Case Study - Adolph Coors Brewing Company

Explanation for the decline in Coors' performance between 1977 and 1985 and suggest what they might have done differently.

Declining performance of Adolph Coors can be linked to their operations. Comparison of Coors’s performance in year 1975 with that of 1985 clearly indicate a decline in operating revenue despite the fact they increased their capacity. As can be seen by Exhibit A (taken from Exhibit 9 in the case), the operating income as a percentage of sale for Coors went down from 20% (Year 1975) to 9% (Year 1985). Once question arises at this point that if it was industry wide problem and to answer this question we can see the operating performance of Anheuser-Bush. Exhibit A clearly indicates that operating income as a percentage of sales for Anheuser-Bush increased from 10% (1975) to 15% (1985). This clearly indicates that something is going on with Coors operations.

The following reasons should be able to shed some light on the issues faced by Coors that are contributing to decline in Coors’s performance from 1975 – 1985.

1.      In order to achieve smoothness of availability of raw materials Coors has followed backward integration approach. It owns most of its operations that keeps Coors at a disadvantageous position to utilize the economy of scale. For example Coors owns its grain fields, can production facility, manufacturing plant to produce brewing equipments, coal fields (to become self sufficient in energy).

2.       Coors’s production process is quite elaborate (it takes 70 days as compared to 20-30 days for other brewers) that increases Coors’s operating cost by increasing production cost. Coors’s per barrel beer cost is approximately 21% higher than that of Anheuser-Bush and approximately 72% higher than that of Heileman.

3.      Due to the production method of Coors beer it needed refrigerated storage that increase Coors’s production cost significantly. Although, refrigeration cost is offset by pasteurization cost (Coors does not do pasteurization) yet Coors has shorter shelf life that contributes to wastage.

4.      Distribution of Coors beer is done by refrigerated containers (by rail or by road) and to long distances (after national rollout). This should significantly contribute to reduction in operation income.

5.      Coors has increased its marketing expenses to increase its awareness in the state during national rollout. It is not obvious what should be the right amount for advertising as it can be seen from Exhibit B that there is a significant increase in the advertising expenses over the year.

In order to achieve better efficiency Coors could have taken few steps that could have decreased their production cost.

1. Coors should try to utilize economy of scale and should have outsourced some of their processes. This would have allowed them to concentrate on their primary process and could have presented significant savings.

2. Coors should have done a study to check what difference it would make if they use pasteurization method instead of natural (refrigerated method). If the difference in taste (customer preference) permitted the change, it could have resulted in significant savings.

3.  Coors should have embarked on journey of establishing breweries in different regions at the beginning of their expansion plan so that they could have saved significantly on shipping and storage.