Coors Case Study: Regional Economies of Scale
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Before we discuss how Coors lost its regional economies of scale in 1975 as it went national by 1985, weshould realize another lesson this case demonstrates:
not all growth is profitable
. Growth requiresinvestment, not all investment earns its required return, and thus, growth can destroy value.Furthermore, Coors was an entrant lacking economies of scale going
into the regions dominatedby a huge competitor Anheuser-Busch (
Coors Case Study
What is the nature of the business?
Brewing beer is a business about
Beer is bulky, heavy and expensive to ship.The cost of transportation from one location, which was not a problem when Coors was a regional firm,increased as Coors distribution territory expanded. Anheuser Busch (
), with eleven breweriesaround the country, had shorter distances to travel from brewery to wholesaler and thus, lowerdistribution costs. The requirements of non-pasteurization increased distribution costs for Coors.
Anheuser-Busch and Coors income statements 1977 and 19851977 AB Coors
Sales in $mil 1.68 bil. 0.532 bil.Sales/barrel $46 $41.56
COGS/barrel $36.61 $28.98
Advertising costs/barrel 1.99 1.09