1

I.

Current Situation:

A. Current Performance History: The Boston Beer Company was founded by Jim Koch This was subsequently followed by the opening of the extremely popular Boston Brewery. Jim further expanded his business operations by purchasing the Hudepohl-Schoenling Brewery in his hometown of Cincinnati, Ohio. The Boston Beer Company Inc. went public

1984 1988 mid1990s

1995

Boston Beer was only the sixth-largest brewer in the United States, producing less than 1% of the total U.S. beer market 2010

Mission The mission of the Boston Beer Company was to seek long term profitable growth by offering the highest quality products to the U.S. beer drinker. Vision The Boston Beer Companys vision was to become the leading brewer in the Better Beer category by creating and offering high quality full-flavored beers. B. Corporate Governance

David A. Burwick Member Since: 2005 Class A Director Pearson C. Cummin, III Member Since: 1995 Jean-Michel Valette Member Since: 2003 Directors C. James (Jim) Koch Chairman, Member Since: 1995 Cynthia A. Fisher Elected 2012 Class B Director Jay Margolis Member Since: 1999 Martin F. Roper Chief Executive Officer, Member Since: 1999 Gregg A. Tanner Member Since: 2007

C. Top Management (Executives)

C. James Koch Chairman

Martin F. Roper President and Chief Executive Officer William F. Urich Chief Financial Officer and Treasurer

Vice Presedent

John C. Geist Vice President of Sales

David L. Grin ne ll Vice President of Brewing

Thomas W. Lance Vice President of Operations

Al-Li Lim Vice President of Human Resources

Robert P. Pagan o Vice President of Brand Development

Kathleen H. Wa de Vice President Legal and Corporate Secretary

II.

External Environment

A. General Environment Although it is only a small segment of the beer industry, since 1997 the craft beer market has expanded by five percent and seems to have permanent stalked out a place in the beer market. Investing in the craft market, however, is currently deemed a poor risk. This can be attributed to the fact that smaller craft brewers have swamped the industry, and larger craft brewers that have taken their companies public have seen their natural market nibbled away. Furthermore, large brewing companies are catching on to the popularity of the craft beer trend, and have been

attempting to either secure their own manufacturing or else buy out smaller micro-brewing companies. Overall, the craft beer market can be considered only mildly attractive at this point. Environmental Analysis Demographic Trends: Shift in market from young, upscale white males to middle class households Individuals are more interested in quality of beer than in price

Socio-Cultural Influences: Growing prosperity in market, more leisure time, rise in product expectations, and greater interest in food and drink amongst the middle class Customers are interested on the natural ingredients and natural brewing process associated with Craft Beers

Technological Developments: Craft beers can now be mass-produced Craft beers can now be exported globally, rather than consumed locally or regionally

Macroeconomic Impacts: Large companies are buying out small companies Large companies producing boutique brews are too competitive for small craft beer companies

Political-Legal Pressures: Governments are creating a strong awareness of alcoholic beverage abuse problems, and are therefore increasing taxes, and toughening laws regarding the sale and distribution of such beverages Interest groups (MADD) are lobbying for a decreased blood alcohol limit for those operating cars, and for heavier fines and punishments if found driving while intoxicated

Global Trade Issues: US Exports to over 100 countries; however, many of these countries have existing strong markets already With the popularity of foreign beer, many American Companies have signed exclusive contracts with foreign producers to manufacture their products

B. Industrial Environment The domestic beer market in 2010 was facing many challenges. In 2010, domestic beer overall sales declined 1.2%. Industry analysts predicted inflation-adjusted growth to be only 0.8%

through 2012. Decreases in domestic beer sales as a whole were mainly due to decreased alcohol consumption per person. U.S. consumers were drinking less beer because of health concerns, increased awareness of the legal consequences of alcohol abuse, and an increase in options for more flavorful wines and spirits. The Better Beer category (comprised of craft, specialty, and import beers) was growing at an annual rate of 2.5% and comprised roughly 19% of all U.S. sales. Beers were classified as better beers mainly because of higher quality, taste, price, and image, compared to mass-produced domestic beers. The craft beer segment grew an estimated 9% in 2010Research showed that women were most concerned about the calories in beer. However, 28% of these same women answered that they were presently drinking more wine. The growth in craft beer sales was good news for the Boston Beer Company, which positioned itself in this category and was the largest and most successful craft brewer in the United States. It ranked third overall in the U.S. Better Beer category, trailing only two imports Corona from Mexico and Heineken from The Netherlands. C. Competitive Landscape 5 Forces analysis of the Boston Beer Company

5 Forces analysis of the Boston Beer Company

Low Burgaining High Burgaining High Threat of power of power of buyer substitute suppliers Distribution No Switching
consolidation Limiting Compitition Government Regulation Cost for Customer High Availibilty of substitute Wine consumption increasing

High Barriers of entry

Large Capital Requirement Limited channel of Distribution Large government regulation Substantial Economic of Scale

Threat of Forword Intrigration Low Supplier concentration Low Switching cost

Moderate Rivality among existing compititors

+ Positive Sum Compitition + Miller- Coons Merger -High Exit Barriers -Slow industry Growth

III.

Internal Environment

A. Corporate Culture As a company, we look at the world as one without limits, and as one in which we are free to explore, grow, create, and enjoy. Although proud of what we have achieved thus far, we look forward to the opportunities and possibilities that lie ahead.

Creativity

Human chemistry

Tradition

B. Organizational Activities Analysis Marketing: Major products 1. 2. 3. 4. 5. 6. 7. Twisted tea HaedCore Hard Apple Cider Samuel Adams Utopias Seasonal Bears Extreme Beers Imperial Beers Barrel Room Collection Beers

Finance: The Boston Beer Company financial performance

In 2007

Revenues of $341 million COGS of $152 million Net income $22.5 million Revenues grew by 22% to $415 million COGS of $201 million Net income $31.1 million Management expected sales to be $430million No long-term debt 14 million shares outstanding The stock price was $67

In 2009

In 2010

Operation and Logistic: As of 2008 The Boston Beer Company altered his operational strategy, which is now aimed at fully owning and operating their breweries rather than sourcing third party brewers for excess capacity. In2008, the company decided to purchase the Pennsylvania Brewery from Diageo North America at a cost of $56.5 million to pursue this vision. From 2007 to 2009, core product volume brewed at Company-owned breweries increased from approximately 35% to over 95% reflecting their desire for self-sufficiency C. Capabilities/ Core Competencies: Choice to stay small and independent o Allows for attention to detail, o top- new technology o Wide range of flavor Compete based on quality over o Success fully hold niche positioning Executive leadership

IV.

Analysis Strategic Factors

A. SOWT Analysis Strengths Niche Market Highly trained sales Forces Brand Differentiation Weaknesses Risk Direct compitition with reagional Brewer Compitition with neighbour Industry Never Produce ther beer in Can

SWOT
Opportunities Geographic Expantion Domestic and International Product diversification Threats Industry Compitations Segmentation Need to increase differentiation from premium products in wine and Sprits Industry

V.

Identification of Strategic Issues

Current Challenges The Boston Beer Company had been growing revenues by 22% over the past two years, and the craft beer industry as a whole continued to experience double-digit growth as well. How- ever, there were some challenges ahead if the company was to successfully achieve its mission and continue this level of growth. 1. Probably the most critical challenge was the increased level of competition in the craft beer industry. Volume sales within the craft beer industry increased 20% during 2002 2010 to 220 million cases, and this astonishing growth attracted many players into this market, especially imported beers such as Corona and Heineken, and the top two brewers AB Inbev and MillerCoors. 2. Through mergers and acquisitions, the major competitors achieved cost savings and greater leverage with suppliers and distributors and preferential shelf space and placement with retailers. 3. A continuous increase in production costs of all basic beer ingredients, such as barley malt and hops, as well as packaging materials like glass, cardboard, and aluminum continued into 2010 with further increases in fuel and transportation costs. The global inventory of the companys Noble hops declined, and the harvest in recent years of its two key hops suppliers in Germany did not meet the high standards of the Boston Beer Company. As a result, Boston Beer received a lower quantity at a higher price than expected.

4. The company purchased a brewery in Breinigsville, Pennsylvania, in 2008 for $55 million. Although this brewery was expected to increase capacity by 1.6 million barrels of beer annually, it required significant renovations before it could produce quality beer. United Airlines Dilemma United Airlines recently approached the Boston Beer Company with an interesting opportunity. United wanted to offer Samuel Adams Boston Lager to fliers on all of its flights. This would provide the Boston Beer Company increased national exposure and could result in a significant increase in beer sales. However, United Airlines would only sell Samuel Adams Boston Lager in cans, not bottles. The Boston Beer Company had never sold any of its beers in cans because management believed that metal detracts from the flavor of the beer. Management felt that the full-flavor of Samuel Adams could only be realized using glass bottles. Should Boston Beers management rethink its decision not to distribute its beer in cans to take advantage of this opportunity? Many years ago, Jim Koch said that there would never be a Sam Adams Light Beer, but he eventually reversed that decision and Sam Light became a huge success VI. Strategic Alternatives and Recommendations

A. STRATEGIC ALTERNATIVES Alt 1: Maintains a competitive edge in front of its competitors with Alchemy and Science, which is the Companys R&D subsidiary. It aims to expand the flavors and techniques of their beer to come up with innovative beers. Alt 2: The Company has contracted its beer to be produced in other nations, most notably Germany, which increases profitability of the firm and diversifies risk. Alt 3: SAM is the largest microbrewer in the U.S., which gives the Company the ability to dictate pricing within this sub-industry. Alt 4: Boston Beers management rethink its decision to distribute its beer in cans to take advantage of this opportunity B. RECOMMENDATION 1) Maintain current strategy 2) Westward Expansion in the USA 3) Brand Proliferation VII. Evaluation and Control

Evaluation The Boston Beer Company has shown that it has a successful business strategy for growth. The companys management now needs to show that it can maintain its profitability at its current

level by adopting a strategy that creates barriers for entry into the national craft beer market. Many conventional entry barriers can be overcome by either regional microbreweries, which have the experience necessary to brew quality beers, or by major American breweries, which have the resources to market a new beer nation-wide. The one significant entry barrier that the Boston Beer Company still holds on to is its good reputation, which it gained both by being an early mover into the national craft beer market and by maintaining strict quality controls. As the company has matured it has drifted away from its reputation of uniqueness. In order for the company to maintain its hold on the American craft beer market, it will need to revive its reputation at all costs. Because the companys growth has slowed, it has an opportunity to use its excess capital to fund programs that help bolster its image as a high quality, high integrity brewer. If it continues to differentiate itself from major American breweries like Budweiser, Coors, and Miller, then despite the Boston Beer Companys smaller resources, it should still be able to hold its consumer base and protect its profits from entry into its market. Control The Boston Beer Company Inc.s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying managements report on internal control over financial reporting. A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.