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DG Yuengling & Son with Beer Sales Dropping Around the World

question 131

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D.G. Yuengling & Son With beer sales dropping around the world, you should be ecstatic that sales of Yuengling (pronounced Ying-Ling) beer are up 225 percent in the last six years. But as you walk through the caves and tunnels of Yuengling's Eagle Brewery, carved into Sharp Mountain in 1831 to maintain a perfect 50-degree temperature for storing beer, you see not only the history of America's oldest brewery everywhere you turn, but also chipped paint, rusting pipes, and an aging plant that can't keep up with the growing demand for Yuengling beer. So far, thanks to hard work, dedicated workers, and some luck, you've doubled your production capacity from 250,000 to 500,000 barrels of beer a year, but if you push for more, the old brewery will break. Yet with sales up so dramatically, the company faces a problem. Says CEO and owner Dick Yuengling, "We are sold out of beer. We run the risk of losing our customer base because we don't have any product on the shelves." Shortages are so bad that the advertising budget has been cut from $3 to $2 a barrel. Yuengling explains, "You can't fuel the fire when we can't get them beer anyway." With production stuck at 500,000 barrels a year, Yuengling beer has become harder to find even as it has become more popular. Sales representative Diane Adams said, "It was a little hairy. People were up in arms." So, rather than sacrifice sales in its home market of Pennsylvania, where Yuengling has its largest market share (10 percent) , the company has temporarily stopped shipping beer to distributors in Maine, Massachusetts, and Rhode Island. Since that strategy won't help Yuengling grow outside Pennsylvania, you still face the question of how to permanently increase beer production to meet the growing demand. You've identified five options. The first is to add new storage and finishing tanks to Eagle Brewery to increase production capacity by 10 percent to 550,000 barrels a year. Though doable, this is only a short-term solution. Second, you could outsource production to another company. This would be more cost-effective, but would Yuengling beer produced in non-Yuengling factories taste different? For a specialty beer, this could be a substantial risk. Still, outsourcing would be affordable, and Yuengling has done it before, outsourcing production of its Black and Tan beer to Pabst Blue Ribbon's brewery in Lehigh, Pennsylvania, until Pabst closed that facility four years ago. The third option is to buy another brewery, but there aren't many for sale and those that are would be expensive and require significant upgrades. For example, it would cost $13 million to buy and $5 million to fix Stroh's 1.5 million-barrel brewery in Tampa, Florida, which is far from Yuengling's northeastern markets. A fourth option is to build a new factory capable of producing 1.2 million barrels per year, but that would cost $50 million and take three years. The fifth and final option is simply to do nothing. The company is already very profitable, has low overhead costs, and is very efficient. In other words, by doing nothing the company could still make a lot of money without incurring the risks inherent in the other options. And risk is a real consideration because everyone in the company remembers that Yuengling was losing money just a few years ago. Refer to Yuengling. What type of planning allowed Yuengling to purchase the Stroh's brewery?

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