Brewing industry like any other industry has their global and local force that impacts its performance towards its goals. Also there are environmental factors that may lead to its success and at the same time to its failures. These factors if not well analysed or considered may affect both the investors, employees and the customers or consumers. PESTEL analysis gives opportunity to awareness of influences that can develop success or failures to particular strategies. Together with PESTEL, business external and internal environment is to be analysed. Michael porters five forces analysis gives a wide understanding of all competitive dynamics and enables managers to deal with internal and external environment for the best success of its industry.
Western Europen brewing industry as other global brewing industry have its success and failure factors that need to be analysed using PESTEL being political, economic, social, technology, environment and legal issues and competitive advantage on strength, weakness, opportunity and threat (SWOT) has to be established and defined on how they do affect the industry in western European.
PESTEL’s framework analysis having six categories of political factors, economic factors, social, technological, environment and legal factors have been analysed and suggested for use by the European brewing industry.
Most of European government have banned for driving while under the influence of alcohol. Drinking on duty also been banned. This have an impact of decrease consumption of beer in functions like get together , weddings, restaurants, bars and pubs where participants is to go home driving. Government campaign against the use of alcohol also caused adverse effect within the industry. These factors resulted in the switch to a growth in the off trade market. Sales switched from mostly being sold in pubs, bars and restaurants to most sold in supermarkets and the like of stationed sales. Government involvement into the antisocial behaviour as a result from alcohol consumption was an added reduction agent to beer consumption. Generally, from the government involvement in binge drinking, drunken driving, beer sales in western Europe were effectively driven down.
Due to the falling in the profit margin in this industry, brewing companies were forced to go for acquisition and alliances or trademark and patent leasing to other regions like Asia, America and other part of the world where there was permissible viable market. Unemployment and low economic growth rate was an added impact on the brewing industry. Western European brewing industries faced a downfall in demand of beer or alcohol in general as a response to government against binge drinking and avoids drink and drive. A person concentrates on the basic needs and essential requirement. Supermarket benefited from increased sales of alcohol as a response to government campaign against alcohol consumption and ban on don’t drink and drive and also the binge drinking. The Western Europe markets, the rising of cost of raw material and cost of production did result to the rise in price of brewing industry products, and also gained a huge packaging cost amount to almost half of non-labour costs. The decreases in beer consumption led to innovative and start production of non-alcohol brewing industry products which resulted to the rising of its sales of premium brands products which were high priced.
As a result of government campaign on health effect resulting from binge drinking and use of alcohol. The social perception of beer being for a certain group of age and the awareness that stopping consumption of beer can lead to weight control, fitness added weight on reduction of its consumption. The don’t drink and drive benefited the family as the majority decided to drink while home hence spending most of off work time with the families. This promoted the off trade sales in supermarkets and stores.
The improvement in the working environment like updated machine which reduced the use of human resources, the change in the packaging, resizing the quantity, deployment of economies of scale improved the production cost and then generating more profit and also facilitating exportation abroad. Innovative technology into the maturation and also the preservation which took at the extension of the former shelve life of industry products motivated to the stabilising and motivation to the move to new way of consumption and hence rising into the sales.
Ecological changes and nature aspects such as weather, climate or season’s influences production and consumption of alcohol. Increase awareness on calamities affects the company’s operations and its product they produce. The growth into the market has been identified into premium beer products and has resulted into the increasing quality and prices in the industry.
Through certain set law on employment such as working hours, occupational health and safety requirements, consumption law and demographic set criteria directly influences the company cost and demand for the beer products. Demographic discrimatory law on beer consumption lead to low beer consumption.
Five forces factors:
Five forces analysis is an analysis framework tool for industry analysis and business strategy introduced by Michael E. Porter of Harvard business school in 1979 with consideration of industry economic activities as may be determined by the five factors on its competitiveness intensity and its attractiveness. With the application of SWOT being strength underlying the characteristics of the function business, or project team that give it an advantage over others, Weaknesses referring to characteristics that place the team at a disadvantage relative to others, opportunities as an external chances to improve performance in the environment and threats covering external elements in the environment that could cause trouble for the business or project.
It considers internal strengths and weakness that one organisation has as it may be compared to other organisation within the industry and the opportunities and threats that this organisation may enjoy or face within the industry and goes further on explaining what has to be done either by maintaining the strengths or overcome the weakness and also looks at how it may utilises the available opportunities and again how to combat the threats may be identified. It deals with the defining of the organisation objectives and identifying factors that may favour or factors that can affect the achievement of these objectives. The five forces are bargaining power of suppliers, bargaining power of customers, threats of new entrants, threat of substitute products and competition rivalry within industry.
Threat of new competition.
For any business that is perceived that its markets yield remarkable returns will attract new firms. The new entrants into the industry will decrease the enjoyed profit for old firms in the industry. Strategies by the old firms only can result to new firms be blocked by incumbents, otherwise the enjoyed profit margin rate will tend towards zero resulting to perfect competition. The industry with most attractive segment is those with high entry barriers against low exit barriers this will lead to few new entrants and large number of non performing firms exiting. Standards of economies of production, brand equity, switching cost or sunk cost, capital requirement, customer loyalty to established brands, absolute cost and industry profit may be indicators to new firms into the industry. The increased western European brewing industry competition as was been driven by global competition, the introduction of premium brand products from both within and global have contracted the market and profitability
Threat of substitute products or services
Availability of substitute products and introduction of premium and non-alcohol products that can be used instead of the product a firm is offering gives customers alternative choices for their preference. This may be a result from factors such as buyer propensity to substitute, by price comparisons or performance, consumer’s income determinants, perception as towards product differentiation, range of substitutions and substitute performance to utility. Information-based products as a result of advertisements and promotions. Product standard and its quality and mode of packaging and distribution.
Bargaining power of customers (buyers)
The bargaining power of customers as described as the market of outputs which is a result of demand of product and the need to R&D and that of the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. The customers attractive pattern to the firms concentration ratios, expected and enjoyed channels of distribution, leverage in bargaining towards fixed costs, comparison between the switching costs of the buyer to that of the firm. Buyers expected information, price sensitivity, uniqueness and consultation pattern are determinants to how customer can influence the industry. The availability of wide range of varieties of local and global substitute products and the introduction of non-alcoholic and premium branded products offers customer free will of choice and hence pushes the firms to intensive innovation and promotion to maintain position in the market. This have been witnessed in the western European brewing industry.
Bargaining power of suppliers
The market of inputs. Suppliers of raw materials, components, labour, and services being important resources is taken as a source of power over the firm, the fewer the substitute the more the supplier ability to decide or be willingly decide to go into business with their preferred contract terms . Suppliers may refuse to work with the firm, or, e. g., charge excessively high prices for unique resources. Factors such as supplier switching costs relative to firm switching costs, degree of differentiation of inputs, impact of inputs on cost or differentiation, presence of substitute inputs, strength of distribution channel, Supplier concentration to firm concentration ratio, Employee solidarity, supplier competition – ability to forward vertically integrate and cut out the buyer. Scarce on the packaging material and the production resources motivate the suppliers to enjoy the free role to determine the price in the market. All those factors has mostly affected the western European brewing industry.
Intensity of competitive rivalry
The intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation, competition between online and offline companies, level of advertising expense, powerful competitive strategy, flexibility through customization, volume and variety. The western European brewing industry have seen the active competition in both the packaging, quality, and information to the consumers as a response to the introduction to premium brands, non-alcoholic drinks and energy drinks as in the market.
In conclusion, the western European brewing industry has gone through an intensive and dynamic environment to which it have been seen both politically, economically, socially, technically, environmentally and legally. The switching from one type of market features to the next need an effective strategic plans and an effective analysis to the strength and weakness and effective use of opportunities while developing and effective tool to combat threats that may face the industry. Innovation of favourable advantages as may be compared to competitors and the good understanding of target market gives an advantage over the others.
For the three breweries outlined above (or breweries of your choice) explain:
How this trend will impact differently on this different companies; and
The relative and strengths and weakness of each company
As it has been declared from the case study, Anheuser-Busch InBev (Beligium), Greene king (United Kingdom) and Tsingtao (china) is the world’s largest brewing companies, obviously had been differently impacted within the industry. And the effect differs from the way a company’s strategy and its competitive advantage it enjoys in the market.
Anheuser-Busch InBev had its concentration in the corporate reputation acquired from its mergers, acquisitions and market image strategy of opting to be the best beer company in the world. Its image in Latin America with the soft drinks markets and the acquisition of the leading brewer in 2008 made it indisputably the world leader. It has added advantage from its leading brand products globally such as Becks, Budweiser and Stella Artois. However, it has shown weakness in competing in countries where there is a leading breweries company as what happened in china where it was forced to let go of local subsidiaries and a brewing plant operation in 2009. Strategically it is enjoying its global image and brand and its strengths in making itself the world’s best by building strong global brand and increase efficiency from central coordination of purchasing and also using the media and information technology. By optimisation its inherited network and sharing of best practice across the network.
Greene king although it has a traditional reputation in UK, the trend indicates the decline on its share of profits as a result to being dominant in the uk market and the reduced consumption of beer in pubs, restaurants and on trade market will affect it a lot. But the acquisition to other brand and then closing them led to having the major portion of the domestic market and little efforts to global competition. Its focus to quality maintaining and brand consistency has assured existence and stability.
Tsingatao -China, although it enjoy its local market, its strength is on brand management and export strategies. It focus on growth and diversification to acquire bigger share market globally.
Anheuser-Busch InBev (Beligium) is enjoying strength in scale of economies, technical capacity, market entries, product development and standing strong brand. It have weakness in controlling its local market and and wide operations.
Greene king has strength in experience, technique capacity and efficient production.
Tsingatao -China, strong in local market competition, cost saving in production and opportunity utilisation while its weakness is in growth strategic definition and brand positioning.