Forecasting Sales - Ska Brewing Company

Connor Ritchey, Jon Seilback, & Harold Castillon

November 4th, 2019

 Summary Report

1.1

A craft brewery is a small & independent brewer. To be officially recognized as this, one must

have an annual production of six million barrels or lower, have less than 25 percent of the brewery

owned by an interest that is not itself a craft brewer, and have a TTB Brewer’s Notice (Craft Beer…, n.d).

There are a total of six specific craft beer market segments: microbreweries, brewpubs, taproom

breweries, regional breweries, contract brewing companies, and alternating proprietors (Craft

Beers…,n.d).

The main difference between a brewpub and craft brewery is that a brewpub is a restaurant

style brewery. To be more technical, it is required that they sell more than 25 percent of its beer on-site

while operating food services as well (Brewer’s Association…, n.d). The beer is primarily brewed for sale

in the restaurant and bar, as opposed to craft breweries which tend to be the producer and distributor

of this beer to liquor stores and restaurants.

As stated before, to be recognized as a craft brewer, one must produce less than six million

barrels annually. According to Brian Feldt of the St. Louis Post, a nationwide brewer like Anheuser-Busch

produces an average of around 13 million barrels per year, which is over double the limit a craft brewery

can legally produce (Feldt, 2018).

1.2

The claim “craft brewing has seen phenomenal growth during the last thirty years” cannot be

truer of a statement. In 1988, there was only a total 100 craft breweries. From then on, the number of

craft breweries rose each year all the way to 7,116 total in 2018 (Brewer’s Association…,n.d). While the
overall U.S. beer sales were down 1% in 2018, craft brewery sales continued to trend upwards at a rate

of 3.9%. This increase prompted the craft brewing market share to increase to around 13.2% overall

(Brewer’s Association…,n.d).

The major breweries like Heineken and Anheuser-Busch are all extremely profitable, however

have been experiencing stagnant and even declining sales due to the recent success of craft breweries.

The big breweries have come up with two strategies in response to the mounting pressure of craft

brewers: acquiring selected craft breweries and imitating the popular craft beer styles with their

corporate touch (Howard, 2015).

Due to the increasing amount of craft breweries, amplified market share of overall beer

production, and the mounting concern of big breweries to their smaller counterparts, one can believe

that the claim “craft brewing has seen phenomenal growth in the last 30 years” is not just true currently,

but will continue to be a problem for years to follow.

2.1.1

By completing this graph, one can take note of how the linear trendline does not flow through

many points involved with barrels per year and sales per year. The R^2 for barrels/year is .80544 while

the R^2 for sales/year is .82845. It can be assumed that this is not the best trendline.

2.1.2

When one does the exponential trendline, it seems to fit the set of data better. This is attributed

to the R^2 values for sales and barrels is closer to 1.00 than a linear trendline. There most likely isn’t a

better trendline associated with this set of data since it flows through almost every single data point.
2.1.3

The forecasted amount of barrels/year is 26,180. This forecast seems a little low for year 13.

Year 12’s amount was just over 25,000, so only a jump of 1,000 seems a little too conservative. The

forecasted amount of sales/year was $7,313,259.00. This forecast seems right on par for year 13. Year

12’s amount was around $6,500,000, so a jump of almost one million is accurate according to the past

historical data.

2.2

By analyzing the graph one can see that by producing more beer SKA also sells more barrels. By

selling more barrels they will also produce more sales and earn more revenue.

2.3

When only looking at the data from the last four years we can see a positive linear relationship

amongst the data points. Overall there has been an increasing positive trend throughout the years

however this is most apparent when looking at the data from the past four years.

2.3.2

We feel pretty confident about the predictions as they were based on the analysis from the

graph that we created. Looking at the numbers they also fit well amongst the other numbers. They

aren’t outliers and fall within a reasonable range.

2.4
 The MAD would be a useful metric for SKA to analyze because it lets managers know which

forecast method would be the most accurate because it would show which forecast method would

result in higher error rates.

2.5

The MAPE is used in order to measure the percentage error. By having a lower percentage in the

MAPE it means that the probability for an error would be lower. Based on the MAPE for barrels it was

only 0.97% and 1.14% for sales. Those are both very low error percentages therefore, we can conclude

that the MAPE would a useful metric for SKA brewing company to use.

2.6

Calculating the percentage change in the barrel brewed and sales gives an insight on how much

more bareles and sales there were compared to the year prior. This shows how much growth the

business is experiencing compared to the year before.

2.6.1

Taking the average of 12 different years of growth allows managers to see, on average, how

much growth they can realistically expect in the next year, based on the previous 12 years. Although it

is important to understand that this calculation can be swayed in one direction or another if there is an

outlier in the data due to unpredicted circumstances. Barrels experienced an average growth of 21.54%,

while sales experienced an average growth of 23.89%.

2.6.2
 Creating a scatterplot allows the viewer of the graph to easily see if there is any potential

outliers in the data. Based on the scatterplot it is apparent that there are two outliers in the data. They

moved into their new world headquarters in 2008, and in the year after they saw growth that was more

than double the year before that. In 2010 they still saw growth higher than they were used to seeing,

but lower than the significant number in 2009. In 2011 growth fell back to the trendline.

2.6.3

With the owners quick estimate of growth in 2013 at 20% I would say that they know their

business well, but they are making an educated guess. The average growth rate for sales from 2000 to

2012 is 23.89%,while bottles average growth was 21.54%, but that calculation includes 2 outliers from

when they opened their new world headquarters. When the 2 outliers are removed the average growth

comes to 19.63% for sales and 17.43% for bottles. When the average of the two growth rates is

calculated it comes to 18.53% , which is close to what the owners quickly predicted it to be. Going off of

averages from previous years sales, it is reasonable to expect a growth of 20% in 2013, but it may be

slightly overstated based on the average growth from previous years.

Conclusion

Just as Erik stated, “an accurate sales budget is the root of the entire budgeting process,” which

can in turn have a significant effect on the financial strength of the business because of over or under

budgeting. Since all of the forecasts that were created offered valuable insight to predicting the growth

of the business, I saw it most fitting to take an average of the forecasts to determine a final forecast

number. In terms of sales it is reasonable to expect sales of $7,591,569.33 and 29,000.14 bottles

produced. This equates to a 15.8% growth in sales and a 12.5% growth in bottles for an average growth

rate for the company of 14.1%. These numbers should be of great assistance in creating a 2013 budget
because based on our calculations sales and bottles should fall very close to the numbers provided as

long as there is no extenuating circumstances that our models simply cannot account for.

Citations
Craft Beer Industry Market Segments. (n.d.). Retrieved October 31, 2019, from

https://www.brewersassociation.org/statistics-and-data/craft-beer-industry-market-segments/

Feldt, B. (2018, July 13). A decade after Anheuser-Busch's sale, beer still pours from St. Louis brewery

but much has changed. Retrieved from https://www.stltoday.com/business/local/a-decade-after-

anheuser-busch-s-sale-beer-still-pours/article_5a9faf1c-d7c9-5d46-99de-b11b1e22f703.html.

Howard, P. H. (2019, March 1). Big breweries are trying to fend off craft beer by getting bigger. Retrieved

from https://www.washingtonpost.com/posteverything/wp/2015/09/30/big-breweries-are-trying-to-

fend-off-craft-beer-by-getting-bigger/.

Mestorey. (2019, May 3). What is a Craft Brewery: Learn About Craft Breweries. Retrieved from

https://www.craftbeer.com/breweries/what-is-a-craft-brewery.