Boston Beer Company

Case Analysis
By
Asish K Bhattacharyya
 Question 1
• What is the business model of BBC vis-à-
vis traditional beer manufacturers and its
competitors Redhook and Pete’s?

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 Business Model of BBC
• Traditional brewers compete through
economy of scale in operations and
advertising.
• Regional brewers like Redhook, a player
in the craft-brewing segment own and
operate production facilities and spend
little in sales and marketing.

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 Business Model of BBC (Contd.)
• Contract brewers, like BBC and Pete’s,
outsource the brewing to second tier
brewing companies, who have excess
capacity, and they invest heavily in brand
building.

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 Question 2
• What are the risks and advantages of
important strategic initiatives of BBC?

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 BBC’s Strategic Initiatives

BBC sources and select Risk:

all ingredients using only Strong bargaining power
finest Nobel hop in its of suppliers; risk of
proprietary recipe losing access to
premium ingredients.

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 BBC’s Strategic Initiatives (Contd.)
Intensive sales and Risk:
marketing Consumer taste would
change and consumers’
willingness to pay
premium would diminish.

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 BBC’s Strategic Initiatives (Contd.)
Product line innovation Risk:
Cannibalization and
consumer confusion

Advantages:
Increased self space
and leverage with its
distributors

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 BBC’s Strategic Initiatives (Contd.)
Contract brewing Risks:
Inconsistency between
the image of a premium
brand and contract
brewing; consumer
backlash
Advantages:
Economy of scale
Variable production cost
Geographical spread
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No capital investment in 9
fixed assets
 Question 3
• What are the strategies of the three craft
brewers to create sustainable competitive
advantage?

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 Strategy to Build Sustainable
Competitive Advantage
• BBC and Pete’s: Brand building
• Redhook: Capital investment to build its
own breweries

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 Question 4
• What method should we use to determine
the intrinsic value of BBC?

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Methods To Determine the Intrinsic
Value
• Comparables
• Accounting based valuation
• DCF method of valuation

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 Question 5
• What should be the IPO price?

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 IPO price
• Base on P/E: $ 20 to $ 25 per share
• Based on P/B: $ 21 to $ 23 per share

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 Additional questions
• Do you think that the total market value of
Redhook, Pete’s and BBC makes sense, given
the total size and profitability of the beer
industry?
• In late December 1995, sell-side analysts were
forecasting long-term growth of 25 to 40 percent
for the craft-brewing segment. How achievable
are these growth targets? What factors are likely
to influence analyst’s growth forecast?

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