The United States Beer Industry
The brewing industry in the US took birth in year 1625 after the birth of first American brewery, which was named as Lager beer. This beer has changed a lot since its beginning, and so as the brewery industry. In the early decades of the nineteenth century the brewery industry was fragmented, and the competition existed only among few breweries located in small geographic regions. The introduction of mechanical pasteurization and refrigeration bin the later decades of the nineteenth century revolutionized the US brewery industry. This made the cross border trade of beer feasible for the Companies. The industry started to take its present shape in 1933 when the prohibition on beer was repealed. Today the beer industry is a 91.6billion dollar market in the US. It accounts for 85 percent of the consumption and 52 percent of total alcohol beverage sales. The annual production of beer in the United States is approximately 6 billion gallons, which makes the US beer industry the leading industry of the world.
The beer industry in the US is however changing continually due to which the business environment is becoming more demanding and versatility has become a must. The companies have adopted a variety of forms to coup with the changes. Variety of product offering, recognizing the threats and opportunities and finally changing the strategic goals are a few examples of strategy changes. This case study explores the aspects of the beer industry by using the Porter's five forces model, analyzing the internal rivalry existing in the industry, any supplier or buyer power, any threats and substitutes and existing entry barriers. The US beer industry today is healthy and generating high profits. Any significant shrink in the coming years is not expected as yet.
Why has the United States brewing industry become more concentrated over the last two decades?
The United Stated brewing industry has progressed in a predictable trend for the past 2 decades.
The size of the market remained constant yet the share of the players has been redistributed constantly. Many big brewers declined while others got bigger. Craft brewers flourished and regional brewers descended. The rise of the imports was one of the most unpredictable changes that came up taking 12 percent of the market. That old beer industry has now been changed and has gone beyond the brewers’ control. Vintners and distillers are snatching volume share, and the analysts foresee that this trend will continue in the coming years.
The US beer industry has shown a clear trend towards increased concentration of the beer market. Today approx 80 percent of the beer consumed in the US is being produced by only three companies. SAB- Miller, Anheuser Busch and Molson Coors dominate the industry, where the competition is about brand loyalty, aggressive pricing, advertisement expenses and distribution channels. On the other hand, another segment is the premium beer segment being served by a reasonable number of importers and microbrewers. Majority of these enjoy only 1 percent of the market share. The focus of the premium segment is on the discerning buyers. The Producers concentrate on taste and brand and charge high prices in order to cover the product costs. Another reason for the concentration of the beer industry is that the demand for the beer has shown a declining trend over the past two decades due to increasing popularity of different substitutes particularly spirits and wine.
Analyze the competitive structure of the industry using Porter’s Five Forces Model
Porter's Five Forces are supplier power, threat of substitutes, barriers to entry, buyer power and the rivalry that results from the four forces. In the US beer industry, these forces determine the dimensions to access to distributing products, the inputs to produce beverages, the ability of the consumer buy the products and consumers switching to other.
Porter’s Five Forces model is used for business strategy development and industry analysis focusing on the Micro-environment of a company in an industry and tries to determine the profitability and competitiveness of the industry. However, it does not address the macro factors like government regulations, socio cultural issues and technological advancements which can result to be significant forces for the industry.
The United States brewing industry has progressed a lot over the years with considerable policy amendments, and also consolidation between the breweries and suppliers/ buyers and the mutual agreements has been of great advantage to the industry. Whereas the rapidly changing control structure and ownership of the distribution channels which are a result of the amalgamations and mergers, cannot be emphasized adequately within any of the five forces. Therefore, it can be concluded that Porter’s 5 forces model gives a sound ground to begin with analyzing the United States Beer Industry’s attractiveness, yet in order to develop pervasive strategy and a robust to fit in with the dynamics of the present industry framework, a broader perspective is required which may need to introduces certain other metrics of analysis.
What are the implications of the evolving competitive structure in the brewing industry for the profitability and strategy of a smaller mass market firm in the industry?
Competitive structure in the brewing industry is evolving rapidly and the smaller mass market firms need to have a strong competitive strategy in order to maintain their existence and to follow the existing companies. The smaller mass firm will have to adopt defensive or offensive strategy to strengthen a firm's position with respect to the five competitive forces. By strategically positioning the firm so that its capabilities are best utilized providing defense against the existing competitive forces, maintaining the balance of forces via strategic moves that enhance the firm's relative position or shifting the underlying factors of the forces & responding in order to exploit the change by selecting an appropriate strategy for a competitive balance as early as possible prior to the recognition of the rivals.
Are there different strategic groups in the industry? What are they? Do you think the nature of the competition varies between the groups?
Different strategic groups do exist in the US beer industry some of these groups include technology, research and development, supply chain, marketing and manufacturing. The nature of the competition varies between the groups a little yet the focus is to beat out the competition.
References
Nelson. J. P. (n.d).Beer Advertising And Marketing Update: Structure, Conduct, And Social Costs.(n.p)
