Global Forces Essay
This case highlights how the European Brewing Industry is striving to grow and gain competitive advantage worldwide. In line to achieve this there have been a lot of innovation, acqiusitions, mergers and of course rebranding of beer products in the Industry. Companies are further trying to reduce operational costs for improved profit. It is therefore imperative that we analyze the global forces in this industry. 1.A PESTEL ANALYSIS
Firstly I noted that there have been strong campaigns by Governments to stop drunken driving. This might affect the consumption levels for the beers. More especially when there are functions such as weddings and parties, because during such functions Drivers are tempted to drink as functions unfolds. Also people may start avoiding taking beer from Pubs and restaurants since they are required to drive home from such places. Political effects are further emanating from the Government campaigns against binge drinking or overindulgence on alcoholic beverages, hence discouraging consumers from pubs or any social clubs. This may act as catalyst in the reduction of business opportunities for the brewing companies. I further noted that Governments regulate on how packaging for beer should be done due to environmental issues. For example Denmark the use of Bottles is instead of cans. Politically some this may affect the profitability of some brewing companies in Europe.
The Government’s regulations to restrict alcohol consumption in terms of drunken driving and excessive consumption have really helped in increased sales of beer in supermarkets. As indicated in the case statistics shows that sales increased to 66% in 2005. The shift to Chain Stores has worked to the advantage of the brewing industry as the use cut-price on beer which, attract people to buy the commodity. This scenario or should I simply economically the brewing companies would survive as they are assured of more sales though this is indirect business. However there have been little growth in consumption of alcohol or in a nutshell a shift in demand to the developing economies such as China and Brazil. This requires that the brewing industry in Europe should move its investments to overseas markets.
Discouragement of binge-drinking affects some people socially as they are denied happiness that comes with alcohol consumption. Furthermore the highly publicized issues of alcohol effects on Health and fitness cause consumption levels to go down. Due to such awareness people chose to socialize without taking any alcohol in some set ups.
I note from the case the due technological advancement has led to the introduction of new products tailored to peoples tastes such as fruit flavored beers and extra cool lagers. In European brewing industry, it is the technology that makes the products attractive as labeling on packages communicates how good the beers on sales may be and also changes to packaging styles is made easy with technology. It is also clear in the case that there have been economies of scale in brewing and distribution of alcoholic beverages as machineries as readily available due to advancement in technology in Europe.
As stated above the Government’s regulations toward environmental protection affect the brewing industry in the European markets either positively or negatively as they have to change packaging to the preferred bottles than cans. The aim is to sustain the environment hence even consumers are always conscious of such laws as they buy beers.
My analysis is that the Brewing Industry in Europe is affected negatively as there are laws to curb binge drinking and drunken driving. I have noted that brewing companies have had low sales a result as people are required to buy their products from chain stores and consume it from homes instead of social clubs or pubs. My conclusion after carrying out the PESTEL analysis is that the Brewing Industry in Europe has potential to grow as there are well established companies that able to merge with other organasations either overseas or locally. Also most brands are well known world over hence able to survive any effects that may impact them negatively due to PESTEL factors.
(ii) FIVE FORCE ANALYSIS
Threat of New Entrants:
The threats of new entrants is low in the European markets due to the following reasons campaigns by governments to curb drunken driving and strong awareness about the effects of alcohol on people’s health makes the business an attractive. It is also a known fact that in areas where there are business leaders who are well established it is difficult for the new entrants to survive as customers switching costs maybe very high. Also the high packaging costs for the product makes it unpredictable as to whether the new entrant will be able to survive. Also the switching cost of customers may be high due to ready established relations and confidence that customers have in some existing brands. Further the upcoming economies such as China or Ukraine makes it very unattractive to establish such a business in Europe as there could less business opportunities.
Threats of Substitutes:
The threat of substitutes is very high. This is because raw materials are readily available such as barely and other fruits, therefore very is for any orgsanisation to come up a product that my act as substitute. Further Water Industry is taking its shape such that they are now supplying bottled water. This acts as substitute to quench someone’s thirsty, considering that there campaigns for health living and people are now avoiding alcohol to keep fit.
Also Laws that govern drunken driving compel customers more especially motorists to take water as a substitute instead of Beers. Moreover due to technological advancement it is very easy to produce substitute products such as Juices that may be appealing to consumers and such is obtaining in the European Markets as these can be consumed in clubs and Pubs. Lastly the move to high consumption of wines in the United Kingdom than usual beers makes it very clear that the threats of substitutes are high.
Supplier’s Bargaining Power:
It is clear that the suppliers bargaining power is high. For example it noted that the Packaging industry is highly concentrated in Europe and is dominated by international organizations, as such there are no substitutes to packaging hence suppliers of such materials are on the advantageous side. In addition suppliers are on good side in Europe due to the fact that production costs in the Brewing Industry are there is need treat the supplier’s well in order to operate effectively and efficiently. This gives supplier high bargaining power.
Buyer’s Bargaining Power:
I can simply say buyers are consumers of the products under discussion. In this context their bargaining power is very. This is because they have a wide choice of such products, this means they able to choose which brand or change at any time. Since there are a lot of substitutes available the switching costs are low hence no impact on them. Further customers would survive whether they consume the product or not. They choose when to buy and when not to, this mean that there is no concentration of buyers. Hence their bargaining power is low.
The competition in this industry in the European Market is high. This is due to the fact that consumption levels have been reducing hence all producers have to sell their products to a reduced number of customers. Furthermore there are a lot of new brands arising from emerging markets such as fruit flavored and other exotic beers from international markets. What make competition much high are the distribution channels. The beers are distributed through supermarkets and it’s up to the brewing companies to do a lot of advertising in order to catch the consumer’s eye while shopping in supermarkets.
In my conclusion I have noticed the Brewing Business in Europe is very ugly for the new entrants. It is therefore incumbent upon the existing companies to take up survival strategies such merging with others or acquisitioning of shares in the emerging markets such as Russia, China and Baltic Countries. They should also endeavor to re-brand themselves and try to enter other international markets such as Africa where customers are easily attracted to beers from overseas and there are less entry barriers.
2.Impact of trends on the four companies
(a)Heineken in Netherlands:
This company is named the biggest in European Beer Industry. However in order to survive the flooded market its target is to go in to international markets and use the local companies that they may acquire to introduce their beer. Transferring of Knowledge and technology is another way it aims to strengthen its new markets. The impact is that this company would grow they take up survival measures in the manner outlined above.
(b)It’s strength :
It holds five percent of sales in Asia-Pacific and 17% in Americas this puts in a good position when it comes to business share in a market where there is high competition. Heineken is better placed in terms of strength has it is the producer of worldly known brands such Heineken and Amstel. Due to family controlled aspect it becomes stable and independent in terms of business growth even in international markets. Economies of scale gives makes it strong considering that brewing is costly in Europe and in a nutshell it is secondary to non in brewing industry in Europe hence claims its strength in these area. Form the case I have deduced that the other strength is that they have a vision or simply where they want to be regardless of the competition industry where they operate from. I also noticed that another strength that Heineken has, is financial capacity to implement new projects as fast as possible as funding is always available for such.
Firstly weakness that, I have picked that they are unable to be innovative due family controlled. This means they may lack new ideas as the family may always influence decision making to suit their investments thus may be compelled to do things in the same manner hence lagging behind. This may result in non existence of new product development in the organization. A high price of Packaging Materials is another weakness at Heineken. They have no control or other sources for such materials this more reason why they complained of 11% price escalation.
(ii)Grolsch (The Netherlands)
(a)The impact if these existing business trends will cause Grolsh to push for mergers with other international organizations as it commands other brands such as US Miller and flavored beers such as grapefruit. It is also clear that it may require channeling much of resources to branding and innovation since that’s its strategy in line to survive. They believe that better looking product will attract a lot of business such green bottles and swing tops. (b) It’s Strength and Weakness
One of its strength is long existence. It is on record that it was established in 1615 hence experienced hence may attract customer royalty as issues of closure may not easily arise. It has further embarked on centralization hence increase in terms of production volume which results in reduced cost. Grolsch also supplies variety of products this is strength as it gives it competitive advantage in the market in which it operates. Furthermore the other strength is its innovation in order to achieve its strategy.
Though its brewery is centralized it is single, thus pose a high risk in that in case of any challenges there can be no production at all. It also lacks financial muscle for example in 2005 when their colleagues Heineken made amassed 11.8 billion British Pounds Grolsch’s income from sales was only 313 Million Pounds hence very easy to fold. (iii)InBEv (Belgium/Brazil)
(a)Impact of these trends:
Even though InBev is the largest brewer in the world with a huge financial power it cannot survive with the existing trends in European markets. How can it survive? For it to stay alive it should strive to acquire other well established companies in the world. Since the world is more global now its strategy should be to built more global brands and increase it efficiency via purchasing and technology. The trends have impacted positively on InBev has it now sets its direction to growth through the above.
(b) InBev’s Strengths
The first strength is that it is the largest in the world; it is ranked either number one or two in about twenty lands. It has a sound financial position hence able to establish businesses anywhere in the world. In addition InBev is already established in emerging markets such as Chine and Brazil though acquisitions. It has well known brands such Beck’s and Stella Artois
Lack of analysis before acquiring other companies, for example it acquired a certain company whose brands were declining in terms sales, such acquisitions may turn out to be loses.
(iv)Scottish and Newcastle (UK)
(a)Impact of trends on the organization:
Due to the business trends Scottish and Newcastle should be able to a lot of acquisitions in the UK being the market in which it operates; this would act as a point of growth. In line to gain competitive advantage the changing trends has pushed this company to invest in the fast growing markets such as Baltic Beverages where it has put fifty percent and China in CBC twenty Percent. (b) Scottish and Newcastle’s Strengths:
It gains its strength by possessing strong brands such as John Smith, Baltika and Fosters. The strength are also drawn from its investments in fast growing economies such as China and Baltic nations, this may result in profitability regardless on competition in Europe. They are also market leaders in France, the United Kingdom and Russia as observed this is a very good strength for Scottish and New castle as competitive advantage is not easily achievable in these areas.
Scottish and Newcastle’s financial position is not adequate for the high completion it is exposed to in this industry.
My conclusion in to this assignment is that the Brewing Industry in the European Markets is highly competitive hence the need for companies to be innovative them to survive. There is also need for bigger companies to adopt strategies of acquisitioning of small ones so that they may expand their brands. Companies in this industry also need to spread their web to other countries if they are to gain competitive advantage.
HUNGER DJ/WHEELER TL (5th ed) (1992) Essentials of Strategic Management Global Forces. Online available from: www.opp.com. [Accessed 13 September 2012] 3H Strategy and international business. Online available from: www.dur.ac.uk. [Accessed 13 September 2012]
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 2 December 2016
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