industries. Ultimately, it is concluded Boston Beer Company should expand

its hard cider production, cut its advertising costs, and acquire a small craft brewery using the

recommended strategy, horizontal integration.

Current Mission, Objectives and Strategy

“The Boston Beer Company seeks long-term profitable growth by offering the highest

quality product to the U.S. beer drinker.” (Boston Beer Company, 2014) Naturally, following

this mission statement leads them to their main objective, which is to provide the freshest and

highest quality beverages to their customers. The ways Boston Beer accomplishes these

objectives are the rapidity of shipping, high product testing, product development technology,


and their Freshest Beer strategy (Boston Beer Company, 2014). Boston Beer Company has

always maintained a stance of providing the highest quality products. Jim Koch, the founder,

found a niche in the beer industry with nearly zero competition in 1984 (Boston Beer Company,

2014). In 1984, there was nearly no competition in craft beer, but currently it is the opposite. A

craft beer revolution is in full swing, which is creating a problem for Boston Beer, as there are

almost 4,000 breweries in the U.S. with another 1,500 new breweries in the planning stage

(Boston Beer Company, 2014). This creates a problem for Boston Beer Company, which calls

for a new mission.

New Mission Statement

The new mission of The Boston Beer Company is to seek long-term profitable growth by

expanding the Angry Orchard Cider brand while offering the highest quality products to the U.S.

consumer. Due to Boston Beer’s dominance in the Hard Cider Beverage segment, it should

expand its Angry Orchard division and seek to exploit the desire for hard cider in the US and

European markets. Boston Beer Company should also seek to continue its expansion of in the

Flavored Malt Beverages segment because Twisted Tea has produced well, and will continue to

sell well, if quality is maintained. These two brands have expanded massively in the past two

years, while Boston Beer Company’s beer division has experienced troubles. This transition is

difficult, because the roots of the company are in craft beer, but it is becoming harder to create

profits in the craft beer industry as a massive company because of the extreme abundance of

small, local craft breweries. The reasons for this switch is Angry Orchard hard cider’s dominance

as a product, because it dominates the industry, nearly tripling the sales of the nearest competitor,

while also experiencing an insane growth of 90.3% in product sales (Jacobsen, 2015). Although

this growth is slowing, since the previous years growth was around 200%, this is an industry to


be dominated, and through this, Boston Beer Company could become a multi billion dollar in

sales company.

Firm Structure Analysis

Boston Beer Company runs under a functional firm structure. The top level executives

are the CFO and Treasurer, William Urich, founder and Chairman, Jim Koch, and CEO and

President, Martin Roper. After this comes the Vice president (VP) of Sales, John Geist, VP of

Brewing, David Grinnell, VP of Operations, Thomas Lance, CP of Human Resources, Ai-Li

Lim, VP of Brand development, Robert Pagano, and VP of Legal and Corporate Secretary,

Kathleen Wade (Boston Beer Company, 2014). These parts of the company split up the main

functions of every part of the company, and subdivide them further to managers, who are not

named by Boston Beer Company. These functions complete everything needed for the three

main industries where Boston Beer Company competes. There is no real division in operations,

finances, or sales that differentiate the products of Boston Beer into subdivisions, which makes it

a functional firm.

SWOT Analysis

There are some interesting factors inside and outside of Boston Beer Company, which are

creating a time of analysis and skepticism from investors. The boom of the craft beer industry is

in full effect. As stated above, there is an abundance of breweries opening in the U.S., which

creates a problem for a large company like Boston Beer Company, especially because Boston

Beer is stuck between small competitors and gigantic competitors. Luckily, Boston Beer

Company is a strong competitor in the beer industry and can use its strengths to survive, and

thrive in the increased competition. Boston Beer has strong brand recognition, quality, great


research and development, treats employees well, and has extremely stable finances. These put

Boson Beer in a place where most large beer companies are not. Boston Beer has growing sales,

increasing cash flows, and increasing incomes. These automatically allow it more leverage to

make decisions than other more indebted companies, since the only debt Boston Beer has is a

capital lease for a production facility. As strong as its strengths are, Boston Beer Company has

some glaring weaknesses. The most noticeable are dependence on suppliers and distributors, and

their inability to respond to the increase in competition in the craft beer market. One main

concern with the dependence on suppliers and distributors is that their main strategy is to provide

the freshest beer, yet depend on others to deliver it. Also, the inability to respond to competition

is a concern because of the size of the company, and the fact Boston Beer practically created the

craft beer market. Although Boston Beer has responded indirectly through developing their hard

ciders, and flavored malt beverages, there have been no successful attempts to maintain or gain

market share in craft beer. To solve these weaknesses, Boston Beer must use opportunities to

regain their grasp on the craft beer market. Boston Beer company has many viable opportunities

including: finding domestic suppliers, backwards integration, horizontal integration, pursuing a

new line of cost-leading craft beer, and expanding their subsidiaries. The most attractive of these

opportunities are backwards integration, horizontal integration and expanding subsidiaries.

Boston Beer Company has many suppliers, including hops and apple growers, the most

important of these. Either finding a domestic supplier, or purchasing a supplier would be a great

option because it would decrease cost and provide the same quality if Boston Beer chooses the

correct option. Horizontal integration is an necessary opportunity to exploit because many large

companies are buying up small craft breweries, which add to their market share, and attack

Boston Beer Company’s market share. Boston Beer has bought a few smaller breweries in the


past, but needs to continue this strategy to stay relevant in craft beer. Expanding its subsidiaries

will also help this goal of maintaining and increasing market share, because of the high quality

provided without the direct label of Boston Beer. They are a fresh look for the company. Lastly,

there are threats that cannot be ignored. The most impactful threats are the competition in the

beer industry, large companies buying craft breweries, and the ineffectivity of advertising. These

carry the most weight because competition is extremely fierce in the craft beer industry as stated

above, many times. Competition is only getting more powerful because large companies are

buying up smaller craft breweries, which allow these smaller companies to begin to grab a large

market share because their costs are decreased and they have a wider exposure. However, maybe

the most real threat is the ineffectivity of advertising fro Boston Beer Company. Smaller craft

breweries have little to no advertising cost, while Boston Beer Company is paying massive

amounts to advertise their product. Since craft beer buyers do not always depend on advertising

and choose based on what beer they want to try, advertising can be largely ineffective.

Confrontation

The factors in Boston Beer’s internal and external environments match up decently well.

There are definitely a few areas, which lack strength, but for the most part, BBC can take

advantage of its opportunities, and compensate for the threats it faces. There are also places

where BBC’s opportunities can help solve its weaknesses. The most important matches are:

Stable finances with horizontal integration, product development with the expansion of

subsidiaries, product development with large companies buying craft breweries, high quality

with ineffectivity of advertising, dependency on suppliers with backwards integration, and

inability to respond to competition with expansion of subsidiaries. These six matchups can help

Boston Beer Company move out of their current, stagnant position in the market. Boston Beer


can exploit the opportunity of horizontal integration by buying up smaller craft breweries and

adding them to their subsidiaries, which will increase their profile in the industry. Using product

development to exploit the expansion of its subsidiaries will help Boston Beer increase its market

share with its subsidiaries without throwing more money at the Sam Adams brand name. Moving

to threat matchups, the strength of product development will combat large companies buying

craft breweries because these large companies are entering a market they have only just begun to

fight. It shows desperation that these large companies are buying out small craft breweries for

large amounts of money, because they cannot compete with craft beer. Boston Beer can combat

the ineffectivity of advertising with its high quality, because even if advertising fails, their

quality will stand tall. Quality is the most primary buying motivation in craft beer. This matchup

will keep Boston Beer competitive. A way to solve Boston Beer’s dependency on suppliers is to

integrate backwards. Having its own hop or apple farm will lower supply costs, and remove the

threat of a hops shortage from their radar. Finally, Boston Beer can respond to elevated

competition by expanding its subsidiaries. These subsidiaries can push other competitors out of

the market, while increasing Boston Beer’s market share.

Five Forces Analysis

The beer industry is in a transitional time. Craft beer is growing immensely popular,

while overall beer sales are dropping. It is a hard time for larger companies such as AB InBev,

Molson Coors, and even Boston Beer Company. One would think that Boston Beer being a craft

brewer would not have a problem selling its beer, even though it is a larger company. However,

more and more consumers are looking to support local business and buy local craft beer. This

increased competition has brought immense power to the buyer. Differentiation is a very vital

aspect for any company in the beer industry, while at the same time cost is a factor because


consumers still do not want to overspend on alcohol, which is more of a leisure product than

most products. There is an extreme threat of substitution because the switching costs are non-

existent, differentiation is mostly subjective, and brand loyalties fly out the window when craft

beer is about tasting different types and brands. The threat of new entrants is absurd. As written

above, there are an insane amount of breweries, about 4,000, and another ridiculous amount

planning to open, about 1,500. Because of this ease of entry, and the desire to enter the craft beer

market, competitive rivalry in the industry is very intense. Competition is the main threat in craft

beer, currently. Due to the nature of the craft beer industry, the power of the buyer is extremely

high, and the power of the supplier is very low. This makes Boston Beer’s position in the middle

of big and small breweries, even worse since they must differentiate as a small company, but also

attain cost savings like a large company.

Impact and Probability

The threats facing Boston Beer Company are quite substantial. There are many problems

in the beer industry BBC will have to deal with very soon, or is currently having trouble

handling. The main issue for BBC is increased competition in craft beer. Although the market

segment of consumers and sales are increasing, there is extreme competition in this small

segment of the market. BBC’s market share in craft beer is slowly being eaten by the multitude

of local breweries opening. Another worrying threat is large companies buying craft breweries.

Even though this shows desperation to compete, large companies have access to larger supply

chains and can influence a market much easier because of the pure amount of capital on hand.

Meanwhile, the large companies are affecting Boston Beer through their big brands (i.e.

Budweiser, Corona, Heineken, etc.). This leaves Boston Beer under attack from two fronts by the

large companies from direct and indirect competition, which is already happening. The intensity


of this industry is unreasonably high, and these large companies only add to the insanity. A

shortage of hops is possible in the near future, but not as probable as the other threats listed. In

previous hops shortages, Boston Beer has been able to throw its weight around and survive,

which makes this not as impactful, but it would raise prices, and that could be detrimental to

Boston Beer’s market share. High competition in craft beer has been mentioned many times

previously in this report, and it is exactly the same in this context. There are 4,000 breweries

grabbing for the consumer’s dollars, which makes this self-explanatory.

Positioning Map

There is a very clear definition of segments in the market of beer. The large companies

can reach toward premium beer, and can produce decent quality premium beer, but it will not be

perceived as the same as a premium craft beer, because of the nature of the beer consumer.

Currently in the market, beer consumers want more local brands. Brands that have “sold out” to

bigger companies can be mentally tossed from this list. Craft Brew Alliance includes four

smaller brands, which are premium beers and have slightly higher differentiation than Boston

Beer. Craft Brew Alliance represents many small breweries that are not big enough to be placed

on this positioning map. It is for this reason Boston Beer Company is “stuck in the middle”. BBC

is trapped between local craft beer, and big beer. AB InBev and other large companies are

buying smaller craft breweries and letting them maintain their quality control, but this allows

their production costs to decrease. This factor also causes Boston Beer trouble since it edges

under their price point, and more consumers choose a cheaper craft beer made by AB InBev, or

Molson Coors, instead of a Boston Beer Company product. Boston Beer must find a way to

move more towards premium, or cost efficiency in order to avoid obsolescence.


External Environment Evaluation

Using, the External Environment Evaluation Matrix to analyze Boston Beer Company’s

ability to exploit and respond to outside opportunities and threats, creates a picture of mediocrity

in concordance with the rest of this report. Boston Beer Company can respond very marginally to

the threats it faces currently. The same is true with exploiting the opportunities on its horizon.

Boston Beer Company will have to work extremely hard to exit their current position between

big beer and small craft breweries. As expressed in the SWOT analysis, some of these factors are

much more important. Although expanding subsidiaries is important, its weight is the lowest

because Boston Beer Companies subsidiaries are not very large, and will be hard to expand.

Finding domestic suppliers is rated highest in opportunities because this can lower costs, which

will in turn raise their market share, because consumers looking for cheaper craft beer will be

more apt to turn to Boston Beer products. Horizontal integration is also rated highly because

Boston Beer has capital to spend, and can buy market share with acquisitions. The threats are

very hard to combat against and will take lots of resources to conquer, but Boston Beer can use

horizontal integration to fight high competition in craft beer, the highest rated threat, while also

negating ineffectivity of advertising by gaining market share. Indirect competition is rated the

lowest because it is not very common for craft beer customers to buy bigger mass produced

brands.

Internal Environment Evaluation

The Internal Environment Evaluation Matrix was very useful to determine how strong

Boston Beer’s strengths are combined with how ineffective its weaknesses makes the company.

Through this analysis, it is evident Boston Beer Company has some high flying strengths, but


also has extreme weaknesses that counter these strengths. One instance is Boston Beer’s quality,

the highest rated strength, is very strong, but its inability to respond to increased competition, the

highest rated weakness, is ranked the weakest. The company is a functioning paradox and needs

to find a way to navigate its way out of the cautious terrain in which it is currently encapsulated.

The other strengths are weighted evenly, for the most part, and are also ranked highly, but the

same problem is the average weighted weaknesses are also ranked oppositely low compared to

the corresponding strengths. This evaluation, like the External Factors Evaluation, finds Boston

Beer Company stuck in the middle.

Internal and External Environment

The Internal and External Environment Matrix plots the values from Boston Beer’s

mediocre Internal and External Evaluations almost the exact center. The Matrix suggests a hold

and maintain strategy with these scores. However, it is logical to believe, were Boston Beer to

hold and maintain the current strategy, the company would barely stay floating in the craft beer

industry. Their other industries will keep them increasing in sales, and financials, but this

company needs to gain market share in craft beer, which is there cornerstone product. Which is

why a proper strategy to take is to grow. This has been mentioned above, but horizontal

integration, and expanding current subsidiaries is a must for Boston Beer’s market share. In

doing this Boston Beer could become even larger and take control of the craft beer market, just

as AB InBev has taken control of the lower quality, mass-produced beer market. A growth

strategy is more important because a hold and maintain strategy will only further decrease

Boston Beer’s market share, which in turn will cause a major company crisis because analysis

will say to sell the craft beer division, but management will do anything to keep it, since Jim

Koch, the founder, is still a large part of overall operations.


Strategic Factors Analysis Matrix

Many of the Strategic Factors have been discussed in depth, previously in this report, but

the importance of these factors to the success of Boston Beer cannot be ignored, and therefore

some information will be repeated from above. Many of the strategic factors for Boston Beer

Company are external. These include: finding domestic suppliers, integrating backwards,

integrating horizontally, high competition in craft beer, shortage of hops, and ineffectivity of

advertising. The four remaining strategic factors are internal. These are: high quality, product

development, dependency on suppliers, and the inability to respond to increased competition.

Having more external strategic factors than internal strategic factors forces Boston Beer to have

automatically look outside of itself in order to solve the problem of shrinking market share. The

internal factors are important to controlling and harnessing those outside options, but Boston

Beer must exploit the outside opportunities available while successfully combating the threats to

it, much of which is intertwined. With Boston Beer’s high quality, the company can create a part

of the market for itself, but this would be counter productive when considering the increasing

growth rate of craft beer. Therefore, Boston Beer must use product development, and its stable

financial position (not a strategic factor according to his matrix, but it is key to Boston Beer’s

success) to exploit the integration opportunities available, while minimizing the risk of a

shortage of hops, the fierce competition in craft beer, and ineffectivity of advertising.

Competitive Profile Matrix

Boston Beer Company has competition between large multinational companies, and

small local breweries. This Matrix includes a comparison to AB InBev, a look at its craft beer

section, and Craft Brew Alliance. Obviously, AB InBev wins out in overall rating simply


because of size and ability to dominate a market because of its brand recognition and cost

efficiency. Although people look to buy local, people are willing to buy a large producer’s beer

because of its lower price point. Craft Brew Alliance is a small combination of four breweries, as

stated above, which looks to provide a premium, differentiated product above anything larger

companies can provide. It is included mainly for comparison of Boston Beer to smaller

breweries. Through this analysis, the ability to dominate a market for AB InBev is easy. Its

Shock Top, and Goose Island brands are much less expensive than other craft beers and overtake

the market easily. Although many look for quality, a price drop in exchange for a little lost flavor

is acceptable to consumers. Craft Brew Alliance is lower on the scale because it does not have as

large a portion of the market, inferior financial positions, and little to no global expansion.

However, it is difficult to accurately compare a small company to these beer giants. Even

comparing Boston Beer and AB InBev is a bit far fetched, but only comparing AB InBev’s craft

beer segment makes this matrix accurate. No company controls craft beer, because of the

consumers’ “buy local” mentally. Advertising cannot be valued, or ranked too highly since craft

beer is not high advertising-based. AB InBev has the best management of the three, due to its

sheer size, and the pay grade it can provide. Boston Beer is excellent in innovation, because it

was one of the original craft beer companies, and it also maintains its innovative ways, in both

product and presentation. An example of this is Boston Beer’s custom can, which gives the same

flavor and aroma as drinking from a bottle or glass. Boston Beer’s Research and Development is

definitely far ahead of any in the craft beer industry, but it has followed the trend with some

products, like India pale ales. Overall, the two main competitors in craft beer are AB InBev and

Boston Beer, with Molson Coors a little behind the curve but catching up quickly. Nonetheless,

small, local breweries are creating massive problems for these massive companies, because they


cannot compete with a “buy local” mentality, since it creates massive differentiation advantages

for local companies.

Boston Consulting Group (BCG) Matrix

Boston Beer Company’s business units are an interesting conundrum. Boston Beer

Company is in a tough position because their hard cider brand, Angry Orchard, is out performing

their other two main segments, craft beer, and Twisted Tea. This is particularly tough because

BBC wants to maintain its roots in brewing beer, but a large part of its increasing income is due

to Angry Orchard Cider. Hard Cider, as an industry has been on a rise for the past few years.

Angry Orchard is the largest brand in this segment, and it seems like this trend will continue.

Where as in the craft beer segment, it looks like BBC is losing its footing and continues to lose

market share as more small breweries open. Flavored Malt Beverages (FMBs) is a growing

industry with potential to be a major revenue producer for Boston Beer Company. It looks like

sales will increase, and the market share will push to the lower star, or high cash cow section.

Although the BCG describes Boston Beer’s craft beer section as a dog, this is only because AB

InBev is such a large company and maintains a gigantic market share in all beer segments. It

does not matter if all local craft beer combined holds a large market share, AB InBev has the

largest relative market share in all but hard cider. In FMBs Mike’s Hard holds an extremely large

portion of the market, making it hard for Twisted Tea, Boston Beer’s FMB, to rise out of the dog

section. Returning to hard cider, Angry Orchard has dominated for at least two years, since its

sales the year before the growth reflected on the BCG graph had double the growth attained this

year. This is by far the most promising industry for investment by Boston Beer Company.

Although growth will slow down, most of the industry growth is from Angry Orchard’s sales.

Hard cider would have a much lower growth rate without Boston Beer Company’s Angry


Orchard. Putting a steady investment in Angry Orchard will allow Boston Beer Company to

grow in sales, and continue domination of the hard cider category, having nearly three times the

amount of sales as the nearest competitor. Twisted Tea can maintain its position and experience

its growth naturally without any extra investment, but Boston Beer Company’s craft beer

segment needs investment to compete with AB InBev’s market share. If Boston Beer buys small,

local craft breweries, it can increase its market share immensely, while gaining the attention of a

specific market in the area of the breweries purchased. Boston Beer Company, if aggressive

enough, could attack certain geographical regions and decrease AB InBev’s market share

significantly in an area through horizontal integration.

GE McKinsey Matrix

Through the GE McKinsey, Boston Beer Company’s business unit strength is seen

compared to the industry attractiveness of the product of the business unit. Both hard cider and

craft beer are strong business units, but hard cider is a much more attractive industry than craft

beer. Flavored Malt Beverages (FMBs) is a decently strong business unit, which is increasing in

strength, but the industry attractiveness is lower than both hard cider and craft beer. FMBs are a

less attractive industry because of Boston Beer’s position in the industry. Far from the industry

leader, Twisted Tea is among the higher middle position of a large amount of FMBs, which have

around the same amount in sales. Twisted Tea is gaining market share, and may one day become

an even stronger business unit, much like Angry Orchard’s rise to industry leader, but the top of

the industry is very well controlled by Mike’s Hard products, which makes it difficult to rise

above, because this product practically created the industry, and has been industry leader for

such a long time. Hard cider is a business unit worthy of heavy investment, even at the cost of

taking some investment from the craft beer business unit. The market growth is unsustainable,


but will continue to have numbers far above the growth of the craft beer industry for years. Craft

beer is a strong business unit for Boston Beer Company, but craft beer is becoming less attractive

as an industry because of the volume of competitors. Some call it the craft beer revolution,

because there are so many small, local companies opening and asserting themselves against these

gigantic beer companies. Overall, Boston Beer Company is in a great position because their

business units are above average in all three industries of competition. It is also encouraging for

Boston Beer Company because hard cider, craft beer, and FMBs are all growing as industries.

The lowest industry attractiveness is in FMBs, which is only due to a strong presence by the

industry leader. If comparing the industry leader of FMBs to Angry Orchard, Angry Orchard is

in an excellent place and looks down from a very safe place atop the industry. However, using

the same comparison, it is discouraging for Boston Beer’s craft beer business unit because it may

be extremely hard to gain market share against AB InBev’s craft beer business unit. Boston Beer

Company is in good position in all of its industries, and can compete with or is the industry

leader if more investment is added.

Industry Life Cycle Analysis

Boston Beer Company’s three major industries are mentioned above, but for

thoroughness’ sake, they are craft beer, flavored malt beverages, and hard cider. As is expressed

in the rest of this paper, the hard cider division is by far the most attractive, in the late stages of

the growth stage, meanwhile the craft beer segment has reached maturity, which makes it a

difficult division for gaining profits and market share. In the flavored malt beverages division

there is room for improvement and investment, because like hard cider it is experiencing solid

growth as an industry. Hard Cider is experiencing a growth rate of around 75%, Flavored Malt

beverages are growing near 40%, and Craft Beer is growing near 6% (Jacobsen, 2015). Craft


Beer has a chance of reaching a second stage of growth, but it will take lots of market change,

market penetration, and cost control to increase the craft beer buying population.. This is an

opportune time to reach for the brand loyalty in the millennial group, which can create even

more of a jump in sales in the hard cider and FMB industries and extend the accelerating growth

stage, which is in full effect. Craft beer could experience resurgence with all the young

consumers becoming legal to buy beer. These consumers are very oriented towards craft beer,

rather than the mass-produced beers, such as Budweiser. The Boston Beer craft beer business

unit, which has reached maturity, is in a critical time for building a new customer base. Boston

Beer must innovate in order to differentiate from the other larger companies, which may mean

letting overall production go down to create an even higher quality product. This would cause a

decline initially, but cause revenue to rise later, and production could increase because of the

increase in demand. Strategies for the hard cider and FMB business units are working well, since

there are large growth percentages each year for the two categories. These two business units

have innovated well, and are building strong brand recognition, and have accomplished

differentiation from the competitors in their categories, especially Angry Orchard cider. The

growth rates are slowing down which means these two industries, and thus the products, are

growing closer to maturity, yet are still far away because of how large the growth rates still are.

It would be safe to assume another two years of growth based off the current numbers.

SPACE Matrix

Boston Beer Company shows strong scores in financial strength, and competitive

advantage, while the industry has stability, where as the environment is a little above average.

Boston Beer Company finds itself in the aggressive part of the SPACE matrix, also known as,

Quadrant I. Boston Beer Company is aggressive in its marketing approach, and innovative


tactics, which, in turn, help with product development. Boston Beer Company needs

improvement in its capacity utilization to increase production. This increased production could

be used for Angry Orchard hard cider, which would increase revenues significantly. An obvious

area of improvement is market share in the overall beer market, which is about 2% with AB

InBev swallowing over 50% of the market share, due to the recent acquisition of SABMiller.

Boston Beer Company is on the move and wants to become a force in the overall beer category,

but it is necessary to expand subsidiaries, hard cider, and FMBs, if Boston Beer Company desires

to have any realistic grounding in this aspiration. One place Boston Beer Company is far superior

to its competitors is leverage. Boston Beer Company has little debt. The only piece is a capital

lease. Since Boston Beer Company has very little debt, if it were ever to sell bonds, or get loans,

the company would have a great interest rate, and could take out more than other companies

because Boston Beer Company has none. Taking on some debt could allow for expansion.

Without over stepping realistic expansion, Boston Beer could use a loan to expand Angry

Orchard, and receive well over the required rate of return for the capital from the loan. Yet

another area to improve upon is control over suppliers and distributors. Boston Beer Company is

one of the best companies about sending its beer out fresh in order for the consumer to receive a

fresh product at the high quality factory standard. One way to increase sales of the craft beer

business unit would be market development. Targeting new customers would be extremely

helpful to the craft beer business unit because the market for craft beer is expanding rapidly.

Samuel Adams Light was a fantastic strategic decision to produce. Once again, Boston Beer

Company needs a fresh product to develop the market of craft beer consumers.


Grand Strategies Matrix

The Grand Strategies Matrix recommends for Boston Beer the same strategies deduced

by the SPACE Matrix above. Since there was only small focus on horizontal integration in the

previous section, horizontal integration will be the alternative strategy focused on in this section.

Boston Beer is in a strong position being in Quadrant I. Although there are larger companies in

better strategic positions, Boston Beer Company still has a relatively strong position compared to

many other craft breweries. Boston Beer has strong financial position as well, which means it

can focus on extremely aggressive strategies, such as horizontal integration. Boston Beer

Company needs to begin assessing small craft breweries, which are thriving in their region, in

order to find a strong brewery to purchase to add to their subsidiaries. The Research and

Development branch of the company has found great companies in past years, but struck out in

2014. It is about time for another acquisition, since this powers growth, and allows Boston Beer

to diversify its brand recognition through the subsidiaries it owns. Boston Beer Company has

done a great job diversifying its business units. The decision to begin Angry Orchard which

became the premium option to its Hardcore Cider brand, which is now outdated. Breaking into

the Flavored Malt Beverage industry was also a fantastic decision because it has increased sales

yearly, and now owns a 27% relative market share. Both of these market penetrations worked

wondrously, and have kept Boston Beer Company thriving while it struggles to figure out the

next strategy for its craft beer business unit. The time has come for a new aggressive strategy to

arise from Boston Beer Company’s management. Horizontal integration could be a great answer.


Qualitative Strategic Planning Matrix

Through the Qualitative Strategic Planning Matrix, horizontal integration was deemed the

most attractive strategy over product development. The critical success factors deciding this were

used to determine the two options to choose from in the SPACE and Grand Strategies matrices.

The aggressive position of Boston Beer Company influenced a choice of horizontal integration,

backwards integration, market development, or product development. These four strategies were

the most viable due to Boston Beer Company’s financial position, and relative market share.

Product development, and horizontal integration were chosen for the Qualitative Strategic

Planning Matrix because they had the most success over backwards integration, and market

development in Boston Beer Company’s past. Horizontal integration would be a major help for

Boston Beer Company because of the range of effects it will have for the company. One of the

few negating factors to horizontal integration is the company’s unwillingness to take on debt.

Even though in previous acquisitions, there was never a need to take on debt because of the

company’s financial strength. This is an extreme positive for Boston Beer Company. However,

now is the time for Boston Beer Company to make a bold move and maybe overspend a little bit

for a competitor who will give them a decent chunk of market share. Even if Boston Beer

Company overspends, it is well worth the extra assumed risk, because it is an automatic jump up

on the leaderboard. The company can also afford some risk because its position is set in stone at

the moment. Looking at companies such as Lagunitas, or Stone Brewing is not far out of reach

for Boston Beer Company, but these brands have astonishing growth rates, which could prove to

be too expensive. Other options are buying one of the four brands in Craft Brew Alliance, such

as Widmer, which had a loss in sales in 2013. Purchasing Widmer for a discount could be an

attractive option, since Boston Beer Company Research and Development could find the


problems and restart its growth. Some of the other options on the list may be too large to acquire,

but seeing AB InBev’s new acquisition of SABMiller gives Boston Beer Company a chance to

go after a large competitor, such as Shiner in Texas, New Belgium in Colorado, or Sierra Nevada

in California. Acquiring any of these three companies would increase Boston Beer Company’s

sales by at least a quarter. Horizontal integration seems to be the best way to gain market share in

the beer industry, currently. Boston Beer Company should pursue an acquisition in the next

calendar year for a decent price, but also one giving Boston Beer Company a significant portion

of market share for what the price of the acquisition. There may be debt taken on in the purchase,

but it will be well worth the investment, when Boston Beer Company has an even more

significant portion of the craft beer market.

OSPP Matrix

The OSPP Matrix shows the performance positioning of a firm. Boston Beer Company is

close to the top right corner, which is an excellent place to be. The OSPP shows strategic gaps

between the required aggressiveness of an environment and the aggressiveness of a firm’s

strategies. Boston Beer Company does not have many disconcerting Gaps besides its capacity,

manager capability and culture capability gap. These three items are not all too important besides

capacity, which could be causing unnecessary cost, unless Boston Beer Company is preparing

for a production increase, which would make this gap more explainable. As for manager

capability, Boston Beer Company needs managers above market average to maintain their

aggressive strategies, since they are in such an interesting place in the industry. Boston Beer

Company also has some very healthy gaps: Innovation aggressiveness, marketing

aggressiveness, strategic aggressiveness, structure capability and systems capability. Innovation,

marketing and strategic aggressiveness are all extremely good to see in a healthy area, because


these are the main deciding factors in how the company does business. Boston Beer is healthily

above competition in innovation, but not overly innovative. Its marketing is almost perfectly

matched to the level the environment calls for, and its strategies are not overly aggressive, as to

cause too much expense. However, these gaps do accurately represent Boston Beer Company’s

position, since they are more aggressive than their competitors. Lastly, two areas for caution for

Boston Beer to avoid over aggression are Capability responsiveness and technology capability.

These two gaps coincide because Boston Beer Company’s technology capability has a lot to do

with its overall capability. All of these gaps accurately reflect Boston Beer Company’s current

strategies. Managerially culturally, and overall capability, the company is much more advanced

than the industry, while it is about on par with marketing aggressiveness, innovation

aggressiveness, strategic aggressiveness, structure capability, and systems capability. Finally,

two places to watch are capability responsiveness and technology capabilities. Boston Beer

Company can use this analysis to maintain its current strategies, while also watching out for

overspending in these areas of aggressiveness and positioning.

Alternative Strategies

o Product Development

o Advantages: Increase differentiation, Increased market share, Innovation leadership,

Increased marketing effectiveness

o Disadvantages: High costs, Need for excellent research teams, High expectations on

company from consumers

o Market development

o Advantages: Increased sales, New customer base, Repeat consumers purchase more,

o Disadvantages: Ineffective advertising costs, Overexpansion, Expensive market research


o Backwards integration

o Advantages: Control over supplier, Cheaper Raw Materials Cost, Guaranteed Supplier

during shortages

o Disadvantages: Failure causes doubled monetary losses, Less clarity in company focus,

New learning processes

Recommendations

Through the analysis of the above matrices, ultimately decided by the Qualitative

Strategic Planning Matrix, this report recommends the Boston Beer Company pursue a strategy

of Horizontal integration by purchasing a competing, smaller craft brewery. This report also,

secondarily, recommends The Boston Beer Company expand its dominating Angry Orchard

cider brand, while refocusing advertising towards smaller specific markets. Two Long term

objectives for Boston Beer Company are decreased advertising cost, and expanding craft beer

and hard cider production. Below are Pro Formal financial statements for the year predicted

2016, which reflect these changes, but are estimating conservative growth rates.

Current Financial Ratios (Calculated from 2014 10K Annual Report)

Gross Profit Margin: 51.5%

Net Profit Margin: 10.0%

Quick Ratio: 1.30

Current Ratio: 1.90

Debt to Equity Ratio: 0.00

Return on Investment: 106.2%

Return on Assets: 17.3%

Return on Equity: 24.6%

Return on Capital Invested: 24.5%

EBITA: 20.1%

Earnings per Share: 6.96


Pro Formal Financial Statements


References

Baker, N. (2015, June 15). Hop Shortage Threatens Craft Beer.

Boston Beer Company. (2014, Dec 27). Boston Beer Company Form 10-K. Boston, MA: Boston

Boston Beer Company. (2015, Apr 29). Boston Beer Company Form 10-Q. Boston, MA: Boston

Boston Beer Company. (2015, Jul 30). Boston Beer Company Form 10-Q. Boston, MA: Boston

Boston Beer Company. (2015, Oct 29). Boston Beer Company Form 10-Q. Boston, MA: Boston

Duprey, R. (2015, November 29). $1 Billion for This Tiny Craft Brewer. What Does It Mean for

Boston Beer?

Jacobsen, J. (2015, March 12). 2015 Beer Report: More consumers turning to hard cider.

Keri, J. (2015, January 9). Hard Cider Is Having a Moment.

Kipley, D., & Jewe, R. (2014). Effective Strategic Management: From Analysis

to Implementation. Cognella.

Notte, J. (2015, July 28). These 11 brewers make over 90% of all U.S. beer.

Market Watch.

Solomon, B. (2015, October 30). Smaller Craft Breweries Are Drinking Up Sam Adams' Market

Share.

Tierney, J. (2014, April 15). The State of American Beer.

Yue, L. (2014, May 31). Why MillerCoors doesn't want to miss this party.


Appendix

Firm Structure

SWOT Analysis


Confrontation Matrix

Five Forces Analysis


Impact and Probability Matrix

Positioning Map


External Factors Evaluation

Internal Factors Evaluation


Internal-External Matrix

Strategic Factors Analysis Summary Matrix


Competitive Profile Matrix


Boston Consulting Group Matrix


GE McKinsey Matrix

Industry Life Cycle Analysis


Space Matrix

SPACE and Grand Strategies Matrix


Qualitative Strategic Planning Matrix


OSPP Matrix

boston beer company strategic analysis

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