economics vs strategyIts pretty hard for business strategy to beat economics.
What is the demand vs supply?
Big breweries were demand aggregators. They still largely are. Bud light, Coors light, Corona, Heineken are all easy drinking beers which is the most popular style.
While the majority of customers prefer easy drinking beers there are some that prefer a beer with more body and taste. Craft brewers were able to satisfy these customers. The question I always ask myself is how big is this market? Its always a quess. When management focuses on growth I ask myself that question every quarter. How big is the market? At one point will the company try and grow by any means possible?
Will they invest in property, plant and equipment in an over supplied market? Easy drinking beer? Contract brewing?
Big Rock is like a boat that went full steam into an iceberg. Once the ship was taking on water and the board many miles away from the catastrophy got the telegram from the bank they fired the captain.
The board told the ship owners that it is going to sink if they don't get more money to repair it.
At this point fixing the hole in the balance sheet takes care the bank first. If Big Rock does not raise *enough* equity it won't do much for shareholders. Given they lose around 1 million dollars a quarter raising anything less than 5 million dollars won't help much.
There are roughly 7M shares outstanding and current market cap is roughly $9 million.
At same time risk free investment like a 18 month GIC at BMO is 4.75%. Not going to be easy raising 5 million to fund a money losing brewery without a CEO when GICs are paying around 5%.