BrewDog
Executive Summary 3
Introduction 4
Market Description and Product line Review 5
Environment Analysis 6
SWOT Analysis 8
Marketing Objectives and Strategy 8
Target Market, Segmentation and Insight 9
Competitive Advantage and Brand Development 10
Marketing Mix 10
Evaluation and Control 12
Conclusion 13
References 14
Appendices 16
Executive Summary
The Beer market in the U.K. is at an inflection point. The post recession phase from 1013 onwards, saw resurgence in the declining fortunes of beer. The U.K. government regulation, change in consumer tastes and behavior and product innovation led to the growth in the craft beer segment. This segment shows immense potential and growth in the future. BrewDog was launched in 2007 as a high quality craft beer which catered to the palates of discerning consumers. It has single handedly catapulted the industry into a new growth phase. But now the challenges are many. High growth rates have resulted in brand proliferation and hyper competition. This document details out the actions that BrewDog needs to take in 2016-2017, to sustain its leadership position – by expanding into new geographies, innovating with new products, launching or discontinuing certain SKUs based on ROI and Contribution, focusing on profitability, optimizing production, distribution costs and continuing its reliance on an irreverent brand image and disruptive promotion strategy. Suggestions include an SKU rationalisation plan, product mix optimization, trade incentivisation, increasing SKU based channel penetration and key evaluation and measurements to monitor performance across SKUs.
Introduction
Beer has been in existence since 4000 BC when the Sumer people fermented a form of bread to make an intoxicating drink (Beer Academy, n.d.). Today, beer is one of the most consumed beverages, creating more than 2 million jobs in Europe and around 900,000 jobs in the U.K. With retail revenue of more than £18 billion a year, beer is one of the top beverage businesses (Beer Academy, n.d.). There are more than 3,000 types of beer available with consumer population of around 25 million. There are around 1300 breweries and about 200,000 licensed premises which serve beer (Cumming, 2015). About 2.5 million pints of British beer are exported every year and many global brands like Anheuser-Busch InBev, Heineken, SABMiller and Carlsberg are competing for market share in the U.K. and across the world. The global market for beer is around $150 billion (£103 billion), with a large share of 70% being controlled by these giants. Beer is ingrained in British culture with old pubs and the drinking ritual after work, which was a part of the post industrial revolution. The beer market in the U.K. has changed over the years, with the fastest growing segment of women (28% of beer drinkers) and youth (Mintel, 2014). The fastest growing segment is the craft segment with growth expected to propel the beer industry to £9.6 billion by 2020-21 (BGGateway, 2015). The beer market in the U.K. has witnessed many ups and downs over the past few years. Though the period 2009 to 2013, saw a decline in consumption of more than 500 million litres, the following years have seen a resurgence and rapid growth (Mintel, 2014). The upsurge in the beer market since 2014, has resulted largely due to 3 critical factors – the introduction of the 2002 tax incentives regulation, the rapid change in the beer consumer (millennial youth and women) and product innovation, that has become the hallmark of a new category of craft beers (Cumming, 2015). BrewDog has been instrumental in driving growth for the beer industry and is seen as the primary driver of industry growth in the U.K. beer market. Though BrewDog holds the pole position in terms of leadership, the rapid growth has also resulted in more competition, with consumers becoming more discerning in terms of tastes, behavior and preferences.
This paper is intended as a strategy document to seek the formal approval and views of the Board of Directors at BrewDog. It presents a strategic view of the market, opportunities and challenges for BrewDog, various market dynamics, consumer behavior and preferences, their impact on BrewDog and a strategic marketing plan for 2016-2017, to fuel the next era of growth.
Market Description and Product line-up review
Overall Market size (U.K.):43.8 million Hectolitres (As of Q2 2015. See Appendix A). BrewDog commands approximately 0.3% of the overall market as of 2015 (Appendix C).
BrewDog Data: BrewDog has seen phenomenal growth since its inception in 2007 (Appendix C). The key market segments that are relevant for the beer industry are based on the type of beer, process, taste, ingredients and ABV (Alcohol by Volume):
Lager – which is a lighter, amber coloured, but clear beer. It is filtered after fermentation and then pasteurized and packed in cans, bottles or kegs (Mintel, 2014).
Many brands of beers are reducing their ABV below 2.8% to get the tax advantage from the government. These low alcohol beers also seem to be gaining in popularity.
The lagers can be further classified as per their ABV as follows - standard lager has an ABV of 4% or less, Premium lager around 5%, Sub premium, between 4 and 5% and super strength with ABV of 7% or more (Business Wire, 2015).
Ale - is a mild beer and bitter. This category includes many top fermented beers like IPA and APA (Indian and American Pale Ales), stouts, porter, barley wine, brown ales and so on. Unlike lagers, during the fermentation process of ales, the yeast floats to the top. Lagers are bottom fermented.
Cask ales - are produced by an aerobic process and need to be consumed quickly. These are stored in pubs and served without any more carbon dioxide or nitrogen pressure. Alcoholic ginger beer is one variety of ale.
Stout - usually derived from porter, it is a dark beer with a unique flavor because of the use of dark roasted barley and hops. The BrewDog range of products consists of beers which have an ABV ranging from 3.8% t o 16.5% (Appendix D).
Environment analysis
According to Smith, in The Drinks Business, the number of real ales sold in Britain is now more than 11,000, with real ale leading the pack selling 634 million pints a year (2015). According to Mintel Research, craft beer is helping drive the “premiumness in the segment” (2014).
About 34% of beer drinkers did not mind paying more for craft beers. The price value equation is well defined for craft beers. Consumers are willing to pay for quality and every craft beer maker is promising quality at a premium price. However, many of the consumers are not really ware of what craft really means, how it is produced and they need to be educated on these aspects.
In addition to global brands like Heineken, Stella, Peroni and Miller, there is immense brand proliferation that is seen in the craft segment. Brands like Camden Brewery and Meantime (bought by SAB Miller) are competing for the same consumer. Hyper competition is going to force many breweries to scale up and expand production and distribution. There is also the need to hyper differentiate the brands. Many of the products which do not resonate with the changing tastes of the consumer will have to be phased out. There could also be price war and consolidation in the business. Many of the smaller breweries will not be able to compete and will be forced to fold up or taken over. The large global brands have also begun to invest in the purchase of craft breweries. This will add to more challenges in the craft segment. Applying Michael Porter’s Five Forces model to the beer market will help us define the industry context and BrewDog’s relative position. As defined in this model, BrewDog is operating in the craft segment, which is small but growing fast as compared to traditional beers. However, there is a low concentration ratio among the craft competitors (Quick MBA, n.d.). This shows that the market is quite fragmented with many rivals and BrewDog will have to act strategically to lead the market and grow. BrewDog will need to quickly scale their production, distribution and derive cost efficiencies.
Since 65% of the BrewDog sales are from exports, rapid expansion in the foreign markets is necessary to create barriers of entry in those countries. That would also necessitate a thorough understanding of the consumer behavior and habits, culture and so on.
Government regulation cost and incentive structures will also need to be considered. Buyers and suppliers will be more powerful in a densely competitive environment. Threats can also emerge from me-too products and flavours, which will mean that BrewDog will need to follow aggressive marketing tactics to remain top of mind and gain share from old and new users.
SWOT Analysis
Marketing Objectives and Strategy
Objectives
Continue to invest in the brand and sustain leadership position
Enhance consumer awareness, recall and preference
Increase market penetration – new products, new markets, new users, build loyal users
Launch new products – hyper differentiate to satisfy discerning consumers
Gain rapid market share by geographic expansion
Sustain and enhance brand perception and value
Marketing Strategy: Situation analysis
Target Market, Segmentation and Insights
BrewDog has a range of 65 beers as of 2015. The range includes many traditional ‘headline’ products which target a large part of the beer drinking market, but there are other specials and seasonal products too. BrewDog will need to develop a clear targeting strategy in terms of its products and segments. Mass marketing to a large group is obviously not an option since the products are developed for niche tastes (Appendix E). The recommendation is to grow the major products, invest in a few which have potential, but reduce the total number of products which fall under the “Dog’ category as per the Boston Consulting Group Matrix. BrewDog needs to clearly position its range to the right target segments and follow a Differentiated marketing strategy.
Competitive Advantage and Brand Development
BrewDog is operating in a very competitive market. The proliferation of brands and entry of new large players in the craft segment will pose significant risks to market share development in future. BrewDog should aim to quickly build competitive advantage by launching new products, target new geographies, improve the distribution in terms of number of off trade and on trade outlets, enhance core research to launch new products for varied tastes, build loyalty by engaging consumers and building on the current brand image of being different, irreverent, anarchic.
Marketing Mix – Product, Price, Promotion (promotional plan), Place
Product: BrewDog needs to review its product mix strategy. A rationalisation of SKUs is necessary to ensure that gross profit goals are met every week and every month. There are a total of 215 SKUs as of 2015. The flagship product in terms of sales is Punk IPA followed by Bashah, Five AM, Tactical Nuclear Penguin, according to BrewDog, but may not be in terms of sales volume or revenue (BrewDog, n.d.). The key is to measure offtake at major outlets and then plan the SKU deployment. Managers need to be given a list of top 20 SKUs for their area and regions based on sales (Verno, 2012). A disciplined SKU management process will ensure that the right product SKUs are available when needed and there are no stock-outs or no-sales periods. It is clear that Punk IPA is the flagship product that needs to be pushed into market to gain market share from competition. New innovations in packaging and flavours will help satisfy loyal customers and induce new customers to trial. Sampling of products must be carried out at regular intervals to ensure that feedback is available. Brand name and pack design should continue to be ‘anarchic’ and ‘irreverent’ to appeal to the youth.
Price: BrewDog as a brand defines the premium segment in the craft category and should continue to do so. Though all the products are perceived to be of high quality and consumers are willing to pay a premium, the fixed and variable costs allocated to each new product, will dilute overall profitability in the long run. BrewDog must keep the price value equation top of mind with its pricing strategy. Since the market is highly competitive, many brands will seek to capture share by lowering prices. However, sustained efforts in building the leadership image will help BrewDog to sustain its premium pricing strategy to meet its growth objectives.
Promotional Plan: Promotional strategy should continue to be disruptive and path breaking. Creating disruptive stories for PR and social media consumption should be the key strategy. Sports promotions, Events and pub promotions should be unique and exciting. Media mix should include TV and digital media – Facebook ads, YouTube videos, Instagram, Twitter. Media strategy should aim to enhance consumer engagement with exciting news, updates, contests, celebrity engagement, brewery visits, Flash Mobs.
BrewDog tone of voice must reflect leadership, stay irreverent, but be relevant and contemporary. BrewDog Bars should launch celebrity nights (rockers, rappers, controversial writers and poets, cultural icons, unannounced promos and happy hours, new product sampling events and so on. In addition, the plan should include an efficient merchandising strategy based on the retail outlet and a branding strategy. Since the audience is very digitally inclined, BrewDog will need to engage its consumers digitally – with a new App that details out new launches, products, SKU availability at outlets, asks for feedback and helps consumers locate a bar or nearest outlet.
Place: BrewDog will need to expand its distribution network to achieve quick penetration and gain market share. A SKU based trade incentivisation strategy would help increase penetration into new large format and convenience stores. The multi-pronged expansion strategy should focus on the development of outlets and expand the number of bars. BrewDog needs to quickly expand its production and distribution facilities, to optimise the cost of transportation and delivery. Channel efficiencies should be evaluated to check on profitability by SKUs.
Evaluation and Control
Evaluation of the plan should be done by regular measurement of key metrics. Weekly reports from sales operations will provide an update on key metrics. Detailed monthly meetings will ensure that the metrics are discussed, results reviewed and actions taken to improve a situation or resolve issues. Key among these will be SKU metrics – total SKUs in market, total added, total SKUs discontinued, balance in warehouse or on the watch list for discontinuation.
Sales and revenue per region per quarter, Contribution based on SKUs, cost of customer acquisition, ROI – sales, marketing, operations, technology, category market share, industry share, Share of Voice, Digital metrics like engagements, conversions, conversations, event metrics like attendee numbers, TV reach and penetration.
Conclusion
BrewDog is a leading brand in the craft beer segment. Over the years, the brand has managed to gain rapid growth and mind share. Sustaining this effort will be the key to propel the brand to the next level. Along this path, the brand faces many twists and turns – mainly due to the changing needs of the consumer, proliferation of new micro breweries and brands and the aggressive acquisitions and marketing from traditional global brands, which are losing market share.
With the right competitive stance, strategic insights in product development and marketing, BrewDog will be able to sustain their leadership position in future.
References
Beer Academy. n.d., ‘A Brief History of Beer’, [Online], Retrieved 14 February 2016 from: http://www.beeracademy.co.uk/beer-info/history-of-beer/
Business Gateway. 2015. ‘Market Insights’, BGgateway, [Online], Retrieved 14 February 2016 from: http://www.bgateway.com/documents/industry-sector/Market_Insight_Craft_Beer_October_2015.pdf
Reeves, M., Moose M., and Venema, T. 2014. ‘BCG Classics Revisited: The Growth Share Matrix’, BCG Perspectives, [Online], Retrieved 14 February 2016 from: https://www.bcgperspectives.com/content/articles/corporate_strategy_portfolio_management_strategic_planning_growth_share_matrix_bcg_classics_revisited/
BrewDog.n.d. ‘BrewDog’, Brewdog.com, [Online], Retrieved 15 February 2016 from: https://www.brewdog.com/
Business Wire. 2015. ‘Research and Markets: United Kingdom Breweries & The Beer Market Report 2015’, BusinessWire, [Online], Retrieved 15 February 2016 from: http://www.businesswire.com/news/home/20150925005353/en/Research-Markets-United-Kingdom-Breweries-Beer-Market
Mintel Research. 2014. ‘Beer – UK’, Mintel, [Online], Retrieved 15 February 2016 from: http://store.mintel.com/beer-uk-december-2013?cookie_test=true
QuickMBA.n.d. ‘Porter’s Five Forces’, QuickMBA, [Online], Retrieved 15 February 2016 from: http://www.quickmba.com/strategy/porter.shtml
Smith D. 2015. ‘Beer Guide Praises UK Craft Beer Growth’, The Drinks Business, [Online], Retrieved 15 February 2016 from: http://www.thedrinksbusiness.com/2015/09/beer-guide-praises-uk-craft-beer-growth/
Cumming, E. 2015. ‘UK craft beer: taking over the world one pint at a time’, The Guardian, [Online], Retrieved 15 February 2016 from: http://www.theguardian.com/lifeandstyle/2015/nov/08/craft-beer-indepedent-brewers-micro-ed-cumming
Verno, J. 2012. ‘Beer Brief – SKU Deletions, Part 2’, Verno’s Executive Advisory Services, vol. 9, no. 6. Retrieved 15 February 2016 from: http://www.verno-consulting.com/media/uploads/verno_6_aug_'12_sku_deletions,_part_2.pdf
Appendices
Appendix A
Appendix B
(Source: British Beer Pub Association, 2104)
Appendix C
Appendix D
Appendix E
