Boston 961 Beer Launching a Lebanese Brewing Company Case Study Analysis The story of 961 Beer provides you with a practical example to understand how smal

Boston 961 Beer Launching a Lebanese Brewing Company Case Study Analysis The story of 961 Beer provides you with a practical example to understand how small companies enter a monopolized market under adverse conditions.

Conduct a PEST analysis and identify key drivers that impact the industry.
Conduct a five forces analysis on the competitive environment surrounding 961 Beer.
Conduct a SWOT analysis on 961 Beer. Is the company well positioned to deal with threats as well as opportunities?
Evaluate Hajjar’s decision to start an artisanal brewing company. Is Lebanon a good market for beer?
What can Hajjar do to expand the business further so as to remain competitive without compromising quality as well as the values that constitutes his 961 Beer venture?

Write-ups should be maximum 5 pages (approx. 1500 words), in addition to exhibits. Please also use exhibits and charts as necessary to support your analysis. The grading criteria for case analysis are:

Appropriate response to questions – 40
Identification of key issues or problems – 20
Application of course topics, tools, methodologies, concepts – 30
Use of appropriate format, grammar and style – 10
Total – 100 961 BEER: LAUNCHING A LEBANESE BREWING COMPANY
“I should have stayed in my own bar and had a beer,” Mazen Hajjar thought over carrots, nuts and a
mojito when listening to the boisterous mix of post-punk and Arabic classics at a popular bar in
Beirut’s main nightlife quarter, Gemmayze. It was an evening in February 2009, and Hajjar, one of
the founders and owners of 961 Beer — 961 is Lebanon’s country code, hence the name for the first
craft brewing company in the country — tried to gather his thoughts for a strategy meeting he would
have with his partners the next day. Being disappointed with the quality of local beer, he had started
his own brewery from scratch in 2006. The start-up phase took place under the most adverse
conditions in terms of security and economic challenges. Bombs were shattering Beirut International
Airport when Hajjar went ahead and registered his company. Although the 2006 war would
negatively affect the country’s entire infrastructure and paralyze much of its economy, Hajjar and his
team would succeed in their bet and manage to enter the then- monopolized beer beverage sector in
Lebanon to successfully introduce the 961 brand to the market. 961 Beer since then had evolved from
a tiny brewer that produced beer in plastic buckets and a home brewing kit in the kitchen to an
appreciated artisanal beer manufacturer. Hajjar and his team opened a beer pub that had developed
into a favourite hotspot for locals and tourists in Beirut’s buzzing nightlife district. They sold their
brew to bars, restaurants and local supermarkets, and in 2009, they expected to reach a production of
95,000 litres annually. At this stage, they found themselves confronted with the challenge of growing
their business without compromising on quality in the face of increasing pressure from competitors
and limited production capacities and resources.
BACKGROUND: MAZEN HAJJAR
Hajjar, a 38-year-old entrepreneur, had an unorthodox background. He studied political science in
Beirut and London and worked as a war photographer in Bosnia. Disillusioned, he eventually gave
that up with a new perception that “no one really cares”; yet, he continued working as a journalist for
the finance and business section of a Beirut newspaper. In 1997, he accepted a position in the
financial sector requiring him to learn “hands-on” about investment banking, giving him wide
business exposure. In 2003, while working on an aviation project, he saw a business opportunity for a
low fare airline. He wrote a business plan and identified investors in the Gulf for his venture. Out of
this MenaJet was born. However, the airline could only operate as a charter company — it was
refused a license to operate from Lebanon because it would have created a strong competitor for the
national airline. Hajjar later received an offer to set up a national airline, RAK, in the United Arab
Emirates (UAE). He became chief executive officer (CEO) of RAK and advisor to the Crown Prince
with a promising stock options package and the prospect of a five-year engagement. It was then he
met Henrik, a Danish investor, with whom he discussed food. Hajjar was passionate about this topic;
the Lebanese were well-known for their food and wines, although not for their beer even though the
region was the cradle of beer civilization. The men discussed the possibilities of coming up with an
excellent local beer that the Lebanese could be proud of and that could be placed on an international
shelf with all the other prominent beers and stand out. A few weeks later, Henrik phoned and
announced his interest in investing in a beer brewery in Beirut. It was early 2006 when Hajjar quit his
stable and lucrative job as CEO in the UAE and returned to Beirut to an uncertain entrepreneurial
future.
THE BREWING COMPANY
In 2006, when Hajjar started his business, the world beer market generated total revenue of US$294.5
billion and consumption volumes had reached a total of 123.8 billion litres, which was a growth of 2.7
per cent compared to the previous year.1 The beer market had an average growth of 2.4 per cent
between 2002 and 2006.2 The global beer market segmentation overwhelmingly showed that premium
and standard lager had the greatest percentage of shares with a combination of 80 per cent by value.
The rest of the 20 per cent belonged to specialty beer (11 per cent), ales/stouts/bitters (7 per cent) and
low or non-alcoholic beers.3 The top four largest brewing companies accounted for one-third of the
world beer market share in terms of volumes produced.4 The beer industry was characterized by
numerous mergers and acquisitions, which had proved to be the most efficient ways for many
companies to get access to new geographic markets, especially emerging ones, and at the same time to
strengthen their competitive position within the world market.5
The Lebanese market was dominated by a local company, Almaza, that was founded in 1933 and
acquired by Heineken in 2002.6 For Heineken, the acquisition represented an opportunity to
strengthen its position in the Middle East as Beirut was a strong exporting base to the surrounding
countries. A little later in October 2003, Heineken purchased a second Lebanese brewer, which
generated 75 per cent of sales based on non-alcoholic beers. With the acquisition, it was converted
into a 100 per cent alcohol-free branch offering multi-flavoured beers. The alcohol-free branch also
served as an important/export platform to the Gulf states where 60 million litres of non-alcoholic beer
were consumed every year. The local competitor controlled 70 per cent of Lebanon’s $40 million beer
market.7
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1 Datamonitor,
“Global Beer Industry Profile,” reference Code 0199-0744, December 2006, http://iom.vse.cz/wp-
content/uploads/2008/03/Global-Beer_2006.pdf, accessed May 28, 2014.
2 Ibid.
3 Ibid.
4 Ibid.
5 Nelson
C. Oniyama, “Impact of Accounting Policy on Organization Recovery Plan – A case study of Monrovia
Breweries Inc, Knowledge Review Volume, 21 (2), 2010,
www.globalacademicgroup.com/journals/knowledge%20review/IMPACT%20OF%20ACCOUNTING%20POLICY
%20ON%2 0ORGANIZATION%20RECOVERY%20PLAN.pdf, accessed May 20, 2014.
6 Justin
Salhani, “961 Beer Brewery Proud to be Serving up ‘Lebanese Invention,’” Daily Star, Feb. 24, 2012,
www.dailystar.com.lb/Culture/Lifestyle/2012/Feb-24/164451-961-beer-brewery-proud-to-be-serving-up-lebaneseinvention.ashx#axzz32wdAxbS5, accessed May 28, 2014.
7 Michael
Karam, “Heineken Shakes up the Beer Market,” Executive Magazine, www.executive-
magazine.com/business- finance/business/heineken-shakes-up-the-beer-market, accessed May 20, 2014.
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THE CRAFT BREWING PHENOMENON
961 Beer was founded in the tradition of craft brewing. In fact, the domination of the global beer
market by a few multinational players that proposed increasingly standardized products to their
customers — notably, lager and light beers — had led to the emergence of a grassroots home brewing
culture in the 1970s. This grassroots movement seemed to be the only way for many beer
connoisseurs to experience different beer traditions and styles. Some homebrew enthusiasts were
inspired to start their own brewing companies in order to familiarize a larger public with the traditions
of beer, which finally led to founding microbreweries and the craft brewing sector.8 In total,
microbreweries and craft brewers produced less than six million barrels of beer a year (in comparison,
Anheuser-Busch produced about 25 million barrels annually).9 They were independent from large
beer brewers. At least half of their production used malted barley, unlike industrial breweries that
often produced beer based on other grains.10 Some of these new breweries were so successful that they
actually outgrew the definition of a microbrewery; yet, they were still labelled microbrewers due to
the traditional processes that they applied in production.11 The craft brewing industry produced a
variety of beers that catered to an increasing trend and interest within global beer drinking
communities towards traditional beers, such as porter, pale ales, cask ales, stout and bitters. Some
craft brewers were now called “regional specialty brewers.”12 Craft breweries were on the rise in
numerous countries worldwide. The American Brewers Association expected a growth rate of 13 per
cent by volume and 15 per cent by dollars in 2011 and 12 per cent by volume and 15 per cent by
dollars in 2012. Craft brewed beers were expected to hold a market share of 5.7 per cent by volume
and 9.1 per cent by dollars in the United States.13
961 BEER PRODUCTS
961 Beer’s philosophy was to make the best possible beer while having fun doing so. Unlike
industrially produced beer that competed on the basis of low prices and advertising, 961 Beer
competed on its inherent product characteristics. The beer, like other craft beer, was produced in small
batches, always using fresh raw materials without additives and preservatives, which led to greater
quality and to more beer diversity with regards to tastes and added flavours.14 Another trademark of
961 Beer common with other craft brewers was innovation in the form of new beer styles and types.
961 Beer sometimes mixed traditional ingredients (barley, hops, yeast and water) with unorthodox
and non-traditional ingredients to give the beer a distinct touch.
Typically, beer is produced by adding hot water to different types of ground malts to create a sugary
liquor called wort that is boiled to separate it from solids. The cones of the hop plant are added to
introduce flavour, aroma and bitterness. After the mixture has cooled, yeast is added to prepare for
fermentation, consuming the sugar and producing alcohol and carbon dioxide, thus creating beer. At
various stages of the brewing process, brewers can influence the taste. Temperature, for instance, is a
major factor affecting the flavour of the beer; for example, black malt is pretty much burnt during
roasting, which consequently gives the
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8 Brewers
Association, “History of Craft Brewing,” www.brewersassociation.org/pages/about-us/history-of-craft-
brewing, accessed July 11, 2013,
9 Brewers
Association, op. cit.
10 K.
William and B. Boyer, “Craft Brewers: Want Better Beer? Size Matters,” Medill Reports Chicago, June 5,
2008, http://news.medill.northwestern.edu/chicago/news.aspx?id=92949, accessed October 15, 2012.
11 E.
Poelmans and J.F.M. Swinnen, “A Brief Economic History of Beer,” in The Economics of Beer, ed. J.F.M.
Swinnen, Oxford University Press, New York, 2011.
12 V.
Tremblay and C. Tremblay, The US Brewing Industry: Data and Economic Analysis, MIT Press, Cambridge,
MA, 2005. 13 Brewers Association, op. cit.
14 M.
Stack, “Local and Regional Breweries in America’s Brewing Industry, 1865-1920,” Business History Review
74, 2000, pp. 435–63.
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beer an acrid and burnt character. The types of hops added create different aromas; the time at which
hops are added to the boiling process affects the flavour; even the type of water used has an impact as
it differs in mineral contents15 (see Exhibit 1 for the brewing process).
961 Beer offered four regular beers: witbier, porter, red ale and lager. Moreover, the company offered
a Lebanese Pale Ale that was marketed as the brewmaster’s select. 961 Beer used predominantly
Lebanese resources in its production process. Although most of the hops were imported from
Germany, some farmers in the Bekaa Valley were growing hops for 961 Beer for future production. In
comparison, 961 Beer’s biggest Lebanese competitor imported all ingredients apart from water from
the Netherlands and Egypt, where they had previously been approved by Heineken. Hajjar took a lot
of pride in 961 Beer’s way of production saying, “We don’t use corn, we don’t use chemicals in our
beers, we don’t use green bottles — we do it really the traditional way, the real beer.”
LAUNCH OF THE COMPANY
The beginning was modest and bumpy. After his return to Lebanon, Hajjar read numerous books
about beer manufacturing. Henrik, his partner, brought bags of wheat, barley and hops every time he
visited Beirut, and they paid $1,200 shipment fees for plastic buckets worth $100 so that they could
ferment the beer in Hajjar’s kitchen. Henrik had already sent 50 per cent of the initial investment to
start the company and Hajjar provided the other half. Unexpectedly, three days after Henrik’s money
arrived, a 34-day war with Israel broke out. Sitting on his balcony, Hajjar watched the bombs falling
on the Beirut International Airport as huge clouds of smoke and dust were rising. The first thought
that came to his mind then was “Great, now my investor is going to panic, take his money back and
leave the project.” The situation was bleak with the government shut down, the infrastructure severely
damaged by airstrikes and extensive shelling and bombardments that forced people into bunkers or to
stay at home and more than 1,200 casualties. Not exactly the time and place to start a new venture or
to invest money! However, to Hajjar’s surprise, Henrik saw more opportunities than threats and
called, urging Hajjar to register the company as soon as possible. He thought that doing so at this time
would give the company a great story line: “We registered under siege.” Hajjar, the Lebanese, was
still reluctant until Henrik, the Dane, reminded him that in the past there had been many conflicts in
Lebanon but life eventually took its course shortly after, and therefore he “wasn’t worried” the
country would crumble. Hajjar used the time to continue his brewing exercises, but in his own words
his brew tasted “horrible and smelt even worse.” He had to take a video tutorial on how to brew beer
to understand his mistakes in the brewing process. He tried again and again until he got it right. These
first experiences in brewing were still very basic. Primitive equipment was used, which rendered the
brewing process very challenging. For example, the temperature could not be controlled properly.
Instead, water was heated to the exact temperature, and then mixed with the malt in the hope to
achieve the right temperature.
Every Sunday, friends and acquaintances would come to Hajjar’s home to taste the various batches he
had brewed and to give their feedback. In time, the beer started tasting good and attracted more
people than his apartment could fit. Hajjar recalled that one late night in December 2006, two
strangers knocked on his door asking if they could buy some of his beer. Hajjar was perplexed, almost
feeling like a black market dealer, but it struck him then that it was time to expand and buy his first
commercial brewing space.
After extensive research to find commercial brewery equipment, Hajjar chose DME Brewing
Solutions, a Canadian supplier that specialized in equipment for craft beer brewers. The company
prided itself on its customer support capabilities, which were then heavily tested by the 961 Beer
entrepreneurs who were
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15 William
and Boyer, op. cit.
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originally unable to answer necessary and basic technical questions, such as the type of beer they
wanted to brew, the volumes, etc., in order to choose proper brewing equipment to meet their needs.
Finally, the necessary equipment was defined and delivery was fixed for March 2007. Until then the
team needed training, and Hajjar flew to Canada to obtain a “Brew Master” certification. He also
visited his supplier’s showcase brewery where he took several pictures. Back in Beirut, he convinced
a second partner, Omar Bekdache, who had previously worked for a Lebanese fruit juice producer, to
enter the business. The brewery equipment was delivered in time. However, the 961 team soon
realized that it was not a “Lego kit”: it came in seemingly endless parts without an engineering map or
instructions. As they soon found out from the Canadian supplier, every brewery is unique, with
different space layouts, and there is no generic type to be delivered. The Canadians proposed to send
someone to help out for three days at a cost of $10,000 per day, pointing out that it would take three
months to set up the entire brewery. That was beyond the affordable. Luckily, Hajjar could retrieve
the photos taken in Canada. Based on these, he and Bekdache set out on an exploratory journey to put
the pieces of equipment together. It took them until July 2007. They informed their supplier who felt
inclined to send a “danger warning,” mentioning explosions and pressure and most of all declining
any responsibility. But the first batch finished without problems, and the team proudly emailed
pictures to the supplier to reassure them that all had gone well. In the evening, Hajjar received a call
from the Canadian CEO: “I don’t understand how the heck you did this, you’re crazy, but can we use
you as a poster child to tell people that even idiots can use our system?” Retrospectively, Hajjar
thought that the 961 Beer story was an excellent example of how stubbornness and sheer
determination as well as the ability not to give up is how a business can eventually survive and
actually succeed.
MARKET DEVELOPMENT
After the company was registered, the brewing space was bought, the equipment was set up, the Brew
Master certification had been acquired and the brewery could start producing, the next challenge
became apparent: “How do we sell the beer?”
It’s All about Change . . .
Creating a brand identity for 961 Beer seemed of critical importance at that stage. Together with Joe
Kesrouani, a Lebanese artist (well-known for his photography and paintings) and friend who later
became a partner, Hajjar and Bekdache developed a design for 961 Beer. They were inspired by
Scandinavian design, which had its aesthetic sources in simplicity, purity and naturalness —
characteristics the partners associated with their product. The 961 label was deliberately “underdesigned” in order to draw consumer attention to the beer and to let the quality of the product “speak
for itself” (see Exhibit 2). In this strategy, mainly Lebanese designers worked on the brand identity in
order to bring across the message of 961 Beer as being an inherently Lebanese product by a company
that was socially and environmentally aware and responsible. When the company started in 2006,
Lebanon was at war. This conflict seemed to be one of many violent repetitions of history and of
human errors in the region. 961 Beer coined the catchphrase “Are you resistant to change?” The
slogan soon became 961’s brand driver. “Change” would become the promise of the 961 Beer brand
in a country that was generally thirsty for change. This attitude would be reflected in the company
culture, brand label, website, advertising slogans and later on in the interior design of its bee…
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