Global forces and the European Brewing industry –Case 1 Table of Contents Introduction……………………………………………………………2 PESTEL………………………………………………………………. 2 Porter’s Five Forces………………………………………………….. 4 Strengths & weakness of Companies……………………………….. 5 Impact of Trends on the Companies……………………………….. 7 Bibliography……………………………………………………………8. Introduction This case shows how global forces have impact on European brewing industry and how these companies are trying to overcome the obstacles.
In spite of restrictions and awareness campaigning runed by the government, these companies are trying to grow through acquisitions, alliances and closures within the industry. Companies are concentrating on expanding their existence into other markets. Some other companies are concentrating on innovation, branding. Moreover they are fighting on cost cutting such costs include packaging costs which will reduce the cost of overall manufacturing. PESTEL Political factors: * Government organising public events in order to make public aware about the effects of alcohol consumption on the health. Government is imposing restrictions on consumption of beer and alcohol products. * If anyone is influenced by alcohol in doing crime they are fined with high penalty. (The European Brewing Industry, 1999) Economic factors: * The government restrictions have lead to increase in sales of alcohol in supermarket. * Government campaigning and restriction on drinking resulted in decrease in the sale of alcohol product consumption in clubs and pubs. * Companies are trying to achieve economic of scale through cost reduction. Brewing companies are engaged in various marketing strategy to grow their market through acquisition, mergers and introducing premium products. * Super markets are offering cut price offers. * Heineken is facing problem in packaging cost (The European Brewing Industry, 1999). Socio culture factors: * Consumers are becoming more health conscious. * Growing unfriendly or aggressive behaviour towards binge drinkers. * People have started drinking wines in North European market. * Drinking in the pubs and clubs has been reduced. (Demographics of Europe) Technological factors: Companies are transferring expertise and technology to achieve economic of scale, efficiency and cost reduction. * Centralization of production is done to increase efficiency and volume. * Trial breweries are established to enhance innovation. * Support from media and IT are taken. (European Brewing Industry, 1999). Environmental factor: * European brewers market in Germany and United Kingdom is decreasing and growing around the world with 7% annual growth in China. * German retailer’s sales are increasing from local private brands rather than brewery-branded. Merger and acquisition are carried on by the companies to overcome competition and to have better control over growth. * Shift in sales from on-trade to off-trade. (Europa, 2010). Legal Factors: * In the European countries, the advertisements which are related to Alcohol consumption in large volume are forced to apply certain laws by Government. * The laws in European countries are strictly against Drinking and Driving, under age drinking and Domestic violence consuming alcohol has compelled many customers to reduce the consumption of drinking. (Institute of Alcohol Studies, 2009).
Porter’s Five Force Analysis After doing the environment (Europe) analysis of brewing industry using PESTEL, now we study the entire brewing industry internally, using porters five force analysis. FORCE1: Threat from Substitute Product Three important components of brewage industry are Distillers, Wineries and Beer Manufacturers. Due to socio-cultural changes, the European consumers turned health conscious and were looking for substitutes like wine, fruit flavored exotic beers which resulted in unstable market of traditional beer in European brewing industry.
FORCE2: Bargaining power of Suppliers The important supplier for the brewing industry is packing industry for raw material procurement like barely and bottling. The European packaging industry is concentrated by international players like CROWN (for tins) and OWENS-ILLIENOIS (for bottling). Since being highly dependent on concentrated suppliers, the bargaining of these suppliers will be very high in the future. To reduce this high bargaining power of these suppliers, the brewing companies should achieve central coordination with their suppliers using information Technology and Media.
FORCE3: Bargaining power of Customers or Buyers The availability of substitutes, health consciousness and off-trade supply of beer, the bargaining power of customer became very high. One fifth of the sales of beer were through off-trade, more options were available for the customers in the form of exotic flavored beer, wines. The government promotion against drinking alcohol also badly affected the brewing industry which resulted in heavy competition between the brewers benefiting the customers. Therefore due to these reasons, the bargaining power of the customers is very high.
FORCE 4: Threat of the entry of new Competitors The threat of new entry into European Brewery industry is very less. Because it is almost a saturated market which is in mature stage of industry life cycle. If a new company will enter into the industry its investment should be highly capital intensive and it is a specific product where innovation is very hard. The level of competition is very high therefore it will not sustain for a long time in market. Therefore it is very hard for a new entry to come in to European brewing industry.
FORCE 5: Intensity of competitive rivalry The European market is highly competitive because of low product differentiation, lack of product innovation, high entry and exit barriers resulting in acquisition and strategic alliances of the existing players to attain the market share. The industry is in growth stage of industry life cycle which means the market is saturated therefore there is a high intensive competition in the market. HEINEKEN: Strengths: * It has the biggest market share in European brewery business with a sale of €11. 8bn. The company has more stability and independence to grow steadily as it is family controlled business. * Enters new market through acquiring locally established companies. * Use experts and new technologies. Weakness: * Lacking experts in top level as whole business is controlled by family members who may not have in-depth knowledge. GROLSCH Strengths: * It has huge export business, where half of its sale comes from overseas. * Innovation and branding are core strategy. * Centralization of production helps to improve efficiency and volume. * Manufacturer of flavoured beers.
Weakness: * Lack of proper marketing strategy in local market. * Sales of company are much lesser than other competitors like Heineken. INBEV: Strengths: * Largest brewer in the world. * It is second largest brewer in China, which have 7% annual growth in beer consumption. * They follow the principal of central coordination purchase which help to achieve more efficiency. * Got well known international like Beck’s and Stella Artois which helps in marketing. Weakness: * Lack of innovation. * Lack of product differentiation. They don’t have anything different from ther brewers being the market leader. Scottish and Newcastle: Strength: * It is market leader in UK, France and Russia. * Forth largest brewer in Europe in terms of volume. * They take risk by investing in new places like Ukraine and Baltic countries. * Emphasises on development of innovative and premium beers. Weakness: * They are closing their inefficient breweries instead of finding solution to the problem, so they lack proper coordination. * Loosing market share by closing the breweries. Impact of Trends on the Companies Heineken (Netherlands): Due to the restriction on the alcoholic products in Europe, so it is obvious that there would be negative impact on Heineken Company as it is a Europe based company. * This company always transferring their effective expertise and latest technology to their targeting countries to promote their domestic players. * It is shown in the case that there is decreasement in beer consumption across Europe, so they are looking for the new places and searching for opportunities. Grolsch (Netherlands) This company is having the authority from the government to sell the appreciated Americas miller brand in this country.
As it is shown in the case that more than half of the sale came overseas, so there was no greater impact of restrictions and awareness on this company. The production of this company is like as a enhancing competence in trend. InBev (Belgium/Brazil) * There was no great effect on this company of restrictions, because it is a leading company global wise. * It is not a European company, so it is another reason for little impact. * They are keeping their strategy by acquisitions. Scottish and Newcastle (UK) * This company is a largest company in UK. Masses of United Kingdom showed great resistance to binge drinking which is not good for the company. * This company is keeping busy itself by throughout the world. * This company is focusing to invent the new products and always eliminate the uneconomical ones. Bibliography Ageing Population and Lifestyle Changes Drive Demand for Orthopaedic Biomaterials in Europe. (n. d. ). Retrieved March 9, 2010, from http://www. prnewswire. co. uk/cgi/news/release? id=174134 Demographics of Europe. (n. d. ). Retrieved March 9, 2010, from Absolute Astronomy: http://www. absoluteastronomy. om/topics/Demographics_of_Europe Europa. (2010, February 17). Retrieved March 10, 2010, from European Union website: http://europa. eu/pol/env/index_en. htm EUROPA. (2010, february 17). Retrieved march 10, 2010, from European union website: http://europa. eu/pol/rights/index_en. htm EUROPA. (2010, february 17). Retrieved march 10, 2010, from European Union website: http://europa. eu/pol/health/index_en. htm EUROPA. (2010, february 17). Retrieved march 10, 2010, from European Union website: http://europa. eu/legislation_summaries/employment_and_social_policy/index_en. htm European Brewing Industry. 1999). Retrieved March 9, 2010, from www. The20European20Brewing20Industry,20Theses_26_Dissertations,20College%20Term20Papers. com Institute of Alcohol Studies. (2009). Alcohol in Europe A Public Health Perspective. Retrieved March 10, 2010, from Institute of Alcohol Studies: http://www. ias. org. uk/resources/publications/theglobe/globe200602/gl200602_p3. html#Anchor-Evaluating-3800 The European Brewing Industry. (1999). Retrieved from College Term Papers Web Site: http://www. collegetermpapers. com/TermPapers/Theses_&_Dissertations/The_European_Brewing_Industry. shtml