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961 Beer: Launching a Lebanese Brewing Company
961 Beer: Launching a Lebanese Brewing
Company

0157/53 | Hrishikesh Arjun Nair | Section C

Introduction

Mazen Hajjar had quit his lucrative job in the UAE to start the first Lebanese craft brewer, 961 Beer, in 2006. Hajjar had to overcome a difficult political environment, predatory practises by Almaza (Lebanon’s largest brewer) and consumers who were reluctant to change.

The major differentiating factor behind 961 Beer was its Lebanese touch. Right from its name (961 was Lebanon’s country code) to its ingredients, there was something Lebanese about everything. They started marketing their product on social media and used it to interact with their customers rather than mere advertising announcements. Their Facebook group soon had about 1,300 members. By September 2007, they had set up a bar at Beirut’s Gemmayzeh district. This bar was a big hit in a city known for its fascinating nightlife- there were 30,000 visits in 1.5 years. Their success spread through word-of- mouth and consequently, received a lot of attention in the international press.

It connected personally with the customers who could experience “change” with diverse beers. The variety only added to 961’s popularity with each new beer adding to its sales and not cannibalizing on the existing products. However, it was bleeding money as every case cost $13.6 to make and only brought in $12.5. It hoped to increase production and banked on economies of scale to come to its rescue.

Problem Definition

The brand had grown quite rapidly over the past few years. By February 2009, it had reached its annual production limit of 288,000 bottles. Nobody involved with 961 Beer would deny that its journey has been successful so far but the challenge before it now is to leverage their success to grow the company further.

Options

1. Maintain status quo and consolidate the business within its Beirut bar

2. Concentrate efforts on optimizing the production process

3. Expand within the Lebanese beer market

4. Target the international market

Criteria of Evaluation:

1. Achieving economies of scale

2. Maintaining its differentiating characteristic and not compromising on its values

3. Expanding its reach

4. Immunity from political problems

5. Capital investment required

6. Time horizon of the plan

Evaluation of Options:

1. Maintain status quo and consolidate the business within its Beirut bar

This strategy would allow the brand to satisfy criterion 2. 961 Beer has created a niche for itself within the Beirut beer market and a dedicated bar can only perpetuate the theme. It continues to be different from the rest- simple, pure, natural and, if I may add, ‘unsullied’ by scale and size. It also requires relatively little capital investment and a shorter time horizon. However, it fails to meet two other important criteria. As it has done nothing about increasing production, economies of scale remains unachieved and they will continue to bleed money at the current rate unless they change their price structure. It remains vulnerable to losing business from political instability within the country.

2. Concentrate efforts on optimizing the production process

This option will satisfactorily meet four of the six criteria above. The major drawback with 961 Beer so far has been that Hajjar and his partners have been coming up with ad hoc solutions for all their technical problems. This was not a big problem when the company was growing as anything else could have been prohibitively expensive but now that it has grown, it needs help. Hiring specialists to take care of the production side of things will go a long way in solving their problems. Specialists can bring the unit cost of beer down from the current level of $13.6 and simultaneously raise production levels to meet demand. Like Option 1, this option does not compromise on its values, requires little capital investment (certainly more than option 1 but nothing that is out of the firm’s reach given the current context) and a short time horizon. It also satisfies criterion 1- achieving economies of scale. It, however, remains vulnerable to political instability and remains restricted in its reach.

3. Expand within the Lebanese beer market

This criteria fails to satisfactorily meet five of the six criteria listed above. It fails to achieve economies of scale and is unlikely to retain its distinctive characteristics by expanding and remains vulnerable to political problems. It requires a lot of capital investment as advertising beyond Beirut would require strategies different from its current direct advertising strategy. It would also take time for the strategy to work out. The only positive is the bigger reach that it achieves.

4. Target the international market

This is an upgrade on Option 3. It fails to achieve economies of scale, requires a lot of capital investment and time for the strategy to play out. It is also unlikely to meet criterion 2 (i.e. not compromising on its values). It does, however, immunize 961 Beer from trouble caused due to political instability and increases its reach. This is the most feasible option if the political situation in Lebanon gets out of hand.

Recommendation

I recommend Option 2 as it meets most of the criteria and addresses the firm’s need of the hour. It needs to bring production costs down and meet demand simultaneously, and this is the option that would most likely meet those objectives quickly.

Action Plan

The first thing that Hajjar needs to do is separate the bar from the beer. He and his partners should take care of the day-to-day activities of the bar and should hire specialists to optimize the beer production process, while continuing to use traditional craft brewing methods. He should focus on getting sales at other bars and restaurants within Beirut because 961’s own bar is unlikely to grow beyond a point. It is also likely to be more favourably viewed by other bar owners if Hajjar doesn’t aggressively promote his own bar.

Contingency Plan

If the political situation affects local demand, Hajjar should turn to the international market as this the only option that offers him a hedge against this risk.