Adolph Coors
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In the brewing industry, barriers to entry were high. Fixed costs increased as a percentage of revenue necessitating brewers to have higher production capacities/minimal efficient production scale to achieve economies of scale. According to the case, if a brewery were to double its scale they could cut capitol costs by 25%, whereas halving it would increase capitol costs by 33%. Many companies chose to expand and operate several breweries apiece. Multi-plant configurations reduced the risks of catastrophic shutdowns due to such things as strikes, fire or explosions. It also allowed for production of low-volume packages, while also allowing brewers to absorb the output repercussions of a large new brewery over several existing ones.
The rivalry among existing competitors was high as the number of brewers making less than one million barrels per year decreased from 90% in 1959 to 45% in 1983. Furthermore, since the domestic beer consumption was flat, rivalry among brewers was intensified because any gains in sales by one brewer resulted at the expense of its competitor rather than through growth of the overall market.
Other factors that decreased the number of brewing firms include the increase in number of baby-boomers. The brewing industry’s capacity utilization had been in the 60% range but this changed dramatically in the 1960’s and 1970’s. Large brewing companies reacted to this new demand by adding relatively large breweries and sold them quickly, which led to smaller breweries being closed.
Another factor that decreased the number of small brewers was that wholesalers who supplied to off-premise outlets (supermarkets, grocery and liquor stores) usually carried only one brand. This caused difficulty for competitors, as they were unable to find large wholesalers to carry their product as the lead brand. Big brewers also had greater success in launching new brands, as they were able to leverage their existing brand in conjunction with production and distribution capabilities, which were so vast that sales volume was achieved quickly. Finally, the large brewers were increasingly successful by creating another point of differentiation. They attracted more consumers as the big brewers had the capacity to package beers in different sizes and therefore also appeal to consumers who drank beer in small amounts or slowly as well as packaged in different numbers to cater to the growing population of drinkers who consumed at home.
Coors’ transition from a regional to international brewer began in the 1970’s when the company started expanding both its product line and distribution. Until then, Coors produced only one beer, the original Coors Banquet Brand, for distribution in just 11 Western states. Traditionally, Coors controlled production costs by only brewing one beer, running the fastest packaging line in the industry and operating the largest brewery in the world. Coors’ limited distribution left consumers in the eastern United States clamoring for a taste of the Rocky Mountains’ finest beer, and many of them went to great lengths to experience what became known as “the Coors mystique.”
In the 60’s, they were proud of the fact that they did not advertise. Why should they? In many western states, they had over 30% of the beer market. That’s of the total beer market, not just some segment. And they created incredible demand in the east through limited distribution. Coors needed to change its business strategy and expand its distribution to survive this changing marketplace. Increased beer advertising, new brands directed to specific market segments, conveniences such as non-returnable bottles and a growing interest in reduced-calorie beverages were among the trends shaping the industry.
In 1978, Coors introduced the popular Coors Light brand – dubbed The Silver Bullet, which was destined to become one of the country’s best-selling beers. Following that, the company has successfully introduced a wide array of superior quality mainstream and specialty beers. As expansion progressed, distribution crossed the Mississippi River in 1981.
High capital requirements existed since millions were required in launch costs and advertising for a new brand. These financial requirements implied a competitive advantage for large brewing companies who were spending approximately 10% of sales in advertising in 1985. An entering