Adolph Coors in the Brewing Industry

    Uploaded by brewit on Aug 13, 2005

Company Analysis of Coors Brewing Company
    Uploaded by jasmine_nyd on Jun 13, 2006

Company Analysis of Coors Brewing Company

The brewing industry makes a drink known from the most ancient of
times. Through advances in time and technology the brewing industry
has changed essentially into one of the largest modern multinational
industries that exist today. It was not until the early nineteen hundreds
that the beer industry initialized through the creation of lager beers. The
technological advances created at the same time were, “Mechanical
refrigeration greatly aided in the production as well as the storage of
beer. Pasteurization was also adopted during this period, which opened
the way for wide-scale bottling and off-premise consumption of beer. In
addition, developments in transportation allowed brewers to ship beer
long distances in refrigerated rail cars, increasing both marketing volume
and area” (Goldhammer, 1). The beer industry has remained generally
stable in our economy since the prohibition era. A strong economy,
diversity, and foreign trade rates are several factors that maintain the
success and growth of such a mature product.

The brewing industry is part of the second largest industry in the nation.
Beer has given the definition of alcohol seeing that, “The alcoholic
beverages industry is a $95 billion dollar a year business in the United
States…beer held a 57% market share against other alcohols”
(www.activemediaguide.com). The industry requires a continuous update
in knowledge of the history and current standings of the beer market,
market trends, and competition that exist throughout.

The market perspective of the brewing industry is incredible. The

wholesale volume in the beer industry approximated $13.7 billion. In
domestic brands, from 1983 to 1984 there has been a decline in
consumption of -1.2%. In the imported section there has been an
increase of 14.3%. The total industry as a whole declined .7% from 1983
to 1984. As a result of the decline in consumption of beer a similar result
in production occurred with a decline of 1.2%. The estimated forecast for
1985 will continue along the same trend as did 1984. The long term
outlook for the industry is that sales will remain flat for the next 10 to 20
years. (Goldhammer 1-7). Yet, through the development and market of
light beer and targeted market segments, the last five years have shown
an increase in market awareness and revenue.

Within the last several months, the industry has not had the continual
success as recent years. “As the second year of the new millennium
comes to a close, the United States brewing industry likely will see a
pause in their recent growth trend. After five consecutive years of growth,
shipments from brewers and importers to their beer wholesalers are
expected to hold near 2000's record level of 197.6 million barrels. This
pause is primarily due to the national economic slowdown and the
aftereffects of the September 11 attacks” (www.beerinstitute.org). A
strong economy represents an important contribution for the beer industry
because the fall of the economy an increase in sales are not going to
happen unless the economy is in strong, stable conditions. The
development of the industries annual production has created a profile of
three levels in terms of “high-volume, regional, and small breweries…and
is organized into a so-called “three-tier” distribution system: 1) brewers
and importers, 2) wholesalers, 3) retailers.” (Goldhammer 1). The beer
industry is segmented among the three market coverage types; federal,
state, and local. Because each state obtains different laws, beer is
regulated in 50 different ways in the United States. “The brewing industry
is subject to extensive government regulations at both the federal and
state levels and sometimes at the local level as well, concerning
distribution, labeling, advertising, credit, container characteristics, alcohol
content, tax rates, and litter assessments” (Goldhammer, 1). Large
capital requirements and distribution networks make it hard to enter the
national market. Even if stable, each state requires a different set of laws
and regulations pertained to the industry, making the governmental
aspect very difficult.

Although the market is one that is both difficult and competitive, it appeals
to a large consumer demand. “On the national marketing front, makers
and sellers of beer are paying more attention to the increasingly diverse
drinking population, the groundswell of first-time legal-age drinkers, and
the nations overwhelming preference for light beer” (Estes 1). The US
Census Bureau predicted that 3.76 million consumers will turn 21 next
year; therefore 3.76 million more consumers will be of market value to the
industry. The industry is also focusing on areas of diversification for
market segmentation. The customer segments that exist are of several.
Taylor of Coors stated, “The American consumer is certainly becoming
more diverse, many mediums are available to reach diverse or specific
markets. The fact that we’re in an overall flat industry makes it important
for any beer maker to look at places where they can bolster sales”
(www.beveragebusiness.com). An example of diversity among
consumers is the fact that more consumers are changing to imported or
specialty beers; although the largest new segment that exists currently is
the transition to light beer due to a more health conscious economy.

In terms of demographics the beer market consists of mostly males, with

a newer focus on women and other cultures. “Beer consumption is
overwhelmingly male-dominated, with men accounting for more than 80%
of the volume consumed. A large number of these beer drinkers are white
and favor domestic light beer, followed by domestic draft beer. African
American drinkers make up about 10% of the beer market overall, and
they are the biggest consumers of malt liquors...of all the beer types, light
beer has the strongest following among women consumers. Women beer
drinkers are more attracted to specialty micro-brewed beers than they are
to big brands” (www.beer-brewing.com).

The pricing of beers is also determined based on the target market of the
particular product. “Value-priced beers are intended to capture certain
demographic groups based on income and age. While premium beers
serve the “upper echelon” of the market” (US Business Reports, 5).

The competitive rivalry is broken up into three segments, National,

Regional, and Microbrewers. National competitors have wide market
coverage and generally a large company. National competitors have wide
market coverage and generally a large company. Regional competitors
are smaller than National in the fact that they only distribute in certain
regions. Microbrewers are the smallest of the three because their size
and capacity limit them to only distribute to small geographic areas.

The rivalry among existing competitors is strong. Demand for the product
is slowing. In order for a company to increase market share, another
company has to lose it. Switching costs are low for consumers. Because
switching costs are low, Competition is very intense to gain new market
share. The beer industry is a cut throat business with extreme
competition. There are many companies that exist within the industry.
Through the years the industry has slimmed down quite a bit. The
National market consists of ten major competitors. The Competitors in
this market are Anheuser-Busch, Miller, Stroh, G. Heileman, Adolph’s
Coors, Pabst, Genesee, C. Schmidt, Falstaff, and Pittsburgh. The
National companies have 51 plant locations across the United States.
Market share in the Domestic market ranges from a low of .5% to a high
of 34%. The Import market consists mainly of ten major brands also.
They are Heineken(Netherlands), Molson(Canada), Beck's(Germany),
Moosehead(Canada), Labatt(Canada), St. Pauli Girl(Germany), Dos
Equis(Mexico), Foster's Lager(Australia), Amstel Light(Netherlands), and
Corona(Mexico). These ten brands hold about 87% of the imported
market share. The individual companies range in market share from 34%
on down. A few regional companies, and many small microbrewers make
up the rest of the companies in the industry.

The brewing industry consists of many different issues facing a variety of

markets. Through current trends and issues, market segmentation, and
competition analysis, the beer industry can be understood. Yet, to
maintain a high standing position within all aspects is of great difficulty.
The company of Coors Brewing is one that has obtained a strong position
within the industry, maintaining third in the country for sales.

Coors

The Adolph Coors Company is a company that particularly stands out in

the brewing industry. With almost two hundred and thirty years of
business, the Coors Brewing Company is the nation’s third largest
brewer. Obtaining the Coors Golden Brewery, which is the largest single
site brewery in the world, Coors produces, markets, and sells high-quality
malt-based alcoholic beverages. “Coors concentrates on distinctive
premium and above-premium brands that provide higher-than-average
margins” (US Business Reports). The time and experience have led
Coors to produce a desired product for a marketable consumer. “Coors
currently has 18 brands in its portfolio, of which five are premium
products…Coors also owns and operates The Sandlot Brewery at Coors
Field ballpark in Denver, Colorado.” (US Business Reports). Coors has
shown a great overall success within the industry, yet as with any
company, where strengths and opportunities exist, weaknesses and
threats follow.

Involvement with the community is a beneficial strength that Coors prides

itself on. Because alcoholic consumption can lead too many negative
results, and is an illegal beverage if consumed before the age of twenty-
one, the programs and policies it supports are crucial in terms of social
responsibility. Coors has a statement pertaining to its responsibility, “At
Coors Brewing Company, we measure our success not only in terms of
our financial performance, but also in terms of our social performance.
Being a good neighbor is a company tradition. In fact, since we were
founded in 1873, Coors has been committed to improving the quality of
life of the people who buy our products, the employees who make them
and the communities where we do business. This responsibility has never
been taken lightly and will continue to be a cornerstone of the company's
dedication to integrity and respect in the way we treat people, our
neighbors, our business associates and our environment” (coors.com).
Because Coors is aware that their product has a history and can easily
be abused they guide themselves on five policies in which to obtain a
helping hand in keeping it a responsible drink in the hands of the right
consumers. Their five principles include; a community prevention,
education and intervention involvement, an advertising and marketing
focus to those only of responsible consumption, work within the
marketplace to ensure responsible practices, work by side of our
legislation to keep drunk driving at a falling rate, and finally follow these
guidelines and base them off of the “scientific evidence” in which they
obtain. Another strength that Coors stands upon is the history of the
makers of the first all-aluminum can ever produced. Coors had much
pride in making a high-quality product; the idea of making a quality
package was finally administered. By November 12, 1971, Coors was
making and packaging their quality products in a package that was
deemed as both for its quality and environmental benefits, creating a
successful boost for the company.

Coors also maintains a high standing because of the time and effort it still
puts in to brew its products. “Coors takes 55 days to brew, age, finish,
and package its lagers-about twice as long as its major competitors.”
(coors.com). Because Coors uses only the most “kosher” ingredients,
and ensures a quality product all the way to hands of the distributors, the
freshness and quality obtained are of highest value to the company.

In terms of weak qualities within a company Coors has plenty of room for
advancement through a financial and competitive environment. The
success of Coors is dependent greatly upon the sales of the Coors Light
product. Although this product was the turning point from the last five
years, it should be used as an opportunity to market other new products.
Coors gained financially and brought more market awareness into the
company through the creation of Coors Light. Yet, rather than just
continuing to promote their most successful product, they should use
these advantages to gain market awareness for new or upcoming
products.

Another weakness considered is the Coors position in terms of its

competitors. Coors production and assembly is of limited facilitation.
Although they obtain the world’s largest single-site brewery, they do not
have the transportation of its two leading competitors, and also are more
susceptible to an event that could cause major losses for the company.
Coors is currently the third leading company in the nation mostly due to
its creation of their light beer. This is an overall weakness because the
market is continually changing and becoming more diverse. The risk of
market awareness and consumption is high due to the dependency of
their one out of eighteen successors. The gap that remains in terms of
net sales in its two leading competitors make it difficult for Coors to
maintain a strong standing within the industry. “We are vulnerable to the
pricing actions of our primary competitors (Anneuser-Busch and Miller
Brewing Co.), which we do not control” (coors.com). Because the brewing
industry is dependent on market conditions, it is a weakness for a
company to success to be dependent of the economies standing.

Because of the image and involvement Coors has created over time, the
advancement and options for opportunities has increased greatly. One
opportunity available to Coors is the availability of expansion. Because
Coors has made such a stable standing within the economy from its
Coors Light product, the market awareness has allocated an opportunity
for expansion on an international level. Also due to the continual growth
of Coors over the recent years, the opportunity for improvement of its top-
line growth potential is at good standing. “Despite the progress we have
made, Coors has considerable room to improve performance balance--
there is still significant top-line growth potential in untapped domestic and
international markets, while plenty of opportunities remain to reduce costs
and increase efficiencies in our operations.” (coors.com).

Another opportunity that Coors obtains is the opportunity to get more in

depth with its market segments. “Supplier Diversity is an integral part of
Coors' overall commitment to diversity. Our Supplier Diversity process is
inclusive and seeks to broaden the pool of suppliers that want to do
business with Coors. Businesses from the following groups are part of the
Supplier Diversity process: African Americans, Asian Pacific and Asian
Indian Americans, Hispanic, Native Americans and Women” (coors.com).
By creating and focusing on these market segments Coors is leading to
an expansion in the loyalty of different cultural and economic groups.
Through this opportunity of expansion, Coors is also given the
opportunity to further social responsibility once their product is in the
hands of consumers. Coors has put much of its generated income into
the community and awareness. This has helped the company greatly in
terms of showing company responsibility. The opportunities for
advancement in the brewing industry are never ending, and will
continually improve the success and views of Coors Brewing Co. “The
Coors family, beneficiaries of the Adolph Coors brewing company and
family fortune, has been instrumental in funding conservative causes
through individual foundation and corporate donations.” (www.pfaw.org).
Through its experience and success Coors is knowledgeable and
financially stable in its opportunities to expand this particular segment of
the company.

Several threats exist for the Coors Brewing Co. both internally and
externally. From the management’s discussion and analysis of Financial
Condition and Results or Operation, several threats exist in compliance of
generating future successes. “To improve our financial performance, we
must grow premium beverage volume, achieve modest price increases
for our products and control costs. The most important factors that could
influence the achievement of these goals - and cause actual results to
differ materially from those expressed in the forward-looking statements -
include, but are not limited to, the following:

“Our success depends largely on the success of one product, the failure
of which would materially adversely affect our financial results. Because
our primary production facilities are located at a single site, we are more
vulnerable than our competitors to transportation disruptions and natural
disasters. We are smaller than our two primary competitors, and we are
more vulnerable than our competitors to cost and price fluctuations. We
are vulnerable to the pricing actions of our primary competitors, which we
do not control. If demand for our products continues to grow at current
rates, we may lack the capacity needed to meet demand or we may be
required to increase our capital spending significantly. If any of our
suppliers are unable or unwilling to meet our requirements, we may be
unable to promptly obtain the materials we need to operate our business.
The government may adopt regulations that could conceivably increase
our costs or our liabilities or could limit our business activities. If the social
acceptability of our products declines, or if litigation is directed at the
alcoholic beverage industry, our sales volumes could decrease and our
business could be materially adversely affected. Any significant shift in
packaging preferences in the beer industry could increase our costs
disproportionately and could limit our ability to meet consumer demand.
We depend on independent distributors to sell our products, and we
cannot provide any assurance that these distributors will sell our products
effectively. Because our sales volume is more concentrated in fewer
geographic areas in the United States than our competition, any loss of
market share in the states where we are concentrated could have a
material adverse effect on our results of operations. Because we lack a
significant presence in international markets, we are dependent on the
U.S. market. We are subject to environmental regulation by federal, state
and local agencies, including laws that impose liability without regard to
fault.” (coors.com).

Although factors exist that are or may be threatening, the company of

Coors has proven its knowledge in all areas. Although several factors
exist for the continual growth of the company, with the knowledge and
forecasted factoring threats that exist, Coors’ knowledge will help in terms
of handling both internal and external threats that may come up. Coors
notes themselves as a business that makes and sells beer. Although they
take such a basic concept the foundation in which they have created is
intricate and extensive in terms of past, current and future business.
Future business for the company of Coors has an outlook of productive
growth and/or stabilization. Although much of its revenue is dependent
upon the company, as long as Coors follows its commitment in terms of
the “basic goal of growing our unit volume more than twice as fast as the
industry…and increase sales of value-packs or in price discounting”
Coors will show a continual growth among its competitors, market, and
industry standards. As long as the economy stands in good enough
health, government policy does not get more intrinsically involved, and
capitol investments are applied with logic and preparation, the company
of Coors Brewing will remain one of corporate success. It shows a history
of achievement through technology, production, and marketing; allowing
a victorious future as well.
Adolph Coors in the Brewing Industry

The brewing industry in 1985 can be analyzed using Porter's five

competitive forces: threat of new entrants, bargaining power of suppliers,
bargaining power of buyers, substitutes and rivalry among existing
competitors. All five competitive forces jointly determine the intensity of
industry competition and profitability. Furthermore, the five forces narrow
in on why the brewing industry became more concentrated and key
features defining industry success.

In the brewing industry, barriers to entry were high. Fixed costs increased
as a percentage of revenue necessitating brewers to have higher
production capacities/minimal efficient production scale to achieve
economies of scale. This could be achieved by doubling brewery
production, which decreased unit capital costs by 25 percent. In addition,
high capital requirements existed since $35-$45 million was required in
launch costs and advertising for a new brand. These financial
requirements implied a competitive advantage for large brewing
companies who were spending approximately $1200 million (about 10
percent of sales) in advertising in 1985. An entering firm had limited
access to distribution channels as the wholesalers who served the largest
brewers did not carry other brewer's beer. The bargaining power of
suppliers is medium since the removal of price controls for
aluminum led to sharp increase in can prices and therefore raised
cost of packaging materials and for the brewers. Some companies,
like Coors, reduced these costs by starting can recycling programs
to decrease their dependence on new raw materials. Bargaining
power of buyers was high as the independent wholesalers who
purchased the beer, and sold and delivered to retail accounts earned low
profits. The average return on sales for wholesalers had fallen from 3
percent in 1981 to 2.1 percent in 1984. In addition, the increasing
production capacity, desire for companies to enter new markets and
promote new products and cost reductions led to a 30 percent decrease
in beer prices between 1960 and 1980. Pressures from substitute
products was minimal as advertising affected consumers willingness to
substitute among beers. Finally, the rivalry among existing competitors
was high as the number of brewers making less than one million barrels
per year decreased from 90 percent in 1959 to 45 percent in 1983.
Furthermore, since the domestic beer consumption was flat, rivalry
among brewers was intensified because any gains in sales by one
brewer resulted at the expense of its competitor rather than through
growth of the overall market. Hence, the industry analysis provides an
initial explanation for the consolidation of the brewing industry

Other factors that decreased the number of brewing firms include the
increase in number of baby-boomers. The brewing industry's capacity
utilization had been in the 60 percent range but this changed dramatically
in the 1960s and 1970s. Large brewing companies reacted to this new
demand by adding relatively large breweries and sold them quickly, which
led to smaller breweries being closed. Another factor that decreased the
number of small brewers was that wholesalers who supplied to off-
premise outlets (supermarkets, grocery and liquor stores) usually carried
only one brand. This caused difficulty for competitors as they were unable
to find large wholesalers to carry their product as the lead brand. Big
brewers also had greater success in launching new brands as they were
able to leverage their existing brand in conjunction with production and
distribution capabilities, which were so vast that sales volume was
achieved quickly. Finally, the large brewers were increasingly successful
by creating another point of differentiation. They attracted more
consumers as the big brewers had the capacity to package beers in
different sizes and therefore also appeal to consumers who drank beer in
small amounts or slowly as well as packaged in different numbers to
cater to the growing population of drinkers who consumed at home.

The analysis presented above using Porter's Five Forces Model clearly
highlights the brewing industry trends where barriers to entry are low,
bargaining powers of suppliers is medium, bargaining power of buyers is
high, substitutes are low, and rivalry among existing competitors is high.
These trends provide a basis as to why the brewing industry became
more concentrated in 1985 and define key success factors in the
industry.