Managing in the Competitive Environment.

University Degree Business and Administrative studies

Managing in the Competitive Environment

Compulsory Tutor Assessed Assignment

TAA Code: 301MCE

Question 1 ~ Outline the main resources and competences of Brasseries Kronenbourg, identifying the ways in which they contribute to its strategy.

The evaluation of the main resources and competences of Brasseries Kronenbourg, including the beer division Kronenbourg SA, of which it is the main department, would include as a starting point an ‘Resource Audit’ as shown in the table below ~

Resource Audit ~ Brasseries Kronenbourg

Physical ~ Large efficient modern breweries and 60 warehouses, owned or partly owned by Brasseries Kronenbourg
~ The use of physical assets from the beer division

        (Kronenbourg SA) itself through its acquisitions outside France

Human                ~        Good management / union relationship ie signed agreement to
                        organise re-employment of workers made redundant.
                ~        Professional development, Qualifications and apprenticeships.
                ~        Hierarchical levels reduced, resulting in good communications
                        and teamworking.
                ~        Combined sales and marketing departments

Financial        ~         The investment capital for Brasseries Kronenbourg comes from

its parent company ‘Danone’

~ The management of the company’s cash capital is one of its key

success factors. In that it is able to manage high level

investments with tight control of the debt / equity ratio.
~ Working capital improvement, both operating and net profits

have increased over the 1992 to 1994 period, even as sales

have reduced.

Intangible        ~        28 international and local brands ( legally protected )
Assets                        Reputation, not only from Brasseries Kronenbourg but from
                        Danone as a global brand, a symbol of quality.

Intangible        ~        Functional Skills
Resources                ~        Brewing skills, company based in a region with strong
                                brewing tradition

~ Merchandising and advertising skills to address all the market segments according to quality and alcohol levels

The above resources can now be examined by identifying the activities and links between them. The Value Chain in SAA 2 and the description of the linkages in SAA 4 both in Session 4 provide a base for this discussion.

Also the ‘Activity Map’ on page 31 of Session 4 breaks down the resources and competences to give a clear idea of how their relationship contributes towards Brasseries Kronenbourg overall business strategy.

The three strategy headings are listed below with an explanation of how the ‘resources and competences’ contribute to the strategy’s being accomplished.

This is a preview of the whole essay

The three strategy headings are listed below with an explanation of how the ‘resources and competences’ contribute to the strategy’s being accomplished.

Efficient Operations

The top management at Brasseries Kronenbourg view their business as a ‘ heavy industry ‘ with a current overcapacity of approx. 30 %, therefore ‘efficient operations’ is a key strategy.

To satisfy this, high investments in industrial plant and equipment have taken place in order to modernise production sites, improving productivity through automation. The advances in process automation and good management in economics of scale have reduced costs not only through better production techniques, but with reductions in staff levels.

Sufficient investment has also been placed in personnel training, from apprenticeship programmes to professional development and qualifications. The Human Resource Management activities also includes the participation of the personnel in the profits of the firm.

With combining varies functions on the merger of Kronenburg and Kanterbrau, a larger pool of expertise were available to strength operations. The re-structuring also reduced the number of hierarchical levels, as was common in the parent groups structure resulting in, avoiding complicated procedures and free circulation of information, cashflow and people.

All of the above aspects results in efficient operations throughout the Brasseries Kronenbourg Value Chain. The successful implication of this strategy has also assisted in the overall strategies, centralised to the parent group Danone. For example efficient operations have resulted in a world record for low water consumption which ‘strengths the corporate image’ of Danone on the concern for this ecological issue.

Brand Management

With such a broad competitive market, another company strategy is to develop several brands, to address all the market segments according to quality and alcohol levels. Brasseries Kronenbourg achieves this by good ‘brand management’ and having specific tailor made approaches to the distinct distribution channels, these being ‘cafes and restaurants’ and ‘food retailing’.

The ‘Pluton’ merchandising system provides a linkage between Brasseries Kronenbourg Value Chain and the Retailers Value Chain, by improving the presentation of the beers and adapting it to each retail chain, each region and each season. The development of this new packaging is made possible, due to working in conjunction with another division of Danone, this being an example of linkage with the value chain of another business within the group.

Within the French market Kronenbourg dominates the mass market segment, with brands such as Kronenbourg and Kronenbourg 1664, on top of which it even produces 600,000 hectolitres under a private label for a major retail chain. Although on the international level these brands are not as well founded as Heineken, Kronenbourg Brasseries have established a beer in the non alcoholic sector ‘Tourtel’. The company’s innovation has also tried to make the French market more interesting by developing new beers such as Tourtel 100% Pure, German, British and Christmas Kronenbourg ranges.

Although in the increasing sector of special beers with their high alcohol levels, Kronenbourg Brasseries have only addressed this issue by selling beers from their Belgian sister company in the Beer Division ‘Alken-Maes’ and importing stouts from Guinness.

The continuing developed and innovation for their products has resulted in the company winning awards for their glass bottles and temperature sensitive labels. These along with sponsorship deals and recycling issues have strengthened the Kronenbourg brand name and the overall corporate image.

Internationalisation Management

With only the upmarket beers covering the export costs of their distribution and marketing, the sales volume required to create a significant foreign market position could not be achieved. To solve this problem Brasseries Kronenbourg developed a broad strategy to combine their international brands with strong local brands in each of the foreign markets, through partnerships and acquisitions.

Brasseries Kronenbourg would signal a potential partnership to the beer division working on s selection criteria. The commercial value would then be analysised by Danone, who would finance the deal. The Beer Division would ensure that any skills in marketing, production or research and development would be available in the restructuring of the new acquisition to meet the integration into the overall Danone network. The result for Brasseries Kronenbourg would be market control of their products produced by their new local partnerships.

Question 2 ~ Identify the sources of competitive advantage that Brasseries Kronenbourg seeks to exploit.

Competitive advantage is defined as a firm’s ability to generate higher profits than rival firms in the same industry. There are two broadly defined strategies to generate competitive advantage: creating cost advantages ( reducing the cost of supplying products or services ), which Brasseries Kronenbourg does by ‘efficient operations’ and creating benefit advantages ( increasing the value of products or services to customers ), which Brasseries Kronbourg tries to achieve through ‘Brand Management’. The sources of these competitive advantages have been discussed in detail, in the SAA 4 in Session 4.

The table below is a duplication of SAA 4, Session 4.

Bases of Advantage at Brasseries Kronenbourg

Economies of Scale ~ the concentration on large, efficient breweries and the development of new

distribution systems point to economies of scale in these areas. However,

their facilities are unlikely to be significantly different to those possessed

by their major competitors.

Economies of Scope ~ the best example is the way in which the company produces and distributes

a range of brands using the same facilities. Again, the question is the

extent to which these bases will provide an advantage over the main

competitors.

Experience effects ~ it is difficult to identify particular experience effects where Brasseries

Kronenbourg would have an advantage over other major competitors.

Overall, bases of lower cost may confer some advantage to Brasseries Kronenbourg with local, regional or national competitors, but their position vis-à-vis the other pan-European brewers like Heineken and Carlsberg is probably a one of parity, at best.

Value added – the main source of advantage here rests upon the quality of the brand family and the activities taken to support and develop it. The extent of the brand family, with 28 brands from the Kronenbourg/Kanterbrau stable, including the 1664 and Tourtel international brands, along with local brands from its foreign partners is a possible strength. The ability to develop new products to meet the needs of new segments points to an understanding of customer needs. Image is also seen as a key factor, so the quality of the packaging ( where awards and the temperature-sensitive 1664 label are examples of competences ), advertising and sponsorship activities in this area involve channel development , such as increasing its strength of presence with retailers by using Pluton, as well as focusing on the drinker.

The majority of the above text however only focuses, on the aspects of ‘Brand Management’ and ‘Efficient Operations’. Leaving the strategy of ‘Internationalisation’ only achieved by competitive advantage points such as, the cost reduction of producing international brands in the local markets they are to be sold.

The main competitive advantage behind Brassieries Kronenbourg successful ‘Internationalisation’ is the link it has to the company’s parent, Danone Group. Without Danone’s finance and restructuring management skills the strategy of international expansion through acquisition and partnerships would not be possible.

This link also provides a possible ‘Sustainable Competitive Advantage’ in that one of Danone overall strategies is to become a global leader or number two in each area of business. Brasseries Kronenbourg could exploit this in dealing with any strategic turning points which may approach the company. For example ~

Change in competition.
Change of customer structure.
Change of supplier structure. ie reducing qty of wholesales
Change in supply of the products ie packaging

Brasseries Kronenbourg can call upon the skills and knowledge of other group companies to assist in the management of any of the above future changes in their industry.

Question 3 ~ Evaluate the extent to which Brasseries Kronenbourg strategy meets the challenges of the competitive environment within the European brewing industry.

In current times the business environment as a whole is increasingly volatile, with the brewing industry not being an exception to this rule. To confront these challenges, the analysis of the external environment has become important when deciding upon and implementing an organisations strategies. PEST ( Political; Economic; Social; Technological ) analysis provides a systematic technique for analysing the general business environment of an industry. In SAA1 Session 3 this has been carried out on the ‘European Brewing Industry’, in addition to this data Brasseries Kronenbourg have also addressed the following issue ~

Political

Since the Loi Evin forbade advertising of alcoholic drinks in most places, Kronenbourg has increased potential viewing status in cafes where advertising alcoholic drinks is allowed. Plus the sponsorship of football teams bearing the name of their non-alcoholic drinks.

A more pressing concern for an organisation is the immediate competitive environment to which it faces, to analysis this area one can use the framework model put forward by Michael Porter. This states there are five forces, which affect competition in an industry, SAA2 in session 3 shows the break down of these factors relevant to the brewing industry. Brasseries Kronenbourg strategies address three of the strongest forces in the following ways ~

Power of Customers

Retailers- supermarkets have growing power as their importance as a distribution channel increases.

Packaging tailored to individual supermarkets, plus the production of beer

under a private label for a large supermarket channel. Both possible due to

good brand management and efficient operations.

Customer loyalty to local brews, though growth of international brands is changing this effect.

Through acquisitions and partnerships with local brews in the various markets across Europe, Brassereis Kronenbourg strategy of Internationalisation has not only acquired this customer loyalty but complimented it with the option of their international brands i.e. Kronenbourg 1664.

Existing Rivalry

Demand for brewed products is static/declining in most countries, with evidence of excess capacity emerging in markets like the UK.

Through innovation Brasseries Kronenbourg has a large selection of beers in both taste and alcohol level to suit most peoples requirements, by doing so their strategies meet the changes of customer needs.

Buyer Powder

High concentration of wholesalers

Subsidiary company of 60 warehouses, plus a reciprocal distribution agreement with a competitor, to complement their coverage of the French market.

In conclusion Brasseries Kronenbourg strategies run simultaneously to meet the challenges of the competitive environment they do business in, they also provide possible options to the problems their industry may face in the future.