The Boston Beer Company (BBC) was founded during the 1980’s to produce beer that is considered “better” quality than the mass-produced (Budweiser, Coors, etc.) beer of the US. The segment this beer falls under is the craft brew segment. Craft beers’ biggest competition is other domestic craft brews, but widely, import beers such as Guinness and Heineken. The main points of craft beer are to have the best ingredients and a great recipe. The question then falls to whether or not you brew it or contract it out, distribute it or contract that out.
Two other craft brew companies in the US that are big competitors in the market are Redhook and Pete’s Brewing. These two companies, unlike BBC, have gone public. Although they are competitors they have different operations. BBC is a contract brewer, they don’t have any of their own breweries and contract it out to manufacturers who have extra capacity to brew. Redhook has its own breweries but has made a deal with Anheuser-Busch for their distribution. Pete’s Brewing is a contract brewer, the same as BBC, however decided to open up a brewery with the money it received from its IPO.
To analyze BBC properly you have to look at the company itself, the market it’s in, and its largest competitors. In this analysis we will look at figures from BBC, Redhook, and Pete’s Brewing from the years 1993 and 1994. All the figures in this analysis will come from the statements and figures from Exhibit 1 and the ratios calculated from Exhibit 1 shown in Exhibit 2.
To start out, we will look at the profitability of BBC and its competitors. Beginning with the profit margin you will see that BBC had a 5.71% margin in 1993 and 7.09% in 1994. This means that for every dollar in sales they profited 5.71 cents and 7.09 cents for every dollar in sales. This shows that the profit per dollar raised between those two years. Pete’s Brewing is quite a bit lower and Redhook is significantly higher. We know that BBC puts a lot of focus on marketing, which takes up roughly 35-40% of its sales taking a big chunk of potential profit and showing the difference between Redhook and BBC.
When looking at the asset turnover ratio we see that for every dollar BBC puts into assets they get $3.21 in sales and $3.61. Redhook has a much lower return, which makes since considering they have their own breweries, meaning more assets, and BBC contracts it out.
The leverage ratio shows how much you have financed on your assets, the higher the number the more assets are financed through debt.
Return on equity (ROE) shows us how much was earned on owners’ investments. There’s a huge jump from 1993 to 1994. In ’93 there was a 55.27% return on the investment and then they had a great return of 137.65% the next year. This number is related to the increase in sales. BBC had a 66% increase in barrels sold, which can account for the major jump in ROE. If we also refer to the working capital for BBC there was also a significant decrease. This decrease goes to the liabilities that were lowered mostly in accounts payable and secondly in accrued expenses. Pete’s had the same encounter with ROE and barrels sold. Redhook actually dropped 50% on their ROE yet their barrels sold increased. We can take Redhook’s ROE decrease and find that they’ve had an increase in debt on assets when seeing the numbers of asset turnover and the leverage ratio.
With the gross profit margin, the numbers with all three of the companies stayed very consistent between the two years. When we look at the numbers for BBC we can see that the sales increased, but with that, the cost of goods sold increased causing the ratio to remain consistent. As has already been pointed out, the sales increased tremendously from one year to the next for BBC and Pete’s so we can assume the same types of increases for Pete’s. Redhook dropped in 1994 even though the sales and price per barrel increased. Given the fact that they have their own
