Business
Five Forces Analysis of the U.S. Brewery Industry
The beer industry can be considered from Section 312 in accordance with the North American Industry Classification system, which indicates that the brewery or the beer industry comprises of manufacturing of tobacco product and beverage (Tremblay and Tremblay). In the brewery industry, there are three types of firms or establishments. First type includes the firms that are involved in manufacturing of non-alcoholic beverages, second type consists of firms that focus on manufacturing of alcoholic beverages via the process of fermentation, and third type includes the firms that are considering production of distilled alcoholic beverages. Major category of Brewery industry of the United States is alcoholic beverages. In the year 2014, the brewery industry has contributed about $252.6 billion to the economy of the United States (Morris). Furthermore, the industry has generated above $83.17 billion in the economy, and has provided above 383,190 employment opportunities (The Beer Industry). Further, analysis of the industry can be conducted with the help of Porter Five Forces, which are bargaining power of buyers, bargaining power of suppliers, competitive rivalry, threat of substitution, and the threat of new entrants.
The bargaining power of buyers in the Brewery industry of the United States is high. Major components involved in making buyers of U.S., Brewery industry are wholesalers or distributors, retailers or restaurants, and consumers. Wholesalers and distributors have bargaining power, and they exert their influence on the market share by means of their marketing activities, support, and promotions, which are dependent on the incentives they receive from manufacturers (Oldroyd).
Retailers drive the traffic via their stores for improving sales, and for ensuring balance of profit margins. They are, however, focusing on sub-premium product brands because of economic conditions, and are offering higher selling price and increased margins. Further, consumers have more knowledge now, and their choices are exerting influence on the brewing industry (Broke). The consumers in the beer industry are also price sensitive, so they prefer sub-premium beers that are less expensive. The prices of beer have increased during the course of 5 to 6 years, and increase in the excise taxes is exerting its impact on affordability of beer and products of brewery industry.
Bargaining Power of Suppliers
The bargaining power of suppliers in the Brewery industry is medium. The competitive pressure from the bargaining power of suppliers is, however, low in the industry as a whole. Major ingredients that are used in beer are corn, hops, yeast, rice, and malt. Suppliers associated with the brewery industry area of grains and hops suppliers, barley and wheat farmers, wholesalers of wheat and corn, flour miller, suppliers of wood pallet, and sugar processors. When there are shocks in the market of these commodities, ban is put on these commodities, and price associated with brewers increases. But, in reality seller of these commodities are not entirely dependent on the beer market, so overall suppliers in brewery industry have moderate power. Further, aluminum suppliers or manufacturers of Aluminum cans are also suppliers of brewery industry, and they do not have control on price of aluminum cans, so they are enjoying moderate power in the brewery industry.
Competitive Rivalry
The competitive rivalry among suppliers of Beer industry is medium and increasing. In the Beer industry, competition among the seller is majorly based on quality, brand, and packaging in accordance with the price. The industry has gained remarkable strength in the recent years because of four main brewers, which are MillerCoors, Carlsberg, AB Inbev, and Heineken. AB Inbev, comprises of 45% percent of the market share of the United States (Mickle), while AB and MillerCoors is controlling 80 percent of the market share in the United States (Hindy). As a result of this consolidation, the competition for the loyalty of customers, access to raw material, and distribution, in brewery industry is increasing. Beer is a standard product, so it is difficult to differentiate, so the success of a company in brewery industry is dependent on beating rivals. Rivalry is; however, very high in the brewery industry, and it is also a major and most essential force of the company.
Furthermore, the craft - brewing sector is on its rise, they have gained 18% volume in 2014 (Kell). It is a competitive challenge for the brewery industry. The craft - brewing segment is also enjoying retail support, as a result of which it is gaining strength in the market. Moreover, import brands also present competitive set in the brewery industry.
Threat of Substitutes
Threat of substitute in the brewery industry is medium for increasing. Spirits and wine industry are gaining popularity in this regard. People have started consuming wine and spirits, because these industries have increased their promotions, and they are pricing their products more aggressively as compared to beer. They are also increasing perception that beer is less healthy than wine and spirit.
Threat of New Entrants
The threat of new entrants is medium. The brewery industry of the United States has seen the craft brewers entering into the marketplace in order to facilitate the customers, but barriers are still high, and these barriers are not letting other players to enter the marketplace. Big brewers in the industry are enjoying economies of scale; they have a capability of spending large amount of branding, promotions, and marketing. Further, there is a lack of shelf space of retailer, and the regulations of the industry are also decreasing agreements of distribution on a regional basis. Furthermore, the brewing process is highly capital intensive, because branding and manufacturing process is involved (Investments, Cannivet and Teufel). Additionally, the industry is highly taxed, and is also highly regulated at state, local, and federal level.
References
Brock, James W. The Structure of American Industry. New York: Waveland, 2016.
Cannivet, Michael, and Andrew S. Teufel. Fisher Investments on Consumer Staples. Hoboken, NJ: John Wiley & Sons, 2009.
Chris Morris. "Here's How Massive the American Beer Industry Has Become." Fortune. 5 Aug. 2015. Web. 21 May 2016.
http://fortune.com/2015/08/05/beer-industry-craft-beer/
John Kell. "Craft Brewers Now Produce 1 out of Every 10 Beers Sold." Fortune. 16 Mar. 2015. Web. 22 May 2016.
Oldroyd, Michael. Marketing Environment, 2007-2008. Oxford: Butterworth-Heinemann, 2007.
Steve Hindy. "Don't Let Big Brewers Win Beer Wars." CNN. 12 Dec. 2012. Web. 21 May 2016
The Bear Industry. THE BEER INDUSTRY ECONOMIC CONTRIBUTION STUDY. Rep. BROOKLYN, NEW YORK: BEER INSTITUTE, 2015.
Tremblay, Victor J., and Carol Horton. Tremblay. New Perspectives on Industrial Organization: With Contributions from Behavioral Economics and Game Theory. New York: Springer Science & Business Media, 2012
Tripp Mickle. "AB InBev Takeover of SABMiller Would Realign Global Beer Industry." The Wall Street Journal. 14 Oct. 2015. Web. 21 May 2016
