A comparative review of the strategic development of Brasseries Kronenbourg and Brewery Group Denmark

University Degree Business and Administrative studies

A comparative review of the strategic development of Brasseries Kronenbourg and Brewery Group Denmark

INTRODUCTION

This assignment provides a comparative review of two organisations strategic development (Brasseries Kronenbourg and Brewery Group Denmark) within the context of the European brewing industry.

To undertake the strategic analysis of both organisations various methods have been applied which have helped to identify their performance overall as an organisation within the brewer industry.

OVERVIEW

Across Europe 50 per cent of the alcohol market is beer dominated. Making it major centre of beer consumption and production in the world. There are though considerable variations which exist from country to county, these include market characterises and industry structure. The European brewery market is an oligopoly market.

The French company Danone own a key player, Brasseries Kronenbourg, the 3rd largest brewer in Europe. They estimated total revenue of 26.7 million in 1993. The principle brands are Kronenbourg, Kanterbrau, 1664 and Tortel. Additional brands also include, Kronenbourg Light and 1664 Brune. The beer itself is premium outside of France and inside of France it is perceived as ordinary.

Brewery Group Denmark is a traditional Danish company that operate from two breweries either end of Denmark. They are a result of a merge between companies, which have now established them as the second largest brewery in Denmark. They are a small Danish brewery, which is fighting for a position in Europe and across the world. They import their beer into selected markets, these are Italy, The Caribbean, Germany, The Baltic States, Brazil, Russia, China and other Western European countries through a network of joint partnership schemes when distributing the beer.

STRATEGIC GROUPS

Identifies organisations that have similar strategic characteristics through strategies or them competing on a similar bases.

Figure 1 shows a strategic group map of the Brasseries Kronenbourg and Brewery Group Denmark. The key characteristics are geographical coverage of Europe and marketing intensity these are illustrated through the two brands. Brasseries Kronenbourg (A1) are a multi national company that operate across the world with strong brands. In Europe they have a high marketing intensity with high geographical coverage. This is reflected through key characterises such as them being a large organisation that have a premium pricing policy, seven brands underneath their name offering a diversity of beer for consumers which serve various market segments.

Brewery Group Denmark (B2) operates national but is not a market leader. In Europe they have medium marketing intensity with medium geographical coverage. This is reflected through key characterises such as them being medium size organisation operating for a niche market. Consumers are willing to pay a premium price as the beer is regarded as high quality. Promotional offers are not a part of their strategy as the brand name is the main aspect in selling the beer.

PEST

Political

Beer sold in cans is not a general feature throughout Europe, this is due to environmental reasons i.e. beer can not be purchased in Denmark by law
In 1993 France limited advertising of alcoholic drinks, TV was forbidden, radio advertising was restricted to a few hours a day, press advertising was only permitted in magazines for adults and street advertising was forbidden in many areas.
There is little ownership in Europe by non-European brewers. Licensing agreements have been set whereby brewers in one country brew a brand from another country, i.e. Whitbread brews Stella Artois and Heineken under license in the UK, this provides them with an expanded portfolio of brands to compete against

Economical

Overcapacity within the beer industry, this has resulted in it becoming a saturated market
In the Baltic Sates little investment is required as the demand for beer is high.
Duty rates and taxation rates dramatically different across Europe making the production of beer more expensive in one place then another the duty rates have an impact on economies of brewing (raw material, salaries, packaging etc.).

Social

Foreign beer is perceived to be of higher quality. Though in their county of origin it may be perceived as an ordinary beer
More beer is sold through supermarkets in Europe
The German drinkers are more loyal
There are different perceptions of beer through different countries
Consuming a name brand is regarded as more trendy
Purchase of beer in two main ways, off trade or through; pubs cafes, hotel or restaurants to be consumed immediately.

Technological

Advancements in computer packages has lead to efficiency in admin work carried out through computers i.e. distribution data bases
Innovations in packaging designs, bottles which preserve the brilliance of the glass after several uses
Labelling that change colour when the optimal consumption temperature is reached
Automatic processing

PORTER’S 5-FORCES ANALYSIS

Brasseries Kronenbourg Brewery Group Denmark

THREAT OF ENTRY

∙ They have capital that other ∙ Different laws and regulations

companies would not across Europe

∙ Established brand with large ∙ Economies of scale achieved

market share ...

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Technological

Advancements in computer packages has lead to efficiency in admin work carried out through computers i.e. distribution data bases
Innovations in packaging designs, bottles which preserve the brilliance of the glass after several uses
Labelling that change colour when the optimal consumption temperature is reached
Automatic processing

PORTER’S 5-FORCES ANALYSIS

Brasseries Kronenbourg Brewery Group Denmark

THREAT OF ENTRY

∙ They have capital that other ∙ Different laws and regulations

companies would not across Europe

∙ Established brand with large ∙ Economies of scale achieved

market share through mass export production

∙ Long years of customer loyalty ∙ Requirements for breweries &

∙ Low economics of scale due to other overheads not necessary

mass production as the product is exported only

∙ High research and development cost ∙ The need for the right partner-

∙ Different laws and regulations ship is crucial, with the joint

across Europe venture distribution of the product

∙ It sells itself on the aspect of b being a Danish beer - creating a an identity & a point of d d d d difference

BUYER

∙ Trendy to drink bottle beer ∙ Seasonal packing encourage

∙ Tate is not the main feature of purchase

purchasing a product ∙ High risk of buyers not liking

∙ Duty free/booze cruise buying, the taste as it caters for a niche

consumers save money market

∙ Price sensitive, drop or increase price ∙ Traditional brand, may help to

creating a price war. Competitors encourage purchase, perceived

could follow, though it does not mean as a reliable, safe brand

they will gain or loss market share

∙ The taste of the product is

different worldwide

SUPPLIERS

∙ Supplier’s power is low, as they ∙ No bargaining power with

can be anyone due to the number suppliers

of brewers they have worldwide ∙ Always need to maintain good

∙ Low percentage of total cost is relations with suppliers e.g.

raw materials reliability of deliveries

∙ Consistency of ingredients is crucial, due to the important

taste factor

SUBSTITUTES

∙ Own labels becoming popular ∙ Own labels becoming popular

∙ Quality of beer not important ∙ Premium beer

E.g. cooking ∙ Other brands

∙ Cheaper beer

COMPETITIVE RIVALRY

∙ Kronenbourg lacks differentiation ∙ Discounts are not necessary,

∙ Brand loyalty helps to keep people are willing to buy, due

the consumer to the perceived quality of the ∙ Number of key player – new & old product

∙ Competitive market could mean t that maturity of the product

could happen faster then

p perceived

∙ Brand awareness and customer l loyalty always has to be built wwhen entering a new market

∙ High advertising spend is r r r r required, a small brand cicompeting against major

iplayers

RESOURCE AUDIT

Brasseries Kronenbourg Brewery Group Denmark

PHYSICAL RESOURCES

∙ An established brewer, perceive ∙Achievement of economics of ithemselves to be a premium brand scale through the export of beer

∙ Achievement of economics of scale ∙ Traditional Denmark brewery ithrough mass production who cater for a niche market

∙ Breweries located in various countries ∙ Two breweries located either e end of Denmark

HUMAN RESOURCES

∙ HRM have implemented new tech- ∙ Employing staff with specialist

niques, which have resulted in im- knowledge from engineering,

provements in qualities & productivity pharmaceutical, chemical or

∙ Only 3 layers within the hierarchy background

and a bureaucratic ran organisation ∙ Staff are trained at the

∙ Involved in an extensive qualification Scandinavian Brewery High

and apprenticeship programme for School

young people

FINANCIAL RESOURCES

∙ Debts/ equity ratio control the managing ∙ The merge has created an

of the levels of investments increase in financial resources

∙ Shareholders i.e. Carlsberg Uinvest cash flow into the Ucompany

INTANGIBLES

∙ Turned a local brand into a national ∙ Refuse to do discounts on their

brand (San Miguel). Helps to be beer. They know consumer will

established and increase brand come back time after time due

awareness to the strength of the brand

UNIQUE RESOURCES

∙ They own their own suppliers ∙ Exporting strategy, establishing

a joint venture with another

company to distribute the beer

e.g. coffee and beer in the

Caribbean.

∙ The merge has not changed the

products. They work individually but together they form a brand identity

CORE COMPETENCE

All organisations have to do well those things that are important in their line of business and these are known are competences. Core competences are the competences that establish the organisations competitive advantage, unique and special to that company.

Brasseries Kronenbourg core competences:

They hold the world record for low water consumption fro cleaning out bottles as a recycling method. They were concerned for ecological issues also contributing to the companies’ image. E.U laws may also have been an influencing factor though technological development in bottles and packaging has helped this core competence to develop.

Own and provide their-own wholesaler for production. They helps to cut out the supplier process, and gives them a competitive advantage as they have sole rights to those ingredients.

Brewery Group Denmark also has two core competences, which can be identified from the case study to give them competitive advantage.

The forming of a joint partnership in distributing the beer. They look for someone who can complement the beer and not directly compete with them. This process of looking for the right partnership is crucial and generally it does take time, as in the case of Japan. Though, BGD are willing to wait until the right company is found generally at the forefront of their minds when looking is, who has the biggest network system and choosing a company that can provide them inside knowledge. They pride themselves on being a Premium Danish beer that is exported and with the unique way they distributed many companies offer their service’s as they know they will benefit to.

The product (beer) itself is the second of the core competences, as it caters for the niche market. There is no local production of the brand itself outside Denmark. The distinction is that fact that the beer is always the same Danish beer. The importance of suppliers delivering goods on time is important and consistence of ingredients is crucial. 80 out of 100 bottles are imported; therefore taste of the beer is what gives it a point of difference across the world and makes it so popular.

VALUE CHAIN

“This describes the activities within and around the organisation and relates them to an analysis of the competitive strength of the organisation”. (Johnson G. & Scholes K. 1999, P.963)

Figure 2: The Value Chain For Brasseries Kronenbourg

Figure 3: The Value Chain For Brewery Group Denmark

STAKEHOLDER MAPPING

Stakeholder mapping classifies relations to the power thy hold and the extent to which they are likely to show interest in the organisation’s strategies. It identifies the key blockers and facilitators of change.

The following are a group or individuals with an interest within the both Brasseries Kronenbourg and Brewery Group Denmark.

1 – Shareholders 5 – Government 9 – Media

2 – Customers 6 – Partner Companies 10 -Wider Public

3 – Employers 7 – Distributors 11 – Managers

4 – Competition 8 – Suppliers 12 – Creditors (Banks)

The above stakeholders when mapped will be positioned according to their level of interest and power either high or low. There will be similarities and differences between the two, as can be seen in Figure 4 and Figure 5.

SWOT Of Brasseries Kronenbourg

Strengths

Stronger market share due to acquisitions
An established global beer, which is a key player within the beer market
3rd place within the European market
Created the first non-alcoholic beer
Each beer has its own identity, awareness is not through each other it is individual
Innovations in packaging, has lead them to win awards for their prestige bottle for cafes and restaurants
80 per cent of the bottles are made from recycled glass and Kronenbourg has the world record for low water consumption

Weaknesses

From a consumer point of view there is no one global taste, as the taste varies worldwide
Pricing policies have changed between countries as a result of the European single market and the brand is perceived and positioned differently across Europe
Executives at Brasseries Kronenbourg believe that it is too early to make a move into the German market, as it is impossible to find a partner at a national level.

Opportunities

Danone could base a fourth activity on beer. At present the annual report stated that their three main activities are dairy products, mineral water and biscuits, adding beer would be something to consider for the future.

Threats

From 1993 in France restrictions were placed upon press, TV, radio and street advertising hindering the way the beer was marketed.
Cost in transportation logistics and high marketing expenditure limited Kronenbourg reaching high volume and volume sales
Other competitors spending more on advertising to gain market share i.e. Heineken.

SWOT Of Brewery Group Denmark

Strengths

A growing traditional company that caters for a niche market, that has regular consumers
Promotional offers are not necessary, as it is perceived as a high quality beer through the strength of the brand
Seasonal bottles and cans. (Christmas and Easter)
Taste of the product is always the same worldwide. This helps to maintain and build brand awareness
Largest Scandinavian beer exporter 83 out of 100 bottles sold in foreign markets.

Weaknesses

Setting up joint partnership ventures for distribution can take long periods of times. In China this process took 3 years.
Not willing to localise the beer therefore a greater market share can not be achieved
May be perceived as a beer which is only drunk at special occasions and not for daily consumption
Cans not be sold in Denmark

Opportunities

Entering and forming joint venture partnership in distributing the beer which will complement BGD into other countries
Establishing themselves in a country as an imported beer before others do, i.e. Portugal
Chinese beer market presently is growing at 10 – 20% per annum. A future growth opportunity

Threats

Companies with whom they form joint partnership when distributing the beer, could run in financial difficult the question has to be asked where would it leave BGD? Without a distributor for their beer within that country until another company can be found, a lengthy procedure.
Carlsberg are a major shareholder in the company if they were to pull out it could cause financial problems for BGD
E.U laws and regulations placed upon beer packaging, promotional, manufacturing and production of bottles and cans

STRATEGIC ANALYSIS

Brasseries Kronenbourg take the strategy development approach of Fit. Identifying opportunities arising within the environment and adapting resources to take advantage of these. They are an established brand worldwide with seven different types of Kronenbourg beer. At present they have the 3rd largest market share in Europe and they form partnerships to gain competitive advantage. They are an organisation that can enter a country and adapt to fit their brand into the various markets enabling them always to be a key player. Capital resources establishes them with market share more quickly then other competitors. Special offers play a key role in the way they promote themselves.

Brewery Group Denmark, are the opposite their strategy development approach is by stretch. They utilise resources and competences for new opportunities or competitive advantage and innovate using current strengths. They sell themselves upon being a traditional Danish beer that fills a niche in the beer market. They have two brewery plants in Denmark and they export their product out globally from there. It forms a joint venture partnership combining themselves with someone who can complement them in that particular country rather then compete when distributing. There main aim is not about maintaining themselves as a key player against the bigger names they are more concerned about their brand presence. This also means, special offers are not a part of their strategy as the products themselves are perceived as high quality and they are able to sell itself on the brand name. The consumer should think of the beer as something to be chosen for a special occasion and not as a daily standard product. Overall Brewery Group Denmark is able to combing tradition with innovations resulting in them adopting the stretch approach.

Conclusion

The beer market is a saturated market. The growth of both Brasseries Kronenbourg and Brewery Group Denmark can still be achieved, as beer is still beer. People are still willing to buy the product due to the consumption value. There will however be a consistent entry of new player who will enter into the market an uncontrollable factor, which will further effect all existing player within the market. These existing player should therefore develop their core competences and establish themselves as a real threat to new competition and not take a back stage approach otherwise their market share will be decrease.

In terms of the companies analysed for this assignment both Brasseries Kronenbourg and Brewery Group Denmark both have core competences and they should utilise and demonstrate them as an asset in their business strategies to gain direction, maintain and build market share.

At present Brasseries Kronenbourg can be described as a beer, which has no distinguishing features to set it apart from other competitions. The question of why is it so popular could be asked, however it is a brand, which is established and has a large organisation Danone behind. Other contributing factors to its success are awards for innovated packaging designs, and promotional offers help to sell the beer. The brand overall has many key competences. The success of the brand could increase if; they reconsider the taste of the brand globally giving it a unique selling point against other premium brands.

Brewery Group Denmark is a traditional Danish company. They have find a niche in the market. They cater for this group in an excellent mannor considering the size of the Organisation. They have developed a brand, which sells itself, and promotional offers are not relevant in establishing the brand or using it as a pricing policy in any country it enters.

A comparative review of the strategic development of Brasseries Kronenbourg and Brewery Group Denmark