Hudepohl Brewing Company Case Summary

Hudepohl Brewing Company (HBC) has operated successfully for almost one-hundred years in an industry that has long been regionally concentrated by family run operations that served their local markets well. Through tradition, passion and an affordable product, they have been able to be the market leader in Cincinnati without having to compete directly with national brands that have deep pockets. Recently, however, it has become clear that the status quo will not advance HBC much further as the likes of Miller Brewing and Anheuser-Busch look to expand nationally and threaten any local brewery that cannot compete with their sheer scale to exit the market, as we have seen in the previous decades. The threat to HBC is not existential and is not just for a share of their business, it is for their survival in an industry that has swallowed up 700 firms in the last four decades. Currently HBC operates a factory that can produce one-million barrels of beer a year, yet only saw sales in 1978 of 334,000 barrels sold or 33% of total capacity; its lowest level in over 8 years. This is in an industry where long term profitability requires 80% capacity which would necessitate a market share in Ohio of 300% of what HBC currently holds. Despite outspending

We first conducted a cost-per-unit analysis of HBC’s current operations and compared it to the industry averages. (See Exhibit 1) HBC’s costs are lower than industry averages for brewing materials and packaging materials. However, their per-barrel Selling, General and Administrative (SG&A) expenses are over 7 times the industry average. This is due to the fact that HBC only produced 334,000 barrels this year (1978) while the average brewery can produce up to 2.5 million barrels annually, allowing them to spread their fixed administrative expenses over a larger volume and decrease their per unit