Boston Beer HBS Case
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Boston Beer, in response to consumers’ preference changes to more flavorful and bitter tasting brews, was founded in 1894. Boston Beer implements a “quality at any cost” strategy with a strong emphasis on product differentiation and implementing quality ingredients into its products. For instance, Boston Beer was the first company to employ a stamped freshness date on its bottles and ingredients are imported from around the world. Additionally, Boston Beer relies heavily on contract brewing to gain competitive advantages. Boston Beer’s contract brewing strategy results in lower overhead and transportation costs, as well as greater manufacturing flexibility. The expenses Boston Beer saves through contract brewing allows for an increased marketing budget and intensive sales force, which is greatly important for differentiating products in a saturated market. Boston Beer’s strategy appears to be paying off; from 1990 to 1995, its geometric average sales growth and gross margin were 40.4% and 54.4%, respectively. However, Boston Beer is less efficient that some of its competitors; its operating margin of 6.7% is nearly four times lower than Redhook Ale Brewing Company—but its margin is greater than Pete’s Brewing Company.
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Benefits of an IPO
Access to public capital markets will provide Boston Beer with a continual source of equity funds to expand sales while maintaining a low leverage ratio.
The IPO will provide an exit strategy for the company’s current investors.
The additional equity will allow for debt to be refinanced at preferable interest rates.
The publicity from the IPO offering will benefit the company with marketing and sales, particularly in new markets where they do not currently have brand recognition.
Disadvantages of an IPO
The
Boston Beer, in response to consumers’ preference changes to more flavorful and bitter tasting brews, was founded in 1894. Boston Beer implements a “quality at any cost” strategy with a strong emphasis on product differentiation and implementing quality ingredients into its products. For instance, Boston Beer was the first company to employ a stamped freshness date on its bottles and ingredients are imported from around the world. Additionally, Boston Beer relies heavily on contract brewing to gain competitive advantages. Boston Beer’s contract brewing strategy results in lower overhead and transportation costs, as well as greater manufacturing flexibility. The expenses Boston Beer saves through contract brewing allows for an increased marketing budget and intensive sales force, which is greatly important for differentiating products in a saturated market. Boston Beer’s strategy appears to be paying off; from 1990 to 1995, its geometric average sales growth and gross margin were 40.4% and 54.4%, respectively. However, Boston Beer is less efficient that some of its competitors; its operating margin of 6.7% is nearly four times lower than Redhook Ale Brewing Company—but its margin is greater than Pete’s Brewing Company.
--------------------------------------------------Question 2---------------------------------------------------
Benefits of an IPO
Access to public capital markets will provide Boston Beer with a continual source of equity funds to expand sales while maintaining a low leverage ratio.
The IPO will provide an exit strategy for the company’s current investors.
The additional equity will allow for debt to be refinanced at preferable interest rates.
The publicity from the IPO offering will benefit the company with marketing and sales, particularly in new markets where they do not currently have brand recognition.
Disadvantages of an IPO
The