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Red Hook Case Analysis

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Submitted By kevinp42
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Pages 5
Red Hook
Situation:
Redhook began in Seattle producing European-style beer with high quality equipment and ingredients. Brewing was initially packed in 15.5 gallon kegs and sold to local taverns and restaurants. Redhook began to expand further in the mid 1980’s and acquired a new brewing facility in 1989 and another in 1994 with a capacity of 60,000 barrels per year. In 1994 Redhook distributed its products through Anheuser-Busch and by 1998 Redhook was available in 48 states. Redhook experiences a great deal of competition through import, national, and craft beers. The brewing industry in the U.S. is also regulated in areas such as product safety, quality, and environmental protection. The market also suffers from high product substitutability. Redhook production has gradually increased from 1991 to 1996 as well as the amount of barrels shipped.

Problem or Potential Problem: Redhook does not have enough gross sales to justify its current expenses. As Redhook has increased its production and ability to produce, its costs have increased; however, income hasn’t increased in correlation with the increases in production capacity. Redhook purchased fixed assets with cash on hand and has yet to realize a productive return on that investment. Unfortunately there has also been a decrease in sales of Redhook beers. The growth of Redhook does not correspond to its current market conditions and is pushing Redhook into an ever tougher situation.

Causes: Redhook has overestimated its relative growth rate with consumers. Expecting to sell significantly larger quantities of been than the market demanded has resulted in increased costs that are not creating a profitable or sustainable business model. Furthermore the substitutability of Redhook products decreases the ability of Redhook to maintain market share. The increases in substitutability create a shakeout stage in

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