Coors And The Brewing Industry Analysis Business Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The latest records are found by the Sumerians who lived near the Euphrates River in the cities of Babylon and Ur. It is unsure but a piece of grain or wheat could have become wet and started the fermentation process involving how the brewing process turns into beer. The "hymn to Nikasi" is actually the recipe to brewing beer. Apparently King Gambrinus is the patron saint of beer. Regardless of that, many centuries later when the New World was founded by Christopher Columbus in the 1600s, they were claimed to have beer on the Mayflower and thus brought it over to the New World. Many of our founding fathers were brewers including Thomas Jefferson, Patrick Henry, James Madison, and Samuel Adams and George Washington. It was the Germans who brought over bottom -fermenting lagers and began the brewing industry that is known today. In the 1870's there was a peak in brewing with 4,131 breweries. With the prohibition beginning breweries started consolidating and merging to be able to sell throughout the world. By 1920 and the great depression President Woodrow Wilson closed 1,568 breweries and by 1933 only 765 breweries were still in business. In 1978 there were 89 breweries opened and within a short time it expanded to an astounding 2,000. The United States has the most produced selection of beers to choose from then any other country. Today consumers can find beer at the grocery store, restaurants, gas stations, movie theaters, sports stadiums, hotels and so much more (A History of Brewing).


The segments of the brewery industry are Ultrapremium, Superpremium, Premium, and Popular. These segments refer to the amount of alcohol that is in each beer. Some have more while others have less alcohol in the beer and get placed accordingly. In 1985 Premium held the largest share with alcohol content at 6% with 45% market share (Adolph Coors, 1992).


Some limitations might include taxes and a few breweries only allowing instate sales to suppliers. Tax on beer per gallon varies from state and ranges anywhere from $0.019 to $1.07. (Tax Foundation, 2010).


Relevant governmental or environmental factors

"At midnight, January 16, 1920, the United States went dry; breweries, distilleries, and saloons were forced to close their doors." Many women were worried about the alcohol relation to wife beating and child abuse. Others were concerned about work productivity and how that was affected from alcohol use. Prohibition was to help stop corruption of the United States. It was also issued to help save wheat and grain during the World War I (Digital History).

Government has put a regulation on how much a legal aged adult can consume and the Blood Alcohol Content of 0.08. Anything passes that point a person is considered intoxicated and not legal to drive. If they are caught drinking and driving they will be issued a Drinking Under the Influence (DUI) or Drinking With the Influence (DWI). Both of these are the person will be taken to jail and later go to court. The government is trying to crack down on the amount of alcohol consumption and driving people do within a short time frame. They want our streets to be safe and accident free. There are also laws on when and where alcohol may be sold and who can purchase it (Alcohol and DUI Laws).

Economic indicators relevant for the brewing industry

Shortly after 1978, when the brewery industry increased from 89 to 2,000, a drastic increase in employment, the tax-base, and the economy in the United States occurred. Currently there are nearly 39,000 people employed in the brewery industry, which is decreasing from previous years by -4.6%. The trend for the future is raising employment before it deceases again in 2013 while it continues down that path (Pirani, 2010).

Porter's Five Forces

Threat of New Entrants

Economies of Scale

The size of the operation will determine the unit prices, a key variable with respect to competiveness. Barriers to entry are high and increasing. New entrants have to look into the sunk costs, capital costs, existing brand loyalty, and control over distribution channels. High amounts of revenue make it possible for larger breweries to create a brand loyalty and advertise their product. Large amount of advertising make is difficult for a new entry to compete with larger companies and try to take some of the market share (Pirani, 2010).

Working capital requirements

Molson Coors Brewing Cash on Hand

















The cash on hand has drastically changed from month to over the years. Entries into the industry and already existing breweries would need a large investment and keep around $400 to $800 million on hand at any given time (Molson Coors Brewing Company Cash on Hand).

Proprietary product differences

Coors Beer uses unique ingredients that they claim make their beer better than the rest out there. "He [Adolph Coors] believed that only Colorado spring water was good enough for his beer. He also commissioned farmers to grow the barley and hops that he needed for his brewing process." Other breweries have to use water, barley and hops, but because Adolph was specific in where he got his products from this might give Coors a competitive advantage (Adolph Coors Company).

Absolute cost advantage

Coors hired Leo Kiely as a marketing manager who was given the task to increase the return on investment from less than five percent to ten percent in four years. The first year starting he had to cut costs and ended up letting go of 700 workers. In the end this cost them $70 million and the company lost money for the first time in ten years. That year Coors was unable to meet or beat the industry average but soon they would create partnerships with Foster's Brewing Group Limited of Australia, Millers Brewing Company, and the Molson Companies Limited of Canada. This way they could gain more market share outside the United States and help raise their profit up to try and gain popular demand and brand loyalty (Adolph Coors Company).

Brand identity

Globalization is medium and increasing. Coors has already tapped into many foreign markets through their partnerships or buying out of other companies. Coors has headquarters in Canada, but brand identity all over the world makes it that much more difficult to enter the market. Customers stay with the same type a beer and therefore are loyal to their brand. High brand loyalty makes it hard for people to switch and try something new when they already know what their favorite beer is of choice (Pirani, 2010).

Access to distribution

As a beer industry each company needs to carefully plan distribution and marketing or promotion of the product that is being sold. With the joint venture of MillersCoors together they were able to decrease the cost of distribution and make better use of each other's resources. It gave them a stronger presence in all around the world and helped increase the amount of trade with other countries. With improved costs of distribution MillerCoors can allocate more into marketing and brand awareness. Alcohol is highly regulated by the government and therefore is another reason why barriers are so high.

The graph below gives a better outline of the beer distribution to the different places.

Expected retaliation

With three major breweries already in the mix and holding almost 90 percent of the market share, it makes it difficult for new entries to invest enough in advertising and marketing their product. Retaliation from the three breweries happens to try and win over customers from competing breweries. Each has to advertise and tap into new distribution centers in order to spread the word about their company.


Supplier concentration

The brewing industry has a large supplier basis, but it is always trying to expand and get their product in more areas especially sporting events. The more opportunities each brewery has in expanding the more chances it has in widening their target market and creating new customers.

Presence of substitute inputs

Barley is an ingredient that is most often bought from suppliers. However if the brewing industry would decide to start growing their own barley then it would hurt some farmers but it can also be used to feed animals and distillation in the production of spirits. As for hops which is the main ingredient in beer, that is more difficult to sell outside of the brewing industry because it does not have alternative inputs. This weakens the power of hops for suppliers and strengthens with barley since it can be used in other ways (Beer in the United States, 2009).

Differentiation of inputs

Hops and barley are similar anywhere breweries can get the ingredients but for Coors they have a contract with 2,000 acres of farmland to make sure that they get the most fresh ingredients available. With this contract it makes people think about where the other breweries are obtaining their barley and hops from? The Colorado Spring water they use is key in making their Coors beer still today (Beer in the United States, 2009).

Importance of volume to supplier

Without the brewing industry there would be no use for hops. Although the power of suppliers is moderate it is low for hops because it is a unique product that is only known to be used in brewing beer. The more suppliers that are available the more opportunity there is for negotiating a price of the product. If it is too high breweries will get their ingredients from another supplier who will offer it at a better rate (Beer in the United States, 2009).

Impact of inputs on our cost or ability to differentiate

The ingredients for brewing all the varieties of beer consist around the same barley and hops. The price of barley can increase and brewing companies will have to pay that price because barley is supplied to other industries outside of brewing beer. Hops is the opposite and brewing companies can tell farmers that harvest hops how much they will pay for it since it is only used in beer.

Threat of forward or backward integration

Currently the brewing industry is in the middle of this thread. Right now they work with some suppliers and others they are told the price. Looking into the future backward integration may occur where the industry has power of the suppliers especially if someone finds a good use for hops.

Access to capital

The average profit margin over the past ten years for Molson Coors (1999-2009) is 5.8 percent. The last 3 quarters in 2009 were significantly higher than years prior. The market value for the brewing industry is $78 billion. Most of this revenue is between Anheuser-Busch, Miller, and Coors. Investors like to see a high capital and profit margins so that their return on investment is also high (Y Charts-Profit Margin).

Access to labor

Most of the brewery industry is machine processed. However, there are a certain number of labor costs that are needed to produce the necessary demand of beer. High labor costs have made companies look into becoming more efficient with fewer workers. The wages of these employees are cutting into profit margins more than ever.


Buyer concentration

Buyer concentration is attractive and thus high in the fact that there are many potential and willing buyers of the variety of beers. However this depends on the revenue gained from selling beer and the demand customers have for it while at hotels, restaurants, and at home (Beer in the United States, 2009).

Buyer switching costs

In the brewing industry switching costs are fairly low since there is a saturation of stores, hotels, liquor stores, and restaurants who all purchase beer. With the variance and demand of specific brands it makes it easy for the buyer to switch and give customers what they are looking for. Grocery stores are able to negotiate the prices of the beer from each brewery (Beer in the United States, 2009).

Buyer information

Buyers are unaware of what is happening in the brewing industry and therefore already have brand loyalty and know what their choice of beer is. Trying to gain more market share in the industry is difficult without buying your competitors out. Anheuser-Bush has around half of the market share and trying to get their loyal customers to switch is difficult (Beer in the United States, 2009).

Threat of backward integration

Backward integration is not a factor in the brewing industry because it is an attractive industry for buyers. They can negotiate prices and get the best deal possible to make profit for their company (Beer in the United States, 2009).

Pull through

In the brewing industry pull through does exist. This is because major stores including liquor and grocery stores carry the three large brands of beer: Anheuser-Bush, Miller, and Coors. This pull through gives the brewing industry power of the buyers and thus making it an attractive industry (Beer in the United States, 2009).

Brand identity of buyers

The brewing industry does impact the brand identity of its buyers. Buyers know what brand people prefer and therefore are more inclined to buy what they sell the most product of beer. Buyers and customers have a choice for what they want to drink and this gives brand identity of buyers attractive.

Price sensitivity

Sometimes the brewing industry is able to pass some of the cost increases off to the buyers but with strong negotiations of buyers it is difficult. However, the higher demand of a beer the lower the bargaining power there is for the buyer. This can give the brewing industry power and make is attractive if they have demand for their product of beer. (Beer in the United States, 2009).

Price to total purchases

Referring back to the graph on market segmentation 53.1 percent of the industry represents the purchase of the buyers. This gives the brewing industry power over the suppliers once again. The buyers are dependent on the industry for keeping up with the demand of the market. (Beer in the United States, 2009).

Substitute Products

Relative price/performance relationships of substitutes

Substitutes of beer include all other types of alcohol: wine, spirits, and hard alcohol. This is especially true since there is a low switching cost for the substitutes (Beer in the United States, 2009).

Buyer propensity to substitute

People do want the substitutes and sometimes more than the beer. Although there is a high demand for beer there is also a high demand for hard alcohol especially for the ones that have not acquired the taste of beer. It is up to the buyer what they prefer and whether they like the taste of beer or a mixed drink. By 2013 to 2015 the threat of substitutes will result in a loss of revenue growth for the brewing industry (Pirani, 2010).


Degree of concentration and balance among competitors

The brewing industry as stated before had around 2,000 companies. In time some of those breweries went out of business while some consolidated. Coors and Miller used to be competitors and have joined together. Competition is medium but growing because larger breweries have control over the market. These companies would include Anheuser-Busch, Millers, and Coors who account for over 90 percent of the market share. The industry is not balanced because Anheuser- Busch has nearly half of the market share alone (Pirani, 2010).

Diversity among competitors

In the brewing industry there are many different types of beers. There are ales, stouts and bitters, premium lager, specialty beers, standard lager, and little to no alcohol beers. Anheuser-Busch diversifies their product by having such a large selection of alcoholic and non alcoholics drinks. They supply water and energy drinks on top of all the Budweiser, Michelob, Busch, Bacardi (hard alcohol), and much more. This diversity in brands and types of beer or alcoholic drinks makes Anheuser-Busch above all competitors and thus a large section of the market share (Pirani, 2010).

Industry growth rate (past and projected)

As a brewing industry growth has occurred over the years with a decline in the process because of the variety of alcoholic drinks available the brewing industry will lose some of their customers to other types of drinks and low switching costs. Between 2004 and 2008 the brewing industry did grow but at a 1.2% rate (Beer in the United States, 2009).

Fixed costs to value added

In the brewing industry there are high fixed costs to operate at the demand customers want. The value added is low so the industry is reaching/ has already obtained maturity. Alcohol is a commodity in the world and it replaces for cheaper alcohol or other items when people do not have much money to spend like the recession we are in today. Rivalry is high and competition between breweries is fierce making is even harder to enter (Beer in the United States, 2009).

Intermittent overcapacity

Production capacity by the large breweries can meet the unexpected higher or lower demand for their product. The few smaller breweries have a difficult time to meet the needs of customers if the demand was to grow. Large investment would be needed for the smaller breweries to grow at a rate so they could keep up with demand.

Product differentiation

As mentioned before there is a magnitude of varieties of beer that is produced. Anheuser-Busch is a great example that offers such an array of products. They can really differentiate their products because they offer so many kinds. The more other breweries can pick up on this trend the more successful they can be and they will create a larger target market.

Growth of foreign competition

There is a strong competition in the brewing industry with foreign breweries. Heineken is a strong competitor in the U.S. market. "Despite being more expensive, these premium beers have gained more market share during the five years to 2008." Exports have risen in American beer while imports have decreases from their peak. SAB, a South African brewery bought out Millers Brewing Company, while Canada took over Coors in 2005. Each of these foreign companies not own large shares of the U.S. markets with those buy outs (Pirani, 2010).

Corporate stakes

The brewing industry revenue for 2008 was $78.8 billion. Majority of revenue comes from standard lager and then premium lager. As for the different breweries their main revenue is dependent on the brewing industry. This makes their stakes high and increase rivalry within the industry. Each brewery is competing to gain more market share and the stakes are high (Beer in the United States, 2009).

Exit barriers

Exit barriers are low when companies can easily merger with each other, but that only works if the breweries are willing to merge and how much of the market share the exit company has.


Critical Success Factors

After gathering data it is noticeable that the brewing industry is saturated and there is not much market share to be gained by outside or new entrants. Competition is fierce within the three major breweries and brand identity is hard to convert consumers over.


A large initial investment is needed to start and exit barriers are low only if competitors are willing to buy the company out. Otherwise plant and machinery still depreciate while no one is using it. All in all, entering this industry would be difficult and risky investment. Growth is on the decline with substitutes that are available.

Part II: Firm Analysis

Brief firm history

Adolph Coors migrated in Denver from Europe. In 1873, Adolph and his business partners started making the beer from the brewery in Golden, Colorado. They had a target market of the miners that worked so close to the brewery, which they would drink over lunch time. Rocky Mountain water is used in the beer brewing. It is pure water that started as snow and they process it to be drinkable and location is near the brewery. Barley is currently being raised by farmers that live 45 miles away from the brewery. They have been harvesting barley for 52 years for Coors. They are solely in the brewing industry with some products as non-alcoholic beverages and are known for their motto as "Never Compromise" and "The Banquet Beer." (Home Page - Molson Coors)

Strategic posture


"Molson Coors' vision is to be a top-performing brewer winning through inspired employees and great brands. We're driving growth by becoming an innovative, brand-led company, delivering and re-investing productivity for growth as we build a winning, value-based culture."

(Company Statements & Slogans)

Coors wants to be a top competitor and find ways in which it can be innovative and keep its culture for customers.


Coors strategy is to try and meet the demands of its customers just like every other brewery in the industry is trying to do. In doing that they hope to gain more market share and become a larger competitor in the industry.

II. External Environment (Opportunities and Threats)


Brand identity

Brand loyalty

Top leader

Strong brands

Foreign markets


Financial performance

Weak employee productivity

Reliance on 3rdparty for materials: cans, bottles, barley, etc.


Growth in Chinese and Russian markets

Strategic alliances

Diversity in industries outside if beer


Rising costs of materials

Declining growth in US and Europe

Increasing labor costs


Some threats Coors might face in the future and currently is the rising cost of labor. Although they have a system in place that is mainly machine processed beer, they still have some labor costs. The higher the labor cost the more it is cutting into their profitability as a company and with decreasing growth, the outcome is not great. Looking into the future Coors should really expand its market into the Chinese and Russian countries. They both have seen stable growth over the past five years. Joint ventures could potential gain more revenue and cover a larger geographic area that what already exists for Coors (Molson Coors Brewing Company, 2009).

Task Environment

Threat of substitutes and supplier power are threats that Coors needs to prepare for. With the low costs of switching and moderate power by suppliers can sometimes name their price for beer. Combined these can hurt Coors profit margins and make it difficult to keep being successful (Molson Coors Brewing Company, 2009).

III. Internal Environment (Strengths and Weaknesses)


Board of Directors

There are thirteen board members and represent the four functional areas as director, Vice Chairman, Chairman, and President (Molson Coors Brewing Company, 2009).

Top Management

The President and CEO of Coors Brewing Company is in fact surviving in its current environment. In a time of recession people are trying to save more than they spend and most companies are seeing the affects of their consumers but for Coors they are declining in growth but are still profitable which is more than many large companies can say. Mr. Swinburn has worked for Coors since 1974 and should know much about the company and what has worked in the past, what has not, and where the company should be going to next. He has grown his company into Mexico and Asia (Molson Coors Brewing Company, 2009).

Organizational Structure

There are four persons on the Board of Directors and it is highly structures to give them over 50 percent of the company voting power and share of the company. This central structure makes important decisions about the brewery.


The culture of the company is to be a "top-performing brewer winning through inspired employees and great brands. It wants to attract, develop, and retain the best talent- talent that reflects the diversity of our marketplace-is our key success." They are all about involvement in the community and environmental stewardship (Home Page - Molson Coors).


Coors product offering include popular, premium, Superpremium, and Ultrapremium. They have a variety of brands including Coors, Keystone, Blue Moon, Molson and more. Although their focus is in the brewing industry they could look into expanding into more diverse products as a company. Against Anheuser-Busch, Coors does not offer as much. Anheuser-Busch not only sells beer, but malts, rum, water, and energy drinks. This makes them more diverse than their competitors. (Molson Coors Brewing Company, 2009)

Coors average wholesale pricing is $67 per barrel. Looking back at 1985 where Coors sold 14.7 million barrels with the average price at $73.40 (Adolph Coors, 1992).

The distribution system Coors has in place increased from an 800 mile radius to a 1,500 mile radius by 1985. Elevated cost of 10 percent to 15 percent was because they had a trucking subsidiary. The Coors Trucks hailed half of the truck shipments and so this left the rest to be railed by rail or by other trucking companies that were more costly (Adolph Coors, 1992).

As Coors increased their advertising they also increased their prices especially in new distribution channels. In 1985 Coors spent $165 million on advertising or roughly $11.20 per barrel. Compared with their competitors they spend on average more advertising per barrel than anyone else. Industry average was around $6.78 per barrel (Adolph Coors, 1992).

Operations/ Production

The trend in capital spending and productivity improvement started out at aging the beer for 70 days which amounted to $57 per barrel of assets. (Adolph Coors, 1992).

Coors introduced a new ad for Coors Light in 1978. Before this time the only brand advertised was Coors Banquet. After Coors started the new advertisement all other competitors soon followed. From then on every few years Coors would start marketing new developments and different varieties of beers. Sales increased every year from 1975 to 1985 with the help and increase in marketing their products (Adolph Coors, 1992).

Although labor costs are raising the amount of people working have decreased since more and more of the brewing process is machine made. Inventory was a problem in the 1980s because the brewery had a capacity of 16 million barrels, while demand was more around 20 million barrels. They could not meet customers' demands and therefore were not able to gain as much profit as possible. With expansion Coors was able to ship more barrels from their home plant in Colorado to distribution centers farther south that demanded more. Inventory control is better today than it was back then (Adolph Coors, 1992).

The brewing industry has not put much effort into research and development. In 2009, Coors invested $0 on R&D because they same system has been in place and has not changed since the start of brewing companies. With every new brewery added Coors does try to lower operating costs within these new buildings as well as increased productivity and reduced shipping costs (Adolph Coors, 1992).


Total revenue for Coors had been on a strong decline since 2007, where they brought in over $6 million in sales. Compared to 2009 where revenue was on half that amount at $3 million. Because of the large decrease in sales Coors was able to cut back on administrative expenses much more than previous years. This helped to ensure that the brewery was still profitable with the drop in sales during the time of the recession. SABMiller owning much more of the market share increased their revenue by $3 million from 2007 to 2008. This was a very different then Coors decline. SABMiller did see a $3million decline the following year, thus putting them back near the revenue from 2007 (Beer in the United States, 2009).

Human Resource Management

Coors does have a labor unions and Human Resource Management needs to make sure that employees are happy and will not go on strike or create an outburst that could jeopardize the companies name in the public eye.

Management Information Systems

Not applicable.

Critical Success Factors

Coors critical success factors are that it is solely a brewing industry. It has not expanded into other markets like Anheuser-Busch. Coors needs to consider following their competitors since waiting time was what they did. They waited to see what their competitors would do and then take their ideas and make them their own. They also could try to tap into the Chinese and Russian markets. These two ideas could potential help Coors expand and gain more market share then they already have.

Strategic Problem

Management has failed to ensure the long-term survival of Coors because they have not looked into different industry markets. They are only focusing on the brewing industry and with much of the market taken by Anheuser-Busch it is difficult for Coors to convert customers. Coors should look into buying a part of the food industry or soft drink industry. This makes them more diversified and targets a larger market than just people aged 21 or older. They may also want to look into becoming more efficient and renovate they brewery that already exist to make it hold more capacity. It has been none not to keep up with the demand of customers and by having a larger area for the beer to sit and ferment.

Strategic Alternatives

The pros to diversity in product items like buying out part of the food industry would be that if the brewing industry would happen to decrease in revenue they would still have the food industry in since food is a necessity. Alcohol is a commodity which people sometimes have to give up in times of recessions like now. The cons to this would be large initial investments in the food industry and buy out deal. They would need a larger cash flow and lines of equity opened to make a deal happen. This can either make or break a company in how they pay for the investment with either too much leverage or not nearly enough. The same goes with renovating space. Coors would have to invest in the renovation to help with the capacity issues it seems to face.


Coors should probably not invest in both strategies, but look at both and decide which best suits the company. If they want to keep focusing on the brewing industry then build more space to store beer would be ideal for them as well as trying to be more efficient in their ways of business. If they want to become more diversified they should look into the soda or food industry and research the gains of each company. Merging more creating a joint venture with a company could bring in high revenue and more marketing together.


Although Coors has not spent much if anything on research and development they should now. Expanding their brewery in Golden, Colorado is the easiest and least research base that would need to be done. This way they can better meet demand and increase revenue. Creating a joint venture with Pepsi, who already owns a diversified industry of food and beverages, would benefit Coors. Pepsi is a popular soft drink and creating a joint venture could help increase the awareness of Coors and expand its customer base. Stringer brand identity and more loyal customers will great increase Coors share of the brewing industry market and make them a larger competitor for Anheuser- Busch.