Coors, Inc.

Case Study
Shelby McGlasson

Table of Contents

I.

Situation Analysis
A. Environment

Economic Conditions and Trends The industry will continue to depend on changes in alcoholic beverage expenditure and consumption patterns. Since wholesalers are in a mature phase, stagnant demand will characterize the industry. Competition from wine and spirits will increase as consumer tastes expand. Furthermore, volumes are expected to remain low, diminishing overall revenue. However, the revival in the economy will help boost demand for beer, supporting marginal growth and increasing profit shares. There are also no companies with a dominant market share in the beer wholesaling industry. Currently 3,300 licensed beer distributors in the United States. Cultural and Social Values and Trends Beer wholesalers earn their revenue in all fifty states, with the distribution of revenue largely mirroring the share of population in each state. This has led five of the six most populous states (California, Texas, New York, Florida and Pennsylvania) to be the largest beer purchasers. While all states have beer drinkers, not all beer drinkers consume the same amount. For example, per capita consumption is highest in Montana and New Hampshire; as a result, these states have a much higher share of revenue than would be otherwise expected. Similarly, states with high beer taxes, like Alabama and Georgia, have slightly lower sales because people from those states are most likely to stock up on alcohol out of state or order online if possible to avoid paying the higher tax Political and Legal Issues The first step toward starting a beer distributorship is to obtain an Employee Identification Number (EIN) from the IRS. Once you have obtained an EIN, it is time to begin filling out permits with the United States Alcohol and Tobacco Tax and Trade Bureau (TTB). Also, you will need to register any facility holding food or beer with the Food and Drug Administration. Beer distributors were represented at a 2011 legislative conference to advocate for state-based alcohol regulations. Other federal issues that are impacting beer distributors are LIFO Accounting. Jobs and Federal Excise Taxes, Swipe Fee Reform, Tax Credits for Natural Gas Vehicles, Hours of Service, Transportation, TTB Oversight, MEPPs, and the Reauthorization of the STOP Underage Drinking Law.

Summary of Environmental Opportunities and Threats Opportunities: Opportunities that work in favor of the company are the current economic trends in the industry. Because the industry relies so heavily on consumption patterns, the business will be able to use past information regarding consumption patterns to analyze future trends. The consumption pattern in the beer industry is relatively steady and does not typically have significant changes. Also, since wholesalers are at a mature stage in growth, their stagnant demand will characterize the industry. The revival of the economy will also work in favor of the beer distributor industry. In direct correlation with the revival of the economy is the demand increase of beer. Cultural and social trends can also work as an opportunity in the industry. Beer sales are relatively linked to the amounts of consumption by population, by state. However, per capita consumption must also be taken into account. Threats: Environmental threats that the company will most likely face are due to economic trends, cultural trends, as well as political/governmental regulations. Economic trends such as the current economic downturn will negatively affect the industry and will cause higher barriers of entry for those trying to enter the market. Cultural and social trends will also negatively affect the industry. Patterns of consumption vary by state for many reasons, making long-term estimations of consumption difficult to estimate. Consumers who live in states with higher alcohol taxes are more likely to make large purchases out of state to avoid paying the high tax. Government and political regulation can also pose a great threat to the industry. Government regulation policies vary from state to state, so those looking to enter the industry need to take each individual states policy into consideration. Implications for Strategy Development While there are many environmental threats that exist in the industry, there are not threats that will have a direct implication on the development strategy for those looking to enter the market. The only implications that could possible hinder ones opportunity to enter the market is the governmental and legal policies and regulations that must be followed. Obtaining the appropriate permits and registration can be a time consuming and difficult process in some states.

B.

Industry

The next step in the situation analysis for Larry Brownlow, and his opportunity with Coors, is an examination of the overall beer distribution or wholesaler industry. A wholesaler is generally defined as someone in the business of selling goods to retailers in larger quantities than they are sold to final consumers but in smaller quantities than they are purchased from 4

manufacturers. In todays business world the Beer, Wine, and Distilled Spirits wholesaler industry consists of roughly 4,000 companies totaling $100 billion in annual revenue. Given the nature of Larrys situation, the niche industry in which he hopes to enter, and the time frame during which the case based, it is fair to say that there are 3 major competitors within the industry: AnheuserBush, Miller, and Coors itself. To start, Anheuser-Bush was founded in 1852 by a German immigrant named Eberhard Anheuser. Based out of St. Louis, his brewery and lager style beer took the market by storm and quick. Come 1989, when the case takes place, Anheuser-Bush had grown to become the dominant player in the marketplace. Boasting a 42% market share, the brewery was the largest within the US thanks to its top beers: Budweiser and Bud Light. Today they are the worlds largest brewer and one of the top 5 consumer goods companies in the world. They currently have roughly 12 wholesalers per state giving them over 600 wholesalers nationwide. Anheuser distributors rely heavily on a strong brand name/ awareness when dealing with retailers. Another major competitor, at the time, in the beer/ beer distribution and wholesaler industry was the Miller Company. The company was founded in 1855 by another German immigrant named Frederick John Miller. After purchasing the Plank Road brewery in Milwaukie, Miller quickly began his assent up in the brewery world. By 1889, when the case takes place, Miller had grown to become the second largest player in the industry. Trailing behind Anheuser-Bush, Miller accounted for 21% of the 89 market making it second in the industry. Today Miller brand beers, specifically Miller Lite, hold the number three spot behind Coors and Anheuser-Bush. The third major competitor, and one that ties in most with Larrys opportunity, actually derives from Coors itself. After being founded in 1873 by Adolph Coors in Golden, Colorado, the brewing company brought in revenue quickly. By 1989 they had become the number three beer in the states with a market share of 14%. The current organization serves as a competitor to Larry in 2 main ways; serving as a distributor from headquarters and the second distributor within the state of Delaware. First, many larger retailers in todays market have turned to contracts directly with the beer headquarters, thus eliminating the middle man and any need for a distributor. The second way pertains directly to information given in the case. Larry would be one of two wholesalers in the state, thus he would be competing for retail business with another Coors distributor. Although there is considered to be three major competitors within the existing market, there is always a potential for new entrants. These potential new entrants could include, but are not limited to: any current small brewery looking to start distributorships, any beverage company entering into the brewery market, or any overall distributor desiring to gain 5

a more diverse product line/ offering. New entrants could also include any substitute product companies the industry. These substitute products consist of any distilled spirits and wine makes along with any possible nonalcoholic beverages. The beer distribution/ wholesaler industry allows for moderate bargaining power for both the buyer and seller of the product. Both are looking to maximize profits by finding a reasonable price in which the beer may be sold to/ bought from one another. However, there are some threats that the distributors face other than price negotiations that could hinder the industry as a whole. Due to the increasing ease of partnerships and contracts with brewery headquarters/ plants, many retailers are eliminating the use of middlemen. The industry as a whole is beginning to slim down due to this developing opportunity.

C.

Organization

The organization of Larry Brownlows need new business venture is involves the objectives along with strengths, weaknesses, and potential conflicts that they may come across. The main objective is to open his own wholesaler affiliated with Coors, Incorporated in Delaware. He hopes to successfully win the bid and start his dream of having a self-owned business. In order to achieve this objective though, Larry will need to really examine his potential options carefully and decide what is the best path to take in order to achieve this. He needs to find support in order to open this wholesaler with Coors through market research he must conduct with Manson and Associates. He needs to obtain finances and financial data through choosing research in order to back up his proposal and have Coors accept the bid. Brownlow needs to understand his market, a two county area, and the information on the people and buying habits. Through the market research, he wants to be able to see if his objective is attainable because of the right info he will be receiving has yet to be given. Based on the market research he will decide what the future holds of his business proposal. There are also strengths and weaknesses to the organization that make opening this business either easier or more difficult. For the strengths, Brownlow is able to obtain loans for banks and investors to help afford the initial capital necessary to start this business if he is given the opportunity. The amount estimated is about $800,000 to start up and that is a number he will be able match. He also has access to another $15,000 to spend on the market research he needs done. This is important because it is just enough to get a variety of studies completed filled with vital information about the demographics, share estimates, market area, and other information needed. The next strength is Coors willingness to expand and find a new wholesaler in the area. They are eager to get into this market with two new wholesalers so this is the opportunity Larry needs to get his 6

small-business career started. He has the desire to meet Coors demands when it comes to allowing and opening a new wholesaler. There are a lot of criteria and standards that need to be met and he is up for the challenge. Finally, he has an understanding of competitors. He has visited other wholesalers in the area to gain valuable information on financials and to see how they operate. He will be able to associate the successful businesses with the best financial numbers. This can help him operate more efficiently and effectively to compete. With strengths come weaknesses with the organization. The most important is the lack of inexperience within the industry and lack of managing or owning a business. Larry does not have much knowledge how to operate nor has he ever held a position of this magnitude. He will immediately go from an MBA student to a full time owner and operator of a wholesaler part of a very large and lucrative company. His only position is a sales engineering job that is very different from what this will be. This is something that will need to be taken into consideration because he will be basically learning on the job will he goes and that may not be the best method nor efficient. In addition, he also has very little time to get his information gathered and organized to present. He only has three days to decide how to spend his $15,000 on studies then to get that all to Coors. Finally, he really has no solid numbers to base his proposal and ideas off of, only conversations and observations. It is hard to get a grasp on what really will be required to start up this wholesaler operation. Larry needs to weigh his options carefully and see if it will be worth the investment because he will be using a lot of capital and can have the potential to lose it if not all aspects are looked over and scrutinized very carefully. The potential conflicts that will Larry will come across are as mentioned before the lack of managerial experience to guide this company, he is running on a tight time schedule, and Coors wants more information and data in order to make a decision. If he doesnt possess the necessary qualities and credentials Coors is looking for, he faces a small opportunity to win this bid. The tight time schedule poses another problem because he cannot rush any decision. All aspects need to be looked over. Finally, all the data needs to be complete and support his position. If the numbers do not support his cause, then he will not be given the opportunity.

D.

Marketing Strategy

II.

Problems Found in Situation Analysis

A. Statement of Primary Problems

When analyzing this case, there are numerous problems in which Larry may be faced with; however, one issue appears to be more ominous than the rest. Due to the rapidly approaching deadline by which Larry must have significant proof that a wholesaler for Coors will be feasible in the two county districts within Delaware, he was forced to hire an outside market research firm to help him out. The firm, Manson and Associates, developed a research proposal totaling $18,549.50 and included nine different studies related to his opportunity. The serious problem arises with the fact that Larry only has $15,000 available to him for feasibility research, thus he will not be able to obtain all (or any) of the firms findings. Stated more directly, the primary problem associated with this case is the lack of adequate financial resources to fund the proper market research prior to choosing whether or not to acquire the Coors distributorship. The loss of any, or potentially all, of the research findings due to financial constraints affects both the short run and long run possibilities for Larrys hypothetical distributorship. Without significant findings gained through the proper market research, Larry will be forced to choose whether or not to open his wholesaler based on inadequate information. If this is done, Larry may decide to enter when the full research could clearly have shown not to; or the opposite may be true of not entering when it was clearly practical for him to have entered in with Coors. Turning more towards the long run, provided Larry does enter into the distributorship; the lack of adequate market research due to financial constraints before opening could still hinder his business. If any aspect of the findings goes without consideration, whether it is financial or demographic, that is information that could influence his decisions in future business transactions. If the research is not considered, or not available, then key concepts within the wholesale industry may potentially be overlooked and take effect on Larrys overall business.

B.

Statement of Secondary Problems

With the primary problems there are secondary problems that come with this. The main problem with this is the estimates of financial data and fixed expenses may be off. If these numbers are not accurate, there is a potential to lose a large amount of money or even save money. Worst case scenario though he has grossly underestimated the numbers and wont have the money required. He could find himself in debt very quickly if his money is not managed properly. The effects could be an issue with not enough capital or too high of costs to really start this business. Another problem with this is the numbers estimated are not exact or facts, just 8

opinion based. Fixed expenses can fluctuate as well as obtaining the $800,000. If you are not making enough money to not only pay back loans but also cover these operational costs and fixed expenses on time, one will find themselves out of business very fast. Paying all your bills on time and counting the depreciation of facilities and equipment in an industry where that it not cheap, can be very detrimental. These problems may not be at the forefront but are just as important as any other because the business revolves around money and costs are vital to survival in the industry.

III.

Strategic Alternatives for Solving Problems

A. B. C. Description of Strategic Alternative # 1 Description of Strategic Alternative # 2 Description of Strategic Alternative # 3

IV. Implementation of Strategic Alternatives

A. Statement of Selected Strategy

The strategy we chose to select is Strategic Alternative #1.

B.

Justification of Selection of Strategy

Strategic Alternative #1 was our best option to implement in this particular case for many reasons. We chose this strategy because it allowed for the client to still be able to pursue his goals of obtaining the distributorship while staying within his allowed $ 15,000 budget. We took many factors into consideration when determining which alternative would work best for the client. We decided that the research he was given contained all pertinent information, except for Research Case #6. This contained information relevant to consumer tastes and preferences of Coors beer. This information would not have been useful to the client as he was opening a distributorship rather than a retailer, so B2B sales would not have been greatly impacted by the study. This also happened to be the most expensive research findings, costing the client $6,000, and would have caused the most impact to his research budget.

C.

Description of Implementation Strategy

The implementation of this strategic alternative is simple in that it is based simply on what research the client decides is relevant to his business. The 9

client will need to purchase the research information from the outside research company. Upon obtaining the necessary research from the firm, the client will then need to access the feasibility of starting the distributorship. If the client decides that he still wants to pursue obtaining the distributorship, he will then need to submit his application and all necessary financial documents to Coors before the stated application deadline. If the client chooses to no longer pursue his interests in the distributorship, he can continue his original plan of pursuing his MBA and waiting until he is of age to receive his trust fund money.

V.

Conclusion

In conclusion, the primary problem Larry Brownlow faces in this case is deciding how to allocate his time and finances to quickly and successfully opens a wholesale distributor for Coors. Hiring Molson and Associates to conduct his market research was the first step Larry made in order to solve his problem. The best strategic alternative for Larry, in order to turn in his application to Coors by its deadline, is to eliminate one of the 9 possible studies Molson and associates can feasibly perform on time and within Larry's research budget. By choosing this alternative, Larry obtains a wide variety of valuable research and eliminates the time and financial constraints.

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