Executive Summary This report will show that the craft brewing industry is a clearly identifiable and potentially profitable niche market within the greater U.S. brewing industry. It gives an overview of the craft brewing industry, a history of brewing in the U.S, and identifies current industry trends. It will then use Porter’s Five Forces to further examine the industry. Next, it discusses craft brewing industry leader Boston Beer Company (BBC); examines the company’s corporate strategy and fina ncial fundamentals, and uses a SWOT analysis to examine position relative to the industry. It will then give a recommendation for future competitive strategy for BBC. Finally, this report will provide a framework for a firm wishing to enter the craft brewing industry relative to a firm’s ability to generate start-up capital. U.S. Craft brewing Industry Analysis Overview In 2003, the total revenue from beer sold in the US was approximately $78 billion and the craft brewing industry accounted for 3.2% of the total domestic beer market by volume. 80% of the US beer market by volume belonged to only three companies in the total brewing industry - the Anheuser-Busch Brewing (ABB) Company (50%), the Miller Brewing Company (18%), and the Adolph Coors Brewing Company (11%) (1). Table I. Total Beer Volume Sales (2) Sales Type Volume (millions of barrels) Percent of Sales (volume) US domestic (all) 179.4 88.4%
Imported 23.6 11.5% Total 203 100% Exported 3.9 1.9% Craft Beers 6.6 3.25% A craft beer is defined as a beer made from all-malt or nearly all- malt, is considered high quality, and is produced by one of the four types of craft brewers: A microbrewery is defined as a brewing company that produces less than 15,000 barrels (465,000 gallons) of beer per year. A brewpub is essentially a microbrewery that sells all of its product on-site at an adjoining restaurant. A regional specialty brewer is defined as a brewery that sells more than 15,000 but less than 2 million barrels per year. A regional specialty contract brewer is a regional specialty brewer that uses excess production capacity of other firms to brew its product. Microbrewing licensing and tax incentive breaks vary from state to state. For example, in Missouri a microbrewery is defined as producing 10,000 barrels or less, while in Washington a microbrewery is defined as producing less than 60,000 barrels. Microbreweries and brewpubs are taxed at a much lower rate per barrel than both national and the larger regional breweries. Breweries producing less than 60,000 barrels enjoy an $11 rebate on the $18 government surcharge per barrel. The remaining 17% of the U.S. beer market is divided among the smaller national and regional brewers (Pabst Brewing, D.G. Yuengling & Son) and import companies like Heinekein, Corona, and Diageo-Guiness USA.