We came across this intercepted memorandum late last week from a brewing company, and despite recommendations from our lawyers, decided it was too important not to publish. It also lends insight into the role of procurement and commodity prices when it comes to M&A in the suds marketplace...
To: All Procurement Managers
From: Your Bosses
Subject: Commodity Prices, Ingredient Substitution and Duck Island
As you are aware, our corporate development team decided to finally pull the trigger on buying a Chicago-based organization, Duck Island. We are hoping the acquisition of this craft brewery -- well, beers snobs would never describe it as a craft brewery, but it's good enough for our purposes -- helps position us with the beer snob set, which represents a growing percentage of the North American beer drinking market. Even if we don't win beer snobs outright, that's OK; the good news is that even conservative analysts predict our official quashing of brewing independence and resulting 100 percent market share to be complete in less than a decade, far ahead of our own estimates.
There is another ulterior motive for the acquisition. Historically, the main brews we produced in North America post-Prohibition were made primarily from corn and rice in addition to barley malt (depending on recipe), not to mention barely discernible amounts of hops. It is not well known among our typical audience that decades ago, the American lager bastardized the ingredients in traditional pilsners to create a mass production brew with consistent characteristics. This trade secret was expertly shrouded behind continually evolving iterations of our company image, almost always involving scantily clad cheerleader-types -- often brandishing pompoms or tanned skin. Although our beer ratings these days leave much to be desired, consistency is the hallmark of our production. (Unfortunately, many cheerleaders prove too mercurial to oversee the brew kettles.)
Yet with a rise in corn and rice prices, we believe that we need to hedge our inflationary bets from a procurement standpoint by teaching our drinking population that a little bit of bitterness is good. Needless to say, it's a strange situation we find ourselves in. COGs for our typical brews continue to increase, and at the same time, the hop market has come back down to earth from its stratospheric heights not too long ago. Because of this, we think the Duck Island acquisition may be an intriguing way to increase our margins if the current commodity trends continue and we can expand the overall market in which Duck Island competes.
Of course this will mean teaching the typical US population that a bit of bitterness is actually enjoyable in a beverage. Since we do not have the in-house resources to provide that education, nor have we since 1843, we expect to hire someone from a small craft brewery to take the lead on this initiative.
We would also like to remind you all of the confidentiality agreement you signed, upon employment, regarding your knowledge of additives in our recipes. Despite the fact that most of our additives are completely natural and organic, we may (or may not) add a secret amount of salt to our products to promote sustained thirst among our customers. We estimate that this process increases consumption by at least 22% and has a significant impact on the value of your stock options and corporate pension contributions.