Cost Leadership

Craft breweries rarely choose a business strategy based on cost leadership and New Belgium is no different, but there are certain aspects of the brewing industry related to cost leadership issues that all must be aware of to survive.  The chief issue is economies of scale, but this usually relates to small startup breweries attempting to compete.  There is generally a minimum production size necessary to turn a profit when starting a brewery mainly due to the amount of capital required to purchase the equipment needed to produce beer.  The factor that affects a brewery the size of New Belgium is diseconomies of scale.  Of the four major sources of diseconomies of scale, the distances to markets is the driver that New Belgium has most recently tackled.  Beer is a perishable product and craft beer, especially highly hopped beers, are more perishable than the American light lager sold by the big breweries.  The original brewery for New Belgium is in Fort Collins, Colorado.  While positioned well to serve the west, New Belgium decided to open its east coast location in Ashville, NC.  This new brewery adds 500,000 barrels to its annual capacity and positions their beers closer to east coast markets.  This results in a reduction in transportation costs as well as opening up new markets. The challenge to opening the new brewery will be to maintain the unique corporate culture that makes New Belgium so special, in a completely new part of the country.