Managing Innovation

BLUE OCEAN STRATEGY:

AN ANALYSIS OF

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Table of Contents

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Introduction to BrewDog BrewDog is Scottish independent brewery & ‘no-nonsense chain bar specialising in the Scottish brewery’s craft beers’ (BrewDog, 2020) founded in 2006 by 24 year old James Watt and Martin Dickie in Fraserburgh, Scotland. James and Martin, who shared a passion of craft beers and were bored of the dominance of industrial beers and lagers in the UK beer industry, decided to make their own. Fast forward to 2020, where BrewDog are experiencing exponential rates of growth, with sales in 2018 growing by 55% from 2017, seeing revenues of £171.6m and gross profits of £57.7m (BrewDog, 2018). BrewDog has achieved enormous success, boasting a portfolio of 52 UK and 31 International BrewDog bars, along with a range of dog-friendly UK and International hotels. How has BrewDog been so successful? The core of BrewDogs success comes down to the identification and breakthrough into a unique market space through the creation of a range of unique & branded beer products, setting sail away from Red Oceans towards a Blue Ocean Strategy. BrewDog Historical Development – Bottling Blue Oceans. The UK beer industry is dominated by four companies who produce a wide range of beer & lager. These are Molson Coors, AB InBev, Heineken UK and Carlsberg UK. (IBIS, 2020). Watt and Dickie had identified that none of the leading UK beers/lagers stood out from the rest, and were ‘boring and stuffy’ (BrewDog, 2020). When determining BrewDog’s target market, the zeitgeist was key (BrewDog, 2020). BrewDog evaluated their own understanding of the current UK beer industry, and concluded that they could not be the only ones with this perception. They considered their own cultural value from the punk ethos (DNA, 2019). Considering how punk culture existed as an alternative to mainstream pop culture, BrewDog identified an opportunity to form its own subculture & market as an alternative option for the current UK beer industry. Watt and Dickie felt to achieve sustainable success, they would need to not only create a unique product, but to redefine the relationship between the beer and the consumer, ultimately changing the value proposition of the product.

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BrewDog Current Strategy Canvas: Creating a strategy canvas is on way of looking at the value proposition of business model canvas, this element explains how products create value for customers (Osterwalder & Pigneur, 2013)

Completing a strategy canvas highlights the key competing areas used by BrewDog to excel within the UK beer industry. These key competing factors were product design, taste, culture, range and customer relationship. The strategy canvas highlights a lack of customer relationships within the UK beer industry, with many consumers engaging with whatever is available. However, as we move into the era of craft beer, consumer relationships & loyalty has never been more important (Bernot, 2019). Customer relationships describes the establishment between customers and companies (Osterwalder & Pigneur, 2013). Placing importance on positive customer relationships will lead to loyal consumers, positive word of mouth & increased sales (Knilans, 2017). BrewDog has a unique relationship with many of their consumers, who through a programme called ‘Equity for Punks’, a crowdsourcing initiative which has allowed 1000’s of loyal customers to become shareholders within the organisation, who receive dividends, discounts and many other benefits.

Blue Ocean Strategic Move

Industry Value Curve

Figure C: BrewDog Strategy Canvas 2009 Template: OVP (2020)

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BrewDog’s Value Innovation:

Value Innovation is the simultaneous pursuit of differentiation and low cost, creating a leap in value for both

buyers and the organisation (Kim & Mauborgne, 2005). This Framework will consider methods used by BrewDog to

reduce costs while raising value for the consumer.

Cost Savings:

When analysing value innovation, potential cost savings are identified and achieved through the elimination and reduction of

the factors in which the industry competes (Kim & Mauborgne, 2005).

BrewDog make considerable cost savings through turning away from traditional marketing forms such as TV & Radio adverts and effectively utilising social media, e-marketing. BrewDog are able to reach their target market more effectively through internet channels, running adverts on sites such as YouTube, Spotify and Facebook. BrewDog is effective at making short, slick videos usually attached with some form of competition for their social media sites. BrewDog are experts at creating products to capture the attention of the media, for example ‘The end of history’ 55% ABV beer named as the strongest beer in the world. Their extrovert marketing strategies have grabbed many headlines throughout their time (Anglin, 2017) for example the time they drove a tank down Camden high street, gives them the desired attention and exposure to be seen and heard by the consumer. Buyer Value: Buyer value is elevated by raising and creating elements never before offered by the industry (Kim & Mauborgne, 2005). Value was created by BrewDog by creating an extensive range of craft beer, increasing the volume of alcohol and intensity of the flavour, which differentiated BrewDog products to any other beer/lager in the UK. BrewDog added further value to their product by the use of unique branding in the form of giving their beers fun names and bright, colourful labels’ (Smale, 2015) to create an entertaining brand image. BrewDog took the principle of high flavour, high product design to address the industry low product range factor identified in the strategy canvas. Taking the principle of high flavour, high product design and applying it to an extensive product range. BrewDog Current ERRC: Considering BrewDog’s Punk-centric image and marketing strategy, BrewDog have broadly identified their target market as beer drinkers who desire a quality beer with epistemic qualities, less chemicals and more flavour (TMC, 2019). Just as the punk scene rose as an alternative to pop culture, BrewDog products have risen as a response to the ‘pop culture’ normalities and boundaries of the UK beer industry. Considering this, BrewDog is punk by image and punk by product. This position resonates with a large consumer base, who feel the same about the current state of the ‘pop-culture’ beer industry, and desire a flavoursome, stronger alternative to the norm. Based on this, the current ERRC grid of BrewDog since 2009.

Figure C: Value Innovation (Kim & Mauborgne, 2005)

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BrewDog Blue Ocean Analysis: More Than Just Beer BrewDog have created a Blue Ocean within the UK beer industry, as the strategy and actions taken by BrewDog have positively affected both its cost structure and its value proposition to a wide range of consumers. BrewDogs innovation has resulted in them becoming UK’s fastest growing brand, with brand value in 2019 increasing 89% from 2018, reaching a brand value of £1.2 Billion (BrewDog, 2019). The Equity for Punks crowdsourcing series in 2009, 2011 & 2013 has not only provided BrewDog with the financial resources to develop the brand and product, but to apply blue ocean thinking on two fronts with one objective, by opening a range of BrewDog branded locations. BrewDog is now competing within two industry sectors, where they are crafting their own unique beers, but also creating an interesting place to experience their broad product range (TMC, 2019). BrewDog have used these locations as a means of creating and providing the complete BrewDog experience, acting as a tasting bar for their broad range of 300+ beer options. These locations are more than just your typical bar, tapping into more of a cultural experience, drawing in customers who are keen to try a wide range of beer samples.

Raise: -Product Taste -‘Stand out’ labelling -Variety & Product Range

Create: -Culture & Passion for IPA’s -Standout Products -Branded Locations- BrewDog Experience -Equity for Punks

Eliminate: -Traditional consumer relationship -Stuffy ales & beers -Traditional Marketing methods -Boundaries of what beer can be

Reduce: -Manufacturing costs -Distribution costs

New Customer

Value

Figure D: ERRC Matrix of BrewDog 2009 Onwards

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Strategy Canvas for BrewDog Locations

Analysing a strategy canvas for BrewDog’s branded locations highlights that the competing factors against an average, no frills UK bar was product range, informality, and an experience orientation. BrewDog have devised their own medium between going to a bar for a casual drink, and going to a vineyard/wine estate for a tasting experience, and have managed to manufacture their own cultural experience without the formality experienced at a wine estate. This provides BrewDog with the ability to carry out their ethos of “making other people as passionate about great craft beer as we are” (BrewDog, 2020) through the creation of a series of IPA-centric cultural hubs for their target audience to come and try their product range. BrewDog Future Pathways: When an organisation successfully enters a sustainable Blue Ocean Market, they can expect to be market leaders for 10 to 15 years (Kim & Mauborgne, 2005) as they have achieved such a head start over their competitors. Once a Blue Ocean Market has been established, it is highly likely that competitors will be trying their best to get a share of your blue ocean. Therefore for the Blue Ocean to be sustainable, it is essential for Blue Ocean organisations to aim to be constantly innovating at a rate faster than their competitors. BrewDog have released blueprints for the direction of their organisation over the next 12 months. Judging from the huge financial success of their current business endeavours i.e. their growing number domestic and international BrewDog bar locations (BrewDog, 2020). It can be expected for BrewDog to continue with Global expansion by opening up locations worldwide. BrewDog are also seeking to continually broaden their product range, and open a new distribution centre to ensure constant refrigeration throughout the distribution process (BrewDog, 2020). BrewDog should continue with this strategy of expansion, however with

Blue Ocean Strategic Move

Industry Value Curve

Figure E: BrewDog Location Strategy Canvas 2009 Onwards Template: (OVP, 20200

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increasing competition from other craft beer breweries, the totally blue ocean once enjoyed by BrewDog is increasingly turning into a red ocean (Kim & Mauborgne, 2005). Therefore BrewDog must consider further opportunities for innovation, expansion and brand diversification. One potential for this comes from the BrewDog Cultural Festival. BrewDog Cultural Festival: BrewDog are in a unique situation, where they have an incredibly passionate and engaged customer base, who identify as alternative to mainstream society (BrewDog, 2020) and one of the ways in which they express this sense of non-conformity is through drinking craft beers and IPA’s (BrewDog, 2020). We are currently living through a period of rapidly increasing growth within the experience economy, where 72% of millennials are preferring to spend their money engaging with live events over the acquisition of material possessions (Jain, 2019). BrewDog have the potential to harness the socio-cultural aspects of their branded locations with their alternative-punk brand image to create an arts, creativity, cultural punk-centric music festival. The idea of a beer brand hosting it’s own music festival is not entire blue ocean thinking, with examples such as Tennent’s Vital and the London Craft Beer Festival. However, the completion of a strategy canvas can help to identify key areas in which BrewDog can alter to achieve a Blue Ocean within this sector.

The strategy canvas identifies the areas in which BrewDog can outperform competing festivals. These areas are providing Internationally recognised musical acts, range of beer available on site and working with local artists/cultural exhibitions. Whilst Tennent’s Vital excels in providing Internationally recognised music acts, they are lacking in range of beer available, with Tennent’s being the only option, creating a music-orientated festival. On the other hand, the London Craft Beer Festival has an extensive range of craft beers available, but is lacking when it comes to providing large headlining acts, creating a beer-orientated festival. The European Music festival industry is growing rapidly, with a market size of £2.3 Billion in 2016, skyrocketing to £4.1 Billion in 2020 (Statista, 2020), and here BrewDog

Figure F: Strategy Canvas for Festival Success Template OVP (2020)

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have the opportunity to combine this rapid growth with the rapid growth of the craft beer industry, by hosting a well-rounded, music & beer orientated annual cultural festival.

Business Model Innovation: Osterwalder (2004, 2013) defines the business model as the logic of how companies capture, deliver and create value, as such business models are essentially the application of strategic management. Furthermore, BOS and business model canvas both aim to simultaneously pursue cost reduction and value creation for buyers (Gassmann, et al., 2014). Below, are BrewDog’s business model canvas from 2009-2020, and from 2020 onwards.

Figure G: Strategy Canvas for BrewDog Future Pathways 2020 Onwards Template (OVP, 2020)

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Figure H: Business Model Canvas BrewDog 2009-2020 Template: Strategyzer (2020)

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Fans of alternative/punk/ rock music UK Festival Goers

Fusion of large scale music & craft beer festivals Annual, large scale sense of alternative togetherness

Influencers Bloggers Bands Artists Local Authorities

Large Scale Project Management Liaising with local authorities Mass-Scale single event marketing Local Authorities

Musical Acts Sponsors On-site Vendors Booking Agents

Project Management Teams Musical Acts Insurance Equipment & Land Rent

Ticket Sales Online/Physical Sponsorships On-Site Vendor Fees

Figure I: Business Model Canvas BrewDog 2020 Onwards Template: Strategyzer (2020)

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Business Model Analysis: An organisation as large and diverse as BrewDog will likely take elements from a number of business models and collate these elements into the overall successful model it utilises today. Firstly, the model of crowdsourcing. Equity for Punks is a form of crowdsourcing which involves the users to contribute the value provided (Das, 2019), and has been fundamental to achieve the financial resources required for the sharp rise and success of BrewDog so far. Secondly, Aikido has been identified for Deliveroo. The business model of aikido allows an organisation to offer something diametrically opposed to the image and mindset of the competition (Trizbm, 2019). In other words, provides a value proposition which attracts customers who prefer ideas & concepts opposed to the mainstream. BrewDog personifies this model through their marketing efforts, product names and imagery which focuses on highlighting the fact that their product is different to the mainstream. As BrewDog boasts such an extensive product range, there are only a limited number of products available in supermarkets & stores, therefore BrewDog heavily relies on the use of e-commerce and generating revenue from their website. BrewDog allows consumers to complete ‘personality tests’ to determine which beer may be best suited for them. BrewDog also operates a subscription model, as their website allows the consumer to start a subscription service for varieties of beers to be distributed directly from the manufacturer. Furthermore, BrewDog’s vertically integrated supply chain allows them to purchase the raw materials, process the materials into a product, and then to sell the product directly from their own stores. This fuses elements of the manufacturer, distributor and retailer business model. Conclusion: This report has been collated with the intention to reduce the future risk of new competition to BrewDog. Although BrewDog has been successful in achieving Blue Ocean market space, it is likely that future market rivals will turn their Blue Ocean into a Red Ocean with increasing fierce competition (Kim & Mauborgne, 2005). It is recommended that BrewDog continues with the plans outlined in their published future strategic plans (BrewDog, 2020) featuring its extensive expansion plans for its product range, consistently bringing out new combination of flavours and strengths to appeal to as broad a consumer range as possible, alongside the aggressive development of their branded location portfolio and U.S expansion. However, the above strategies are not modern Blue Ocean thinking, merely an expansion of what was Blue Ocean thinking in 2009. In order for BrewDog to continue to enjoy Blue Ocean markets, they must diversify and do what competitors aren’t, and one way of achieving this is the fusion of large scale music concerts & specialised craft beer festivals to form a large scale music & beer-centric annual festival of culture.

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