Global Forces and the European Brewing Industry

Social

The first decade of the 21st century saw a fall in beer consumption in the UK and Germany.

Wine was becoming more popular.

Shift from ‘on-trade’ to ‘off trade’ due to more people drinking at home, possibly due to the ‘No Smoking’ law.

There is an increased awareness of health and fitness.

Technological

Grolsh increased their range with new flavoured beers.

Grolsh switched to single site production.

Environmental

Heineken use local companies to introduce their product to new markets, thus sustaining local economy.

Legal

Grolsh hold the rights for sale and distribution of Miller brand.

Acquisitions and mergers can obtain a bigger market share and reduce competition.

Introduction of the ‘No Smoking in Public Buildings’ law.

Porters Five Forces Analysis

Porters five forces analysis is a framework useful to managers of an organisation to understand the competitive forces within their industry. The five forces are;

• The threat of entry
• The threat of substitutes
• The power of the buyer
• The power of the supplier
• The extent of rivalry

The threat of entry

The threat of entry would be low in the brewing industry because of the high capital investment required to be able to compete on a European scale.

With the top 10 brewery companies in 2005 having almost a 50% share of the European market breaking into and competing in this market would be costly.

The threat of substitutes

As well as the threat from other beers there is a threat of substitutes from wine, as the volume of wine sales is increasing as the volume of beer sales is reducing.

The power of the buyer

With a considerable number of products on the market the end user has the power to switch product without any incurred costs.  However, with the increase in ‘off-trade’ sales and the large supermarket chains offering big discounts and special offers to get customers through the door, the consumer could stay loyal to their brand.

The power of the supplier

The main suppliers for the brewing industry are for packaging (accounting for around half of non-labour costs) and raw materials such as barley, and energy. In Europe the packaging industry is dominated by international companies such as Crown for cans and Owens-Illinois for glass bottles. In 2006 these costs increased dramatically. Heineken complained of an 11% rise in their packaging costs. To change the packaging supplier could be a high risk. Packaging is crucial to the supply chain. Any disruption could be costly.

The extent of rivalry

With 50% of the market share being controlled by the top 10 brewing companies, as showing in the table below, competition between these companies will be high. In recent years we have seen acquisitions and mergers by these companies to gain a higher market share.

The world’s top 10 brewery companies by volume: 2005

Souce: Euromonitor International, The world Brewing Industry

To conclude

With the threat of entry being low, new competition is unlikely. To reduce existing rivalry the best option would be to buy up the smaller market share holders in order to obtain a bigger percentage.

Other product lines should be explored such as premium lager and flavoured beers.

Alternative packaging suppliers should be sourced in an attempt to reduce costs.

2)

Heineken

Heineken has already got a foot hold in Americas and Asia-Pacific. With the declining market in Europe Heineken are focusing on new, growth areas.

Strengths;

• Family controlled company giving stability and independence for steady growth
• Largest European brewery with sales in 2006 of 11.8 bn Euros
• They use locally acquired companies when introducing their product to new markets
• Recognised brand names
• Economies of scale
• 17% of sales in Americas
• 5% of sales in Asia-Pacific

Weaknesses;

• Packaging costs increasing (11%)
• Lack of innovation
• Lack of ‘new blood’ into the organisation due to being a family run business could mean they miss out on opportunities

Grolsh

Grolsh are investing in premium lager and flavoured beer which will generate increased revenue.

Strenghts;

• Strong brand with distinct bottle tops
• Establish 1615 – stood the test of time
• Good innovation with premium lager and flavoured beer
• Holds the rights for the sale and distribution of the US Milller brand
• Centralised production; increased efficiency

Weaknesses;

• Medium sized company with sales of 313m Euros in 2005. Therefore less financial power than the bigger breweries
• Single production plant - If problems occur this could impact of production.

InBev

InBev are in a strong financial position. Recent acquisitions to enter into new growing markets have proved successful.

Strenghts;

• Sales in 2006 13.3bn Euro’s Largest in world
• No 1 or No 2 position in 20 countries
• 2nd largest in China through a series of acquisitions
• Well known brands; Stella

Weaknesses;

• Along with the acquisition came plant. There is a need to centralise the production to gain tighter control and efficiencies
• Lack of innovation

Scottish and Newcastle (UK)

Scottish and Newcastle was acquired by Heineken in November 2009.

Strenghts

• Market leader in UK, France and Russia
• Fourth largest brewer in Europe in terms of volume
• Emphasis on innovation
• Invest in growing oversee markets early

Weakness;

• They are closing down inefficient breweries. Why are they inefficient? What impact will this have on their company and the competition?

References;

Johnson, Gerry, and Kevan Scholes and Richard Whittington. Exploring Corporate Strategy