Case Competition: Craft Beer Industry Analysis, Johnson & Wales

This case study examines the competitive landscape of the U.S. craft beer industry during the 2010s, a period of rapid growth and change. It explores the rise of microbreweries and their impact on established brands like Budweiser, Miller, and Coors, detailing the shift in consumer preferences towards unique and high-quality beers. The case analyzes market trends, including the slowing growth in the industry, increasing competition, and the effects of consolidation and grain price fluctuations. It also delves into the beer production process, legal regulations, and the economics of scale for breweries of different sizes. Furthermore, the study highlights the impact of regulations on sales, distribution, and employment, and the challenges posed by lawsuits and trademark infringements. The case provides insights into the evolving market, competition, and the factors influencing the success of craft breweries.

Competition in the Craft
Beer Industry in ǭǬɫdz
John D. Varlaro
Johnson & Wales University
John E. Gamble
Texas A&M University–Corpus Christi
Locally produced or regional craft beers caused a
seismic shift in the U.S. beer industry during the
early 2010s with the gains of the small, regional
newcomers coming at the expense of such well-known
brands as Budweiser, Miller, Coors, and Bud Light.
Craft breweries, which by definition sold fewer than
6 million barrels (bbls) per year, expanded rapidly
with the deregulation of intrastate alcohol distribution
and retail laws and a change in consumer preferences
toward unique and high-quality beers. The growing
popularity of craft beers led to an approximate 5 per-
cent sales volume increase in craft beer in 2017.1
Yet, the overall beer industry had remained flat
in 2017 with total beer sales dropping by 1.2 percent
in the United States.2 The craft beer industry, too,
had begun to show signs of a slowdown going into
2018. While volume sales had increased by 5 percent
in 2017 and annual growth had averaged 13.6 percent
from 2012 to 2017, projections had slowed dramati-
cally to 1.3 percent from 2017 to 2022.3 Yet there did
not seem to be a slowdown in the number of new
craft brewers entering the market. Industry com-
petition was increasing as grain price fluctuations
affected cost structures and growing consolidation
within the beer industry—led most notably by AB
InBev’s acquisition of several craft breweries, Grupo
Modelo, and its acquisition of SABMiller—and cre-
ated a battle for market share. While the market
for specialty beer was expected to gradually plateau
by 2020, it appeared that the slowing growth had
arrived by 2017. Nevertheless, craft breweries and
microbreweries were expected to expand in number
and in terms of market share as consumers sought
out new pale ales, stouts, wheat beers, pilsners, and
lagers with regional or local flairs.
THEŗBEERŗMARKET
The total economic impact of the beer market was
estimated to be 2.0 percent of total U.S. GDP in
2016 when variables such as jobs within beer pro-
duction, sales and distribution were included.4 Total
revenue for the craft beer industry was estimated at
$6 billion.5 Exhibit 1 presents annual per produc-
tion statistics for the United States between 2006
and 2017.
Although U.S. production had declined since
2008, consumption was increasing elsewhere in the
world, resulting in a forecasted global market of over
$700 billion in sales by 2022.6 Global growth seemed
to be fueled by the introduction of differing styles of
beer to regions where consumers had not previously
had access and the expansion of demographics not
normally known for consuming beer. Thus, exported
beer to both developed and developing regions
helped drive future growth. As an example, China
recently saw a number of domestic craft breweries
producing beer as well as experimenting with locally
and regionally known flavors, enticing the domestic
palette with flavors such as green tea.
The Brewers Association, a trade association
for brewers, suppliers and others within the indus-
try, designated a brewery as a craft brewer when
output was less than 6 million barrels annually and
the ownership was more than 75 percentindepen-
dent of another non-craft beer producer or entity.
The rapid increase in popularity for local beers led
to the number of U.S. brewers to reach over 6,000
CASE ǰ
Copyright ©2018 by John D. Varlaro and John E. Gamble. All rights
reserved.

C-42 PARTƥƮ Cases in Crafting and Executing Strategy
EXHIBITŗş Barrels of Beer Produced in
the United States, 2006–2017
(millions of barrels)
Year Barrels produced (in millions)*
ǭǬǬDZ ɫǴdz
ǭǬǬDz ǭǬǬ
ǭǬǬdz ǭǬǬ
ǭǬǬǴ ɫǴDz
ǭǬɫǬ ɫǴǰ
ǭǬɫɫ ɫǴǮ
ǭǬɫǭ ɫǴDZ
ǭǬɫǮ ɫǴǭ
ǭǬɫǯ ɫǴǮ
ǭǬɫǰ ɫǴɫ
ǭǬɫDZ ɫǴǬ
ǭǬɫDz ɫdzDZ
*Rounded to the nearest million.
Source: Alcohol and Tobacco Tax and Trade Bureau website
EXHIBITŗŠ Top 10 U.S. Breweries in 2017
Rank Brewery
ɫ Anheuser-Busch, Inc
ǭ MillerCoors
Ǯ Constellation
ǯ Heineken
ǰ Pabst Brewing Company
DZ D.G. Yuengling and Son, Inc
Dz North American Breweries
dz Diageo
Ǵ Boston Beer Company
ɫǬ Sierra Nevada Brewing Company
Source: Brewers Association.
EXHIBITŗš Top 10 Global Beer
Producers by Volume,
2014–2016 (millions of
barrels)*
Rank Producer ǭǬɫǯ ǭǬɫǰ ǭǬɫDZ
ɫ Ab InBev** Ǯǰɫ ǮǰǮ ǯǮǰ
ǭ Heineken ɫdzǬ ɫdzDZ ɫǴǰ
Ǯ Carlsberg ɫɫǬ ɫǬDz ɫǬǭ
ǯ CR Snow*** N/A N/A ɫǬǬ
ǰ Molson Coors
Brewing Company
ǰǯ ǰǯ dzǭ
DZ Tsingtao (Group) Dzdz Dzǭ DZDz
Dz Asahi ǭDZ ǭǯ DZǬ
dz Beijing Yanjing ǯǰ ǯɫ Ǯdz
Ǵ Castel BGI ǭDZ ǭDZ ǭDZ
ɫǬ Kirin ǮDZ Ǯǰ ǭǯ
* Originally reported as hectoliters. Computed using ɫ hL = .dzǰǭ
barrel for comparison; to nearest million bbl.
** Now includes SABMiller; previous volumes for SABMiller in years
ǭǬɫǯ and ǭǬɫǰ prior to acquisition were ǭǯǴ and ǮǰǮ, respec-
tively, ranking it as second for both years.
*** Was not in top ɫǬ for ǭǬɫǯ and ǭǬɫǰ.
N/A: Not available.
Source: AB InBev ǭǬ-F SEC Document, ǭǬɫǰ, ǭǬɫDZ, ǭǬɫDz.
in 2017—nearly triple the number in 2012. Of these
breweries, 99 percent were identified as craft brewer-
ies with distribution ranging from local to national.
While large global breweries occupied the top posi-
tions among the largest U.S. breweries, three craft
breweries were ranked among the top-10 largest U.S.
brewers in 2017—see Exhibit 2. Exhibit 3 shows the
production volume of the 10 largest beer producers
worldwide from 2014 to 2016. The number of craft
breweries in each U.S. state in 2015 and 2017 are
presented in Exhibit 4.
THEŗBEERŗPRODUCTIONŗ
PROCESS
The beer production process involves the fermenta-
tion of grains. The cereal grain barley is the most
common grain used in the production of beer. Before
fermentation, however, barley must be malted and
milled. Malting allows the barley to germinate and
produce the sugars that would be fermented by the
yeast, yielding the sweetness of beer. By soaking the
barley in water, the barley germinates, or grows, as it
would when planted in the ground. This process is
halted through the introduction of hot air and drying
after germination began.
After malting, the barley is milled to break open
the husk while also cracking the inner seed that has
begun to germinate. Once milled, the barley is mashed,
or added to hot water. The addition of the hot water
produces sugar from the grain. This mixture is then
filtered, resulting in the wort. The wort is then boiled,

CASEƥƱ Competition in the Craft Beer Industry in ǭǬɫdz C-43
which sterilizes the beer. It is at this stage that hops
are added. The taste and aroma of beer depend on the
variety of hops and when the hops were added.
After boiling, the wort is cooled and then poured
into the fermentor where yeast is added. The sugar
created in the previous stages is broken down by
the yeast through fermentation. The different styles
of beer depend on the type of yeast used, typically
either an ale or lager yeast. The time for this process
could take a couple of weeks to a couple of months.
After fermentation, the yeast is removed. The pro-
cess is completed after carbon dioxide is added and
the product is packaged.
Beer is a varied and differentiated product, with
over 70 styles in 15 categories. Each style is depen-
dent on a number of variables. These variables are
controlled by the brewer through the process, and
could include the origin of raw materials, approach to
fermentation, and yeast used. For example, Guinness
referenced on its website how barley purchased by
the brewer was not only grown locally, but was also
toasted specifically after malting, lending to its char-
acteristic taste and color. As another example of dif-
ferentiation through raw materials, wheat beers, such
as German-style hefeweizen, are brewed with a mini-
mum of 50 percent wheat instead of barley grain.
DEVELOPMENTŗOFŗ
MICROBREWERIESŗANDŗ
ECONOMICSŗOFŗSCALE
Although learning the art of brewing takes time,
beer production lends itself to scalability and vari-
ety. For example, an amateur; or home brewer; could
brew beer for home consumption. There had been
EXHIBITŗŢ Number of Craft Brewers
by State, 2015 and 2017
State ǭǬɫǰ ǭǬɫDz
Alabama ǭǯ Ǯǯ
Alaska ǭDz ǮDZ
Arizona Dzdz ǴDZ
Arkansas ǭDZ Ǯǰ
California ǰɫdz DzDZǯ
Colorado ǭdzǯ Ǯǯdz
Connecticut Ǯǰ DZǬ
Delaware ɫǰ ǭɫ
Florida ɫǰɫ ǭǯǮ
Georgia ǯǰ DZǴ
Hawaii ɫǮ ɫdz
Idaho ǰǬ ǰǯ
Illinois ɫǰDz ǭǬǬ
Indiana ɫɫǰ ɫǮDz
Iowa ǰdz DzDZ
Kansas ǭDZ ǮDZ
Kentucky ǭǯ ǰǭ
Louisiana ǭǬ ǮǮ
Maine ǰǴ ǴǴ
Maryland DZǬ DzǮ
Massachusetts dzǯ ɫǭǴ
Michigan ǭǬǰ ǮǮǬ
Minnesota ɫǬǰ ɫǰdz
Mississippi dz ɫǭ
Missouri Dzɫ Ǵɫ
Montana ǯǴ Dzǰ
Nebraska ǮǮ ǯǴ
Nevada Ǯǯ ǯǬ
New Hampshire ǯǯ ǰdz
New Jersey ǰɫ ǴǬ
New Mexico ǯǰ DZDz
New York ǭǬdz ǮǭǴ
North Carolina ɫDZɫ ǭǰDz
North Dakota Ǵ ɫǭ
Ohio ɫǯǮ ǭǭǰ
Oklahoma ɫǯ ǭDz
Oregon ǭǭdz ǭDZDZ
Pennsylvania ɫDzdz ǭdzǭ
Rhode Island ɫǯ ɫDz
South Carolina ǮDZ DZɫ
South Dakota ɫǯ ɫDZ
Tennessee ǰǭ dzǭ
State ǭǬɫǰ ǭǬɫDz
Texas ɫdzǴ ǭǰɫ
Utah ǭǭ ǮǬ
Vermont ǯǯ ǰǰ
Virginia ɫǭǯ ɫǴǬ
Washington ǮǬǰ ǮDZǴ
West Virginia ɫǭ ǭǮ
Wisconsin ɫǭɫ ɫDZǬ
Wyoming ǭǮ ǭǯ
Source: Brewers Association.

C-44 PARTƥƮ Cases in Crafting and Executing Strategy
through kegs. While restaurants and bars could carry
kegs, retail shelves at a local liquor store needed to
have cans and bottles, as a relatively small number of
consumers could accommodate kegs for home use.
Thus, there may only be a few liquor stores or res-
taurants where a consumer may find a locally-brewed
beer. In states that do not allow self-distribution or
on-premise sales, distribution and exposure to con-
sumers could represent a barrier for breweries, espe-
cially those that were small or new.
The Alcohol and Tobacco Tax and Trade Bureau
(TTB) was the main federal agency for regulating this
industry. As another example of regulations, brewer-
ies, were required to have labels for beers approved by
the federal government, ensuring they meet advertis-
ing guidelines. In some instances, the TTB may need
to approve the formula used for brewing the specific
beer prior to the label receiving approval. Given the
approval process, and the growth of craft brewer-
ies, the length of time this takes could reach several
months. For a small, microbrewery first starting, the
delay in sales could potentially impact cash flow.
Employment law was another area impacting
breweries. The Affordable Care Act (ACA) and
changes to the Fair Labor Standards Act (FLSA)
greatly affected labor cost in the industry. Where the
ACA mandated health care coverage by employers,
the FLSA changed overtime rules for employees pre-
viously classified as exempt or salaried. Finally, many
states and municipalities passed or were considering
passing, increases to minimum wage. These changes
in regulations could lead to significant increases in
business costs, potentially impacting a brewery’s abil-
ity to remain viable or competitive.
Lawsuits might also impact breweries’ operations.
Trademark infringement lawsuits regarding brewery
and beer names were common. Further, food-related
lawsuits could occur. In 2017, there were potential
lawsuits against breweries distributing in California
that did not meet the May 2016 requirement of pro-
viding an additional sign warning against pregnancy
and BPA (Bisphenyl-A) consumption. BPA was com-
monly found in both cans and bottle caps, and thus
breweries were potentially legally exposed, exemplify-
ing the potential legal exposure to any brewery.
SUPPLIERSŗTOŗBREWERIES
The main suppliers to the industry were those who
supply grain and hops. Growers might sell direct to
a significant increase in the interest in home brew-
ing, with over 1 million people pursuing the hobby in
2016.7 It was also not uncommon for a home brewer
to venture into entrepreneurship and begin brewing
for commercial sales. However, beer production was
highly labor intensive with much of the work done
by hand. A certain level of production volume was
necessary to achieve breakeven and make the micro-
brewery a successful commercial operation.
A small nanobrewery may brew a variety of fla-
vor experiences and compete in niche markets, while
the macrobrewery may focus on economies of scale
and mass produce one style of beer. Both may attract
consumers across segments and were attributed to
the easily scalable yet highly variable process of brew-
ing beer. In contrast, a global producer such as AB
InBev could produce beer for millions of consumers
worldwide with factory-automated processes.
LEGALŗENVIRONMENTŗOFŗ
BREWERIES
As beer was an alcoholic beverage, the industry was
subject to much regulation. Further, these regula-
tions could vary by state and municipality. One such
regulation was regarding sales and distribution.
Distribution could be distinguished through
direct sales (or self-distribution), and two-tier and
three-tier systems. Regulations permitting direct sales
allow the brewery to sell directly to the consumer.
Growlers, bottle sales as well as tap rooms were all
forms of direct, or retail, sales. There were usually
requirements concerning direct sales, including limi-
tations on volume sold to the consumer.
Even where self-distribution was legal, the legal
volumes could be very small and limited. Very few
brewers were exempt from distributing through
wholesalers, referred to as a three-tier distribution
system. And often to be operationally viable, brewers
need access to this distribution system to generate
revenue. In a three-tier system, the brewery must first
sell to a wholesaler—the liquor or beer distributer.
This distributor then sells to the retailer, who then
ultimately sells to the consumer.
This distribution structure, however, had ramifi-
cations for the consumer, as much of what was avail-
able at retail outlets and restaurants were impacted by
the distributor. This was further impacted by whether
a brewery bottles or cans its beer or distributes

CASEƥƱ Competition in the Craft Beer Industry in ǭǬɫdz C-45
Yakima Valley was probably one of the more recogniz-
able geographic-growing regions. There were numer-
ous varieties of hops, however, and each contributes
a different aroma and flavor profile. Hop growers
have also trademarked names and varieties of hops.
Further, as with grains, some beer-styles require spe-
cific hops. Farmlands that were formerly known for
hops have started to see a rejuvenation of this crop,
such as in New England. In other areas, farmers were
introducing hops as a new, cash crop. Some hops
farms were also dual purpose, combining the grow-
ing operations with brewing, thus serving as both a
supplier of hops to breweries while also producing
their own beer for retail. Recent news reports, how-
ever, were citing current and future shortages of hops
due to the increased number of breweries. Rising
temperatures in Europe led to a diminished yield in
2015, further impacting hops supplies. For breweries
using recipes that require these specific hops, short-
ages could be detrimental to production. In some
instances, larger beer producers had vertically inte-
grated into hops farming to protect their supply.
Suppliers to the industry also include manufac-
turers and distributors of brewing equipment, such
as fermentation tanks and refrigeration equipment.
Purification equipment and testing tools were also
necessary, given the brewing process and the need to
ensure purity and safety of the product.
Depending on distribution and the distribution
channel, breweries might need bottling or canning
equipment. Thus, breweries might invest heavily in
automated bottling capabilities to expand capacity.
Recently, however, there had been shortages in the
16-ounce size of aluminum cans.
HOWŗBREWERIESŗCOMPETEŴŗ
INNOVATIONŗANDŗQUALITYŗ
VERSUSŗPRICE
The consumer might seek out a specific beer or
brewery’s name or purchase the lower-priced glob-
ally known brand. For some, beer drinking might
also be seasonal, as tastes change with the seasons.
Lighter beers were consumed in hotter months, while
heavier beers were consumed in the colder months.
Consumers might associate beer styles with the time
of year or season. Oktoberfest and German-style
beers were associated with fall, following the German-
traditional celebration of Oktoberfest. Finally, any
breweries or distribute through wholesalers. Brewers
who wish to produce a grain-specific beer would be
required to procure the specific grain. Further, reci-
pes might call for a variety of grains, including rye,
wheat, and corn. As previously mentioned, the defini-
tion of craft was changed not only to include a higher
threshold for annual production, but it also changed
to not exclude producers who used other grains, such
as corn, in their production. Finally, origin-specific
beers, such as German- or Belgian-styles might also
require specific grains.
The more specialized the grain or hop, the more
difficult it was to obtain. Those breweries, then,
competing based on specialized brewing would be
required to identify such suppliers. Conversely,
larger, global producers of single-style beers were
able to utilize economies of scale and demand lower
prices from suppliers. Organically-grown grains and
hops suppliers would also fall into this category of
providing specialized ingredients, and specialty brew-
ers tend to use such ingredients.
Exhibit 5 illustrates the amount of grain products
used between 2010 and 2014 in the United States by
breweries.
It was estimated that hops acreage within the
United States grew almost 80 percent from 2012 to
2017,8 which seems to follow the growing demand
due to the increased number of breweries. Hops
were primarily grown in the Pacific Northwest states
of Idaho, Washington, and Oregon. Washington’s
EXHIBITŗţ Total Grain Usage in the
Production of Beer,
2010–2014 (in millions
of pounds)
Grain Type* ǭǬɫǬ ǭǬɫɫ ǭǬɫǭ ǭǬɫǮ ǭǬɫǯ
Corn DzǬɫ DZǭǴ DZdzɫ ǰǴǮ ǰDzǯ
Rice Dzɫǯ DzǯǴ DzɫDz Dzǭǯ DZǬǯ
Barley dzdz ɫǭdz ɫǮDZ ɫǰdz ɫDZǴ
Wheat ǭǭ ǭǯ ǭDZ ǮǬ ǮǮ
Malt ǯ,ɫǯDz ǯ,Ǭǭdz ǯ,ɫɫDz Ǯ,ǴɫDZ Ǯ,DZdzǴ
*Includes products derived from the type of grain for brewing process.
Source: Alcohol and Tobacco Tax and Trade Bureau (TTB) website.
Due to a request from the brewing industry to simplify reporting,
the TTB stopped requiring producers to report grain usage in pro-
duction in ǭǬɫǰ.

C-46 PARTƥƮ Cases in Crafting and Executing Strategy
increased significantly since 2006 following the rise
in craft beer popularity, competing against Boston
Beer Company’s Sam Adams in this better beer
segment. AB InBev had also acquired larger better-
known craft breweries, including Goose Island, in
2011. With a product portfolio that included both
low-price and premium craft beer brands, macro-
breweries were competing across the spectrum and
putting pressure on breweries within the better and
craft beer segments—segments demanding a higher
price point due to production.
However, a lawsuit claimed the marketing of Blue
Moon was misleading and its marketing obscured the
ownership structure. Although the case was dismissed,
it further illustrated consumer sentiment regarding
what was perceived as craft beer. It also illustrated the
power of marketing and how a macrobrewery might
position a brand within these segments.
CONSOLIDATIONSŗANDŗ
ACQUISITIONS
In 2015 AB InBev offered to purchase SABMiller for
$108 billion, which was approved by the European
Union in May 2016 and finalized in 2016. To allow
for the acquisition, many of SABMiller’s brands
were required to be divested. Asahi Group Holdings
Ltd. purchased the European brands Peroni and
Grolsch from SABMiller. Molson Coors purchased
SABMiller’s 58 percent ownership in MillCoors
LLC—originally a joint venture between Molson
Coors and SABMiller. This transaction provided
Molson Coors 100 percent ownership of MillerCoors.
It should be noted that AB InBev and MillerCoors
represented over 80 percent of the beer produced in
the United States for domestic consumption.
Purchases of craft breweries by larger companies
had also increased during the 2010s. AB InBev had
purchased around 10 craft breweries since 2011, includ-
ing Goose Island, Blue Point and Devil’s Backbone
Brewing. MillerCoors—whose brands already included
Killian’s Irish Red, Leinenkugel’s, and Foster’s—
acquired Saint Archer Brewing Company. Ballast Point
Brewing & Spirits was acquired by Constellations
Brands. Finally, Heineken NV purchased a stake in
Lagunitas Brewing Company. It would seem that craft
beer and breweries had not only obtained the atten-
tion of the consumer, but also the larger multinational
breweries and corporations.
one consumer might enjoy several styles, or choose to
be brewery or brand loyal.
The brewing process and the multiple varieties
and styles of beer allow for breweries to compete
across the strategy spectrum—low price and high
volume, or higher price and low volume. Industry
competitors, then, might target both price-point and
differentiation. The home brewer, who decided to
invest several thousand dollars in a small space to
produce very small quantities of their beer and start a
nanobrewery, might utilize a niche competitive strat-
egy. The consumer might patronize the brewery on
location or seek it out on tap at a restaurant given
the quality and the style of beer brewed. If allowed by
law, the brewery might offer tastings or sell onsite to
visitors. Further, the nanobrewer was free to explore
and experiment with unusual flavors. To drive aware-
ness, the brewer might enter competitions, attend
beer festivals, or host tastings and “tap takeovers”
at local restaurants. If successful, the brewer might
invest in larger facilities and equipment to increase
capacity with growing demand.
The larger, more established craft brewers, espe-
cially those considered regional breweries, might
compete through marketing and distribution, while
offering a higher value compared to the mass pro-
duction of macrobreweries. However, the consumer
might at times be sensitive to and desire the craft
beer experience through smaller breweries—so much
so that even craft breweries who by definition were
craft might draw the ire of the consumer due to its
size and scope. Boston Beer Company was one such
company. Even though James Koch had started it as
a microbrewery, pioneering the craft beer movement
in the 1980s, some craft beer consumers do not view
it as authentically craft.
Larger, macrobreweries mass produced and
competed using economies of scale and established
distribution systems. Thus, low cost preserves mar-
gins as lower price points drive volume sales. Many
of these brands were sold en masse at sporting and
entertainment venues, as well as larger restaurant
chains, driving volume sales.
Companies like AB InBev possessed brands
within the portfolio that were sold under the percep-
tion of craft beer, in what Boston Beer Company
deems the better beer category—beer with a higher
price point, but also of higher quality. For example,
Blue Moon, a Belgian-style wheat ale, was produced
by MillerCoors. Blue Moon’s market share had

CASEƥƱ Competition in the Craft Beer Industry in ǭǬɫdz C-47
AB InBev invested heavily in sponsorships to
bolster marketing and brand recognition globally.
Budweiser planned to sponsor the 2018 and 2022
FIFA World Cups™, as it had sponsored the 2014
competition. Globally, the Budweiser brand expe-
rienced revenue growth of 4.1 percent, driven by
11 percent growth with sales outside of the United
States in 2017. Bud Light was the official sponsor of
the National Football League through 2022.
AB InBev had also actively acquired other brands
and breweries since the 1990s, including Labatt in
1995, Beck’s in 2002, Anheuser-Bush in 2008, and
Grupo Modelo in 2013. All of these acquisitions pro-
ceeded the SABMiller purchase. These acquisitions
provided AB InBev greater market share and penetra-
tion through combining marketing and operations to
all brands. The reacquisition of the Oriental Brewery
in 2014 was a good example of the potential syner-
gies garnered. Cass was the leading beer in Korea
and was produced by Oriental Brewery; however,
while Cass represented the local brand for AB InBev
in Korea, Hoegaarden was distributed in Korea,
along with the global brands of Budweiser, Corona,
and Stella Artois.
A summary of AB InBev’s financial performance
from 2014 to 2017 is presented in Exhibit 6.
Boston Beer Company
Boston Beer Company was the second largest craft
brewer by volume in the United States10 and reported
sales of less than 4 million barrels in 2017. The com-
pany’s 2017 sales volume declined by 6 percent from
2016, which was preceded by a decrease of over
5 percent from 2015 to 2016. Accordingly, it dropped
PROFILESŗOFŗBEERŗ
PRODUCERS
Anheuser-Busch InBev
As the world’s largest producer by volume, AB InBev
had 200,000 employees globally. The product port-
folio included the production, marketing, and dis-
tribution of over 500 beers, malt beverages, as well
as soft drinks in more than 150 countries. These
brands included Budweiser, Stella Artois, Leffe, and
Hoegaarden.
AB InBev managed its product portfolio through
three tiers. Global brands, such as Budweiser, Stella
Artois, and Corona, were distributed throughout the
world. International brands (Beck’s, Hoegaarden,
Leffe) were found in multiple countries. Local
champions (i.e., local brands) represented regional
or domestic brands acquired by AB InBev, such as
Goose Island in the United States and Cass in South
Korea. While some of the local brands were found in
different countries, it was due to geographic proxim-
ity and the potential to grow the brand larger.
AB InBev reported its 2017 revenues grew in all
its Latin America regions, Europe, Africa, and Asia,
but declined slightly in the United States and Canada.9
Its strength in brand recognition and focused market-
ing drove its global brands of Budweiser, Stella Artois,
and Corona to experience almost 10 percent revenue
growth. AB InBev had focused on growing brands out-
side of their respective home markets in 2017. Due to
this investment, Budweiser, Stella Artois, and Corona
experienced almost 17 percent revenue growth outside
of their home markets.
EXHIBITŗŤ Financial Summary for AB InBev, 2014–2017 (in millions of $)
ǭǬɫDz ǭǬɫDZ ǭǬɫǰ ǭǬɫǯ
Revenue $ ǰDZ,ǯǯǯ $ ǯǰ,ǰɫDz $ ǯǮ,DZǬǯ $ ǯDz,ǬDZǮ
Cost of sales (ǭɫ,ǮdzDZ) (ɫDz,dzǬǮ) (ɫDz,ɫǮDz) (ɫdz,DzǰDZ)
Gross Profit Ǯǰ,Ǭǰdz ǭDz,Dzɫǰ ǭDZ,ǯDZDz ǭdz,ǮǬDz
Selling, general and administrative expenses (ɫdz,ǬǴǴ) (ɫǰ,ɫDzɫ) (ɫǮ,DzǮǭ) (ɫǬ,ǭdzǰ)
Other operating income/expenses dzǰǯ DzǮǭ ɫ,ǬǮǭ ɫ,ǮdzDZ
Non-recurring items (DZDZǭ) (ǮǴǯ) ɫǮDZ (ɫǴDz)
Profit from operations (EBIT) ɫDz,ɫǰǭ ɫǭ,dzdzǭ ɫǮ,ǴǬǯ ɫǰ,ɫɫɫ
Depreciation, amortization and impairment ǯ,ǭDzDZ Ǯ,ǯDzǴ Ǯ,ɫǰǮ Ǯ,Ǯǰǯ
EBITDA $ ǭɫ,ǯǭǴ $ ɫDZ,ǮDZɫ $ ɫDz,ǬǰDz $ ɫdz,ǯDZǰ
Source: AB InBev Annual Reports, ǭǬɫǰ, ǭǬɫDZ, ǭǬɫDz.

C-48 PARTƥƮ Cases in Crafting and Executing Strategy
successful development and sales of beers under
the Traveler Beer Company brand. The incubator,
Alchemy and Science, also built Concrete Beach
Brewery and Coney Island Brewery. Alchemy and
Science contributed 7 percent of the total net sales in
2015 and 4 percent of net sales in 2016.
Boston Beer Company offered three non-beer
brands. The Twisted Tea brand was launched in 2001
and the Angry Orchard was originated in 2011. Truly
Spiked & Sparkling was a 5 percent alcohol sparkling
water launched in 2016. These other brands and
products compete in the flavored malt beverage and
the hard cider categories, respectively.
A summary of Boston Brewing Company’s finan-
cial performance from 2014 to 2017 is presented in
Exhibit 7.
Craft Brew Alliance
Craft Brew Alliance was ranked ninth for overall brew-
ing by volume in 2017.11 Founded in 2008, it resulted
from the mergers between Redhook Brewery, Widmer
Brothers Brewing, and Kona Brewing Company.
Each with substantial history, the decision to merge
was to help assist with growth and meeting demand.
The Craft Brew Alliance also included Omission
Brewery, Resignation Brewery, and Square Mile
Cider Company. In addition to these brands, Craft
Brew Alliance operated five brewpubs. In total, there
were 820 people employed at Craft Brew Alliance,
producing just over 1 million barrels in 2016.
from the fifth largest overall brewer in the United
States in 2015 to ninth in 2017—see Exhibit 2. The
company history states the recipe for Sam Adams
was actually company founder Jim Koch’s great-
great-grandfather’s recipe. The story of Boston Beer
Company and Jim Koch’s success was referenced at
times as the beginning of the craft beer movement,
often citing how Koch originally sold his beer to bars
with the beer and pitching on the spot.
This beginning seemed to underpin much of
Boston Beer Company’s strategy as it competed in
the higher value and higher price point category it
refers to as the better beer segment. Focusing on qual-
ity and taste, Boston Beer Company marketed Samuel
Adams Boston Lager as the original beer Koch first
discovered. The company also produced several Sam
Adams seasonal beers, such as Sam Adams Summer
Ale and Sam Adams Octoberfest. Other seasonal Sam
Adams beers have limited release in seasonal variety
packs, including Samuel Adams Harvest Pumpkin
and Samuel Adams Holiday Porter. In addition, there
was also a Samuel Adams Brewmaster’s Collection,
a much smaller, limited release set of beers at much
higher points, including the Small Batch Collection
and Barrel Room Collection. Utopia—its highest
priced beer—was branded as highly experimental and
under very limited release.
In the spirit of craft beer and innovation, several
years ago Boston Beer Company launched a craft
brew incubator as a subsidiary, which had led to the
EXHIBITŗť Financial Summary for Boston Brewing Company, 2014–2017
(in thousands of $)
ǭǬɫDz ǭǬɫDZ ǭǬɫǰ ǭǬɫǯ
Revenue $Ǵǭɫ,DzǮDZ $ǴDZdz,ǴǴǯ $ɫ,Ǭǭǯ,ǬǯǬ $ǴDZDZ,ǯDzdz
Excise taxes* (ǰdz,Dzǯǯ) (DZǭ,ǰǯdz) (DZǯ,ɫǬDZ) (DZǮ,ǯDzɫ)
Cost of goods sold (ǯɫǮ,ǬǴɫ) (ǯǯDZ,DzDzDZ) (ǯǰdz,ǮɫDz) (ǯǮDz,ǴǴDZ)
Gross Profit ǯǯǴ,ǴǬɫ ǯǰǴ,DZDzǬ ǰǬɫ,DZɫDz ǯDZǰ,Ǭɫɫ
Advertising, promotional and selling expenses ǭǰdz,DZǯǴ ǭǯǯ,ǭɫǮ ǭDzǮ,DZǭǴ ǭǰǬ,DZǴDZ
General and administrative expenses DzǮ,ɫǭDZ Dzdz,ǬǮǮ Dzɫ,ǰǰDZ DZǰ,ǴDzɫ
Impairment of assets ǭ,ǯǰɫ (ǭǮǰ) ǭǰdz ɫ,DzDzDz
Operating Income ɫɫǰ,DZDzǰ ɫǮDz,DZǰǴ ɫǰDZ,ɫDzǯ ɫǯDZ,ǰDZDz
Other expense, net ǯDZDz (ǰǮdz) (ɫ,ɫDZǯ) (ǴDzǮ)
Provision for income taxes ɫDz,ǬǴǮ ǯǴ,DzDzǭ ǰDZ,ǰǴDZ ǰǯ,dzǰɫ
Net Income $ ǴǴ,ǬǯǴ $ dzDz,ǮǯǴ $ Ǵdz,ǯɫǯ $ ǴǬ,DzǯǮ
Source: Boston Beer Company Annual Report, ǭǬɫDz.

CASEƥƱ Competition in the Craft Beer Industry in ǭǬɫdz C-49
savings or solicited investments from friends and
family.
Given their entrepreneurial beginnings, these
microbreweries and even smaller nanobreweries
were usually located in industrial spaces. They were
solely operated by the brewer-turned-entrepreneur, or
a small staff of two or three. This staff would help
with brewing and production, as well as potentially
brewery tours and visits—probably the most common
marketing and consumer relations tactic utilized by
smaller breweries. While almost all breweries offered
tours and tastings, these became ever more critical to
the smaller brewery with limited capital for market-
ing and advertising. If onsite sales were available, the
brewer could sell growlers to visitors.
Social media websites also offered significant
exposure for free and had become a foundational ele-
ment of brewery marketing. These websites helped
the brewery reach the craft beer consumer, who
tended to seek out and follow new and upcoming
breweries. There were also mobile phone applica-
tions specific to the craft beer industry that could
help a startup gain exposure. Participating in craft
beer festivals, where local and regional breweries
were able to offer samples to attendees, was another
opportunity to gain exposure.
Some small microbreweries did not have enough
employees for bottling and labeling and had been
known to solicit volunteers through social media.
To gain exposure and boost sales, the brewery might
host events at local restaurants, such as tap-takeovers,
where several of its beers are featured on draft. If
Craft Brew Alliance utilized automated brewing
equipment and distributed nationally through the
Anheuser-Busch wholesaler network alliance, lever-
aging many of the logistics and thus cost advantages
associated. Yet, it remained independent, leveraging
both its craft brewery brands and the cost advantage
associated with larger distribution networks. It was
the only independent craft brewer to achieve this
relationship and sought to leverage the partnership to
distribute its products in international markets, lead-
ing to the beginning of Kona’s global distribution.
Craft Brew Alliance engaged in contract brewing—a
practice where spare capacity in production was uti-
lized to produce beer under contract for sale under a
different label or brand. In addition, it had partnerships
with retailers like Costco and Buffalo Wild Wings, gar-
nering further consumer exposure as well as sales.
A summary of Craft Brew Alliance’s finan-
cial performance from 2014 to 2017 is presented in
Exhibit 8.
STRATEGICŗISSUESŗ
CONFRONTINGŗCRAFTŗ
BREWERIESŗINŗŠŞşŦ
The vast majority of the craft breweries might pro-
duce only enough beer for the local population in
their area. Many of these breweries started the same
way as the larger breweries—home brewers or hobby-
ists decided to start to brew and sell their own beer.
Many obtained startup capital through their own
EXHIBITŗŦ Financial Summary for Craft Brew Alliance, 2014–2017 (in thousands of $)
ǭǬɫDz ǭǬɫDZ ǭǬɫǰ ǭǬɫǯ
Revenue $ǭǬDz,ǯǰDZ $ǭǬǭ,ǰǬDz $ǭǬǯ,ɫDZdz $ǭǬǬ,Ǭǭǭ
Cost of sales (ɫǯǭ,ɫǴdz) (ɫǯǭ,ǴǬdz) (ɫǯɫ,ǴDzǭ) (ɫǯɫ,Ǯɫǭ)
Gross Profit DZǰ,ǭǰdz ǰǴ,ǰǴǴ DZǭ,ɫǴDZ ǰdz,DzɫǬ
Selling, general and administrative expenses DZǬ,ǯDZǮ ǰǴ,ǭǭǯ ǰDz,ǴǮǭ ǰǮ,ǬǬǬ
Operating Income ǯ,DzǴDZ ǮDzǰ ǯ,ǭDZǯ ǰ,DzɫǬ
Income before provision for income taxes ǯ,Ǭǯɫ (ǮǬDZ) Ǯ,Dzɫdz ǰ,ǬǴǴ
Provision for income taxes (ǰ,ǯdzǭ) ɫǯ ɫ,ǰǬǬ ǭ,Ǭǭǭ
Net Income $ Ǵ,ǰǭǮ $ (ǮǭǬ) $ ǭ,ǭɫdz $ Ǯ,ǬDzDz
Source: Craft Brew Alliance Annual Reports, ǭǬɫǰ and ǭǬɫDZ, and March Dz, ǭǬɫdz Press Release, “Craft Brew Alliance Reports Record Performance
in ǭǬɫDz and Expects Continued Improvements in ǭǬɫdz,” httpǂ//phxǀcorporateȟirǀnet/phoenixǀzhtml?cƼƵƱƲƲƲ&pƼirolȟnewsArticle&IDƼƮƯƯƲƴưư

C-50 PARTƥƮ Cases in Crafting and Executing Strategy
of obtaining distribution and branding synergies,
while also mitigating the amount of direct competi-
tion. Complicating the competitive landscape were
increasing availability and price fluctuations of raw
materials. These sporadic shortages might impact the
industry’s growth and affect the production stability
of breweries, especially those smaller operations that
did not have capacity to purchase in bulk or outbid
larger competitors.
Overall, the growth in the consumers’ desire
for craft beer was likely to continue to attract more
entrants, while encouraging larger breweries to
seek additional acquisitions of successful craft beer
brands.
enough consumers were engaged, local restaurants
were enticed to purchase more beer from the dis-
tributor of the brewery. However, any number of
variables—raw material shortages, tight retail compe-
tition, price-sensitive consumers—could dramatically
impact future viability.
The number of beers available to the consumer
throughout all segments and price points had con-
tinued to steadily climb since the mid-2000s. While
the overall beer industry had seemed to plateau, the
significant growth appeared to be in the craft beer,
or better beer segments. Further, larger macrobrew-
eries and regional craft breweries were seizing the
opportunity to acquire other breweries as a method
ENDNOTES
httpǂ//beerservesamericaǀorg/ (accessed
June ɫdz, ǭǬɫDz).
ǰ IBISWorld Industry Report ǬDǯǮǬǭ Craft Beer
Production in the U.S., December ǭǬɫDz.
DZ Research, Z. M. “Global Beer Market
Predicted to Reach by $DzǰǬ.ǬǬ Billion in
ǭǬǭǭ,” March ǭ, ǭǬɫdz, httpǂ//globenewswireǀ
com/newsȟrelease/ƮƬƭƴ/ƬƯ/ƬƮ/ƭưƭưƯƯƱ/Ƭ/
en/GlobalȟBeerȟMarketȟPredictedȟtoȟReachȟ
byȟƳƱƬȟƬƬȟBillionȟinȟƮƬƮƮǀhtml.
Dz American Homebrewers Association,
Homebrewing Stats, httpsǂ//www
ǀhomebrewersassociationǀorg/membership/
ɫ IBISWorld Industry Report ǬDǯǮǬǭ Craft Beer
Production in the U.S., December ǭǬɫDz.
ǭ Brewers Association, National Beer Sales
and Production Data, httpsǂ//wwwǀbrewersȟ
associationǀorg/statistics/nationalȟbeerȟ
salesȟproductionȟdata/ (accessedMay ɫǴ,
ǭǬɫdz).
Ǯ IBISWorld Industry Report ǬDǯǮǬǭ Craft Beer
Production in the U.S., December ǭǬɫDz.
ǯ “Beer Serves America: A Study of the U.S.
Beer Industry’s Economic Contribution in
ǭǬɫDZ,” The Beer Institute and The National
Beer Wholesalers Association, May ǭǬɫDz,
homebrewingȟstats/ƥDŽaccessed
DecemberƥƭƳǁƥƮƬƭƳDž.
dz Hop Growers of America ǭǬɫDz Statistical
Report, httpsǂ//wwwǀusahopsǀorg/img/blog_
pdf/ƭƬƱǀpdf (accessed May ɫǴ, ǭǬɫDz).
Ǵ Anheuser-Busch InBev ǭǬɫDz Annual Report.
ɫǬ “Brewers Association Releases ǭǬɫDz Top ǰǬ
Brewing Companies By Sales Volume,” March
ɫǯ, ǭǬɫdz, httpsǂ//wwwǀbrewersassociationǀ
org/pressȟreleases/brewersȟassociationȟ
releasesȟƮƬƭƳȟtopȟƱƬȟbrewingȟcompaniesȟ
byȟsalesȟvolume/.
ɫɫ Ibid.