Analyzing Case Study about Adolph Coors in the Brewing Industry
Section I: Introduction
Adolf Coors started his brewing company in 1873 in Golden, Colorado. Primarily, the beer product was not intended to be as it is today because of the prevailing regulation on alcoholic drinks during that period. However, as soon as the prohibition was lifted Adolf Coors’s company started to make the actual beer product and immediately sold 90,000 barrels. The success of the company allowed them to expand distribution territories by appointing independent wholesalers in Colorado and Arizona. Soon after, Adolf Coors’ company is selling beers in 44 states by 1985 with annual uninterrupted volume gains of 16 million barrels.
Product
The company features only a single product brand named premium Coors Banquet or otherwise referred to plainly as “Coors”. However, the growing demand on the product pushed the company to diversify its brands and added Coors Light, Herman Joseph’s super premium, George Killian’s Irish Red ale, Golden Lager (was later repositioned as Coors Extra Gold) and Masters III. Coors particularly Coors Light was not the top selling brand in the market even though Coors Light contributes 40% of the company’s sales until 1985 due to the existence of other more popular brands such as Bud Light and Miller Lite. In fact, based on the US brand market report by the Research Corporation of America from 1977 to 1985; Budweiser by Anheuser – Busch has 25.8% of the market share followed by High Life by Miller with 7% and finally Coors Banquet by Coors with only 4.9% of the market share under the premium segment (Exhibit 1). The Light beer segment on the other hand is dominated by Lite by Miller with 10.9% of the market share and subsequently followed by Coors Light by Coors with 3.4% of the market share.
Coors products are made only with pure spring water from the 60 rocky mountain springs owned by the Coors family in Golden Colorado. The product had to live with its quality standards emphasized in its label for nearly half a century. However, apart from water; the main component of Coors beer products is Moravian barley grown specifically for Coors by 2,000 contracted farmers. Other ingredients are composed of refined cereal starch, rice and hops. Coors considered their own products as one of the most expensive because of the use of raw ingredient such as hops imported from Europe. In addition, Coors usually used aluminum cans in their beer packaging instead of bottles even though bottles cost less than cans. In average Coors had been the largest can user in the U.S. beer industry with 69% usage percentage as compared to the industry’s average use of 57%. Furthermore, Coors did not pasteurize their product because they believe that heating the beer would affect its taste and quality, hence they used the sterile-fill process to package the beers and store them in refrigerated warehouses.
Geography
Coors had been the target of Federal Trade Commission for allegedly restricting its distribution within its preferred channels in 1971. Some of the company’s distribution regulations that is in question are; Refusal to sell the draft beer in bars unless they carry it exclusively, not allowing the wholesalers to cut price and high-handed termination of wholesalers. After the court found Coors for the aforementioned allegations in 1975, the company has decided to loosen up their regulations and considered the economic possibilities for territorial expansion. As of 1985 the company has expanded its distribution to 44 states, which comprised of 79% of the U.S. market. It appears that ten years after the company started its business operation; they were able to increase their distribution channels to 54%. In average, Coors has been adding eight states in its distribution channels each year (Exhibit 2). They have also planned to enter Indiana, New Jersey, New York, Michigan, Delaware and Pennsylvania markets in the following decades. However, there are major factors that Coors had to consider in widening its distribution. Distance in particular would mean Coors had to ship its beers to 1,500 miles more in 1985, which corresponds to putting up distribution channels within the newly added states in the distribution route in order to cut costs in delivery and transportation.
Another challenge that Coors had to face after its planned expansion is to find wholesalers that are willing to carry their products against the more popular brands such as Anheuser-Busch and Miller. Each wholesaler had to choose a secondary brand but because of the cost of market development, the wholesalers are adamant in carrying Coors for distribution. At the end of 1985, the company’s distribution network had reached to 569 independent wholesalers. It is somehow a monumental task to keep up with the product demand and keeping the distribution centers stocked –up and from point the challenge of keeping up with the cost of shipping have increased. From 1982 to 1985 Coors have already seen 10-15% increase in its distribution cost because of the need to constantly ship the beers through refrigerated car-rails and the rest are being varied by truck. Although the company had established its own trucking subsidiary (Coors Transportation Company), they were still not able to all the viable resources to secure back haulage of an independent carrier. The volume of distribution appeared to have been too heavy for Coors own transportation subsidiary to carry.
Customers
There has been much mystique surrounding Coors at the time because of the beer’s use of rocky mountain spring water. However, as the company assumed a national roll-out such mystique has slowly faded and the beer became just like any other because of the macro brewer status they gained just like Mille and Bud. Coors primary targets middle aged demographics and younger adults of 21 to 27 years old. This assumption can be made based on the marketing and advertising strategies that Coors initiated during the peak of its expansion. The brand’s undeniable popularity have started in 1972 adding up popular figures in its list of avid beer drinkers such as Clint Eastwood and Paul Newman and requested to always have Coors in their location every time. Henry Kissinger and Gerald Ford even flew cases east; College students on the other hand had no objections paying several hundred percent premia just to ensure that they would have enough for bootlegged supplies. Coors commercials and advertising strategies appeared to be different from the other top brands. The usual commercial of competing brands consists of athletes while other commercials featured male endorsers victimizing other light beer drinkers in the bar. It goes to show that light beers are less masculine and beers are supposedly the male’s iconic drink. However, Coors did not deviate from its long –held slogan and stuck with commercials with mountain lake backdrops and barley, such strategy is to accentuate the freshness of the beer and basically to emphasize that it is better than any other brands. In general, the beer was being marketed to all people that drink beer. The only difference is that upheaval to the quality and taste due to the water derived from the Rockies.
Section II: Firm/Industry Performance/Strategy
After the subsequent decline of the beer demand due to the Second World War, the beer industry ad experienced a relentless growth of more than 150% from 1945 to 1985. Exhibit 3 shows that in 1945 the U.S. beer consumption only reached an average of 75 million barrels and remained consistent until the next 15 years. The most obvious reason for the stagnancy of the beer market is the primarily the World War II. It is not new in history that war had severe consequences in the economy and beer being part of the American’s expenditure, the slow economy impact the industry. Furthermore, federal regulations about making beer held companies such as Coors to limited opportunities until such time it was lifted and the industry have started to pick-up. From the market point of view, beer industry is one of the most lucrative with average annual revenue of $38 billion. After the steady market had picked up at the beginning of 1960s, several brewing companies entered the competition and as such the demand had steady increase of 20 to 30%. One of the major contributors to the sudden growth of the brewing industry is the brewing innovation of fermentation that significantly able to cut the brewing time from one month to 20 days. The ten days extra were used by the brewing companies particularly Coors to stretch its brewing capacity to meet the market demand. The postwar era also paved way for the baby boom. It can be recalled that the majority of the male population during the war period was called for duty and their return to America had an impact to population growth. In addition, the industry had not experienced growth of more than 1% from 1945 to 1960s. However, as the baby boomers reached the legal drinking age, the market suddenly had a 100% growth until 1985.
Because of the large growth of the beer market, small scale brewers had failed to meet the demands and cost of production. Most of the small scale brands went out of business and by 1985 only six major brands remained surviving including Coors. However, Coors is still not big enough to compete closely with large players in the market considering that the company only owns a single brewery while others like Anheuser-Busch had 11 brewing facilities. The limitation in terms of brewing facilities for Coors resulted to over stretching their production capacity to meet the efficiency scale of 4.5 million barrels per year. Despite the limitation, Coors was still able to outnumber the Pabst in terms of capacity by 6.25% given that Coors has a total capacity of 16 million barrels a year while Pabst only has 11 million barrel output. Considerably, Coors only have one brewing plant while Pabst had four. The difference translates to Coors’ 100% efficiency rate with 92% utilization capacity. On the other hand Pabst can have 60% capacity with 81% utilization rate. Similarly, Heileman topped Coors in terms of capacity by 61.53% given that Coors can do 16 million barrels while Heileman can do 26 million barrels. However, the ratio of the number of breweries between the two companies is one is to nine (1:9). This means that Heileman has nine times the number of breweries than Coors, but in terms of capacity Coors 62% better than Helieman and when it comes to utilization Coors is 67.39% better than Heileman (Exhibit 3). The top brands such as Miller and Anheuser-Busch had similar efficiency as Coors at 100%, but the Coors is still 1.18% better than Miller and Anheuser-Busch in terms if capacity utilization. This difference translates to the difference in the number of breweries that Coors and Miller and Anheuser-Busch has given the ration of one is to ten (1:10).
The significant growth experienced by the industry reflected on Coors’ performance based on its past record. During the time that the market consumption remained flat, it didn’t stopped Coors from raking in sales and eventually posted a record increase in sales volume by 13%. Despite the company’s several business ventures, its brewing division remained to be the largest sales contributor with 84% in 1985 and much of the revenues contributed to 100% of Coors’ operating income. The success of Coors was owed from its strategic advertising campaigns and their efforts have paid off because a large portion of their revenue was a result of the company’s marketing and advertising efforts. According to the advertising statistics of major U.S. brewers in 1985, Coors spent $165 million in its advertising campaigns. This cost is 11 times higher than Pabst, which spent only $15 million. It was discussed earlier that Pabst have more brewing facilities than Coors, but their utilization capacity was smaller than Coors. Given the difference, Pabst could have had a higher earning potential than Coors. However, Pabst did not grab the opportunity to rely on such potential to beat Coors. This assumption reflects on difference that each company uses to gain advantage in the competition. It is also apparent that Coors have employed effective strategies in terms of maximizing resources and leveraging on their own marketing capacity.
Going back to the advertising statistics, the biggest spender among the beer companies are again Miller and Anheuser-Busch. Anheuser-Busch for example estimates the cost of advertising per barrel at $6.92, which is 89% lower than Coors at $11.20 per barrel. However, allocating larger advertising cost per barrel had paid off because among the top six companies, Coors is the one that gained the highest sales at 15.3%. Closing in at the second place with the highest sales from advertising was Heileman with 12% and subsequently followed by Miller with 11.6%. However, it appears that Heileman had a better cost strategy than Coors because of the large difference in terms advertising cost per barrel. Based on the figures (Exhibit 4) Heileman spent 62% less than Coors and the same assumption can be made in terms of advertising cost per barrel between Coors and Heileman. Coors appeared to have allocated 56.78% more than Heileman given an advertising cost of $6.36 per barrel. Despite the low cost of advertising cost, Heileman was still able to run second behind Coors in terms of advertising sales. One of the possible causes is the advertising strategy employed by Heileman that could be assumed as cost-effective. In general, the figures presented herein are manifestations of each company’s diverse strategies, but Coors in particular have utilized media advertising that could have contributed largely in its advertising expenditures.
Apart from successful strategies that reflects Coors’ impressive advertising sales; one of the main performance indicators that need to be evaluated is the brand’s market share. From 1977 to 1985 Anheuser-Busch’s Budweiser has always been at the top of most preferred beers in the market followed by Miller’s High Life. Coors Banquet on the other hand remained at the bottom two of the market share list with only 8.2% of the market share. From 1980 to 1985 Miller’s High Life consistently experienced a steady decline in market share until 1985. Anheuser-Busch’s Budweiser on the other hand continued to dominate the market with a steady increase averaging to 22.35%. The same decline in the market was experienced by Coors from 1977 to 1985 from 8.2% to 4.9%, which translates to an average of 59.75% decline in a span of eight years. Stiff competition also resulted to the decline of beer price up to 30%. This is due to the relatively low price elasticity of beer that can easily be affected by factors such as income, demand and supply. Despite the flooding of low priced beers in the market, Miller and Anheuser-Busch continued to sell their beers at marginally higher price than any other beer. In Coors case, beer price drop offered a significant advantage to push new products in the market as what they did with Coors Light.
Over the course of 15 years from 1970 to 1985, the U.S. brewing industry introduced high priced brands that are being differentiated by packaging, alcohol content and brand type. For example, Regular beers with 6% alcohol content were dominated by Premium brands such as Coors Banquet with 45% market share. Light beers on the other hand with 2 to 3% alcohol content gained 22% of the total beer market shares; the rest of the market is shared upon by other brands and beer variants, but the most popular was the super premium brands. Based in the national industry market shares, Coors still remained at the second to the last in the ranking with other companies with only less than 5% of the total national market shares. Top competitor such as Anheuser-Busch on the other hand has 35% of the total national market shares. The gap between Coors and Anheuser-Busch in the national market is at 14.28%, which is equally higher to the gap between Miller and Coors. The large gap was a result of Coors limited distribution to only 44 states, which translates to 79% of the national industry market, while the other top brands have larger contribution channels covering the entire United States. Given that fact, the larger brands were able to penetrate 100% of the national market and the other 26% that Coors didn’t had in the national market could have contributed to higher probability of higher revenue. However, despite the low market shares Coors appeared to have constantly increased their shares as they expand their distribution channels.
Section III: Key Challenges and Recommendations
Going forward from 1985, Coors still has several alternatives that could further move their success forward. The key challenges that Coors is facing are stiff competition, limited market channels and lack of adequate brewing facilities that could generate output matching those of the bigger players. It is apparent that Coors has the capability of maximizing their resources and high utilization capacity. The company could use another brewing facility that could double their production output. Along with that is the initiative to increase distribution channels by adding more state in their list. On a regional distribution level, it appears that Coors were not able to cover the Southeast, East North Central and New England regions. East North Central in particular shows a promising future for distribution because of its 22.9 million barrels of consumption record (Exhibit 5). If Coors would be able to tap the market in East North Central it would translate to 2.3% of additional market share which would significantly contribute to revenue increase. Coors could also increase their distribution output in West North Central because 900,000 barrels are quite low given the distance that delivery has to take and its cost. Furthermore, Coors had only an increase of two million barrels sold from 1977 to 1985, while Heileman was able to increase their units sold 180% from 6.2 million barrels in 1977 to 16.2 million barrels in 1985 (Exhibit 6).
The difference in the number of units sold constitutes a fact that Coors has weaker strategy than Heileman. However, since the price of Coors is quite higher than Heileman, the generated revenue of the two companies suggests that Coors made $219 million more than Heileman. If Coors would be able to strategically place another brewing facility in farther distribution areas to cut the cost of distribution, which is taking up portions of the company’s gross revenue they would be able to sustain distribution demand in nearby states. Along with the expansion of facilities, the next step for Coors is to intensify its marketing efforts in weak areas and prospective new locations. Although Coors had prior plans for expanding their brewery facilities, they were opposed by Jeff and Peter Coors because of the need to pool in external funds by issuing debt. The Coors brothers could have given the idea a chance in order to fulfill their plans for expansion. Most of the large companies rely on external funding, which allowed them to grow and expand their business in key areas. The company should consider issuing shares instead of debt because the company has the option to buy back the shares as soon as the new investment gained its considerable returns. This strategy would not only cut the cost of transportation amounting to $2.50 per barrel, but would also allow the company to remodel its price strategies given the amount of saving they will obtain from reducing the transportation cost.
Coors should also consider changing their marketing strategies and eliminate the mystique that surrounds its pioneer product the Coors Banquet. Relying on the same slogan and upheaval of quality has long been diminished because of the fact that the company is now operating in a near national level. Strategies such as marginal price cuts of a few cents would be an attractive proposition. The usual notion is that low pricing ruins the sense of the products quality. Therefore, Coors need to create a more eye catching advertisement that features personalities known to be in upper side of the social class. Endorsers from the higher society class gives out an impression of sophistication and difficult taste. Upper class people are known to have a discriminating taste and very particular with quality. Using them as endorsers would create an impression that upper class also drinks Coors products and the most surprising fact would be the reasonable price that Coors put into their products. This strategy would also enable them to steal consumers that looks up to more popular brands and realize that Coors is actually a product of high standards that everyone could afford. One of the prominent characteristic of beer products is price elasticity.
Beer demands depend on economy and consumer’s wage, the most common notion for regular consumers is to eliminate non-necessities from their budgets. Since beer is considered as not a necessity, there is a higher probability that the demand will move as soon as the economy slows down. Therefore, it is important for Coors to keep the people attached to the product despite the occurrences of economic down turn. It is paramount to non-necessity products to keep the people wanting the product more. Adding features and social significance to their marketing efforts would also attract potential market consumers. It can be recalled that Coors was the first in the world to do can recycling, the company could actually leverage on that idea to promote the product more. For example, Coors will create TV commercial featuring young adults (endorsers known for their sophisticated lifestyle and social status) in an outdoor party. However, the party should somehow create a social awareness. It is possible to include in the commercial that party is for environmental cause, which after the party people in the commercial should be seen cleaning up the beer cans. This advertising strategy would target several initiatives. First is that Coors was affordable and has quality. Secondly, the company would be able to send a message about environmental awareness, which is a good marketing proposition considering that the people that consuming the beers are environmentally responsible.
Section IV: Conclusion
Coors is a business that relies on good marketing strategies, but they need to work more on focusing their marketing strategies and advertising to a more relevant cause to attract more people. They should also let go of the old slogan because it is no longer working for them considering the fact they no longer use rocky mountain spring water to make the beers. Coors should also focus on weaker distribution areas and look for distribution channels that potentially have good number of consumers. In order to acquire more market, Coors must be open to the possibilities of opening new brewing facilities because one brewing facility could not produce enough to cover an entire country of beer drinking market. Cost is among the biggest issue that prevents the company from further growing into a scale achieved by their top competitors. It is about time that they consider cutting the cost of transportation and add it up to their marketing advantage. There is more room for growth for Coors, it is only a matter of shifting resources to the right direction and begin strategizing on areas that has been previously explored. Coors have a good market share considering their limited distribution areas. Coors could use the opportunity to tap into unknown territories and accept the risk because they are successful in territorial market exploration based on the company’s past expansions. They were successful and they can and has the capacity to repeat that success.
