In this post I want to briefly hit on some areas where diversification realized at Sam Adams.
Sam Adams (BBC) falls into the single business area of the limited diversification title. Sam Adams makes beer and that is it. They stick to what they do best.
Sam Adams realizes their economies of scope and exploits them through their employee's. President Jim Koch, often mentions how he has the best employees in the business. He feels that "happy employees make better beer (those were not his exact words but very close).
By realizing the importance of his employees, Jim has realized and exercised a key diversification strategy that is hard to imitate in the brewing industry.
My thought is "happy workers"+"happy business"= "good future"
This video backs my reasoning.
Wednesday, May 4, 2011
Friday, April 29, 2011
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.
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.
Wednesday, April 27, 2011
Chapter 9- Tacit Collusion: Cooperation to Reduce Competition
In this chapter, we look at how companies in look to gain a competitive advantage by contending with other firms to reduce competition.
I have not or do not see any cases where Sam Adams (Boston Brewing Co.) has engaged in any of this activity. The only mention that I have seen of this is in other blogs and opinions by writers. The hint that Sam Adams has grown to a size that pushes them out of the "craft brewery" segment and should be classified as a "large brewery" has stirred, but I see no validity to this argument.
Since I have no subject matter for this post, I will put up a few movies that I found interesting or fun to watch:
I have not or do not see any cases where Sam Adams (Boston Brewing Co.) has engaged in any of this activity. The only mention that I have seen of this is in other blogs and opinions by writers. The hint that Sam Adams has grown to a size that pushes them out of the "craft brewery" segment and should be classified as a "large brewery" has stirred, but I see no validity to this argument.
Since I have no subject matter for this post, I will put up a few movies that I found interesting or fun to watch:
Chapter 8- Flexibility: Real Options Analysis Under Risk and Uncertainty
In chapter 8 we look at how companies look at how they can minimize risks and uncertainty in the markets that they participate.
One specific example of how Sam Adams is trying to minimize uncertainty is in the distribution channel.
Throughout the last few years, the United States has seen many distributors fall on hard times and become a little inefficient with their practices. President and CEO Jim Koch proposed in an industry meeting, that the economic atmosphere has put many distributors in a bad situation and the inefficiencies could hurt the brewers. He proposed "such unconventional ideas as having competing distributors in the same city use a single warehouse and fleet of trucks to deliver their respective brands to bars and stores." With this distribution set-up, the brewing industry could cut costs of up to $2.5 billon and help distributors slash 20% from existing cost structures.
With this type of distribution, Jim is looking to alleviate the risks entailed in the distribution side of the business.
Read more here: http://online.wsj.com/article/SB125384534262939939.html
One specific example of how Sam Adams is trying to minimize uncertainty is in the distribution channel.
Throughout the last few years, the United States has seen many distributors fall on hard times and become a little inefficient with their practices. President and CEO Jim Koch proposed in an industry meeting, that the economic atmosphere has put many distributors in a bad situation and the inefficiencies could hurt the brewers. He proposed "such unconventional ideas as having competing distributors in the same city use a single warehouse and fleet of trucks to deliver their respective brands to bars and stores." With this distribution set-up, the brewing industry could cut costs of up to $2.5 billon and help distributors slash 20% from existing cost structures.
With this type of distribution, Jim is looking to alleviate the risks entailed in the distribution side of the business.
Read more here: http://online.wsj.com/article/SB125384534262939939.html
Chapter 7- Product Differentiation
With Sam Adams approach to product differentiation, they separate themselves from the competition featuring: product features and product reputation.
In the beer or brewing industry, as we have mentioned before, there are thousands of brands and labels to pick from. With all of these decisions, brewing companies need to find a niche or strategy that makes them unique or top of mind in the customers decision making process. For example, Budweiser or Bud Light, in the United States, has been the champion for top of mind marketing with their unique commercials and tag lines (King of Beers.) Sam Adams has the identity of a quality, craft beer with seasonal selections to enhance the customers drinking experience.
Each season brings new harvests and ingredients to select from. Sam Adams (in my opinion) champions this process by putting out the best mix of seasonal beers on the market. This type of brand reputation gives loyal customers options outside their flagship Boston Lager to choose from.
In the beer or brewing industry, as we have mentioned before, there are thousands of brands and labels to pick from. With all of these decisions, brewing companies need to find a niche or strategy that makes them unique or top of mind in the customers decision making process. For example, Budweiser or Bud Light, in the United States, has been the champion for top of mind marketing with their unique commercials and tag lines (King of Beers.) Sam Adams has the identity of a quality, craft beer with seasonal selections to enhance the customers drinking experience.
Each season brings new harvests and ingredients to select from. Sam Adams (in my opinion) champions this process by putting out the best mix of seasonal beers on the market. This type of brand reputation gives loyal customers options outside their flagship Boston Lager to choose from.
Thursday, April 21, 2011
Chapter 6- Cost Leadership
As we look at cost leadership as a company that seeks to gain an advantage in their market(s) by lowering their economic costs below its competitors, Sam Adams (BBC) has a unique strategy.
To explain this situation we need to look at the way the brewing industry is segmented. In the brewing industry there are 6 (5 of which are craft related) segments that are differentiated by: barrels produced, who produces the beer, where it is sold and the ingredients that they use as a majority of their beer production volume. Broken down the segments are: microbrewery, brewpub, contract brewing company, regional brewery, regional craft brewery, and large brewery.
The way that these segments are broken down can get confusing and have a lot of grey area that, honestly, is hard to decipher. So to make things simple, lets look at volume as the key indicator. As defined, a craft brewery, whether it be a small, independent, or traditional, is a brewer that produces less than 6 million barrels of beer annually. Anything above that is a large brewery.
In Sam Adams situation, they are considered a independent craft brewery by producing 1.8 million barrels in 2010 (the nearest craft brewer is Sierra Nevada with 700,000 barrels.) With this, they carry a 20% market share of the craft brewing industry with the nearest competitor (Sierra Nevada Brewing Company) at 8%. In the industry, as a whole, they own somewhere just below 1% market share. This is a stark difference when it comes to the level of brewing segments.
To apply the cost differentiation strategy to this subject, Sam Adams would be considered a titan in the craft brewery industry. With this they can leverage their brewing operations to lower their economic costs and sell their beers at a lower prices compared to other craft brewers but not lower than larger companies. This unique position because Sam Adams is the pacesetter in the pricing of craft beers in the United States not having to compete with the larger breweries.
To explain this situation we need to look at the way the brewing industry is segmented. In the brewing industry there are 6 (5 of which are craft related) segments that are differentiated by: barrels produced, who produces the beer, where it is sold and the ingredients that they use as a majority of their beer production volume. Broken down the segments are: microbrewery, brewpub, contract brewing company, regional brewery, regional craft brewery, and large brewery.
The way that these segments are broken down can get confusing and have a lot of grey area that, honestly, is hard to decipher. So to make things simple, lets look at volume as the key indicator. As defined, a craft brewery, whether it be a small, independent, or traditional, is a brewer that produces less than 6 million barrels of beer annually. Anything above that is a large brewery.
In Sam Adams situation, they are considered a independent craft brewery by producing 1.8 million barrels in 2010 (the nearest craft brewer is Sierra Nevada with 700,000 barrels.) With this, they carry a 20% market share of the craft brewing industry with the nearest competitor (Sierra Nevada Brewing Company) at 8%. In the industry, as a whole, they own somewhere just below 1% market share. This is a stark difference when it comes to the level of brewing segments.
To apply the cost differentiation strategy to this subject, Sam Adams would be considered a titan in the craft brewery industry. With this they can leverage their brewing operations to lower their economic costs and sell their beers at a lower prices compared to other craft brewers but not lower than larger companies. This unique position because Sam Adams is the pacesetter in the pricing of craft beers in the United States not having to compete with the larger breweries.
Friday, April 1, 2011
Chapter 5- Evaluating Firm Strengths and Weaknesses: The Resource-Based View
In evaluating a companies strengths and weaknesses there are many theories as to how value or strength is measured. When meshing all of these theories together the Resource-Based Model is formed to give a better understanding of a companies costly-to-copy or imitate effectiveness from a resource view. When looking at resources from this model there are 4 certain areas that encompass a firms resources: financial, physical, human and organizational capital. From there the VIRO framework is applied to identify the level of competitiveness a company has.
Sam Adams' VIRO Framework application:
Q: Value? Yes, Sam Adams is a company that values their employees and being a small craft brewer producing less that 2 million barrels annually, they are a giant in the small, independent, and traditional craft brewing segment. The type of quality and coordination that they put into the value chain is yet to be rivaled by any one in their segment.
Q: Rarity? Yes, As mentioned above, Sam Adams fits into the craft brewers segment of the beer industry. The resources and experience that they carry exceed all other companies in this segment. Although there are a few other companies that are surfacing, Sam Adams has a strong foothold on the leadership in the craft brewers market.
Q:Imitability? Yes...One would say that there are many other brewing companies that could imitate what Sam Adams does and obtain the same resources. The answer is that they could... but according to the Brewers Association less than 25% of the Craft Brewery is owned or controlled by an alcoholic beverage industry member who is not themselves a Craft Brewer. This makes Sam Adams' model hard to duplicate or substitute.
Q: Organization? Yes. Sam Adams and their management let the customers and employees know upfront that they are a company that values innovation and a growing knowledge of their trade. With all of the experience Sam Adams carries they are able to exploit the advantages that they carry in the Craft Brewers market.
Being able to satisfy all of the questions with a "yes," Sam Adams carries a "strategic advantage" in the market that they participate in.
Sam Adams' VIRO Framework application:
Q: Value? Yes, Sam Adams is a company that values their employees and being a small craft brewer producing less that 2 million barrels annually, they are a giant in the small, independent, and traditional craft brewing segment. The type of quality and coordination that they put into the value chain is yet to be rivaled by any one in their segment.
Q: Rarity? Yes, As mentioned above, Sam Adams fits into the craft brewers segment of the beer industry. The resources and experience that they carry exceed all other companies in this segment. Although there are a few other companies that are surfacing, Sam Adams has a strong foothold on the leadership in the craft brewers market.
Q:Imitability? Yes...One would say that there are many other brewing companies that could imitate what Sam Adams does and obtain the same resources. The answer is that they could... but according to the Brewers Association less than 25% of the Craft Brewery is owned or controlled by an alcoholic beverage industry member who is not themselves a Craft Brewer. This makes Sam Adams' model hard to duplicate or substitute.
Q: Organization? Yes. Sam Adams and their management let the customers and employees know upfront that they are a company that values innovation and a growing knowledge of their trade. With all of the experience Sam Adams carries they are able to exploit the advantages that they carry in the Craft Brewers market.
Being able to satisfy all of the questions with a "yes," Sam Adams carries a "strategic advantage" in the market that they participate in.
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