Brewing Change at Breckenridge Brewery

ASSIGNMENT 1 : CASE STUDY ANALYSIS

Case 6 - Brewing Change at Breckenridge Brewery

INTRODUCTION

Breckenridge Brewery is a craft brewer which was established by Richard Squire. Richard turned his passion for brewing good home made beer into a lucrative business. In 1989, he started his first Breckenridge Brewery and Pub at Breckenridge which has a production capacity of 3,000 barrels per year. During his first two years in business, he sold out the brewery's annual maximum capacity. He opened a second brewery and brew pub in Denver in November 1992.

By the end of 1994, even this brewery failed to satisfy the increased demand and plans were made for a new brewery which opened in May 1996 in Denver. This brewery had a maximum output of 60,000 barrels per year after expansion.

In the mid 1990s, Breckenridge Brewery started expanding eastwards and their first brewpub outside Colorado opened in Buffalo, New York in December 1995. Five other brewpubs were subsequently opened in other states. However, from its opening till 1997, the brewpubs have not turned in a profit although the main brewery was making money.

Richard believes that his vision for the company, a two-tiered concept with a top microbrewery producing fresh, quality beer and a chain of brewpubs, has potential. However, due to the more complex nature of running a restaurant, he believes that the company has yet to figure out how to run its restaurant business profitably.

The company is now at the crossroads. Richard is in a dilemma as to whether to continue the brewpub business or to give it up and just concentrate just on brewing beer. He is also unsure about bringing in new leadership to help solve the company's performance problems.

THE EXTERNAL ENVIRONMENT

A firm's external environment is divided into three major areas : the general, industry and competitor environments. Below is an elaboration in further detail regarding the firm's opportunities and threats in these three environments.

Opportunities in the General Environment

The United States of America has a population of 260 million people. This is a big market with substantial purchasing power. As of 1997, Breckenridge Brewery has only expanded eastwards and the west side of the country is relatively untouched. According to Exhibit 2 in the case study, there were only distributors in 32 states and that leaves a potential to sell to the other 19 states as well.

In addition, society is getting more affluent, people have higher disposable incomes. Therefore, there are always people out there who will look for something that is different from the mainstream beers that are available from the mass market brewers. Surveys have shown that adopters of microbrew are getting younger and 70% of Generation X under 34 years old buy microbrew beer.

In 1997, the large brewers still command 80% of the beer market but their growth has hit a standstill. However, for craft brewers, observers expect their market share to grow to 10% from the current 2.8%. Hence, there are tremendous opportunities for growth.

Breckenridge Brewery has not ventured into any other markets besides the home country. The global market is an attractive one. The Big 3 (Anheuser Busch, Miller and Coors) had made substantial inroads into global markets. There is a huge potential in global markets as American products have a high take up rate due to the influence of American culture globally.

Opportunities in the Industry Environment

Compared to the general environment, the industry environment often has a more direct effect to the firm's strategic competitiveness and above average returns.

The number of regional specialty breweries has grown steadily from 1 in 1986 to 33 in 1996. Breckenridge Brewery falls into this category as it has a production capacity between 15,000 and 1 million barrels per year. Although the start up costs of such breweries may be high, this has not deterred new competitors from entering the business. These specialty breweries compete based on differentiation of products, each positioning themselves as an alternative to the large breweries.

As of 1996, there are only 33 regional specialty breweries and the market is by no means saturated yet. Any promotional efforts are not likely to elicit a response from competitors. Although the industry is still growing, it is slowing down in 1997 as compared to earlier years.

Threats in the General Environment

A threat is a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness.

Studies have shown that there is a growing market for "alcohol pops" which is a mixture of alcohol with fruit juices or sodas. More youngsters especially women are taking to these drinks as an alternative to beer.

There are also many pressure groups in America, e.g. MADD (Mothers Against Drunk Driving) which may put unwanted pressure on beer manufacturers. Legislation banning the sale of any alcohol in certain counties and additional legislation pertaining to the legal drinking age may also be of concern to the company.

Threats in the Industry Environment

As the craft beer industry is still growing, there is always a possibility of new entrants. Breckenridge Brewery is not turning in a profit at the time and a price war with competitors is not going to help them. As the majority of these specialty breweries only operate in the United States, protecting their home turf is vital for their very survival.

THE INTERNAL ENVIRONMENT

Every firm has their own distinct resources and capabilities that is unique to themselves and it can be used to create an exclusive market position.

Strengths of Breckenridge Brewery

The company has a visionary leader in Richard Squire who is also the founder. He knows what he wants for the company and motivates people to work towards it. Richard has a good partner in Ed and they complement each other. The management team is also dedicated to the company and many of them have substantial experience in their respective fields.

Breckenridge Brewery has a strong product line up which is different from the large