Description
On a sparkling late-November morning, Wade Malchow (Manager of Agronomy for the Coors Brewing Company) gazes out his office window on the sixth floor of the Coors Brewery in Golden, Colorado. As he scans the sprawling complex, he notices a group of people gathering at the base of a huge, copper brewing kettle that serves as a sentinel to the brewery.
Vertical Coordination in the Malting Barley Industry: A ‘Silver Bullet’ For Coors?
Michael Boland is an Associate Professor in the Department of Agricultural Economics,
Kansas State University, Manhattan, KS. Gary Brester is a Professor in the Department
of Agricultural Economics and Economics, Montana State University, Bozeman, MT. e
thank the Agricultural Marketing Resource Center for funding this research.
Introduction
On a sparkling late-November morning, Wade Malchow (Manager of Agronomy for the
Coors Brewing Company) gazes out his office window on the sixth floor of the Coors
Brewery in Golden, Colorado. As he scans the sprawling complex, he notices a group of
people gathering at the base of a huge, copper brewing kettle that serves as a sentinel to
the brewery. Most of those waiting below for a tour of the brewery are looking up at the
50-foot high, salvaged brewing kettle in awe and amazement at its size. Indeed, the
Golden facility is the world’s largest single-site brewery. Nonetheless, Wade knows that
the sheer size of the brewery does not mean that Coors is the largest brewing company.
In fact, a recent merger of two competitors has dropped Coors from eighth to ninth
position in terms of worldwide market share.
The company historically has been a small brewer. However, new trends and technology
are causing the management of Coors to question their strategic advantages. Historically,
one of Coors’ trademarks was that of a completely integrated regional brewer who
sourced all of its malting barley needs directly from producers through the use of
production contracts. This has served the company well — especially during 2002 when
barley quality was poor throughout the United States.
As Wade turns away from the window and returns to his desk, he starts making notes on
a yellow legal pad. Although he was promoted into his current position only two months
ago, it is time for him to consider the strategic role that his malting barley development
and procurement program will play in helping Coors achieve its strategic position in the
world brewing industry.
The World Barley, Brewing, and Malting Industries
Malt barley is one of the principal ingredients in the manufacturing of beer. Brewers can
either purchase malt barley to manufacture malt which is used to make beer or purchase
malt from malting companies instead of processing barley. Beer is considered a mature
product, so growth occurs at a slow rate relative to newer industries. Worldwide growth
is expected to average 2 percent per year over the next 10 years. U.S. growth is expected
to increase only 1 percent per year, while growth in several regions (China-Southeast
Asia — 5 to10 percent, Latin America — 6 percent, Ukraine — 10 to 20 percent) is
expected to exceed the average. Beer shipments are shown in Table 1 and per capita
2
consumption is shown in Table 2. Consumer demand for microbrews has increased the
number of small breweries in the United States to more than 1,800 or seven times greater
than in 1990.
Feed and Malt Barley
Barley is a highly adaptable cereal grain that is produced in climates ranging from sub-
Arctic to sub-tropical. Barley is grown on a large scale in Russia, Australia, Germany,
Turkey, and North America. The leading exporters of barley are the European Union,
Australia, and Canada. Because of its use in malt beverages, barley is grown in many
areas of the world as much for cultural as economic reasons. Europe has long been a
producer of malt barley. European subsidies encouraging production has resulted in the
European Union competing with Canada as the largest malt barley exporter. A growing
percentage of the world trade is in the form of malt.
The implementation of the Canadian/United States Trade Agreement (CUSTA) and the
North American Free Trade Agreement (NAFTA) encouraged the integration of the malt
barley market between the United States and Canada. Import restrictions were reduced
and the Canadian Wheat Board adopted a pricing policy of selling to Canadian maltsters
at the Minneapolis cash price less transportation costs. This eliminated price protection
for Canadian maltsters. NAFTA eliminated Canadian tariffs on malt barley and malt by
1996 and 1998, respectively. The United States and Canada continue to compete with the
European Union’s export support programs for malt barley and malt.
Brewers
At the beginning of 2004, the top six worldwide brewers are Anheuser-Busch (11 percent
market share, 127.8 million barrels), South African Brewers (SAB) Miller PLC (9
percent market share, 102.2 million barrels), Heineken (7 percent, 80.1 million barrels),
Interbrew (6 percent, 72.4 million barrels), Carlsberg (5 percent, 59.6 million barrels),
and Ambev (4 percent, 49.5 million barrels). Although Coors is the third largest brewer
in the United States, it maintains only 11 percent of the market. This is a relatively small
share compared to its primary U.S. competitors Anheuser-Busch, with nearly 50 percent
of the market, and SAB Miller with 20 percent. Both of Coors’ competitors have
substantial financial, marketing, production, and distribution resources. In addition, their
size provides for significant scale economies. Their geographic distribution systems
reduce the need for satellite redistribution centers and lowers transportation costs. In
addition, Coors has higher per barrel costs of operations because it is a single-site
brewery.
Maltsters
At the beginning of 2004, the six largest worldwide malting companies (in terms of
annual production capacity) are Groupe Soufflet (1,387,000 tons), Cargill (1,245,000
tons), Con Agra/Tiger Oats Malt (1,191,000 tons), Groupe Malt Europ (1,124,000 tons),
and Lesaffre-ADM/IMC (845,000 tons). The economics of the malting industry depend
critically upon selected barley varieties, protein content, plumpness, and moisture
content.
Large brewing companies are not completely integrated in terms of sourcing malt. Some
companies such as Anheuser-Busch have their own malting facilities, but also purchase
3
malt from independent maltsters. Maltsters sell malt to brewing companies such as
Anheuser-Busch, SAB Miller, Molson, Labatts, and Kirin. In addition, distilling
companies such as J ack Daniels, J im Beam, and Seagrams purchase malt. Other malt
purchasers include food processing companies such as Kraft, Malt-O-Meal, and Kellogg.
Coors Value Chain for Beer
Coors maintains the world’s largest, single-site brewery in Golden, Colorado. In
addition, they have a second brewery in Memphis, Tennessee, and a packaging facility in
Elkton, Virginia. Figure 1 diagrams a generic value chain for a firm’s activities. This
framework can be used to show Coors’ activities in the production and marketing of beer.
Supply Chain Management Activities
Coors has always marketed its products based upon its use of high quality inputs. For
example, Coors purchased more than 60 springs near its Golden plant to guarantee a
stable supply of “pure Rocky Mountain spring water.” Coors pays competitive prices for
agricultural inputs such as water, rice, refined cereal starch, and premium hops. Its
aluminum cans cost slightly more than the bottles used by its competitors. Furthermore,
Coors makes its own labels and glass bottles, and built the majority of its own malting
equipment and packaging equipment. At one time, Coors owned coal mines in an effort
to be energy self-sufficient.
Coors uses an all-natural brewing process and water, hops, cereal grains (rice and refined
corn starches), and malting barley to produce their products. Coors has a single source
purchasing agreement for specialized paperboard and label packaging with Graphic
Packaging International Corporation. In addition, most of Coors’ aluminum cans are
purchased from Rocky Mountain Metal Container (Coors’ limited liability company with
Ball Corporation), and more than one-half of all glass bottles are obtained from Rocky
Mountain Bottle Company (Coors’ limited liability company with Owens-Brockway
Glass Container, Inc.). Coors Brewers Limited also has a single source supplier of cans.
Finally, weather conditions can significantly impact the supply and quality of the three
primary ingredients necessary for producing beer — water, barley, and hops.
Operations
The brewing process begins with the malting of barley. Barley is steeped in water and
encouraged to germinate. After four to five days, the “malt” is heated to stop further
growth and improve its flavor. The malt is then cracked by steel rollers to expose its
contents. The resulting “grist” is then mixed with hot water and left to stand for two
hours so that starch can be converted naturally to sugars. The resulting “mash” is sprayed
with hot water and filtered to produce a sugary liquid called “wort.” Wort is then boiled
with hops in copper kettles for 1 to 2 hours. Boiled wort is cooled through the use of heat
exchangers and then aerated. Yeast is added and a fermentation process begins that
produces carbon dioxide and alcohol. Beer is then aged (conditioned), filtered, and
packaged.
The longer process results from a “natural fermentation” or aging process that minimizes
the use of additives. Unlike its competitors, Coors does not heat pasteurize its beer to kill
bacteria. These processes increase production costs, but also contribute to the production
of a high quality product. Beer is brewed in copper kettles that contain about 500 barrels
4
of beer by the end of the brewing process. At the Golden brewery, the copper kettles
have been imported from Germany and are partially handmade. Some of these kettles
date back to 1930.
Distribution
Coors products are handled at cold temperatures throughout packaging and distribution to
maintain quality. Coors uses a filtering and sterile-fill system that stabilizes beer without
heat. Beer is packaged in dark amber bottles and protective cartons to guard against light
damage.
An average of 400 insulated rail cars and 1,600 refrigerated trucks leave Coors’ brewing
and packaging facilities each week. An average railcar contains approximately 7,200
cases of 12-ounce cans, and an average truck holds about 2,000 cases. Coors ships high-
gravity beer in glass-lined railcars to Elkton where it is mixed with water and packaged
for delivery on the East Coast. Coors is a partner in operating the largest U.S. aluminum-
can manufacturing plant in Golden, CO, and is a partner in a glass-bottle manufacturing
plant in Wheat Ridge, CO.
Sales and Marketing
Finally, Coors places a freshness code on each bottle indicating the date by which unsold
products must be removed from retail shelves. The freshness periods are 112 days for
packaged products and 45 to 60 days for kegs. Beer is delivered to bars, beer retailers,
and other customers by using trucks. Drivers are responsible for assisting in beer
promotion and displays. Coors conducts national advertising campaigns to promote its
products using a pull marketing strategy. Because of the maturity of the beer industry,
promotion and advertising are critical for expanding market share. In 2002, Coors
launched a new advertising strategy aimed at the 21- to 29-year-old market segment.
Specifically, Coors formed an especially strong marketing alliance with the National
Football League and the Super Bowl. Nonetheless, significant challenges remain. The
U.S. beer industry is extremely competitive. Thus, advertising expenditures must
translate into increased sales volume.
Service
Coors’ service program is typical of other brewers in that it replaces beer before its
freshness date expires. It has also established environmental initiatives. Coors
introduced one-piece, aluminum cans and aluminum can recycling to the brewing
industry in 1959. Since 1990, Coors has adopted several environmentally-related
initiatives. Coors recycles office paper, corrugated board, paper board and scrap metal.
Reductions in the weight of some bottles have provided annual savings of 72 million
pounds of glass since 1988. Coors’ cans and corrugated cardboard contain 50 percent
recycled products. More than 90 percent of Coors’ paper packaging is recyclable.
The Coors Brewing Company
Adolph Coors founded the Adolph Coors Company in Golden, Colorado in 1873. By
1890, production had reached 17,600 barrels per year. By 1937, Coors beer was
available in 11 Western states. In 1978, Coors launched Coors Light, which has become
the third largest selling beer in the United States. In 2002, Coors’ sales volume totaled
31.8 million barrels or about 986 million gallons.
5
In 1975, the Adolph Coors Company became a publicly traded company on the New
York Stock Exchange. It is currently ranked among the 500 largest publicly-traded U.S.
companies. The Coors Brewing Company is a wholly-owned subsidiary of the Adolph
Coors Company.
Coors products are available throughout the United States and in more than 30
international markets. For example, Coors is involved in the Canadian market through a
partnership with Molson. Molson contracts with Coors for brewing, and marketing of
Coors products. In J apan, Coors focuses on Coors Original and Zima products.
In 2002, Coors created Coors Brewers Ltd through the purchase of Bass Brewers (United
Kingdom) for $1.8 billion. Based in Britain’s brewing center, Burton-upon-Trent, Coors
Brewers boast many of the U.K.’s top beer brands including Carling, Grolsch, and
Worthington’s. The acquisition makes Coors Brewing the ninth largest worldwide
brewer.
A number of factors place significant challenges on the financial performance of the
Coors Brewing Company. Consolidation has occurred in recent years as regional
brewers have merged or been acquired by national or international firms. Tables 3 to 5
present a summary of financial indictors for the years 1998 to 2002.
The U.S. Barley Industry
Barley is the third largest feed grain crop produced in the United States, after corn and
grain sorghum. Barley is a short-season, early maturing crop. Therefore, it is produced
in a variety of climates and in both irrigated and dryland production areas. Production is
concentrated in the Northern Plains and the Pacific Northwest. The United States is the
eighth largest producer of barley in the world with current production estimated at 4.9
million planted acres.
Barley is classified as either six-row or two-row, depending on the physical arrangement
of the kernels on the plant. Barley is also described as hulled or hull-less by the presence
of beards or awns covering the kernels. Six-row barley primarily is grown in North
Dakota, Minnesota, South Dakota, and Idaho. Two-row barley is grown in Montana,
Idaho, Colorado, Wyoming, Washington, Oregon, and California. North Dakota, Idaho,
and Montana are the three largest barley-producing states (Table 6). The U.S.
Department of Agriculture National Agricultural Statistics Service has created maps that
show county level barley production over time which can be accessed athttp://www.usda.gov/nass/aggraphs/cropmap.htm.
Barley is used as livestock feed, food, and for barley malt. Each of these uses is best met
with specific barley varieties. Currently, 60 percent of the barley grown in the United
States is used in food and industrial products, while 40 percent is used as livestock feed.
Barley competes with corn and sorghum as a feed grain. It has a higher protein content
than corn, which reduces the need for protein supplements in feed compounds. Barley
grown for human consumption is used in soups, as an extender for vegetable proteins and
is occasionally milled into flour. Barley flour is used in the United States in baby food
and in North Africa and Asia for flatbreads or porridges.
6
Barley production in the Northern Plains is susceptible to damage from fusarium head
blight — a fungal disease that can be found in small grain crops. Fusarium head blight
commonly occurs in North Dakota on spring wheat, durum, and barley. The disease
causes yield loss and light-test weight kernels. It is also associated with fungal toxins
(mycotoxins) that are hazardous to animals. In addition, vomatoxin produced from fungi
on malting barley creates problems for beer producers. Thus, only small amounts of
vomatoxin on malting barley are allowed, and infected grain is heavily discounted by the
market.
Barley diseases are managed through several different approaches. Currently, research is
being conducted to develop disease-resistant grain varieties. Crop rotations, seed
treatment, and fungicides are also being used to combat disease. Cropping practices can
reduce the spread of fusarium head blight. The fungus survives best on residue left on or
above the soil surface. Therefore, tillage practices that bury harvest residue reduce the
inoculum potential of the fungus. No-till farming has become an increasingly common
practice in the upper Great Plains and is likely contributing to the persistent presence of
fusarium head blight in the region.
Table 7 illustrates monthly U.S. corn, feed barley, and malt barley prices for 1983 to
2003. Barley prices rose from 1993 to 1996 due to a prevalence of fusarium head blight
in the upper Midwest during that period.
Malt Barley Production Contracts
Contracts for malt barley production offer maltsters a secure supply of high-quality
barley and price premiums for farmers to grow malt barley over higher-yielding feed
barley. Malt barley that does not meet quality specifications is sold in the feed market at
significant price discounts relative to feed barley because of lower test weights and
protein.
Malting companies contract for both two-row and six-row barley varieties. Some
contracts are specific to certain varieties as well as quality requirements. The preference
for two-row or six-row barley stems from several factors including quality, brewing
techniques, price, and style or flavor of the finished product (beer). The two classes
differ by kernel size, extract, protein, and enzyme levels. In general, two-row barley has
slightly higher malt extraction rates (1 to 2 percent greater) relative to six-row barley.
However, this is not true for all varieties.
Most contracts contain specific quality requirements for acceptable malt barley. Some of
the requirements include minimum/maximum allowable values for protein, moisture,
foreign material levels, skinned and broken kernels, sprout damage, color, and
plumpness. Barley must pass stringent tests for the presence of diseases such as fusarium
head blight. Most of the characteristics directly affect the brewing process, making
contract specifications necessary for high quality beer production.
The price of malt barley is largely determined by the supply of malt in both the domestic
and world markets and demand for malt and malt products. The high prices of malt
barley relative to feed barley result in malt barley production that often exceeds demand.
7
This allows maltsters to select the highest quality barley malt. Environmental factors can
significantly affect crop production and quality.
In 2002, a combination of disease problems, low growing-season moisture, and
abnormally hot temperatures in barley-producing regions devastated much of the malting
barley crop. Even in irrigated regions, excessive temperatures caused low kernel
plumpness. The 2002 crop was generally considered to be the worst in many years.
Many maltsters and brewers scrambled to secure adequate malting barley supplies.
Coors Malt Barley Program
Coors’ malting barley varieties have been bred for production in high elevations. These
higher elevations tend to be somewhat cooler when many lower elevations experience
unusually warm temperatures. Given Coors’ strategy of contracting with irrigated
producers, Coors’ 2002 barley supplies were more than adequate to meet their needs in
terms of quantity and plumpness. In fact, Coors sold some of their barley to other
maltsters/brewers.
Coors varieties have performed well in recent years even though drought conditions
generally have reduced the quality of other varieties. Specifically, hot and dry conditions
may lead to shrunken kernels and higher protein levels. The importance of barley quality
is illustrated by considering brewing yields. Brew house (wort) yield is determined by
the pounds of fermentable sugar obtained from each barrel of wort.
Although some barley protein is needed for malting and brewing efficiencies, excessive
protein reduces brew house yield. In general, protein levels of 10.5 percent are
considered optimal. For each percentage point of protein above the optimal level, brew
house yields decline by 0.5 to 0.6 percent. In addition, higher protein levels also reduce
pounds of fermentable sugar. That is, excessive protein levels reduce both wort yields
and the amount of beer that can be brewed from that wort. Numerically, it may take
22,222 pounds of barley to produce 18,000 pounds of malt from which 500 barrels of
wort is obtained. The 500 barrels of wort should produce 750 barrels of blended beer.
However, if protein levels exceed 10.5 percent, then both wort levels and the amount of
beer that is obtained from that wort may be reduced. Therefore, one might be able to
produce only 720 barrels of beer from the 22,222 pounds of barley because of lower wort
yields and because a larger proportion of the extract was protein rather than sugar.
A key input in Coors’ brewing process is malting barley. Coors contracts with
approximately 900 barley growers in Colorado, Wyoming, Idaho, and Montana for
160,000 acres of malting barley. Many of these growers have been producing barley for
Coors for more than 30 years. Coors purchases almost $50 million of barley annually.
All barley is sourced through production contracts, and 95 percent of it is contracted with
irrigated barley producers.
Production contracts specify strict standards on production practices and quality. For
example, only varieties developed by Coors can be planted, and only certified seed can be
used. Farmers are not allowed to use seed that has been saved from previous harvests.
Coors does not use genetically-modified barley varieties. Barley must meet minimum
specifications for plumpness, color, foreign material, skinned kernels, mold, and
8
maximum limits on protein levels. Coors contracts with producers based on each
producer’s five-year quality average. Producers who are unable to meet certain quality
specification are not offered contracts. Coors has barley receiving stations in Huntley,
MT, Worland and Ralston, WY, Burley and Buhl, ID, and Longmont and Monte Vista,
CO.
The barley procurement and breeding program consists of approximately 30 full-time
employees. The breeding program is based in Burley, ID. The goal of the program is to
develop specific varieties for Coors. Coors expects any single variety to be in service for
5 to 7 years. New varieties are only introduced if they offer improvements in yield,
quality, or disease resistance. Coors varieties have lower beta glutens than other malt
barley varieties and tend to be among the highest yielding of all varieties. Coors only
uses 2-row malt varieties. In some years, Coors is able to sell excess barley to other
maltsters. However, Coors never buys barley in the open market. Barley is cleaned at
receiving stations before being shipped by rail to Golden. Coors participates in a rail car
pool and rents space on “free running” rail cars which are in continuous use between its
facilities. They do not currently own or lease rail cars.
Coors varieties are not generally used by competitors such as Anheuser-Busch and SAB
Miller. These companies tend to use varieties developed and released by public
universities and contract about half of their production. Public varieties are generally
bred for yield potential on dryland or irrigated land. Thus, public varieties may not
provide quality characteristics to the degree of proprietary varieties.
Future Directions
As Wade continues to write on his yellow pad, he highlights several pending issues:
1. What are the value chain contributions of his malting barley program?
2. What quality aspects of barley are most important to Coors? How can his barley
research and development program meet these needs?
3. How does the malting barley program impact profit margins?
4. Is vertical coordination the best method for achieving the desired quality results?
5. If Coors is to become a top five brewer, can the malting barley program meet
these increased demands?
Summary
Wade pushes away from his desk and walks to his window. He notices that vehicles are
streaming out of the Golden facility at the end of another workday. Yet, new shifts are
arriving to maintain the continuous production of malt and beer. Wade muses at the
similarity between shift changes and the constant change that occurs in the brewing
industry.
9
References
Porter, M. Competitive Advantage. New York Free Press, 1985; pp.37-43
The Beer Institute. “Selected Industry Data.” Accessed Online August 14, 2004.http://www.beerinstitute.org/
U.S. Department of Agriculture, National Agricultural Statistics Service. “Barley
Historical Data.” Accessed Online August 14, 2004.http://www.usda.gov/nass/
U.S. Securities and Exchange Commission. “Coors 10k.” Accessed Online August 14,
2004.http://www.sec.gov
10
Table 1. Production of Malt Beverages in the United States, 1990 to 2000
a
1,000 barrels
1990 201,691
1991 203,707
1992 201,395
1993 202,277
1994 202,805
1995 200,302
1996 200,067
1997 199,176
1998 198,178
1999 197,594
2000 199,650
a
The Beer Institute
11
Table 2. Per Capita Consumption of Malt Beverages, 1985 to 2000
a
Gallons
1985 23.7
1986 24
1987 23.9
1988 23.7
1989 23.4
1990 24
1991 23.2
1992 22.8
1993 22.6
1994 22.4
1995 21.9
1996 21.8
1997 21.7
1998 21.8
1999 21.9
2000 21.8
a
The Beer Institute
12
2002 2001 2000 1999 1998
Gross Sales 4,957 2,843 2,842 2,643 2,464
Beer Excise Taxes (1,181) (413) (427) (406) (392)
Net Sales 3,776 2,430 2,414 2,237 2,072
Cost of Goods Sold (2,415) (1,538) (1,526) (1,397) (1,333)
Gross Profit 1,362 892 889 839 739
Other Operating Expenses
Marketing and Administration (1,057) (717) (723) (693) (616)
Special Charges (6) (23) (15) (6) (19)
Total Other Operating (1,064) (740) (738) (699) (635)
Operating Income 298 152 151 141 104
Interest Income 21 16 21 11 12
Interest Expense (71) (2) (6) (4) (10)
Other Income, Net 8 32 4 3 5
Net Income Before Taxes 257 198 170 151 111
Income Tax Expense (95) (75) (60) (58) (43)
Net Income After Taxes 162 123 110 92 68
Net Income Per Common Share 4.47 3.33 2.98 2.51 1.87
Table 3. Income Statement Data for The Adolph Coors Company, 1998 to 2002 (millions of dollars)
13
2002 2001 2000 1999 1998
Barrels of Beer Sold, millions 31.8 22.7 23 22 21.2
Dividends Per Share of Common Stock $0.82 $0.80 $0.72 $0.65 $0.60
Depreciation, millions of dollars 230.3 121.1 129.3 123.8 115.8
Capital Expenditures, millions of dollars 246.8 244.5 154.3 134.4 104.5
Table 4. Other Performance Information, 1998 to 2002
14
2002 2001 2000 1999 1998
Assets
Cash and Marketable Securities 59.2 309.7 386.2 279.9 287.7
Working Capital -94 89 118.4 220.1 165.1
Properties, at cost, net 1,380.20 869.7 735.8 714 714.4
Total Assets 4,297.40 1,739.70 1,629.30 1,546.40 1,460.60
Liabilities
Long-Term Debt 1,383.40 20 105 105 105
Other 116 47.5 45.4 52.6 56.6
Total Liabilities 1,499.40 67.5 150.4 157.6 161.6
Shareholders’ Equity 981.9 951.3 932.4 841.5 744.8
a
U.S. Securities and Exchange Commission
Table 5. Selected Balance Sheet Data for The Adolph Coors Brewing Company, 1998 to 2002 (millions of dollars)
a
15
2000 2001 2002 2003
North Dakota 97,350 79,750 57,040 118,800
Idaho 55,480 50,250 53,960 47,520
Montana 38,000 29,520 39,900 31,590
Washington 34,300 21,000 18,360 14,570
Colorado 12,075 8,560 7,200 8,938
Minnesota 15,360 7,975 6,435 12,750
Wyoming 7,885 6,970 4,900 7,125
California 6,460 5,830 5,100 3,712
Oregon 8,400 4,500 3,700 3,840
South Dakota 5,775 4,056 1,845 2,915
Other 37,643 31,009 37,443 24,327
Total US 318,728 249,420 226,873 276,087
a
US Department of Agriculture NASS
Table 6. U.S. Barley Production by State, 2000 to 2003 (thousand bushels)
a
16
Feed Malt Corn
1983 2.32 2.33 2.99
1984 2.43 2.47 3.05
1985 2.06 2.21 2.49
1986 1.64 1.87 1.96
1987 1.66 1.92 1.56
1988 2.04 2.68 2.27
1989 2.15 2.99 2.43
1990 2.00 2.46 2.40
1991 1.90 2.36 2.33
1992 1.92 2.32 2.29
1993 1.80 2.26 2.22
1994 1.85 2.29 2.41
1995 2.30 2.66 2.56
1996 2.87 3.25 3.55
1997 2.15 2.62 2.60
1998 1.73 2.50 2.20
1999 1.58 2.34 1.89
2000 1.73 2.49 1.86
2001 1.75 2.48 1.89
2002 1.96 2.72 2.13
2003 2.28 3.11 2.27
a
US Department of Agriculture National Statistics Service
Table 7. Feed and Malt Barley and Corn Prices Over Time, 1983 to 2003 (dollars per bushel)
a
Figure 1. Description of Value Chain Activities
Source: Porter
Supply
Chain
Management
Activities
Operations Distribution Sales and
Marketing
Service Profit
Margin
Product Research and Development, Technology, and Systems Development
Human Resource Management
General Administration
doc_836318759.pdf
On a sparkling late-November morning, Wade Malchow (Manager of Agronomy for the Coors Brewing Company) gazes out his office window on the sixth floor of the Coors Brewery in Golden, Colorado. As he scans the sprawling complex, he notices a group of people gathering at the base of a huge, copper brewing kettle that serves as a sentinel to the brewery.
Vertical Coordination in the Malting Barley Industry: A ‘Silver Bullet’ For Coors?
Michael Boland is an Associate Professor in the Department of Agricultural Economics,
Kansas State University, Manhattan, KS. Gary Brester is a Professor in the Department
of Agricultural Economics and Economics, Montana State University, Bozeman, MT. e
thank the Agricultural Marketing Resource Center for funding this research.
Introduction
On a sparkling late-November morning, Wade Malchow (Manager of Agronomy for the
Coors Brewing Company) gazes out his office window on the sixth floor of the Coors
Brewery in Golden, Colorado. As he scans the sprawling complex, he notices a group of
people gathering at the base of a huge, copper brewing kettle that serves as a sentinel to
the brewery. Most of those waiting below for a tour of the brewery are looking up at the
50-foot high, salvaged brewing kettle in awe and amazement at its size. Indeed, the
Golden facility is the world’s largest single-site brewery. Nonetheless, Wade knows that
the sheer size of the brewery does not mean that Coors is the largest brewing company.
In fact, a recent merger of two competitors has dropped Coors from eighth to ninth
position in terms of worldwide market share.
The company historically has been a small brewer. However, new trends and technology
are causing the management of Coors to question their strategic advantages. Historically,
one of Coors’ trademarks was that of a completely integrated regional brewer who
sourced all of its malting barley needs directly from producers through the use of
production contracts. This has served the company well — especially during 2002 when
barley quality was poor throughout the United States.
As Wade turns away from the window and returns to his desk, he starts making notes on
a yellow legal pad. Although he was promoted into his current position only two months
ago, it is time for him to consider the strategic role that his malting barley development
and procurement program will play in helping Coors achieve its strategic position in the
world brewing industry.
The World Barley, Brewing, and Malting Industries
Malt barley is one of the principal ingredients in the manufacturing of beer. Brewers can
either purchase malt barley to manufacture malt which is used to make beer or purchase
malt from malting companies instead of processing barley. Beer is considered a mature
product, so growth occurs at a slow rate relative to newer industries. Worldwide growth
is expected to average 2 percent per year over the next 10 years. U.S. growth is expected
to increase only 1 percent per year, while growth in several regions (China-Southeast
Asia — 5 to10 percent, Latin America — 6 percent, Ukraine — 10 to 20 percent) is
expected to exceed the average. Beer shipments are shown in Table 1 and per capita
2
consumption is shown in Table 2. Consumer demand for microbrews has increased the
number of small breweries in the United States to more than 1,800 or seven times greater
than in 1990.
Feed and Malt Barley
Barley is a highly adaptable cereal grain that is produced in climates ranging from sub-
Arctic to sub-tropical. Barley is grown on a large scale in Russia, Australia, Germany,
Turkey, and North America. The leading exporters of barley are the European Union,
Australia, and Canada. Because of its use in malt beverages, barley is grown in many
areas of the world as much for cultural as economic reasons. Europe has long been a
producer of malt barley. European subsidies encouraging production has resulted in the
European Union competing with Canada as the largest malt barley exporter. A growing
percentage of the world trade is in the form of malt.
The implementation of the Canadian/United States Trade Agreement (CUSTA) and the
North American Free Trade Agreement (NAFTA) encouraged the integration of the malt
barley market between the United States and Canada. Import restrictions were reduced
and the Canadian Wheat Board adopted a pricing policy of selling to Canadian maltsters
at the Minneapolis cash price less transportation costs. This eliminated price protection
for Canadian maltsters. NAFTA eliminated Canadian tariffs on malt barley and malt by
1996 and 1998, respectively. The United States and Canada continue to compete with the
European Union’s export support programs for malt barley and malt.
Brewers
At the beginning of 2004, the top six worldwide brewers are Anheuser-Busch (11 percent
market share, 127.8 million barrels), South African Brewers (SAB) Miller PLC (9
percent market share, 102.2 million barrels), Heineken (7 percent, 80.1 million barrels),
Interbrew (6 percent, 72.4 million barrels), Carlsberg (5 percent, 59.6 million barrels),
and Ambev (4 percent, 49.5 million barrels). Although Coors is the third largest brewer
in the United States, it maintains only 11 percent of the market. This is a relatively small
share compared to its primary U.S. competitors Anheuser-Busch, with nearly 50 percent
of the market, and SAB Miller with 20 percent. Both of Coors’ competitors have
substantial financial, marketing, production, and distribution resources. In addition, their
size provides for significant scale economies. Their geographic distribution systems
reduce the need for satellite redistribution centers and lowers transportation costs. In
addition, Coors has higher per barrel costs of operations because it is a single-site
brewery.
Maltsters
At the beginning of 2004, the six largest worldwide malting companies (in terms of
annual production capacity) are Groupe Soufflet (1,387,000 tons), Cargill (1,245,000
tons), Con Agra/Tiger Oats Malt (1,191,000 tons), Groupe Malt Europ (1,124,000 tons),
and Lesaffre-ADM/IMC (845,000 tons). The economics of the malting industry depend
critically upon selected barley varieties, protein content, plumpness, and moisture
content.
Large brewing companies are not completely integrated in terms of sourcing malt. Some
companies such as Anheuser-Busch have their own malting facilities, but also purchase
3
malt from independent maltsters. Maltsters sell malt to brewing companies such as
Anheuser-Busch, SAB Miller, Molson, Labatts, and Kirin. In addition, distilling
companies such as J ack Daniels, J im Beam, and Seagrams purchase malt. Other malt
purchasers include food processing companies such as Kraft, Malt-O-Meal, and Kellogg.
Coors Value Chain for Beer
Coors maintains the world’s largest, single-site brewery in Golden, Colorado. In
addition, they have a second brewery in Memphis, Tennessee, and a packaging facility in
Elkton, Virginia. Figure 1 diagrams a generic value chain for a firm’s activities. This
framework can be used to show Coors’ activities in the production and marketing of beer.
Supply Chain Management Activities
Coors has always marketed its products based upon its use of high quality inputs. For
example, Coors purchased more than 60 springs near its Golden plant to guarantee a
stable supply of “pure Rocky Mountain spring water.” Coors pays competitive prices for
agricultural inputs such as water, rice, refined cereal starch, and premium hops. Its
aluminum cans cost slightly more than the bottles used by its competitors. Furthermore,
Coors makes its own labels and glass bottles, and built the majority of its own malting
equipment and packaging equipment. At one time, Coors owned coal mines in an effort
to be energy self-sufficient.
Coors uses an all-natural brewing process and water, hops, cereal grains (rice and refined
corn starches), and malting barley to produce their products. Coors has a single source
purchasing agreement for specialized paperboard and label packaging with Graphic
Packaging International Corporation. In addition, most of Coors’ aluminum cans are
purchased from Rocky Mountain Metal Container (Coors’ limited liability company with
Ball Corporation), and more than one-half of all glass bottles are obtained from Rocky
Mountain Bottle Company (Coors’ limited liability company with Owens-Brockway
Glass Container, Inc.). Coors Brewers Limited also has a single source supplier of cans.
Finally, weather conditions can significantly impact the supply and quality of the three
primary ingredients necessary for producing beer — water, barley, and hops.
Operations
The brewing process begins with the malting of barley. Barley is steeped in water and
encouraged to germinate. After four to five days, the “malt” is heated to stop further
growth and improve its flavor. The malt is then cracked by steel rollers to expose its
contents. The resulting “grist” is then mixed with hot water and left to stand for two
hours so that starch can be converted naturally to sugars. The resulting “mash” is sprayed
with hot water and filtered to produce a sugary liquid called “wort.” Wort is then boiled
with hops in copper kettles for 1 to 2 hours. Boiled wort is cooled through the use of heat
exchangers and then aerated. Yeast is added and a fermentation process begins that
produces carbon dioxide and alcohol. Beer is then aged (conditioned), filtered, and
packaged.
The longer process results from a “natural fermentation” or aging process that minimizes
the use of additives. Unlike its competitors, Coors does not heat pasteurize its beer to kill
bacteria. These processes increase production costs, but also contribute to the production
of a high quality product. Beer is brewed in copper kettles that contain about 500 barrels
4
of beer by the end of the brewing process. At the Golden brewery, the copper kettles
have been imported from Germany and are partially handmade. Some of these kettles
date back to 1930.
Distribution
Coors products are handled at cold temperatures throughout packaging and distribution to
maintain quality. Coors uses a filtering and sterile-fill system that stabilizes beer without
heat. Beer is packaged in dark amber bottles and protective cartons to guard against light
damage.
An average of 400 insulated rail cars and 1,600 refrigerated trucks leave Coors’ brewing
and packaging facilities each week. An average railcar contains approximately 7,200
cases of 12-ounce cans, and an average truck holds about 2,000 cases. Coors ships high-
gravity beer in glass-lined railcars to Elkton where it is mixed with water and packaged
for delivery on the East Coast. Coors is a partner in operating the largest U.S. aluminum-
can manufacturing plant in Golden, CO, and is a partner in a glass-bottle manufacturing
plant in Wheat Ridge, CO.
Sales and Marketing
Finally, Coors places a freshness code on each bottle indicating the date by which unsold
products must be removed from retail shelves. The freshness periods are 112 days for
packaged products and 45 to 60 days for kegs. Beer is delivered to bars, beer retailers,
and other customers by using trucks. Drivers are responsible for assisting in beer
promotion and displays. Coors conducts national advertising campaigns to promote its
products using a pull marketing strategy. Because of the maturity of the beer industry,
promotion and advertising are critical for expanding market share. In 2002, Coors
launched a new advertising strategy aimed at the 21- to 29-year-old market segment.
Specifically, Coors formed an especially strong marketing alliance with the National
Football League and the Super Bowl. Nonetheless, significant challenges remain. The
U.S. beer industry is extremely competitive. Thus, advertising expenditures must
translate into increased sales volume.
Service
Coors’ service program is typical of other brewers in that it replaces beer before its
freshness date expires. It has also established environmental initiatives. Coors
introduced one-piece, aluminum cans and aluminum can recycling to the brewing
industry in 1959. Since 1990, Coors has adopted several environmentally-related
initiatives. Coors recycles office paper, corrugated board, paper board and scrap metal.
Reductions in the weight of some bottles have provided annual savings of 72 million
pounds of glass since 1988. Coors’ cans and corrugated cardboard contain 50 percent
recycled products. More than 90 percent of Coors’ paper packaging is recyclable.
The Coors Brewing Company
Adolph Coors founded the Adolph Coors Company in Golden, Colorado in 1873. By
1890, production had reached 17,600 barrels per year. By 1937, Coors beer was
available in 11 Western states. In 1978, Coors launched Coors Light, which has become
the third largest selling beer in the United States. In 2002, Coors’ sales volume totaled
31.8 million barrels or about 986 million gallons.
5
In 1975, the Adolph Coors Company became a publicly traded company on the New
York Stock Exchange. It is currently ranked among the 500 largest publicly-traded U.S.
companies. The Coors Brewing Company is a wholly-owned subsidiary of the Adolph
Coors Company.
Coors products are available throughout the United States and in more than 30
international markets. For example, Coors is involved in the Canadian market through a
partnership with Molson. Molson contracts with Coors for brewing, and marketing of
Coors products. In J apan, Coors focuses on Coors Original and Zima products.
In 2002, Coors created Coors Brewers Ltd through the purchase of Bass Brewers (United
Kingdom) for $1.8 billion. Based in Britain’s brewing center, Burton-upon-Trent, Coors
Brewers boast many of the U.K.’s top beer brands including Carling, Grolsch, and
Worthington’s. The acquisition makes Coors Brewing the ninth largest worldwide
brewer.
A number of factors place significant challenges on the financial performance of the
Coors Brewing Company. Consolidation has occurred in recent years as regional
brewers have merged or been acquired by national or international firms. Tables 3 to 5
present a summary of financial indictors for the years 1998 to 2002.
The U.S. Barley Industry
Barley is the third largest feed grain crop produced in the United States, after corn and
grain sorghum. Barley is a short-season, early maturing crop. Therefore, it is produced
in a variety of climates and in both irrigated and dryland production areas. Production is
concentrated in the Northern Plains and the Pacific Northwest. The United States is the
eighth largest producer of barley in the world with current production estimated at 4.9
million planted acres.
Barley is classified as either six-row or two-row, depending on the physical arrangement
of the kernels on the plant. Barley is also described as hulled or hull-less by the presence
of beards or awns covering the kernels. Six-row barley primarily is grown in North
Dakota, Minnesota, South Dakota, and Idaho. Two-row barley is grown in Montana,
Idaho, Colorado, Wyoming, Washington, Oregon, and California. North Dakota, Idaho,
and Montana are the three largest barley-producing states (Table 6). The U.S.
Department of Agriculture National Agricultural Statistics Service has created maps that
show county level barley production over time which can be accessed athttp://www.usda.gov/nass/aggraphs/cropmap.htm.
Barley is used as livestock feed, food, and for barley malt. Each of these uses is best met
with specific barley varieties. Currently, 60 percent of the barley grown in the United
States is used in food and industrial products, while 40 percent is used as livestock feed.
Barley competes with corn and sorghum as a feed grain. It has a higher protein content
than corn, which reduces the need for protein supplements in feed compounds. Barley
grown for human consumption is used in soups, as an extender for vegetable proteins and
is occasionally milled into flour. Barley flour is used in the United States in baby food
and in North Africa and Asia for flatbreads or porridges.
6
Barley production in the Northern Plains is susceptible to damage from fusarium head
blight — a fungal disease that can be found in small grain crops. Fusarium head blight
commonly occurs in North Dakota on spring wheat, durum, and barley. The disease
causes yield loss and light-test weight kernels. It is also associated with fungal toxins
(mycotoxins) that are hazardous to animals. In addition, vomatoxin produced from fungi
on malting barley creates problems for beer producers. Thus, only small amounts of
vomatoxin on malting barley are allowed, and infected grain is heavily discounted by the
market.
Barley diseases are managed through several different approaches. Currently, research is
being conducted to develop disease-resistant grain varieties. Crop rotations, seed
treatment, and fungicides are also being used to combat disease. Cropping practices can
reduce the spread of fusarium head blight. The fungus survives best on residue left on or
above the soil surface. Therefore, tillage practices that bury harvest residue reduce the
inoculum potential of the fungus. No-till farming has become an increasingly common
practice in the upper Great Plains and is likely contributing to the persistent presence of
fusarium head blight in the region.
Table 7 illustrates monthly U.S. corn, feed barley, and malt barley prices for 1983 to
2003. Barley prices rose from 1993 to 1996 due to a prevalence of fusarium head blight
in the upper Midwest during that period.
Malt Barley Production Contracts
Contracts for malt barley production offer maltsters a secure supply of high-quality
barley and price premiums for farmers to grow malt barley over higher-yielding feed
barley. Malt barley that does not meet quality specifications is sold in the feed market at
significant price discounts relative to feed barley because of lower test weights and
protein.
Malting companies contract for both two-row and six-row barley varieties. Some
contracts are specific to certain varieties as well as quality requirements. The preference
for two-row or six-row barley stems from several factors including quality, brewing
techniques, price, and style or flavor of the finished product (beer). The two classes
differ by kernel size, extract, protein, and enzyme levels. In general, two-row barley has
slightly higher malt extraction rates (1 to 2 percent greater) relative to six-row barley.
However, this is not true for all varieties.
Most contracts contain specific quality requirements for acceptable malt barley. Some of
the requirements include minimum/maximum allowable values for protein, moisture,
foreign material levels, skinned and broken kernels, sprout damage, color, and
plumpness. Barley must pass stringent tests for the presence of diseases such as fusarium
head blight. Most of the characteristics directly affect the brewing process, making
contract specifications necessary for high quality beer production.
The price of malt barley is largely determined by the supply of malt in both the domestic
and world markets and demand for malt and malt products. The high prices of malt
barley relative to feed barley result in malt barley production that often exceeds demand.
7
This allows maltsters to select the highest quality barley malt. Environmental factors can
significantly affect crop production and quality.
In 2002, a combination of disease problems, low growing-season moisture, and
abnormally hot temperatures in barley-producing regions devastated much of the malting
barley crop. Even in irrigated regions, excessive temperatures caused low kernel
plumpness. The 2002 crop was generally considered to be the worst in many years.
Many maltsters and brewers scrambled to secure adequate malting barley supplies.
Coors Malt Barley Program
Coors’ malting barley varieties have been bred for production in high elevations. These
higher elevations tend to be somewhat cooler when many lower elevations experience
unusually warm temperatures. Given Coors’ strategy of contracting with irrigated
producers, Coors’ 2002 barley supplies were more than adequate to meet their needs in
terms of quantity and plumpness. In fact, Coors sold some of their barley to other
maltsters/brewers.
Coors varieties have performed well in recent years even though drought conditions
generally have reduced the quality of other varieties. Specifically, hot and dry conditions
may lead to shrunken kernels and higher protein levels. The importance of barley quality
is illustrated by considering brewing yields. Brew house (wort) yield is determined by
the pounds of fermentable sugar obtained from each barrel of wort.
Although some barley protein is needed for malting and brewing efficiencies, excessive
protein reduces brew house yield. In general, protein levels of 10.5 percent are
considered optimal. For each percentage point of protein above the optimal level, brew
house yields decline by 0.5 to 0.6 percent. In addition, higher protein levels also reduce
pounds of fermentable sugar. That is, excessive protein levels reduce both wort yields
and the amount of beer that can be brewed from that wort. Numerically, it may take
22,222 pounds of barley to produce 18,000 pounds of malt from which 500 barrels of
wort is obtained. The 500 barrels of wort should produce 750 barrels of blended beer.
However, if protein levels exceed 10.5 percent, then both wort levels and the amount of
beer that is obtained from that wort may be reduced. Therefore, one might be able to
produce only 720 barrels of beer from the 22,222 pounds of barley because of lower wort
yields and because a larger proportion of the extract was protein rather than sugar.
A key input in Coors’ brewing process is malting barley. Coors contracts with
approximately 900 barley growers in Colorado, Wyoming, Idaho, and Montana for
160,000 acres of malting barley. Many of these growers have been producing barley for
Coors for more than 30 years. Coors purchases almost $50 million of barley annually.
All barley is sourced through production contracts, and 95 percent of it is contracted with
irrigated barley producers.
Production contracts specify strict standards on production practices and quality. For
example, only varieties developed by Coors can be planted, and only certified seed can be
used. Farmers are not allowed to use seed that has been saved from previous harvests.
Coors does not use genetically-modified barley varieties. Barley must meet minimum
specifications for plumpness, color, foreign material, skinned kernels, mold, and
8
maximum limits on protein levels. Coors contracts with producers based on each
producer’s five-year quality average. Producers who are unable to meet certain quality
specification are not offered contracts. Coors has barley receiving stations in Huntley,
MT, Worland and Ralston, WY, Burley and Buhl, ID, and Longmont and Monte Vista,
CO.
The barley procurement and breeding program consists of approximately 30 full-time
employees. The breeding program is based in Burley, ID. The goal of the program is to
develop specific varieties for Coors. Coors expects any single variety to be in service for
5 to 7 years. New varieties are only introduced if they offer improvements in yield,
quality, or disease resistance. Coors varieties have lower beta glutens than other malt
barley varieties and tend to be among the highest yielding of all varieties. Coors only
uses 2-row malt varieties. In some years, Coors is able to sell excess barley to other
maltsters. However, Coors never buys barley in the open market. Barley is cleaned at
receiving stations before being shipped by rail to Golden. Coors participates in a rail car
pool and rents space on “free running” rail cars which are in continuous use between its
facilities. They do not currently own or lease rail cars.
Coors varieties are not generally used by competitors such as Anheuser-Busch and SAB
Miller. These companies tend to use varieties developed and released by public
universities and contract about half of their production. Public varieties are generally
bred for yield potential on dryland or irrigated land. Thus, public varieties may not
provide quality characteristics to the degree of proprietary varieties.
Future Directions
As Wade continues to write on his yellow pad, he highlights several pending issues:
1. What are the value chain contributions of his malting barley program?
2. What quality aspects of barley are most important to Coors? How can his barley
research and development program meet these needs?
3. How does the malting barley program impact profit margins?
4. Is vertical coordination the best method for achieving the desired quality results?
5. If Coors is to become a top five brewer, can the malting barley program meet
these increased demands?
Summary
Wade pushes away from his desk and walks to his window. He notices that vehicles are
streaming out of the Golden facility at the end of another workday. Yet, new shifts are
arriving to maintain the continuous production of malt and beer. Wade muses at the
similarity between shift changes and the constant change that occurs in the brewing
industry.
9
References
Porter, M. Competitive Advantage. New York Free Press, 1985; pp.37-43
The Beer Institute. “Selected Industry Data.” Accessed Online August 14, 2004.http://www.beerinstitute.org/
U.S. Department of Agriculture, National Agricultural Statistics Service. “Barley
Historical Data.” Accessed Online August 14, 2004.http://www.usda.gov/nass/
U.S. Securities and Exchange Commission. “Coors 10k.” Accessed Online August 14,
2004.http://www.sec.gov
10
Table 1. Production of Malt Beverages in the United States, 1990 to 2000
a
1,000 barrels
1990 201,691
1991 203,707
1992 201,395
1993 202,277
1994 202,805
1995 200,302
1996 200,067
1997 199,176
1998 198,178
1999 197,594
2000 199,650
a
The Beer Institute
11
Table 2. Per Capita Consumption of Malt Beverages, 1985 to 2000
a
Gallons
1985 23.7
1986 24
1987 23.9
1988 23.7
1989 23.4
1990 24
1991 23.2
1992 22.8
1993 22.6
1994 22.4
1995 21.9
1996 21.8
1997 21.7
1998 21.8
1999 21.9
2000 21.8
a
The Beer Institute
12
2002 2001 2000 1999 1998
Gross Sales 4,957 2,843 2,842 2,643 2,464
Beer Excise Taxes (1,181) (413) (427) (406) (392)
Net Sales 3,776 2,430 2,414 2,237 2,072
Cost of Goods Sold (2,415) (1,538) (1,526) (1,397) (1,333)
Gross Profit 1,362 892 889 839 739
Other Operating Expenses
Marketing and Administration (1,057) (717) (723) (693) (616)
Special Charges (6) (23) (15) (6) (19)
Total Other Operating (1,064) (740) (738) (699) (635)
Operating Income 298 152 151 141 104
Interest Income 21 16 21 11 12
Interest Expense (71) (2) (6) (4) (10)
Other Income, Net 8 32 4 3 5
Net Income Before Taxes 257 198 170 151 111
Income Tax Expense (95) (75) (60) (58) (43)
Net Income After Taxes 162 123 110 92 68
Net Income Per Common Share 4.47 3.33 2.98 2.51 1.87
Table 3. Income Statement Data for The Adolph Coors Company, 1998 to 2002 (millions of dollars)
13
2002 2001 2000 1999 1998
Barrels of Beer Sold, millions 31.8 22.7 23 22 21.2
Dividends Per Share of Common Stock $0.82 $0.80 $0.72 $0.65 $0.60
Depreciation, millions of dollars 230.3 121.1 129.3 123.8 115.8
Capital Expenditures, millions of dollars 246.8 244.5 154.3 134.4 104.5
Table 4. Other Performance Information, 1998 to 2002
14
2002 2001 2000 1999 1998
Assets
Cash and Marketable Securities 59.2 309.7 386.2 279.9 287.7
Working Capital -94 89 118.4 220.1 165.1
Properties, at cost, net 1,380.20 869.7 735.8 714 714.4
Total Assets 4,297.40 1,739.70 1,629.30 1,546.40 1,460.60
Liabilities
Long-Term Debt 1,383.40 20 105 105 105
Other 116 47.5 45.4 52.6 56.6
Total Liabilities 1,499.40 67.5 150.4 157.6 161.6
Shareholders’ Equity 981.9 951.3 932.4 841.5 744.8
a
U.S. Securities and Exchange Commission
Table 5. Selected Balance Sheet Data for The Adolph Coors Brewing Company, 1998 to 2002 (millions of dollars)
a
15
2000 2001 2002 2003
North Dakota 97,350 79,750 57,040 118,800
Idaho 55,480 50,250 53,960 47,520
Montana 38,000 29,520 39,900 31,590
Washington 34,300 21,000 18,360 14,570
Colorado 12,075 8,560 7,200 8,938
Minnesota 15,360 7,975 6,435 12,750
Wyoming 7,885 6,970 4,900 7,125
California 6,460 5,830 5,100 3,712
Oregon 8,400 4,500 3,700 3,840
South Dakota 5,775 4,056 1,845 2,915
Other 37,643 31,009 37,443 24,327
Total US 318,728 249,420 226,873 276,087
a
US Department of Agriculture NASS
Table 6. U.S. Barley Production by State, 2000 to 2003 (thousand bushels)
a
16
Feed Malt Corn
1983 2.32 2.33 2.99
1984 2.43 2.47 3.05
1985 2.06 2.21 2.49
1986 1.64 1.87 1.96
1987 1.66 1.92 1.56
1988 2.04 2.68 2.27
1989 2.15 2.99 2.43
1990 2.00 2.46 2.40
1991 1.90 2.36 2.33
1992 1.92 2.32 2.29
1993 1.80 2.26 2.22
1994 1.85 2.29 2.41
1995 2.30 2.66 2.56
1996 2.87 3.25 3.55
1997 2.15 2.62 2.60
1998 1.73 2.50 2.20
1999 1.58 2.34 1.89
2000 1.73 2.49 1.86
2001 1.75 2.48 1.89
2002 1.96 2.72 2.13
2003 2.28 3.11 2.27
a
US Department of Agriculture National Statistics Service
Table 7. Feed and Malt Barley and Corn Prices Over Time, 1983 to 2003 (dollars per bushel)
a
Figure 1. Description of Value Chain Activities
Source: Porter
Supply
Chain
Management
Activities
Operations Distribution Sales and
Marketing
Service Profit
Margin
Product Research and Development, Technology, and Systems Development
Human Resource Management
General Administration
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