“Allston Aleworks” Microbrewery

Team Term Project (TTP) Part 1

What’s the rationale for investing in a new in-house brewery?

MET AD715 - Quantitative and Qualitative Decision Making - A4

October 22, 2024

Executive Summary

The primary purpose of this report is to determine the feasibility of the opening of Allston Aleworks, a new craft brewery in Allston, Boston.

1 Introduction

The craft beer industry in the United States has seen substantial growth in recent years, as consumers start to prefer unique local brews over beer that are mass produced (Statista, 2023). Consequently, there is a growing opportunity for craft breweries to capitalize on this increase in demand, especially in areas where beer consumption is relatively high. Targeting a younger and more trend-driven demographic, Allston Aleworks aims to tap into this market by introducing a new brewery in the Boston area, as well as housing its production in the city outskirts.

The target location, Allston, as well as the surrounding area of Fenway and Brighton has a population of 111,979 as of 2022 (Data USA, 2022). Allston’s population mostly consists of students, young professionals, and academics, owing to the proximity of several academic institutions, including Harvard University, Boston University, and Boston College. This report aims to assess the viability of opening Allston Aleworks by examining the market, operational and financial factors.

1.1 Problem Statement

The main objective of this report is to determine whether Allston Aleworks as a business opportunity is viable, by utilizing and analyzing the market as well as the operational logistics, marketing strategy, financial sustainability, and competitive landscape. Although Allston has a promising client base, we must also take into account the significant entry barriers that exist such as start-up costs, legal regulations and local competition that could play a role in the success of Allston Aleworks.

Due to the highly competitive nature of the craft beer industry in Boston, Allston Aleworks has to be strategic in its marketing and financial approach so as to be able to succeed. Hence, in this report, we will also aim to investigate whether there is sufficient demand, whether the brewery will be operationally profitable and whether it can achieve this profitability within a reasonable timeframe.

1.2 Overall Goals and Objectives

In order to assess the feasibility of Allston Aleworks it is important to highlight some key assumptions made about the market conditions and operation of the business. We shall consider the fact that the brewery will have 20 tables with a 4 square seating capacity each, as well as an additional 20 seats at the bar counter. The hours of operation at the brewery will be from 4pm - 2am everyday, with an anticipated turnover of 3 seatings per day for both table and bar seats. We will also be operating on an assumed occupancy rate of 60%. On average, each customer is expected to consume 1.5 pints of beer during their visit. This number is adjusted and accounts for customers who may not drink as well for customers that will drink more than 1 pint, bringing the assumed average to 1.5 pints.

The price for a pint of beer will be assumed to be at $X, though the actual price might vary slightly for different types of beer, for the sake of simplicity, we will assume that all the ingredients and differences between the types of beer is negligible. As a result, the production costs, including material and labor costs will be evenly distributed among our beers. For the primary ingredients, we have identified two primary cost drivers being; malt and hops. With this, malt is expected to cost around $X per ton and hops at $X per ton. Based on this, the approximate material cost for a gallon of beer would be $X, and thus for a pint, $X. It is to be noted that although yeast and water are also key ingredients in the brewing process, their cost per pint is too insignificant and thus negligible (See Appendix 1). Labor and other costs such as packaging will also be consider and will be accounted for in the table below:

In regards to staffing, Allston Aleworks aims to employ 1 critical marketing personnel and 1 critical technical personnel for the first two fiscal years (FY1 & FY2), and expand to 2 persons for each team by fiscal year three (FY3). We will be solely relying on sales of beer for our revenue without any other revenue streams such as food or merchandise. We must also take into note that there are 4 competitors in the Allston area that must be taken into consideration when accessing market dynamics.

With these assumptions, the primary objective of this report is to determine whether Allston Aleworks is a sound financial investment and whether it is sustainable and profitable. This report aims to analyze whether the brewery will be able to generate enough demand and revenue in-order to cover operational expenses and whether it can break-even within a reasonable timeframe. The report will also assess whether the operational logistics, marketing plan, staffing and pricing model are sufficient for Allston Aleworks to gain and maintain long term profitability within its current business conditions.

1.3 Report Structure

This report will consist of two main parts, being the managerial decision process per each functional area and the application of decision tools per each functional area. The two functional areas that we have identified to be of critical importance and will need to be evaluated are marketing management and financial management, as these will directly affect the brewery’s operation and financial feasibility.

2. Managerial Decision Process for Marketing and Financial Functional Areas

2.0 Methodology for Analysis of a Functional Area

2.1 Marketing Management and Decision Making

2.2 Financial Management and Decision Making

3. Application of Decision Support Tools per Functional Area

3.0 Methodology for Applying Decision Tools per Cycle

3.1 Functional Area Marketing Management

3.1.1 SWOT Analysis

Strengths

Two Distribution Channels: By offering two different channels for distribution (wholesale & retail), Allston Aleworks diversifies its revenue streams. This allows us to have access to a broader range of customers as wholesale streams offer us a connection with local restaurants, bars and liquor stores and retail allows us to send directly to the end consumer. This diversification better prepares us for market fluctuations and demand changes.

Locational Advantage: Allston Aleworks is located in the neighborhood of Allston where there is a young vibrant community that consists primarily of students and young professionals (Boston Planning & Development Agency, 2017). This demographic is highly susceptible to high beer consumption, offering Allston Aleworks a consumer base within its very neighborhood. On top of this, Allston is also home to many live music venues, attracting even more young people to the neighborhood that could prove to help with Allston Aleworks’ customer traffic.

Flexibility to adapt & innovate: Due to the fact that Allston Aleworks is a new brewery, it is still capable and able to experiment with its product line and new flavors as it is not tied to any existing product or niche. This ability to change allows Allston Aleworks to tailor its beers to the customer’s preferences and can introduce new changes and products to match the current consumption trends.

Weaknesses

New Establishment: As Allston Aleworks is a new entrant to the craft beer market, it will lack the brand recognition and customer loyalty that older and more established brands/breweries have. This fact could make it more difficult for Allston Aleworks to attract customers initially as customers may not find any reason or drive to switch over from their current brand/breweries.

Limited Parking: Boston is notorious for its difficulty in finding parking. This can be attributed to its historical layout and narrow streets as the city was built before the rise of modern transportation. As a result, Allston Aleworks will struggle to attract customers who do not reside in the immediate area as the parking difficulty will deter those who live further away.

Transient Population: Allston’s large student population can prove to be a double-edged sword. Although a high student population means that Allston Aleworks will see a lot of foot traffic, they experience significantly less traffic during school holidays as students return home. On top of this seasonal demand, many students will move out of the area after they graduate, thus making it even more difficult for Allston Aleworks to build long-term customer loyalty.

Opportunities

Post Pandemic Recovery: As the world continues to recover from the Covid-19 pandemic, there is a greater push and demand for social gatherings. This allows for Allston Aleworks to present itself as a local place where people can gather and socialize.

Health-Conscious Consumption: According to CNN, there’s a rise in demand for lower-alcohol beverages as consumers grow more health-conscious (Howard, 2024). This shift sees consumers pulling away from traditionally harder liquors and opting for lighter alcohol beverages like pilsners or wheat beers. This shift can prove to be advantageous for Allston Aleworks, as consumers pivot to beer as a less alcoholic-intensive beverage.

Threats

Inflation: As the ingredient costs for malt, hops and yeast increase due to inflation, this would also ultimately increase the brewery’s operating expenses. As a result, profit margins will start to shrink with the rising prices. Allston Aleworks can choose to increase its prices to dampen the loss but this will deter more price-conscious consumers.

Supply Chain Disruptions: Global economic instability and geopolitical tension continue to complicate supply chains, with a prevalent example being the Russia-Ukraine war. As Ukraine is one of the world’s top barley producers, the on-going war in Ukraine will decrease global barley supply (Council of the European Union, 2024; U.S. Department of Agriculture, Economic Research Service, 2024). Furthermore, the worsening drought conditions in Europe also disrupts the supply for hops, one of Germany’s biggest exports (Leuenberger et al., 2023). These factors ultimately created shortages and price increases for key ingredients such as hop and barley, increasing the production costs for beer. For Allston Aleworks, this increase can be reflected in a lower profit margin or a need to switch over to alternative ingredients that could affect the price and quality of its products.

3.1.2 Decision Tools (Applied After the Submission of a Cycle)

D-Analysis

From the

3.2 Functional Area Financial Management

3.2.1 PESTEL Analysis

Political Factors

3.2.2 Decision Tools (Applied After the Submission of a Cycle)

4. Summary and Recommendations

Reference

Boston Planning & Development Agency. (2017). Allston trends report. Boston.gov. https://www.bostonplans.org/getattachment/360909b1-97da-46db-be3a-6cc7131f984e

Council of the European Union. (2024). Ukrainian grain exports explained. Consilium. https://www.consilium.europa.eu/en/infographics/ukrainian-grain-exports-explained/

Data USA. (2022). Boston City (Allston-Brighton-Fenway PUMA), MA [Data Profile]. Data USA. https://datausa.io/profile/geo/boston-city-allston-brighton-fenway-puma-ma

Howard, J. (2024, April 1). Non-alcoholic sober bars are growing in popularity, as part of the 'sober curious' movement. CNN. https://www.cnn.com/2024/04/01/health/non-alcoholic-sober-bars-dry-january-wellness-cec/index.html

Leuenberger, M., Gfeller, A., Schläpfer, A., & Wilmes, S. B. (2023). Low-temperature microhydration promotes macromolecular conformational changes and dynamic processes. Nature Communications, 14, 41474. https://doi.org/10.1038/s41467-023-41474-5

Statista. (2023). Craft beer market in the U.S. - statistics & facts. Statista.

https://www.statista.com/topics/1809/craft-beer/

U.S. Department of Agriculture, Economic Research Service. (2024, May). Ukraine's rise in grain and sunflower seed market share limited by ongoing war. Amber Waves. https://www.ers.usda.gov/amber-waves/2024/may/ukraine-s-rise-in-grain-and-sunflower-seed-market-share-limited-by-ongoing-war/