Boston Beer Case Study sample essay
Jim Koch was motivated and haunted by the idea of being an entrepreneur in the beer brewing business. Once upon a time his great-great-grandfather created a recipe that was full bodied, had a longer brewing time, used rare hops, and cost a lot more than the imports are costing. Koch saved $100,000 and was able to acquire $140,000 from family and friends to start up his brewery. Knowing that it would cost close to $10 million to actually open a brewery, Koch contracted out his brewing to an existing company, The Pittsburg Brewing Company, and named the beer Samuel Adams after the revolutionary icon who was also a brewer.
The first step had been made; Koch only needed to find bars and retailers willing to carry the high priced beer. Starting small Koch went from bar to bar to sell the beer and was able to find some to carry Samuel Adams. Slowly he began to expand first to Washington DC then to New York and so on. He distributed through his own trucks, grew his flavors and his business from less than a dozen sales reps in 1989 to over 70 nationwide in 1994. Taking his beer on the road Koch won multiple gold medals in blind taste tests, outperformed the pricy imports, and created a niche market owned by the micro-breweries.
Problem: Koch and Samuel Adams faced many problems along the way, three of which were Start up, expansion and distribution, and stock price problems. For the start up it was obvious that Koch was determined and had the entrepreneurial spirit to get the company off the ground, it just needed a serious financial backing. Once the company was able to get the backing they needed and overcome the obstacles of brewing and placement they had to figure out distributing so that they could expand their business. Finally once the distribution and expansion took hold and the company grew, Samuel Adams went public.
Though the stock prices were promising in the beginning, they fell a little lack luster just after the announcement. Analysis: Entrepreneurship is expensive especially when breaking into a market with already high barriers to entry. Not only do you need the high capital to start up but you need the facility, the recipe, the suppliers, the network, placement of the product and more. Getting all of these things in place is nearly impossible that is why the majority of new businesses fail within the first year.
Be that as it may, Koch found a way around the obstacle of a facility by contracting out his brewing. His recipe was from his great-great-grandfather and he got the capital from his own savings and family investments. The biggest thing he had to side step on the way to big business is to gain a wholesaler who would wasn’t already under a contract to a brewer and would be willing to carry and distribute the product. Not only were there very few wholesalers left, but the fact that bars and retailers might not even carry the over-priced beer turned off the few distributers left.
Koch made a calculated decision and decided to take his beer from bar to bar and convince the retailers to carry it. From this point Koch decided to expand his business into other territories but the main problem remained how he would distribute his brew. Koch bought a truck and delivered the beer himself. His company ran its own distributing in order to expand to other markets. This expansion took on a whole new life for the company allowing for incredible growth for the company and for the brand. The expansion of the business was not only geographically but in product offering as well.
With multiple flavors and distinct varieties Samuel Adams attracted the beer connoisseur and the daring alike. With this growth in the company Koch decided it was time to go public, though the way shares were offered were much like the beer brand, out of the ordinary. The stock coupons were placed inside of Samuel Adams 6-packs offering the holder to purchase 33 shares of stock at a max price of $15 for a total of $495 at a first come first serve basis. After the opening bell stock prices rose to upwards of $30 and the future looked promising for SAM on the exchange.
Unfortunatley that was short lived as stock prices fell and held at $8-$10 a share in 2001. The stock price drop scared Koch into believing that he may need to cut back on his beer offering and hone in on the best sellers. Though the continued success of the beer brand and the volatility of the market bringing SAM up to a peak at $55. 30 in 2007 the idea was scrapped. Recommendations: Generally with entrepreneurial activities I would say go big or go broke. You really need to commit to the project and Koch did that. The best thing that he could have done was to do what he did.
He stuck to his guns and kept the recipe, ousted the imports for sub-par ingredients, contracted out his brewing, bought his own trucks, went bar to bar to sell the product, and created flavors and combinations worthy of a gold medal. My only recommendation as an entrepreneur is that when a company expands it should do so with kid gloves because overexpansion too quickly can dry out the desire for the product and leave you stretched thin. Distribution and logistics of expansion are always a problem for new companies.
Larger corporate run companies tend to buy up the manufacturers, wholesalers, and distributers so that not only will they have their product where they want it but they also won’t be competing with other companies for the business. Koch decided to stick it to the man and buy his own trucks to deliver his beer. As well and good as this all sounds I think it would have been a lot easier and more efficient to bid and get a contract with a distributer that was willing to take a chance. Granted his gamble paid off and his company image is booming with the “Revolutionary Pride” but the gamble was huge.
My recommendation for distribution here would be to have searched for a company willing to do it and to build up from what small start they had. Stock prices are volatile, they change every second and no price is ever safe or stagnant. Because of this SAM was in a tough spot to begin with, added to the fact that the company wasn’t as well known as some of the others on the ticker they needed to do something to drive up demand. Koch found it with the coupons in the 6-packs. Not only did it drive sales for the beer but it brought a game into the stock market that hadn’t been tried before.
As great as the idea was and yes the stock price jumped but it also fell and fell hard. My recommendation for the ISO would have been to continually drive demand with the coupons and find a way to make it an ongoing event. When stock prices came back up Koch decided to not drop his lesser beers and instead ride out the market and find a true way to market his beer to drive demand of the beer and his stock offering. I believe that this was a good plan in the long run seeing as the beer is incredibly popular today and still going strong with multiple flavors.
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