Tag Archives: Coors

Competition Demystified Continued: Coors Case Study Analysis From Readers

My most surprising discovery: the overwhelming importance in business of an unseen force that we might call “the institutional imperative.” In business school, I was given no hint of the imperative’s existence and I did not intuitively understand it when I entered the business world. I thought then that decent, intelligent, and experienced managers would automatically make rational business decisions. But I learned over time that isn’t so. Instead, rationality frequently wilts when the institutional imperative comes into play.

For example: (1) As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; (2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.

Institutional dynamics, not venality or stupidity, set businesses on these courses, which are too often misguided. After making some expensive mistakes because I ignored the power of the imperative, I have tried to organize and manage Berkshire in ways that minimize its influence. Furthermore, Charlie and I have attempted to concentrate our investments in companies that appear alert to the problem.–Warren Buffett

Coors Case Study Analysis

My short write-up: http://www.scribd.com/doc/80155636/Coors-Case-Study

But readers’ comments are even better. These contributors posted here: http://wp.me/s1PgpH-1302. I reposted below. Good work.


  1. These were the numbers that jumped out at me:
    In the 3 largest areas that they operated, Coors had almost 50% market share in 1977. By 1985 they had only 14% in that region, however they expanded to almost all the states and sold 16% more barrels.
  2. Also in 1977 Coors had a 20% operating margin, far ahead of any competitor. By 1985 it was down to 8%. Marketing expenses were the cause of this, jumping from 2.6% of revenues to 15%, far more than any major competitor.
  3. While Coors was expanding, all of their competitors (mostly AB and Miller) were taking a major chunk of their market share in the markets they previously dominated.
  4. It seems that the marketing expenses are what killed Coors’ margins. If Coors expanded its local market share in 1977 instead of jumping around their marketing expenses would’ve been much lower per barrel than all of their competitors.

Herman | February 1, 2012 at 8:12 am | Reply | Edit

I fully agree with Dave’s analysis. Although there was advertising expenses were on an industry-wide rise since the late 70s (probably driven by PM’s takeover of Miller), Coors’ advertising expenses made up 15% of sales vs. an industry average of 10%. On a per-barrel basis, Coors spent $11/barrel on advertising in ’85, whilst AB spent $7/barrel.

Reason for these high expenses was that the advertising expenses are primarily regional, and Coors had lost market share in its heart land (Mountain, Pacific, WSC) – 25% in ’77 to 15% in ’85 against AB and Miller, and had insufficient foothold in other states (in all non-heartland areas except for NE Coors had <10% market share).

A crucial mistake Coors management made was to allow Miller and AB to fill the capacity gap in its heart-land (10 states west of Colorado), thereby losing market share and thereby weakening the EoS it had. It seems like Coors’ management was focused on its nation-wide roll and lost sight of defending its local market share.  EXCELLENT POINT.

It seems like AB enjoys EoS now.

It’s easy to play Monday morning quarterback, but if I were in Coors shoes, and saw the decline in market share I would have taken the following steps:

Step 1) Map out profitability per state to understand which states create a drag on Coors margin. My guess would be that this would be a combination of distance from its brewery and low ( <10%) market share) but this would require some further analysis.

Step 2) Cut fat – there seems to be fat everywhere in the value chain, which translates into lower margins. By cutting out this fat, more cash can be generated. Examples of potential areas of fat:

a) Coors strategy of maintaining full integration of its supply chain (e.g. owning its own transport company, generating its own power, etc). This may not be the best strategy in a mature market like beer. Other service-providers may have an cost-advantage, e.g. in transportation. Coors own transport company led to 10%-15% higher trucking costs thanks to low back haulage compared to independent transporters.

b) Maintaining so many brands – Coors ran 4 different super premium brands vs. an industry average of 1. Even though super premium brands generated cash to fund advertising campaigns, the costs were pretty high ($20 – $ 35 Mln launch costs, $10 M annually advertising maintenance costs, and costs associated with running so different many packages on its production lines).

Step 3) Abandon the ‘bleeder’ states, and focus on the strong states (its heartland). Defend market share aggressively by cutting prices, using the excess cash generated by having cut the fat as laid out in step 2 .

I of course completely agree with you but do you have any insight on why they may have pursued the strategy that they did at the time?

Coors Case Study that is Not Helpful

There is interesting information and background here on the beer industry, but this 64-page reports lacks logic and analysis.  On what basis does the author suggest that Coors go international? That advice is equivalent to giving a drowning man a drink from a firehose. Coors would only be worsening its position—further growth without profit. The readers above who contributed their analysis in a few paragraphs grasped the essence of Coors errors. Don’t be fooled by fancy terms like SWOT analysis–get at the nub of the problem like Hannibal Lechter http://richraths.com/files/CoorsCaseStudyAnalysis2004.pdf

VALUE VAULT; Moats, Coors CS Question, FDR & Obama, Grace under Pressure, Go Back

Reality is just a crutch for people who can’t cope with drugs.–Robin Williams

I attribute my success to seeing the world as it is, not the way I would like it to be–Warren Buffett (attribution by a friend)


In the VALUE VAULT I split up the videos into two major sections—the VALUE VAULT does NOT include the 2010 Greenwald Value Investing Class Lectures. Those 21 videos (1 semester) are in a separate folder. If you want the key to THAT folder then email aldridge56@aol.com and ask for 2010 Videos. When someone new asks for keys to the VALUE VAULT, I will automatically send keys for all separate folders. The vault will become better organized, manageable, and easier to access. The next step will be to categorize this blog.

Buffett and Moat Investing

I do not recommend this book since I have not read it, but want you to be aware of this video on Moats and the book about Berkshire Hathaway Businesses Competitive Advantages http://www.youtube.com/watch?v=kizM8UaqF_4

If anyone reads and likes the book, please post your comments. Thanks.

The author of the Moat book lectures on valuation models: http://www.youtube.com/watch?v=tp3FLQxcbws&feature=related

Valuation in a nutshell: http://www.youtube.com/watch?v=rSNNBrt-XfE&feature=related.

Of course, perfect in theory and difficult-to-impossible in practice. The point is to remind us why we are studying strategy—to understand the competitive advantages or lack thereof in the companies we hope to value.

Coors Case Study

Would anyone like to comment on what you learned? What numbers jumped out at you from Coors’ operations as it expanded nationally?  If you saw those numbers of competitors’ market share, what would you do as the management? What is the structure of the industry now and who has the dominant Economies of Scale or “EOS”?  What did management lose sight of?

By Wenesday, I will post the short write-up.

More on strategy

Why companies aren’t investing

Profits are strong, interest rates low, and bargains abundant, yet many companies aren’t investing. Uncertainty—about the economy, markets, and economic policy—no doubt ranks high among the reasons. But decision biases play a surprisingly important role.


Comparing FDR and Obama

Our Economic Past | Burton W. Folsom Jr.

Comparing the Great Depression to the Great Recession

June 2010 • Volume: 60 • Issue: 5 •

Interesting parallels to FDR and Obama. The author doesn’t mention that our fractional reserve banking system is inherently unsound. The government policies (actions of the Federal Reserve) exacerbate the boom and resulting bust while the government actions to alleviate the downturn simply prolong and deepen the agony. The mal-investment has to clear and the structure of production has to have time to adjust to changed time preferences of the consumer.

President Obama has often remarked that the Great Recession (2008–10) is the greatest economic crisis since the Great Depression. It’s interesting to study the many parallels between the Great Recession and the Great Depression.

Causation. The main causes of both crises lie in actions of the federal government. In the case of the Great Depression, the Federal Reserve, after keeping interest rates artificially low in the 1920s, raised interest rates in 1929 to halt the resulting boom. That helped choke off investment.

The seeds of the Great Recession were planted when the government in the 1990s began pushing homeownership, even for uncreditworthy people, with a vengeance. Mortgage-backed securities built on dubious mortgage loans became “toxic” when the housing market took a downturn, and many American banks verged on collapse. The government’s urgent desire to bail out various banks and corporations created uncertainty and instability, and this may have widened the recession.

Massive federal spending. Presidents Roosevelt and Obama responded similarly to the crises. They talked about balancing the federal budget, but instead resorted to massive spending. Earlier presidents, like Cleveland and Harding, cut spending when the nation was threatened with economic hardship. Hoover was the transition president, running deficits with record spending on public works, the first federal welfare program, and the first large-scale federal farm program. The results were budget deficits and 25 percent unemployment.

President Roosevelt became Hoover on steroids. FDR and his advisers, despite some early moves to cut spending and control the deficit that Hoover left behind, decided that ever-larger federal spending would trigger economic expansion and pull the country out of its economic slump. Thus Roosevelt began the Agricultural Adjustment Act (AAA), which paid farmers not to produce, and then expanded Hoover’s Reconstruction Finance Corporation, which provided bailout money to large banks and corporations. He also expanded spending on public works and targeted large subsidies to various special interests.

President Obama, who often cites FDR, followed his example of targeting spending to interest groups. He signed into law a $787 billion stimulus package that sent tax dollars to various cities and voting groups across the nation. He later supported an expensive “jobs bill” that would send money into key congressional districts. The President also campaigned for a cap-and-trade bill and universal health coverage, both of which promised to increase the federal debt substantially. In fact, the increase in federal debt under Obama and Roosevelt is similar. The national debt more than doubled in Roosevelt’s first two terms, and it is projected to double again in eight to ten years.

Spending fails. After the large increases in federal spending under Roosevelt and Obama, unemployment remained high. In the 1930s unemployment fluctuated, but recovery never occurred. In April 1939, toward the end of Roosevelt’s second term, unemployment was almost 21 percent. Treasury Secretary Henry Morgenthau complained, “We are spending more than we have ever spent before and it does not work.” Nonetheless, almost all of FDR’s programs continued—usually with annual budget increases.

When Obama took office unemployment was at 8 percent, and in the next year it steadily increased to over 10 percent before falling back just under that mark. He and his advisers were puzzled that large spending increases did not slash unemployment, and he argued that his spending was saving jobs that would otherwise have been lost.

Critics of Roosevelt and Obama insisted that it was impossible to spend our way out of a recession. During the New Deal, economics writer Henry Hazlitt observed that public-works spending destroyed as many jobs as it created. “Every dollar of government spending must be raised through a dollar of taxation,” Hazlitt emphasized. If the Works Progress Administration builds a $10 million bridge, for example, “the bridge has to be paid for out of taxes. . . . Therefore for every public job created by the bridge project a private job has been destroyed somewhere else.”

Tax rates raised. During the Great Depression Roosevelt raised both income and excise taxes. In 1935, with FDR’s push, the top marginal tax rate hit 79 percent. Few paid that rate, but thousands of Americans were in the 50-percent bracket. Entrepreneurs had to hand over more than half of any income above a certain level. Facing disincentives to make capital investments, many entrepreneurs used their wealth cautiously—investing in tax-exempt bonds, art collections, and foreign banks. Little wealth went into creating jobs, so high unemployment persisted. During World War II FDR raised taxes further, to 94 percent on all income over $200,000.

Most of the tax hikes under Obama are planned for the future. Thus far we have seen proposed tax hikes on products such as cigarettes, liquor, plane tickets, and soft drinks. He wants the tax cuts enacted under President Bush to expire. That will mean a spike in the capital gains tax, the income tax, and the estate tax. As FDR showed, tax hikes eventually follow large spending increases.

Scapegoats. The sequence of massive federal spending followed by a lack of recovery plus tax hikes is poison for a politician. Therefore Roosevelt sought scapegoats to explain his failure. Wall Street bankers were his favorites. He called them “economic royalists” and blamed them for causing the Great Depression. He also blamed America’s top businessmen for instigating a “capital strike”—they were refusing to invest in order to make him look bad. FDR then launched IRS investigations of key Republicans and used the newspapers to encourage hostility toward these targets.

Obama has followed FDR’s playbook of attacking Wall Street bankers and various corporate leaders. He condemns the raises these bankers sometimes receive and the profits earned by some large oil companies and health insurance companies.

Such emphasis on “class warfare” may be an inevitable part of redistributing wealth from one group to another. Perhaps Roosevelt and Obama believed that by increasing envy and resentment toward some Americans, they could capture the votes of larger groups of Americans and thereby win reelection (in FDR’s case there is evidence of this). True, this strategy guarantees that many wealthy Americans will attack any president who uses class warfare, but the campaign for redistribution will always supply large amounts of money to subsidize favored groups.

When Roosevelt was reelected in 1936 Senator Carter Glass, Virginia Democrat, admitted, “The 1936 elections would have been much closer had my party not had a 4 billion 800 million dollar relief bill as campaign fodder.”

Obama may be hoping his “stimulus” package and his health insurance bill will generate similarly large support among Americans receiving federal benefits and that these voters will go to the polls to overwhelm those who are paying the bills.

Grace Under Pressure

The FAA has released the audio tapes and transcripts of the radio communications between Flight 1549, the US Airways jet that crash-landed in the Hudson River on Jan. 15, 2009 and the various air traffic controllers in the area on the afternoon of the accident.

Lesson for investors: Focus on what YOU can control in an often uncertain and random world. http://www.youtube.com/watch?v=YAD5xBgPTWQ&feature=related

I Wanna Go Back (Eddie Money on Sax)

High interest rates, the 1980s, let’s go back in time: http://www.youtube.com/watch?v=EbkowHt45yg

Study Break; Course on Money and Credit, J. Rogers on Rating Agencies

Experience is something you don’t get until just after you need it.–Steven Wright

Study Break

Let’s take a study break and return to the Coors case study this weekend.  You have a strong foundation of strategic logic to study the case. You learned from Wal-Mart that management did not expand from Arkansas into California or the Northeast back in 1985, but expanded at its periphery (like an amoeba), where it could readily establish the customer captivity and economies of scale that made it dominant. And it defended its base.  What did Coors do?

Mises Academy Course on Money and Credit

I mentioned the course with links to the books and study guide here: http://wp.me/p1PgpH-ix

This article by Professor Murphy discusses the course in more detail. I hope some of you join me in taking this rigorous tour of money and credit. http://mises.org/daily/5878/Mises-on-Money-and-Banking

“Is This Course Going to Be Really Hard?”

Let’s be frank. Mises’s writing at times can be difficult, especially his earlier work when he was writing for other economists, rather than the lay public. The amateur fan of Austrian economics who flips through The Theory of Money & Credit might recoil, thinking it is too hard and that anything important from the book would have been distilled by Rothbard in Man, Economy, and State.

If I’ve just described your view, I suggest doing the first week’s reading (the first two chapters from Mises) with my study guide as a companion. You might be pleasantly surprised to discover that Mises’s prose, though a bit formal, is still accessible to the layperson. If — using my study guide for help — you can get through the first week’s readings, then I believe you have what it takes to get through the whole class. It’s true, we will get into material that is more complicated than what Mises lays out in the opening chapters, but then again that’s what you have me for, to explain it for you.

Now if you determine that you are capable of digesting the material, I would urge you to take the plunge and sign up for the course. Yes, Rothbard and others have explained the Austrian theory of the business cycle in other venues. However, by exploring the Misesian framework of money and banking, you will walk away with a much deeper understanding of his theory of economic fluctuations. For example, the typical objection that “we had business cycles before the Fed, so the Austrians are obviously wrong” will seem quite ludicrous after studying Mises’s classic work.

 Jim Rogers Savages the Credit Rating Agencies




WMT 2003 and Coors Case Studies; Items of Interest

I got my driver’s license photo taken out of focus on purpose. Now when I get pulled over the cop looks at it (moving it nearer and farther, trying to see it clearly)…and says,” Here, you can go.” — Steven Wright

The Wal-Mart Stores in 2003 and the Adolph Coors in the Brewing Industry Case Studies are in the Value Vault.  If you just want me to email you the cases just write to aldridge56@aol.com with CASES in the Subject line–you will have them by tomorrow.

Other Items of Interest

Should we re-write the constitution every 20 years as Thomas Jefferson suggested? Check out: http://www.constitutioncafe.org/

How to strengthen willpower. http://artofmanliness.com/2012/01/15/how-to-strengthen-willpower/

Nassim Taleb’s New Book

Talk about Nassim Taleb’s new book, Antifragility, go here www.cafehayek.com and click on podcasts on left of blog.  Other interesting podcasts available.

Keynesian Economics is a Failure

Interesting lecture on classical economic theory: http://mises.org/resources/5278/Why-Your-Grandfathers-Economics-Was-Better-Than-Yours

  • A participant: “I really enjoyed this talk. Most of it is about Say’s Law and how Keynes was wrong. Keynes, in fact, got his idea from Thomas Malthus who was a contemporary of JB Say.”Here are some notes:Recessions are never due to demand deficiency.
    An economy can never produce more than its members are willing or able to buy.
    High levels of savings do not cause recessions.What causes recessions?
    – Structure of supply doesn’t fit the structure of demandGeneral Glut
    – Could you produce too much of everything? No.
    – Overproduction of particular goods can lead to a general downturnMen err in their production there is no deficiency in demand – David Ricardo