1. Boston Beer Company Group 4 Jose Aleman Andrew Fulham Scott Sorensen Stephanie Soybel Taylor Williams 1
2. Recommendation We value Boston Beer Company (NYSE: SAM) at $63.38 per share, and recommend that investors hold these securities. Current Market Price of $65.21 Increased competition will hinder revenue growth and company expansion Market Growth within Industry Stagnation 2
7. Domestic Beer Production is Decreasing Source: www.ibisworld.com Overview Financials Strategy Valuation 7
8. Boston Beer operates within the “Better Beer” category Craft, Import, and Specialty Beer 20% of Domestic Beer Market Category profitability realized by Major Brewers Samuel Adams is the largest domestic brewer and 3rd largest Brewer in the Better Beer Category Overview Financials Strategy Valuation 8
11. New BelgiumCraft Beer drinkers are loyal to the Craft Beer Industry Overview Financials Strategy Valuation 9
12. Boston Beer sells 2 of the top 3 Craft Beers Top Selling US Craft Beers in 2009 1) Sierra Nevada Pale Ale 2) Samuel Adams Boston Lager 3) Sam Adams Seasonal 4) New Belgium Fat Tire Amber Ale 5) Shiner Bock 6) WidmerHefeweizen 7) Sam Adams Variety Pack 8) Sam Adams Lite Source: Beverage Industry Magazine Overview Financials Strategy Valuation 10
13. 3 Tier Distribution System Brewery Wholesalers Retailers Overview Financials Strategy Valuation 11
14. Diverse Product Portfolio Boston Beer Co. (SAM) 8 Flavored Malt Beverages (13%) 1 Hard Cider (0.06%) 20 Unique Beers (87%) Overview Financials Strategy Valuation 12
25. Competitive Strengths Leadership built on scale, quality and branding Consumer preferences are shifting towards premium beer Agreements with suppliers and distributors yield stability and predictability. Overview Financials Strategy Valuation
26. Threats Increasingly competitive segment Low switching costs among consumers Intensified efforts from industry leaders to penetrate the market Low barriers to entry at the microbrewer level Need to increase differentiation from premium products in wine and spirits industry Overview Financials Strategy Valuation
27. Opportunities Geographic expansion Domestic International – Emerging markets Risks Direct competition with regional brewers Competition with major industry leaders Product diversification 23 Overview Financials Strategy Valuation
33. Recommendation 29 We value Boston Beer Company (NYSE: SAM) at $63.38 per share, and recommend that investors hold these securities. Current Market Price of $65.21 Increased competition will hinder revenue growth and company expansion Market Growth within Industry Stagnation
Recent acquisition of Anheuser Busch by Inbev and the joint venture of Miller Brewing Company and Coors Brewing Company to create Miller Coors LLCMiller Coors Sells: Miller Lite Coors Light, BLUE MOON, Killian Irish Red Milwaukee's Best, Foster’s, KeystoneBoston Beer sells its product mainly in the US, but also markets them in Canada, Europe, Israel, Pacific Rim, Mexico and the Caribbean.99% of revenue comes from US but, but also markets them in Canada, Europe, Israel, Pacific Rim, Mexico and the Caribbean.Further, these two major brewers have entered the Better Beer category recently, either by developing their own beers, acquiring, in whole or part, existing craft brewers, or by importing and distributing foreign brewers’ brands. On January 11, 2010, Heineken N.V. (“Heineken”) announced its acquisition of the beer operations of FomentoEconomicoMexicano, SAB de CV (“FEMSA Cerveza”) which will make Heineken the number two brewer internationally by revenue and significantly increase Heineken’s ownership position in the Better Beer Market with the addition of FEMSA Cerveza brands, including Dos Equis ®, Sol® and Tecate®.
“Determined by higher price, quality, image and taste, as compared with regular domestic beers”(10-k)Better Bear includes most imports and specialty beersPrimarily but not entirely within the Better Beer CategoryIn the Better bear category only behind Corona and Heineken Further, these two major brewers have entered the Better Beer category recently, either by developing their own beers, acquiring, in whole or part, existing craft brewers, or by importing and distributing foreign brewers’ brands. Heineken N.V. (“Heineken”) announced its acquisition of the beer operations of FomentoEconomicoMexicano, SAB de CV (“FEMSA Cerveza”) which will make Heineken the number two brewer internationally by revenue and significantly increase Heineken’s ownership position in the Better Beer Market with the addition of FEMSA Cerveza brands, including Dos Equis ®, Sol® and Tecate®.
Beer Category was flat but Craft Beer rose 12%
-SAM is heavily dependent on about 400 wholesale distributors sell to retailers (pubs, restaurants, grocery chains) -These distributors are the same distributors used by AB InBev and SABMiller and are often influenced by these larger companies. -SAM holds this same distribution advantage over smaller regional breweries. -Distributors can terminate service on very short notice and there is no guarantee SAM could find other distributors offering comparable prices. Beer is produced at breweriesThe second tier is distribution. Producers will often provide exclusive rights to a certain company to distribute its product to different retailers, and the post-prohibition landscape usually makes distributors powerful entities within each individual state. This reduces competition and can raise prices, since fewer distributors mean less incentive to reduce prices. Some states also have regulations further defining the relationship between the brewer and a distributor, even going as to legally bind a brewer to a distributor. This can create a headache for consumers since disputes between brewers and distributors can result in certain beers becoming unavailable in an area.The third tier is retail. This is the point at which the general consumer can purchase the product, whether that be a grocery store, bar or state-regulated vendor. As with many things, there is an exception: brewpubs - restaurants or pubs that produce beer on site for sale on site.
