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Boston Beer Essay

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Making a buck at craft brewing has been as easy as falling off a barstool the last few years. So Wall Street is now bellying up for a couple of IPO brewers. They’d better start chugging; the party won’t last long. The intoxicating roundup of offerings began in August when Redhook Brewing, a specialty beermaker started in Seattle by former wine marketer Paul Shipman and Starbucks co-founder Gordan Bowker, tapped the market. The stock was priced at $17, never traded below $24. 75 and was recently at $27. 25.

Again, investors went on a bender last month when Pete’s Brewing Company hit the market. The stock, priced at $18 a share, closed its first day of trading at $25. 25 and hasn’t sold below $23. 75 yet. Boston Beer, of Sam Adams fame, will roll out in mid-December; the Northwest’s Hart Brewing, which makes Pyramid Ales, is not far behind. 1 Eileen Gunn Fortune Magazine, December 11, 1995 Company Background History Boston Beer Company (BBC) was founded in 1984 by Jim Koch, who was the sixth generation of his German family to become a brewmeister.

During the early 1980’s, Koch observed the changing tastes of American beer drinkers toward more flavorful, bitter tasting beers which were offered initially only by import companies. Convinced by what he viewed as a compelling market opportunity and inspired by his family’s tradition, Koch decided to leave his $250,000 per year consulting job and start his own domestic beer company using his great-great-grandfather’s recipe. Ten years later, his company was the largest in the craft beer segment, selling over 714,000 barrels of beer, more than the next six largest craft brewers combined.

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The company’s sales had grown from $18. 9 million in 1990 to $114. 8 million in 1994, representing a compound annual growth rate of 57%. 1 Eileen P. Gunn, “Microbrew Party On Wall Street,” Fortune, December 11, 1995, p. 28. Research Associate Christopher Charron prepared this case under the supervision of Professor Amy Hutton as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1996 by the President and Fellows of Harvard College.

To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015.

For the exclusive use of W. Xu 196-138 The Boston Beer Company, Inc. BBC capitalized on the nation’s growing appetite for specialty beers by producing brews with a more full-bodied, bitter taste than the lighter, pilsner brews made by the nation’s mass producers. By November, 1995, BBC offered a product line that included 7 year-round and 7 seasonal brews. The company’s flagship product, Samuel Adams Boston Lager, accounted for 63% of the company’s sales in 1994. This brew won the title “Best Beer in America” four straight years and was selected World Championship Amber Lager at the World Beer Championships in 1994.

The superior quality of BBC products was achieved through a meticulous selection of ingredients and careful monitoring of the brewing process. BBC products were brewed via traditional European brewing methods, which utilized superior ingredients such as rare Bavarian hops and unusual strains of barley. Manufacturing was done on a contract basis at four, third-party breweries across the country. BBC carefully controlled the brewing process by employing a staff of brewmasters and insisting on strict manufacturing specifications.

Company Strategy All aspects of the BBC strategy focused on one goal: selling the highest quality beer products to its customers. To accomplish this mission, the company pursued four initiatives: high quality standards, contract brewing, intensive sales and marketing, and product line innovations. High Quality Standards BBC prided itself on producing the highest quality specialty beers in the craft brewing industry. To this end, each year Jim Koch and one of his senior brewers traveled to Europe to personally select rare breeds of Bavarian and English hops.

Unlike the mass beer producers, BBC did not use corn, rice, syrup, sugar or stabilizers in its products. Once ingredients were carefully chosen, BBC carefully monitored its contract breweries by employing five brewmasters. Jim Koch required that each batch of Sam Adams beer undergo close to 125 tests, tastings and evaluations to ensure that it met company specifications. 2 BBC also differentiated its product by being the first company in the industry to stamp each bottle with a product freshness date. Beer is best consumed 2 to 3 months after bottling.

BBC implemented freshness dating so consumers would know whether they were getting fresh or stale beer. “[Previously,] all you had to do was be imported. You didn’t have to be good, you didn’t have to be fresh. You could be skunky and stale as long as you were imported. ”3 Now, Koch instructs his employees and customers to abide by one rule: “Date passed, beer goes. ” Despite the occasional waste of beer, Koch believed the policy sent a clear message to everyone that Boston Beer meant quality at all costs. 4 Contract Brewing A central part of the Boston Beer Company’s strategy was contract brewing.

The arrangement between BBC and its contractors was straightforward. BBC supplied the important raw ingredients and all packaging materials. The contract brewing companies purchased all other ingredients needed for beermaking. In exchange for production, BBC paid its contractors a fixed price per unit up to an agreed upon volume, subject to unit discounts beyond this volume. In explaining his strategy of contract brewing, Jim Koch stated: 2 The Boston Beer Company, Inc. , Prospectus for Class A Common Stock, October 29, 1995, p. 33. 3 Greg W. Prince, “A Second Look at Koch,” Beverage World, December 31, 1994, p.17.

4 Robert A. Mamis, “Market Maker,” Inc. , December, 1995, pp. 54-64. 2 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu The Boston Beer Company, Inc. 196-138 In the value-added chain, I choose the parts I can do better than anyone else. I capture the art-and-science part of brewing, while they run the plant. I’m not better at getting a roof fixed than they are. Owning something can tie you down.

My beer gets good treatment because if the contractor were to do anything wrong, I could leave. Whereas with their own beer, they can’t leave. So Sam Adams is brewed especially well. 5 Contract brewing resulted in several competitive advantages. Most importantly, since BBC did not own a brewery, the company incurred lower capital and overhead costs resulting in higher gross margins. Second, by carefully selecting breweries based on geographic location, BBC enjoyed lower transportation costs and superior product freshness, since products traveled to market over a shorter distance.

Finally, contract brewing allowed for greater manufacturing flexibility. As long as excess capacity in the beer industry continued, Jim Koch could hand-pick plants that best fostered national expansion and that consistently adhered to BBC’s high quality standards. BBC’s contract brewing was done at four facilities: Pittsburgh Brewing Company, G. Heileman Brewing Company in Portland, Oregon, The Stroh Brewery in Lehigh Valley, Pennsylvania, and Genessee Brewing Company in Rochester, New York. As Exhibit 1 shows, excess capacity at these and other medium-sized breweries was high and expected to continue for quite some time.

Intensive Sales and Marketing The most important benefit of contract brewing was that it freed up internal cash flow to be used for marketing purposes. BBC spent nearly 40 cents of every dollar in revenue on sales and marketing, a rate significantly higher than most other specialty beer companies. These resources were spent on a variety of consumer and channel-oriented marketing programs. Viewing distributors as its primary customers, BBC operated one of the largest (120 field sales persons) and most effective sales forces in the beer industry.

While sales forces of competing companies often amounted to order-takers, the BBC sales force immersed itself in what founder Koch called “educational marketing. ”6 Members focused on teaching distributors and retailers about the virtues and characteristics of quality beer. This education was achieved through frequent field demonstrations, educational seminars, beer tastings, and brewery tours. While its sales force targeted distributors and retailers, BBC barraged the airwaves with unique ads designed to reach the beer-drinking consumer.

In contrast to the advertising approach of the established beer companies (which sought to sell beer on the basis of an emotion or lifestyle that drinking a certain beer might engender), BBC focused its message on the quality of the beer itself. BBC ads often touted the numerous awards the company had received and educated consumers about the beer-making process and ingredients. Of his advertising approach, Koch stressed, “I just want to educate them that there’s more to beer than Bud Bowl and beach babes. ”7 5 Ibid. 6 Jenny C. McCune, “Brewing Up Profits,” Management Review, April, 1994, pp. 16-20.

7 Grew W. Prince, “Little Giants,” Beverage World, December 31, 1994, pp. 26-35. 3 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu 196-138 The Boston Beer Company, Inc. Product Line Innovation The BBC expanded its product line to build brand awareness and gain leverage with its distributors and retailers. New products served the dual purpose of introducing beer drinkers to different styles of beer while still keeping them in the Sam Adams family.

8 A broader product line also helped obtain greater shelf space for BBC products and engender greater product focus among distributors and retailers. BBC developed new beers at its small Boston brewery by researching market tastes, sampling competitor beers, and conducting tastings. Since 1992, BBC had introduced 4 new year-round beers and 2 new seasonal brews, bringing its total product line to 7 year-round and 7 seasonal brews by November, 1995. In addition to its Boston Lager, Boston Ale, Lighthship and Honey Porter mainstream brands, BBC produced a number of seasonal beers.

These included Sam Adams Octoberfest, Sam Adams Winter Lager, Old Fezziwig (a holiday beer), Sam Adams Double Bock, Sam Adams Dark Wheat, Sam Adams Cranberry Lambic, and Sam Adams Cherry Wheat (a summer brew). In an effort to expand its offerings to beers that did not fit stylistically in the Sam Adams product line, BBC began development of other brands though private labeling and joint ventures. In 1994, it formed the Oregon Ale and Beer Company to develop and sell a line of beers native to the Pacific Northwest section of the country.

This company’s staple product, Oregon Pale Ale, was produced at two breweries in Oregon and marketed through a separate sales force. In August, 1995, BBC also entered into a joint venture agreement with Seagram to develop another beer brand. As of November, 1995, the arrangement had not yet been finalized. Industry Outlook and Competition Market Size and Outlook After growing steadily since the repeal of Prohibition in 1935, the $50 billion domestic beer market experienced virtually no growth between 1981 and 1994.

Domestic per capita beer consumption, which peaked at 23. 1 gallons per person in 1981, declined steadily throughout the 1980’s, dropping to a level of 21. 5 gallons by 1994. A number of social and regulatory factors contributed to this stagnant growth, including an aging population, social pressures on drinking and driving, an emphasis on healthier diets, and an increase in the drinking age of many states from 18 to 21 years of age. From 1989 to 1994, the overall industry growth rate registered a meager 0. 1% annually.

Analysts expected this trend of no growth to continue over the foreseeable future. In contrast to the leveling off in the beer market as a whole, sales of the specialty beer segment grew at a compound annual rate of 40% over the five-year period ending 1994. Specialty beers distinguished themselves from mass-produced beers by a more full-bodied and bitter taste, usually achieved through the painstaking selection of ingredients, proprietary recipes, and traditional European brewing methods, which typically produced beer in smaller batches.

Throughout the 1980’s specialty beers including, amber lagers, ales, stouts, porters, and wheat beers, gained in popularity over the lighter, mass-produced beers of the larger breweries. Consumers’ more sophisticated tastes reflected trends in the overall food and beverage markets, marked by a demand for gourmet cuisine, new age beverages, and a broader range of specialty products. 9 8 The Boston Beer Company, Inc. , Prospectus for Class A Common Stock, October 29, 1995, p. 34. 9 L. Adelman, “Pete’s Brewing Company,” Analyst Report, Dean Witter Reynolds, December 6, 1995, p.

7. 4 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu The Boston Beer Company, Inc. 196-138 Initially, the demand for more full-flavored beers was met by imports such as Heineken, Becks, and Guinness. Later in the decade, however, craft brewers in the United States began to produce and market their own specialty brews in select geographic regions.

These competitors hoped to challenge the import products by capitalizing on lower transportation costs, fresher product, and feelings of national and local pride. Competitors in the Beer Industry Players in the U. S. domestic beer market can be classified into three general categories: major and second-tier domestic producers, import beer companies, and craft or specialty brewers. See Exhibit 2 for a breakdown of beer shipments for each of these categories. Major domestic producers consisted of a handful of companies who produced lighter, pilsner beers and competed on the basis of economies of scale in production and advertising.

This highly concentrated segment of the market was dominated by three companies: Anheuser-Busch, Miller Brewing Company, and Adolf Coors Company. Collectively, the “Big Three” accounted for 77% of domestic beer shipments in 1994. Throughout the 1980’s, these major producers were content to leave the specialty beer niche to the import companies, perhaps due to its small size relative to the beer market as a whole. However, as the market expanded and local craft breweries flourished, the larger companies tried to reposition existing super-premium brews to appeal to the specialty segment.

These efforts met with only mild success. Products such as Red Wolf and Red Dog achieved moderate volumes, but only at the expense of cannibalizing existing product lines. 10 During 1994 and 1995, the large brewers took steps to invest directly or indirectly in existing craft brewing companies. Examples of such investments included Anheuser-Busch’s equity/distribution deal with Redhook and Stroh’s equity/production arrangement with Pete’s Brewing Company.

“Second-tier” domestic producers consisted of such medium-sized competitors as Stroh Brewery Co., G. Heileman Brewing Company, Pabst Brewing Company, and Genessee. These companies followed the same product and marketing strategy as the “Big Three. ” However, as overall market demand tapered off during the 1980’s, these medium-sized breweries lacked the financial and marketing resources to defend their brands. As a result, second-tier competitors experienced significant loss of market share, high excess production capacity, and financial hardship. Still, second-tier companies controlled a significant share of the market.

Combined with the “Big 3”, the top 10 major producers accounted for 93% of beer shipments in 1994. Import companies from Germany, Holland, Canada, and Mexico traditionally served the needs of sophisticated beer drinkers who desired more flavorful, bitter-tasting products. Import companies, however, operated at a distinct disadvantage relative to domestic competitors. These disadvantages included higher shipping costs, weaker distribution networks, inability to control product freshness, and margin squeezing due to a weak dollar.

Despite losing ground to specialty brewers during the late 1980’s, import companies still controlled a larger share of the domestic beer market in 1994 (5. 3% of industry shipments) than domestic craft brewers (1. 4% of shipments). The Craft Brewing Segment Though comprising a small overall percentage of the U. S. beer industry (1. 4% in 1994), the craft brewing segment had grown rapidly over the last five years (approximately 40% per year). 11 Such growth had spurred the founding of over 600 specialty beer companies, who competed primarily on the basis of product quality and brand identification.

Competitors fiercely guarded their proprietary beer recipes and access to special ingredients. At the same time, craft brewers attempted 10 Ibid, p. 17. 11 Ibid, p. 26. 5 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu 196-138 The Boston Beer Company, Inc. to build a strong brand name through intensive marketing. Craft beer products sold at a price of $20 to $24 per case, roughly twice the price of mass-produced beers.

This price premium was tolerated by the sophisticated specialty beer consumer, who appreciated the additional quality of craft brews. The price premium also resulted in higher margins for both wholesalers and retailers, making them more willing to stock and promote specialty beers. The craft brewing segment was comprised of four types of companies: brewpubs, microbreweries, regional breweries and custom breweries. Brewpubs were restaurant/bar establishments with over 50% of their beer products consumed on-site.

In 1994, more than 300 brewpubs operated in the U.S. , accounting for 12% of the specialty beer volume. Microbreweries, traditionally operating in limited distribution networks produced less than 15,000 barrels of beer per year. In 1994, the 200 microbreweries operating in the U. S. accounted for 22% of the specialty beer volume. Microbrewing establishments were expected to proliferate over the next few years. Regional breweries produced between 25,000 and 100,000 barrels of beer per year and had the distinguishing characteristic of owning and operating their own brewing facilities.

This production strategy necessitated a high capital investment and, in turn, precluded heavy expenditures on sales and marketing. In lieu of heavy marketing expenses, regional breweries relied on the brewing plant itself to garner publicity and brand recognition. Because of high transportation costs and selfimposed standards of freshness, regional breweries limited their distribution to areas surrounding their plants. By November, 1995, there were roughly 30 regional specialty breweries in the United States, including Redhook, Anchor Brewing, and Sierra Nevada Brewing Company.

The regional breweries accounted for 30% of the 1994 specialty beer volume. 12 Custom (or contract) brewing companies took advantage of excess capacity among larger brewers in the industry by contracting out their beer-making production. This production strategy allowed contract-brewers to devote greater financial resources toward sales and marketing. In addition, custom brewers were generally able to penetrate a wider distribution area by choosing plants that were strategically located across the country. This “hub-and-spoke” strategy cut down on transportation costs and guaranteed product freshness.

Due to growing excess capacity among second-tier beer producers, custom brewers also exerted considerable control in this relationship. If a custom brewery was unhappy with the price or production of its beer, other plants were eager to do business. By November, 1995, over 100 custom breweries operated in the United States, up from only 15 in 1990. Successful contract brewers included Boston Beer Company, Pete’s Brewing Company, and Spanish Peaks Brewery. In 1994, custom breweries accounted for 36% of the specialty beer volume. Analysts’ growth forecasts for the craft brewing segment were positive.

Several Wall Street analysts forecast that sales of the craft beer segment could conservatively reach 5% of total domestic beer sales, by the year 2000. Some estimates ranged as high as 7% to 10% of total domestic beer sales. This assessment was buttressed by the fact that craft beer sales had already eclipsed the 5% mark in several states: Washington (6. 8%), Oregon (8. 5%) and Massachusetts (5. 3%). However, some analysts believed that heightened competition would result in price reductions, slightly lower margins, and some consolidation in the industry in the years ahead. 13 12 M. J.

Rietbrock et.al. , “Redhook Ale Brewery,” Analyst Report, Smith Barney, September 15, 1995, p. 16. 13 Taken from Gunn, “Microbrew Party on Wall Street,” and Adelman, Analyst Report. 6 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu The Boston Beer Company, Inc. 196-138 Recent IPO’s in the Craft Beer Industry By November 1995, two large craft brewing companies had successfully tapped the public equity markets: Redhook Ale Brewery and Pete’s Brewing Company.

The trading history for each of these offerings is detailed in Exhibit 3. Redhook Ale Brewery was a regional craft brewer headquartered in Seattle, Washington. The company produced and sold six styles of beer under the Redhook, E. S. B (“Extra Special Bitter”) name. Sales were focused in the western U. S.. Unlike BBC and Pete’s Brewing Company, Redhook owned and operated its own breweries. Its major sources of production were two technologically advanced breweries in Fremont (capacity: 75,000 barrels) and Woodinville (capacity: 250,000 barrels), Washington.

The company planned to open a third brewery in Portsmouth, New Hampshire during the latter part of 1996. In October 1994, Redhook established a strategic alliance with Anheuser-Busch (A-B) whereby Redhook products were sold through the nation-wide network of 700 A-B distributorships in exchange for a 25% equity stake in the company. Bolstered by this stronger distribution network and its push for regional expansion, Redhook anticipated selling roughly 158,000 barrels in 1995, representing a 68% increase over 1994 levels.

Between 1990 and 1994, the company had achieved a 41% compound annual growth rate in the number of barrels shipped. 14 Pete’s Brewing Company was the second-largest and fastest-growing craft brewer in the United States. The company marketed six beer products in 44 states under the “Pete’s Wicked” brand name. Similar to BBC, Pete’s operated as a contract brewer and spent a great deal of resources marketing and advertising its “Pete’s Wicked” franchise. In August 1995, Pete’s negotiated a production agreement with Stroh’s brewery which gave the company access to Stroh’s multi-plant production network in exchange for a 10% equity stake.

Most of Pete’s products were brewed at the St. Paul, Minnesota brewery of Stroh. However, the company planned to use the proceeds from its recent IPO to construct a new brewery of its own in California, where excess capacity was limited and demand for specialty beers was high. Pete’s anticipated selling 350,000 barrels of beer in 1995, representing an increase of 95% over the previous year. Between 1990 and 1994, the company had experienced compound annual growth of 111% in barrels shipped and 109% in net sales.

Though all three companies, Pete’s, Redhook, and BBC, had capitalized on the tremendous growth in craft brewing over the last decade, each company positioned itself differently for sustaining growth in the years ahead. BBC intended to remain a contract brewer exclusively, capitalizing on lower overhead and transportation costs while continuing to invest heavily in its branded products. Redhook believed that its long-term growth and profitability were best served by assembling the largest company-owned production capacity of any domestic craft brewer, guaranteeing production capacity in more than one geographic region of the United States.

Redhook also made a substantial investment in distribution, gaining access to Anheuser Busch’s nation-wide network of resellers. Pete’s, on the other hand, appeared to be following a combination of these two strategies by producing its products at both company-owned and third-party breweries. Exhibit 4 summarizes the operating and financial characteristics of both Pete’s and Redhook. As BBC prepared for its own IPO, many in the investment community expected a positive reception. After all, BBC was expected to ship more than 960,000 barrels of beer in 1995, almost three times the volume of Pete’s and more than six times the volume of Redhook.

The company was wellmanaged and possessed a valuable brand franchise. To many analysts, the question was not whether the BBC offering would be well received, but rather how well the stock would perform and for how long. Exhibit 5 provides excerpts from the BBC offering prospectus. 14 M. J. Rietbrock et. al. , “Redhook Ale Brewery,” p. 4. 7 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu 196-138.

The Boston Beer Company, Inc. Some IPO watchers were concerned with craft brewers’ ability to sustain their high levels of growth. Many feared that the U. S. market for specialty beers was fast becoming saturated, and that the flurry of new competitors entering the industry would halt the explosive growth of previous years. Another concern was the financial viability of the second-tier brewers that produced beer for the contract brewers. As Eileen Gunn wrote in Fortune: If Boston Beer and Pete’s have a weak spot, it’s manufacturing: They hire old-line brewers such as G.

Heileman or Pittsburgh Brewing to make their products. These are troubled operators. That’s why Pete’s is building a brewery with it’s IPO money. 15 As BBC prepared to go public, analysts considered many questions concerning the long-term and short-term prospects of its stock. What was the value of BBC’s stock? At what price would the stock settle after the 1st day of trading? After the 30th day? What were the relative values of Pete’s, Redhook’s, and BBC’s stocks? Were the implied ROE’s and growth rates for these companies sustainable? Was the craft brewing industry, as a whole, overcapitalized?

Taken collectively, did the growth rates of these companies make sense given the likelihood of action by the “Big 3” beer companies? 15 Gunn, “Microbrew on Wall Street,” p. 28. 8 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu The Boston Beer Company, Inc. Exhibit 1 196-138 Brewing Capacity and Utilization of Major U. S. Brewers Total Capacity (Million Barrels) 1994 Volume (Million Barrels) Free Capacity (Million Barrels) Capacity Utilization (%) Anheuser-Busch 94. 9 88. 2 6.

7 93% Miller Brewing 46. 4 45. 2 1. 2 97% Coors 25. 0 20. 2 4. 8 81% Strohs 17. 9 11. 9 6. 0 66% G. Heileman 13. 2 8. 3 4. 9 63% Pabst 10. 5 6. 6 3. 9 63% Source: M. J. Rietbrock et. al. , “Redhook Ale Brewery,” Analyst Report, Smith Barney, September 15, 1995. Reprinted from Beer Marketers Insights. 9 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu 196-138 xxx 10 Exhibit 2 Shipments of U. S. Beer Companies, 1990-1994 1990 1994 (000’s Barrels) (000’s Barrels) (000’s Barrels).

86,499 43,500 19,300 86,037 43,556 19,550 86,846 42,145 20,000 87,306 44,024 20,000 88,159 45,200 20,200 149,299 149,143 148,991 151,330 153,559 Strohs G. Heileman Pabst Genesee Latrobe Falstaff/Pearl/Genesee Pittsburg All Others 16,200 10,914 6,700 2,200 713 850 700 1,871 14,800 9,377 6,600 2,220 803 800 700 2,554 14,000 9,133 6,900 2,150 882 900 670 3,907 12,610 8,940 7,000 2,000 1,035 800 575 2,582 11,850 8,315 6,630 1,800 1,060 700 470 1,473 Subtotal 40,148 37,854 38,542 35,542 32,298 8,922 8,031 8,409 9,348 10,602 Boston Beer Pete’s Brewing Redhook All Others 121 9 24 566 174 15 34 737 294 29 50 817 475 69 74 1,092 714 180 94.

1,642 Subtotal 720 960 1,190 1,710 2,630 199,089 195,988 197,132 197,930 199,089 All Imports Imports 1993 (000’s Barrels) Subtotal 2nd Tier 1992 (000’s Barrels) Annheuser-Busch Miller Brewing Coors Top Tier 1991 Craft Brewers Total Sources: M. J. Rietbrock et al. , “Redhook Ale Brewery,” Analyst Report, Smith Barney, September 15, 1995, and L. Adelman, “Pete’s Brewing Company,” Analyst Report, Dean Witter Reynolds, December 6, 1995 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W.

Xu The Boston Beer Company, Inc. Exhibit 3 196-138 Stock Price Data For Pete’s Brewing Company and Redhook Ale Brewery Pete’s Brewing Company Offering Price Date of Offering Number of Shares Offered Fully Diluted Average Shares 1st Day Close Low Trade as of 11/20/95 High Trade as of 11/20/95 Stock Price Close on 11/20/95 P/E Ratio on 11/20/95 P/B Ratio on 11/20/95 $18 November 7, 1995 3,000,000 8,460,000 $25 1/4 $23 3/4 $26 1/4 $24 3/4 100 129 Redhook Ale Brewery $17 August 17, 1995 2,575,497 9,300,000 $27 $24 3/4 $34 3/4 $27 36 3 Additional Market Information Beta for Anheuser Busch AAA Corporate Debt in November, 1995.

Treasury Bill Rate in November, 1995 Government 30-Year Treasury Notes 1. 00 7. 02% 5. 35% 6. 26% Source: Datastream (stock price data), ValueLine (Beta), and The Wall Street Journal (interest rates). P/B was calculated using shareholders equity as of September 30, 1995. rd P/E was based on P/B and annualized 3 quarter ROEs. Annualized ROEs were 129. 3% and 8. 6% for Pete’s Brewing and Redhook, respectively. 11 This document is authorized for use only by Wenting Xu in Financial Cases & Modeling 2014 taught by Mark Simonson Arizona State University from August 2014 to February 2015. For the exclusive use of W. Xu.

196-138 xxx 12 Exhibit 4 Financial Summary of Pete’ Brewing Company and Redhook Ale Brewery Pete’s Brewing Company Year Ended 31-Dec-93 9 Months Ending 31-Dec-94 30-Sep-95 Redhook Ale Brewery Year Ended 9 Months Ending 31-Dec-93 31-Dec-94 30-Sep-95 27. 80% 22. 20% 18. 00% 0. 30 1. 19 Return on Equity Profit Before Taxes/Net Sales (a) x Net Sales/Average Assets x Average Assets/Average Equity (b) = Return on Equity (pre-tax) Margins Gross Profit/Net Sales SGA/Net Sales Operating Profit/Net Sales Interest Expense/Net Sales Inventory Turnover Avg Collection Period Avg Accts Pay Period (c) (c) (d) Aggregate Size Measures.

Net Sales (000’s) Barrels Sold (000’s) Total Assets (000’s) Total Shareholders Equity Total Employees Total Salespersons (a) (b) (c) (d) 1. 07% 1. 67% 3. 50% 5. 70 6. 74 6. 83 6. 21 4. 44 6. 24 0. 77 1. 50 0. 55 1. 29 41. 11% 70. 83% 96. 97% 31. 97% 15. 62% 6. 44% 46. 85% 45. 50% 1. 36% 0. 30% 4. 99 11. 90 45. 20% 43. 20% 1. 96% 0. 30% 10. 69 11. 20 49. 65% 42. 80% 3. 85% 0. 40% 6. 54 39. 40 46. 34% 17. 42% 28. 92% 1. 38% 23. 62 29. 60 41. 82% 18. 76% 23. 06% 0. 87% 15. 02 28. 00 34. 35% 17. 59% 16. 76% N/A 10. 32 32. 90 58. 50 43. 70 41. 90 78. 60 85. 02 99. 10 30,837 180 5,918 1,040 N/A N/A 41,988 246 12,983 1,987 76 56.

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