Beer Essay Research Paper Industry

Beer Essay, Research Paper Industry & Competitive Analysis CHIEF ECONOMIC TRAITS OF THE BEER INDUSTRY The market size of the beer industry is incredible. The wholesale volume in the beer industry is approximately $13.7 billion. The industry employs almost 40,000 people. The average worker is paid about $18.27 an hour.

Beer Essay, Research Paper

Industry & Competitive Analysis

CHIEF ECONOMIC TRAITS OF THE BEER INDUSTRY The market size of the beer industry is incredible. The wholesale volume in the beer industry is approximately $13.7 billion. The industry employs almost 40,000 people. The average worker is paid about $18.27 an hour. As you can see, this is a very large industry, which provides many jobs to the American workforce. The market consists of many competitors, some being very large and some operating on a very small scale. The competitive rivalry is broken up into three segments, National, Regional, and Microbrewers. National competitors have wide market coverage and generally a large company. Regional competitors are smaller than National in the fact that they only distribute in certain regions. Microbrewers are the smallest of the three because their size and capacity limit them to only distribute to small geographic areas. The market growth rate of the beer industry is perplexing. In domestic brands, from 1983 to 1984 there has been a decline in consumption of -1.2%. In the imported section there has been an increase of 14.3%. The total industry as a whole declined .7% from 1983 to 1984. As a result of the decline in consumption of beer a similar result in production occurred with a decline of 1.2% the estimated forecast for 1985 will continue along the same trend, as did 1984. The long-term outlook for the industry is that sales will remain flat for the next 10 to 20 years.

There are many companies in the industry. Through the years the industry has slimmed down quite a bit. The National market consists of ten major competitors. The Competitors in this market are Anheuser-Busch, Miller, Stroh, G. Heileman, Adolphs Coors, Pabst, Genesee, C. Schmidt, Falstaff, and Pittsburgh. The National companies have 51 plant locations across the United States. Market share in the Domestic market ranges from a low of .5% to a high of 34%. The Import market consists mainly of ten major brands also. They are Heineken (Netherlands), Molson (Canada), Beck s (Germany), Moosehead (Canada), Labatt (Canada), St. Pauli Girl (Germany), Dos Equis (Mexico), Foster’s Lager (Australia), Amstel Light (Netherlands), and Corona (Mexico). These ten brands hold about 87% of the imported market share. The individual companies range in market share from 34% on down. A few regional companies, and many small microbrewers make up the rest of the companies in the industry.

The customers for the beer industry are highly diverse. They range from being highly educated to non-educated, and male to female. Income ranges for those who drink beer are also very diverse. Single people drink more beer than married according to 1983 U.S. beer drinker demographics. College professors are known to be customers also. Due too lack of information in the case the degree of vertical integration among the companies in the industry is not certain. I am certain that a few of the larger companies have gone into producing their own packaging (Cans, Bottles, etc.). This would be a way to cut out some of the power of suppliers if a company were to do this.

The ease of entry in the beer industry is segmented among the three market coverage types. In the national market the ease of entry is low. There are many barriers to entry in the national market. Beer is regulated in 50 different ways in the United States. Large capital requirements and distribution networks make it hard to enter the national market. The regional market is a little easier to get into because of fewer regulations due to smaller market coverage. Capital requirements are not as big in the regional market. Local or microbrewers have the fewest barriers to entry. Capital requirements are small compared to that of a national or regional brewer. Microbrewers generally operate in a small geographic area thus reducing many of the regulations faced by national and regional brewers. Product characteristics vary among the markets. In the national market the beer is highly standardized and heavily advertised. The beer is inexpensive. There is some product differentiation in the market with the broad product offerings that the national brewers can give. Because of this perception, Import beer costs more than domestic beer does. Imports are differentiated by taste and packaging. Small brewers offer a super premium product that is not very differentiated. The main differences can be attributed to the brewing process, price, and packaging.

Scale economies are high among national companies due to their large size. Their ability to distribute fixed costs is easily done because of the large volume that is produced. There are also economies of scale in product extension and brand proliferation. Regional companies have moderate economies of scale. Regional do not produce as much as larger national companies but they can still spread some of their costs over their moderate volumes. Local brewers have low economies of scale. Production is so small that it is very difficult to distribute costs. A local brewer cannot spread the cost of advertising over their product without having to raise the price of their product considerably. Capacity utilization in the U.S. Beer industry is between 75% and 85%. The beer industry is suffering from overcapacity. Despite this, a few companies are still expanding while others are closing down some operations. Because of flat sales, there is no need to overproduce. Industry Profitability is decreasing due to heavy taxation and a declining market. Beer is one of the most heavily taxed consumer products. There largest cost in the price of beer is the tax that is placed on it by local and state governments. The industries profitability is also changing due to changing lifestyles, stricter laws, and a declining 18-34 age group.

COMPETITION AND COMPETITIVE FORCES The rivalry among existing competitors is strong. Demand for the product is slowing. In order for a company to increase market share, another company has to lose it. Switching costs are low for consumers. Because switching costs are low, Competition is very intense to gain new market share. The beer industry is a cutthroat business with extreme competition. Because they are in a declining market, it order to stay alive it must be survival of the fittest. Potential of new entrants is moderate. Capital requirements can be a very inhibiting factor as to whether a company can start up. New entrants must also establish a very strong and sound distribution network that is all to often not that easily attainable. Many laws and regulations may also inhibit a new entrant from coming into the market. The threat of substitute products is moderate in the industry. Some people believe that wine coolers will continue to steal market share form the beer industry, while others believe that wine coolers are just a fad that will die down. Pre-mixed drinks can also be considered a substitute. Bacardi breezers and Jack Daniel’s country cocktails are an example of this. In a bar, a person has a choice among many different drinks. Malt beverages (ZIMA) can also be considered a threat. The power of suppliers is moderate. Depending on which company is bigger will decide who has the leverage between the two. The suppliers have power due to the demand for agricultural products. Canneries have power in their ability to produce packaging for the breweries. If the brewery is big enough, they have more leverage as to where they get their supplies and as to how much they pay for them. The power of buyers is very strong. Switching costs are very low thus enabling a consumer to buy whatever brand he wants. Beer drinkers are easily swayed by advertising and social trends. Special promotions tend to sway brand loyalty.

Changing societal concerns, attitudes, and lifestyles are driving forces for the industry. These factors play an important role as to where the industry is going. Other causes include 1. The population is concerned about healthier lifestyles. 2. The Growth of the (18-34) age group is declining. 3. Drinking and driving laws are getting stricter with the push of support groups (MADD). 4. Legal drinking age being raised to the age of 21. 5. Banning of “Happy Hours” in some states. 6. New buyer preferences. National brewers are in the strongest position because of broad product offering and low-to-moderate costs. Imports are in a fairly decent position because of their decent product offering and quality. Regional and local breweries are in the weakest position because of higher costs and limited product offering.

KEY SUCCESS FACTORS; 1. Maintain Quality in existing plant 2. Must build a stronger network of distributors 3. Make attractive packaging 4. Quality control in new facility. 5. Improve access to financial capital for future endeavors. 6. Innovative low cost ideas to promote product (Beer sponsorship at local pub’s, exploit be rated best brew in America, etc.)

INDUSTRY ATTRACTIVENESS/ PROFITABILITY Factors making the industry attractive- -Market Size $13.7 Billion -Preference for better quality Brew over domestics. -Microbrewer/brew pub trend increasing Factors making the industry unattractive- -Decline in consumption of beer due to healthier lifestyles -Decreasing profitability due to heavy taxation -Flat Sales -Extensive competition (too many competitors) Special industry issues/ problems- -Increasing consumption despite stricter laws and healthier lifestyles. -Oversees expansion Profit Outlook- -Not very good because of flat sales, increased taxation, and limited success of previous microbreweries. It is assumed that demand in the industry will remain flat. This will remain true for the next 10 to 20 years. Because of flat sales in the industry, a few companies will be forced to exit the industry. And as many components in life, only the strong survive .