Essay on Brewing Industry

Essay on Brewing Industry Introduction The Western European beer market is one of the oldest, widely dominated by some of the oldest and the world’s largest beer companies. It is however, not unlike many other markets, and equally faces constantly changing economic, political, technological and legal changes etc, which have a critical impact on the individual company’s strategic decision making. This paper presents the PESTEL analysis of the beer industry in Western Europe and provides a detailed five forces analysis of the same. The paper concludes by assessing the implications of this changing environment to some of the largest players in the industry. PESTEL ANALYSIS Political Factors-As against previously where governments refrained active involvement in the industry, which formed an important part of government revenues, governments across the continent have are waging vicious campaigns against alcoholism, binge driving as well as drunken driving, Lawrence Edwards (2000). Anti-drunken driving campaigns have proven particularly effective in driving down beer sales in Western Europe, with the highest effect being on the â€Å"on premises sales†. Economic Western European markets were the highest beer markets in the world, but the recent past has witnessed a dramatic contraction in the beer markets. Concerted government campaigns to help combat excessive alcohol consumption and drink driving among others, have seen the soaring of taxes aimed at the industry, which have effectively led into the rising prices for the industry’s products. This has put the cheapest offerings in market inaccessible to the market. Given the price inelasticity of demand of beer, the beer industry would has fared better compared to other industries on the continent, especially in the face of the global economic crisis that hit the global economy, Lorat (2009). In addition, given the fact that other sectors of the economy were badly hit by the economic turmoil, governments increased revenues drawn from the industry, as compared to other sectors of the economic. Other economic factors in the industry include the rising costs of inputs and production, Ble e Whittington (2010). The costs of packaging materials, raw materials like barley, labor and energy costs have soared in the recent past, not only in Western Europe but also across the developed economies. The potential of increasing prices is on the other hand limited, without the increase in quality, given the sharp competition presented by external premium beer brands. Social Factors-Government campaigns against excessive alcohol consumption have resulted into increased awareness among the populations and markets about the negative effects of beer, which has in turn led to reduced consumptions and sales Changes in societal perceptions about alcohol, have fueled media campaigns with the effects of cutting back on alcohol consumption in Western Europe, Data Monitor Inc.(2011). The cultural aspect of beer and wine, which are taken at meals, social gatherings as well as for ceremonial purposes have however, kept up the demand in Western Europe. Technological Factors- Increased technology in the brewing industry has led to the development of innovative techniques in the maturation, manufacturing and packaging of products, Blee Whittington (2010). This has increased the accuracy in the industry, which effectively increased the quality of the products, prolonged expiry durations and perhaps most crucially, reduced wastages that are associated with the production and distribution. Increased efficiency leads to increased revenues and profitability. Environmental Factors- The expansion the Chinese, Indian and Brazilian economies before and during the crisis, provided market expansion opportunities especially for the premium beer and wine brands, to meet the needs of the growing middle income populations in the emerging economies, Data Monitor Inc.(2011). The growth in markets has only been experienced in the premium beer products, which has triggered the shifts towards increased quality and prices in the industry. Legal factors- Restrictions on drinking ages by governments across the world, coupled by even more strict restrictions on the importation and sale of alcoholic products has effectively reduced beer sales. Increased taxation on the industry has served to increase the prices of the beer products. FIVE FORCES ANALYSIS Competition- The increased competition in the western European market as well as well as abroad, coupled by the emergence of strong premium brand products from abroad have contracted the markets and profitability, Blee Whittington (2010). The competition has forced the disintegration of large breweries, vertical and horizontal integrations. Threats- The emergence of premium beer brands and the contraction of the Western European markets present a particular challenge to the present and future success of the continent’s brewing industry, Lorat (2009). Increased competition would serve to reduce the revenues and profitability of the industry, will increase the potential for failures and takeovers to survive the competition. Product Substitution- Non alcoholic beverages, energy drinks and soft drinks have experienced a growing market, in the wake of government campaigns against drinking, coupled with changing social attitudes towards drinking, Blee Whittington (2010). These products, as well as other premium beer products from outside the Western European markets may substitute the homegrown beer products. Suppliers Bargaining Power- The large costs of packaging materials, as well as other inputs for the industry are sourced from a few, powerful suppliers. These gives them control over the pricing for inputs, and ultimately, on the retail prices of beer. Consumers Bargaining Power- The large variety and product differentiations in the market allow the consumers plenty of choice, and as such sudden changes in the market will lead to changes in the returns for the brewing industry players. Anheuser-Busch InBev (Belgium) It is one of the biggest brands in the Western Europe, with a long standing experience in the production and manufacturing. Efforts to transform itself into the largest beer maker in the region, with mergers and acquisitions as well as process changes will help the company boost efficiency and changes for the company’s products. With scale economies and efficiency will cut prices and boost its competitive in the industry. Its strengths include a strong brand, scale economies, experience, technical capacity and reach in the market, BBC (2010). On the hand, the large sizes presents a weakness in the ability to control the whole country’s operations. Tsingtao (China) It has a wide market reach and the lower manufacturing costs enjoyed by the company, coupled with the lower prices will allow the company to brave the competition, Stewart (2000). In addition, the growth of the Chinese economy presents even greater opportunities for expansion. Its weaknesses include a lack of a clear growth strategy and the contraction a relatively low brand identity. Greene King (United Kingdom) The contraction of the market at home will result into a contraction of its sales and profitability. Its strengths include a long experience, a technical capacity and efficient production which are however, threatened by a relatively low market reach, Schmitt (2011). Conclusion The key markets for the