Executive Summary
The case study focuses on Hopworks Urban Brewery (HUB), a small craft brewing company producing and selling organic beer in Oregon. The company currently has a good position in the local market and considers future development opportunities to increase market share and profit. The paper provides a thorough review of the market environment and Hopworks’ characteristics that could affect performance and strategic choices. PESTLE, SWOT, Porter’s Five Forces, and VRIO analyses are used to support conclusions and recommendations.
Based on the review, the company’s current position is threatened by fierce competition in the craft brewing market and in the beer market overall. The company has opportunities to increase the number of brewpubs, enhance wholesale, and use the Internet to sell and market products. Given Hopworks’ commitment to social and environmental sustainability, the preferred approach is to introduce online sales and Internet marketing while opening more brewpubs in Oregon. This strategy would also require using human resources more efficiently and creating a stable, product-based competitive advantage. Following the recommendations would help Hopworks to earn a larger market share and increase revenue while remaining environmentally and socially sustainable.
Introduction
Hopworks Urban Brewery (HUB) is a company that produces and sells certified organic beer. The company was established in 2007 and has thrived in a highly competitive market since then. At the moment, the company’s strategic objectives are to triple revenue, locations, and brewing capacity, increase wholesale product distribution, and maintain an eco-friendly profile. Achieving these objectives within the scope of the 5-year plan is challenging, and thus the company needs to understand its environment, market position, and capabilities. The present paper will review the case study and perform analysis to provide recommendations for Hopworks.
Craft Brewing Market Environment and Hopworks’ Positioning
Craft beer has become a popular product in the American market over the past few decades. According to Pullman, Greene, Liebmann, Ho, and Pedisich (2015), the number of craft breweries increases every year in response to increasing craft beer consumption. Between 2009 and 2014, there has been a 19% year-on-year increase in revenue of craft breweries, and the projected rate for future years is 7.4% (Pullman et al., 2015).
This creates an excellent environment for craft breweries, most of which are small businesses manufacturing and distributing products through pubs and retail stores. The high supply of craft beer creates a hostile competitive environment, making it essential for companies to distinguish themselves from competitors (Pullman et al., 2015). On the whole, the craft brewing market in America is blooming, inviting the rigorous competition.
Hopworks has an established position in the market that allows it to remain profitable. Based on the information Pullman et al. (2015) provide, Hopworks’ position is that of a sustainable, local beer producer, which fits the emerging consumers’ interests. Research showed that most craft beer consumers prefer beer from local breweries and that 38% of American consumers consider sustainability profiles of companies while making purchase decisions (Pullman et al., 2015).
Hopeworks focused on meeting these demands in the local market of Oregon through efficient, sustainable operations. The brewery produces up to 12,500 barrels of beer annually, which is almost 18 times more than the average craft brewery output (Pullman et al., 2015). Significant production capacity, along with an environmentally-friendly approach to manufacturing, enabled Hopeworks to acquire the leading position in the local market.
Resources and Capabilities
Although Hopworks is a small company, it has sufficient resources and capability to maintain its position in the market in the near future. First of all, the company has an excellent production capacity for a small local brewery, which affects its ability to satisfy the customers’ demand (Pullman et al., 2015). Secondly, the company has environmentally-friendly production capability due to its original approach to brewing. As Pullman et al. (2015) explain, Hopworks benefits from continuous decreases in water and energy use.
This enables the company to maintain its eco-friendly image while also cutting down production expenses. Finally, the capability to take advantage of green technologies is also beneficial for Hopworks. Pullman et al. (2015) note that the company uses energy-efficient equipment and has purchased renewable energy credits and carbon credits to cover its operational energy use and emissions. These capabilities enable the company to maintain its market position, but may not be sufficient for improving it significantly within five years.
One of the concerns associated with Hopworks’ resources and capabilities is the use of human resources. As a small company, Hopworks has low role differentiation among the staff to use human resources efficiently. This affects the company’s strategic capability since employees and managers have no time to perform full competitive and financial analyses (Pullman et al., 2015). Another concern for the company is its financial resources. Due to the size and scope of company’s operations, the amount of free cash for quarterly reinvestment is $100,000 (Pullman et al., 2015). Given the company’s ambitious objectives, the limited financial resources pose a challenge to future development.
Economic and Social Sustainability
In a highly competitive craft brewing environment, it is crucial for firms to develop their operations continuously to acquire a larger market share. Maintaining operations at the current level would not allow Hopworks to remain economically sustainable for long as the threat of new entrants and substitute products is high (Appendix 3). Additionally, the company faces a threat from large, non-craft beer producers due to their established presence in the market (Appendix 3).
Hence, the current strategy used by Hopworks is not sustainable in the long term. The primary opportunity for Hopworks is to shift from on-site sales in brewpubs to wholesale, which will increase the company’s revenue and allow it to cover a larger share of the market. This opportunity would require Howorks to expand production and develop its competitive advantage and marketing to increase off-site sales.
Social sustainability is essential for Hopworks due to its current image and business model. Being a local brewer, considering social sustainability is vital for attracting customers and increasing market share. There are two ways in which the current strategy supports social sustainability. Firstly, Hopworks’ business model supports local agriculture in Oregon. Secondly, brewpubs have become essential to the social life of local residents (Pullman et al., 2015).
The current strategy enables Hopworks to develop social sustainability. However, a strategy focused on long-term economic sustainability could diminish these advantages and affect the business image. The two alternatives for Hopworks with regard to social sustainability are to maintain the current state of affairs or to establish more pubs to distribute their craft beer.
Recommendations
Hopworks’ current position is rather challenging, and the possible opportunities for development are conflicting. The company’s VRIO profile (Appendix 4) suggests that it has a temporary competitive advantage, as other craft breweries can imitate its organic beer (Ariyani, Daryanto, & Sahara, 2018). There are two primary paths considered by the management in developing Hopeworks’ competitive position.
On the one hand, the increase in wholesale production would help the company to build its long-term economic sustainability. However, it would also affect its social profile and environmental efforts due to increased production and reduced reliance on brewpubs sales. On the other hand, the establishment of more brewpubs would not have a significant effect on long-term economic sustainability due to the low profit margins (Pullman et al., 2015). It is unlikely that Hopworks can combine these two paths of development while addressing both economic and social outcomes.
However, there is another opportunity highlighted based on PESTLE analysis (Appendix 1) and SWOT analysis (Appendix 2). Internet marketing and sales are prominent trends in contemporary business, and they have been used by craft beer companies in Scotland successfully to increase sales and brand awareness (Carol, Frederico, & Thomas, 2015).
Modern technologies present numerous opportunities for marketing products online, and Hopworks could use tools like social media and targeted advertising to promote its business to consumers. Additionally, the increased use of the Internet would help Hopworkd to capitalize on its sustainability efforts. For example, the company could use social media sites, such as Instagram or Twitter, to share positive results of operational improvements. Thus, social media can also be used by Hopworks to improve its social sustainability profile and increase popularity among consumers.
The introduction of online sales would also have a beneficial influence on the company and its sustainability efforts. The profit margin in online sales would be higher than in Hopworks’ brewpubs due to lower operational expenses. It would also help the company to increase its geographical reach, thus earning a higher market share in the craft beer market (Carol et al., 2015). At the same time, online sales would not require such a significant increase in production output as wholesale since they target individual users. Hence, this strategy is also compatible with Hopworks’ environmental sustainability goals and would not affect its energy use or emissions significantly.
Finally, one of the most critical aspects of this strategy is that Hopworks can combine it with increasing the number of brewpubs, and acquire a larger market share while improving its social presence in the local market. This is the preferred strategy of future development because it would generate more sales while benefitting the company’s social sustainability efforts
In order to implement this strategy successfully, Hopworks would need to follow two other recommendations. First, the company will need to develop a long-term competitive advantage. It is essential to find a competitive advantage that goes beyond eco-friendliness and organic properties, as these can be imitated by other craft brewers (Ariyani et al., 2018). For example, adding a diverse range of natural flavorings would help the company to sustain competition. Second, Hopworks also needs to improve the use of human resources to enable a thorough analysis of the market and financial outcomes. The company can do it by hiring an analyst and tasking him or her with analyzing the competitive environment and market opportunities regularly. This would aid the company in making good strategic choices in the future.
Conclusion
On the whole, craft brewing is a popular and highly competitive market. Craft brewers face competition both from other breweries and from large beer manufacturers, which makes it essential for them to make effective strategic decisions. Hopworks is an established brand that benefits from its excellent reputation and high social and environmental sustainability. Nevertheless, the current strategy is unlikely to provide long-term economic sustainability in such a competitive market. In addition, there are concerns associated with the company’s human and financial resources. The best option for the company would be to open more brewpubs while also developing an online store and engaging in Internet marketing. This would help Hopworks to increase revenue while maintaining and improving its sustainability profile.
References
Ariyani, W., & Daryanto, A. 2018. Operationalization of internal analysis using the VRIO framework: Development of scale for resource and capabilities organization (case study: XYZ company animal feed business unit). Asian Business Research Journal, 3(1): 9-14.
Carol, Y. Z., Federico, G., & Thomas, M. B. 2015. Competitiveness in a saturated market. A case study of the Scottish craft beer industry. International Journal of Business and Social Science, 6(8): 28-46.
Pullman, M., Greene, J., Liebmann, D., Ho, N., Pedisich, X. 2015. Hopworks Urban Brewery: A case of sustainable beer. Web.