SLEEMAN
BREWERY


RAJPAL
KATHWADIA


100466865

 The problem

Given the risk and opportunities related to Sleeman, whether or not it is a wise idea to
invest in Sleeman Brewery.

Industry Analysis

• Definition of industry:

The Canadian brewery industry comprises establishments that are primarily engaged in
brewing beer, ale, malt liquors, and non-alcoholic beer. The industry accounted for $ 7
billion of sales in 1999 representing 19,152,077 hectoliters of beer. Where Molson and
Labatt have 46.6% and 46% respectively. The remaining 7.4% related to microbreweries
and imported beers.

• Financial Ratios:

Gross profit margin 39.4%

Net profit margin 1.9%
Days A/R 43.7 days
Days inventory 77.6 days
Days A/P 60.6 days
Current ratio 1.6
Acid test ratio 0.8
Debt to equity 1.0
Return on equity 2.1%
Total asset turnover 0.9
Sales growth 16.1%

• Growth:

The industry had sales increase of 1.7% in 1998, but fell by 0.2% in 1999. There has been
an increase of 5.7% in imported beers from 1992, expected to grow between 8-10% by
2003. Also a high demand for specialty beer has a good growth potential.

• Porter's 5 Forces:

Barriers to entry:
There's a big barriers to entry in brewery industry. There is a high fixed cost involve at the
start of business, as the oil company. Also the big two company's have most of the market
share, so it is possible to have high level of barriers of entry.

Rivalry among competition: There is a high level of rivalry where the big to company own
92% of the market share. It will be highly competitive.

Supplier's buying power:

Suppliers don't have much power because wheat is a commodity, and easier to get.
Buyer's buying power:
Buyer's buying power is medium, where there are a lot of bars and beer stores to go
around but they are specific about the brand. But there are a lot of buyers to choose from;
in this case they don't have much power.

Threats of substitute goods:

There is a big threat in beer industry, such as wine, hard liquor, pop drinks. So if the price
decreases for the substitute goods or an increase in beer price people have high chances of
going for the substitute.

• External forces:
The external forces include in beer industry is that the government regulation might
change and affect their sales. If the weather gets bad, they might have bad time getting
Hops. The political environment might change, and influence people to drink less. As
well the economy might get bad and people drink less.

Company Analysis

• Business model

Sleeman Brewery restarted their business in 1988 with their original recipe. They produce
premium beers. Most of the growth comes from expansion of its core brand and the
acquisitions and mergers with existing breweries.

• Strategy competencies

They have a very good and a strong strategy. Their current operating strategy is to grow in
domestic market, expand distribution and control, expand strategic alliances within the
international brewing community and exploit the continued growth of import brand, and
continue to pursue the vision of creating a family of premium craft brewers through
acquisitions of complementary premium breweries. Their primary corporate goal is to be
the best craft brewing company in Canada, which is very consistent with their strategic
plan.
 SWOT Analysis

Strengths
• Premium brand, product, and quality
• Available in every Canadian province
• Rated one of Canada's 50 best-managed companies
• Continuous company growth through expansion of its core brand
• Purchasing of the rights to sell, produce and distribute the Stroh portfolio of
brands in Canada
• Successful acquisitions and mergers with existing breweries
• Capacity, capability and experience for further mergers and acquisitions of other
microbreweries

Weaknesses
• The brewing industry is dominated by two major players
• Not all of the company's portfolio brands are available in every province across the
country
• The higher price associated with the premium beer brand as consumers can easily
substitute for another type or brand of beer
• Very seasonal - highest sales in the summer and lowest sales in the winter

Opportunities
• Convince other retailers to sell Sleeman products within the Canadian provinces
• Generate strategic alliances with other international brewery firms
• Acquire more of strong microbrewery companies
• Diversifying markets in all provinces through expansion using product lines from
other provinces
• Create and build brand awareness and establish brand images that would
differentiate them from their competition and create a competitive advantage

Threats
• Labatt and Molson who have control of a combined 92.6% of the market so there
is a very little room for smaller breweries
• High level of competition between all market players; especially the
microbreweries as more are entering the industry
• Switching power of consumers over the beer products due to product price, quality
and preference
 Porter's competitive forces

Barriers to entry:
They already broke through the barrier by entering to market as a microbrewery, but
barrier still exists. There is a high brand loyalty, and the competitors achieve economies of
scale.

Rivalry among the competition:

There is a high level of rivalry and competition. The two major players who own 92% of
the beer market monopolize the market.

Supplier's buying power

The suppliers have higher buying power because they can always go to the bigger player,
but since it is commodity product they might have lower power of negotiation.