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The Beer Industry

.. ll open new brewery/restaurant in Manhattan. Increase in capacity by 300% when new facility is open. KEY SUCCESS FACTORS 1. Maintain Quality in existing plant 2. Must build a stronger network of distributors 3.

Make attractive packaging 4. Quality control in new facility. 5. Improve access to financial capital for future endeavors. 6. Innovative low cost ideas to promote product( Beer sponsorship at local pub’s, exploit be rated best brew in America, etc.) INDUSTRY ATTRACTIVENESS/ PROFITABILITY Factors making the industry attractive- -Market Size $13.7 Billion -Preference for better quality Brew over domestics. -Microbrewer/brew pub trend increasing Factors making the industry unattractive- -Decline in consumption of beer due to healthier lifestyles -Decreasing profitability due to heavy taxation -Flat Sales -Extensive competition(too many competitors) Special industry issues/ problems- -Increasing consumption despite stricter laws and healthier lifestyles. -Oversees expansion Profit Outlook- -Not very good because of flat sales, increased taxation, and limited success of previous microbreweries.

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COMPANY SITUATION ANALYSIS STRATEGIC PERFORMANCE INDICATORS The company is actually doing pretty good. For the first five months of the new year he will show a profit. Last years numbers are misleading as to the direction in which the company is going. If it were not for the huge advertising expense, he would have shown a profit last year. The company’s competitive approach is as follows. Differentiation.

GGB brews a full-bodied lager instead of the mass marketed lighter, paler beers. They use the best hops in the world($4.50/lb as opposed to $.55/lb). The beer is also brewed in the old German Reinheitsgebot tradition. GGB has a market niche. They target the beer aficionados, one who knows how to distinguish a well made beer from an average to below average beer. Distribution. Because of GGB’s size a door to door distribution campaign is used.

GGB solicits to restaurants, bar owners, and liquor stores. Their market coverage consists of the San Francisco area and Munich, Germany. The following is a projected 5 year forcast. Assuming all things remain equal. 1985 1986 1987 1988 1989 (A) Sales @.20 inc. 408,000 489,600 587,520 705,024 846,028 (B) Cost of goods sold 273,000 321,300 385,560 462,672 555,206 Gross Margin 135,000 168,300 201,960 242,352 290,822 Less: (C) Shipping 840 21,840 21,840 21,840 21,840 (D) Salaries 101,003 106,053 111,355 116,922 122,768 Rent 4,800 4,800 4,800 4,800 4,800 (E) Truck lease 20,800 24,960 29,952 35,492 43,130 (F) Marketing/Promotion 55,000 2,000 3,000 4,000 5,000 (G) Repairs 1,000 1,050 1,102 1,157 1,215 Depreciation 7,500 7,500 7,500 7,500 7,500 (H) Other 9,057 9,509 9,984 10,483 11,007 Net Income (65,000) (9,412) 12,427 39,708 73,562 (A) 20% 1 year increase (B) $10.50 per case (C) 1986, 70 cases x 24 bottles x 5 = 8400 bottles per week x 52 weeks = 436,800 x .05 = 21840 *lower cost per bottle due to larger shipments. (D) 5% year increase (E) 20% 1 Year increase (F) No Advertising (G) 5% year increase (H) 5% year increase SWOT ANALYSIS Strengths- low overhead, well thought of by buyers, expertise in brewing, fifth generation brewer, Cook’s education, Crowned best beer in America, Penetration into a German market, access to financing looks favorable. Weaknesses- After six months of operation, still in the red.

High costs of truck leasing, high initial cost of advertising, distribution extremely weak, costs more to brew than imports, narrow product line. Opportunities- Pending affiliations with large distribution network, continued expansion in Europe, possible purchase of abandoned brewery in hopes to expand production capabilities. Threats- GGB is locked out of 90% of market in Munich, GGB is in a risky business, competition from national, regional, and imports. U.S. population concerned with healthier lifestyles. Blue collar workforce declining. Stiffer laws, regulations, and penalties.

Due to lack of financial information on GGB it was impossible to make accurate price/cost comparisons. However, from a present-day experience, I would conclude that GGB’s prices are not competitive with the top national breweries, but are more in line competitively with other regional, local brewers. According to the case, GGB costs 2-3 times what it costs too brew imported beers. Due to this comparison, it is fair to state that GGB’s production costs are extremely high, thus cutting into their profit margin. COMPETITIVE STRENGTH ASSESSMENT scale: 1 = very weak; 10 = very strong Key success factor/ Strenght measure Weight GGB Import Anchor Sierra Mendo. Boulder NY Beer Quality/product perf.

.20 10/2 8/1.6 6/1.2 5/1 5/1 5/1 8/1.6 Reputation/Image .15 8/1.2 10/1.5 5/.75 6/.90 5/.75 5/.75 7/1.05 Manufacturing capability .10 5/.5 9/.9 7/.7 4/.4 3/.3 6/.6 7/.7 Technological Skills .05 7/.35 7/.35 5/.25 5/.25 5/.25 5/.25 5/.25 Dealer Network/Distr. .15 3/.45 9/1.35 7/1.05 4/.6 3/.45 4/.6 7/1.05 Marketing/advertising .10 3/.3 8/.8 3/.3 3/.3 3/.3 2/.2 5/.5 Financial Strength .10 4/.4 8/.8 5/.5 5/.5 5/.5 6/.6 7/.7 Relative Cost position .15 3/.45 6/.9 4/.6 5/.75 5/.75 5/.75 7/1.05 Overall Strength rating 1.00 5.65 8.20 5.35 4.70 4.30 4.75 6.90 CONCLUSIONS CONCERNING COMPETITIVE POSITION The companies competitive position is improving due to the quality of the product, reputation that is being gained, and technological skills by way of brewing process. The advantages that GGB has is quality, reputation(Best Brew in America), sound management, and recipe. The disadvantages facing GGB are costs, dealer network/distribution, financial strength, and marketing/advertising. KEY ASSUMPTIONS It is assumed that demand in the industry will remain flat.

This will remain true for the next 10 to 20 years. Because of flat sales in the industry, a few companies will be forced to exit the industry. GGB will continue on its slow growth pace. STRATEGIC DIRECTION/TARGET OBJECTIVES Golden Gate Brewing Company is a leading small scale brewer of America’s Best Beer. It is the companies mission to give American’s an alternative to drinking foreign beer by providing a beer that is superior in taste and quality. GGB’s OBJECTIVES -Protect current position while concentrating on expanding into other markets.

(5 years) -Improve dealer/distribution network -Maintain present quality -Improve access to financial capital for future endeavors -Come up with some low cost ideas to promote product(Beer sponsorship at local pub’s) -Exploit being rated Best Brew in America -Make attractive packaging -Open additional plant in San Francisco Brewery OVERALL BUSINESS STRATEGY Golden Gate Brewing Company should take a fortify and defend strategy. With a moderate growth strategy, GGB will be able to maintain it’s current position and respond to changing market conditions better. Because there is little room for growth in the industry, GGB will need to carefully watch the moves of competitors. With a conservative growth strategy, GGB will not step on any of the bigger companies toes thus enabling GGB not to get squashed. The distribution network needs to be greatly improved. An improved dealer network would lower costs, and free up some of Cook’s time so that he can focus on other issues within the company. GGB also needs to look into ways to exploit the rating of America’s Best Brew.

Optimization of both the old and new San Francisco facilities is essential. APPROACHES/MOVE TO GAIN COMPETITIVE ADVANTAGE GGB should slowly expand into new markets while at the same time strengthening it’s present position. GGB should continue with it’s differentiation strategy. Because they are an alternative to imported beer, they should proceed with the positioning of a high quality, connoisseur’s beer. The status of being the first U.S. brewed beer to be sold in Germany could also be used to gain competitive advantage. GGB might consider having Best Brew in America printed on the bottle. Posters for bars would be an inexpensive way to promote the product.

GGB could also sponsor special nights at bars/pubs where they could offer discounts on the product or have contests.(Beer tasting contests) FUNCTIONAL SUPPORT STRATEGIES Marketing/sales- The core competence for this company is quality and being rated the Best Brew in America. It is marketing and sales job to stress this competence. There are low cost ways to support these claims. Putting these features on the bottle’s label will entice those who see. Any one who is a beer drinker will want to try a beer that has been rated the Best Brew in America. Quality should be exploited.

Finance- The company has three options for financing future projects. These options are an IRB, UDAG, or Market rate financing. The most appealing type of financing for GGB is the IRB or Market rate financing. The USAG is not very attractive because of the restrictions on profits. The other two options are still questionable. What bank is willing to lend that much money with the financial status of GGB. It will be tough for GGB to get a loan for that large of an amount.

Distribution- This is a key area that GGB needs to improve and expand in order to grow. If the company can find an attractive way to better distribute it’s product, GGB will have access to previously unattainable markets. A regional distibutor would be a good way to start off the distribution network. Prodution- The key to lowering costs will be having a very efficient production facility. They can increase prodution which will lower the amount of fixed cost per product.

They should look into ways of cutting down on waste. OTHER STRATEGIC ACTION RECOMMENDATIONS GGB needs to look into ways to lower overall costs without reducing the quality. They could shop around for a cheaper supplier of packaging. They should also look into the options of buying some used trucks. This will lesson the high cost of leasing the trucks. Once a good distributor is found, costs will get lower as a result of more production thus enabling the costs to be spread out more evenly over the product. Business Essays.


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