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Group_2_Adolph Coors_Compiled_Final (4).pdf
1. Indian Institute of Management Kozhikode
ADOLPH COORS IN THE BREWING INDUSTRY
STRATEGIC THINKING [ST]
Case Presentation
Group #3
Abhay Rathore (002) | Akhil Lukose (006)| Akshay (007) | Sathish B (027) | Tamashree Pal (032) | Venkata Murali (034)
3. INTRODUCTION
ADOLPH COORS COMPANY
▪ Adolph Coors Company success stories in 1985, where beer consumption was flat but Coor’s Volume Jumped to
13% (14.7 Mn) barrels
▪ Adolph Coors diversified into many business including Food products, Bio technology, oil and gas, and health
systems
▪ In 1985 Brewing division Accounted for 84% of Coors Revenue & Over 100% of its Operating income.
▪ Coors Drastically changed strategy during 1975-1985 period.
US BREWING INDSUTRY
- In 1985 Americans spent $38 bn to buy 183 mn barrels of beer
- In their Expenditure, 12% was Tax, 42% Retailers margin, 12% wholesalers margin
- Domestic producers supplied 96% of market at an average whole sale price of $67 per barrel
4. US BREWING INDUSTRY STRUCTURE
Procurement Production Distribution
• Raw materials cost major brewers over half
their net revenues.
• Material cost – Agricultural inputs – (¼ or 1/5) +
Packaging cost (rest)
• Agricultural Inputs – malt (barley), starchy
cereal (rice or corn), hops and yeast
• Packaging inputs – 1945 : Canned -3%, bottled -
61%, keg- 36%
• 1985 : Canned -57%, bottled -30%, keg- 13%
• After WWII, beer prices declined Input cost
became thicker slice.
• 35% -1945, 50-60% -1985, backward integrated
• An efficient can making facility cost - $40-$50
million.
• Production costs ¼ of net brewers revenues
• Material cost – Brewing and packaging
• Brewing – agricultural inputs mixed with water,
fermented and aged
• Post WWII innovation in brewing, fermentation
process cut the aging from 30 to 20 days
• Packaging- Filling beer in containers, labelling,
packing together.
• After WWII increase in sales economies due to
newer vintages for filling lines, package size has
proliferated
• Minimal efficient production : 100,000
barrel/year 0n 1950 to 1 million by 1960, 2
million by 1970, approx.. 4-5 since mid 1970, 5
million in 1985 cost $250-$300 million
• Capital cost underlays effect of increase or
decrease in production scale
• Distribution: Wholesale and retailers
• Categories of retail outlet: on premise and off
premise
• On-premise: Bars or restaurant , average margin
190% in 1985
• Off-premise: Supermarkets, grocery,
convenience and liquor, border selection of
brands, margin 21% in 1985
• Small brewers distributed to local markets
• Independent wholesalers purchased and stored
and sent to retailers
• 4500 wholesalers in US in 1985.
• Anheuser –Bush and Miller two large
wholesalers
• 1985 – Coors was exception distribute beer in all
50 states.
• Shipping cost added to the brewers.
5. US BREWING INDUSTRY STRUCTURE
Marketing
US Beer Consumption 1945 - 85
- Demand grew <1% in 1945-60 period
- All the Volume gains postwar period was between 1960 – 1980, & Two Major reasons attributed to improved
demand are as follows:
Baby Boomers reaching Legal Drinking age
Marketing Variables : Price and Differentiation
- Beer Prices fell by 30% between 1960 – 80 though Price Elasticity of demand is less
- Brewers differentiated their beers through advertising, segmentation, & Packaging
- Post War Advertisement Increased
- Emergence of TV, Consumer Income
- Ad. Expenses: $50 Mn to 255mn [1945 ~ 65], $640 & $1200Mn [1980-85]
- Advertisement effect : Dissipated in a year
- Intensified Advertising helped national Brewers
- Spot TV – costs 15-30% higher, Local conditions
- Savings on National advertisements was hardly >1% of revenue & Other
things held equal
Advertising
- Brewers Traditionally canned beers in 12 ounce container
- 1972 Miller Introduced 7-ounce ‘Pony bottle & lured customers
- States Eased Regulations in Package Sizes
- Beers Available in 7,8,10,.. 32 ounce containers & Packed in
units of 6, 8, 12 or 24.
Packaging
6. US BREWING INDUSTRY STRUCTURE
Marketing
- Before 1970 : Only Two Categories
- Popular Beers & Premium beers : Categorized based on price
- Premium categorization was initially to offset extra Transportation cost for national brewers
- Advertising reduced popular beer share from 86% in 1947 to 58% in 1970
- Over 1975-85, beers also differentiated according to alcohol content
- Major Brewers brand Proliferated as segments multiplied,which was 30 to 60 between 1977 – 81
- Larger Brewers has more advantage in introducing new brands
- Larger brewers typically had a popular, premium & Super premium in regular and atleast one
brand in light category
Segmentation
Segmentation of US beers in 1985
Structural Impact
After World War II, Consolidation in the brewery Industry continued & only 6 Major breweries accounted for domestic shipments
Imported brands accounted for 4% of consumption was twice the average price of domestic consumption
Ultra premium boutique beers offered by domestic microbrewers accounted < 1% of domestic consumption
Most Industrialized countries has highly concentrated brewing industries as well
West Germany 2nd largest market for beer after US, had a long term contracts between brewers & retail outlets
In west Germany 3 largest brewers still accounted for <30% of Total output after mergers in 1960 & appx. 1300 breweries operated
7. ADOLPH COORS BREWING DIVISION
Coors Brewing Division
Brewing division started in Colorado 1873 by Adolph Coors Sr. & Coors Jr took over by 1929, appointed wholesalers and begin
selling outside Colorado
1930 Expanded to 8 western states & Introduced its Premium Banquet Label in 1941.
Sales Jumped from 137,000 barrels in 1940 to 12.73 Million barrels by 1974 carrying various mile stones in the intermittent years
1975 Coors Volume dropped by 4% to 11.9 Mn barrels at the same time it began adding new states to its distribution territory
1985 Operations handed over to fourth generations of Coors family & all 4 Members of Coors remained on the BOD
Coors family believed that Marketing skills has to be focused & Expected to clear the controversies
Bill Coors statement on blacks “ Lack the intellectual capacity to succeed;
Coors committed to spend $650 Mn over 5 years working with Minority vendors & distributors, hiring minority employees &
Supporting local Communities
8. ADOLPH COORS BREWING DIVISION
Procurement Production Distribution
▪ Focus on Quality and self-reliance. It has a label
of “Pure Rocky Mountain Spring Water”. It
continued to acquire water rights as hedge
against drought.
▪ Made its own malt out of proprietary strains by
2000 farmers under long-term contract
▪ From a Raw material point, it was the most
expensive beer made in America
▪ Major sale were of the Cans segment which
comprised of around 69%, the procurement of
which was done from old Can making factory
▪ Since the 1970s, it has also invested heavily to
become self-sufficient in energy mainly by
developing its own coalfield
▪ The company claims of superior quality with two
unique aspects
▪ 1. Ageing beers for 70 days compared to 20-30
days for others
▪ 2. Natural fermentation process, which minimised
the use of additives
The longer brewing cycle tied up more capital which
increased the assets per barrel
Company’s additions has lagged its sales growth
leading to shortages during peak consumption
periods. Average capacity had fallen to 84%.
They had bad operating practices which leads to
numerous strikes. Grounds include racial and sexual
discrimination, mandatory lie-detector tests and
loyalty oaths.
▪ Channels in line keeping the fact of
unpasteurised beer tended to spoil quickly.
▪ The shipping was done in refrigerated cars and
trucks
▪ Any been in shelves for more than 60 days had to
be destroyed at wholesaler’s expense.
▪ Coors began to widen its 11 state distribution
territory in 1976, by advancing to new cities
▪ The company shipped 74% of its beers in
refrigerated rail carts and the remaining in
refrigerated trucks
9. COORS MARKETING
“Drinkability” : Rocky Mountain Spring water + other choice ingredients + unique brewing process
Late 1970s: Hiring marketeers, target niches, launched new brands and increased its advertising
expenditures.
• Coors Banquet (1958) → Coors Light (1978)
• Herman Joseph’s a super premium brand 1984
• George Killian’s Irish Red Ale
• Golden Lager→ Coors Extra Gold
• Joined Molson of Canada and Kaltenberg Castle of West Germany to form Master Brewing Company
to brew ultra premium Master III
Silver Bullet for Coors Light
Coors is the One
10. EXPANSION PLANS
25-30 million barrel ceiling on capacity + increase in shipping distance
▪ 1979: 2 possible locations
▪ 1981: It completed acquisition of 2100 acres of land in Rockingham County
▪ 1985, Aug: Announced plans to construct 10 million barrel brewer - 2 phases
Phase 1: 1985, Nov: Coors would add a 2.4 million barrel packaging facility, expected to cost
$95 million and start up in 1987
▪ Cost of shipping beer to East Coast would reduce by $2.5 per barrel
Phase 2: Facility would be expanded to a 10 million barrel per year brewery, estimated to
cost 500-600 million, reduce cost further by $2.5 per barrel
11. EXTERNAL ANALYSIS
Threat
of
substitution
Buyer
Power
Threat of
new entry
Supplier
Power
Competitive Rivalry
Huge cost of entry, economies of scale
High working capital requirement
Need partnership with suppliers
Companies from other state
Product differentiation
Brand identity
Ease of distribution
Moderate
Low
Agricultural supplier concentration
Presence of packaging substitutes
Energy suppliers
Brewing industry volume to supplier
Cost differentiation
Threat of forward/backward integration
Access to labor - Union
Wholesaler - High bargaining power
Off-premise retailer - Medium bargaining power
On-premise retailer - Less bargaining power
Low buyer switching cost
Quality and price sensitivity
High
Low
Relative pricing
Buyer propensity to substitute products
High
6 major players with 75%
market share
Anheuser-Busch(37%) and
MillerCoors(18%)
Industry growth rate
Product differentiation
Diversity
12. EXTERNAL ANALYSIS
▪ Tax policy - increased to 12% per barrel
▪ Age restriction in different states of the US
▪ State and federal laws - License required to
sell in shop, restaurant
▪ Regular inspection
▪ Right on water required for brewing
▪ Raw materials(agricultural commodities+packaging) -
half of the business expense
▪ Dependence on coal - high price during energy crisis
in 70s
▪ Low price elasticity of demand - steady demand.
▪ Reduced price and backward integration after WW2
▪ Increased demand - Baby boomers reached the legal
drinking age in 80s
▪ New customer segment - Different Consumer
preference beers(light, high)
▪ More Americans started to drink at home, but
traditionally in restaurant/bar
▪ Innovation in packaging and
manufacturing increased shelf life
▪ Pasteurization allowed beer to last up to
six months unrefrigerated
▪ Optimize storage space, transfer more
liquid at same price
▪ Variance in container size - switch from
glass bottles to steel, aluminum can
Political Factors
Economical Factors
Societal Factors
Technological Factors
13. INTERNAL ANALYSIS & FUTURE FORECAST
Strategic Problem - Management has failed to ensure long term survival of Coors because they have neglected the importance of strong distribution
networks, and shipping expenses associated with proximity to markets, and of refrigeration needs.
Solution - Construct an additional brewery in Virginia of the eastern United States.
It would reduce costs associated with shipping from the Golden Colorado site. Coors estimates a $2.50 saving per barrel if it would not have to ship its entire
product the average 1500 miles. Although the brewing industry is not projected to grow, it would not hurt Coors to have more resources and capabilities, and not
have to base their entire operation on the single brewery.
Valuable Rare Immitable Organized
Unused Competitive
Advantage
Sustainable Competitive
Advantage
Product lines
Innovation
Distribution network
Yes
Yes
No
No
No
No
Yes
Yes
Yes
Financial resources
Vision for set of challenges
Brand positioning Yes No Yes
Yes
Yes
Yes
Yes Yes