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Beer sales, in the United States alone, generated $78.8 billion in revenue in the year 2008, with standard lager sales accounting for the largest segment and totaling revenues of $28.2 billion. The primary production activities of the industry include Ale production, alcoholic and non-alcoholic beer production and malt liquor production. Ingredients like barley, hops and malt are purchased and then brewed to produce the beverages. These products are then distributed after being put in barrels, kegs, bottles or cans (Beer in the US, 2009).
Beer brewing in the United States was begun in the seventeenth century by English and Dutch settlers. By 1810, there were 180 commercial breweries around the country, all with small scale production and regional markets, due to the difficulty of transporting and storing beer.
Larger breweries that mass-produced beer did not emerge until several decades after the Civil War. There were several factors that aided in the emergence of mass-production. Many new immigrants, from countries with high beer consumption like Germany, Britain and Iceland were coming to the United States, increasing the demand for beer. America was also becoming more industrialized and workers in these sectors, such as mining and manufacturing tended to drink beer after work. Increased wages also gave consumers more disposable income to spend on items like beer. And lastly, technological advancements made it possible to brew new kinds of beer and better store it. These factors helped create a huge market for beer, making it a leading industry in the U.S. and increasing per capita consumption greatly.
After 1919, when the Eighteenth Amendment was ratified, and the production and distribution of any beverage containing more than one-half percent alcohol was prohibited, many brewers were faced with the difficult decision of what to do with their plants and equipment. Many continued to produce, near beer, a substitute for beer that met the Prohibition restrictions. This time, allowed for manufacturers to invest in new equipment and processes as well as refine old ones, radically changing the environment of beer production after Prohibition was repealed. Production efficiency and advancements in packaging and shipping beer allowed the industry to quickly recover from the era of Prohibition.
The industry experienced much consolidation following WWII. This was partly attributed to the fact that many small breweries shut down during Prohibition. Consumption was also on the rise, but the difference was that more consumers were now drinking beer in their homes rather than in saloons or bars, facilitating growth in large producers that had the technology to bottle their beer. This allowed major players, like Anheuser-Busch, Miller and Coors to capture economies of scale and dominate the market.
Major players in the industry continued to expedience growth into the early 2000's, as consumption of beer rose to record levels. However, in the past several years growth rates have fallen flat and consumption has declined. The emergence of smaller microbreweries has also caused a slight decline in the concentration of ownership by the top three companies in the industry (Martin, 2003).
The industry can be broken into three segments, barrel and keg beer, canned beer and bottled beer. Bottled beer makes up the largest segment, accounting for 67.3% of the total. Canned beer is second with 22.5%. Barreled and keg beer is last with a 9.8% share.
Beer in comparison to other alcoholic beverages holds 45% of the overall market share. Wine accounts for 18%, and distilled spirits for 37%. The market share has recently been declining for beer and shifting towards wine and other spirits.
Further segmentation into the types of beer sold can be looked at as well. There is an increased demand for mid-strength and light beers that account for 44% of beer consumption. Specialty brews, craft beers and microbrews have also seen and increased demand and make up 10% of beer consumption. Imports, malt liquors and heavy beers account for the remaining portion of the market (Beer wholesaling in the US, 2010).
Information about management information systems could not be found.
There have been several times that the government has intervened in the beer industry and set regulations regarding the production, sale and distribution of alcohol. Prohibition was the most extreme measure taken by government and although it is no longer in place, the industry is still heavily regulated and it is expected that more regulations will be put in place. Age and driving limitations are just two examples of the way government has regulated the beer industry.
Agencies such as the Bureau of Alcohol, Tobacco, Firearms and Explosives as well as the United States Alcohol and Tobacco Tax and Trade Bureau are responsible for regulating the industry. They regulate labeling, packaging, branding and content of alcoholic drinks. They are also responsible for assessing taxes to producers that do not comply with regulations.
Distribution of alcohol is also highly regulated. In many states, producers are prohibited from acting as wholesalers. They are required to sell through a wholesaler that has been licensed.
Alcohol is also heavily taxed. States like Florida and Georgia have some of the highest taxes, taxing 48 cents on every gallon. The average state tax in the US is around 19 cents per gallon, but many states are expected to raise these rates.
An increase in disposable income among consumers has benefited the alcohol industry in the past couple of decades. Consumers are more likely to buy items like alcohol or to go out to restaurants or other drinking establishments as their disposable income increases. However, the current economic recession has offset this trend. Many consumers have switched to cheaper beers as a substitute to wine and spirits, which are more highly priced, while other consumers have opted for more high quality brews that are still priced cheaper than wine and spirits (Beer production in the US, 2010).
III. Porter's Five Forces
Threat of New Entrants
Economies of Scale
Although microbrewery operations are becoming more common and many have success in the market, economies of scale are a crucial factor to remaining competitive in the mass-market. Smaller breweries have a more difficult time establishing the supplies like hop and barely at the competitive prices that large breweries can bargain for, driving up the cost of the end product. Smaller breweries also do not have the revenue necessary to spend on branding and advertising in order to attract consumers and gain market share. These factors often restrict the successful sale and distribution to small, regional markets.
Working Capital Requirements
As of December, 2009, Molson Coors had a working capital of $181.9 million. ("Molson Coors Annual Report," 2009). Because the process of brewing the beer is lengthy, high amounts of capital remain tied up throughout the process. Huge revenues must be generated in order to cover these large costs of daily operations. Smaller firms have a more difficult time covering the required working capital costs because of their smaller, weaker revenue streams.
Proprietary Product Differences
While Coors and other beer producers hold patents and trademarks over specific processes and formulas, there is little that is protected knowledge. The process of brewing beer is widely known and used. The actual formulas cannot be replicated, due to patents but many producers have similar product formulas with minor differences.
Absolute Cost Advantages
Patents and copyrights are used in the beer manufacturing industry. While these give larger existing producers some protection, there are many smaller scale producers that have found their own formulas to brew, making it only a minimal barrier.
Brand identity is extremely important in the brand-competitive brewing industry. Many people are loyal to one brand of beer and have been drinking it for years. Consumers are willing to pay for the brand they prefer, much of which is influenced by the tireless marketing efforts made by producers.
Producers known the importance of brand identity and spend millions in creating an image through advertising and promotions. With the effects of the economic recession as well as the emergence of more small scale brewers, major players have increased their advertising budgets. Recently, Anhauser-Busch increased their marketing budget to $612.5 million for this year, a 17% increase from the previous year to combat the effects of the economy ("Anheuser-Busch '09 marketing," 2009).
Access to Distribution
Distribution of beer is regulated in some states. Some states have implemented a three-tier system that keeps production, wholesaling and retailing functions separate. This requires many producers to go through a wholesaler to sell their product who will then sell it to retail chains, clubs, bars, supermarkets and convenience stores (Beer Wholesaling in the US, 2010).
Trends indicate that alcohol consumption is taking place in the home more frequently that before. Consumption at bars, clubs and casinos is decreasing while consumption in the home continues to increase. This has increased the amount of beer that is distributed through liquor stores and supermarkets.
The beer industry is highly consolidated. Mergers and acquisitions of companies have been a common practice in the industry. Smaller breweries tend to find market niches and avoid the markets that major player traditionally market to. Although the impact has historically been small, craft and specialty beers have been gaining market share, posing a threat to large breweries. In response to this, many larger companies have diversified their products to offer several specialty beers (Beer Production in, 2010).
The main supplies necessary for production are malted grain, hops and bottling supplies. Producers normally buy hops from independent hop producers, and purchase barley from farmers or producers that sell both hops and barley.
Due to the increasing size and scale of dominant producers, many global producers are now producing their own hops. This decreases the power of hop suppliers in the market. In addition to this, there are a multitude of hop growers and most are small operations, further driving down the power held by these suppliers.
Barley growers are also numerous and can sell to markets other than those of the beer industry, such as animal feed or malted barley that is used in the production of spirits, increasing the power held by suppliers of these materials. The quality of barley used in the process is incredibly important since the end product is significantly affected by the quality of the barley used, giving suppliers with high quality more power.
Presence of Substitute Inputs
Both barley and hops are needed to produce beer, leaving no room for substitutes. While other inputs may vary, there is a low presence of substitutes, giving some power to suppliers.
Differentiation of Inputs
Since barley and hops are agricultural commodities, there is little to no way for producers to differentiate them. Since quality of barley is important to ensure a quality end product, this does give some but little differentiation among suppliers.
Importance of Volume to Supplier
Hop growers depend on sales to beer producers, since this is virtually their only market to sell to, lending power to beer producers. Barley can be used in a variety of different ways, providing alternative markets to barley producers. This increases power held by barley farmers, since they can sell their products in multiple markets (Beer in the, 2009).
Impact of Inputs on Our Cost or Ability to Differentiate
The cost of inputs significantly impacts the price of the end product and the overall cost structure of the industry and giving them power over beer producers. Barley producers hold more power than hop producers; since differences in barley quality will allow for a differentiation in quality and add have a significant impact on the value chain of the product.
Threat of Forward or Backward Integration
In recent years, Coors has begun to contract some of their barley producers in an attempt to move towards backward integration of the production process. In 2006, they contracted with 900 barley growers in several states, accounting for around 160,000 acres of barley and weakening the power of suppliers (Boland, & Gary, 2006).
Forward integration is not possible in many states due to the fact that distribution channels are regulated. Many states require beer producers to sell to a wholesaler that will then pass the product on to be sold in retail stores, bars, clubs, convenience and liquor stores. This makes it difficult to gain access and power over distribution channel or attempt to forward integrate the process (Beer Production in, 2010).
Access to Capital
Profitability of the industry is declining. This means that there is little capital to be put towards the financing of expansion. Debt financing for the industry is likely to be expensive.
Access to Labor
The brewing industry has had a long history with unions and labor strikes. Most have involved the negotiation of higher pay and increased benefits to employees. Unions increase the overall cost of the production process and serve as a risk for large breweries. While the major producers have been able to avoid any recent strikes, it seems to be a trend in the brewing history and will likely come up again. Since labor is a necessary component of the production process, employees that supply this labor hold lots of power and have demonstrated this through repeated strikes and wage negotiations ("Budweiser Deal Comes," 2006).
While there are many breweries in existence, the industry is highly concentrated with several large players holding the majority of the market share, resulting in high concentration of buyers. Since these large volume buyers are only made up by several producers, buyers hold power in the industry with extreme bargaining abilities.
Buyers of the end product are highly concentrated. Supermarkets make up a large portion of the buyers in the market and are able to bargain and negotiate prices, giving them incredible buyer power.
Buyer Switching Costs
Switching costs among brands is low due to the large number of differentiated products in the market, increasing the power of buyers. Buyers also tend to offer their customers a wide variety of products to meet a range of needs, further increasing the power of buyers since they are not dependent on one product but many (Beer in the, 2009).
Buyers understand the brewing process and know that it is fairly simple as well as the fact that little about the process has changed or is evolving. This increases the power of buyers.
Threat of Backward Integration
Some beer producers have started to integrate backwards by buying their suppliers to gain higher profit margins. It is likely that the industry will begin to move this way in order to cut costs and remain competitive. This gives the buyers of these inputs power over the supplier.
Pull through can be seen by the huge advertising budgets and emphasis placed on promotions and sponsorships by beer producers. Its existence is further proved by the fact that all major brands of beer are found in the major distribution channels like grocery, liquor and convenience stores. The industry has power over those who distribute beer because they depend on carrying their brand.
Brand Identity of Buyers
Buyers are very aware of brand identity in the beer industry. The large amounts of advertising done by the major players in the industry have greatly shaped the way consumers view brands. Because of this the industry holds large power over the buyer, with the ability to influence and create brand identity of their products.
Buyers are price sensitive in the beer industry. Because there are so many options in the market, buyers can easily switch to another product if the price of another greatly increases. This prevents brewers from passing on increased costs to the buyer and gives power to the buyer.
Price to Total Purchases
The percentage of beer sales to total sales of buyers, depends on the type of buyer. For buyers like clubs or bars, they depend highly on the sale of alcohol since it is a large portion of their income. The same holds true for liquor stores. Grocery, convenience and retail stores depend less on the sale of beer since they generate revenue from a large number of other products.
Relative Price/Performance Relationship of Substitutes
Substitutes like wine and spirits have similar characteristics of beer and many are willing to pay a higher price for these products. Higher quality is generally associated with wine, champagne and spirits making these products seem more prestigious when compared to beer. Those with a larger disposable income are more likely to drink wine or spirits and are more likely to visit establishments that focus on the sale of these drinks.
Buyer Propensity to Substitute
Buyers are somewhat open to substitutes. While some buyers are willing to substitute beer, there are certain events that beer seems to have a place in that wine or other spirits cannot substitute. Beer sales at venues like sporting events will not likely be replaced by wine, ensuring that there are situations that beer will remain the preferred beverage.
Degree of Concentration and Balance Among Competitors
There is a high tendency for consolidation to occur in the beer industry. Mergers acquisitions and strategic alliances are common. The U.S market for beer consists of two main players. Anheuser-Busch InBev, a company formed after the takeover of Anheuser-Busch by InBev, has the largest share of the market at 50.1%. MillerCoors LLC, a joint venture between Molson Coors Brewing Company and SAB Miller, have 29.1% of the market share. The remaining 20.8% consists of smaller competitors. The high concentration of the industry creates intense rivalry even though Anheuser-Busch InBev holds a much larger market share than MillerCoors LLC.
Diversity Among Competitors
With the exception of small brewers making craft and specialty beer for specific market niches, beer producers are following the same strategy. Major players are fighting for the same target market, increasing the level of rivalry in the industry.
Industry Growth Rate
The annual growth rate in the U.S. for beer production saw a decline of 0.3% between 2005 and 2010. The expected annual growth over the next five years is predicted to be 1.3%, making the industry unattractive to new entrants and reducing the threat of rivalry by new entrants. This low projected growth is partially due to the fact that consumers tend to be switching away from beer (Beer Production in, 2010).
Fixed Costs to Value Added
Fixed costs in the industry are high, requiring major players to establish economies of scale to remain competitive. This along with the fact that value added is low, means that industry is near maturity. Beer is also now seen as a commodity, increasing the rivalry between producers. Since the industry is mature and rivalry is high, it is an unattractive to entrants .
The industry is running in the normal range of capacity utilization, but has seen a decline in this number due to downstream demands by retailers and stagnant growth. This increases rivalry as firms fight to keep revenue coming in, causing the industry to be unattractive.
Firms are able to differentiate their product to some extent. Differentiated products tend to be sought after by smaller brewers, rather than the major players. The main differentiation done by major players is that of image and brand, although they are essentially the same product. However, overall there is little differentiation making an unattractive industry.
Growth of Foreign Competition
Both major players in the industry are foreign owned and have become increasingly involved in the international market. Joint ventures and licensing agreements with international breweries have been formed with the major players in the domestic market, allowing foreign brews some market share in the U.S. without major players have to go head-to-head with them (Beer Wholesaling in, 2010).
The industry only produces one product. This makes them dependent on one industry segment and the revenue it provides them. This means stakes in this industry are extremely high, increasing the intensity of rivalry, making the industry unattractive.
Due to the size of production plants used to make beer, they may be difficult to sell off or convert into another operation. It is possible it could be used to bottle other beverages or could be sold to another beer producer however; the exit barriers to the industry remain high making it unattractive.
Critical Success Factors
One crucial factor is economies of scale. The size of operations and production will determine the end product price, an important aspect to remaining competitive. Large volume of inputs also helps to bargain competitive prices with suppliers. Economies of scale will also help to offset the large capital investment needed to run operations in the industry.
Control of distribution arrangements is another critical success factor. The ability to make arrangements with stores, restaurants, bars and clubs is essential to the survival of a firm. Without established distribution channels there is no way for consumers to have access to a firm's product.
The third critical success factor for firms in the industry is establishment of brand names. In a market with many options, sales depend highly on brand recognition and loyalty. This is achieved primarily through promotion and advertising and is a critical element that will determine the success of a firm in this brand-competitive market.
I do not view the brewing industry as a wise investment prospect. The economies of scale needed to maintain a low cost are difficult to attain and will likely cause a new entrant to collapse to the pressure of consolidation by a larger established firm. The industry also has low projected growth and high fixed costs, making it a risky investment.
Part II: Firm Analysis
Brief Firm History
Coors was started by two German immigrants and a Denver businessman in Colorado. Founder, Adolph Coors discovered that the natural water he found in Colorado was perfect for brewing beer. In 1873, the Adolph Coors opened the Golden Brewery and began producing several kinds of beer.
Coors managed to survive the years of Prohibition by producing, near beer, a similar product to beer that contained less than the maximum alcohol content allow during Prohibition. After the repeal of Prohibition, Coors became a major player in the market as they began to expand their market and establish their brand name. Along with this, Coors gained market share because of their innovation, advances in refrigeration and packaging technologies and successful marketing.
In recent years, Coors has undergone a variety of mergers. In 2002, Adolph Coors and Molson Coors merged under the name Molson Coors Brewing. Later in 2005, the company was merged with Canadian brewer Molson Brewing. Another merger was done in 2008 when SABMiller and Molson Coors, combined under a joint venture to serve their U.S. market.
The brewing company now draws on over 350 years of experience and produces 40 different brands of beer. They have worked to diversify their product offerings to better serve global markets as well as emerging domestic market trends. Their portfolio includes craft beers, domestic beers, imports and specialty products in efforts to achieve this ("A Brief history,").
Coors does not list a mission on their website, but rather a vision. Their vision, as stated on their website, is "to be a top four global brewer in profitability, fueled by our people who are committed to delivering exceptional results and creating extraordinary brands" ("Company," 2009). With increasing globalization in the industry and high cost pressures, I think that this is appropriate vision to follow in order to maintain competitiveness in the market.
Coors uses a Cost Leadership Strategy. They offer a competitively priced product achieved through cost advantages associated with economies of scale and established, efficient distribution channels. They have also gained cost advantages through gaining access to lower priced input materials that are bought in large volumes from suppliers.
II. External Enviornment (Opportunities and Threats)
Some political factors that pose threats for the industry are regulations on sale and distribution of products, drinking age limits and taxation. Regulations pose the biggest threat, as they limit certain states from being able to sell directly to retailers. Many states require that producers go through a wholesaler to distribute products.
The current economic recession has been a threat for Coors. With decreased disposable income for many consumer as well as high job and financial uncertainty, many consumers are watching what they spend and are opting not to buy alcohol or go out to drinking establishments. This has also caused for a downstream demand by grocers and other retailers, cutting into revenues of beer producers like Coors.
Social concerns raised about the dangers of drinking have also affected Coors. Underage drinking is also becoming a concern. Because Coors is in the alcohol industry, they may feel the need placed on them by society to take measures that will help counteract the negative affects of the product they product.
Increased consumption levels of wine and other spirits have taken away from beer sales. Changing consumer preferences towards these products are results of growth in income and standards of living. Consumers with higher levels of disposable income are more likely to purchase wine or spirits (Beer Production in the US, 2010).
Most technological advancements in the industry were made in the beginning of the life cycle and few have impacted the industry in recent years. Automation of processes like bottling, filtering, labeling and cleaning have made the process more efficient. Advancements in ordering technology and packaging techniques could serve as an opportunity to cut down on costs as well as waste.
The intense threat of rivalry in the industry is a threat for Coors. Anheuser-Busch is their biggest competitor and has the largest domestic market share. Because their products are similar, this only amplifies the rivalry.
Threat of new entrants is low because of the high costs involved with entering and exiting the industry. In addition to this, the large economies of scale necessary to remain competitive in the market are hard to attain. This serves as an opportunity for Coors. Many small producers want to get into the market but don't have the capital or knowledge to do so. Coors has already had extreme success with joint ventures and acquisitions of product lines, and could benefit from acquiring or partnering with these smaller startup breweries.
Threat of substitutes is high in the industry. This is a concern for Coors as many consumers are choosing wine or spirits over beer. Substitutes of other beer brands are also a threat. There are a wide array of brands to choose from in the market and switching costs are low causing a major threat for Coors.
Another threat facing Coors is the slow growth in the market. The U.S. market experienced negative growth in the previous five years and is only projected to see a minimal positive growth rate within the next five years. Europe's beer market has also slowed down with countries like Germany and the UK expected to see a decline in grown. This poses a large threat for Coors since 60% of overall revenues for Coors are generated in the U.S. and Europe.
Rising raw material costs are also a threat for Coors. Barley prices have seen an annual increase of 13% over the last twenty years. This low profit crop is unattractive for famers and many have switched to farming more profitable crops like corn.
Growing markets like those in China and Russia are opportunities for Coors. Both countries have and are expected to continue to see high growth rates. Consumption levels of beer are rising, creating a high demand for the products that are produced by Coors (Molson Coors Brewing Company, 2009).
III. Internal Environment (Strengths and Weaknesses)
Board of Directors
The board of directors for Coors is a total of fifteen people. Four of the members in the board are actually members of the Molson or Coors families. Five members are internal employees. The remaining five are external, a small percentage compared to other average firms.
Many of the members serve as CEOs or CFOs, giving them skills in both management and financial analysis and decision making. In addition to this select members have skills in the areas of marketing and organizational development. These skills combined, allow the board to have an understanding of all four functional areas.
Stocks are classified as either class A or class B stocks by Coors. The majority of Class A stockholders, those with voting rights, are members of the Molson or Coors families. Around 50% of voting power is held by members of the two families.
Since most of the members are internal, there is heavy involvement in the oversight by these members. The board and its members are divided into four board committees that have more specific aspects that they focus on.
Peter Swinburn is the current CEO of Molson Coors Brewing Company. He specializes in development of emerging markets as well as international sales and operations. This is an important asset to Coors as they continue to try to expand their global sales and reach emerging markets.
The present structure of the company gives lots of power and decision making to the member of the Molson and Coors families. This poses the risk of a small group of people looking out for self-interests that could hinder the company.
Molson Coors places a large emphasis on corporate responsibility. As outlined on their website, Coors works to be ethical and accountable in their business practices, advertise and sell responsibly, care for the environment, invest in communities and the well being of their employees. To ensure that these are achieved, Coors has formed The Corporate Responsibility Steering group. The group has members from all business units and meets quarterly to assess the company's performance in these areas (Coors, 2010).
The recent joint venture with Miller was a response to the low number of products that Coors had. The joint venture allowed both companies to diversify their portfolios and compete with other large brewers like Anheuser-Busch. Their product line includes beers, dark ales, ice beers, lagers, non-alcholoic beverages and white ales. A similar product mix of their competitors (Molson Coors Brewing Company, 2009).
Price for these products is relatively similar among competitors. Coors has allowed their products to be priced competitively with those of large producers and rivals like Anheuser-Busch.
Coors, as well as their large competitors can be purchased in almost all of the same locations. Their distribution channels are very similar and rely heavily on grocers and liquor stores to distribute their product. Consumers have easy access to the products as well as a variety of venues it can be accessed at, making their placing well positioned and appropriate.
Coors and their largest competitors focus heavily on promotion. Brand loyalty and recognition are important in the industry, increasing the need for strong brand awareness and brand image. Coors and other producers have used a variety of different advertising methods and continue to spend millions of dollars annually in attempts to market their brand names, gain brand loyalty and increase market share.
Coors has invested large amounts of capital into alliances with other producers in order to better serve both global and domestic markets with a diversified product line. It is likely that this trend will continue as it seems to be a strategy that is working for Coors with successful examples including the joint ventures with both Miller and Modelo Group.
Coors has recently focused on diversification. This can be seen by their acquisitions and strategic alliances with producers of differentiated products in efforts to expand their portfolio. Because of this diversification, Coors has had the ability to grow since they now offer products to more market segments.
Fixed costs of operating in the industry are rising due to increasing costs in the raw materials needed to brew beer such as barley and hops. Other factors affecting operating leverage include employee productivity and labor costs. Employee productivity at Coors is low and can be measured by total revenues per employee. Total revenues brought in by the employees of Coors were significantly lower than those of similar brewers.
Rising labor costs in the US and UK, primary plant locations for the firm, are experiencing increases in labor rates. The company employs around 11,00 in both countries and could see in increase in overall costs that will ultimately affect profit margins (Molson Coors Brewing Company, 2009).
Coors has seen declining revenues over the last several years. The company saw a 22.9% decrease in revenues from the year 2007 to 2008. They also saw a large decline in the profitability of their business as well as cash flows. Operating profit dropped 3% in 2008, based on profits from the previous year. Overall net profit of the company dropped 22% from 2007 to 2008. Operating cash flows fell as well at a rate of 32.3%. These factors combined could be detrimental to the global expansion efforts Coors wants to pursue as well as a decline in market share. While competitors in the industry have been affected by the same factors in the industry including decreased demand for products, changing consumer tastes, rising raw material costs and stagnant growth, they have been as adversely affected financially as Coors has.
The five year average debt to equity ratio for Coors is .33 ("TAP-Molson Coors Brewing"). Anheuser-Busch has a five year average of 1.12 ("BUD-Anheuser-Busch"). This indicates that Coors is not using as much debt to finance operations. This could be attributed to the fact that it has not been growing or expanding at the same rate as some large competitors like Anheuser-Busch, therefore not requiring any debt to be taken on to finance operation expansion.
Human Resource Management
Unions have been involved throughout the history of the beer production industry. This means that Human Resource Management must be accommodating to the needs of employees to avoid the risks of a labor strike. Their current senior human resources manager, Ralph Hargrow, has over thirty years of experience in the field and has specialized in servicing large multi-national companies (Coors, 2010). This along with efforts to ensure employee satisfaction through The Corporate Responsibility Steering Group should help to lessen the risks of union retaliation and strikes.
Management Information Systems
There is very little information provided on this topic making it not applicable to the analysis.
IV. Critical Success Factors
Coors has achieved economies of scale by setting up over eighteen breweries. They have also achieved economies of scale by forming over 65 strategic alliances and partner brands. This has allowed them to be more diverse and offer more products as well as cut down on overall fixed costs due to their large size.
Coors has established distribution channels in over 30 countries. Their products can be found in most grocery stores, liquor stores, bars and restaurants in the domestic market. This indicates that Coors has well established distribution channels, one of the key success factors in the industry (Molson Coors Brewing Company, 2009).
Coors also has a well established brand name and brand image. Their products are well known and have high brand loyalty. They continue to be one of the top performers in the industry because their brand names are so highly recognized and valued.
V. Strategic Problem
The strategic problem that Coors faces is that they are currently in a market that is not experiencing growth and is not expected to experience a large growth rate or see rises in consumption. The industry life cycle is at a maturation point in the domestic market leaving little growth potential.
VI. Strategic Alternatives
While Coors does have an international presence, it could be strengthened. Emerging markets like those in China and Russia are promising options for Coors. If they do not expand to these emerging markets they will continue to see a decrease in revenue and profitability due to downstream demand and increased costs in the domestic market.
An advantage to this strategy is that it will open up new markets and revenue streams for Coors. It will also help to offset the effects of the stagnant domestic market. Coors strong brand image and economies of scale should aid them in the implementation of this strategy.
A disadvantage to this strategy is that it can be time consuming and costly to enter into new markets. Political and legal systems can also affect the ways a firm must enter into a foreign market. In addition to this, market research and understanding must be done to understand the foreign consumer base.
Another option for Coors would be to integrate more production processes to boost profit margins. Coors does some of their own bottling already but this is one area that could be increased to create a cost advantage. Coors has also bought some of the farms that grow hop and barley for their products, eliminating the cost paid to the supplier. This activity could also become more vertically integrated to save money and drive up profit margins.
Advantages to this strategy are that it will make the supply chain shorter and create cost advantages that will help to increase profit margins.
A disadvantage to this strategy would be that large amounts of capital would be necessary to implement the strategy. It would also take lots of time to build bottling operations.
I suggest that Coors expand into emerging global markets. They already have the economies of scale and the brand image necessary to do so successfully. They have a diverse product line that is attractive to a wide consumer base that will aid in their success in the global marketplace.
To implement the strategy, financial preparations would need to be made to ensure that enough capital exists to enter into the foreign markets. This could include cutting costs in areas of the current cost structure or by incurring debt to finance the expansion.
Operations and production would need to find a way to increase the output of products to meet the sales generated in the new markets. If this is not feasible, new production plants will need to be built, preferably close to the markets being served since the product has a low value to weight ratio.
Human Resources would need to plan for the increased workforce that would be necessary after operations have been expanded. Depending if a new production plant was built or not, they would need to determine the best staffing policy and compensation method for the new plant.
Sales and Marketing areas need to research the most effective type of advertising in the new target markets. Factors such as where the majority of the population lives, infrastructure, availability of technology and legal regulation regarding advertising all need to be taken into account.
Coors has core competencies such as the ability to effectively market a competitively priced product that will help them to succeed in the global market and maintain a major player in the domestic market. This strategy will allow Coors to be sustainable despite a mature domestic market, declining in growth and profitability.
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Part III: Firm-to-Firm (Coors vs. Lenovo)
Coors and Lenovo pursued similar strategies when both firms looked for strategic alliances that could help them gain market share and increase revenues. Lenovo had a small market share that was based primarily in China but wanted to expand elsewhere. Lenovo did this with IBM in order to gain the economies of scale and core competencies that IBM possessed. A similar strategy was used by Coors when they partnered with both Modelo Group and Miller. This too allowed them to expand into new market segments both globally and domestically. These strategic alliances allowed both firms to better compete globally as well as increase revenues.
In addition to this Lenovo focused on integrating supply chains by attempting to become their own supplier. Coors followed a similar strategy of integration when they began doing some of their own bottling as well as buying their suppliers of hops and barley.
Coors biggest challenge is stagnant demand for their product in the domestic market. Lenovo does not have to deal with that. There is a high demand for laptop computers. Instead Lenovo has to deal with the treat of low cost and made in China correlating with low quality or low performance.