A Case Study Over the Breckenridge Brewery

Breckenridge Brewery

Introduction
In 1990, Richard Squire opened Breckenridge Brewpub in Breckenridge, Colorado, the first of many he would found. This small establishment, across the street from the popular Breckenridge Ski Area, was able to make 3,000 barrels of beer per year and served the purpose of keeping him and his friends able to live the dream of being able to ski all day, and drink good beer all night. Soon, however, demand outgrew the abilities of the owner and small staff, making expansion necessary. Squire opened his second pub in an old warehouse that he purchased in a rundown neighborhood in Denver. By 1998, that rundown neighborhood had been renovated and become Denver’s new hotspot, helping boost sales for the Breckenridge company. During the mid 1990’s, the Brewpub industry took off, and Breckenridge expanded its operations across the United States to cities such as Buffalo, Birmingham, Tucson, Memphis, and Omaha. Between 1995 and 1997 alone, the company was able to open six new brewpubs and expand its wholesale beer distribution to over 30 states. Currently, however, the company only has full service brewpubs in Breckenridge, Colorado, and in Denver, Colorado and sells its products in 13 other states.
Products
The goal of a microbrewery is to make beer from the purest ingredients and maintain quality and freshness without pasteurization. Breckenridge Brewery accomplishes this by employing brewmasters to create and craft each of its own original recipe specialty beers. Todd Usry, a graduate of the famous Siebel Institute, was at the helm of the beer creation for the company in the 1990’s. He was responsible for recipes, such as their signature beer Avalanche that won the company several distinguishing awards. He was also involved in the creation of their other lines of beer. Breckenridge currently makes the Avalanche Amber Ale, Autumn Ale, Pale Ale, Christmas Ale, Oatmeal Stout, Pandora’s Bock, SummerBright Ale, and their newest creation, Hefe Proper. In addition to these, they also make seasonal beer flavors that change from year to year. Each of these items is sold at one of the brewpubs or is distributed in six-packs of cans, twelve packs of 12 ounce bottles, or by keg or draft.
Background
In 1998, Kyle Craig was appointed the new CEO of Breckenridge Holding Company (the parent company of Breckenridge Brewery). He immediately began reviewing the company’s financial data and related industry data. He found that from 1994 to 1995, craft beer sales industry wide had grown 51%, but by 1996, that growth figure had dropped to 26% and by the end of 1997, growth for the industry was only 3.3%. The large mass-production breweries such as Anheuser-Busch, Miller, and Coors controlled over 90% of the American beer market at the time, and Craig wondered how he would regain market share. He turned to his key management staff for help. In the last three years, Breckenridge had expanded quickly into new markets. Craig wasn’t so sure that this was a wise decision on the company’s part. Had they expanded too quickly? Did they spread themselves too thin when they expanded across the United States? He felt that these were questions that needed to be answered if Breckenridge Brewery was going to move forward and be profitable.
In order to help answer these questions and others, Craig examined data to see if they were targeting the right consumers and were in the right markets for their beers. He found that a 1996 survey discovered that 18.9% of consumers with incomes of $50,000 plus ordered more craft beer than in 1994. He also found that consumers in the Generation X group, or those between the ages of 21 and 34 were more likely to purchase a handcrafted beer than those over the age of 55. Based on this information and other sources, he identified the Breckenridge target market as individuals who were upper-middle class, well-educated, interested in outdoor recreation, and between the ages of 24 and 45. Craig next looked at consumption patterns of Americans to determine whether or not they were opening brewpubs and distributing in the right regions. He found that the West South Central region and the Mountain region had the highest annual per capita consumption rates (see chart below).

With all of this information, he set forth to find a way to turn the Breckenridge business around and make each individual unit profitable.
The Value Chain
According to the textbook the value chain analysis is the building blocks of competitive advantage. Breckenridge Brewery has many challenges throughout its value chain. It all started with the tidal wave of growth in the craft brewing industry. According to industry information from 1992 to 1996 companies were showing between 25%-75% growth ...