388-018

Adolph Coors in the Brewing Industry

Adolph Coors in the Brewing Industry

Teaching Note
Synopsis
The Coors case is a classic concerning a beer company that was historically highly successful,
started to suffer performance pressures in the mid-1970s, but appears (deceptively) to be experiencing
a rebound of sorts in the mid-1980s. This case can usefully be compared with Intel. Both cases
provide a historical perspective on company performance and both raise a broad range of strategic
issues; unlike Intel, however, Coors can be said to have snatched defeat from the jaws of victory. At
Harvard, the Intel-Coors pairing has been used to introduce the required Competition and Strategy
course in the first year of the MBA curriculum.

Teaching Objectives
The Coors case has been designed to accomplish the following pedagogical purposes:
1.

Highlight the importance of taking a cross-functional perspective, spanning all the functions
or activities that a company performs, in order to identify and evaluate its strategy. Such
a broad perspective helps differentiate strategy from the more functionally-oriented
courses to which students will have been exposed. It is also essential to understanding
whether a companys strategy exhibits internal fit or not.

2.

Provide an opportunity for an analysis of competitive economics in order to track the

relative viability of different competitors strategies in a way that spans all the
functions/activities that they perform. In keeping with the introductory nature of the
case, the analysis is kept relatively simple: Coors operating statements are compared
with those of competitors, and the reasons underpinning these differences are
enumerated. This sets up more complex analyses later on in the course which allow
students to calibrate the effect of various drivers on competitive position.

3.

Emphasize the importance of external fit as well as internal fit. Coors did well early on
partly because its strategy fit with the business landscape in which it operated. Shifts in
the external landscape, however, began to erode Coors performance in the mid-1970s.
Note that this foreshadows the discussion of threats to sustainability.

4.

Raise the issue of strategic commitment. There was a particular pattern to Coors
investments, broadly defined, through the mid-1970s. That pattern made it difficult for
Coors to rebuild its competitive position subsequently by switching from a regional to a
national strategy. The irreversibility implicit in commitment is what places a premium on
thinking ahead rather than simply adopting the course of action that seems to make the
most sense at a particular point in time.

388-018

Adolph Coors in the Brewing Industry

Teaching Aids
The following exhibits are included in this teaching note:
Exhibit A
Coors Historical Strategy
Exhibit B
Major Brewers Operating Results ($/Barrel)
Exhibit C
Coors vs. Anheuser-Busch ($/Barrel)
Exhibit D Coors Updates
In addition, John Suttons Sunk Costs and Market Structure (MIT Press, 1990) contains an
interesting discussion of concentration dynamics in the brewing industry from an Industrial
Organization (IO) perspective.

Assignment Questions
1.

Why did the U.S. brewing industry consolidate (optional)?

2.

Coors was very successful through the mid-1970s. What was its strategy historically?

3.

How did Coors operating performance change relative to its competitors between 1977
and 1985? Why?

4.

Should Coors build a brewery in Virginia?

significantly?

5.

What, if anything, might Coors have done differently earlier on?

Will it be able to improve its position

Teaching Plan and Analysis

Question 1. Why did the U. S. brewing industry consolidate?
The beer industry went, in fits and starts, from being a local industry to a national one. The
appropriate amount of in-class elaboration depends on the context in which this case is being taught.
If Coors is being used as an introductory case, it may be optimal to skip this area of discussion. But if
students have already discussed how to map the business landscape in static terms, a fairly
exhaustive discussion may be in order. The following factors stand out:

Increasing economies of scale in production, particularly in packaging inputs and the

actual packaging process

Slack demand, the price-cost squeeze and low profitability, which accelerated
rationalization

Merger possibilities that hastened concentration

The shift to off-premise consumption, which permitted pull rather than push strategies

The shift away from dark, flavorful brews (in which the smaller brewers had a
comparative advantage) to lighter brews

Adolph Coors in the Brewing Industry

388-018

The shift away from draft beers, the province of small brewers, to packaged beers, which
reduced perishability and permitted firms to concentrate on high throughput

Trading up by consumers

Accumulated image advantages of the premium brands that were taken national

Increasing economies of scale in marketing, due to procurement economies, threshold

effects, influences due to interregional mobility, and the indivisibility of efficient media,
such as network TV and national magazines

Increasing capital requirements--partly as a result of the strategies that firms such as

Miller followed--to build an efficient brewery, maintain an existing brand, or launch a
new one

In a strategy course that emphasizes concepts based on Industrial Organization (IO),

it may be useful to emphasize that only a fraction of the concentration of the U.S. brewing
industry can be ascribed to exogenous sunk costscosts whose level is determined
exogenously by the nature of the underlying technologysuch as production scale
economies. Thus, if plant-level scale economies, estimated at 5 million barrels per year, were
the key driver of concentration, the six-firm concentration level in the U.S. brewing industry
would be about 15% (5X6/183) of the market rather than in the excess of 90%. Much of the
concentration seems to be driven, instead, by endogenous sunk costs incurred by firms with a
view to enhancing consumers willingness-to-pay, particularly advertising expenditures.
Corroboration is supplied by comparing the concentrated industry structure in the United
States with the continued fragmentation of the German brewing industry, where the efficacy
of advertising is limited by long-term contracts between brewers and retail outlets, official
restrictions on television advertising and, apparently, less malleable tastes for local beer. See
Sutton, op cit., for additional discussion.

Question 2. Coors was very successful through the mid-1970s. What was its strategy
historically?
A. Historical Strategy
Coors historically did well despite being the number 5 player in a consolidating industry!
How? In order to prevent this discussion from becoming purely regurgitative, it is useful to push
students to highlight the linkages among the various elements of Coors strategy and the hierarchy
among them as well as listing them individually. The discussion of the key elements follows; Exhibit
A suggests one possible way of organizing them on the blackboard.
1.

Backward Integration. While Coors had historically made all its cans, other brewers had
not. The case mentions that the price of cans had risen sharply in the mid-1970s, and that
other brewers had scrambled to increase their level of backward vertical integration. In
1977, these efforts were probably incomplete; to that extent, Coors greater integration
probably contributed to its advantage. Also note that production at one location at a very
large scale let Coors integrate backwards into making all its bottles, rendering it unique
among major brewers. But it is unlikely, even though we have no firm data on this point,
that backward integration into bottles was a source of significant economies. Finally,

388-018

Adolph Coors in the Brewing Industry

backward integration into agricultural inputs probably helped Coors differentiate its
beer.
2.

Plant Location. In 1975, capacity in the ten states west of Colorado was seven million
barrels less than consumption in those states. Coors brewery was located closer to most
of these markets than was any other brewery outside the region. That figure, it can be
worked out from the case, almost exactly matched the volume Coors sold in this region in
the mid-1970s. It also anchored a number of the other advantages described below.

3.

Plant Scale. Coors sole brewery had 15.1 million barrels of capacity in 1977, ensuring
operation at well above minimal efficient scale. Other brewers had yet to tap important
economies of scale. For instance, the case mentions that in 1977, only four of A-Bs 10
breweries had capacities exceeding 4 million barrels per year, raising its COGS relative to
Coors. Note that the principal reason Coors could profitably operate such an oversized
brewery in an area with low population density was the capacity shortfall west of
Colorado, which made all of the western part of the United States its natural market.

4.

Capacity Utilization. Coors traditional level of capacity utilization, at 90-95%, was

significantly higher than the average level for the industry as a whole. This must have
had a significant influence on its COGS: given a capital cost of $50 per barrel, the
annualized savings from operating at 95% rather than 85% of capacity would, at a 10%
discount rate, have approximated 60 cents/barrel (with the capitalized savings coming to
nearly $6/barrel). Again, the high level of capacity utilization was underpinned by the
regional vacuum within which Coors operated.

5.

Production Process. Part of the reason that high capacity utilization was so important to
Coors was that it operated a unique capital-intensive production process that involved
aging beer for 70 days rather than 20 to 30 days. This, along with higher levels of vertical
integration, raised its asset-to-sales ratio by 20 to 30% compared to A-B and Miller. In
addition, Coors did not pasteurize its beer, which was roughly neutral in its impact on
production costs but did elevate distribution costs (see below).

6.

Marketing. The marketing-related elements of Coors traditional strategy can be

summarized relatively succinctly but are probably worth breaking out as part of the
boardplan, as in Exhibit A. Coors traditionally made just one product, a premium beer.
Based on the comparisons of the operating statements of major brewers that are
summarized below, it priced its Coors Banquet brand at a discount to the leading
national premium brands, Budweiser and Miller, and also spent less, per barrel, on
advertising than they did. It relied, instead, on Banquets light body (not a characteristic
with universe appeal), the distinctiveness of various inputs (particularly Rocky Mountain
spring water) and of its unique production process to mostly sell itself. Mention might
also be made here of the mystique of Coors, particularly around the edges of its limited
but expanding area of distribution.

7.

Distribution. Through the mid-1970s, Coors distributed its beer in just 11 states in the
western part of the United States. It again exhibited an above-average level of vertical
integration--forward in this context--through its tapered integration into trucking.
Nonpasteurization elevated Coors transportation and storage costs by requiring
continuous refrigeration and was also tied into the relatively stringent controls on the
wholesalers who actually distributed Coors beer.

Adolph Coors in the Brewing Industry

8.

388-018

Other Policies/Constraints. Relevant ones include clear concentration of ownership and

control within the founding family, an insistence (by the family) on all-equity finance, and
a history of confrontations with labor and other organized groups. While it is convenient
to list these toward one side, it is worth emphasizing the pervasive impact of these
factors, particularly the outlook of the controlling family, on all the other elements of
Coors traditional strategy.

This strategy identification exercise also suggests a host of linkages between the
upstream activities in Coors business model, procurement and operations, and the
downstream activities of marketing and distribution (in addition to linkages within each
category of activities, of course). A more delicate question concerns whether Coors optimally
balanced the linkages between what might roughly be characterized as production and
marketing. To my mind, Coors historically overemphasized production at the expense of
marketing. Suggestive anecdotes can be cited in this context. The debate about whether to
retain a hard-to-open press tab on beer cans (rather than retool the canning lines), from the
Background section in the case, is one example; reports that a leading consulting firm that
emphasized experience curves undertook a stategy study for Coors in the 1970s supplies
another (from outside the case). More systematically, I read the upstream, production-related
choices in Exhibit A as mostly having constrained the downstream, marketing-related ones,
rather than the other way around. An emphasis on production also ties in with comparisons
of Coors and competitors economics in 1977, as summarized next, and our subsequent
discussion of developments and missed opportunities since then.

B. 1977 Operating Statements

The identification of Coors traditional strategy can most easily be channeled into a
comparison of its operating statement in 1977 with key competitors if a tension can be
created around whether Coors traditional (and traditionally successful) strategy really
focused on low costs or differentiation. This notion of generic strategies shouldnt be
overdone, of course: the modern theory of positioning implies that businesses should be seen
as making a choice off a continuum (or, more precisely, envelope) of trade-offs between cost
and differentiation rather than as facing a dichotomous. Still, the tension between cost and
differentiation can be used to motivate the point that really understanding a businesss
strategy often requires a comparison of its economics with its competitors. The Coors case
provides an excellent vehicle for making this point because of the simplicity of the
comparisons involved. It may also be useful to emphasize that all the data required were
drawn from public sources, especially in courses that require students to turn in research
papers.

388-018

Adolph Coors in the Brewing Industry

Exhibit B summarizes the comparisons for both 1977 and 1985 based on Exhibit 12 in the
case. To begin with 1977, even though Coors operating income that year was lower than in 1976 or
1975, its operating income per barrel was still higher than any other major brewers. Although
comparisons with all the other major brewers are helpful, it is particularly useful to focus on
Anheuser-Busch (A-B), as in Exhibit C, because:

A-B was the second most profitable major brewer in 1977

Complete operating statements are available for 1977 (and 1985) in A-Bs case, unlike, say,
Millers

Since A-B sold more beer than anyone else (nearly three times as much as Coors in 1977),
the comparison should illumine the extent to which economies of scale mattered

A-B, because of its capacity expansions in the west, is the competitor that subsequently
hurt Coors the greatest in the late 1970s and early 1980s

Other points that may be worth emphasizing at this juncture include the need to look at both the cost
side and revenue side and to focus on right units ($s per barrel): looking at percentages would mix up
price and cost differences.
Several conclusions emerge from the 1977 comparison. First, Coors priced at a somewhat
lower level than the national brewers (with the exception of Pabst, whose flagship brand had drifted
into the popular segment), but managed to earn a premium over the two large regional/local brewers
in the 1977 sample, Stroh and Heileman. Second, it managed to achieve its prices in spite of spending
less, per barrel, on advertising than any of the other majors. Third, even though it used an inherently
more expensive production process, Coors cost of goods sold (COGS) was lower than that for any
other brewer except Heileman, which had concentrated on acquiring cheap assets from other regional
or local brewers who were going out of business. Finally, Coors operating income was $8.52/barrel
in 1977, compared to figures of $4.00-4.50/barrel for the next most profitable majors (A-B, Miller,
Heileman). Note that points one through three suggest that cost leadership is a much more plausible
description of Coors traditional strategy than is differentiation, discussions of mystique
notwithstanding.

Question 3. Why has Coors performance deteriorated since 1977?

A. 1985 Operating Statements
In examining why Coors performance has deteriorated since the mid-1970s, it is useful to
start with a comparative analysis of major brewers operating statements in 1985 (also contained in
Exhibits B and C). Several points are especially noteworthy. First, by 1985, Coors had managed to
achieve the second-highest price realizations per barrel of all the major brewers, behind only A-B.
Second, to achieve these prices, it had taken to spending more, per barrel, on advertising than any of
the other majors (although it was still spending only 35% as much in absolute terms as A-B in 1985
and 55% as much as Miller). Third, its COGS position had deteriorated: its advantage relative to A-B
had narrowed, and its disadvantage relative to Heileman had widened. The net effect was that Coors
operating income was $6.33/barrel in 1985, down 26% in nominal terms and 58% in real terms since
1977. (Changing the 1985 numbers to adjust for 1977-85 price inflation, based on CPI data from
Exhibit 10 in the case, isnt critical but does dramatize the extent to which Coors underperformed.)
As a result, Coors earned roughly half as much per barrel as A-B in 1985.

Adolph Coors in the Brewing Industry

388-018

It is worth adding that these historical numbers are all based on returns on sales (volumes).
Comparisons based on ROA rather than ROS would look worse because Coors had 20 to 30% higher
assets per barrel of capacity than A-B and Miller, and comparisons based on ROE would look worse
yet because of all-equity finance. And to take more of a prospective rather than retrospective
perspective on performance, Coors market share stagnated at 8% over the 1977-1985 period and the
performance of its stock disastrous. Note that Coors stock sold for $25.50 at the end of 1975 and
$21.25 at the end of 1985, i.e., was down about 17% in nominal terms or 58% in real terms since the
CPI basically doubled over this period. In contrast, the S&P 500 index went from 90.2 to 211.3 over
this period (not in case).

B. Drivers of Changes
In discussing reasons for this change in performance, it may be useful to go back to the
boardplan in Exhibit A since most of its elements can be talked about as having been undercut by
environmental changes. In addition, that will help keep students focused on changes in Coors relative
position since the mid-1970s. For example, a student is likely to say that Coors uses a more expensive
production process than A-B. The instructor ought to point out that that explanation misses the fact
that even though Coors used the same process in 1977, it managed to earn nearly twice as much per
barrel as A-B that year. A list of the key factors that did change, arranged in the same order as in the
strategy identification exercise, is as follows:
1.

Backward Integration. Can prices have come down because of excess capacity, which hurts
Coors because of its backward vertical integration into cans. (The Crown Cork & Seal case
provides additional details on the can industry in the 1980s.) And it is unlikely that
backward integration into energy looks as attractive amidst declining energy prices in the
1980s as it did against the backdrop of rising energy prices in the 1970s.

2.

Plant Location. The capacity shortfall in the west has declined from 7 million barrels to 3
million barrels and hurt Coors traditional locational advantage. Coors volume in those
states has declined by approximately the same amount: given the new capacity in
California, it is no longer well-placed to serve many of its traditional markets. And it
suffers a locational disadvantage in some of its newer, more remote markets.
(Parenthetically, shipping beer 1,500 miles rather than 300 miles costs an extra
$6.00/barrel.) Coors absorbs some of these costs directly into its COGS by shouldering
shipping costs between its brewery and its distribution centers. The remainder of these
costs probably hurt its price realizations

3.

Plant Scale. Minimal Efficient Scale (MES) on the production side has stagnated since the
mid-1970s, hurting Coors traditional strategy of operating the worlds largest single
brewery. Note that Coors sole brewery was already three times the efficient scale by
1975. At the time, national brewers operated significant amounts of subscale capacity. By
1985, the national brewers had crossed this hurdle: all of A-Bs and Millers breweries had
been expanded past MES, narrowing Coors COGS advantage.

4.

Capacity Utilization. At the same time, Coors capacity utilization tumbled below
historical levels: it averaged 84% since 1977. The obvious cause, of course, was the
expansion by A-B and Miller in California. Simple economic analysis confirms that a
competitor whose natural market has shrunk will optimally reduce its capacity utilization
in response, even if that raises its average cost. And the effect of declining capacity
utilization on Coors economics was amplified, of course, by its higher-than-average
asset-intensity.

388-018

Adolph Coors in the Brewing Industry

5.

Advertising. The importance of advertising to Coors increased after the early 1970s, partly
because Miller had led a general run-up in the brewing industrys average advertisingintensity which, as a percentage of sales, increased from 3.3% in 1973 to 4.5% by 1980 and
10% by 1985. In addition, Coors probably suffered from a catch-up penalty as it moved
into new states where consumers were unfamiliar with its beer. Even as a regional brewer
with dominant market shares in most of the states in which it operated (its position in
1975), Coors would have suffered a slight scale penalty in countering national brewers
advertising campaigns. As a regional brewer whose weighted average state market share
had tumbled from 36% in 1975 to 11% by 1985, Coors was no longer well-positioned to
exploit even regional scale economies of scale in advertising. These factors, among
others, accounted for the fact that by 1985, Coors advertising costs per barrel had come
to exceed those of any other major brewers.

6.

Other Marketing-Related Elements. Premium beers share of the market appears, after
growing rapidly between 1970 and 1975, to have stagnated between 1975 and 1985,
hurting Coors Banquet (although Coors has managed to take some advantage of the rapid
growth in light beers). The proliferation of packages may, depending on the physical
details of the production process, undercut a strategy based on production economies of
scale. And brand proliferation (from 30 to 60 between 1977 and 1981) may add to the
marketing-related scale diseconomies that Coors suffers in terms of advertising.

7.

Distribution. Beer wholesalers have suffered generally declining margins in the 1980s,
and Coors wholesalers suffered more, on average, than most because of the decline in
Coors state/local market share, which was mentioned earlier. As a result, Coors has lost
many wholesalers, and most of the survivors have started to add other brands in order to
prop up their sagging sales. The striking down in 1975 of some of Coors policies
concerning wholesaler exclusivity and price maintenance has only contributed to this loss
of control. In addition, the attractiveness of forward integration into trucking may have
decreased due to the deregulation of the trucking industry, but this is not in the case.

8.

Other Policies. These changes, by putting more economic pressure on Coors, probably
also narrowed the slack available to pursue confrontations with organized labor and with
minority groups, especially as Coors moved eastwards.

A number of these emerging problems can be summarized against the backdrop of

the continuing concentration of the U.S. brewing industry in the late 1970s and the first half
of the 1980s. Given total 1977 volume of 162 million barrels (Exhibit 8) and 1985 volume of
186.4 million barrels (Exhibit 8 or 183 million barrels on the first page of the case),
concentration ratios in barrel terms increased significantly: C1 from 23% to 37%, and C2 from
38% to 57%. S3 (the share of the 3 rd largest player) actually fell slightly, from 13.7% to 12.6%,
despite the merger of Schlitz (formerly number 3 as well) and Stroh (formerly number 7),
indicating that the two largest players were pulling away from the rest.
Against this backdrop, Coors market share stagnated at 7.8/7.9% and it remained
the #5 player over this period. At least A-B, the largest player, managed to neutralize most of
the advantage that Coors had historically derived from superior production scale, while
Coors struggled to deal with the disadvantages that it faced in marketing and distribution on
the basis of stagnant national scale and rapidly declining national scale. This can be
construed as further support for the idea that Coors traditional strategy was too focused on
production at the expense of marketing.

Adolph Coors in the Brewing Industry

388-018

Question 4. Should Coors build a brewery in Virginia? Will it be able to improve its
position significantly?
1985 was a relatively good year for Coors, at least in comparison to 1984. That, and other
recent developments, may lead somebody to suggest that there is light for Coors at the end of the
tunnel. Some of these hopes for the future that are expressed in this context, such as about Coors
quality and technical leadership, are patently unconvincing. The less obvious arguments are,
however, worth considering briefly.
First, in a move described in the case as the most significant event of 1985 and perhaps our
history, Coors has committed to building a 2.4 million-barrel packaging facility in Rockingham
County, Virginia, and is talking about a 10 million-barrel brewery at that site. The packaging facility
does not have significant upside potential: savings of $2.50/barrel in transportation costs amount to
an annual payback of $6 million on an initial investment of $95 million. In addition, the new
packaging facility is subject to some downside risks (e.g., the threat from the Teamsters). A complete
brewery would be a rather more significant undertaking but is, for the moment, just rhetoric. It is
likely to remain in limbo due to stagnant demand and excess capacity in the east (exemplified by
Millers shuttered 10 million-barrel brewery in Trenton, Ohio), the potential conflict with Coors
Rocky Mountain image, and Coors continuing insistence on financing itself. If Coors does want to
add brewing capacity at a second location in spite of difficult market conditions, it should at this
point probably acquire existing capacity from someone else rather than add new capacity itself.
A second hope that may be expressed concerns management succession. The transfer of
power from the older generation (Bill and Joe Coors) to the younger generation (Pete and Jeff) seems
unlikely to have a negative effect on the company and may help it to the extent that the younger
generation succeeds at repairing Coors abysmal public image. But it is not clear how the younger
generation can redress the deep-seated economic problems facing the company. Despite Jeff and Pete
Coors vaunted belief in the importance of marketing, they cannot reverse the fact that the companys
belated attention to marketing (and to going national) lopped a lot off its upside potential, as
discussed under the next question. In addition, it is worth pointing out as part of an update if not
here that for a period in the late 1980s, the older generation reverted to playing a greater role in the
running of the company.
Third, one might talk about new products. Of the new products Coors has launched since
1978, only Coors Light has made much of an impact: at 6 million barrels, it was the second bestselling brand of light beer in 1985. But one should not get carried away by that performance, for
several reasons. First, Coors Light still lags the leader in the light beer segment, Miller Lite (with 1985
sales of 18.7 million barrels), and only a whisker ahead of the third largest-selling light beer, Bud
Light (with 1985 sales of 5.4 million barrels). As the light beer segment matures, and if the
advertising war between Miller and A-B heats up, Coors Lights profitability is likely to suffer.
Second, Coors Light appears to be cannibalizing the sales of Coors Banquet (which itself is lightbodied): the combined volume of the two brands in 1985 is only 1.7 million barrels greater than Coors
Banquets volume in 1977. Splitting volume among more and more brands does not help reduce
advertising costs per barrel. And if Millers experience with High Life and Miller Lite is any guide, a
strong brand in the light beer segment cannot offset the profit impact of a weakened regular-premium
brand. Stepping back from individual products to take a long-term view, one would not expect new
product launches (at $20-35 million per attempt) to be the point fort of Coors because it is relatively
small, much less profitable than A-B or Heileman, and insistent on self-finance.
To summarize, while Coors may be better equipped in 1985 than ever before to market
products effectively across the whole country, it is still hard to imagine it standing up to A-B, which

388-018

Adolph Coors in the Brewing Industry

has taken significant share away from Coors in the past and enjoys potent advantages in 1985. Coors
management seems to recognize this fact in setting a 10% after-tax ROE as its profit target.

Question 5. What, if anything, might Coors have done differently earlier on?
Coors seems to be boxed in by the mid-1980s, with little hope of a significant turnaround.
Was this its destiny, or would it have had more room for maneuver had it acted earlier on? While it is
obviously impossible to answer this question definitively, two alternatives that might have worked
better merit some discussion.
One alternative would have been to try to stay regional. This might have entailed, among
other things, building a brewery in California (as reportedly recommended by the consulting firm SRI
in the late 1960s) before A-B and Miller managed to do so. Such a move might have helped secure
Coors western flank. And even if competitive expansion on the West Coast could not entirely have
been deterred, the combination of low population densities and Coors large plant in the western
hinterland may have permitted it to sustain a profitable position as a regional competitor. Note that
according to the study by Scherer et al cited in the case, the cost disadvantage associated with
advertising regionally rather than on a nationwide scale was minimal (as long as regional share
remained high).
Another, very different alternative would have been to go national sooner. Note that Coors
suffered numerous late-mover disadvantages in going national when it did. Many attractive sites for
adding capacity had already been preempted by the time it made its move and in any case, the
stagnation in demand in the early 1980s made it harder to sell out a new, efficiently-scaled brewery
that might have reduced transportation costs. The wholesalers available to Coors were primarily
weak ones that other brewers had avoided or terminated. In the new regions that Coors entered, it
probably had to spend extra money just to offset brand loyalties already developed by incumbent
brewers (particularly national ones). And tardiness in entering segments other than the regular
premium one cannot have helped it either.
Yet instead of pursuing either of these alternatives, Coors first dug itself deeper into a
regional niche (some would say hole), and then belatedly decided to go national. Until the late 1970s,
Coors actually increased its commitment to a regional strategy. At a time when competitors were
building a geographically-dispersed production network, Coors continued to expand its brewery at
Golden and compounded the difficulty of switching to a national strategy by integrating backward to
an unprecedented degree there. Bill and Joe Coors (both engineers by training) carried their fetish
with scale and integration so far that they even rejected the idea of building a brewery in California,
even though that move could have been justified by economies of transportation alone, according to
SRI, and might have had the additional benefit of curbing expansions by competitors in California.
But after Coors felt the impact of A-Bs and Millers expansion in California, there was a sea-change in
strategy: Coors suddenly decided that despite the disadvantages confronting a late-mover, it would
go national after all, but (because of prior constraints) from a single brewery. Coors could at least
have preserved some flexibility by minimizing scale and vertical integration at Golden.
Given the strategy that Coors ultimately did decide to follow, going national, most of the fault
for its poor performance resides with its strategy through the mid-1970s, which its management must
surely wish it could change. The final question of interest is whether Coors could have foreseen at the
time that that strategy would get it into trouble. To my mind, the answer is affirmative. The brewing
industry has been consolidating since Prohibition was repealed: although national brewers have
increased their market shares significantly, the increase hasnt been especially sudden. Coors was in
as good a position as any brewer to spot the structural trends leading toward consolidation; by virtue

Adolph Coors in the Brewing Industry

388-018

of its location, it had more time to prepare its response than did most regional brewers. Yet it failed
to act on SRIs recommendation to build a Californian brewery, did not anticipate or react quickly to
the effects of Phillip Morris acquisition of Miller, (which triggered intense advertising warfare),
ignored the obvious unsustainability of its advantages with regard to vertical integration and
production scale (other brewers just had to adjust to optimal levels) and, most broadly, missed the
point that any time a company makes a lot of money, its rivals (and others) are likely to come after it
a point that would have raised questions about the sustainability of the capacity shortfall west of
the Mississippi.

Update and Summary

Through 1996, the U.S. beer market remained essentially flat. Coors share increased to 10%
vs. 47% for Anheuser-Busch (increased significantly), 23% for Miller (increased slightly), and 9% for
Stroh/Schlitz (decreased). Imports increased their share slightly, to over 6%, and domestic
microbrewers to about 0.6%. Coors market value increased from $766 million at the end of 1985 to
$1,232 million at the end of 1997, i.e., by 61%. The S&P 500, in contrast, increased by 359% over the
same period. Also note that as of 1998, Coors operating margins amounted 7% vs. 21% for A-B.
In addition to Coors stagnation, two missed opportunities in marketing are worth
mentioning. Miller was the first competitor to promote draft beer heavily (starting in 1985) even
though all of Coors beer was draft since it was nonpasteurized, and A-B was the first to promote
date-of-birth labeling (starting in the mid 1990s) even though Coors had tracked the freshness of its
beer all along! While Coors marketing capabilities had improved by mid-1985, they apparently still
fell short of its leading competitors! Additional updates can be found in Exhibit D.
In summary, the instructor may wish to make some or all of the following points:
1.

Strategy involves more than just product superiority or performing one function (in
Coors case, production) particularly well. Instead, strategy requires a cross-functional
perspective, spanning all the functions or activities that a company performs. Such a
cross-functional perspective is critical in creating internal fit.

2.

Successful strategies must exhibit external fit as well as internal fit. Looking outside the
firm is critical both to mapping the business landscape and understanding the firms
competitive position on it. An analysis of competitive economics in order to track the
relative viability of different competitors strategies is often an integral part of such
external analysis.

3.

Shifts in the external landscape and changes in competitors strategies imply that the
sustainability of a competitive advantage cannot be taken for granted. In particular, if you
are making a lot of money, others are likely to come after you if they can.

4.

Irreversibility or commitment places a premium on thinking through strategies ahead of

time. There are a number of reasons for such irreversibility: lock-in (e.g., Coors lock-in
into the location at Golden), lock-out (e.g., the late-mover disadvantages that Coors
suffered in going national), lags in changing competitive positions (e.g., Coors switch
from a regional to a national strategy took the better part of the decade) and in building
up capabilities (e.g., marketing in the case of Coors), and organizational inertia (derived
from factors such as the companys thick culture and its history of success, its governance
structure and the personalities of key family managers, their engineering/production
orientation, etc.). For additional details, see chapter 2 of Pankaj Ghemawat, Commitment,

388-018

Adolph Coors in the Brewing Industry

Free Press, 1991, or chapter 5 of Pankaj Ghemawat, Strategy and the Business Landscape,
AddisonWesley, 1999.

388-018

Exhibit A: Coors Historical Strategy

Procurement

Backward
Integration

Manufacturing

Marketing

Plant
Scale

One
Product

One
Location

Intermediate
Price

High
Capacity
Utilization

Limited
Advertising

Distribution

Regional
Distribution

Distribution
Controls

Cans
Other

inputs

Other

Unique Process
Asset-Intensive
Long
Unpasteurized

Product
Attributes
Rocky Mount.
Image

AllEquity
Finance

Family
Control

Confrontational
Manag.

-70-

388-018

Exhibit B: Major Brewers Operating Results ($/Barrel)

A-B

Miller

Schlitz

Stroh

Heileman

1977
Price
COGS
Advertising
Other SG&A
Op. Income

46.01
36.61
1.99
2.79
4.62

45.87

1985
Price
COGS
Advertising
Other SG&A
Op. Income

77.35
51.82
6.93
7.22
11.38

1985 in 1977 $
Price
COGS
Advertising
Other SG&A
Op. Income

43.72
29.29
3.92
4.08
6.43

39.47

38.45

4.57

3.62

Coors

Pabst

CPI
182

38.44
33.96
1.9
3.28
2.24

34.83
24.52
2.1
4.35
4.03

41.56
28.98
1.09
2.97
8.52

36.44
30.38
1.69
2
2.38

69.84

68.03
6.41

73.4
49.46
11.22
6.39
6.33

55.06

8.09

53.09
38.09
6.36
4.57
4.14

30.01
21.53
3.59
2.58
2.34

41.49
27.96
6.34
3.61
3.58

31.12

2.48
4.38

40.72
31.58
2.44
4.07
2.62

322

3.67

2.07

-71-

388-018

Exhibit C Coors vs. Anheuser-Busch ($/Barrel)

1977

1985

1985 Adjusted

Coors
Revenue

41.6

73.4

41.5

Cost of Goods

29

49.5

28

Advertising

1.1

11.2

6.3

Other SG&A

6.4

3.6

Operating Income

8.5

6.3

3.6

Anheuser-Busch
Revenue

46

77.4

43.7

Cost of Goods

36.6

51.8

29.3

Advertising

6.9

3.9

Other SG&A

2.8

7.2

4.1

Operating Income

4.6

11.4

6.4

-72-

388-018

Adolph Coors in the Brewing Industry

Exhibit DCoors Update

1985

-- Miller introduces its Genuine Draft August 1.

1986

-- Agreement with Asahi Breweries Ltd. headquartered in Tokyo--to brew and distribute
Coors brand in Japan.

1987

-- Shenandoah packaging facility started.

-- August, announced an agreement with the AFL-CIO ending a 10-year boycott against the
company.

1988

-- Record volume moved Coors from number five position to number four in nations top
brewers.

1989

-- Introduced Keystone (a popular beer that cannibalized Coors own premium sales)
-- Late 1989: Made $425 million bid for Stroh (apparently never successfully integrated into
Schlitz)

1990

-- By this time Coors had obtained the number three spot among U.S. brewers.
-- Issued debt securities for the first time in history ($110 million medium-term notes) and
borrowed $150 million in short-term debt.
-- July: Purchased Strohs brewery and packaging plant in Memphis, Tennessee, for $50
million; broke ground for new aluminum plant in San Antonio, Texas.

1991

-- Entered the last state, Indiana, and began exporting to Puerto Rico, Guam, and Cayman
islands (making 8 international markets in total).
-- Sold off energy assets for $15.25 million.

1992

-- May: Spun off nonbrewing assets including its diversified technology business.

1993

-- February: New president and COO W. Leo Kiely III (former Frito-Lay executive) announced
the first non-Coors family member as president.

1994

-- Purchased a brewery in Spain.

1996

-- Anheuser-Busch by the end of 1996 had captured 47.82% market share of sales and 48.90%
market share of production among U.S. Brewers, and had an overall 47.3% of the whole
market, including imports.

1997

-- Coors market capitalization increased from 765.5 million at the end of 1985 to $1,232.1
million by the end of 1997 (61% growth)versus an increase from 480,900.0 to 7,508,049.0 in
the S&P 500 (442.7% growth).

73