In the craft beer industry, as in many others, there are strategically essential components of the macro environment. These valuable components include the degree of increase in total beer consumption, the growth rate of beer exports to various countries, and shifts in the propensity to drink. It is also important to note the importance of such indicators as expanded business management and its dissemination of the potential increase in business costs due to the establishment of the labor law. The broader use of Internet technologies and their implementation, demonstrating an increase in the free access of buyers, also have a significant role.
Competition in the craft beer industry is relatively high due to its increased popularity. This is because an increasing number of craft breweries have begun to introduce more business transactions into their practice (Garavaglia & Swinnen, 2017). The bargaining power and leverage of buyers and rivalry between sellers have the most potent force, and the competitive pressure from makers of substitute products is the weakest. Craft beer producers and customer demand have the most significant impact on the attractiveness of the industry and its potential profitability.
The strategic map of the craft beer industry may be such that bottling plants have limited distribution. Global producers mostly have international distribution and a low or insignificant role in pricing. Moreover, I believe that this strategic group has the greatest advantage. Regional producers are located everywhere while offering prices within a small or high assortment.
Key factors that may determine the success of a start-up craft brewery are access to and mitigation of distribution issues, brand image and ‘craft beer’ niche, implementation of social media for marketing, and sufficient sales volume to achieve scale economies in marketing expenditures.
The first recommendation for a small craft business is a thorough development of a strategy. Risk management is a crucial aspect to avoid future problems. Also of value is a marketing strategy using information technology, since the Internet is used by most of the population and is an effective tool for advertising.
Despite significant technological improvements, the craft beer industry may face serious obstacles. Firstly, it can harm nature and excessive energy consumption and emissions of waste and by-products. These environmental problems can seriously slow down business. Competition is also of great importance with other craft beer producers and beer beverage producers in general.
Reference
Garavaglia, C., & Swinnen, J. (2017). Economic perspectives on craft beer: A revolution in the global beer industry. Springer.
The company has an international outlook in its operations owing to involvement of the Germans in its inception (Arson & Gray 2011).
The company has a significant market share in China.
The company has strong financial health that will make it easy to raise the capital for the expansion to Thailand (Bryman & Bell 2011).
Weaknesses
The company has never done any production outside China. It lacks international experience.
The company may have to pay heavy import duties if it does not manage to source all raw materials in Thailand.
The company does not have any business relations in Thailand. This will increase the cost of establishing the company (Dalic 2007).
Opportunities
The beer market in Thailand has several international brands such as Carlsberg this shows that the market welcomes foreign beer brands.
Thailand is generally a tolerant society, there should be no cultural backlash against the company (Kerzner 2010).
Production in Thailand is better that importing ready made beer in Thailand because of heavy import duties on imported beer.
Threats
The company will be in direct competition with establishes beer manufacturers and brands in Thailand such as the Boon Rawd Brewery, makers of Singha beer.
The company will be competing with other international brands that have established themselves in Thailand.
The company risks making huge losses in Thailand if its market entry strategy flops because of the size of the investment it plans to make.
The Beer market in Thailand is already very saturated, creating brand space will be challenging (Kerzner 2009).
Scope Statement
Project Justification
Tsingtao Beer has an international appeal.
Tsingtao Beer Co Ltd has the financial muscle to finance the expansion to Thailand.
Thailand has the raw material needed to produce the Beer locally. Therefore the beer will not attract high import duty compared to exporting the brand to Thailand.
The Beer will enjoy access to markets that have trade agreements with Thailand.
Scope
The project will include the following elements:
The establishment of a brewery in Thailand.
The identification of sources of raw material and the securing of supply contracts with all the potential suppliers.
The development of a marketing strategy for market entry.
The securing of licenses, trade permits and all regulatory approvals for beer brewing and marketing in Thailand.
Deliverables
A fully functional beer brewery in Bangkok.
Service and maintenance contracts with suppliers.
Product supply contracts with rice farmers.
Marketing Strategy.
Licenses, Permits and regulatory approvals necessary for brewing operations in Thailand.
Project Exclusions
The Project will not include the following:
Marketing activities of the brand within Thailand (The project will only develop the marketing strategy, but will not implement it).
Land acquisition and servicing (The company will only start this project after leasing a site. This role will be managed independently of the project).
Construction of access roads (Thai authorities will be expected to handle this aspect as an FDI incentive).
Constraints and Assumptions
The constraints facing this project are:
The project has a fixed budget.
The brewery must be operational before December 2013.
The assumptions made in this project are:
The company will not experience lengthy delays in getting approvals from Thai authorities such as construction permits, business permits and other licenses.
The company will find all the raw materials it needs for beer production in Thailand.
Work Break Down Structure
Brewery Construction:
This portion of the project will deal with the design, construction and commissioning of the brewery.
Marketing Strategy development:
The marketing strategy will address the branding, market entry, and market sustainability.
Business Processes Contracts:
This portion will address all supply side contracts, distribution contracts, licensing, and regulatory approvals.
Work Break Down Structure. Brewery ConstructionWork Break Down Structure. Marketing Strategy DevelopmentWork Break Down Structure. Business Process Contracts
Stakeholders
Stakeholders Identification:
Tsingtao Beer Company Shareholders.
The Chinese Government.
The Thai Government.
The Bangkok Local Authority.
Beer Customers in Thailand.
Stakeholders. Stakeholders Interest Power MatrixStakeholders. Stakeholders Management Plan
Network Diagram
The network diagram below shows the critical path of the project.
Brewery Construction (Critical Path)
(1) Start
(2) Architectural Planning
(3) Land Survey
(4) Obtaining of Construction Permits and Regulatory Approvals
(5) Retaining Contractors
(6) Construction Phase
(7) Handover of Construction Project to the Company
(23) Finish
Marketing Strategy Development
(1) Start
(10) Marketing Research
(11) Market Analysis
(12) Market Segmentation
(13) Branding Decisions
(14) Development of Marketing Objectives
(15) Action Plan
(23) End
Business Process Contracts
(1) Start
(17) Identifications of Rice Suppliers
(18) Identification of Product Distributors
(19) Obtaining Trade Licenses from Government
(20) Obtaining Permits from Alcohol Regulators
(21) Environmental Assessment
(22) Identification of Service Contractors
(23) End
References
Arson, EW & Gray, CF 2011, Project Management: The Managerial Process, McGraw Hill International, New York, NY.
Bryman, A & Bell, E 2011, Business Research Methods, 3rd edn, Oxford University Press, Oxford.
Dalic, T 2007, Globalisation of Marketing Strategies in Light of Segmentation and Cultural Diversity, GRIN Verlag, Norderstedt.
Kerzner, H 2009, Project Management: A Systems Approach to Planning, Scheduling and Controlling, 10th edn, John Wiley and Sons, Hoboken, NJ.
Kerzner, H 2010, Project Management: Best Practices – Achieving Global Excellence (2nd Edition), Wiley, Hoboken, NJ.
Project Management Institute 2003, A Guide To The Project Management Body Of Knowledge, Project Management Institute, San Diego.
Group Modelo S.A de C.V (Modelo) established in 1922 within the Mexican brewing industry. In its operation, the firm’s initial brand was known as Modelo1. After some time, the firm introduced another brand known as Corona Extra.
Over the years, Corona Extra managed to attain a significant market share. For example, the brand was ranked as the 4th best selling brands with regard to volume. In its Mexican domestic market, the firm was facing intense competition from other firms such as Heineken. During the 1930s, the firm experienced a challenge arising from the Great Depression. However, the firm’s financial stability was restored by 1935 through an acquisition of Toluca Mexico Brewery1. Additionally; there was a significant growth during this period within the Mexican brewing industry. This was characterized by an increment in the level of production and distribution.
In an effort to survive into the long term as a going concern entity, the firm’s management team came into a consensus to venture into the international market. Decision to incorporate the concept of internationalization was motivated by an increment in demand within the international market. In its initial internationalization phase, the firm decided to introduce Corona Beer into the international market starting with the US. This paper is aimed at evaluating the performance of Corona Beer in the international market.
Identification of issues
Competition within the market
For a considerable duration, the beer industry in Mexico was protected. This limited the intensity of competition from foreign firms. In an effort to stimulate economic growth, Mexico joined NAFTA by entering into a trade agreement. This meant that foreign firms could enter into the Mexican market. The resultant effect is that the local firms experienced an increment in the intensity of competition. For example, some of the firms which posed a threat to Group Model include the American and Canadian firms which ventured into the local market.
Market entry strategy
There are diverse strategies that a firm can use in entering the international market2. Some of these strategies include use of agents, exporting and foreign direct investment. The case presents an illustration of the strategy used by Modelo Group in venturing the international market. In its effort to venture into the international market by introducing Corona Beer, the firm’s identified the US as its target market3. Modelo decided to use US agents to distribute Corona Beer in the US market. The firm contracted Amalgamated Distillery Products Incorporation as its agent. Group Modelo also entered into distribution contracts with other local firms which operated within the international market. This played a vital role in the firm’s internationalization efforts.
The quality of product determines the effectiveness with which it penetrates the international market. This is due to the fact that it contributes towards the product attaining an optimal market position4. In venturing the American market, the firm also used Barton Beers Limited as its distributor. Use of foreign agents in the international market increases the effectiveness with which a firm enters the international market.
This arises from the fact that foreign agents are more conversant with international market. Barton Beers was more efficient in marketing premium beers within the US. The firm also contracted Gambrinus Incorporation as its distributor in the US. Group Modelo gave the distributors the right to undertake all marketing activities. This led into development of a strong relationship between Group Modelo and its distributors.
Marketing strategy
In its operation, Modelo was very efficient. For example, Corona Beer was packaged in a clear and unique bottle. This played a critical role in distinguishing Corona Beer from other competing products. Corona Beer experienced a significant growth especially in the southern states. As a result of effective marketing, Corona Beer experienced a significant growth in the US especially during the period ranging between 1980 and 1988 due to increased importation f the beer. However, the growth in the size of market for Corona Beer slowed down as a result of increased exercise taxation by the government. Corona Beer’s market share declined with a margin of 15%.
In an effort to improve the situation, the firm absorbed the exercise tax rather than passing it over to the consumers through an increment in the price. The result was that the product’s growth trend was restored. Within a period of 12 years, Modelo became established within the US beer industry. The firm also introduced new products into the international market in addition to Corona Beer. Some of these products include Corona Light, Pacifico Clara, Modelo Especial and Negra Modelo. However, the firm ensured that its products were of high quality.
Group Modelo also adopted an effective marketing campaign to promote the brand. For example, the firm used the slogan ‘fun in the sun’ and ‘miles away from ordinary’ in its advertising campaigns. These slogans elicited a unique experience amongst the consumers upon consumption of the brand. Due to adoption of an effective marketing strategy, Group Modelo was able to increase its customer bas. For example, the firm attracted the non-beer-drinking population such as women to start consuming beer. Their preference was Corona Beer.
Acquisition of firms
The case illustrates the strategies used by firms within the industry in an effort to position themselves within the market. As a result of the intense competition within the industry, firms in the brewing industry increasingly considered the concept of acquisition. Acquisition is one of the strategies that firms can incorporate in an effort to increase its market share. Prior to venturing the international market, the firm was committed at establishing a strong market share within its domestic market.
Additionally, the firm was also committed at enhancing its financial stability after the adverse effects of the 1930 Great Depression. In order to achieve, this, the firm’s management team decided to incorporate the concept of acquisition. In 1935, the firm acquired a local firm known as the Toluca y Mexico Brewery. The acquisition contributed towards the firm increasing its production hence attaining a strong growth.
Consolidation strategy
Other firms also adopted the consolidation strategy. The resultant effect is that the industry became characterized with a small number of global players. For example, in March 2004 Belgium’s 3rd largest brewing firm merged with Brazil’s 5th largest firm. This led into emergence of the world’s largest brewing firm.
Analysis of issues
Effect of competition
One of Group Modelo’s core competitors is FEMSA5. Currently, FEMSA holds the 2nd largest market share within the Mexican beer industry. FEMSA has established an effective distribution channel within Mexico compared to Group Modelo. FEMSA has managed to establish an efficient distribution channel by contracting Oxxo which has the most efficient distribution channel in North and Central America. For example, Oxxo has established a large network of convenient stores.
The increment in the intensity of competition within the Mexican beer industry posed a challenge to Group Modelo. This arises from the fact that increase in intensity of competition reduces the profitability of a particular market segment. Through establishment of an effective distribution, FEMSA acquired a significant proportion of Group Modelo’s market share in Mexico. In an effort to compete with Group Modelo’s Corona Beer within the US market, FEMSA entered into an alliance with Heineken which is one of the most popular brands in the market6.The objective of the alliance was to dethrone Corona Beer. However, the popularity of Group Modelo’s Corona Beer in the international market compared to FEMSA brands made the alliance to be unsuccessful.
Volatility of the Mexican economy
In addition, to the intense competition Group Modelo’s profitability potential was also threatened by the volatility within the Mexican economy. For example, the Mexican Peso underwent a significant devaluation in 1995.
This made exporting of Corona Beer into its international market more expensive. The resultant effect is that the firm experienced a significant reduction in its sales. Incorporation of the concept of internationalization made Group Modelo to be adversely affected by the devaluation of the Mexican Peso. On the other hand, FEMSA was not susceptible to the economic conditions as a result of currency devaluation. This is due to the fact that it concentrated on its Mexican market which meant that it was not required to exchange its profit for the local currency.
Financial analysis
During the period ranging between 2004 and 2005, Group Modelo experienced a significant growth in its financial performance. The firm experienced an increment in its sales. The increment in the foreign market was relatively high compared to the increment in the domestic market. For example, in the domestic market, the firm’s market increased with a margin of 4% while sales in the export market increased with a margin of 12.3%.
The total market increased with a margin of 6.4%. Group Modelo’s net sales increased from 46, 307 million dollars in 2004 to 49,551 million dollars in 2005. This represents a growth in sales with a margin of 7%. The firms’ gross profit also increased with a margin of 2.7% from 26,082 million dollars to 26,776 million dollars. Net income also grew with a margin of 14.1% during the same period from 6,389 million dollars to 7,291 million dollars.
Conclusion
The case illustrates how Group Modelo successfully ventured into the international brewing market. The effectiveness with which the firm managed to venture into the international market is evaluated by illustrating the strategies that the firm used. The strategies evaluated relate to market entry strategy and marketing strategies. Additionally, the case also illustrates the challenges that Group Modelo faced both in the domestic and the international market.
Recommendation
In order to be successful in the international market, Group Modelo should consider the following.
The firm should conduct a competitor market research so as to develop an understanding of its competitors. This will aid in the formulation of effective competitive strategies.
Group Modelo should also consider integration of Foreign Direct Investment as a market entry strategy.
The firm should continuously analyze effectiveness of its marketing strategies such as its advertising strategy. This will aid the firm in improving its marketing efficiency.
Prior to undertaking an acquisition, the firm should ensure that the target firm will contribute towards attainment of the intended synergy.
In order to improve its distribution effectiveness in the international and domestic market, Group Modelo should consider entering into contract with well established distributors.
Works Cited
Keillor, Bruce and Wilkinson, Timothy. New world marketing. Westport, Conn: Praeger, 2007. Print.
ProBrewer.com. Mexico; distrust in light beers. 2004. Web.
Som, Ashok. Corona Beer; from a local Mexican player to a global brand. New York: ESSEC Business School. 2008. Print.
The Boston Beer Company and its brand Samuel Adams were started only in 1985 by James Koch a fifth-generation brewer from Boston. James did not initially take up the mantle of running the family craft beer business and took a business degree to take up a career. But he had a vision for the future of the business, not as a family-run unit, but as a corporate entity. He started off making craft beer from a recipe invented by his ancestor in the 1850s. The beer was an instant hit among Americans used to mass-produced beer due to its taste and quality. The company steadily grew and is now the largest manufacturer of craft beer and the sixth-largest manufacturer of beer (in general) in the United States. The main difference from other major beer companies in the country is that the focus remains on craft beer. It is often said that the company is largely responsible for changing the beer preference among aficionados in the country. The company’s mission statement can be gathered from the founder’s own words which are given below. “Our company, like our beers, is the result of a combination of history, tradition, human chemistry, creativity, and wonder.” (A Message From Jim Koch, Our Founder: Company culture, 2008). The name Samuel Adams was that of a firebrand and revolutionary thinker and freedom fighter from Boston. Samuel Adams was also a brewer by profession. The company’s simple philosophy can be seen from the words “America’s best beer” displayed prominently on the company website and in other prominent places.
Industry analysis
Industry analysis is mainly done to understand the basic foundation of competition and the main causes of profitability Boston Beer Company is occupied in the business of producing and selling low alcohol beverages, mainly for the domestic market and also in some selected international markets. They are placing high quality and higher-priced products in the market and stand third among the major beer producers of the USA, especially in the better beer category. The company earns its profit by selling the products to its distributors, which in turn will sell it to the wholesalers and retailers.. There are mainly five forces that must be taken into consideration for the industrial analysis. The main forces include the bargaining power of the buyers, the rivalry among the existing competitors, the threat of new entrants, threat of substitutes and bargaining power of the suppliers. Bargaining power of customers are very high since there are a lot of players in the market segment is which the company operates. Its buyers are the shops, the retail chains, the pubs, outlets in sports centers etc. although the ultimate customer is the individual beer drinker. Its main rivals are Anheuser-Busch, Inc., SAB Miller PLC, and Molson-Coors. Apart from this the craft beer market has about 1400 players. There are no barriers to entry in the market since there is no real restriction on alcoholic beverages. There are laws which prevent companies in marketing the product to minors. But that is applicable to every competitor also. There are substitutes in the form of hard liquor, wines and even non alcoholic beverages like carbonated drinks, fruit juices energy drinks etc. The company makes its own beer as well as outsources it from smaller breweries in the country. With regard to raw materials and malt, the company has ensured that enough quantity is available from its existing suppliers.
Competition
This product is competing along with other imported beers and craft beers. The main competitors of the Boston Beer company are Anheuser-Busch, Inc., SAB Miller PLC and Molson-Coors Brewing Company, all these constitutes more than 90 percent of the domestic beer production. Boston Beer companies product are mainly categorized under Better Beer category of the beer industry, which are determined by higher price, quality, image and taste compared with other domestic beers. The Best Beer category is consumed by approximately 18 percent of the consumers. Even though Boston Beer Company was considered as the third largest brand in the better beer category, it has faced a down turn in the shipments over some past years due to the decline in the alcohol consumption per person and also due to the increased competition from the wine and spirit companies.
The Company also competes with other alcoholic beverages like wine and spirit for more drinker attention and consumption, since beers and spirits are competing directly with beer. In order to strive from the competition, the Company is implementing different strategies which will stimulate drinker’s interest and to better position the Company among the competitors. The Company is mainly operating through a three tier distribution system in order to compete in the market and also to gain attention, time and selling efforts. In the retail establishments, they are competing for shelf space. From the view point of the buyer of the products, the main competition exists in the brand loyalty and brand loyalty. The main factors of competition include product quality, taste, brand advertising, trade promotions, drinker promotions, pricing, packaging, and also development of new products. Moreover the beverage industry is now facing lot of societal and political affairs now days due to increasing political concerns from the misuse of alcohol and other health consequences. So the beer industry is showing a declining trend. Beers with fewer calories have heavy market when compared to highly flavored traditional beers. According to the customer’s needs and preference, the company is trying to innovate new styles of malt beverages. It is continually testing different beers and malts under different brand names. Its distribution channel consists of approximately 400 wholesale distributors. But the company’s product is not among the primary brands and distributors list. So the company has to compete with other malt beverages and brewers for a share of the attention of the distributors and their selling efforts. USA is the main market where the products of the company are sold. Other markets include Canada, Europe, Israel, the Caribbean and the Pacific Rim.
Sustainable advantages enjoyed by Samuel Adams
Samuel Adams is one of the major Craft brewery industry in the United States and has more than 21 different varieties of beers in its current product profiles.
The Boston Beers are the largest crafter brewery and one of the largest brewery in the US, which carries out its own brewery production as well as undertaking contractual brewing arrangements for third parties. Thus, one of the primary sustainable advantages enjoyed by this company would be in terms of its size of operations and capacity utilization. It is not deterred from owned bulk brewing for local and global markets, and at the same time, it is also taking up brewery contracts for Third parties.
Its distribution system is also a major sustainable advantage in the sense that it conducts operations through 400 distributors, who, in turn, merchandizes beer products through “pubs, restaurants, grocery chains, package stores, stadiums and other retail outlets.” (Samuel Adams: Sales, Distribution and Marketing, 2006, P. 4)
One of the major sustainable advantages of the company could also be in terms of having the largest sales force for beer industry, around 200 sales personnel, who contribute a lot towards turnover and profitability of the company.
Another sustainability factor would be in terms of ready availability of raw materials required for production. The major ingredient malt, hops, yeast and others are available from good and reliable sources, and it is believed that the company is in a position to stock one year’s inventory of different raw materials in order to avoid any exigencies or procurement issues in future. In the manufacture of consumer products, quality assurance and control is critical and this company is aware of its implications and the tremendous responsibilities that go with providing most exciting and excellent items for beer drinkers. Its market supremacy could be judged from the fact that it provides fresh beer, under clearly labeled “Freshness Codes” on very bottle and every keg of beer. (Samuel Adams: Sales, Distribution and Marketing, 2006, P. 6).
It is seen that the Company has strong and robust disaster plans in the event of dislocation, or suspension of brewing at any of its locations. However, the occurrences of dislocation could seriously detriment the economic status of the company.
This Company enjoys strategic advantages, which could characterize and sustain its long term growth potentials and its market standing Vis-a –Vis, its competitors and business rivals. This could be seen in terms of a long history of recognition for its quality products, greater deployment of resources, and finally an excellent and economical distribution system that could be the envy of competitors and trade rivals.
Globalization: Critical environmental factors
Besides the domestic US Markets, the company also caters to markets in Canada, Europe, Israel, Caribbeans and the Pacifica Rim. It is however in the US markets, “where 99% of its beer is sold.” (Samuel Adams: Sales, Distribution and marketing: The company is dependent on its distributors, 2006) and therefore global marketing is not of large significance in as much as this company’s marketing strategies are concerned.
The major aspects that are of relevance with regard its environment could be seen, mainly as follows:
Advertisement and sales promotionals: It is seen that perceptions that advertising costs go to increase additional revenues or sales off takes may not prove correct, and often, there is no certainty that increased advertising spending would generate more revenues for this brewery company. Therefore, cost benefits analysis need to be carried out before advertisement budgets are sanctions, and disbursed.
Increased brewing costs: This Company also needs to consider the implications arising from heightened costs of contractual brewing for third parties, which could impair its revenues; it could also be seen in terms of decline in brewing capacity due to infra-structural or other reasons. This would affect the cash flow and revenues of the company which need to be safeguarded.
Distribution networks: This Company is heavily dependent upon its distribution networks, and their performance is critical for the future of the company. Having acquired a fleet of 200 sales personnel, it is now necessary to deploy them in high profit areas, which could cover costs and enhance incomes for company in all serving brands
Packaging costs: A sizeable chunk of costs is earmarked for bottling and distribution, including procuring of bottles, labeling, primary and secondary packaging items. In the event of hike in packaging costs, it is unsure whether such enhanced costs could be passed on to the ultimate beer consumer.
Government dictates and controls: The future of Government policy towards the beer industry, although a revenue spinner needs to be handled with care and circumspection, due to the adverse impact of underage drinking, drinks related driving accidents and other social misconduct caused by binge drinking. Should the Government enhance its control systems, it may not augur too well for this company in terms of greater accountably with lesser sales off takes.
Hike in energy costs: This could be critical for the business operations, since most of the brewery processes are mechanized. Further, a larger energy bill could hike the total cost of selling operations, which would then necessitate increase in price of beer products. How this would affect operations are matters that need to be assessed individually and decision taken, keeping the selling capacities and overall profitability in mind.
Samuel Adams (Boston Beer Company) SWOT Analysis
Strengths
Samuel Adams (Boston Beer Company) is the largest craft beer manufacturer in the country. Craft indicates beer is different from regular beer. Unlike regular beer which is mass produced, craft beer is made in the traditional way beer used to be made. This industry is usually habited by small companies and pubs. Craft beer is richer and more varied in taste. Overall, the company is the sixth largest brewer in the United States and the third largest in the better beer category.
The company has a wide portfolio of beers which includes regular, craft and better beers. It has nearly twenty four flavors spread among the above classification. In an effort to be different and innovative, the company has a new line classified as malternatives. An example would be the chocolate flavored beer and a product line referred to as twisted tea. The company is aggressively bringing out new mixes (in alcohol %) and flavors.
The company has a strong distributor network of nearly 400 dealers and outlets. They include shops, pubs, sports venues, retail chains etc. The company has a 200 strong sales representative force equipped with all the knowledge about products and malts and also with samples. They have the infrastructure to give training and impart knowledge about the various facets of beer to retailers and customers. There exists a strong advertising policy and uses every possible media to advertise its products. The company ensures publicity by regularly entering into industry competitions and winning prizes.
Weaknesses
In spite of being one of the largest manufacturers, Samuel Adams has only 1% share in the market.
The company depends too much on independent distributors for marketing its product. It does not have its own well established retail network. The present distributors also market rival beers and also competing beverages like fruit juice, coffee and other non-alcoholic drinks.
The company outsources a large portion of its manufacturing to many independent small distilleries. Hence it is now dependent on their quality and liquidity to maintain its current production levels.
The craft beer industry is a low investment one and many players are now competing with Samuel Adams. It is estimated that nearly 1400 craft beer makers are there in the United States.
Opportunities
Beer is one product that seems to be resistant to recession. The recent recession in the country has not really affected the sales of the company.
Craft beer now can be mass produced. The company should now look at mass production to decrease its prices and increase market share. The popularity of craft beer and malternatives is increasing and the company should make use of this trend to increase market share.
The company should evolve its own distribution channel in a phased manner. It should also increase its own production capacity without depending on outsourcing its production.
Threats
The beer industry is highly competitive, both from domestic and international brands.
Competition from other alcoholic drinks like wine, hard liquor and even non-alcoholic beverages is high.
Statutory controls and taxes are very high in this industry.
There is no guarantee that the company’s current distribution channel will switch over distribution of other competing products.
Contamination or spoilage of raw materials like yeast and malt is highly possible in this industry.
Packaging is a high cost component in the beer industry. Any changes in price of packaging can affect the financial performance of the company. Public tastes in beverages are quite fickle and any major change can be a big threat to the company.
100% common stock of Class B Company shares are held in the name of a single individual. In such a case major decisions of the company will depend on the decision of one single individual.
Long term outlook
The beer industry itself is quite a buoyant one. It appears that even the recession in the country has not really hit the industry in real terms. The one change that is seen that customers are buying canned or bottled beer more than drinking in pubs in order to save some money. But the volume of drinking has not gone down. This is good news for Samuel Adams since its packaging consists mainly of bottled beer. There is a paradox in the company’s market share because in spite of being the number one manufacturer of craft beer in the country, the total share of beer retail for the company is only 1%. In an interview with New York Times, Jim Koch, one of the founders of the company, “Ninety-five percent of the beer made in the United States is controlled by two companies, one based in Belgium and one in South Africa.” (Cortese, 2008). The company should pursue its current policy of innovation and focus on the better beer and craft beer segment. An ideal long term strategy should include the following components (Chapter 6: Formulating long-term objectives and grand strategies, 2003, Slide no 4)..
Figure 1. Formulating long-term objectives and grand strategies
As long as the company’s strategies are in line with the above objectives, there would be no major problem for the company in the long run. Another factor that is in favor of the Samuel Adams brand is that the popularity of craft beer is increasing. People want new tastes and the standard beer that is now available does not distinguish itself across any brand or manufacturer. “According to a study of the American Journal of Sociology, the surging popularity of ‘craft brewing’ was in part due to consumer reaction against established industrial brewers’ lack of attention to new consumer preferences for more variety of flavor characteristics, color, freshness, foam, and other qualities of beer.” (Business & company resource center, Curriculum support demonstration: What factors in the general environment led to the growth in Craft Beer sales, p. 2). There are also other positive trends in the industry. According to Jim Koch, beer is now fast catching up with wine as a connoisseur’s drink. What was once a beverage to quench the thirst or enjoy with a game of football is now enjoying rising attention with regard to the subtle changes in flavors among different brands just like in the case of wine. The industry is also a heavy contributor towards the economy in terms of jobs, opportunities and taxes that it generates. The highly competitive industry seem to be set for a positive growth and Samuel Adams is right in the thick of action.
References
A Message From Jim Koch, Our Founder: Company culture. (2008). Samuel Adams – America’s world class beer.
Samuel Adams: Sales, Distribution and Marketing. (2006). Annual Report, P. 4.
Samuel Adams: Sales, Distribution and marketing: The company is dependent on its distributors. (2006). 2006 Annual Report: P. 12.
Chapter 6: Formulating long-term objectives and grand strategies. (2003). The McGraw-Hill Companies.
Business & company resource center, Curriculum support demonstration: What factors in the general environment led to the growth in Craft Beer sales? (2006). Thomson Gale, p. 2.
The case that would be analyzed for the purpose of this paper would be that of the Khemka family which established itself in Russia in the beer business. The paper would analyze the methodology through which they secured funding for this business venture of theirs and the rationale behind such a move on the behalf of the Khemka family. The Khemka family; had Indian roots and strong business acumen as could be seen through the success of their SUN brewery endeavor.
A trait common to all entrepreneurial family businesses who like the notion of being the “owners”- hence, the structure of the stock division was that of a dual class stock one. This structure refers to varying classes of stock-the varying classes have different voting rights, dividend payments, and other characteristics concerned with stock.
The Khemka family had class A shares and the public were offered B class shares. More than 70% shares by the family and since no treasury shares were sold; the complete control of the company was in the hands of the family. As a result of this division, the Khemka family had ten times voting rights that of the ordinary shareholders- this disparity was intentional on the behalf of the owners who wanted to retain majority of control of the company and at the same time take advantage of the capital provided by the IPO.
Therefore, it can be seen that the owners were working in their own interest This dual class system suited them perfectly as it allowed them to retain majority of control over the company while at the same time raising the required capital to fund the expansion, to repay the debt. The initial public offering was an effective way to raise capital and the company went on to issue 3, 809, 500 GDRs which were underwritten and bough by Morgan Grenfell and Company. The IPO also helped the foreign investors a streamlined method through which to invest in Russian-based SUN brewery. The net proceeds of the placement provided liquidity for one of the private placement investors and became a capital infusion for the company as well.
However, some view the dual class method as an unfair system as it allows a small group of shareholders to retain control while other shareholders provide a majority of the company. The dual class system affords the managers long-term and short term insulation from the market for corporate control. The entrenchment enjoyed by the mangers does however raise questions about their incentives.
A dual class structure also imposes restriction on the form of corporate control can take through the assignment to higher voting rights to the owners themselves. The Khemka family should choose the option of taking on a partner as the family would-be able to improve its position. The competitive position in Russia has become quite fierce therefore; the family has to make a quick decision. The decision is clearly in favor of taking on a partner as that would allow the company to consolidate its position, have access to funds, a person to a developed business dense and in fact would be able to provide the required business insight into the business’s operations.
The risks that are connected with investing in a foreign country are quite a few; most importantly the socio-economic and political country. The country has varying laws and regulations then the country of the native owner. In the case, it can be seen that the situation in Russia was quite different as the brewing capacity was established in order to meet local requirements. The capacity had been established long before and in fact, certain limitations had been imposed on the consumption of alcohol. The Khemka family had to therefore, produce and trade within these new regulations. In fact, when the Khemka family set-up the brewery organization, Russia was experiencing an economic reform which affected the trading capacity of the Khemka family’s business. The currency had devalued by a great deal and hence; the Khemka family was forced to rethink their Russian business.
The varying labor laws and even standards regarding the production standard cane go a long way in affecting a company’s operations. The same case was with the Khemka’s corporation in Russia’s beer consumption was amongst the lowest globally.
When the Khemka family first took over certain brewery companies; they were shocked to discover that the companies were only operating at about 30% capacity and the quality of the beer was quite low. An entire reformation was required in order to make the beer of international quality.
Before, investing the Khemka family had sought the advice of consultants and experts in order to make sure that those companies would be taken over would eventually produce profits for the company. Therefore, after a long drawn out process consisting or taking proper advice and reforming the brewery industry, the Khemka family was able to adjust their business standards to those of the Russians.
The actions taken by the Khemka family included offering shares to the public along with taking a 60% interest loan. Both of these measures secured the sufficient funds for the company-the loan was in fact structured on a basis of a repurchase agreement as other options were not available. The options are ones all carried by companies that experience growth and though , later on the liabilities amounted to a large number the liquidity crisis is experienced by all large companies. This form of raising capital was in fact quite necessary and imperative to the growth of the company and hence, was wise moves on the behalf of the owners. Later on, when the Luxembourg IPO took place, SUN became a vehicle for capital markets to invest in Russia proving the business behind these moves.
The UK Beer market is 15,987 million GBP and is expected to have a negative growth at a CAGR of -0.1%. The beer market is fragmented with many players who fight for their market share using their USPs. This paper provides an analysis of the UK Beer market and analyses the market drivers and market forces that are at work.
Demand and Supply analysis
According to Mintel (2007), the beer market in the United Kingdom is made of different types of beers such as stouts ales, bitters, specialty beer, low or no alcohol beers, standard lager and premium lager. The government levies an excise tax on all alcoholic beverages including beer. Table 1 shows the market size, growth and forecast for the years from 2004 to 2009. The value of the market for 2009 is expected to be 5433.8 million liters of beer. The report also states that there are 2000 beer brands selling in the UK and while many brands are locally made and sold in a few outlets and beer pubs, the others are global players and operate in different countries.
Table 1. UK Beer Market Volume Forecast up to 2009 (Mintel, 2007).
According to Datamonitor (UK Beer 2007), the UK beer market generated total sales of 28.3 billion USD in 2006 The figure represents a CARC(compound annual rate of change) of –1.3% for the years from 2002 to 2006. Germany and France had revenues of 28.1 billion USD and 8.2 billion USD CARC values of -2.3 percent and -1.0 percent for the equivalent years. In the years 2000 – 2004, UK beer consumption decreased at a CARC of 2.8 percent and achieved consumption of 5.5 billion litters. Premium Lager beer forms the leading segment in the market and ot had sales of 11.1 billion USD in 2006 and this is equal to 39.2 percent of the overall beer market value. The market for products such as ales, stouts, bitters was 9.1 billion USD and they had a share of 32.2 percent of the overall market share. Datamonitor has projected an accelerated growth in the UK market and is expected to show better yields. The market is forecasted to have a CADR of 1.1% for the years 2004-2009 and the market is expected to be worth 29.9 billion USD by 2009 end. The total consumption of beer at 2009 is estimated to be 5.4 billion litres and this represents a negative CARC of 0.1%.
According to Mintel (2007), the breweries have excess capacities and this factor leads to excess supply, much more than what the market can consume. The report suggests that when imports are also considered there is an excess supply of about 22 percent and this creates further idle stocks in the market. At a certain point in sales areas such as departmental stores, the retail shelves are overcrowded with multiple brands, and customers are faced with a problem of plenty. The tax rate for beer is the highest in Europe and while the tax on a pint of beer in France is 5 pence, it is 35 pence in UK but in spite of higher tax, the price is lesser than other countries of Europe. The report also says that out of 10 adults, eight are regarded as regular pub visitors and the pub culture is very strong in UK.
Market Structure
Datamonitor (UK Beer, 2007) has written about the market segmentation and has suggested that the premium Lager segment dominates the market and it has a share of 39.24 percent of the market. About 32.2 percent of the market is covered by Stout and Bitters and Ales while standard Lager beer makes about 28.3 percent of the market. The beer brands with low or no alcohol provides for 0.30 percent while the speciality beer makes up for 0.10 percent of the market. Table 2 provides the market segmentation of different types of beer in the UK market.
Table 2. Market Segmentation of Beer Types in UK (UK Beer, 2007).
The market segmentation graphical representation is also given as below:
Graph 1. Market Segmentation of UK Beer Market Product Types (UK Beer, 2007).
According to Datamonitor (UK Beer, 2007), the largest manufacturers and providers of beer in the US market is Scottish & Newcastle and it has a market share of 27.1 percent. The second largest player in the market is Adoph Coors Company with a market share of 19.7%. Interbrew SA is the third largest player in the UK beer market and it has a market share of 18.8 percent. Table 3 gives the market share of the three leading manufacturers in the UK market.
Table 3. Market Share of leading UK manufacturers (UK Beer, 2007).
The top three players have a total share of 65.6 percent of the beer market in US. Mintel (2007) reports that the Carling brand of Adolph Coors is the most popular in the US market and it has a share of 14.2 percent by volume and the brand has continued to maintain its lead in the 5 years since the survey was done. Fosters brand brewed by Scottish & Newcastle is the next most popular brand and it has a market share of 12.1 percent. Mintel reports that the brand is increasing popularity by small percentage points over its rivals. The third largest selling brand in UK is Stella Artois brewed by Interbrew and it has a market share of 10.6 percent. Datamonitor (2007) suggests that the market can be described as competitive. Entry barriers are in the form of a highly fragmented market with about 2000 brands and the competition is intense. While the leading brands are relatively stable, the remaining market is characterised by intense competition.
Pricing and Economic Diagrams
Mintel (2007) has provided an economic diagram that creates a relation between the price and consumption and this is shown in Graph 2. In the graph, D is the market demand curve while S is the beer supply curve. When there was no tax, there was equilibrium and the market consumed 40 million pints. But with the introduction of sales tax of 25 pence, the new price rose to 105 pence and the consumption fell to 30 million pints. This shows the relation between price and consumption.
Graph 2. Economic Diagram of Price and Quantity (Mintel 2007).
BBPA (2007) as reported about the excessive tax that the UK government has imposed on the beer industry. The UK government levies a high tax and this effects the profitability of the brewers and they are forced to spread the burden of the tax on the consumer. Table 4 shows the different components of the taxes that are levied by the government on beer products
Table 4. Taxes applied for beer (BBPA 2007).
Expenditure and tax on beer (£ million)
Consumer Expenditure
Excise Duty
VAT
Total Beer Duty + VAT
Percent Tax
2002
17,742
2,927
2,642
5,569
31%
2001
17,154
2,878
2,555
5,433
32%
1997
16,805
2,682
2,503
5,185
31%
1992
13,432
2,376
2,001
4,377
33%
The total percent tax on beer is about 31 percent and according to BBPA, the major burden of the tax is passed on to the consumers. BBPA further reports that the tax in France of much lower, about 5 percent and this encourages illegal smuggling of beer from France into UK. The high tax component of beer has also resulted in higher prices for the consumer. Again with reference to the economic diagrams, it can be seen that the rising price of beer has an effect on the drinking habits. Mintel (2007) reports that while the population growth of adults who are legally allowed to drink has increased by 8 percent, sales of beer and other alcoholic beverages has not increased proportionally.
Evaluserve (2007) has reported that t the problem of pricing began to become more severe with the European Union Member state introduction and the rules allowed people to buy products for personal consumption and carry it to other countries. Discrepancies in the taxes and effective rates of beer in France and Belgium make these countries as cheap sources for beer and other alcoholic beverages. This has created the phenomena of the ‘booze cruises’ where people go to the European continent and buy large quantities of alcoholic beverages. There are reports about large warehouses that retail cheap drinks and these have severely effected the sales of beers that are brewed in UK.
Business Ethics – Legal Drinking Age
The UK government has introduced severe restrictions and legislations governing the advertisement for beer and alcoholic beverage sale in UK. Evaluserve (2007) has discussed the problems of binge drinking and the law and order problems caused during sporting events such as football matches where a number of fans undergo heavy drinking and then riot violently. Because of the potential of alcohol to cause harm, it is widely viewed that the way drink is packaged and advertised should be subject to some form of regulation. The alcohol by volume content has to be carried on all UK alcoholic drinks packaging under European law, but most of the regulation is through voluntary agreement between manufacturers, retailers, advertising agencies, media regulators and government agencies. Advertising standards guidelines restrict the times at which television advertising should be shown, for example, to avoid children’s schedules. They also put a minimum age limit of 24 on models or actors who appear in commercials, to avoid suggesting that drinks are being targeted at under-18s. Advertising is expected to avoid suggesting sexual success of placing emphasis on heavy consumption.
For decades after the Second World War, the list of most popular drinks in the UK market remained largely unaltered. Ale and whisky were consumed in vast quantities because historically they are both home-produced beverages. Imports were expensive, so table wine was seen as an exclusive preserve of the middle classes or the rich. Young men going out to pubs were prone to drink what their fathers drank, largely because there were not many alternatives. But gradually, from roughly the 1970s onwards, tastes began to change. The emergence of supermarkets with huge ranges of drinks products started a movement from drinking in pubs to drinking at home. Wine from all corners of the world became more readily available as did exotic spirits. Powerful lager producers from North America and Australia had sufficient muscle to challenge the home-produced ales in the British market causing a transformation in consumer habits. British youth now had alternatives to the tired old products drunk by their older relatives, and vodka and lager became two of the most popular.
Evaluserve (2007) has reported that the government has taken increasing interest in ensuring that underage drinkers are not encouraged to drink and has effect legislation to prevent such occurrences. The Portman Group is an industry body set up by a group of leading drinks companies in 1989. Seven years later, it adopted a code of practice on the responsible marketing of alcohol which further enshrined some of the principles of self-regulation, and extended the scope to cover drinks packaging and naming so that they too should not place emphasis on sexual success, energy-giving properties or high strength.
Market Outlook and Strategy Proposals
The beer market is showing signs of growing and as per the projections for 2008, a CAGR of 1.1 percent is projected. Cheap imports and price differentials between countries of Europe and UK sees a lot of beer and other alcoholic beverages being smuggled inside UK. The UK government wants to see the industry doing more to clean up its own act and says it will review the situation in two to three years’ time. That gives the industry some breathing space, but if the intervening period fails to deliver a substantial improvement in the issues surrounding binge drinking, compulsory measures can be expected. Arguably, the industry needs to reposition its collective stance on the social costs of the product it produces. The Portman Group reflected the political and social mood of the time when it was set up in 1989, but its remit has remained pretty much unchanged since.
Unfortunately for the industry, low-budget campaigns and a regulation policy, which appears to target relatively minor products, are no longer enough to satisfy the trade’s critics. Individual large producers have taken the first steps to improve their image while maintaining the power of their brands. A coherent industry-wide strategy that tackles some of the core issues around pricing and marketing would help contribute to the change in drinking culture that most of those with an interest in the binge drinking debate seem to think is necessary. More emphasis needs to be placed on the responsibility of the individual for their own drinking habits and behaviour, but to achieve this requires honest information about what alcohol is and what it does. As Prime Minster Tony Blair has said: “The one million people employed in the alcohol industry can be a strong force for cultural change. But only if the industry finds a way to harness their talent and ability.” That will clearly require a big commitment: in money, time and moral will. Change is likely to take a very long time
Conclusion
The UK beer market is worth 28.3 billion USD in 2006 and is expected to grow by 1.3 percent over the next few years. The market has three major players who have about 65 percent of the share while the rest is split up between other players in the market. The sale of beer is subject to heavy taxation of 31 percent and this amount of tax is much higher than the tax imposed in other European countries and it has caused illegal import of cheap beer and alcoholic beverages into UK. The government is actively bringing in legislation to prevent underage drinking and has placed restrictions on advertisements for alcoholic products.
References
Annette Felicity (2007). Growth Strategies in Alcoholic Drinks: Emerging trends in beer, wine and spirits. UK: Business Insights Ltd.
BBPA (2007). Tax & Expenditure. Web.
Evaluserve (2007). The Alcoholic Drinks Market Outlook To 2008. UK: Business Insights Ltd. pp: 175 – 180.
Europe Beer (2007). Beer in Europe: Industry Profile. UK: Datamonitor. Reference Code: 0201-0744.
Mintel (2007). Low-alcohol and Alcohol-free Drinks – UK. Mintel International Group Ltd.
UK Beer (2007). Beer in the United Kingdom Industry Profile. UK: Datamonitor Publications. Reference Code: 0183-0744.
Beer is one of the world’s most beloved alcoholic beverages with a rich history and century-old traditions. Beer production involves brewing cereal grains with the most popular choice being malted barley and other options including wheat, maize (corn), and rarely, rice. Since the industrial revolution, the brewing industry has turned from domestic manufactures into a global business that includes multinational giants as well as regional and local producers. Typically, beer is packed in bottles and cans; however, in bars and pubs, it is no rarity to see it available on draught. The modern beer is characterized by the strength within the 3.5% to 6% alcohol by volume (ABV) range. However, due to the impressive diversity of beer culture and brewing methods, ABV may vary greatly starting as little as 0.5% and amounting all the way up to 20% (DeSalle and Tattersall 5). Some breweries embarked on creating beer as strong as spirits, and the most outstanding attempts resulted in beverages with an ABV of 40%.
Brief History
The written history of many ancient civilizations includes frequent mentions of beer, be it brewing methods, religious references, or laws aimed at controlling consumption and distribution. The archaeological evidence revealed that humankind commenced brewing beer as early as 11,000 BC (DeSalle and Tattersall 15). Some scientists go as far as making assumptions that beer used to play a significant role in the formation of civilizations and was highly appraised for not only its inebriating properties but also nutritional value (DeSalle and Tattersall 17). For instance, workers at the construction site of the Great Pyramids in Giza, Ancient Egypt, received the daily norm of four to five liters of beer per person, which at the time, was seen as instrumental to the successful realization of the building plan (DeSalle and Tattersall 25). The written legacy of Mesopotamia entailed religious texts whose creation was allegedly aimed at preserving beer recipes in a nation that was predominantly illiterate.
Fast forward to modernity, in the 16th century, William IV, the Duke of Bavaria, passed what was recognized as the first European law regulating food quality, which included providing guidelines for the brewing process. The Industrial Revolution was a critical point in the history of beer as its production moved from local and artisanal to industrial. The introduction and refinement of thermometers and hygrometers allowed brewers to seize greater control over the process (DeSalle and Tattersall 67). By the 21st century, the brewing industry had grown exponentially, making it the third world’s most popular drink after water and tea.
Current Consumption and Production: In the World and Canada
In Canada, beer made its first appearance in the 17th century when it was brought by European settlers and colonists. The first commercial brewery was established in 1650, and soon, the beer business started to thrive and prosper due to the vast popularity of the beverage. Moreover, the cold climate facilitated the production in the absence of refrigerators. The industry took a nosedive between 1918 and 1920 due to the federal prohibition but resumed quickly after the law was repealed (DeSalle and Tattersall 105). As of 2015, beer is recognized as the most popular drink in Canada. 57% of Canadians consume beer regularly with the demographic groups of adults aged 18-34 (39.1%) and 34-49 (30.2%) being the core customer base (“Estimated Domestic Beer Consumption”).
Even though sales plummeted in 2007, in recent years, they have been on the rise again with the average sales value of $304.7 a year per capita (“Estimated Domestic Beer Consumption”). As for the world statistics, 1.95 billion liters of beer is produced annually with China being both the largest producer and consumer of the beverage (“Global Beer Industry”). It is projected that the popularity of beer will continue to be on the rise with the industry now tapping into emerging alcohol markets in Asia-Pacific.
Product and Processing
Brewing Stages
Fig. 1. The brewing process workflow (“The Brewing Process”).
Brewing is a complex process that involves several different stages (see fig. 1). Below is a detailed description of each phase:
Malting
The malting process is aimed at converting raw cereal grains into malt. First, it is necessary to ensure that barley or any other grain is in its best condition, and namely, check grain moisture (13%), nitrogen contents, and the absence of fungus. Grains are dried by circulating air at a temperature of 50°C. Further, dry cereals are cleaned by removing foreign matter with the use of de-stoners, shaking screens, and magnets for metallic solids (Bamforth 42). The active malting process begins with steeping when by adding water, grain moisture increases from 13% up to 40-45% (Bamforth 42). Lastly, germination facilitates the development of malt enzymes which break down the starch.
Kilning
Kilning does the opposite of malting: it reduces the grain moisture radically during the free drying stage when the temperatures are cool and the forced drying stage characterized by exposure to 80°C heat (Bamforth 60). The final stage of kilning is the cooling of the malt.
Mailing
The dried grains are put between rollers where they are crushed down to a coarse powder, grist.
Mashing
At this stage, brewers mix grist with water, and the materials are maintained at a temperature of 65°C for an hour. During the mashing process, the released amylase enzyme hydrolyzes the starch in the grist, and as a result, single sugars, maltose, dextrose, and others are produced. Similar to sugar production, the protein undergoes hydrolysis by proteolytic enzymes and breaks down to small fragments and amino acids. PH and temperature moderate the degree of enzymatic hydrolysis: the optimal temperature for β-amylase is 57-65°C whereas α-amylase is the most active at 70-75°C (Balmforth 119). The end goal of mashing is obtaining the liquid called wort. At the final stage, brewers filter the resulting materials to remove such residues as husks and precipitated proteins.
Boiling of Wort
Further, brewers boil the filtrate for two to three hours while stirring the material continuously. At various points in time during the boiling stage, it is appropriate to add hop flowers. The activities at the present stage serve several goals at once. First, boiling helps to extract flavor from hop flowers, coagulates the remnants of protein, and hydrolyzes them, which helps with the removal. The enzymes that were instrumental during mashing are no longer needed at this stage, and during boiling, they are inactivated. If these measures are not taken promptly, the sugar caramelizes and spoils the product. By boiling wort, brewers ensure its sterilization and gain more control over its concentration.
It is important to emphasize the importance of adding hops as they constitute one of the four essential ingredients of beer in the modern brewery. The scientific name of the hop plant is Humulus lupulus; a barrel of beer requires approximately one-quarter pound of the dried female flower. Hop addition provides the end product with its pungent, aromatic properties whereas the contents of α-resin and β-resin account for the typical bitter flavor as well as a preservation against gram-positive bacteria (Balmforth 181). Hop flower contains tannin which ensures coagulation of remaining protein. Lastly, beer owes its foam characteristic to hop flower among its ingredients.
Fermentation
The brewing industry utilizes strains of Saccharomyces and S. varum, and S. cerevisiae with the first two being top yeast and the latter being bottom yeast. The temperature apt for fermentation is usually 3-4 °C; however, in some cases, it may vary from within the 3 to 14°C range. During a 14-day process, yeast turns sugar primarily into ethanol and CO2 with the addition of a small amount of glycerol and acetic acid (Balmforth 307). Open tank fermenters are permitted but not preferred, for a closed tank does not allow the liberation of CO2 which can be collected and used later during the carbonation stage. So-called CO2 evolution ends by the fifth day of fermentation, and past this point, yeast cells are no longer active.
Aging and Distribution
For the beer to age, it needs to be stored in a vat for several weeks to several months. During this time, the beer becomes clear due to protein, yeast, and resin precipitation. Storage is needed for amplifying beer’s aromatic characteristics since it takes time for foresters and other compounds to be produced. Once the beer has aged, brewers carbonate it by carbon dioxide of 0.45-0.52% (Bamforth 168). The final stage entails cooling, clarifying, and filtration after which brewers pack beer in bottles, cans, and barrels.
Product Composition
In 2018, federal officials of Canada suggested certain changes to beer labeling. Recent regulations that expanded the list of permitted ingredients were followed by the proposal to make the listing of each ingredient on a can or a bottle mandatory (Press). The officials argued that the definition of beer established thirty years ago, and namely a beverage that possesses “the aroma, taste and character commonly attributed to beer,” was no longer relevant (Press). Instead, the food industry needed to comply with the permitted sugar and other additive content guidelines (Press). Globally, the four following ingredients are recognized as necessary in the beer composition: water, hops, yeast, and malted cereals (usually, barley). The list of additives used for beer production is quite extensive and includes sodium benzoate, flavor enhancers, sodium citrate, tartaric acid, corn syrup, urea, potassium sulfate, amyloglucosidase enzyme, antifoaming agents, and others.
Health and Safety Issues
Health Effects
Modern science came to a general consensus that brews are neither inherently beneficial or detrimental to human health. The expected results depend heavily on an individual’s drinking habits, quality of consumer products, and dosage. In 2016, a board of international experts conducted a systematic review of existing literature on health and beer consumption and concluded that moderate drinking decreased the likelihood of cardiovascular diseases (De Gaetano et al. 443). By moderate drinking, the researchers implied one drink per day for an adult woman and one-two drinks for a grown man.
The meta-analysis carried out by De Gaetano et al. revealed the protecting effect of beer against heart strokes; however, they did not find a prospective association between beer intake and the likelihood of the said condition (443). Some of the observational studies included in the report pointed out that low to moderate beer consumption reduced the risk of neurodegenerative diseases. All in all, De Gaetano et al. reasoned that unless an individual has a history of alcohol dependency or is at risk for alcohol-related cancers, there is no rationale behind discouraging such an individual from continuing light-moderate drinking.
For all the positive effects associated with controlled beer consumption, it would be irresponsible to dismiss basic safety guidelines. When discussing beer drinking and its benefits, De Gaetano et al. excluded children, adolescents, and pregnant women from the narrative (443). Beer consumption is not recommended or prohibited altogether if an individual is at risk of developing a dependency, has cardiomyopathy, cardiac arrhythmias, depression disorders, or liver and pancreatic diseases (De Gaetano et al. 443). Lastly, it is evident that being inebriated is against professional safety guidelines, and even outside the workplace, individuals should not engage in activities requiring focus, concentration, and fine motor skills when drunk.
Food and Production Safety
In North America, safe beer production is regulated by the HACCP approach, which stands for hazard analysis and critical control points. HACCP outlines GMP – good manufacturing practices – which apply to the brewing industry as well. Among the key standards that a brewing facility needs to meet is a hygienic and clean environment, lean production, and preventive measure against pest infestation (“General Principles”). It is argued that the proper application of HACCP practices does not complicate the work processes but on the contrary, facilitates the workflow and reduces costs.
It should be noted that engaging in beer production is linked to significant health hazards. Among the primary risks that brewers face on the job is a toxic chemical and pathogen inhalation, especially if brewing activities take place in congested spaces (Beaufait). When safety guidelines are not followed, employees might be exposed to toxic, flammable, reactive, and explosive chemicals. It is imperative that workers conduct lockout and tag-out procedures adequately to reduce the risk of burns and electrocutions (Beaufait). Lastly, another common cause of workplace injuries for brewers is human-machine collisions when employees do not drive forklifts safely (Beaufait). The latter pertains to those visiting breweries as well as they should take precautions on par with workers.
Conclusion
Beer remains at the peak of popularity among such widely consumed beverages as water and tea. The history of brews dates back to the 11th millennium BC whereas the earliest chemical and archaeological evidence of its production belong to such ancient cultures as the Sumerian civilization and Ancient Egypt. Canada inherited beer brewing traditions from Europe when settlers established the first commercial facilities on its territories in the 17th century. As of now, beer is the most beloved alcoholic beverage among Canadians with young adults and the middle-aged being key purchasers. The brewing process typically involves seven stages and is characterized by its sophistication and scientific precision. The complexity of beer production is the rationale behind strict food safety requirements in compliance with the North American HACCP approach. On the job, brewers should not only ensure the proper conduction of each procedure but also stay safe and avoid such common professional injuries and accidents as chemical poisoning, electrocuting, and collisions. Surprisingly, moderate beer consumption has been found beneficial for health in terms of cardiovascular and neurodegenerative disease prevention.
Works Cited
Bamforth, Charles. Brewing Materials and Processes: A Practical Approach to Beer Excellence. Academic Press, 2016.
De Gaetano, Giovanni, et al. “Effects of Moderate Beer Consumption on Health and Disease: A Consensus Document.” Nutrition, Metabolism and Cardiovascular Diseases, vol. 26, no. 6, 2016, pp. 443-467.
DeSalle, Rob, and Ian Tattersall. A Natural History of Beer. Yale University Press, 2019.
Coors Beer is a company operating since 1873 across the United States (“About Us,” n.d.). Coors’ policy has always emphasized the need to use the best procurement practices and brewing strategies that would help maintain the taste of the beer, which affected the distribution and production potential. Recently, the company decided to invest in the reduction of its distribution costs. This paper will analyze the Coors case study and discuss the alternative solutions to the issues that impact the performance of this business.
Diagnosis
This company is doing well since apart from the workers’ strikes and some conflicts with the labor union, Coors was able to upkeep its operations, introduce new beers to the market, and increase the area of distribution for its current products. In the case study, the company’s plans to build a second facility for beer production and a bottling facility are detailed. Notably, Coors distributed its beer both through wholesalers and through direct distribution.
However, there were restrictions regarding the number of states that the beer can be shipped to both due to costs and because of the company’s production policy. Moreover, according to the case study, in 1975, the company had extremely good sales in 10 out of 11 of its target states despite the general decline in consumption. Therefore, due to the fact that Coors was doing well in terms of sales, they needed to establish another factor, both to increase the geographical presence of their beers by distributing them to states that previously could not receive these beers and by increasing the production capacities,
However, when examining the logistics issue that Coors case study shows, it is evident that the company’s policy to avoid pasteurization affected its distribution potential. According to the case study, the policy of not pasteurizing beer was linked to the taste that was adversely affected by this process. However, the case study also noted that the consumers did not report a substantial difference when trying Coors’ beer and that of the competitors. Hence, the non-pasteurization policy may be a marketing or heritage practice that the Coors management decided to maintain, but it does not necessarily contribute to the businesses’ development.
Solution
An alternative solution would be to consider the development of a new taste of beer that is prepared using pasteurization. However, the shortcomings of the alternative are the potential effect on the taste and the marketing challenge since Coors has prided itself on the premium quality and taste of its beer. Still, with the growing consumer demand and considering the company’s limited growth when compared to Aunhauser-Bosch and Miller, as seen in Exhibit 7 of the case study, Coors had to come up with a strategy to increase production. Although establishing a factory would help increase production and increase the distribution capacity, Coors would still be unable to ship its beer to all states across the US, which is why this alternative is a better solution.
Coors choose a distribution policy that required the beer to be shipped in refrigerated rail cars. However, the added costs of this type of distribution were in balance with the decision not to pasteurize the beers. Still, this limited the ability of the company to distribute its products since their beer would spoil more quickly when compared to others, limiting the shelf life. A good solution to this practice would be to introduce a Coors beer that is pasteurized and begin the production on Coors’ new plant.
Traditionally, beer is distributed to the end consumer through wholesalers and retailers and sold either in the stored or bars. Coors also used this practice. However, as the case study noted, they used to have an advantage and exclusive contracts with distributors since their franchise was profitable. However, over time the majority of distributors decided to differentiate and work with multiple producers, which also points to the need to change strategies and approaches that Coors takes towards production and distribution of its beers.
Action
To implement the recommended solution, Coors would first need to integrate a separate production line into the project for its new facility. Moreover, the development of a pasteurized beer would require changes in agreement with the distributors and the need to find wholesalers in states where Coors was not available previously. However, this process should begin with sample tests and marketing assessments to determine if the solution would not harm Coors brand image. Additionally, the tasting tests should help determine if Coors’ consumers are capable of distinguishing between the pasteurized and non-pasteurized version of the beer, and if the perceived difference is minimal, the company can proceed with the production.
Evaluation
Notably, the introduction of a new kind of beer, especially considering Coors’ focus on not pasteurizing its products due to taste changes, would be a disruption both for the company’s policies and its brand image. However, as noted in the case study, the marketing studies showed that consumers did not distinguish between Coors’ beer and that of its premium competitors, with the only distinction being the light nature of the beer’s taste. Hence, although the alternative offered in this paper is a drastic change to the company’s brewing policies, it is possible that the consumer would not notice a difference in the taste.
Moreover, in terms of costs, as was mentioned in the case study, the use of refrigerators for distribution is about equal to that of pasteurization, which means that Coors would not encounter substantial cost issues. However, pasteurization would allow speed the production since the time needed to brew beer without this process is several times higher when compared to the time needed to produce pasteurized beer (“To Pasteurize Or Not To Pasteurize?”). Hence, Coors would receive an additional benefit of being able to produce more beer units per same period as its production facilities would not be occupied by the beer for as long as they are without pasteurization. Therefore, this solution offers benefits in terms of distribution, costs, and production capacity.
Conclusion
In summary, this case study details the plans of Coors’ brewery to expand its production facility to address the increasing demand for beer consumption and increase the geographical presence of its products. The alternative solution offered in this paper is changing the production line and integrating a Coors’ beer prepared using the process of pasteurization. This approach would help the beer producer address its distribution and production capacity issues. On the other hand, it does not appear that the consumers can distinguish the taste of Coors’ beer from that of the other brands, which means that this solution would not adversely affect the band.
Over the years, India’s beer industry has grown rapidly, thanks to a growing number of beer drinkers in the country (United Breweries Ltd 2011). One of the leading and oldest beer companies in India is United Breweries (UB) holdings.
The company came into inception in 1915 and over the years, it has grown in sales volumes and market share to become the leading beer manufacturer in India. The company is ranked as the third largest manufacturer of wine and spirits in the world. Beer is classified as the third most popular drink in the world, after water and tea.
The objective of this report is to undertake an analysis of United Breweries holdings, a beer company based in India. The analysis will primarily entail a comparison of the beer industry in India with that of the U.S, China, and the Netherlands.
To do so, the research paper shall conduct a Porter’s 5 Force industry analysis and PESTEL analysis on the beer industry in the three aforementioned countries and the results compared with the beer market in India. The paper shall also provide recommendations on the holding level of the beer manufacturer in the global investment index.
PESTEL analysis
This analytical tool examines the macro-economic factors affecting a company externally. It comprises of the political, environmental, socio-cultural, technological, economics and legal matters affecting the environment in which an organization operates (Phatak, Bhagay & Kashlak 2009)
Political: India has different taxation policy compared with China, the U.S, and the Netherlands. For example, imports are highly taxed in China than in the U.S and the Netherlands. This means that United Breweries (UB) is faced with strong political barriers in China than in the Netherlands or the US.
Tax on beer and spirits in India has been increased with the aim of increasing revenue and reducing the number of alcoholics (United Breweries Ltd 2011).
The industry faces high government taxation, increase in price of raw materials and restricted communication. Policies on waste disposal and deprivation of natural resources such as water continue to leverage the business.
Socio-cultural: In India, there has been a social change towards alcohol consumption as more people adopt healthy lifestyles. Compared with the three industries, UB would perform better in India than in the any of the other countries.
Although China is ranked as the leading producer of alcohol, new brands from UB would still compete with established Chinese beer brands (Heracleous 2001). Western culture and urbanization would also act as positive shift towards the consumption of alcohol in India (United Breweries Ltd 2011).
Technological factors such as innovation affect the packaging and marketing of beer. Compared with China and the US, India lags behind technologically although labor is cheap.
Economics: UB has been registering high revenues from the sale of beer. This is attributed to better economic performance of India’s economy due to an increase in consumer purchasing power. However, the company faces high levels of price fluctuations and the global financial crisis which hit the US and European markets.
Porter’s 5 Force Industry Analysis
Porter’s 5 Forces industry analysis focuses on rivalry from existing companies, threats from potential entrants, threats of potential substitutes, bargaining power of buyers, and bargaining power of suppliers (Porter 1980).
According to the United Breweries Ltd (2011), the beer industry in India is quite large and over the years, UB has seen its niche in the market grow tremendously. The company has also widened its gap with close rivals. Although the beer industry in India is competitive, the company is not threatened by new entrants.
Just like in China, the US and Netherlands, new entrants in the beer industry have no place in the industry. Over the past years, UB has outpaced global beer brands entering India from the US and Europe. This implies that the company has gained market power in India before going globally.
Like other beer industries in China, the US and the Netherlands, the presence of potential substitutes in India would threaten the market performance of UB. Therefore, cheap beer threatens the success of UB. Given that most of the raw materials are supplied to the company, UB faces a high bargaining power from suppliers.
Suppliers have detrimental effects especially when they raise the price or raw materials. Since the company has established itself as a market leader with high quality brands and innovative drinks, the level of buyers bargaining power is extremely low giving UB a competitive advantage.
Conclusion and recommendations
Based on the PESTEL and Porter’s 5 Force Industry analyses, UB is a highly competitive organization which can perform better in other beer industries such as in China, the Netherlands, and the US. Therefore, it is recommended that United Breweries Limited would perform above average weighting (+1) on the three selected industries.
The reason behind this recommendation is that the company has been able to create a niche in India and at the global market, and this has given it a competitive advantage over its competitors (United Breweries Limited 2011).
In addition, the company has a high financial capacity and is ranked third in the world after the major manufacturer in the US. Therefore, UB can perform better than similar companies in the industry and as such, it should have a higher level of investment than it represents in the relevant investment index.
This is because the company is well placed in the industry and product differentiation has played a major role in its success.
Reference List
Heracleous, L 2001, ‘When local beat global: The Chinese beer industry’, Business Strategy Review, Vol.12, no. 3, pp 37-45.
Phatak, A V, Bhagay, R S & Kashlak, R J 2009, International management: managing in a diverse and dynamic global environment, McGraw-Hill Company, New York.
Porter, M E 1980, Competitive strategy: techniques for analyzing industry and competitors, The Free Press, London.
United Breweries Ltd 2011, United Breweries Ltd 2010-2011 annual report. Web.
Heineken is one of the largest beer brands in the world. In addition the company has more than 165 international. In this company the main aim is to have a worldwide best brand portfolio and be the leading brewer.
Today beer is widely available and enjoyed in most countries and cultures all over the world. Heineken is one of the largest companies in a global network of distributors and breweries. In addition, Heineken manufactures the world’s most popular beer brands.
The headquarters of the company has both centralized and decentralized organization to enhance global marketing. Specific guidelines have been put up to provide the face of the brand with fundamental values and add value for local marketers.
The company has an executive board that creates and implements the corporate strategy and manages all companies related to it. The board members are appointed by shareholders of the company who ensure that the company’s strategies are enacted.
The company aims at striking equilibrium between the various managerial positions within the whole conglomerate.
Promotional events of the company entail incorporation of the various managers’ submission of budgets and strategies in the specific market spheres. These are then viewed by the headquarters to allow for consistency in Heinekens international advertising.
Product Name
The name of the product is Heineken beer. Heineken has a cooperate culture whereby it enables the organization to adapt and integrate into the culture in which they will be operated.
Heineken’s name is picked after being viewed as an integral part of the societies it is present. Much value is put on respect, honor and understanding the socio-political nature and the local culture consuming the product.
History
In Central Europe, Heineken is the largest brewery; it has a number of brands that are well marketed. Heineken is usually marketed around the world as a premium brand; in terms of price towards the customers (Sharon 300). The company adopted the laid down ideology of the Dutch Corporate Governance Code (Ashish and David 34). The company has a strong foothold in the european markets that account for almost half of its revenues.
Information
According to a study done by Project Come it proved that the brand’s uniqueness arises from a strong foundation that comprises of various unique attributes of the Heineken brand. It was evident that the Heineken beer brand was loved and adored by many consumers due to these unique characteristics.
The ingredients of the beer mainly include, hops water and yeast. All these are supplied by farmers nearest to the production plant.
Target market
The target market of the brand is wide with much focus put on the youth above eighteen years of age. The brand is also widely found throughout Europe, Africa and America.
A higher percentage of those who consume the product are middleclass individuals who enjoy their drinks in bars. However, in certain countries the beer is taken during occasions while others take it as a daily consumption beer (Heiat, Gross and Krumholz 1685).
Strengths
Heineken as a beer is produced on the high quality standards.
The beer has attractive packaging that pleases the customer.
Heineken is a lighter beer with less alcoholic content.
The beer has a special unique taste.
The formula used to prepare the beer is original with none of it used anywhere.
The brand is widely available.
Heineken is a premium brand beer that is available to its customers in terms of price.
An additional strength to it is that it is the most heavily advertised premium beer in Europe and worldwide and use TV commercials heavily. The appearance and make of the Heineken bottle and logo puts the brand ahead of the rest.
Weaknesses
The brand lacks an integrated marketing campaign.
The efforts necessary for brand revitalization are not present.
The brand image is not consistent with the brand communication.
In certain areas there is no production base.
Cultural factors have played a big role in limiting the expansion of the Heineken brand in various markets. Heineken is usually consumed by patrons of a slightly older generation when compared to other brands. There is a challenge in enabling the brand to be accepted by teenagers and younger individuals.
Cost; the cost of Heineken compared to most beer brands are on the higher side.
There brand lacks worldwide advertising thus market for the brand is not well reached.
The TV commercials that are aired basically reach the larger markets only.
Opportunity
The company has an opportunity of sponsoring sports both at local and regional levels.
Information technology has created an opportunity to Heinekens upgrade on security. Business operations in and outside the company is increasing. For example, the current advancement in technology has opened a large market to access world population without any barrier. This has enabled the company to reach various areas of the world.
Threats
The long-lasting proclaimed of superiority the Heineken brand may in itself be a threat. This is to enable the brand to flourish and have a strong reputation.
Heineken meets a challenge to enhance a global recognition through the identity of the brand, to maintain a healthy financial position.
With globalization going on, more brewers are looking for new markets, while governments on the other hand have an intention of gaining maximum profit and also get empathy on ethical grounds by imposing taxes that are heavy on beer imports.
In London, drinking alcohol on public transport is prohibited; this will hence decrease the market of Heineken as individuals want to enjoy their beers wherever and whenever they want to.
Economic changes that occur in revenues of a country would also pose a threat to the sales of Heineken. Currency fluctuation could create a threat to the company’s results.
Recession in certain countries has brought individuals to choose an alternative drink that is cheaper; as a result Heinekens distribution aspect faces a threat.
The brand might face a decline in consumption as the lifestyle of this new generation has changed due to lack of time and individuals spend less time in bars. This would then lead to a fall in sales volume.
The threat for power of supplier is high as the main suppliers of raw materials to the company are farmers.
The threat for power of buyers is also high as the consumers have a wide variety of companies serving beer and thus the choice of the customer’s preference is not limited.
Today, there is a high number of small breweries being opened up making the industry very competitive, making Heineken have no choice but to share the market with other brewers. Therefore, there is a threat of probable new entries in the beer industry.
The threat of substitutes; Due to the above threats Heineken may be forced to create a new and unique product that can sustain the competition the face in the beer market.
Since beer is an alcohol beverage, an individual may choose to switch to drink wine which also contains alcohol. This will also affect the beer market which as well affects the sale of Heineken. As a result, the threat of substitute for beer market is high.
Recommendations
Different stages of the product in different markets dictate employment of different strategies such that in growing markets both pulling and pushing strategies are suitable (Britton, et al. 115). In these advertisements they should also be able to focus on the local market thus market mix should also be observed whereby the consumer will develop a greater emotional link to the company.
The website developed for the company should be able to attract every consumer depending on the area. Thus local language should be used on different countries.
If the company is involved in sponsorship, there is a high chance of it opening up to its marketing. This can be through sports and music events or films targeting to appropriate demographic profiles.
Also, its global branding strategy should account for the socio-cultural influences, attitudes and the perception of its consumers in all foreign markets.
This will enable the headquarters marketing forces to play an important advisory role for local partners (Herring, Patti, et al. 427).
Works Cited
Ashish, Chandra, and David, Paul. ‘Modern Brewing technologies‘. Hosp Top 3.81 (2003): 33-38.
Britton, Annie, et al. “Beer brewing: Threats to success on heineken“. Journal of Breweries 4.2 (1999): 112-121.
Heiat, Asefeh, Gross, Cary, and Krumholz, Harlan. ‘European business techniques,’ Beer Industry 162.1 (2002): 1682–1688.
Herring, Patti, et al. ‘Understanding the challenges in attainig an excellent beer industry: The beer study,’ Ethn Dis 14.3 (2004): 423–430.
Sharon, Mason.‘How Europe and worldwide and use TV commercials.’ Heineken beer 30.1 (2004): 296-304.
