A Look into Key Success Factors of the Brewery Industry

A Look into Key Success Factors of the Brewery Industry

Executive Summary

Recently, the beer industry has shown a trend towards microbreweries and away from the traditional super-breweries. Also, studies have shown that college students in the United States drink an average of 17 beers per week (Wechsler & Nelson, 2001). Considering these two trends, it seems that a business opportunity is present for prospective brewers. The purpose of this qualitative study is to find out the general key success factors of breweries and make recommendations and implementations for prospective brewers looking to capitalize on this trend.

To determine these key factors, a research initiative was deployed that consisted of examining a large sample of reports issued by different brewing companies and identifying what elements of their respective business model they indicate contribute to the success of their company.

The sources of data used were primarily annual reports released by various brewing companies as well as information from corporate websites. In total 22 annual reports and 3 company websites were thoroughly examined. The method for extracting data was to examine each report and identify what components of each company's operations were recognized as having a positive effect on the success of that particular company. Each source produced a list of 3 or more success factors which were record in column 3 of exhibit A1.

According to the purpose of the qualitative study, we defined three research questions to focus our analysis: 1) international and domestic breweries are concentrating on different variables as success factors; 2) some variables are low in frequency but still contributes to the success of brewery business and need to be recognized; 3) breweries also have risk factors and those risk factors are almost external.

To find the supportive evidence for the three research questions, we coded secondary data into themes and analyzed data by calculating the frequency. Frequency tables show the major general success factors that are implemented by breweries, and also some field studies of the differences in the beer industry.

Finally, based on the results we obtained from data analysis, we provided two recommendations. The first is applying the general key success factors as references for newly ventured breweries. Moreover, as every business model may possess differences in focus, (for instance our model in the quantitative portion of this project focused on providing recommendations to a breweries whose target customers are students), the business should conduct market research before moving forward with a proposed project. The market research should mainly concentrate on their customer buying behavior, the product packaging and distribution, and cost management to determine a feasible profit margin.

INTRODUCTION

The beer industry ranks as the third most popular beverage industry in the world next to water and tea. In 1633, America had its first commercial brewery at New York, and today the brewer street still exists. Nowadays, in North America, the beer industry has two segments which are the mass market and the niche market. For the mass market, several major players hold a majority of the market share and have also built up a great industry culture. In addition, for the niche market, some traditional imported brands stepped into the market, and competed with the local brands. Also, some new business models of breweries such as craft beer and specialty beer that are aimed at a small group are growing in popularity which makes this industry more competitive. In this qualitative analysis, we focus on finding out what factors make breweries successful in the market and explain what benefits our project could deliver to new venture breweries.

LITERATURE REVIEW

Although beer industry is a mature industry, it is still expected to attract a lot of the demand for alcoholic beverages for the next five years. There is a trend that customers want to switch their need over from wine to some high quality and reasonably priced beers, and it creates great opportunities to some major brands. However, competition between products will continue to dampen the industry's growth. (Breweries in the US: Market Research Report, NAICS 31212, Nov 2012)

In the beer industry, the traditional customer base is male-dominated as more than 80% of the volume consumed. According to the market research, those male drinkers favor domestic light beer. However, woman drinkers favor the specialty micro brewed beers. (Ted Goldammer, "The Brewer's Handbook" second edition). By realizing the customer needs, a lot of breweries try to focus on some of their products and retain their profit margin by using some local ingredients.

When facing the crucial competition of the industry, a newly opened brewery may deal with great difficulties to stand in the market and gain some sustainable development. The barriers to entry into the domestic brewing industry depend on whether a new operator is attempting to enter the small craft-brewing market or large-scale production. (Breweries in the US: Market Research Report, NAICS 31212, Nov 2012).

RESEARCH QUESTION

The purpose of this qualitative research is to examine what factors are contributing to the success of beer companies. We divided sample breweries into two categories: international brands vs. domestic brands. We selected nine breweries for each category from the secondary data we collected. Moreover, we also set up three research questions to evaluate the relationship between both independent and dependent variables and how they contribute to international or domestic breweries.

* The success factors that are defined by international breweries are different from domestic breweries.

* Some variables may be left out but also contributes a lot to the success, and should be noticed as well.

* Most variables that contribute negative effects to a brewery are external effects.

RESEARCH METHODOLOGY

The methodology behind this particular research campaign is to identify a list of factors that contribute to the success of a brewing company that are universal and, in theory, applicable to any brewery. These could then be uses as a base for recommending a business model for the proposed brewery. By identifying factors that are essentially universal and using these success factors as a frame for the business model