Beer Industry Marketing Analysis Essay

The Beer makes up most of the alcoholic beverage industry, with a 74% volume in 2002 (Alcoholic Beverages, 2005). The production of beer around the world has increased from 36. 85 billions gallons in 2000 to 38. 78 billion gallons in 2003 (Alcoholic Beverages, 2005). Beer production has been a part of society close to the beginning of civilization. A Mesopotamian tablet dating back to 7000 B. C. contains a beer recipe named ?  §wine of the grain (Alcoholic Beverages, 2005). In 1292, a Czech Republic town produced its first pilsner beer. A prominent beer brand, Pilsner Urquell, brewing dates back to the early thirteenth century. Beer is produced with a mixture of mashed barley, malt, and rice or corn. U. S. brewers use filtration systems as well as add additives to stabilize the foam and allow long lasting freshness. Bottled or canned beer is almost always pasteurized in the container in prevent the yeast from further fermentation. After 1996, the U. S. beer industry had consistent growth with about 3,500 brands on the market in 2002 (Alcoholic Beverages, 2005). The U. S. exported beer to almost one hundred countries worldwide. The beer industry peaked production with 6. 2 billion gallons in 2003 (Alcoholic Beverages, 2005). The U. S. beer industry haws over 300 breweries. However, this industry is dominated by three companies: Anheuser Bush (45% of the industry), Miller Brewing (23% of the industry), and Adolph Coors (10% of the industry) (Overview of the U. S. Beer Industry, 2005). MARKETS BASIC PRODUCT/SERVICE OFFERINGS There are several different types of commercial beer, consisting of pilsner, lager, ale, stout, light, low-carb, malt liquor, dry, ice-brewed, bottled, draft, and non-alcoholic. Further, the U. S.market has been divided in to three categories: super premium, premium, and popular-priced (Alcoholic Beverages, 2005). In 2002, the U. S. Market Share Reporter stated that light beer consumed 40. 1% of the beer market, premium held 25. 9% of the market, and popular-priced beer held the remainder. Here is a brief description of the most popular types of commercial beers: ?  «Lager: a high carbonated beer, containing a low alcohol content, with a pale, medium-hop flavor ?  «Stout: a thick, dark beer, almost like syrup ? «Porter: a sweet, malty flavored brew with a farley high alcohol content ?  «Malt Liquor: a mostly malt based containing high amounts of fermentable sugars ?  «Light: a reduced calorie brew made by decreasing the grain amount used when brewing or by adding enzymes to break down the starch content in the beer (Alcoholic Beverages, 2005). One small segment of the beer industry is the micro brews. This segment as well as brewpubs had a double-digit increase in the U. S. throughout the early 1990?  ¦s (Alcoholic Beverages, 2005). However, this increase started to decline toward the end of the 1990?  ¦s. This was mostly due to overexpansion. This did not stop all the microbreweries from continuing to open in the U. S. which allowed this market to show considerable growth. In 2002, the U. S. reportedly had 396 microbreweries, 46 regional specialty breweries, and 994 brewpubs (Alcoholic Beverages, 2005). III. MARKET STRUCTURE AND ATTRACTIVENESS Market Structure The three major players in the brewing industry, Anheuser-Bush, Miller, and Coors Co. , have started increasing their market shares at the expense of smaller national brewers. The alcoholic beverage industry has gone through a consolidation period since the consumption rate has declined over the past few years (Overview of the U. S. Beer Industry, 2005). One of the markets that have flattened in this industry is the domestic beer market. This industry has hit a mature stage where consumption rates have flattened. This caused price increases to help suffering companies increase its profit margins (Overview of the U. S. Beer Industry, 2005). This along with increased vertical integration and inherent production economies makes it very difficult for a inefficient major industry player to compete nationally. The market that is dominating the brewing industry is the micro brewers. This group has found a niche market in the beer industry and has steadily driven the market share upwards. These companies normally target the smaller market segments and do not try to compete with the large industry brands. To achieve such successful profit margins, the micro brewers have the production process under contract with a regional brewer (Overview of the U. S. Beer Industry, 2005). Attractiveness The attractiveness of the beer industry is steadily growing. However, it is not growing in to area of large domestic brewers. This area of the beer industry has hit a flat consumption growth. The area that is become more attractive is the micro brews. From 1999 to 2002, the micro brew market grew almost 11 percent in the U. S. (Future of †¦Ã¢â‚¬ ¦ Specialty Beer, 2004). This has caused the major companies in this industry to break into this niche market by combining forces with smaller companies or penetrating the market with a new micro brew product line. This niche market remains attractive to any investors due to the fact that the micro brew consumers will not react negatively to higher prices or price increases (Overview of the U. S. Beer Industry, 2005). The other area in the beer industry that continues to flourish is the international beer market. From 1999 to 2003, the market share for imports grew from 9. 1% to 11. 9%, respectively (Future of †¦Ã¢â‚¬ ¦ Specialty Beer, 2004). Not only does the increase in market share hinder the domestic brewing companies, but the average case for imported beer is $24. 27 and for domestic beer is $16. 47 (Beer Report, 2003). This shows that imports sales are much higher due to increase in market share. As well, from a revenue stand point the international market has a higher attractiveness over the domestic market. From this, U. S. beer firms have penetrated into the international market by joining with international brewing companies to become American distributors for their brands. The continuing growth of U. S. beer firms penetrating international beer markets are due to the continuance of licensing agreements, direct exports, and foreign investments (Alcoholic Beverages, 2005). IV. Porter?  ¦s Five Forces Model A good way to look at the beer industry is by using the Porter?  ¦s Five Forces Model. This analysis will help analyze the attractiveness of the industry as well as discuss the ease of entry and exit. Threat of Substitutes: Substitutes for this market include wine and distilled spirits. The wine industry consists of grape wine, sparkling wines, brandy, and fermented dinks (Alcoholic Beverages, 2000). Most distilled spirits are based on name brand products including vodka, gin, rum, whiskey, and liquors and cordials. Both of these markets have a major capability of expanding due to international exports. Another substitute for the domestic beer market is the higher priced brewed beverages including micro brews or imports. Though these products do carry a much higher price, the customers willing to pay higher prices are capable of using a substitute. Threat of New Entry: The threat of new entry in this market is relatively low. The legal costs and economics of scale in the manufacturing and distribution areas of the beer market are strongly weighed to successfully compete (Overview of the U. S. Beer Industry, 2005). This prohibits most potential entrants. Buyer Power: Since there are many different competitors and substitutes in the alcoholic beverage industry, the buying power is in the hands of the buyer. The only approach to sway the consumers buying behavior is through advertising and marketing. Supply Power: Some breweries in the U. S. hold no supply power. All the company is responsible for is brewing the beer. On the other hand, the large domestic beers, for instance Coors Brewing Co. , have a manufacturing plant where it controls of the manufacturing process with it products. Companies who have this capability hold huge amounts of supply power. This sometimes eliminates manufacturing costs from another company. Intra-Industry Rivalry: Competitive rivalry remains strong amongst the three leading companies in the beer industry, Anheuser-Bush, Miller, and Coors. These three companies battle against each other through advertising and market share. The micro brews in the beers industry also compete against each other to hold a competitive advantage over other products at that level. This area of the beer industry competes as well using advertising, packaging, and market share. Political Variables/Trends There are quite a few political variables to consider in the beer industry. The first issue in this industry is the implementation of taxation on alcohol sales. Governments around the world strong believe in taxation on alcohol to both increase revenue and decrease consumption (Alcoholic Beverages, 2005). This trend has been effective since the consumers continue to purchase the products no matter how high the prices. The U. S. has had the lowest tax rates on its alcohol sales compared to other countries. In 1991, the tax rate on beer doubled to $18 per barrel, equally 16 to 32 cents per six pack (Alcoholic Beverages, 2005). This was a sharp increase from its previous tax rates. The next political view most companies have had to deal with in the alcoholic beverage industry is the issue of alcohol abuse. Many companies have to monitor how it markets its products to now allow the persuasion of binge drinking or excessive drinking. The National Institute of Alcohol Abuse and Alcoholism estimates costs of $140 billion per year relate to alcohol abuse (Alcoholic Beverages, 2005). Drunk driving has been another issue that beer companies have come under attack in relation to beer sales. The government has pasted several laws in the past to stricken the drink and driving laws. The U. S. Senate passed a law to decrease to legal blood-alcohol level from . 10 percent to . 08 percent. As well, a bill was passed regulating the legality of having open containers in a moving vehicle. This was passed in the Senate making it illegal to have any open containers in a moving vehicle. Marketing to minors was another issue that several beer companies got slammed with in 2004. Lawsuits were filed stating that some of the marketing tactics in the beer companies commercial were intention targeting underage drinkers (Lawsuits, 2004). The courts argued that the material used in the commercial ads were young video games and models ?  §chosen to appeal to underage consumers (Lawsuits, 2004). Some of the brewing firms decided to implement underage drinking warnings in its ads to cover itself from any future litigation Economic Variables/Trends The economic trend in the large domestic beer market has pretty much flatten entering in the maturity stage in the product life cycle. This will mean that sales will mostly stay consistent with little increase. Unless the major companies can try to dominate the niche markets in the beer industry, they will need to use advertising and marketing to drive sales. The fear of consumers switching to a substitute product like the micro brews could be present. Thus, branching out into that niche market would help the companies to gain higher market share and increase sales. Social Variables/Trends The major social trend in the beer industry is the ?  §low carb craze (MacArthur, 2004). Americans have entered into a low-carb phase. Beer sales decrease a good amount following the introduction of this phase into the American food markets. Anheuser-Busch had a heading start when this phase started since it was the first to implement a low-carb beer, Michelob Ultra, into the alcoholic beverage industry. This sparked a spin off with other major companies and soon mostly all major players in the industry had developed a low-carb beverage (MacArthur, 2004). Anheuser-Busch, Coors Brewing, and Miller were putting together a $300 million media campaign supporting any brands that help avoid a beer belly (MacArthur, 2004). In 2003, Bud Light still led the market with an increase from 2. 6% to 8. 1% while Coors Light volume decreased from 0. 6% to 8. 5% of the market share (MacArthur, 2004). Technological Variables/Trends Technology in this industry is mainly computer based focused. Companies use computer software and equipment to allow for efficient production of the products being manufactured. Also, increase in technology variables could mean better advertising strategies due to the technology created. On top of being used to speed up the production and efficiency of service, new technology also has been used to pull well-defined reports that become useful with inventory and point-of-sale purchases. V. ECONOMIC PROFITABILITY ASSESSMENT VI. MARKET POWER DISTRIBUTION AND PERFORMANCE VII. TARGET RECOMMENDATIONS