Adolph Coors in the Brewing Industry

1. Coors was very successful through the mid-1970s. How was its value chain configured up to that point? What type of generic competitive advantage did such a value chain confer? (Please focus your analysis on procurement, manufacturing, marketing, and distribution functions).

* Procurement
* Long-term contracts with farmers
* Can recycling for further use
* Spring water from Colorado
* Grain processing facility that supplied a third of its refined cereal starch
* Sourced all its cans from a captive can making facility
* Labels and secondary packaging
* Above-average vertical integration
* Built many of its equipment

* Manufacturing
* Aged beer for 70 days (natural fermentation vs.

additives.)
* No pasteurization
* One kind of beer
* Fastest packaging lines in the industry
* Own rice and grain processing facilities
* Above-average vertical integration
* Spring water from Colorado
* Unique brewing process

* Marketing and Sales
Price
* Premium beer

Promotion
* Advertising (Please do not buy our beer)

Product
* Premium beer
* Relatively light body

Placement
* Target niches in which its penetration had been limited
* Median distance Coors shipped its was 800 miles
* Each new wholesaler had to spend about $500,000-$2 million on market development
* Over two-thirds of the company's wholesalers then carried no other brands

I think that Coors’ competitive advantage was established through a differentiation strategy, which was basically the main factor for its success.

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The company was using several combined factors from its different divisions; special spring water from Colorado, was aging its beers for 70 days with natural pasteurization instead of the industry average of 20 with additives. Over two third of the company’s wholesalers carried no other brands and the company was charging relatively higher price in the industry (the calculations are presented in the next section.

)

2. How did Coors’ operating performance change relative to its competitors’ between 1977 and 1985?

Given the data of 1977, Coors is following the differentiation strategy given the fact that the company was producing premium beer and was charging relatively premium price for its beers compared to the average industry price. The company’s revenues per barrel in 1977 were 2.48% above the industry average revenues and the costs were below the industry average costs by 7.48%, though been higher than the cost leader’s costs by 6.29% (Heileman).

In 1985 the company’s revenues per barrel of beer were higher from the industry average revenues by 11% and the costs were higher from the industry average by 11.20%. The company’s costs were higher the cost leader’s costs (Heileman) by 36.85%. Basically the increased costs are associated with increased advertising and other SG&A expenses, which basically rose by 145.13% between the period 1977 and 1985. From the other hand the subject costs in 1985 were higher from the industry average data by 27.1%, versus being low in 1977 by 21.86%.

Overall the company was using the differentiation strategy, which means that the overall costs are close to the industry average costs and the company is charging additional markup from the average industry price for its products.