The US beer industry is characterized by flat consumption trends and dominance by three top brewers, Anheuser-Busch, Miller Brewing, and Adolph Coors. They have expanded their market shares at the expense of other national brewers. Expanded market share, price increases and improved production efficiencies are the keys to improving operating margins for large national brewers in the US Market. National brewers are also looking to expand their presence in those international markets with increasing consumption trends.
U.S. Beer consumption rose 0.6% in 2001 to 2.8 billion cases (2.25 gallons), the slowest growth rate in fours years. Imports climbed +8.8% while domestic dipped for the first time in four years by -0.3%. Premium products (light and imports in particular) continued to chip away at sub premium and popular brands and categories.
Gains made by super premium and micro/specialty (+9.6%) and lights (+2.9%) were not enough to offset losses by premium (-4.1%), popular (-6.3%) malt liquor (-8.7%) and ice (-4.8%) beers.
The buzz in the beer industry over the past 24 months has been “malternatives,” which are flavored malt beverages led by Smirnoff ice. Malternatives, which are still small compared with other beer categories, are playing their part in creating excitement and interest within the relatively stagnant overall beer market.
The only growing market segment in the domestic beer industry is the smaller micro breweries which are often brewed by regional brewers. While sales of domestic beer are expected to stagnate for the rest of the decade, the specialty beer category has been experiencing double-digit growth rates annually in the 1990’s and ranges from 7 to 8 % in the last few years. These crafted brew products generally cater towards small consumer market segments with less consumer price differentiation (i.e., price inelasticity – small price increased do not result in reduced consumption or brand switching) than the major brewery brands. Due to the high costs of entry in creating a micro brewery, many micro brewers rely on regional brewers to manufacture their products under contract.
The Institute for Brewing Studies classifies a brew pub as a microbrewery if it manufactures less than 15,000 barrels and its off-site beer sales exceed 50 percent. A brew pub is defined by the industry as a restaurant-brewery that sells the majority of its beer on site. Annual production for brewpubs rarely exceeds 5,000 barrels. Many small brewers prefer the appellation of “craft brewer” (to that of microbreweries and brewpubs) which refers to a brewer of primarily specialty, niche products. Craft beer sales topped $3.3 billion in 2001, according to figures from the Institute of Brewing Studies. However, small breweries still account for less than three percent of total U.S beer shipments in the last decade.
COMPETITORS
Kolar Kegging has established the only micro brewery and brew pub in Sheboygan County. They view their competitors as follows:
Local Retail Businesses – Taverns that sell domestic, imports and micro beers. The Sheboygan area has issued approximately 125 liquor licenses and represents about 96 retail establishments. About 60% of these serve some type of food, which ranges from limited menus to full restaurants.
Regional Micro Breweries –The State of Wisconsin has approximately 56 micro breweries. It is felt that the breweries closest to Sheboygan (Kolar Kegging Inc.) are considered their prime competitors to their wholesale business.
The following are regional breweries closest to Sheboygan:
CUSTOMER INFORMATION
Demographics and Target Market
Fifty-nine percent (59%) of all American males and thirty-seven percent (37%) of American females are beer drinkers. Fifty-five percent (55%) of college graduates drink beer versus only thirty-nine percent (39%) of high school dropouts. Higher paying jobs produce more beer drinkers than lower paying ones. Not surprisingly, younger age groups drink more than older age groups. More than half of all people ages of 18-34 drink beer. This figure drops gradually as the age rises until age 65, when it levels off at less than 30%.
Beer consumption is overwhelmingly male-dominated, with men accounting for more than 80% of the volume consumed. A large number of these beer drinkers are white and favor domestic light beer, followed by domestic draft beer. African American drinkers make up about 10% of the beer market overall, and they are, however, the biggest consumers of malt liquors, followed by ice beer.
Of all the beer types, light beer has the strongest following among women consumers. Women beer drinkers are more attracted to specialty micro brewed beers (and malternatives) than they are to the big brands, possibly because of their greater variety. The appeal of craft brewed beer is stronger among white beer drinkers than among African Americans. The average amount of beer consumed per person per year in the US is 22 gallons, or 235 bottles!
Beer drinkers (Consumer Buying Habits) can be further classified into three categories:
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Domestic Brand Loyal Drinkers – content to drink the regular domestic brands such as Miller, Budweiser.
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Conversion Drinkers - drinks a combination of domestic beers along with micro beers and imports
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Exclusive Drinkers - drinks exclusively micro beer and imports
Local Demographics
Hops Haven Brew Haus is estimating to receiving approximately 75% of its business customers from local citizens and 25% from tourists. Also, as they become better known, they are hoping to attract customers from contiguous counties. Sheboygan County ranks 9th place among state destinations and tourism!
The demographics for Sheboygan County are as follows:
Population: 112,646*
Adults over 21 years of age: 71.4% (80,429)
While male 50.2% (40,375)
White female 49.8% (40,054)
Medium income: $44,323 (family of 4)
*8.4% increase from 1990 to 2000
The population distribution for Sheboygan County is as follows:
Sheboygan 50,792
Plymouth 7,781
Sheboygan Falls 6,772
Area Villages 13,500
Area Townships 33,500
SWOT ANALYSIS
STATEGIES AND RECOMMENDATION
Key Factors in Achieving Success for Brew Pubs
(2002 recent survey of Brew Pubs by Innovative Brewing Technologies)
When asked to rate the various qualities that were considered most important in achieving their success, brew master respondents overwhelmingly that establishing and maintaining a high quality of beer, food and service was cited as the most importance key factor in the success of their brew pubs. Assuming the customers have been drawn to the brewpub in their search for a better alternative to the products of the conventional brewing industry, it was crucial to the success of the brewpub to hold their interest in the long term. With competition for the consumer dollar always intensifying, the business offering the best quality of goods and services will succeed the best.
Location also placed high on the list of importance, with well-placed premises in areas of high traffic or cultural compatibility enjoying a head start.
Respondents also included the hiring of key people as another essential ingredient to success. Experience managers capable of training and motivating the staff, and knowledgeable brewmasters fully committed to producing the best quality beer, well repaid the financial investment.
Such factors as reputation, marketing strategies, cost control, value for dollar as being customer-driven were given less priority. Presumably such concerns would be well addressed through the development of high quality products, premises and staff.
Product
Hops Haven Brew Haus
(Retailing)
A consistent high quality and variety of beer is essential for a brew pub success. It is crucial that the quality of their beer remain the highest when compared with the other offerings that are available. Hops Haven Brew Haus has a good selection of product offerings which include lagers, light ales, dark ales, and root beer. In addition it is strongly recommended that they continue the tradition to brew and sell their “specialty” and “seasonal” beers. Offering a wide range of flavors, with the novelty that they are “brewed” onsite is a characteristic that only a brew pub can claim. (See attachment #1 for beer listing.)
Also, to compete with the other local establishments, it is important that Hops Haven Brew Haus offer malternatives and as well as domestic and imported draft and bottle beers. While originally the Brew Haus will only be offering beer and wine products, it is strongly recommended that they obtain a full liquor license. This will ensure to draw all different types of drinkers to the bar. Free complimentary bar snacks should be supplied during the Happy Hours every day. The food menu should include a full menu with a variety of foods that is suitable for families. It should be modestly priced to encouraging customers to come often and stay longer.
Providing good customer service is paramount in today business. This is especially important when starting out a new business venture. Attention to every detail and making the visit an experience for the customer is important. It is important that the restaurant and the brew pub work together as a team for the success of the business. Hiring the right people for the job and having effective caring managers will provide the right atmosphere for the business to succeed. Wait-staff, bartenders, cooks, etc., should make every effort to make customers happy. Empowerment of employees is essential, giving them the authority to appease the occasional unsatisfied customer by offering a free beer or snack. Making the customer number one, will keep them coming back!
Kolar Kegging Micro Brewery
(Wholesaling)
Product quality is important in the wholesaling as well as the retailing of the micro brew. Product Image is essential in retailing and wholesale functions. With the strong competition for shelf space they need to improve the packaging design to get noticed. The current packaging is somewhat dated and is not very eye-catching.
One of trademarks of micro brewers is their specialty and seasonal offering of beers. In the next couple of years they should expand the product offerings and make seasonal beers and specialty beers available to the consumer both in retail and wholesale sectors. The “exclusive” drinkers will want more choices of specialty beers.
As the product grows in demand, additional brewing staff will need to be added to ensure product availability. It will be more crucial to plan and schedule ahead to avoid stock outs.
Price
Pricing the product is important in establishing a brand position. Reasonable and competitively pricing, along with offering good value, is important in the success of micro beer retail arena. Kolar Kegging produces and sells exclusive beer. Knowing the fact that over-the-counter selling margins (retail) will be three times (3X) greater than that of wholesale distribution, it very important to concentrate on establishing Hops Haven Brew Haus.
Profit margin: The price of the house special beer should be 25% higher than other
domestic beer, but still competitive with the imported beer.
Discount: Special pricing should be provided on certain beers to match different themes for different days, i.e., ladies night, one of the three beers will be half price, etc. However, offering too many discounts could reduce the image of the product!
Since the competitive wholesale pricing for the distribution channel was established at the time the business was purchased, it would not be wise to modify this without consulting the distributors. To ensure getting the product positioned well in the distribution chain and a product the distributors will “push”, it is important to create some initial volume discount incentives to the dealers.
Promotion
While all four P’s are important in the marketing plan, promotion is crucial in establishing and marketing a new product.
Advertising - Since Kolar Kegging, Inc. is a small company, the advertising budget is limited. The main approach for creating the awareness is through words of mouth. However, inexpensive media should also be used whenever available. Such media types as local radio, newspaper and magazines, state travel publications, and signage and billboard along highways and busy streets. Internet website is another great tool for introducing the brewery and brew pub to the potential customers and tourists.
The marketing strategy and the marketing objectives is to differentiate the brew pub (Hops Haven Brew Pub) as not being your grandfather’s bar.
Advertisements message should designed to:
- Appeal both to the target group of exclusive beer drinkers as well as the middle class bar clientele.
- Indicate that the beer is available at local retailers and at Hops Haven Brew Haus.
- Create high visibility by placement on banners, coasters, signage by the establishment.
Public Relations should incorporate the following:
- Being involved in the community is an important factor in marketing the product and brew Haus.
- It should support local events for building good public relations.
- Set up the news release on the big opening day.
- Contact the Sheboygan Economic Development Committee for free publicity.
- Work with distributors on getting word out about new establishment and product offerings.
Personal Selling should entail the following:
- Train servers to provide excellent customer service.
- Create an atmosphere that the locals consider the brew pub as theirs.
- Work on building long term relationship with distribution sales force to help them sell the product.
Merchandising would require:
- Open up the outlet in tavern to sell merchandise tailored after Hops Haven Brew Haus or its products.
- Programs should be developed to coordinate with the new packaging design.
Place
Hops Haven Brew Haus is currently located in a convenient location with potential to grow. There is a strong traffic pattern and the building visibility is strong. The atmosphere is inviting and causal.
The manufacturing facilities are in Sheboygan, WI. It currently has a market presence in southeast Wisconsin, but can expand into Manitowoc, Calumet, and Fond du Lac counties to grow the business. It needs to establish a long-term relationship with a new distributor who handles these areas. The distribution scene has been changing. Where once distributors were willing to take on new, small-volume handcrafted brews, most distributors have all the microbrews they can handle now, and aren’t interested in handling additional brands. Kolar Kegging will need to create incentives to motivate new distributors. Aggressive distributors should be sought to work with the Kolar Kegging on expanding retail outlets. See attachment #2 for retail outlets.
Conclusion:
Our analysis of Kolar Kegging, Inc. has lead us to believe that they are presented with a great business opportunity to expand its wholesale distribution market and to create a new drinking and eating establishment in Sheboygan. In conclusion, Kolar Kegging should work closely with their distributors to grow their market presence. New distributors can help promote the product through kick off incentives to their sales force and help create contacts with other establishments in Sheboygan, Manitowoc, and Calumet counties. The relationship with the existing distributors must also be maintained. The reputation of the distributor is key because they must maintaining service levels, transportation and storage to insure Kolar Kegging’s reputation and quality.
The Hops Haven Brew Haus also has very good potential for success. They need to have strong advertising in the beginning to generate clientele. The drink offerings and the daily promotions will be critical.
Attachment #1
Kolar Kegging, Inc. - Hops Haven Brew Haus
Attachment #2 – Kolar Kegging Retail Outlet Listing