EXECUTIVE SUMMARY The New Belgium Brewing Company is one of the leading producers of craft beers, or microbrews in the United States. The company was started in 1991 by Jeff Lebesch, an electrical engineer, and his wife, Kim Jordan, who was the firm’s first marketing director. Lebesch was inspired by the beers and ales of Belgium while bicycling there. The company’s signature beer, Fat Tire Ale, was named after the mountain bike he used. The company sells its products in the Western United States, but is seeking to expand its Markey area to other parts of the US.
It is presently the third largest producer of Craft Beers in the US behind Boston Beer (which makes Sam Adams) and Sierra Nevada. Revenue for last year totaled 111 million dollars. Sales grew approximately 16% last year. The company is building a 76,000 sq. ft. addition to its current 100,000 sq. ft. plant to meet the increased demand and to satisfy new markets. Growth in the Craft Beer market is currently strong. One of the characteristics that make New Belgium unique is its environmentally responsible operations. They are the first wind-powered brewery in the country.
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They also have a wastewater recycling system that extracts methane for burning in the plant’s cogeneration equipment. They also use “day-lighting” which maximizes the use of natural light to cut down on electrical use. We analyzed the firm’s current situation through different models discussed in class, which revealed interesting facts. Through SWOT Analysis, we discovered that the firm has a great deal of opportunity by expanding to new markets in other states, particularly the Northeast. They also have lower energy costs due to their environmentally efficient operating methods.
We also applied the Porter Model to discover that entry to the market by others is difficult, but there is a threat of substitutes such as other beverages, etc. Buyer power appears to be weak due to brand loyalty. Supplier power is also weak to due to many suppliers, low energy cost and self-reliance that New Belgium has cultivated. Two elements of the Product ??? Market matrix appear to apply. New Belgium is implementing Market Development by expanding to other states and countries. They are also exhibiting Marketing Penetration through constant striving to improve their product.
They are also appealing to the growing environmentally and socially responsible population. CORPORATE INFORMATION The New Belgium Brewing Company is one of the leading producers of craft beers, or microbrews in the United States. The company was started in 1991 in Fort Collins, Colorado by Jeff Lebesch, an electrical engineer, and his wife, Kim Jordan, who was the firm’s first marketing director. Lebesch was inspired by the beers and ales of Belgium while bicycling there. The company’s signature beer, Fat Tire Ale, was named after the type of mountain bike he used.
Lebesch began brewing his own beer in his basement, trying to capture the flavors, colors, and aromas of the beers he sampled while in Belgium. His success with this lead his friends to suggest that he bottle and sell his beer. In 1991, he began selling this brew out of his basement operation. Sales grew quickly by word of mouth and in 1995, New Belgium opened its first plant. Three major companies hold nearly 80 percent of the market share in the United States. These breweries are Anheuser-Busch, located in St. Louis, Missouri; Miller Brewing Company in Milwaukee, Wisconsin; and Coors Brewing Company in Golden, Colorado.
The two top-selling brands, Budweiser and Bud Light, both belonged to Anheuser-Busch. Ranking second was Miller with the third-best selling product, Miller Light. Ranked third was Coors Brewing Company with the fourth most-popular beer, Coors Light. New Belgium competes in what is known as the Craft Brew or Microbrew market. This market represents approximately 3% of the Domestic Beer market. (see Graph A). Anheuser-Busch (Budweiser) accounts for nearly half of this market. This Craft Beer segment has tripled from the 1% share of about 20 years ago.
New Belgium is the third largest craft brewer in the United States behind Boston Beer (Sam Adams) and Sierra Nevada. (See Graph B). New Belgium’s revenues for last year totaled 111 million dollars. This represents a 16% growth from the previous year. New Belgium is sold primarily in Western States, has just recently begun selling in California, and has plans to expand into other states. They recently have begun constructing a 76,000 sq. ft. addition to the present 100,000 sq. ft. plant. This will help meet the new demand New Belgium expects from expanding their market.
A unique characteristic of New Belgium is their commitment to being an environmentally friendly and efficient operation. They are leaders in this area. New Belgium has the world’s first wind powered brewery. They also have a complex wastewater reclamation system that allows them to extract methane that they then burn in their co-generation plant. This provides 40% of their power. Water is also recycled for use in the plant’s operations. They also use “day-lighting” which is the maximization of natural light to minimize electricity use. All bottles and packaging are made from recycled aterials. This “green” approach to manufacturing has endeared New Belgium to many environmentally conscious consumers. GRAPH A – DOMESTIC BEER MARKET GRAPH B – CRAFT BEER MARKET SWOT ANALYSIS 1. Strengths Smaller specialized market New Belgium Brewery is a craft beer company. Craft beers need large number of days to brew, so it is unlike Budweiser or Miller who could manufacture beer in large quantities and sell their products all over the world. A new beer is brewed every so often by NBB and put on the market for a limited time, usually four months.
The beers are available mainly in the western states, including Kansas, Nebraska, Missouri and Texas. Because of that, NBB can focus on keeping the brews fresh, matching the consumer’s taste, or developing new product lines. Unique product While Jeff, who is the founder of New Belgium Brewery, was falling in love with the Belgium countryside, he was courting the beer. During his Belgium bike trip, he acquired a special yeast strain (now used in his brewery’s Abbey Belgian Style Ale), and upon returning to Colorado, Jeff started brewing the beer in the small basement of his Fort Collins home.
Because of this yeast strain, he created many unique tasting beers such as Fat Tire, Abbey, Tripped, Sunshine Wheat and Blue Paddle. Special brewing technology – low energy cost This company makes use of natural energy to brew their beers through use of: wind power, water conservation, day-lighting, recycling, wastewater reuse, etc. NBB is the first wind-power brewery in the United States and incorporates a wastewater recycling system that further mirrors their commitment to sustainability. This secondary energy is used at the brewery for 10 hours a day, in place of the wind power.
New Belgium Brewery uses 40 percent less energy than the average American brewer to produce a barrel of beer. These methods not only help them lower the cost, but also reduce the damage to the earth. In addition, they’ve introduced two kinds of special automatic management systems: The Opto22 Factory floor software and SNAP Ethernet 1/0 system to control their process and maintain the beer’s quality. Harmonious relationship with employees New Belgium Brewery relates to their workers like family. For example, Employees are treated, after one year of employment, to a bicycle; after five years, they are rewarded with a trip to Belgium.
Employees own 32 percent of the brewery, and everyone lives by NBB’s nine core values and beliefs, which promote quality, efficiency, individual growth and opportunity, family, communication and environmental stewardship. 2. Weaknesses Narrow distribution of products throughout the country Currently the products of NBB are sold only in western states. Their competitors, Boston Beer and Sierra Nevada, are more widely distributed. Low brand recognition In fact, say the words ‘fat tire” in Colorado and almost everyone thinks of beer-not mountain hikes.
NBB is the third-largest brewery in Colorado, and the eighth largest in the country. Even so, compared with the big companies, it still appears small. Their TV spots just air in Phoenix and roll out to the Southwest and West, target high-end beer drinkers, 25-to-44-year-0ld men. However, to the people of living in Eastern states, the brand is virtually unheard of. Low productivity Concerned with the problem of natural energy, Kim Jordan said: “We do what we do because it is meaningful to us and we’re concerned about the long-term ffects of our actions on the environment: we aren’t doing something just to be popular or gain customers. ” Currently, packaging lines run 16 hours a day, four days a week and the company expects to turn out 365,000 barrels of beer this year, up from 331,000 last year. New Belgium needs to add capacity to ensure it can continue fulfilling orders in new markets, including Southern California. Compared with Anheuser-Busch, Inc, which produces 93. 9 million barrels of beer in one year, the productivity of NBB is obviously low. 3. Opportunities Developing beer market
In the late 1990s, beer industry sales grew about 1. 5 percent to 193. 3 million barrels and in 2000, to 197. 6 million Barrels. As the population of individuals old enough to drink beer continues to grow, the beer industry had been able to achieve growth through the turn of the century. Potential market According to U. S specialty beer market regional shares of volume (1999-2004), (See below), we can see that the beer market of both of Northeast, East Central and Pacific have been stable. The Northeast and Pacific regions in represents over 30% of the Craft Beer Market each.
It shows that people living in Northeast and Pacific appreciate craft beers. In terms of business, we believe there is a great opportunity to expand into these two main markets. [pic] The average age of beer drinkers is decreasing According to the statistics,, the average age of beer drinkers has decreased from 42 years old to 35 years old over the last 20 years As the age of main consuming group of purchasing beer is decreasing and the life-span of human is increasing, it means that people will have more opportunity to drink beer. Beer became a popular social beverage
In today’s modern society, many people, primarily men, though an increasing number of women like to socialize with co-workers or friends to drink and chat after a busy workday. Surveys show that most people are likely to drink beer when they are complaining about something or blowing off steam. It seems that a beer with a little bite (such as a microbrew) may be a preferred choice. 4. Threats Macro-breweries Anheuser-Busch, Inc, Miller Brewing Company, Coors Brewing Company. These three big companies occupied almost 80% of beer market. Craft Beer Competition
The main competitors are Boston beer and Sierra Nevada. In fourth place is Guinness. Their products are sold throughout the country and have brand recognition. Alternative products are increasing You can easily find a new product on the shelf of retailers every day. Thousands of beverages could be picked up by consumers. The more products in the market, the less opportunity your products are likely to be picked. Drinking and Driving Laws /Anti-Alcohol Advocates More and more accidents result from the drunk driving. Society is becoming less tolerant of drinking and driving.
Based on this reason, the government has put stricter alcohol distribution rules into effect and prohibits the sale of beer and / or restricts the hours of sale in many instances. PORTER’S 5 FORCES MODEL Michael Porter provided a framework that models industry as being influenced by five forces. He explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five “competitive forces” are: The threat of substitutes (new entrants) The barriers of entry The bargaining power of buyers The bargaining power of suppliers The degree of rivalry competitors
We are going to discuss the beer company, New Belgium Brewing Company, by this model. The threat of substitutes (new entrants) For new entrants, there are many threats to new competitors, such as brand loyalty, growing alternative products, price influence. We will provide these three reasons for analysis below. 1. Brand loyalty Most customers will buy beer because of taste. They will not easily change their brand because they are accustomed to it. Therefore, it is not easy to get new customers from these existing companies. Hence, how to create different and unique taste to attract new customers becomes an important and serious problem. . Growing alternative products There are many alternative products in the beer market, such as Bud Light, Miller Light, Coors, Light, Malt beverages, Wine Coolers, etc. This is a big problem for new entrants, because there are more and more choices for customers to choose what they want. With science and technology awareness, increasing, modern people pay more attention on their health. They prefer to choose healthier drinking. Because of this, new entrants have to compete with not only regular beer, but also with new creative products (Fruit juices, Vitamin water, etc. ).
It means you have to spend money developing and researching your market development. In the other words, if new entrants do not have enough money to invest, they may fail in this market. 3. Price influence This market is filled with a lot of big beer companies, such as Budweiser, Coors and Miller, and also big craft beer companies like Guinness, Sam Adam’s and Sierra Nevada. Because these companies have huge profits and resources for their big market, they can provide a cheaper price for their customers. However, for new entrants, they seldom can provide this kind of low price to compete with these big companies.
Hence, new entrants will lose some customers who do not care about taste but price. Based on these reasons, it will very difficult for new entrants to entry this market. The barriers to entry Moreover, there is the second force, the barriers to entry, which influences new entrants to go into the market. There are three examples we provide to analyze. 1. Patents and Proprietary knowledge For new entrants, brewing skills are very important. In a computer company for example, new entrants must have background knowledge to develop new technology.
If they do not have this kind of specific expertise, it will be difficult to get into this market. It is the same with breweries; . they want to get into the market, they face the same problem. They must have knowledge and experience with beer brewing. 2. Limited distributed channels In this beer market, although there are many distribution channels, most of companies already have occupied them for a long time. As far as new entrants are concerned, it is a little difficult for these companies to distribute their products by these limited channels. Hence, it also becomes another barrier for new entrants to get into the market. . Lower brand recognition In this market, there are many well-known brands, like Budweiser, Miller, Coors, Sam Adams, etc. Customers tend to buy older, but more famous brands in supermarkets. Seldom do they want to try a new brand, because they are not well known. Hence, brand recognition plays a very important role for customers. Besides unique taste, the other thing that makes your brand known is investing in mass media to broadcast their brand. Drinkers get a lot of information about beer companies from advertisements when they are watching television or listening to the radio.
However, for new entrants, it is very difficult to install new brand recognition into customers. Bargaining power of buyers This is the third force to influence whether a new company can invest in this market or not. We provide three reasons for analysis so we may realize the relationship between buyers and suppliers. 1. Buyers are fragmented For buyers, if they are the only customer in the market, they will have a lot of power to bargain with supplier. However, there are many customers in this market. It means the bargaining power of buyers is fragmented and weak.
It will influence the customer to negotiate the price with suppliers. 2. Products not standardized In addition to fragmented buyers, non-standardized products are the other factor to influence bargaining power of buyers. With Circuit City for example, the retail market provides power over appliance manufacturers because of the standardized products. It means the company has more power to negotiate price with suppliers. It is the same reasoning with the beer market. If the beer was a standardized product without different taste, the buyers’ power will increase, and the price of beer will go down.
However, because of different tastes from different companies and brews, it lowers the bargaining power of customers and suppliers get much more power to decide the price. The bargaining power of suppliers This is the fourth force to judge if new entrants can get into the market or not. We provide two reasons for analysis regarding the relationship between buyers and suppliers. 1. Many competitive suppliers In the beer market, there are many wheat suppliers. Every wheat supplier wants to have a deal with these companies.
Hence, they will think of competitive ways to attract these companies and compete with the other suppliers, such as cutting price or providing high quality wheat. As far as beer companies are concerned, they have many suppliers to choose. If they are not satisfied doing business with a supplier, they can change this supplier with little repercussions. They have many more options to choose what they want. Therefore, wheat suppliers do not have much power to bargain with these beer companies. 2. Concentrated purchasers Similar to the previous example, one of the main products beer companies want to buy is wheat.
Therefore, they have much more power to bargain with their suppliers. On the contrary, if beer companies want to buy many different products from these suppliers, they will lose their superiority and bargaining power to negotiate with them. Hence, concentrated purchasers will get more power to bargain with their suppliers. 3. Lower energy cost Because high energy cost has become a serious problem for many companies, coupled with their concern for the environment, New Belgium Brewing has developed many ways to save energy and money. They use a wind powered brewery, day-lighting, recycling and wastewater reuse.
These methods make them more competitive in the beer market. In addition, they have more bargaining power to negotiate with power suppliers because they do not rely on them for power. Hence, the bargaining power of this company is stronger than its power suppliers. The degree of rivalry This is the last force in the Michael Porter theory. This force will compare other competitors in the same market. We list four reasons for analysis. 1. Different channels of distribution Because of many competitors in the market, how to create a new channel of distribution becomes one important problem.
For example, new entrants can cooperate with different restaurants, such as Fridays, Ruby Tuesdays or Applebee’s. These restaurants may wish to provide many different kinds of beer for their customers. It not only can increase revenues of restaurants, but may also give beer companies a channel to new customers.. 2. Market growth With a drinking population rising, the market grows year by year. Moreover, because of technology and science advancements, reaching customers has become more convenient. Hence, more beer can be delivered to the countryside or rural regions.
In addition, the changing drinking habits also play an important role in this market. For modern people, beer has become one part of their life. They want to drink beer after working or when with friends. They also want to drink beer when they have parties with their friends or relatives. Beer already has become a social beverage for modern people and hard to separate from their life. 3. Switching cost For customers, the lower they have to pay for switching brands, the more benefit they can get. For example, if customers should pay much more money to switch products from the old brand to new one, they must perceive an increased benefit.
Every customer does not want to pay more money to get the same function of a product but more expensive than the older one. If they can pay less money to get the same function but for cheaper products, they will buy the cheaper one. Hence, how to alter switching cost will become a problem for these companies. 4. Levels of product differentiation Most companies hope they can develop different kinds of products in the market. Even thought their products have similar qualities to other brands, they hope they can put some different ideas into their products in order to get customers. Take Budweiser and Miller for example.
These two companies develop different kinds of beer. Some customers like to drink Budweiser, others lie to drink Miller. This is because they create different taste in their beer. It means their products are unique and no one can substitute them. That is why customers who like Miller do not want to change their favorite beer to Budweiser. It also reminds us how important levels of product differentiation are. The Product ??? Market Matrix: Three elements of the Product ??? Market matrix appear to apply. New Belgium is implementing Market Development by expanding to other states and countries.
They currently are beginning to sell in California and hope to soon sell in the east. They are also exhibiting Marketing Penetration. They are appealing to the growing environmentally and socially responsible population who may buy their beer as to support a company who is a leader in this area. New Belgium is exhibiting Product Development through a constant striving to improve taste and quality of their beer. They periodically develop and release new brews to the public. CONCLUSION The New Belgium Brewing Company is one of the leading producers of craft beers, or microbrews in the United States.
The company was started in 1991 by Jeff Lebesch, an electrical engineer, and his wife, Kim Jordan, who was the firm’s first marketing director. The company sells its products in the Western United States, but is seeking to expand its market area to other parts of the US. It is presently the third largest producer of Craft Beers in the US behind Boston Beer (which makes Sam Adams) and Sierra Nevada. They are currently expanding their 100,000 sq. ft. brewery by 76,000 sq. ft. Revenue for last year totaled 111 million dollars. Growth in the Craft Beer market is strong.
Craft Beers account for 3% of the total US domestic beer market, up from 1% approximately 20 years ago. One of the characteristics that make New Belgium unique is its environmentally responsible operations. They are the first wind-powered brewery in the country. They also have a wastewater recycling system that extracts methane for burning in the plant’s cogeneration equipment. They also use “day-lighting” which maximizes the use of natural light to cut down on electrical use. Through SWOT Analysis, we discovered that the firm has a great deal of opportunity by expanding to new markets in other states, particularly the Northeast.
This area represents the largest consumer of Craft Beers creating an excellent avenue for expansion. Another opportunity for New Belgium concerns energy use. They have lower energy costs due to their environmentally efficient operating methods. With the current explosion in oil and gas costs, New Belgium has a competitive edge over other brewers in operating cost. New Belgium may be able to offer lower pricing than other craft brewers. Our research has indicated that New Belgium is a company that takes social responsibility seriously.
They also are an example of a company that can support environmental concerns, foster excellent employee and community relations, and still be a profitable leader in their field. They also excel while keeping product quality and customer satisfaction a priority. REFERENCES 1. http://www. hoovers. com/free/ 2. http://www. galenet. com 3. http://www. newbelgium. com 4. http://www. mergentonline. com 5. http://www. denverpost. com 6. http://www. sacbee. com/ 7. http://www. morningstar. com/ 8. http://www. cio. com ———————– [pic] [pic]