Amsterdam Brewery Case Study

BU362 - B1
Group 4

Noorain Ahmed - 130265080

Cole Clementino - 130425660
Jasmine Dulku - 130787970
Jonathan Huynh - 130670210
Rayyan Zubaid - 130343980

Table of Contents
Amsterdam Brewery Case Study...............................................................1
Executive Summary....................................................................................3
Problem/Opportunities................................................................................4
Internal Analysis.......................................................................................4
External Analysis.......................................................................................7
Consumer Analysis.....................................................................................8
Competitive Analysis...................................................................................9
Decision Criteria.......................................................................................9
Alternative Evaluation...............................................................................10
Recommendation.....................................................................................11
Implementation Plan.................................................................................12
Expected Results.....................................................................................15
Exhibits.............................................................................................16

Executive Summary
Founded in 1986, Amsterdam Brewery was Torontos first craft brew pub. Since its
inception, Amsterdam has seen significant growth in the Toronto and GTA market. Currently,
they are facing capacity issues and a lack of brand recognition. Jeff Carefoote, the owner and
president, must consider operational expansion or select promotional strategies. Amsterdams
main strengths are their experienced brand, engaging social media presence, and diverse product
line. They use a differentiated marketing strategy highlighting benefits and products attributes to
attract consumers. They also use a multichannel distribution network utilizing direct selling and
retailing through the LCBO and The Beer Store. Growth in the overall beer industry has declined
in recent years, however craft breweries have seen positive annual sales growth for the past 5
years. Craft beer now leads the LCBO's beer sales segment and due to changing consumer
preferences, there are large possibilities for business growth. Amsterdam needs to analyze
consumer buying behaviour to align products with effective promotional efforts to achieve
sustainable growth over competitors. Amsterdam should base their decision on the following
criteria: maximize limited resources, maintain local roots, increase brand awareness, and
maximize profitability. We recommend that Amsterdam alter the product and promotion aspect
of the marketing mix. Amsterdam can achieve success by discontinuing the Fracture brew and
heavily promoting the Seasonals and Adventure Brews to attract working professionals and
adventurous millennials looking for a new experience. If implemented, the expected results
include more efficient production, increased brand awareness, and increased profitability.

Problem/Opportunities
Currently, Amsterdam is facing capacity issues and a lack of brand recognition outside of
the Brewhouse. Jeff Carefoote, owner and president of Amsterdam Brewery, is considering
expanding brewery operations or focusing on promotional strategies. Carefoote needs to
strategically decide which brands to focus his promotional efforts on, in order to increase
profitability while maintaining an EBITDA of 15% annually. Carefoote has a time constraint of
4-5 months as he needs to discuss his recommendations with his company staff members at the
year-end fiscal meeting.

Stakeholders
As the primary stakeholder, Jeff Carefoote has invested a significant amount of capital
resources, time, and knowledge into the business. As previously mentioned, his needs include
increasing profitability and meeting demand while maintaining a strong local presence.
The LCBO and The Beer Store are key stakeholders because they are the only retailers in
Ontario licensed to sell alcohol. Any decision needs to consider strategic relations with the
retailers as they are directly involved with 37% of Amsterdam's sales.
Restaurants and bars are significant stakeholders responsible for 44% of sales. These are
key relationships to manage if Amsterdam is to grow their presence.

Internal Analysis
Strengths
Amsterdams main strengths are their resources, brand, and products. Their resources
include their brewery, Brewhouse, social media team, and experience. Increasing capacity and
staying local are both benefits to Amsterdam and that is why moving the brewery to midtown
Toronto has become a strength. The Brewhouse is a strength as it allows for greater customer
experience and increased brand exposure. Amsterdam also has a social media team that has

proven to be inexpensive yet effective in reaching consumers. Regarding their brand and
products, Amsterdam has a rich history and a diverse range of products. Amsterdam was the first
craft brew pub in Toronto and it has been in business for over 25 years. This means they have
strong roots in Toronto and have developed experience in the craft beer industry, allowing them
to maintain strong relationships with local restaurants and bars. Their diverse products are also a
strength with their own brand identity and capability to attract a wide spectrum of beer drinkers.

Weaknesses
A significant weakness is their capacity. Despite expanding, they are still unable to meet
demand. Furthermore, their production is hindered by inefficiencies in brewing multiple beers
and long fermentation times. Another weakness is that, although the Brewhouse is a strategic
resource, Amsterdam is having trouble translating sales offsite. Lastly, the target market is not
clearly defined which can have a negative impact on the effectiveness of promotions.

Positioning
Amsterdam uses a differentiated marketing strategy. They have several products with
unique attributes that attract a variety of consumers.
Amsterdam uses benefits and symbolism to market their brand. They emphasize their
heavy local presence to attract Torontonians. Giving tours of the breweries also gives customers
a unique experience they wont forget. They also use product attributes to market their brand.
They have various brands to attract and meet the demands of a variety of customers. They also
offer an excellent atmosphere with their 300 seat capacity outdoor patio pub.

Marketing Mix
Product: Amsterdam offers 20 different craft brews, each with their own brand, under 5
product lines. The craft brews attract a variety of consumers with their unique product aspects.

Price: Amsterdam uses the cost-based pricing strategy. With this strategy, the final price is
determined with the starting costs. This is evident as Amsterdam charges prices based on the
fermentation time; the longer it takes to produce the brew, the higher the retail price.

Place: Amsterdam uses a multichannel distribution system. They sell directly through their two
locations in Toronto. They also sell through retailers to push their brand to the larger GTA. To
attract new customers, they have their brews on draught at restaurants and pubs.

Promotion: Amsterdam has used print media in the past, but have found more success
through social media. If they are to gain better brand awareness and recognition in the GTA, they
will have to find innovative promotional strategies.
Financial Overview

Amsterdam has a goal of 15% EBITDA per year. Last year they did not reach their goal
and fell short by 5% due to capital expenditures. Currently, EBITDA is 9.4% which is
concerning since their peak demand months have already passed.
When it comes to sales there are a few things to note. First, 44% of Amsterdams sales
came from restaurants and bars, and more sales came from the LCBO compared to The Beer
Store. This implies that it might be beneficial to focus on primary outlets or that there are better
ways to leverage the other channels. The sales breakdown by product shows that the All Natural
Blonde provides most of Amsterdams sales, although it has the second lowest contribution
margin (see Exhibit A). Also the Adventure Brews are tied for the least amount of Amsterdams
sales, and they have the highest contribution margin (see Exhibit A). This implies that there is
evidence to support increasing promotion of the higher margin drinks.
Regarding the current market, the market for craft beer in Canada consumes about 72
million litres of beer annually (see Exhibit B). Amsterdam Brewerys maximum capacity is 4
million litres of beer annually (see Exhibit B). Therefore, if Amsterdam Brewery produced at
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maximum capacity, they could reach about 5.6% of the Canadian craft beer market (see Exhibit
B). Theres not enough information to determine if this number is good relative to competitors,
but it shows Amsterdam Brewery has a lot of room for growth if they can increase capacity.

External Analysis
Opportunities
Beer is Canada's most popular alcoholic beverage and this category and has long been a
mature market segment. Growth has slowed in the industry overall but, craft beers have been
able to consistently out-perform the overall industry over the past several years. With a 9% stake
in the total Canadian market, non-commercial breweries have seen positive annual sales growth
for the past 5 years. Craft beer now leads the LCBO's beer sales segment and with growth of
45% in 2011 and 33% in 2013. The key driver for this growth is changing customer preferences
and social trends. The 'Independent Craft Beer Movement' is a social change that has been driven
mainly by the perception that craft beer offers better quality, more variety, more flavor and
seasonal offerings. This is an important trend because with sales growth set to continue, the
market for craft beers is expanding providing a great opportunity for business growth. Specialty
beers, specifically, have seen a shift in trend towards increasing demand. This trend provides
another opportunity for non-commercial breweries that produce these specialty beers.

Threats
Heavy regulation of alcohol sales in Ontario restricts the growth of the beer industry.
With only two licensed retailers in the province, the LCBO and the Beer store, there are
numerous restrictions placed on the ability of breweries to distribute their products to consumers.
These retailers are able to leverage their power in negotiating better margins. Increased
competition in the craft beer segment also presents a threat. With large growth in sales and
popularity, the segment has become more competitive due to new entrants. With 75 licensed craft
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breweries in Ontario offering a wide variety of products, competition for shelf space and
exposure continues to become more difficult.

Consumer Analysis
Market Segmentation
Amsterdam utilizes geographic and demographic segmentation bases. With their brewery
and Brewhouse located in the heart of Toronto, they are looking to attract customers from
Torontos downtown, midtown, and waterfront. Amsterdam also utilizes demographics like
gender in marketing some of their craft brews. They understand that females might have
preferences for craft brews that differ from males. They also target millennials through their
strong social media presence.

Segmentation Bases Evaluation:

The market is measurable. Canada is 20th in beer consumption, and craft brew account
for 9% of the Canadian market. Toronto and GTA have a population of about 3 and 6 million
respectively. The market is accessible. The only retailers who can sell alcohol in Ontario are
LCBO and the Beer Store. Amsterdam has reached the market by pushing their products through
these retailers that account for 37% of their sales. Restaurants having beer on draught makes it
accessible to first time users. The market is substantial as about 10 million Canadians drink 80
litres of beer every year. The market is responsive. Amsterdam participates in several beer
festivals around Ontario with great success, and their social media campaign has also engaged
many customers.

Buying Behavior
Certain beers attract certain types of consumers. For example, the 416 Local Lager is
often chosen by female drinkers and the Amber Ales are preferred by more educated beer
drinkers. The All Natural Blonde appeals to all types of consumers due to its drinkability, and
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Adventure brews attract all types of consumers due to its wide variety of flavours. These are
significant because promotional activities for the beers must align with the consumer buying
behaviour.

Competitive Analysis
Amsterdams first direct competitor is Mill Street Brewery with 13 products available on
tap. This brand is readily available in many restaurants across Ontario, along with LCBO and
beer store retail outlets. Mill Street Brewery obtained a competitive advantage with their organic
beer as it was awarded Canadian Brewery of the year (see Exhibit C).
Another direct competitor is Steam Whistle Brewery. This Brewery offers its products at
their company store along with many restaurants across Ontario and LCBO and beer store retail
outlets. Steam Whistle Brewery hosts many private events and is expanding across Canada (see
Exhibit C).
Although Amsterdam Brewery had first movers advantage, these two competitors have
found a way to position themselves in the market. This is evident in their rapid growth and
stronger brand awareness.

Decision Criteria
For Amsterdam to employ a successful strategy, decisions should be based on the
following criteria: to maximize limited resources, maintain local roots, increase brand awareness,
and maximize profitability.
Firstly, the recommendation needs to be within the companys operating constraints.
Specifically, the promotional plans need to be within the marketing budget, and production plans
need to be within operating capacity. Next, decisions must adhere to management preferences in
maintaining Amsterdams local roots which aligns with their brand. Promotional strategies must
also increase Amsterdams brand awareness because the GTA market is not as familiar with
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Amsterdams brand as the market from the downtown core. Lastly, to meet Carefootes yearly
financial goal and increase competitiveness in the market, maximizing profitability is a priority.

Alternative Evaluation
The first alternative Carefoote needs to consider is focusing promotion and production on
its original products; the All Natural Blonde, Downtown Brown, and the Big Wheel. This
alternative is feasible with Amsterdams operational capacity since they have the three shortest
fermentation times out of all product offerings and Amsterdam has expertise in their production.
This alternative helps maintain Amsterdams local roots because Amsterdam is known for these
products. This alternative may not be very effective in increasing Amsterdams brand awareness
because these products have already been established, and the growth of these types of drinks is
not growing as fast as the specialty drinks. The contribution margins of these drinks are at the
bottom end of Amsterdams range of products, thus they increase profitability at a lower rate
compared to the other products.
The second alternative to consider is implementing an expansionary strategy, and
establish a brand new microbrewery dedicated to the seasonal and adventure products. The goal
of this strategy is to increase Amsterdam's operational capacity. The expansion solves issues
Amsterdam is facing with its capacity. By transitioning some of their longest fermenting beers
into a separate facility, it frees up production for their original products and allows them to meet
demand more successfully for Adventure and Seasonal brews. Also because our capital will be
focused on expansion, the limited marketing budget is not an issue. This solution adheres with
management's desire to remain local, by establishing the microbrewery in Toronto. An
expansionary strategy will also increase profitability in the long term. Due to the large initial
investment required, short term profits will suffer but over time the increased economies of scale
and ability to meet demand will result in greater overall profitability. Unfortunately, this
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alternative fails to increase brand awareness because of the high capital investment which leaves
little to no money for increasing promotional activities.
The third alternative to consider is expanding the distribution channel to include grocery
stores as a retailer. 60 grocery stores have been authorized to sell beer1. Retailing has been
incredibly successful for Amsterdam thus far, and adding grocery stores will only increase sales
and brand reach. Potential retailers to target include Loblaw Companies and Metro Inc. who have
the greatest numbers of authorized stores in the GTA. This alternative meets the criteria of
meeting marketing limitations as the retailers will take a piece of the price, however, expensive
promotions be avoided. The decision criteria of meeting production limitations might not be met
because Amsterdam may not be able to fully stock the products required from retailers. Grocery
retailers will cancel contracts that are not satisfied. This decision will meet the second criteria of
maintaining local roots if Amsterdam takes care in selecting grocery stores that operate within
the GTA. This decision may not satisfy the criteria of expanding brand awareness. While
obtaining shelf space will be difficult, it may not be sufficient to attract new customers.
Amsterdam will have to engage in expensive co-op promotions and shelf space purchasing to
build awareness and recognition. The decision would not satisfy the requirement of maximizing
profitability. Grocery retailers will cut into Amsterdams profit because it is not as well-known as
other brands. Obtaining an agreement may not even be feasible due to a lack of competitive
advantages over other brands.

Recommendation
After evaluating all alternatives, it is recommended that Amsterdam Brewery alter their
marketing mix. This can be implemented by eliminating their Fracture product which only
1 Government of Ontario website https://www.ontario.ca/page/beer-sales-grocerystores accessed June 28/16
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accounts for 2% of sales, has a long fermentation period, and an inadequate contribution margin.
Amsterdam should also heavily promote their specialty products, the Amsterdam Seasonals and
the Adventure Brews, while decreasing the All Natural Blondes marketing budget. By
eliminating the Fracture brand, Amsterdam Brewery will be able to maximize their limited
resources by shifting production capacities towards making the Amsterdam Seasonals and
Adventure Brews. Heavily promoting specialty brews in the GTA will increase brand awareness
using sales promotion techniques catered towards Amsterdams specified target market of young
working professionals and adventurous millennials looking for a new experience. Cutting down
All Natural Blondes marketing budget from 85% to 70%, will allow them to reallocate costs to
promote Amsterdam Seasonals and Adventure Brews.

Implementation Plan
Product: Amsterdam Brewery should cease all production of their Fracture brew. This will
decrease their product line depth allowing the Brewery to realign their resources. Removing
Fracture will free up some occupational capacity which is beneficial as there is currently a high
demand for other products.

Price: Amsterdam Brewery should continue using the cost-based method to price their product.
Place: As Carefoote wants the brand to remain local, the Amsterdam Brewery should maintain
the same distribution channel network they currently have.

Promotion: Due to low production capacity, Amsterdam should look to increase their sales of
higher margin products. We recommend engaging in heavy in-house promotion of the Adventure
Brews, the product with the largest margin. Amsterdam can convert consumers preference for
the All Natural Blonde to the Adventure Brews. Amsterdam should also engage in video
blogging to promote the experience aspect of their brews and to further build their social media

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presence to attract millennials. They should also create videos at beer festivals and other fun
activities of people drinking Amsterdam brews to promote an adventurous lifestyle. Amsterdam
should also build their Instagram to share their unique atmosphere by having people share their
photos through a unifying hashtag.
Amsterdam Brewery must also heavily promote their seasonal products. The two
integrated marketing communication tools that Amsterdam should use to promote seasonal brews
are electronic media and sales promotions. Amsterdam should use its established social media
platform to inform consumers about promotions and events including the sweepstakes sales
promotion and Oktoberfest event outlined below.
An integrated marketing tool that will be used is sales promotions, which are special
incentives programs that encourage the purchase of a product or service. In the short run, sales
promotion can be utilized in order to increase sales, but also be used in the long term to build
customer loyalty and gain brand recognition leading to top of mind awareness. Specifically, the
type of sales promotion that will be utilized are sweepstakes. When a consumer visits the
Amsterdam Brewhouse, they will be informed about the sweepstakes promotion. That is, if a
consumer purchases their seasonal brews, they will be entered in a random draw to win a
private tour for 2 of the Amsterdam Brewhouse where they can taste the different types of craft
brews, a customized t-shirt and hat. Using this sales promotion will encourage higher
consumption of the seasonal brews, as consumers will be motivated to enter the draw to win.
This sweepstakes will be taken place at the end of each month until the fiscal year end meeting.
The last promotional tactic that will be used is an OktoberFest event, housed in the
Amsterdam Brewhouse. This event will strictly promote both specified Amsterdam brews. In
order to do so, point-of-purchase displays will be set up at the front of the Brewhouse. Using

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POP displays will provide high visibility and provide in store support through internal staff
introducing the product attributes to the consumer.

Segmentation, Targeting and Positioning

In order for Amsterdam Brewery to continue with their success in a fast paced craft
brewery market, they must determine and focus on specific consumer target markets. This will
ensure that their marketing strategies are as efficient and relatable as possible by catering them
towards each segments desires and needs. In this case, geographic, demographic, psychographic
and behavioural factors need to be used to determine Amsterdam Brewerys optimal target
markets.
As all of Amsterdam Brewerys operations are based in Toronto, the best cohort to target
would be the millennials as they take up a large portion of Torontos population and are
continuing to grow as other cohorts such as baby boomers are declining2. Furthermore,
millennials aged 21-25 are much more likely to gravitate towards buying craft beer and will go
out of their way to find it3. Therefore, the millennials age group can be split up into two defined
segments; the young working professionals and adventurous millennials looking for a new
experience.
The first segment considered are the young working professionals. These are made up
of young individuals aged 24-34 who are living in or near Toronto. The lifestyle led by this
population is more on the go as they have more responsibilities corresponding to their careers
2 Canadian Millenials and Beverage Alcohol. http://canadianmillennials.ca/wpcontent/uploads/2013/06/Abacus-Data-Bevsupport-Canadian-Millennials-and-BeverageAlcohol.pdf
3 Canadian Millenials and Beverage Alcohol. http://canadianmillennials.ca/wpcontent/uploads/2013/06/Abacus-Data-Bevsupport-Canadian-Millennials-and-BeverageAlcohol.pdf
14

and are starting to earn their own money. Their lifestyle yields characteristics that allows for
consumption of beer during the individual's downtime i.e. after work drinks and during
networking or social events. As this age group is more likely to seek out craft beer, Amsterdam
Brewery should target them while they are developing taste and preference for certain craft beers
as it could lead to brand loyalty. Additionally, as they are starting to earn their own money,
Amsterdam Brewerys premium pricing will not be an issue as these young working
professionals can afford to buy their products.
The second segment to consider is the adventure seekers. These are men and women
aged between 19 and 34 who live in Toronto or visit to experience city life. They attend beer
festivals, music events, and sports events. They are active on social media, and enjoy seeking out
new and unique beers.
In conclusion, Amsterdam Brewery should be positioned in the differentiated product
market in order to specify exact segments within the target market of millennials so Amsterdam
Brewery can effectively utilize their promotional strategies.

Expected Results
The craft beer sector offers large business potential. This potential can be seen by the fact
that beer production from big breweries has decreased by 6.1% from 2009 to 2014 while
production has increased 70% from small breweries (see Exhibit D)4. This highlights the
opportunity for Amsterdam to increase market share in this sector. By implementing our targeted
promotional strategies, Amsterdam can expect to increase Adventure and Seasonal product sales.
These promotions will also increase brand awareness and in turn, customer loyalty. The removal

4 Financial Post: http://business.financialpost.com/news/retail-marketing/the-rise-ofcraft-beer-in-canada-an-infographic accessed June 28/16

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of the Fracture beer will allow Amsterdam to better meet demand with more efficient production
and less switching.

Exhibits
Exhibit A
Contribution Margin Breakdown Per Brew
Brand

Contribution Margin ($/ 473 ML Can)

416 Local Lager

1.54

All Natural Blonde

1.26

Big Wheel

1.15

Downtown Brown

1.43

Amsterdam Seasonals

2.08 (for 500 ML bottle)

Boneshaker

1.33

Fracture

1.45 (for 355 ML bottle)

Adventure Brews

2.63 3.68 (prices vary, smallest was a 600 ML bottle)

Exhibit B
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Financial Calculations
Amsterdams Capacity

40 000 * 100 = 4 000 000 (100 L = 1

hectolitre)

Canadian Market Craft Beer

10 000 000 * 80 * 0.09 = 72 000 000

Consumption
Amsterdams Potential Market Share

4 000 000 / 72 000 000 = 0.056

Exhibit C- Competitive Analysis

Direct Competitors

Strengths

Mill Street Brewery

Steam Whisle Brewery

Located in the distillery

district (Toronto), many
tourists go to this market
Population is highly
densed Toronto
13 products on the tap
available in many
resturants
Available in LCBO and
the beer store
Mill street organic beer
was Ontarios first
certified organic beer

Family owned business

Prime location in
downtown Toronto
Sold at the retail store
along with other
restaurants
Hosted coroperate and
private events
Expansion opportunities
across Canada

Weaknesses

Located 3km away from

their competitor
(Amsterdam Brewery)
Similar to Amsterdam
brewery
Small consumer base in
comparison to
commercialized beer
Production restrictions.
Can only produce a
specific amount of beer
per year

Production restrictions.
Can only produce a
specific amount of beer
per year
Located only 1km away
from direct competitor
(Amsterdam brewery)
Smaller customer base
in comparison to
commercialized beer
segment

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Exhibit D- Small brewery market growth

18