Chapter 10- Vertical Integration

In this posting we will be looking at Sam Adams (BBC) and their opportunities with vertical integration.

Sam Adams, as we know, is the manufacturing company in the value chain.  On the bottom end, we see they buy most of their ingredients from Europe (Bavarian Germany) and have them sent back to the United States.  From there, they brew the beer, send it to the distributors and the distributors place it into stores, bars and restaurants.

Reading up on what ingredients are used in Sam Adams beer, I see there is only a few select locations (they call it the "hop belt" or 48th latitude) were hops can thrive and give off the bitterness that is needed in beers.  By taking over this part of the process, Sam Adams could have full access to the ingredients in the beers that they produce.  The question is why they would want to do this?  It just does not sound cost effective.  The people over there have been working on perfecting this farming technique since the 1000 A.D. and with Sam Adams coming in, nothing would change.  Keeping this part of the chain independent is best.

The distribution part has been approached by Jim Koch at board and industry meetings.  Ultimately, Jim is looking to make the current process more efficient.  He knows that there are small businesses out there that need help with cutting costs, not being took over by manufacturers.  This discussion is talked about in earlier posts.

The only place that I can see vertical integration working for Sam Adams is in the bar or restaurant side.  They have a brand name known for its American tag lines.  Demographics show that more people are drinking craft brewed beers every year.  With these positives, Sam Adams can use a forward integration strategy and venture into the retail side.  More details would have to be stamped out, but the bones of this plan sound good.