Hockely Valley Brewing Co. Inc.

Overview – 5 C’s Analysis

1. Analyzing the Company

Founded in 2002, Hockley Valley Brewing manufactured and marketed a number of quality german beers.

The beer was manufactured in a facility in Orangeville, Ontario. It was the first microbrewery in Ontario and

quickly grew in popularity and reputation. Hockley Valley was most famous for its dark ale, but also offered

other varieties of beer, both light and dark. The company’s product line included the Hockley Dark, Hockley

Black and Tan, Hockley Amber, Georgian Bay Beer and Hockley 100. Due to the success of their light beers,

Hockley was considering introducing a new Hockley Classic lager, while removing the Hockley Black and

Tan from their product line.

2. Analyzing the Customers

 Customers were beer drinkers and ranged from occasional drinkers to enthusiasts
 Customers were people that enjoyed craft beers and bought their beer at either the LCBO chains or
smaller boutique liquor stores
 Customers we’re price sensitive and the economic downturn in 2008 had resulted in consumers
shifting away from some of the more expensive imported brands to the less expensive domestic light
beers

3. Analyzing the Context

Hockely Valley Brewing wanted to double their production capacity by the end of 2014, and due to the

success of their light beers, Hockley was considering introducing a new Hockley Classic lager, while

removing the Hockley Black and Tan from their product line. The Ontario beer industry was dominated by

two of North America’s largest brewers, Molson and Labatt. Ontario craft brewers represented 2 per cent of

Ontario’s total beer volume. By 2013, craft brewers’ market share had more than doubled, and Ontario’s

microbreweries accounted for 5 per cent of the beer volume sold in the province. Across all retail channels,

craft beer averaged a 10 per cent growth rate annually.

4. Analyzing the Competition

The top two brands, Bud Light and Coors Light, accounted for 27 per cent of total beer sales in North

America. Hockley competed with the nearly 150 different brands of craft beer sold in Ontario. Some

microbreweries produced only a single product or limited their distribution to the communities surrounding

their brewery. Others sold across the province and the country, with many offering a variety of beers and

special seasonal brews. Two well-known craft brewers who had experienced success since their inception

were Mill Street Brewery (Mill Street) and Steam Whistle. If Hockley launched a more mainstream light beer,

it would compete directly with the flagship brews from these two competitors, both of which produced and

sold a much larger quantity of beer than Hockley in 2012.

5. Analyzing the Collaborators

Hockley Valley Brewing had strong relationships with the LCBO stores (The LCBO was a government-

owned agency that operated over 634 retail stores throughout the province). They also sold their beers

through 50 boutique style beer stores across the country. LCBO would levy a charge of 11% of sales and the

beer store would charge a one time listing fee of 3,000 USD per product and an additional 275 USD for each

of the boutique locations that sold the product. Other collaborators include the advertising partners in

newspapers and magazines, farm owners promoting the company using their hay bales and festivals and

shows that the company collaborated with.

Assignment questions:

1. What are the key factors in the case?

 Company Factors:
o Products sold: Hockley Dark, Hockley Black and Tan, Hockley Amber, Georgian Bay Beer and
Hockley 100
o Product differentiators: Quality German Beer, sold in cans instead of bottles (keeps the beer
fresh for longer)
o Success factors: First mover in the dark ale space and the company had seen success with lighter
ales as well
 Customer Factors:
 Customers were beer drinkers and ranged from occasional drinkers to enthusiasts
 Customers were people that enjoyed craft beers and bought their beer at either the LCBO chains or
smaller boutique liquor stores
 Customers we’re price sensitive and the economic downturn in 2008 had resulted in consumers
shifting away from some of the more expensive imported brands to the less expensive domestic light
beers
 Company and market context:
o Company Context: Hockely Valley Brewing wanted to double their production capacity by the
end of 2014, and due to the success of their light beers, Hockley was considering introducing a
new Hockley Classic lager, while removing the Hockley Black and Tan from their product line
o Market Context: The Ontario beer industry was dominated by two of North America’s largest
brewers, Molson and Labatt. Ontario craft brewers represented 2 per cent of Ontario’s total beer
volume. By 2013, craft brewers’ market share had more than doubled, and Ontario’s
microbreweries accounted for 5 per cent of the beer volume sold in the province. Across all retail
channels, craft beer averaged a 10 per cent growth rate annually. Light beer was the best seller of
beer in Ontario and North America and The top two brands, Bud Light and Coors. Light,
accounted for 27 per cent of total beer sales in North America. The economic downturn in 2008
had resulted in consumers shifting away from some of the more expensive imported brands to the
less expensive domestic light beers. It was also common for dark beers to be sold in lower
volumes since they were a heavier beverage and enjoyed most in cold wet climates. Light beer
brands experienced higher sales volume in the summer months; hence, the summer season was
used as an opportunity for the promotion and introduction of new products.
 Context of Collaborators:
o Two main channels of distribution were the LCBO stores and Beer Store
o The LCBO was a government-owned agency that operated over 634 retail stores throughout the
province. It was one of the world’s largest buyers and sellers of beverage alcohol and offered a
variety of beer, wine and spirits from all over the world.
o Craft beer sales growth was the highest in LCBO stores, since the LCBO marketed itself as a
shopping experience that catered towards those consumers seeking different premium beer brands
2. Pricing Scenario’s

Option 1:

This option included selling the Hockley Classic at a price of 2.55 per unit through both the LCBO and Beer
Store channels.

Pros of Option 1 Cons of Option 1

 Prices are lower than competitors so this will
increase market penetration and potentially attract
customers from direct competitors
 Relationship with LCBO stores will get stronger as
this is their recommended pricing
 Price differences are larger for larger unit volumes
when compared to the competitors
 Could attract customers from larger brands selling
cheap light beer like Molson and Labatt
 Lower prices may lead to brand dilution and could
lead to negative brand perception (cheap beer vs
premium lager)
 Low contribution margins to offset higher production
costs of lager compared to ale
 Will result in a high break-even in unit sales of over
100,000 units for combined distribution which will
take significant time to achieve
 May cannibalize sales of Georgian Bay product line
as it is being sold at the same price

Option 2:

This option included selling the Hockley Classic at a price of 2.65 per unit until breakeven units are reached,
post which the company could drop prices to 2.55 per unit, following a price skimming strategy. These sales
would also be through the LCBO and Beer Store Channels.

Pros of Option 2 Cons of Option 2

 Customers are already buying the Hockley Black  May not attract customers from larger competitors
and Tan at this price point of 2.65$ and will be like Molson and Labatt
used to buying beer from Hockley at this price as  Doesn’t differentiate the quality of the lager within
three of their products are priced at 2.65$ Hockley product mix
 This price is still cheaper than the competitors’  May cannibalize sales of Hockley 100 and Hockley
prices of $2.85 per can and can lead to an increase Amber, both light beers
in market penetration and could attract customers  The price fall may affect brand perception
from competition
 Less likely to cannibalize the Georgian Bay
product sales being priced higher
 Combined distribution breakeven is approximately
90,000 units which will be quicker to achieve
 Once breakeven is achieved, if the price is dropped
to 2.55 per unit using a price skimming strategy,
market penetration will increase and customers
who have tried and tested the product will be more
likely to buy more product due to the cheaper
price, thus increasing volume sales

Option 3:

This option included selling the Hockley Classic at a price of 2.55 per unit until breakeven units are reached,
post which the company could increase prices to 2.65 per unit, following a price promotion strategy. These
sales would also be through the LCBO and Beer Store Channels.

Pros of Option 3 Cons of Option 3

 Entering the market at a cheaper discounted
promotion rate could help capture market share
and increase market penetration rapidly
 Prices are lower than competitors so this will
increase market penetration and potentially attract
customers from direct competitors
 Relationship with LCBO stores will get stronger as
this is their recommended pricing
 Price differences are larger for larger unit volumes
 Lower prices may lead to brand dilution and could
lead to negative brand perception (cheap beer vs
premium lager)
 Low contribution margins to offset higher production
costs of lager compared to ale
 Will result in a high break-even in unit sales of over
100,000 units for combined distribution which will
take significant time to achieve
 May cannibalize sales of Georgian Bay product line
 when compared to the competitors as it is being sold at the same price
 Could attract customers from larger brands selling
cheap light beer like Molson and Labatt

Option 4:

This option included selling the Hockley Classic at a price of 2.75 per unit through the LCBO and Beer Store
Channels.

Pros of Option 4 Cons of Option 4

 This pricing would be the same as the premium  May cannibalize sales of Hockley Dark
Hockley Dark beer, which the company is known  Unlikely to draw sales from competitors products
for, and could lead to positive brand perception and increase market penetration
among consumers
 Contribution margins available to offset higher
production costs
 Breakeven in units for both channels combined is
approximately 80,000 units which will be faster to
achieve in the product life cycle

Option 5:

This option included selling the Hockley Classic at a price of 2.85 per unit through the LCBO and Beer Store
Channels.

Pros of Option 5 Cons of Option 5

 High contribution margins through both channels
 Low combined distribution break even with unit
sales of approximately 70,000
 Reflects a premium Hockley product for a
premium price
 Unlikely to draw sales from competitors products
 Unlikely to reach break-even sales
 High risk of product failure if low rate of early
adopters

3. Marketing Math

Price Price Price Price

Particulars ($) ($) ($) ($)
Selling Price 2.55 2.65 2.75 2.85
Beer (Ingredients) 0.33 0.33 0.33 0.33
Packaging 0.28 0.28 0.28 0.28
Factory Production Costs 1.05 1.05 1.05 1.05
Excise Tax 0.02 0.02 0.02 0.02
Provincial Levy 0.29 0.29 0.29 0.29
Total Cost 1.97 1.97 1.97 1.97
Contribution Margin LCBO 0.58 0.68 0.78 0.88
Annual Marketing Costs 50,000 50,000 50,000 50,000
Unit Breakeven LCBO 86,207 73,529 64,103 56,818

Price Price Price Price

Particulars ($) ($) ($) ($)
Selling Price 2.55 2.65 2.75 2.85
Beer (Ingredients) 0.33 0.33 0.33 0.33
Packaging 0.28 0.28 0.28 0.28
Factory Production Costs 1.05 1.05 1.05 1.05
Excise Tax 0.02 0.02 0.02 0.02
Provincial Levy 0.29 0.29 0.29 0.29
Total Cost 1.97 1.97 1.97 1.97
Contribution Margin LCBO 0.58 0.68 0.78 0.88
 Beer Store Fees 16,750 16,750 16,750 16,750
Unit Breakeven Beer Store 28,879 24,632 21,474 19,034

Price Price Price Price

Particulars ($) ($) ($) ($)
Unit Breakeven LCBO 86,207 73,529 64,103 56,818
Unit Breakeven Beer Store 28,879 24,632 21,474 19,034
Total Breakeven 115,086 98,162 85,577 75,852

4. Channel Strategy
 Distribute Hockley Classic through LCBO
Hockley currently utilizes the LCBO to distribute all of its products. Over the past Hockley has
developed good relationships with the LCBO and usually has no trouble have their beers placed in
the LCBO. Whenever a new LCBO is approached to carry their products the store mana gers have
already heard about the Hockley brand and are eager to stock their products should they have the
space. The LCBO charges a levy of 11% on sales. This levy equates to $.29 per can of ale at a price of
$2.65. There are no stocking fees for Hockley products when they are placed for sale in the LCBO.
The relationship with the LCBO is an important one for Hockley and the sale of its products.

Pros:
 Large distribution network with over 634 retail stores
 Levy is flexible as it’s based on sales
 Brand awareness within the LCBO stores
 Reaches multiple target markets
Cons:
 Reduced contribution margin per unit due to levy
 Products can be bumped from shelves at others discretion
 Requires high volume sales to break even

 Distribute Hockley Classic through the Beer Store

The Beer Store is operated by two of the largest brewers in North America. These brewers are
Molson and Labatt and they are ultimately the competition of Hockley. There are 50 Beer Stores and
to place products in The Beer Store it requires a one-time fee of $3,000 and a fee of $275 for each
store that you wish to sell your product. The Beer Store is place where more refined beer drinkers
go to view and ultimately try different and new beer products. Hockley currently utilizes the Beer
Store to sell taster packs that include different Hockley products in their product mix.

Pros:
 Many shoppers that are willing to try new products
 One time fees result in higher contribution margin per unit
 Can easily substitute Hockley classic into taster pack
Cons:
 Limited exposure
 May offend the LCBO that they are not chosen
 One time fees requires higher number to break even through this channel

 Distribute Hockley Classic through both the LCBO and The Beer Store
Hockley currently utilizes both the LCBO and The Beer Store to sell their products. By utilizing both
of these distribution channels it helps to create as much awareness for the Hockley products as
possible. As mentioned above, the LCBO has a variable rate fee in the form of a levy and the Beer
Store has a fixed rate one-time fee per company and per store. Hockley has the flexibility to
calculate break evens per each distribution channel as well as incremental break even to come up
with the total amount required to break even.

Pros:
 Able to target various markets
 Combination of fixed and variable expenses
 Creates more brand awareness
Cons:
  Requires higher sales to breakeven
 Individuals may purchase through LCBO more frequently which is a lower contribution margin
 Taster packs prevent higher individual unit sales where contribution margins are higher

5. Promotion Strategy
 Promotion via social media
Pros:
 Reach right people at the right time
 Saves time and effort in promotion
 Starting at a very affordable budget
 Effectively reach target audience
 Able to choose specific geographic areas

Cons:
 Will cost more in order to reach more audience
 Invalid clicks will hurt advertising budget
 Does not reach customers who don’t use internet
 Advertising message could be blocked by those internet savvy users

 Promotion based on traditional selections on Exhibit 5

Pros:
 Wide reach to general public regardless of interest
 Multiple promotion mix to convince customers to take action
 Great for market exposure

Cons:
 Measurement method cannot be tracked accurately
 HVB must spend additional time, money, and effort in designing the message
 Very hard to target audience
 Limited information conveyed in the message
 Lack of flexibility once printed

 Promotion based both social media and traditional media

Pros:
 Being both passive and active message conveyers at the same time
 Broad base broadcast and able to be personalized
 Being able to reach both internet users and non-users

Cons:
 Unable to balance both world
 Uncertainty as to which side to put more efforts on

6. Which option should the company pursue? Why?

Current Scenario:

The company was faced with doubling their capacity and increasing market penetration, with the introduction

of a new product – the Hockley Classic, while discontinuing an old product in the Hockley Black and Tan.

Maintaining the status quo would lead to:

 Loss in market share to competitors who are currently operating in the space
 Not achieving company goals of growth, market penetration and doubling production capacity

Suggestion to management
 1. Price

Option 2:

This option included selling the Hockley Classic at a price of 2.65 per unit until breakeven units are reached,
post which the company could drop prices to 2.55 per unit, following a price skimming strategy.

Pros of Option 2 Cons of Option 2

 Customers are already buying the Hockley Black  May not attract customers from larger competitors
and Tan at this price point of 2.65$ and will be like Molson and Labatt
used to buying beer from Hockley at this price as  Doesn’t differentiate the quality of the lager within
three of their products are priced at 2.65$ Hockley product mix
 This price is still cheaper than the competitors’  May cannibalize sales of Hockley 100 and Hockley
prices of $2.85 per can and can lead to an increase Amber, both light beers
in market penetration and could attract customers  The price fall may affect brand perception
from competition
 Less likely to cannibalize the Georgian Bay
product sales being priced higher
 Combined distribution breakeven is approximately
90,000 units which will be quicker to achieve
 Once breakeven is achieved, if the price is dropped
to 2.55 per unit using a price skimming strategy,
market penetration will increase and customers
who have tried and tested the product will be more
likely to buy more product due to the cheaper
price, thus increasing volume sales

2. Promotion

Promotion based both social media and traditional media.

Hockley has annual promotion budget of $50,000 for Hockley classic. By utilizing traditional based
promotion, Hockley can widely reach general public regardless of their interest. Since Hockley use
LCBO as their distribution channel, there is a possibility of using LCBO’s magazine and store display
for the promotion of new product. The budget will cover these costs and will have excess that can
be used for additional promotional expenses. These excess costs can be used for social media
marketing that can generate incremental product awareness in the introductory stage of the
product life cycle.

3. Place

Distribute Hockley Classic through both the LCBO and The Beer Store
Hockley currently utilizes both the LCBO and The Beer Store to sell their products. By utilizing both
of these distribution channels it helps to create as much awareness for the Hockley products as
possible. As mentioned above, the LCBO has a variable rate fee in the form of a levy and the Beer
Store has a fixed rate one-time fee per company and per store. Hockley has the flexibility to
calculate break evens per each distribution channel as well as incremental break even to come up
with the total amount required to break even.

Pros:
 Able to target various markets
 Combination of fixed and variable expenses
 Creates more brand awareness
Cons:
 Requires higher sales to breakeven
 Individuals may purchase through LCBO more frequently which is a lower contribution margin
 Taster packs prevent higher individual unit sales where contribution margins are higher