Redhook Ale Brewery Analysis

Redhook Ale brewery thought it was an ideal for itself to expand its brewing capacity and product line during the period when the conditions of regional economy environment and U.S. microbrewery industry are favorable.

There are two proposed projects for the Redhook Ale Brewery. The first project is to build a similar-sized brewery in the Bay Area of northern California to increase production capacity to meet the growing market demand of Redhook’s current product, ales and porters, and support future brand new production, which might be able to support its future profitability at least in one decade. Sales of Redhook’s ales and porters, two product lines have grown for eight years since 1984 at an average above 50%. According to the case, demand of these two products is going to exceed the 40,000-barrel annual production capacity in two years. So, relying on the production capability of single brewery would cause the reduction of market shares and profitability. To maintain its dominant position in the city of Seattle, building a similar-sized brewery in northern California is necessary for increasing its profitability and projected growth.

The second project is to construct a larger brewery in the Puget Sound region of western Washington for the preparation of introducing a lager brand. Constructing  two additional breweries would provide Redhook with sufficient capacity to grow into the late 1990s.Paul Shipman and David Michelson, president and financial official officer, believed that with Redhook’s outstanding reputation for premium brews, an excellent distribution network, good publicity, and no domestic competition, its lager beer would penetrate this market quickly. Lager beer is designed for a much broader population of people than ales and porters. The market size for lager was estimated to be greater than ten times the size of the ale market. According to the information provided by the case, the premium lager market in the northwest alone was estimated at approximately $145 million and the market in the California was estimated to be over $1billion. So, a lager product would complement Redhook’s existing product line and provide significant growth opportunities and profitability. Redhook company believed that lager beer would become the company’s lead brand with projected sales of $25 million in one decade. Besides, the construction of a larger brewery in the western Washington, which is used for developing high-quality lager brands, would allow Redhook to attain ability to compete against higher- priced imported lager beers.