Boston Beer Case Study Analysis Essay
1852 WordsFeb 23rd, 20138 Pages
Boston Beer Company
Case Study Analysis
1. Boston Beer’s strategy is primarily focused on growth through differentiation. The sources of its competitive advantage can be classified as a company that provides high quality beer with unique flavors, a market driven approach, and a very efficient contract brewing strategy. In terms of quality, the company created a premium beer by its selective use of ingredients and less water. Boston Beer has won honors such as being the first American beer sold in Germany due to its use of only barley, yeast, hops, and water as its ingredients. With the increase in health consciousness among beer drinkers and the rise in more distinctive and flavorful brews, the Boston Beer Company has been able…show more content…
In order to grow, Boston Beer must continue to increase its market share in the overall beer market. The market continues to be dominated by the large scale breweries like Anheuser Busch, Adolph Coors Co, and Miller Brewing Co. Craft Breweries are beginning to increase their share in the overall market. It is expected that craft breweries will account for 5% of the overall beer market in 2000, up from 1.4%. However, there is increased competition in the craft beer market. There were 165 new craft brewers in 1994. This increased the total of craft breweries in the US to 750. Boston Beer will be competing with these 750 breweries for 5% of the 5 billion in US beer revenues.
Boston Beer does not plan to pay a dividend. Returns from investing in Boston Beer will solely be from growth. The company plans to release 19 million shares in the IPO. At a price of $15 per share, it would be trading at over 57 times its 2004 earnings. This will require significant growth from Boston Beer in the coming years to realize returns in this investment. Boston Beer will be competing with a growing market for a small share of the overall US beer market.
The Boston Beer Company filed its initial public offering prospectus with the SEC because they were looking to raise between $26 and $34 million for
The Boston Beer Company, Inc. (NYSE:SAM) is one of the best small companies in the US. It gains this distinction due to a better portfolio of products than have most of its competitors. The company maintains this edge through intense innovation and newer lines of beers. As long as the company can maintain that effort, it would remain a good investment for the long term.
Important Factors for Analysis:
Boston Beer's business strategy is built around crafting high quality beer. The company invests heavily in research and testing to create newer brews. Case in point is a new research and development center it started in 2011. The product at Boston Beer is well distinguished and is very popular among beer lovers.
Boston Beer is the largest craft brewer in the United States. It sells its beers under the Samuel Adams brand. In 2012, the company sold over 50 kinds of beers under the Sam Adams product line.
Samuel Adams is consistently listed among the best beers in the world. The beers under this brand are made from hand selected ingredients that give the beer more dimensions and make it balanced and rich. The Sam Adams beer is known for its appearance, aroma, taste and finish. Such high quality has been achieved since the start of the company. For instance, six weeks after the introduction of the Sam Adams beer, Jim Koch (the co-founder) entered Sam Adams into the Great American Beer Festival in Denver, and it was chosen as America's best beer.
Boston Beer is constantly innovating and creating newer products. "The Company continually test brews different beers and occasionally sells them under various brand labels for evaluation of drinker interest." Boston Brewery spends a majority of its time "ideating, testing and developing beers and ciders," and is consequently, a leading innovator in its segment of products. In 2011, the company formed Alchemy & Science, a subsidiary that finds new opportunities in craft brewing. Alchemy & Science looks for unique brewing techniques and ingredients, and also hunts for ancient or new recipes to develop new beer. Due to Boston Beer's efforts and innovations, and its success at gaining customer loyalty, the company made it to Forbes magazine's "Best Small Companies" list in 2012. It ranked 26th in the country.
James Koch is the Chairman of Boston Beer and co-founded the company in 1984. Koch is the company's greatest asset. He is an ardent beer enthusiast, and is in the business of selling a product he loves. Despite achieving enormous success, Koch has remained intimately involved with the brewing process. For instance, Koch would taste every batch produced by the company. Koch continues to do plenty of interviews with magazines and other analysts, always reminding people of the superiority of the company's beers.
The story of Jim Koch is no different from John Mackey's or Howard Schultz's. All of them built companies around products they loved and admired. It would be fair to say that Jim Koch is the Howard Schultz of beer.
At the end of 2012, the company's current ratio was close to 2. Its quick ratio was very healthy, at 1.32. The company has done a good job of managing its working capital and should not have any liquidity problems in the near future.
The company has little or no long term debt. Also, it has an ROA of 18.78%. This is an additional boon for investors. Boston Beer has been able to grow without much leverage and is in a good position to grow through all phases of the economic cycle.
This investment would certainly appeal to long term investors since they always prefer a good balance sheet.
Boston Beer's success is based on a unique product. Its beers are different from the run-of-the-mill beers due to their aroma, texture and taste. To succeed, the company must continue to follow this established path of product differentiation. The biggest risk faced by Boston Beer is an internal one. It is that the company would stop innovating and rest on its laurels.
Understandably, the company has a very high PE ratio of 35.39. This is due to very high earnings estimates for the near future. Those estimates may or may not materialize in the short term, however, the stock remains a good purchase for the long term. Long term investors would do well to purchase this stock using dollar cost averaging.
Boston Beer is a "Buy" for the long term investors. The company has all the right ingredients for success: the right management, a well distinguished product, and a good balance sheet. Unless there is an adverse change in the management, or the business model, the company would stay on course for greater earnings and fame.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.