Narragansett Brewing Company Custom Case Solution & Analysis

1. Evidence Brief: Narragansett Brewing Company

Financial Metrics

• Revenue Growth: Sales increased from zero in 2005 to approximately 7 million dollars by 2010.
• Volume: Case volume grew from 200000 cases in 2007 to approximately 43000 barrels by 2010.
• Capital Structure: Initial acquisition funded by 1.2 million dollars from local investors and 2.5 million dollars in debt.
• Unit Economics: Contract brewing fees and transportation costs from Rochester, New York, consume a significant portion of the gross margin compared to local production.
• Pricing: Positioned in the sub-premium or heritage segment, priced below craft beers but above national mass-market brands.

Operational Facts

• Production Model: 100 percent contract brewing at the High Falls Brewery in Rochester, New York.
• Distribution: Focused primarily on Rhode Island, Massachusetts, and Connecticut; expanded into New York and Florida.
• Product Mix: Core Lager accounts for the majority of volume; seasonal craft-style offerings (Porter, Bock, Summer Ale) used to build brand prestige.
• Headcount: Lean corporate team focused on marketing and sales; no internal manufacturing staff or facility maintenance.
• Supply Chain: Dependence on a single third-party brewer for all production requirements and quality control.

Stakeholder Positions

• Mark Hellendrung (CEO): Former Snapple executive; believes brand heritage and local identity are the primary drivers of value.
• Investors: Group of 15 local Rhode Island entrepreneurs seeking both financial return and the restoration of a local icon.
• Distributors: View Narragansett as a high-volume regional player but express concerns regarding the lack of a local physical brewery.
• Consumers: Older demographic maintains nostalgia for the Hi Neighbor slogan; younger demographic seeks authenticity and local craft credentials.

Information Gaps

• Detailed breakdown of variable versus fixed costs for the proposed Rhode Island brewery.
• Specific terms of the existing contract with High Falls Brewery, including termination penalties.
• Current capacity utilization rates of the proposed site in Providence.
• Precise market share data relative to Pabst Blue Ribbon and Rainier in the New England region.

2. Strategic Analysis

Core Strategic Question

• How can Narragansett bridge the gap between its heritage-based marketing and its lack of local manufacturing to achieve sustainable profitability in a crowded craft market?
• Should the company transition from an asset-light contract model to a capital-heavy owned-brewery model to secure brand authenticity?

Structural Analysis

Applying Porter’s Five Forces to the regional beer landscape reveals:

• Bargaining Power of Suppliers: High. Narragansett is vulnerable to the production schedules and pricing whims of its contract brewer.
• Threat of Substitutes: High. The explosion of local micro-breweries offers consumers higher perceived authenticity and freshness.
• Intensity of Rivalry: Intense. Competition includes national giants (Anheuser-Busch), national heritage brands (Pabst), and thousands of local craft options.

Strategic Options

Preliminary Recommendation

Narragansett must build a physical brewery in Rhode Island. The current contract model creates a structural authenticity deficit that limits the brand’s ceiling. In the craft and heritage segments, the story is the product. Without a local chimney, the Hi Neighbor promise eventually loses credibility with younger, discerning drinkers. The financial risk of capital expenditure is outweighed by the strategic risk of brand obsolescence.

3. Implementation Roadmap

Critical Path

1. Financing (Months 1-3): Secure 5 million dollars via a combination of state-backed economic development loans and an additional round of private equity from local supporters.
2. Site Selection and Permitting (Months 2-5): Finalize the Providence waterfront or historic industrial site; secure brewing permits and environmental clearances.
3. Equipment Procurement (Months 4-8): Order long-lead items including fermentation tanks and automated bottling lines from European or domestic suppliers.
4. Operational Transition (Months 9-12): Hire a Head Brewer with experience in scaling production; begin test batches to match the Rochester profile.

Key Constraints

• Capital Access: The ability to secure debt in a tightening credit market for a manufacturing project with thin projected margins.
• Consistency Risk: The technical challenge of replicating the exact flavor profile of the Rochester-brewed lager in a new facility.
• Regulatory Hurdles: Rhode Island liquor laws and zoning restrictions for urban industrial sites.

Risk-Adjusted Implementation Strategy

The transition will follow a phased approach. The company will maintain the Rochester contract for 70 percent of volume during the first two years of the new facility’s life. This ensures supply continuity if the new plant faces startup delays. The Rhode Island facility will initially focus on high-margin craft seasonals and the flagship lager in kegs for local on-premise accounts, where the local story has the highest impact.

4. Executive Review and BLUF

BLUF

Narragansett must immediately pivot from a virtual brand to a physical manufacturer by constructing a brewery in Rhode Island. The asset-light model has reached its limit; growth is now constrained by a lack of authentic local identity and margin compression from contract fees. To survive the craft consolidation, Narragansett must own its production. The recommendation is to authorize a 5 million dollar capital project to establish a flagship brewery in Providence, securing the brand's long-term relevance and improving gross margins by 15 percent through reduced logistics and third-party markups.

Dangerous Assumption

The most consequential unchallenged premise is that consumers value the physical location of production enough to justify the massive shift in the risk profile of the company. If the heritage brand can survive indefinitely as a marketing-only play (similar to Pabst Blue Ribbon), then the capital expenditure is a strategic error that could bankrupt the firm during a downturn.

Unaddressed Risks

• Operational Inexperience: The leadership team consists of marketing and sales experts, not industrial engineers. The transition from a marketing firm to a manufacturing firm is a fundamental shift in organizational DNA.
• Input Cost Volatility: Direct ownership exposes the firm to fluctuations in aluminum, barley, and energy prices that were previously mitigated or absorbed by the contract brewer.

Unconsidered Alternative

The team failed to consider a strategic acquisition of a struggling smaller craft brewery in the region. This would provide immediate physical infrastructure and a local license at a lower cost than a greenfield or brownfield build-out, while potentially adding new brands to the portfolio to diversify revenue streams.

VERDICT: APPROVED FOR LEADERSHIP REVIEW