Red Hook and Widmer: Corporate and Industry Background

Introduction

Craft Brewers Alliance was formerly referred to as Redhook Ale Brewery which had been founded in Seattle in 1981 (Anon. “Hoover’s Profile: Craft Brewers Alliance, Inc”. 1). It came into being after the merger of Widmer Brothers Brewing Company and Redhook Ale Brewery incorporated in 2008 (Anon. “Craft Brewers Alliance Incorporation” 1). This merger made it one of the largest craft brewing companies in the United States.

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Some business analysts rank it as second largest, a position boosted by their further investment in Kona Brewery LLC and Fulton Street Brewery. The company’s headquarters are based in Portland. It is involved in the production of about 30 brands that are usually sold both nationally and regionally. Its main line of operation is the brewing of craft beers in the United States. The distribution work is run in partnership with Anheuser-Busch; a beverage giant that holds a 36% stake in the company (Anon. “Hoover’s Profile: Craft Brewers Alliance, Inc” 1).

It manufactures a variety of specialty craft beers while employing traditional American and European technologies. The brewing ingredients are mainly high-quality natural ingredients. Its main brands are divided into two families which compose of Redhook beers and Widmer brother beers. The company has a combined workforce of 400 employees in its operations.

Financial performance

The company’s major focus since its inception has been brewing, marketing, and selling craft beers within the United States market. Over the three months ending July 30, 2009, the company recorded a relatively impressive performance by posting a gross sale of $37.5 million and $1.7 million net income. This was a marked improvement compared to the same period in 2008 where it reported $12.0 million in gross sales and $1.4 million in net sales. Profits in the quarter ending June 30, 2009, were $2.5 million as compared to an operating loss of $2.1 million recorded in the similar quarter in the previous year (Anon. “Form 10-Q for Craft Brewers Alliance, Inc: Management’s Discussion and Analysis of Financial Condition and Results” 1).

This good performance was largely contributed by an improved margin and a reduction in the merger-related expenses that were enormous in 2008. The company’s increased sales in the quarter alongside the reduction in the general and administrative expenditure helped to steer the performance of the company upwards. As a result, the company sales volumes in the second quarter of 2009 were 162,400 barrels as compared to 76,200 barrels in the second quarter of 2008 (Anon. “Form 10-Q for Craft Brewers Alliance, Inc: Management’s Discussion and Analysis of Financial Condition and Results” 1).

Competitive position

The craft Brewers alliance operates in a highly competitive craft brew market in addition to the beer, wine, spirits, and flavored alcohol market (Craft Brewers Alliance 3). Its market segment is marred by stiff competition from the proliferation of small craft brewers who mainly include contract brewers. These churn out a large number of products which pose immense competition to the company. Some national brewing companies have also penetrated into the market to take advantage of the growing demand in the segment by producing their version of full-flavored products. The full-flavored products have particularly made successful inroads in the wheat beer category.

The reason for concern is that the beers are usually categorized in the same category as the company’s Hefeweizen beer thus posing considerable competition. The top competitors in the craft beer market in the US market are Boston Beer Company, Sierra Nevada Brewing Company, New Belgium Brewing Company, and Spoetzl Brewery (Beer business daily 5).

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However, despite fierce competition and a wave of consolidation efforts in the craft beer industry, the wine and spirit unit has displayed remarkable growth in the past five years, which was driven by competitive pricing, increased merchandising, and an increase in consumer demand. Thanks to the merger, the company has seen a tremendous increase in its competitive advantage over its competitors. Manufacturing, distribution, and marketing economies have intensified making it a strong force to reckon with in the market. Its products’ high quality and use of natural ingredients have continued to give it higher leverage over its competitors.

Corporate strategy

The company’s mission statement is to maintain its market leadership in the beer industry through the provision of unrivaled customer service delivery and also by issuing a varied proposition of quality products. This is to be achieved through entering into strategic alliances with other market players specializing in a diversity of market niches, providing high-quality products, and engaging in environmentally friendly production processes (Busch 1) The Company strongly believes that the alliance will bring some form of efficiencies higher than those witnessed from their former relationship with Widmer. From this, the company expects better utilization of the company facilities alongside the sales team and minimizing duplication of roles through harmonization of operations.

The combined production creates an opportune window of enhancing the production capacity with the aim of meeting the market demand more effectively. The combined sales force is also expected to aid in the marketing of the companies’ corporate investments in the newer production units which include Kona and Fulton, which are involved in the production of the Goose Island malt beverage products (Anon. “Hoover’s Profile: Craft Brewers Alliance, Inc” 2). This was a realization of gains from the merger in 2008.

BCG matrix

Big Stars (High growth, High market share)

The wines, spirits, and full-flavored beers are in this category. The growth of this market share is high with new players entering the market at a very high rate. As a result of the fierce competition in this segment, a lot of resources and effort are required to market them in order to gain a sizeable market share. To market it, Craft Brewers Alliance has built strong distribution channels that are supported by a powerful sales force. However, the segment still promises a brilliant future for the company.

BCG Question marks (high growth, low market share)

The malt beverage products and the Goose Island malt beverage products produced by Kona Brewery LLC and Fulton Street Brewery respectively are the companies BCG questions marks. Being an important part of the company’s corporate investment, the company assigned its combined sales force to provide support for this segment which has been experiencing high growth but with a relatively low market share. Part of the reason for the low market share has been its small capacity but which is expected to be boosted by the merger. This will increase the market share of the company in this segment.

BCG Cash cows (Low growth, high market share)

The company has been enjoying a huge market share in craft beers which was even boosted further by the merger. This has largely been contributed to the company’s competitive advantage in their production as a result of its long experience in production and a strong market brand. The strong brand which is characterized by the company’s emphasis on traditional brewing methods based on the European and the American taste using natural ingredients has given it higher leverage among the competitors. As a result, they have continued injecting sizeable cash flow and impressive gross margins into the company.

Due to the performance, low promotional input has been injected into the market segment. The combined support infrastructure and resources injected from the merger have already started bearing fruits and the future of the segment looks bright.

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BCG Dogs (Low growth, low market share)

The full-flavored beverages can be said to belong to this category. The growth of the market has been slow in the uptake of the product and the market share of the company in this market share has been very low. The company ought to reduce its investment in this segment or cease production altogether and concentrate its efforts in other areas where it had a competitive advantage. To turn around this market segment will require heavy capital and resource outlay and may not be viable at the moment (Anon. “BCG Matrix Model” 1)

Market Leadership

The company has been a market leader as enshrined in its mission in a market environment dominated by heavy competition. Its craft segment has enjoyed a string of successful performances in the US market for a long time. This is boosted further by the successful merger which is expected to help in grabbing a sizeable market share in the market. The high level of quality in production makes it stand out in the market as a strong market leader whose impact is felt heavily by the competition.

The teething problems in 2008 occasioned by the decrease in contract brewing by Widmer due to operational problems emanating from their brewery in Portland and operational expenses resulting from the merger have been ironed out. The company has rebounded in terms of performance and has been recording a string of profitability as evident from the 2nd quarter results of 2009 (Beer business daily 1).

Conclusion

Craft Brewers Alliance Inc has demonstrated its strong position as a market leader in a market dominated by stiff competition from the national brewing companies and small contract brewers. Its specialization in specialty craft beers using traditional European and American technologies has paid off giving it leverage in the market. The merger in 2008 gave it an opportunity to combine strengths and eliminate unnecessary competition while boosting its capacity.

Works cited

Anon. “BCG Matrix Model”, maxi-media, 2009. Web.

Anon. “Craft Brewers Alliance Incorporation”, Corporateinformation, 2010. Web.

Anon. “Form 10-Q for Craft Brewers Alliance, Inc: Management’s Discussion and Analysis of Financial Condition and Results”. Yahoo! Inc, 2009. Web.

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Anon. “Hoover’s Profile: Craft Brewers Alliance, Inc”. answers Corporation, 2009. Web.

Beer business daily, “Craft Brewers Alliance’s Comeback”, beernet communication, 2009. Web.

Busch, Anheuser. “Environment”, rohan.sdsu, not dated. Web.

Craft Brewers Alliance. “Introduction: corporate profile”. Craft Brewers Alliance, 2008. Web.

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