on of a new micro-beer.
Background Description of the Business
In the United States in the mid-1990s, there is a growing tendency toward "hyper- or micro-market fragmentation. People just don't buy coffee; they buy particular flavors of coffee. The same is true of beer and the growth of micro-breweries across the country. People want a specific brand à" (Mummert, Orr, & Yorgey, 1996, p. 14). By way of illustration, Pete's Brewing Co. was founded in 1986 by Pete Slosberg, a Palo-Alto business executive and at that time an avid home brewer (The business, 1994, p. S24). "After producing many batches of home-brew, Slosberg struck upon a recipe he liked, an English Brown Ale brewed with chocolate, caramel and roasted malt. Others liked it too, and Slosberg decided to go into the beer business. He and his partner dubbed the ale 'Wicked,' and began to contract brew it à" (The business, 1994, p. S24). A primary advantage of a contract brewing strategy is a lowered-level of initial capital investment. Pete's Brewing Co., as an example, began business with an initial capital investment of $1.4 million, "a fraction of what it would cost to build a new brewery. This has enabled Pete's to focus on sales and marketing, with impressive results. The company doubled in sales volume last year [sic 1993], jumping 108% to 75,000 31-gallon barrels, placing it among the fastest growing specialty brewers in the nation" (The business, 1994, p. S24).
An alternative to the contract-brewing strategy is the brew-on-premises approach (Krey, 1995, p. 1). Customers at a brew-on-premises micro-brewer can formulate their own beers there or buy the micro-brewery's own beer. Beer brewed on-premises, however, is not ready for consumption for approximately 14 days after the brewing date.
For entrepreneurs with sufficient capital, the option of constructing a brewery from the "ground-up" is always an alternative. The capital costs associated wit...