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Molson Coors Brewing Company Supply Chain Management

Introduction

Molson Coors Brewing Company is one of the most successful firms in the rapidly Mergers & Acquisition competitive brewery industry and the fifth-largest brewer in the world. The Molson company was found in 1872 in Rocky Mountains and Coors Brewing company was found in Golden, Colorado along with other major brewing facilities in Memphis, Tennessee, and packaging facilities in Virginia’s Shenandoah Valley, near the town of Elkton. Both companies merged together on February 9, 2005 as of their stocks of A and B shares that were available on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the ticker symbol TAP. At that time, the alcohol beverage market surmised the market value of $162 billion dollars and employs 890,726 workers in 555,645 manufacturing and retail establishments in which the shares brought in at least 9% annual growth rate. The portfolio of Molson Coors brewery brands are: Coors Light, Coors, Zima XXX, Molson Dry, Molson Canadian, Keystone-Price Category, Worthington’s, Rickard’s, Carling, Aspen Edge, Molson Ultra, and Kaiser (David, F.2007).

Business Structure

Molson and Coors agreed upon how their brewing brands are distributed throughout the world by utilizing the matrix-centralized system. Coors brewing company has a several subsidiaries that operates alcohol beverage brewing brands: Molson Canada, Coors Brewing Company, Coors Brewers Limited, and Cervejarias Kaiser Brasil S.A. Molson Canada brews. All of these subsidiaries are the “Canadian” brands and are handled by Molson. While, the Coors Brewing Company handles domestic brews and exports to outside of United States and to the international market. Of these four subsegments, Coors Brewers Limited oversees and operates in United Kingdom, and Cerverjarias Kaiser Brasil S.A. oversees and operates in Brazil and others are in parts of the United States. It is known that each segment has a favorable industrial analyst leadership and has an excellent marketing mix and pricing strategies (David, F. 2007).

Top Executives

The firm merged their top executives to join forces together to lead the new operations team. A 15-member board of directors, Molson’s family and Coors’ family has five members each to nominate in addition to three company’s shareholders to elect. Nine of the 15-member board of directors are independent shareholders and they do not have the responsibility to manage other shareholders, even the nonvoting shareholders as well. Furthermore, (David, F. , 2007) supplemented  five key objectives that all of the 15-member board of directors agreed on are: (1) Grow Operating Profit; (2) Growth Market Share; (3) Grow Volume; (4) Organizational Renewal; (5) Improve Quality. All of the five key objectives reflect Molson’s vision for the firm, which states, “to remain one of the best performing brewers in the world”.

Distributions

The firm’s goal is to be able to procure the highest quality materials and selects global suppliers for services that best meet this goal. Also, Molson used hedge funds and instruments to prevent from volatility in some stock and exchange markets. They have collaborated with key strategic distribution beer companies (including Heineken, Corona and Miller) for investment purposes. In general, Molson Coors distribution systems are provided with collection network for aluminum cans as the aluminum cans were accounted for approximately 26 percent of domestic sales in Canada. Six breweries throughout Canada process bottleling production include brewing, bottleling, packaging, marketing and distributing to all owned and licensed brands sold in and exported from Canada. Montreal and Toronto breweries were accounted for four-fifths of production followed by Vancouver, Moncton, St.John’s, and Creemore. In part of the growth profit of products like kegs – Molson has approximately 9 percent of sale volume in stainless steel kegs. As agreed, a limited number of kegs is allowed to be purchased every year and there is no contract to be made for a long-term supply commitment between Molson and the supplier. However, a brewed beer must be at the size of 341 ml bottle as a standard container allowed by law in Canada. Other packaging products (crowns, labels, corrugate, and paperboards) are outsourced in which Molson do not produce these type of products at their manufacturing facilities. Molson predicated that their sources will not have any difficulties to gain access to these products. However, Molson relies on suppliers, not limited to large number of suppliers, to obtain or to have access to packaging products (branded) in order for Molson to have the best quality of beer end- products. If a supplier is not able to obtain packaging products, whether the source is local or aboard, and the packaging materials in a poor quality could affect Molson not to produce their products effectively. Molson considered the risks of suppliers that could not meet their production requirements. They encouraged suppliers to meet their production requirements and be certain to have sufficient time to obtain an alternative source, that is if primary source do not have packaging products to sell, then be prepared to have more than one source that could sell packaging products for Molson. This way, Molson would not be affected by lack of available materials to produce beers.In the United States, Molson established a three-tier system that consists of manufacturers, distributors, and retailers. Approximately 700 independent distributors purchases MillerCoors (prior to merger) products and sold in local markets. At the time, approximately 19 percent of products were sold on-premise in bars and restaurants, while the other 81 percent were sold off-premise in liquor stores, convenience stores, grocery stores, and other retail outlets. Molson does brew, import or sell the products to non-owned partner brands and “factored” brands, under licensing and related arrangements (Molson Coors SEC- 10K, 2009).

Financial Issues

In 2005, after completed the merger agreement, the firm stocks changed the shareholder price to a big drop, due to accounting policy changes from other joint venture. In which, both Molson and Coors debts were previously paid off. Affected by their debts, Memphis brewery plant was projected to be closed early in 2007. The plant had a brewing capacity of 3 million barrels per year. Another subsidiary company, Cervejarias Kaiser Brasil S.A., a Brazilian beer business, lost $3 million dollars in units from operations during the first year of 2005. The decision for the Cervejarias Kaiser Brasil S.A. was to operate “ on a break-even basis” and stop the cash flow to them. Molson Coors decided that while the growth potential in a particular market is significantly strong along with the pitfall of losses that is likely will not recoup. However, Kaiser is highly likely to decline the profits during the third quarter of 2005. Moreover, analysts suggested that Molson to sell than holding Kaiser in idle position before the end of 2005. Other board member objected the idea and wanted to keep Kaiser in business and add Coors Light brand into flagship market. The CEO of the firm demonstrated the responsibility to take action to resolve the issue quickly, but ,the turnaround is unlikely. Hence, they agreed that no customer should not exceed up to 10 percent of sales, but if  that the sales only represents net sales to the third party external customers (retailers) and for other type of sales, Inter-segment sales revenues would be collected in consolidation. To respect to  Molson Coors operations, the challenges that arised against the growth profits– the cost benefits associated with global segments; The efforts to promote the products of Molson Coors by coordinate sales, Design distribution processes and resolve marketing implications; Retaining key management, employees, business partners, and shareholders; re-assimilate organization’s cultures of all acquired segments and build morality and motivation among members of the organization (Molson Coors SEC-10K, 2009).

Marketing

The targeted consumer of demographic profile is based on the preferred imported and premium brewing alcohol beverage brands, which attracts them by the taste, price, and appearance. According to Molson Coors demographic data that a male who is younger and has a low to moderate educational background and works as a blue collar and lives in moderate-income household would increase competitiveness. Statistics showed that 4 out of 10 adults of legal drinking age (21+) is an eligible consumer — As analysts collected the data on their number of alcohol beverage purchases and complied in the A-B market research. The research indicated that the purchases within a past week (26 percent) or the past month (12 percent) are frequent beer shoppers, thus beer shipments are either one to two times (26 percent) or up to three times or more a week (6 percent), in which accounted for 49 percent of beer shoppers. Overall, alcohol beverage shipments increased slightly over 5 percent in the past year. As the firm once forecasted that the price segments would lose share to the high-end premium segments over the past three years, the premium and high-end beers segments gain starting from 2003 to 2006 as anticipated that 75 percent of the market share would increase. The supply chain of brewers in these categories were compared to Micro breweries and regional brewers by 10% of market share. Which, the market placed Molson Coors imports in declining position of the stock market. Another  problem with Canada segment was that National Hockey League (NHL) had a lockout on salary cap issues. Molson Coors had strong market shares on one Canada segment before the incident, in which, had impact the firm. They adversely lost 5% of sale volume in Canada due to the lack of an active league, a lack of corporate sponsorship and in-arena promotions and sales for beer products (David, F, 2007).

Alcohol Beverage Competitors

Anheuser-Busch Companies and SABMiller pic companies are the Molson Coors dominant competitors in the A-B domestic market share. The least dominant group of competitors that sells above-premium, premium, low-calorie, popular-priced, nonalcoholic, and imported brands are accountable. Even though, the brands do not place Molson Coors at risk for a better economies of scale, and by a good quality of the merger equals. Analysts noticed that during that time in 2004, hard liquor products were marketable following by wine and beer, for the reason that, the trend in the society has changed into a contemporary tone. Anheuser-Busch (A-B) company created the beer brand image to reach contemporary adults. As the Anheuser-Busch saw the need for the sophisticated tastes for 21+ crowd. Interestingly enough, Anheuser-Busch were accounted for 50 percent of domestic market share as they had a successful revenue(s) in six straight years with double digit growth in earnings per share. That says why A-B had acquired China’s Harbin brewer company, the fourth largest brewer company in the world and fastest-growing beer market in the world. A-B has a strong equity income in which Harbin Brewer Company contributed most of their sales in a good standing. Another competitor, SABMiller pic, one of the consolidating giants in the beer industry,  listed on the London Stock Exchange, has operations in over 40 countries around the globe. The company’s brewery and distributions were very efficient in the marketing mix, especially with the market research and brand development, in which, gave them a long successful record. SABMiller pic had held 137.8 million hectoliters and they were accounted for 18.4 percent of U.S. market share. Moreover, in addition to, they owned non-alcohol beverage Coca-Cola products, and have distribution-based centers in London, China, South Africa, Poland, the Czech Republic, India, Central America, and Africa. All of the SABMiller shareholders enjoyed the dividend returns.

Competitive Advantages

From the competitive intelligence analysis on top competitors, Molson Coors implemented a SWOT plan, first on the area of weakness: sale volumes, changing tastes, increasing competition. Secondly on operational area of strengths: product capacity, financial strength, and flexibility. Then, thirdly on organization’s culture and vision. The opportunity for the firm to gain their financial strength—Growth—Improvised a strategy for improving the cash flow following by organization’s restructured operation system. Molson Coors has a strong leadership skill (s) that can be use as a strength skill and depends on their positive business factors. Though, in despite of, the threats that faced the firm is that the S & P outlook did not predicted a positive outlook on a domestic beer segments. The S & P discredited Molson Coors from AAA+ to BBB rating due to outstanding debts with corporate-credit and senior unsecured-credit companies. The S & P ratings can remove the BBB ratings when Molson Coors paid off their debts with these two companies. Actually, prior to agreement on the closure of merger process, Coors and Molson agreed to pay $532 Million dollars worth of dividends to Molson shareholders. Which increased their leverage by combing the entities and offsetting the soft sale volumes. According to CreditWatch ratings the company rating outlook was sustainable, in terms of, soft volume trends, but the trends itself was downgraded (David, F., 2007). So, Molson Coors were expected to stabilize the sale volume trends and improve market share trends in both Canada and the United States, while they diversified their operations on Brazilian products. This type of supply chain management strategy is intent to prioritize the debts within short-range goal by reducing leverage levels. An optimalized strategic plan for Molson Coors company is to remain competitive, in despite of, the fierce of beer industry competitions, and including a three-year strategic plan for five board members to forecast the responsibility to handle the firm’s finance.

References:

David, F. (2007) Strategic Management: Concepts and Cases, 11th ed. Molson Coors Brewing Company-2005. Upper Saddle River, NJ: Prentice Hall

Molson Coors Brewing Company (2009) United States Securities and Exchange Commission, Form 10-K. Retrieved March 8, 2013 from: http://www.sec.gov/Archives/edgar/data/24545/000104746909001758/a2190839z10-k.htm