Category: Beer

Beer drinking is an essential component of family, social and professional life for many people living in the United Kingdom. The excessive trend of consumption has frequently been reported in the last two decades. High per capita consumption can be traced back to the middle ages.

However, over the last century, beer consumption has varied considerably. According to the UK customs and excise department, per capita consumption of beer in the early 1900s was higher than any other point in time (British Beer and Pub Association, 2007, p. 3).

The consumption sharply declined following the First World War and Second World War due to restrictions in the pub operating hours, and other measures, for instance, reduced alcoholic percentage and proscription of “buying in round” for fear that excessive consumption will weaken the combatants. A small decline was also experienced during the Great depression of the 1930s (British Beer and Pub Association, 2007, p. 3).

Since 1950s, the per capita consumption of beer has increased exponentially. The per capita consumption reached its apex in 2004. However, the consumption started to decline in 2006 because of the new taxation laws and the global financial crisis of 2007/2008. In the last five years, excise duty on beer has increased to nearly 40 percent.

The escalation in excise duty has led to the increase in beer prices and cut-price off-trade trade buying. Strict driving laws, which prohibits excessive alcohol consumption also contributed to the decline. As a result, numerous pubs have been forced out of the business. The aggregate beer production also fell by 22 percent (TCS, 2013, p. 7; British Beer and Pub Association, 2007, p. 3).

Figure 1: Per capital consumption of alcohol in the United Kingdom

Source: Smith and Foxcroft (2009, p. 9)

Despite the dwindling level of per capita consumption, UK is still among the highest beer consumers in Europe with an average per capita consumption of 89 litres. Hence, UK residents are considered to be among the heaviest drinkers in Europe. As a result, UK remains the largest market for beer manufacturers across Europe.

As a matter of fact, 67 percent of the UK beer market is dominated by large multinational companies, for instance, Carlsberg and countless local breweries (IAS Facts Sheet, 2013, p. 5; British Beer and Pub Association, 2007, p. 4).

There is a rising trend of homes being converted into entertainment hubs among UK consumers. In addition, beer is increasingly being sold in off-trade premises, for instance, supermarkets and other retail outlets. This offsets the amount of pubs and clubs being closed due to the escalation in excise duty. For this reason, the UK beer market is still lucrative with abundant opportunities (Smith & Foxcroft, 2009, p. 14).

7 Ps Analysis of the UK Beer Market

Data on the current trends in beer consumption shows that beer volume growth in the UK continues to improve since 2011, though it is still low as compared to pre 2006 levels. The development signifies that the UK beer market is on its way to full recovery. At the moment, customers are looking for real benefits from the products and are buying beer in relatively small quantities due to high prices.

Furthermore, due to changing tastes and increase in household income, consumers are now looking for quality over quantity. As a result, there is a general swing towards premium beers. Stouts (strong dark beer) and ales are the most popular types of beer. This is shown in the survey result below; Guinness and Stella Artois tops the chart.

The per capita consumption is high among adults aged between 15 to 34 years. They are considered to be the heaviest drinkers. This group likes to ramble and party. Therefore, they are the target market for most beer companies. Moreover, studies show that the current designs of beer appeal more to the youths than older people. Adults aged between 35 and 55 are also high alcohol consumers.

They are known to frequent pubs, family get together parties, corporate events and major sporting events where alcohol consumption is rampant. This group of consumers goes to pubs not just for beer, but also for ambience and socializing. Therefore, these consumers do not choose an outlet based on the stocked brand alone.

For this reason, the Great British Banjo Company must cater for this category of consumers. It is also important to note that, in the United Kingdom, men and women drink in equal measure. In addition, there are increasing cases of underage drinking, though illegal (Smith & Foxcroft, 2009, p. 15).

Majority of the beer consumers in the UK are very conservative and loyal to particular brands. The loyalty is brought about by unique taste of certain brands, general corporate social responsibility, and club sponsorships among others.

They also value quality of ingredients that goes to the beer and time after time brewing style. For that reason, brand image and product quality are the most significant aspects. However, product prices are also becoming a significant factor. This is attributed to high cost of living and the current tax regime (British Beer and Pub Association, 2007, p. 5).

Well established brands enjoy the largest market share in the UK market. Some of the most popular brands include Carlsberg, Budweiser, Guinness and Castle Larger. As a matter of fact, they control nearly 80 percent of the market. This is a major barrier to the new entrants in the UK market.

As a result, Shackleton brand will find it very difficult to penetrate the UK market. Hence, they will have to employ all the available promotional tools. The company can also explore the new and untapped UK markets, for instance, home entertainment.

The promotion of beer and other alcoholic beverages in the UK encompasses a wide range of activities, including advertisements, sponsorships, featuring, loyalty schemes and electronic marketing among others. Alcoholic drinks companies have been among the top source of sponsorship in the last one decade.

No wonder, they are very popular among clubs and their fans, for instance, Carlsberg is synonymous with Liverpool football club (TCS, 2013, p. 7). Increasingly, beer brands are being promoted to a greater extent in the internet and online social media. For example, in 2013, Anheuser-Busch signed a multimillion dollar deal with Instagram to popularize Budweiser brand.

The social media enable these companies to interact directly with the existing and prospective customers. In addition, they also help in getting consumer views regarding a product or brand. According to the survey, promotional campaigns, featuring and visual aids are the most dominant channels used to introduce new brands into the UK market.

The UK beer market has all along been known to use discounts and volume-based price promotions as key marketing tools. This was aimed at enhancing the consumption levels. However, with the introduction of minimum price per unit policy (MPU) such practices have been abolished.

The new policy in conjunction with high excise duty on alcoholic products has forced brewers to increase beer prices. So, the two factors (MPU and excise duty) have a significant impact on the level of beer consumption in the UK (IAS Facts Sheet, 2013, p. 5). As indicated by the survey, most pubs and other retail outlets set their price margin at around 30% to 50%.

The margin is not stable and, therefore, varies in accordance with the price set by the brewers. For that reason, the Great British Banjo Company will have to produce low cost beer because it will be more attractive for the pub owners and other retail outlets.

Since most beer consumers frequent pubs not only for a particular beer brand, but also for experience and socialization, serving mode is very important. Some brands, for instance, Stella Artois have set a high bar with regard to their mode of serving. They portray a very expensive image through their exclusive packaging, pint glasses and Draught Barrels (Stella Artois, 2012, p. 9).

In the UK, most pubs serve beer in full pints, half pints and glass bottles. Half pint is increasingly becoming popular among low income segment due to the increase in beer prices. However, middle and high income segment are also embracing it because of strict driving laws, which prohibits excessive alcohol consumption.

References

British Beer and Pub Association 2007, Statistical Handbook: A Compilation of Drinks Industry Statistics, 2007, Brewing Publications, London.

IAS Facts Sheet 2013, Marketing and alcohol, Institute of Alcoholic Studies, London.

Smith, L & Foxcroft, D 2009, Drinking in the UK: An exploration of trends, Joseph Rowntree Foundation, Yorkshire.

Stella Artois 2012, Stella Artois and the Virtue of Consistency: Synopsis. Web.

TCS 2013, Brewery Industry in Transition: Embracing new Markets, Products and Consumers, Tata Consultancy Service Limited, Bombay, India.

Introduction

Companies, individual businesses and organizations function in an environment that has the target customers who are the core reason for its existence and the motive of making profit. The opportunity that the market presents motivates investors, agencies or government to set up business for that opportunity with the reliance on market information.

The uncertainty of the industry and basic internal and external environment changes do require the industry players to make strategic decisions based on the information available. This Porter’s five force model acts as an analytic tool for players in the industry to strategize by attaining higher market share, increased profitability and competitive advantage over the others in the same.

The model consists of the aspects threats of new entry, rivalry between competitors, threats of substitute products/ services, the bargaining power of customers and the bargaining power of suppliers. The model is very much relevant in the analysis of an industry faced with high competition but at the same time experiencing high profitability especially the beer industry and market.

Summary Analysis of the Brewery Industry

Maintaining of a high competitive advantage in the industry and higher market share requires more market analysis especially through the porter’s five force model. The industry is faced with high operation costs because of the costs of manufacturing, equipment cost, labour and distribution among others.

Further, the issues of competition in the industry are quite high as the need to maintain a high market share increases. Competition is motivated by the high returns expected from the industry. While there are product and service differences, homogeneity is high with customers having a wide choice of products and services to choose from.

The suppliers in the industry affect the industry due to the fact that the quality of their supply influences the quality of products which is then spilled over to the market. The industry faces challenges of being associated with drug abuse and crime adversely affecting the market (Porter, 1998). The relevance of all these factors culminates to the analysis of the industry using the five forces model (Ireland et al., 2008).

The Threat of New Entrants

The level of profitability in the beer industry motivates other people to get interested in investing with the desire to have a share of the high profits in the industry (Kotler, 1997). The beer industry is however faced with high initial costs in terms of factory set up, quality equipment and machinery, high costs of supply, legal requirements for market entry and other requirements such as environmental protection, standards requirements and governmental regulations.

This high cost creates barriers of entry into the market which is also encouraged by the high costs of marketing involved. However, when an established foreign company capable of meeting the high costs and with a global strong brand enters the market, the existing firms are faced with challenges of losing customers to the new firm and lowered profits.

The already existing firms thus counter the threats of new entry through customer loyalty which can be maintained through consistency in production of high quality beer, lowering the cost involved, changing the pricing mechanisms such as lowering beer costs and achieving economies of scale (Porter, 1998).

Threats of Substitute Products and Services

Although beer products by beer companies can be taken by the customer and serve the same purpose, the quality, flavour and style of the products is what differs. Since a customer can easily switch from one beer to another provided the costs and flavours are related, the players in the industry need to consider this threat. This is because; the ability to switch products can adversely affect the profitability of a company.

As suggests, this would call for product differentiation where customers are able to distinguish the beer from the others in the market. This is achievable through establishment of a strong brand, uniqueness in quality in terms of flavour, style of brewing and strength in quality, changes in the prices of beer relative to substitutes, product diversification to capture a wider share of flavours, effective marketing and distribution network (Porter, 1998).

Bargaining Power of Customers

The bargaining power of customers in the beer industry refers to the level of influence the customer plays in the market. Beer in the individual context falls in the category of luxuries that customers can do without while it is associated with drug abuse and crimes (Kotler, 1997).

This requires the beer industry players to focus more not only on how to attract these customers, but also how to retain them to your brand due to the ability to switch brands. This is enhanced through effective and persuasive and unique marketing strategies that get customers on board. Further, it requires the investment in customer research so as to identify their needs, requirements and preferences and then incorporate these in the manufacture and brewing process.

The players also need to focus on product quality improvement and establishment to pints where customers own up to the brand and become loyal. The customers in the beer industry have individual differences hence the need for product and market segmentation by offering different packaging styles at different prices and innovation (Rainer & Turban, 2009).

Rivalry between Competitors

The beer industry being highly competitive is faced with rivalry among existing firms since they share the profits in the industry and the fact that customers can leave one firm and shift to the competitor (Porter, 1998).

A firm in the beer industry thus needs to differentiate itself from its competitors to ensure customer loyalty through establishment of a strong brand, emphasizing on high quality products, its diversification so that customers have a variety of tastes and flavours to choose from without going to the competitor, offering reasonable prices and being consistent and reliable to the customers.

The firm also requires engaging in providing the information to its customers regarding its products through persuasive and unique advertising. Rivalry can also be overcome by innovation and development of new products thus lowering the costs of production so that the firm has economies of scale and is not affected by the changes from its competitors (Rainer & Turban, 2009). Healthy competition through ethical practices, maintenance of legal and environmental standards is also recommendable.

Bargaining Power of Suppliers

The bargaining power of suppliers in the beer industry is revealed in the level of influence they have on the prices of inputs. These include labour, raw materials among other inputs. These usually have a high bargaining power in the market since they influence the quality and the final pricing of the products (Porter, 1998).

This poses as a challenge to the firm where there is low competition for the suppliers. The firm needs to make use of strategies focused on emphasizing and vetting of the quality of inputs, making use of alternatives of innovation to lower the bargaining power of suppliers (Rainer & Turban, 2009). It is important due to the critical importance of inputs that firms focus on bulk buying of inputs especially raw materials for brewing so as to achieve economies of scale.

Conclusion

This paper has provided an analysis of these models as the threats of new market entry, threats of substitute products/ services, the bargaining power of suppliers, the rivalry between competitors in the market and the bargaining power of customers for the beer market.

The beer industry is faced with issues of having a luxury good, association with crime and drug abuse and high competition. Effective analysis of the market using these models based on information available in the beer industry is likely to provide a firm with economies of scale and a competitive advantage in the industry.

Reference List

Ireland, D. Hoskisson, R. & Hitt, M., 2008. Understanding business strategy: Concepts and cases. Boston: South-Western College Publications.

Kotler, P., 1997. Marketing management. New York: Prentice Hall Publishers.

Porter, M., 1998. Competitive strategy: Techniques for analyzing industries and competitors. Boston: Free Press Publishers.

Rainer, K. & Turban, E., 2008. Introduction to information systems: Supporting and transforming business. New York: Willey Publications.

Introduction

The case study on Samuel Adams, the Boston Beer Company, has been developed using information from the company’s annual reports, the website, and articles from mass media.

The case presents a background of the company, and then shows the present problems faced by the company and how they are related to the centralized hierarchical structure. Further, the case study will attempt to understand if such a structure is affecting the company’s performance and strategy.

Samuel Adams – the Boston Beer Company

The company under consideration is one of the largest brewers of handcrafted beer in America . The founder of the company Jim Koch maintains the traditional method of brewing which makes the company distinct in style. It brews 30 different styles of beer and has won numerous prizes.

The beer brewing industry has undergone considerable changes over the last several years. The Boston Beer Company is a leader in the better beer segment in the US and sells almost 18 percent of the beer in the country’s field . It also covers 1.3 percent of the overall sales in the American beer market .

Since its inception in 1984 the Boston Beer Company has been micromanaged by the founder Jim Koch who went bar-to-bar to promote Samuel Adams beer as well as appear in TV ads for the product in order to convince customers to purchase it.

Though many believe that Koch was a brilliant marketer, but the fear of an entrepreneur to micro-manage the company was evident in the operations and the strategy making of Samuel Adams. However, the Boston Beer Company went public in 1995, but the top-down approach of making strategy in the company remained with Koch leading the centralized decision-making process.

The next section shows how the strategy has been affected by the structure and control system of the company. Further, an analysis of the income statement of the company over the last three years shows that the net income of the company has fallen from 2011 to 2012 from $66,059 to $59,467 .

Structure and Control System of Samuel Adams

The BBC breweries have around 900 employees in Boston, Pennsylvania, and Cincinnati. The risk the company faces presently is the expansion of the market both in domestic and international markets. This results in no assured growth of the company making its future uncertain.

In addition, the company has increased its brands and products offering at the risk of eroding the sales of its already existing products. There is also a risk of the company owned breweries not to meet production target in future. Such problems that are impending on the company show that there are certain inherent challenges within the company that must be addressed immediately to remove the coming risks .

The first factor that we will consider in analyzing the internal problem of the Boston Beer Company is its structure. The organization’s control system is unpredictable, which has affected its stock prices. The company endeavors to make substantial expenses in marketing and promotional activities to promote its brand.

However, these expenditures have not resulted in higher sales in case of BBC. The increased expenditure in this sector has led to higher expenditures but sales have not picked up as expected. This has adversely affected the income amounts of the company.

It should be noted that the Boston Beer Company changed its strategy since 2008. Before 2008, it had employed a production-oriented strategy, which included that the company owned breweries worked in close coordination with the third party breweries that worked for the company.

The arrangement with the third party brewers allowed the Boston Beer Company to utilize excess capacity that gave the company flexibility to maintain full control over the brewing process, which its competitors could not. Nevertheless, since 2008 the company has acquired all the other third party breweries, increasing the company owned breweries’ production from 35 percent to 100 percent of its sales.

Though the management believes that this increased control over the production process will give them an edge over their competitors, it should be considered that such production complexities has led to “operation inefficiencies and control deficiencies” .

Such inefficiencies may have a negative effect on the company’s business. Moreover, this may affect the growth of the company and its performance as changes in its operations would lead to increased capital investments and increased complexities.

Another problem that the company faces is its dependence on distributors. Changes in the control of the company’s ownership in the distributorship network could hamper the distribution channel.

The CEO heads the company and the management include the CEO (Chief Executive Officer) and the CFO (Chief Financial Officer). The company structure of the executive body is presented below.

The structure and control system that the company utilizes to implement its strategy is highly centralized. The control system is becoming more and more centralized as the company has aimed at gaining complete control over all its breweries. This move is carried out by putting the production process under direct control of the CEO of the Boston Beer Company.

Further, the organization’s structure, as presented in Figure 1, shows that the CEO and the President of the company directly control the whole functioning process. The operations and the sales are under the supervision of the CEO and the CFO. Now, any of the operations of the breweries for any particular label are managed by the VP operations and the VP sales.

This demonstrates the degree of centralization in the operations and control of the company. Such increased supervision over the production and marketing processes is helpful when the company operates in a small market. However, when expansion is a strategy that the organization aims to employ, such a structure may become a hindrance.

It is caused by the fact that it operates on the basis of micromanagement, which is not possible in case of a larger company. Instead, it must be outlined that the company should operate with less centralization.

Hierarchical Structure

The structure of the company is hierarchical in nature, which enables the company management to have close control over the financial and operational processes of the company. However, the centralized structure of the company deterred its operations. Further, the hierarchical structure prevented the Boston Beer Company from expanding its operations.

The control structure and centralized structure adversely affected the performance of the organization. Hence, it can be said that the company needs to decentralize its operations to help expand its operations scale and gain a greater market.

The Boston Beer Company not only continues to succeed in their niche market but also thrives as a miracle. The article drills into the industry and the company’s evolvement, and discovers the secrets that make the company sustainable in three aspects: culture revolution, marketplace innovation, and operational innovation.

Works Cited

Coffey, Brendan. “How Boston Beer’s founder became a billionaire.” 2013. The Boston Globe. Web.

Samuel Adams. The Boston Bear Compny. 2013. Web.

The Beer Company. Annual Report 2012. 2012. Web.

US Securities and Exchange Commission. The Bostoon Beer Company FORM 10-K. 2012. Web.

Yahoo Finance. The Boston Beer Company. 2013. Web.

Eurasian Brewing Company (EBC) is a beverage company that was created in 2011 after the merger of two companies. The company is mainly established in Asian nations, including China and Singapore, producing various beverages. The company has recorded immense growth since its inception, with expansion to various countries across the globe and massive profitability. The management of the company has been a vital part of its success, drawing strategies that have enabled growth. EBC’s management sometimes disagrees with plans for the future, but these alternate views have been critical in guiding decision-making and expansion. In 2018, there was a crisis between two of the company’s top officials as they disagreed on the next step for growth and expansion. Le was EBC’s China and East Asia operations manager, while Vivian Chin was EBC’s marketing and export sales director.

Le suggested that the company introduced a new craft beer in China called Forbidden City meant to increase the company’s profitability within China. Chin, on the other hand, suggested the introduction of a new beer brand that had both national and international appeal called Wild Dog. Le felt that the entrance of foreign brands into the Chinese and Asian markets, in general, compelled the company to manufacture a local brand to cement its position. Chin and her team suggested that it was the right time for the company to become global, with the Wild Dog brand targeting young men. The popularization of the brand would involve content that displayed the brand as a masculine taste to capture the target market. Both Li and Chin had adequate reasons why their idea was accurate, one with sufficient evidence on the undertakings of their competitors and variations in their current financials. The managing director of EBC, Victor Wang, requested a meeting with both officials to discuss the favorable direction for the company.

Introduction

This memorandum seeks to provide a guideline that outlines the costs associated with the production of beer. In this case, the emphasis will be on a process costing system. Process costing is used when a company carries out mass production of similar products, especially in a scenario where the costs of the output cannot be distinguished from each other. Therefore, the cost of the beer is assumed to be the same as the cost of every other product. The company adds up the total cost of production and then allocates it to the number of units produced.

Direct materials

To understand the accounting costs that are associated with the production of beer, it will be important to understand the raw materials and other costs that are incurred in the processing departments. The first department is the mashing department. The “raw materials that are added to production in this department are ground barley malt, water, and milled rice” (Rios-Mercado and Rios-Solis 208). The second department is straining.

There are no raw materials to be added to the production process within this department. The third is known as the brew kettle department. At this stage, hops are added to the production process. The next step is the cooling department and no materials are added at this stage. In the next department, primary fermentation, yeast is added; and beechwood chips are added in the next department, which is the beechwood gaining department. The next department is filtering. No raw material is added in the filtering department. However, a final quality control check is carried out at this point. The next stage is the filling and packaging department.

At this stage, the packaging materials such as bottles and labels are added. The final stage is the shipping department. At this stage, cartons are added to the production process and the final products are transported to various distribution centers. Therefore, this summary lists the raw materials that are used in the entire production process.

Direct labor and manufacturing overhead

A review of the video shows that large machines are used in the production process. This indicates that the production of beer is capital intensive. Also, there are a few employees who are designated at some location. Therefore, their salaries and wages will account for the direct labor costs. An assumption that will be made is that labor costs will be incurred at each stage of production in operating and maintaining the equipment for making beer.

Further, the manufacturing overhead will be the depreciation of the equipment, maintenance costs, and the cost of utilities. It is worth mentioning that the production process of beer occupies a large space that requires utilities such as lighting, heating, and insurance, among other costs. These are some examples of manufacturing overhead costs. The journal entries presented below show a summary of the flow of accounting information for the production of a six-pack of beer (Rios-Mercado and Rios-Solis 208).

The production process ends once the bottles of beer are packed in boxes. Therefore, finished goods are accounted for in the form of cartons. It is worth mentioning that companies that manufacture beer often produce a variety of brands.

Each brand of beer makes use of different ingredients. Besides, the various brands arise because of differences in the process production. Therefore, cost should be allocated with the differences in the production process in mind. This implies that some material and conversion costs are allocated to specific batches and not to the entire production process. Therefore, it is important to take into account the brand that is being manufactured in the entire production process. The accounting entries for the costs are similar to those of job order costing (Drury 279).

Cost flow

In the case of the process costing system, the flow of cost does not differ significantly as compared to the other costing systems. The direct materials are added at the start of the production. The other costs, such as labor and other overheads, are added during the production process. In this case, barley malt, water, and milled rice are added at the beginning of the production process. Furthermore, some materials are added at some stages of production. From an accounting point of view, the first step is to record the purchase of raw materials. When the production of beer begins, the items are moved from the raw materials account to work in progress.

Therefore, the raw materials are no longer available for use. The final goods are those that are ready for distribution or consumption. Therefore, the inventory is moved from work in progress to finished goods. Finally, when a sale is made, the revenue and associated cost is recognized. The company makes use of both the weighted average costing method and the first-in-first-out approach to value inventory. Accurate estimation of costs is important for accurate pricing and making important financial decisions (Bhimani, Horngren, Datar, and Forster 198).

Works Cited

Bhimani, Alnoor, Charles Horngren, Srikant Datar, and George Forster. Management and Cost Accounting, England: Pearson Education Limited, 2008. Print.

Drury, Colin. Management and Cost Accounting, Boston: Cengage Learning, 2008. Print.

Hirano, Hiroyuki. The Just-in-Time Production System, Florida: CRC Press, 2009. Print.

Rios-Mercado, Roger and Yasmin Rios-Solis. Just-in-Time Systems, New York: Springer, 2011. Print.

Vanderbeck, Edward, and Maria Mitchell. Principles of Cost Accounting, Boston: Cengage Learning, 2015. Print.

Weygandt, Jerry, Donald Kieso, and Paul Kimmel. Managerial Accounting: Tools for Business Decision Making, London: John Wiley & Sons Ltd, 2010. Print.