BUSINESS STRATEGY Adolph Coors, Case Study

A detailed analysis of the Coors Value Chain helps to understand the Strategies which helped them to score over the competition Human Resource Development Finance Research & Development Procurement Inbound Logistics Operations Outbound Logistics Marketing .Coors Success Strategy in the mid 1970s In the mid 1970s. Adolph Coors Company was highly successful. It was posting steady volume gains for the last two decades and also managed to gain a 16% Return on Sales at the peak level.

Trend in the industry for Major players as a result was on Backward Integration to reduce Packaging Cost Farmer Contracts allowed Coors to make its own Agricultural Inputs Coors produced almost 69% canned beers compared to Industry average of 57% Coors had pioneered the first two-piece all aluminum can.Coors Success Strategy in the mid 1970s Procurement Strategies Raw materials accounted for 50%-60% of total revenue Large. Sourcing of the same done from a captive-can making unit First brewer to start can recycling process It produced virtually all glass bottles required by means of acquisition of Glass Bottling unit Also made most of the labels & secondary packaging Maximum production equipments manufactured in-house compared to industry standard of capital equipment purchase Focus on being self-sufficient in energy . relatively efficient markets existed for all agricultural comodities Brewer with Single Efficiency sized plant could buy agricultural inputs at the best terms Packaging Costs formed the major chunk in the Raw Material Costs.

Coors did not pasteurize the beer. This minimized the use of additives Unlike major brewers. fast paced packaging lines and operating largest brewery in the world. Economies of scale was utilized to the fullest Capacity utilization hovered in the 90% range compared to Industry average of 80% Cost per barrel of $29 was second only to Heileman. Compared to the Industry Average of 20-30 days fermenting. Coors fermentation process was of 70 days. It used Pure Rocky Mountain Spring Water as its only ingredient.Coors Success Strategy in the mid 1970s Operations Strategies Coors Brewing Division had built its USP due to its emphasis on Quality. as it claimed that intense heat harmed the taste of the beer Production Costs were lower than industry standards due to focus on brewing single kind of beer. in spite of the claims of using the most expensive raw materials . These came from 60 springs on Company owned land It used a brewing process which was unique to the Industry.

it had to be distributed and stored in warehouses in refrigerated manner Wholesalers had to keep the beers chilled and abide by strict freshness policy Coors received hundreds of applications from potential distributors for a single distribution franchise. High upfront investment by distributors (for abiding to the freshness policy ) resulted in very high switching costs that kept the distributors loyal Over two-third of the distributors carried no other brands other than Coors.Coors Success Strategy in the mid 1970s Inbound & Outbound Logistics Strategies Coors managed their distribution channel very closely.2% market share in their region . This helped it to gain 21. The company shipped 74% of its beer in refrigerated rail cars and the remainder in trucks The company s in-house transport unit hauled nearly half of the truck shipments which is a higher proportion than at other major brewers Coors focused only on the 11 western states stretched from California to Texas. Distributors had very little power when negotiating with Coors Due to the unpastuarized nature of the beer.

Coors Success Strategy in the mid 1970s Marketing Strategies In an environment. . right upto the 1977. Coors mainly offered two established products and their marketing strategy had been to focus on the several Unique Points of Differences that its product had. segmentation and packaging. Coors was able to price it relatively high to the customers in comparison to the competition Though the distribution network median distance of 800 miles was higher than the industry standard of 300-400 miles. offered significant contribution margin for the per unit sales A mystique was created around the company s only brand with strong associations from the greatest hollywood actors also helped in the image building of the brand. Coors beer was supposed to derive its superior drinkability from Rocky Mountain Spring Water and other choice ingredients It had a unique brewing process which no other brewers provided With their beer perceived as a natural and high quality product. where brewers marketed their beers through advertising. the economies of scale offered by high volume production combined with premium pricing. compared to the competition Coors had traditionally relied on its beer to market itself by virtue of its drinkability .

57 7.55 5.260 3.25 25 96 6.71 44 84 9.123 878 65 109 Stroh-Schlitz 1977 23 1.524 471 491 1985 24 1.14 0.62 11 81 6.04 14.684 1.79 16 92 20.49 8.Coors performance relative to Industry Financial data of Coors v /s Competition Anheuser-Busch 1977 Barrels Sold (Millions) Net Revenue (Million $) COGS (Million $) Advertising (Million $) Other SG&A (Million $) Operating Income (Million $) Market Share (%) Total Capacity (Millions Barrels) Capacity Utilization (%) Operating Profit Margin(%) 37 1.00 26 62 11.079 727 165 94 1985 16 583 486 27 32 15 Pabst 1977 9 490 294 1985 169 23 774 36 106 15 136 20 69 17 13 25 4 67 9 109 8 93 8 38 10 5 74 85 10.555 300 600 1985 28 1.340 73 102 68 5.52 0.110 666 60 278 Miller 1977 37 2.592 955 150 487 1985 6 216 152 13 27 Heileman 1977 16 860 617 103 74 1985 13 532 371 14 38 Coors 1977 15 1.00 .591 1.

69 12.90 Coors Pabst   The Market Share of Coors was 7.83 17.25 9.1977 7.1985 7.89% in 1985 compared to others.77 Anheuser-Busch 36.92 3.89 22.63 Anheuser-Busch Miller Stroh-Schlitz 14.92% in 1977 & 7.97 Coors Pabst 19.89 8.Coors performance relative to Industry Market Share .   eileman Market Share .48 Miller Stroh-Schlitz eileman .55 4.

¡ 50 96 62 92 81 ¡ Heileman Coors Pabst .Contd Capacity Utilization .Coors performance relative to Industry .1985 100 90 80 70 60 85 8 0 30 20 10 0 Anheuser-Busch Miller Stroh-Schlitz The Capacity Utilization of Coors was one of the Highest.

Contd Operating Margin .71 5.00 0.62 0.00 12.25 0.00 2.Coors performance relative to Industry .00 10.52 The operating Margin %age of Coors was 20.00 0.00 10.62% in 1985. Operating Margin .00 20.00 4.00 8.00 10.00 14. .00 6.57 6.00 The operating margin % of Coors was 8.1985 16.49% which was the highest in the Industry in 1977.49 6.14 20.79 8.55 11.1977 25.00 15.00 14.00 7.00 5.04 9.

Coors performance relative to Industry .Contd Net Revenue 2000 1800 1600 5000 1400 1200 1000 800 600 400 200 0 1684 109 1110 1123 25 532 216 583 1000 0 38 106 69 4000 136 3000 2000 2591 1592 67 860 5260 93 1079 169 6000 Operating Income 7000 774 Net Revenue Operating Income 490 The Net Revenue and the Operating Income for 1977 & 1985. .

¢ ¢ 666 1000 86 500 ¢ ¢ 800 ¢ ¢ 500 000 ¢ ¢ 3500 3000 2500 2000 1555 955 617 727 . Advertising & SG&A expenses of Coors as compared with the Industry.Contd COGS 1600 1 00 1200 1000 Advertising SG&A COGS Advertising SG&A 13 0 600 00 878 371 152 0 352 1500 200 0 29 The COGS.Coors performance relative to Industry .

This was mainly due to competitors eating up Coor s market share. This was predominantly due to continuously rise in Advertising and Other overheads. ‡ . could not grow as well as its competitors did. the Operating Income showed a steady decline. In spite of steep increase in distribution network and also expansion in more regions of US. Too much of forward and backward integration with no increase in production capacity did not help the company either. Coors was not able to leverage its strong value chain and in the process. However . beyond 1985. Even the Return on Assets showed a significant decline. specially Anheuser-Busch and Miller. it appears to have started turning around the company by critically addressing the weaker sections of the value chain. the market share stayed unchanged all across the 20 years. So to conclude. Expansion to other regions of US also did not seem to have helped the company to grow.Summary of Coors performance relative to Industry ‡ ‡ ‡ ‡ ‡ Though there was a steady rise in Sales.

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