Adolph Coors Company, a 113 year-old company, had big successes in 1985. During this year, domestic beer consumption was low. However, Coors was able to jump their volume by 13 percent. This resulted in 14.7 million barrels of beer. For the first time in the company’s history, the company’s beer revenue exceeding $1 billion. The reason Coors was able to succeed when the rest of the market is low is because of the changes throughout their Brewing Division. This paper analysis the competition throughout the United States brewing industry and how Coors’s was able to maintain their position within the industry with their Brewing Division.
Brewing industry
Americans spent $38 billion on beer in 1985. Since World War II, beer prices have been steadily declining. There are several reasons for this. Due to the increased production of the materials needed for packaging, the production cost of beer has dramatically dropped over the years. Because of the drop in production costs, beer prices have also dropped as well (p. 2).
The production costs consist of approximately one fourth of a major brewers’ net revenue. There are two steps in the production process: brewing and packaging. After the beer is brewed, the company then packages and labels the beer. Scale economies have increased since World War II when it comes to packaging. This is due to the fact that production of the materials needed for packaging became faster and more efficient. As a result, brewing companies were able to produce 100,000 barrels of beer in 1950. In 1960, this number rose to two million barrels, and reached approximated 4-5 million by the mid-1970s. By 1985, the beer industry was producing 5 million barrels of beer. The estimated costs for these barrels was $250-$300 million (p. 2).
In 1985, there were 4,500 independent wholesalers throughout the United States. “Each wholesaler had exclusive rights to sell a specific brand within a market usually no larger than a metropolitan area” (p. 3). These wholesalers commonly carry more than one brand of beer. They might also represent more than one brewer. In 1985, the two major brewers were Anheuser Busch and Miller. Anheuser Busch was the strongest brewer. Their 970 wholesalers only carried their beer. They did not carry any other types of beer from other brewers. This made inventory simple for the wholesalers. Miller had the similar amount of wholesalers, however, their wholesalers sold other types of beer (p. 3).
In 1985, only five of the six major beer breweries distributed their beer in all 50 states. Coors was the only major beer company who did not. “The five national brewers shipped beer a median distance of 300-400 miles to wholesalers’ warehouses, at an average cost of $1.50-$2.00 per barrel” (p. 4). Brewers were the ones who absorbed this cost.
When it comes to demand for beer from 1945-1985, the demand grew at a rate less than one percent. However, during the postwar period of 1960-1980, the demand for beer grew. The main reason for the increased demand is due to the fact the baby boomers had reached drinking age. During this time, beer prices decreased by 30 percent. Anheuser-Busch and Miller, however, continued to charge higher-than-average beer prices. Due to the increase in demand, brewers became to differentiate their beers through the use of packaging, segmentation, and advertising. The increase in television caused companies to alter their advertisement strategies. By 1980, advertising expenditures in the beer industry reached $641 million. Statistics suggest that 90 percent of the advertising effects dissipated within one year (p. 4).
Coors
Coors opened their doors in 1873 in Golden, Colorado. Four years after Prohibition ended, Coors sold 90,000 barrels of beer. By the 1930s, Coors was selling their beer in eight different states throughout the United States. These states consist of: New Mexico, Oklahoma, Kansas, Nevada, Wyoming and Utah. By 1948, Coors was introduced to the Texas marketplace. However, the company decided to confine themselves to those states through 1975. In 1940, the company had produced 137,000 barrels of beers. By 1974, the company was able to produce 12.3 million barrels of beer. This made Coors one of the best private companies in America (p. 7).
When it comes to procuring inputs, Coors has always emphasized self-reliance and quality. Coors made its own malt that was grown by 2,000 farmers. Coors also operates their own rice-processing facilities. This helps protect the company from the fluctuations that exist with the price of brewing rice. This makes Coors much less susceptible to market fluctuation than their competitors (p. 7). In 1959, Coors introduced their all-aluminum can. Since then, Coors can making facility is one of the largest throughout the world. It also was the first brewery who introduced a recycling program through their brewery. All of these procuring inputs make Coors less susceptible to changes throughout the market. Thus, making them more self-sufficient than their competitors.
Coors emphasizes scale and quality in their areas of production. The company claims that they are not only superior in quality, but they also have two unique processes while brewing their beer. These unique processes make them stand out in the market. First, Coors’s beer is agreed for 70 days instead of the aver 20-30 days. Second, Coors does not pasteurize their beer. “To check bacterial contamination, Coors brewed its beer aseptically, used a sterile-fill process to package it, and stored it in refrigerated warehouses” (p. 8).
Coors’s distribution is dictated by the fact that unpasteurized beer spoils quickly. The company ships their finished products to their wholesalers, who chill the beer in order to abide by the company’s freshness policy. Company policy states that Coors beer is not to be on the shelves longer than 60 days. At that time, the beer will be destroyed at the expense of the wholesaler. This makes Coors’s distribution process one of the most extensive when it comes to monitoring programs (p. 8).
Marketing is also important when it comes to the success of Coors. The company has marketed themselves on the concept of “drinkability”. “Coors’s beer was supposed to drive its superior drinkability from Rocky Mountain spring water and other choice ingredients, as well as the company’s unique brewing process” (p. 10). However, in a blind taste study, consumer distinguished Coors from their competitors by their light body. This is not considered a characteristic of universal appeal. On the other hand, consumers continued to drink as much Coors as they could get a hold of until 1975.
In 1975, sales for Coors beer became flat throughout the 11 operating states. Thus, the company decided they needed to spend more money on their marketing strategies. The company begin hiring marketers in order to market to specific niche markets, such as black and Hispanic consumers. Also, the company decided to produce their first light beer. In 1978, Coors introduced their first premium light beer, Coors Light (p. 10).
In the late 1970s, the company had decided that they need to expand their brewery due to the limited brewing capacity of the Golden, Colorado brewing site. In 1981, the company had acquired a 2,100 acre plot of land in Rockingham County, Virginia. In 1985, the company announced their plans to create a 10 million barrel brewery. The construction was in two different phases. The first phase was a 2.4 million barrel packaging facility that would ship beer from Golden, Colorado. “Coors estimated that it would reduce the cost of shipping beer to the East Coast by $2.50 per barrel, helping the company complete its national rollout” (p. 12). The second phase consisted of integrating the 2.4 million barrel facility into a 10 million barrel facility. This phase was expected to reduce transportation cost by an additional $2.50 per barrel (p. 12).
Overall, Coors has been able to stay a strong competitor throughout the industry with their unique production process. Their production is different and unique compare to the rest of the industry. My maintaining this uniqueness, Coors is able to create a competitive edge when it comes to their competitors. They have also managed to stay competitive with their marketing techniques. The beer industry is an industry with low production costs and prices. Coors has managed to use these facts to their advantage in order to maintain competitiveness throughout the industry.
Works Cited
Harvard Business School. “Adolph Coors in the Brewing Industry.” (1992). 1-21. 22 March 2016.
