Introduction
The beer market is highly important for Australia when it comes to the economy. This sector generates approximately $4 billion in tax revenues. This makes beer very important to the government. The following discusses the Australian beer industry and different strategies these companies can implement in order to increase revenue (MarketLine Industry Profile 7).
The beer market in Australia saw moderate value shrinkage between the years of 2010 and 2014. This shrinkage is expected to continue till 2019. The Australia beer market is mature. “Although only contributing 6 percent of the Asia-Pacific market’s value, per capita spending is high: $446 in 2014, compared to $195 in Japan and $84 in China” (MarketLine Industry Profile 7).
In 2014, the revenue of the Australian beer market was $10.3 billon, with the compound annual rate of change of -2.7% between the years of 2010 and 2014. The decline in volume is a long-term trend. This is due to the fact that Australians are increasingly switching to wine instead of beers and lagers. The market is anticipated to continue to decline, however, it is a much smaller decline. The anticipation of market decline for the Australian beer market is -1% from 2014 to 2019 (MarketLine Industry Profile 7).
Within the beer industry, SABMiller is the leading company throughout the market. This company holds 42.4 percent of the market share’s value. The second company, Kirin Holdings Company Limited holds 42 percent of the market. Coopers Brewery Limited is the only other competitive beer company and they represent 6.4 percent of the market. Approximately 9 percent of the beer market is from other, less competitive organizations (MarketLine Industry Profile 12).
Economies of scale
It is important for beer companies to keep up with the demand for their products. If the consumer is not given the option of a specific beer, then they will be more inclined to choose a substitute. This results in a loss for one company and a gain for another. It is important for beer companies, especially in Australia, to keep up with the demand for their products (Thomas 122)
Economics of scale is used in the beer industry in order to keep up with the growing demand of their customers. This is especially important in the beer industry because it is easy for a customer to buy another type of beer. In order to retain customer loyalty, beer companies must keep up with the demand for their services (Peles 32). Coopers Brewery Limited should implement economies of scale in their production strategies in order to become more competitive in the market place.
Entering new foreign markets
Entering a foreign market consists of a company conducting business in a different country. This is very common for beer. Beer will enter foreign markets in order to increase their revenue. However, not all companies can be successful when it comes to entering a foreign market. Kirin Holdings Company Limited, a Japanese beer company, entered the Australian market and is now one of the major competitors in the beer industry.
Pricing strategy
With the given amount of substitutes in the beer industry, pricing is incredibly important. In Australia, the beer industry is suffering with the increasing amount of people who are choosing wine over beer. Pricing, therefore, should be of main importance in the beer industry in Australia. When people elect a substitute over another product, pricing is one of the main ways to pull them back (Danziger 761).
Pricing is very important for the beer industry in Australia. Having to compete with the increasingly popular wine industry means that the Australian beer industry will have to use pricing in order to compete. Beer companies should lower their prices in order to compete with the growing demand of wine.
Strategy Analysis
Stakeholder Relationship Analysis
Economies of scale
Customers are the main influence when it comes to how much a company can produce in order to remain profitable (Thurik 19). How much consumers drink in one area impacts whether or not a beer company should incorporate economies of scale into their production strategies. For example, a beer company should not implement economies of scale if the local consumers are wine drinkers. This would cause the supply to overweigh the demand and causing a loss in profit for a company. Coopers Brewery Limited needs to analyze the communities where their product is sold in order to decide whether or not to implement economies of scale.
Employees are directly affected when it comes to economics of scale. This is due to the fact they are the ones who are producing the increased quantities of the beer. How many employees a company has is determinate when it comes to whether or not a company is able to produce large quantities of beer. Coopers Brewery Limited needs to analyze how many employees they have and how many more they can afford to have in order to realize whether or not economies of scales is even economical for the company.
The community influences how much a company should produce when it comes to beer. Australia consumes more amounts of alcohol than other parts of the word. There are number of contributions to this. It is believed income, lack of infrastructure and higher availability of alcohol all impact alcohol consumption rates. This influences the amount of beer that companies should produce in Australia. Due to the negative aspects inflicted in society, the community gives beer companies the ability to conduct economies of scale when it comes to their production Coopers Brewery Limited should research alcohol consumption in different areas and produce large quantities of their beer in those areas (CITE).
The government could influence economies of scales by regulating how much beer one company can produce. Due to the fact beer has alcohol in it, beer company’s products must be regulated by the government. Thus, beer companies must follow government regulations when it comes to economies of scale (Manton 197). Coopers Brewery Limited needs to make sure they follow government regulations when it comes to beer production.
Economies of scales somewhat effects competitors. This is because the consumers always has access to their competitor’s product. Also, competitors may feel like they need to keep up with the company. If this happens, the consumer is given too many options and are more likely to pick their selection based on price. This could have negative or positive impacts for one of these companies. When two companies compete, one company must decide if they want to compete and share profits with the other company. If the company chooses to compete, they must take the risk of not making any profits at all. Or the company could choose not to compete and maintain their slow, but steady, profit margin. When a company decides to conduct economies of scale production methods, their competitors must decide whether they want to compete and follow the same strategy as the other company (M2PressWIRE).
For example, SAB Miller and Kirin Holdings Company are the two major beer manufactures in Australia. They both represent approximately 42 percent of the beer market. IF SAB Miller decides to implement economies of scale into their business strategies, then Kirin Holding Company must decide whether or not they want to compete. For example, SAB Miller decided that in order to keep up with the demand for beer, the company must produce (Alcoholic Drinks Industry Profile).
Investors are affected because the amount of beer a company produces dictates how much money they receive out of their investment. If more money is used for production, then investors are expecting the same amount of return. If economies of scales does not work and the company’s production exceeds the demand, the investors lose money. Thus, investors are a deciding matter when it comes to making major production changes such as these.
Entering new foreign markets
Customers are effected when an organization enters the foreign market. The consumers in the foreign country are exposed to different choices. With beer, individuals are given a wide variety of choices when it comes to how they want their beer or lager. Kirin Holdings Company used this to their advantage. By offering Australian drinks foreign beer, Kirin Holdings Company was able to flourish in the Australian market.
Employees are a big influence when it comes to a company entering a foreign market. First, a company must understand the culture differences in order to be able to properly supervise those individuals. There could also be language barriers. If the company does not have enough trusting individuals who speak the foreign language, then the company may not be able to enter that market. For example, if SAB Miller decides to enter the Swiss marketplace, then they need to make sure they have people who speak the native language. They need to be able to help their employees help their customers. In order to do this properly, there cannot be any language barriers.
The local community influences whether or not a beer company can enter the market. If the local community does not drink very much alcohol, then there is no reason to enter the market. This is a determining factor when thinking about entering a foreign market. Kirin Holdings Company used this to their advantage. Opposite of the situation above, Australians are known to drink. Thus, Kirin Holdings Company took advantage of this and entered the market in order to boost revenues (CITE).
The government has an impact when it comes to beer entering a foreign market. Since it does contain alcohol, there are government rules that must be followed when it comes to distributing the product in a foreign market. Beer is also limited with the amount of foreign markets they can enter due to the fact it contains alcohol. Not all foreign markets allow the sell or trade of alcohol.
Competitors are also effected when an organization enters a foreign market. For example, domestic sales may be impacted when a foreign beer enters the market. Competitors could also be effected if their product already exists in that foreign market. For example, when Kirin Holdings Company, their product negative impacted SAB Miller’s sales. Giving consumers a different option, Kirin Holdings Company quickly became SAB Miller’s biggest competitor.
Investors are also directly affected because entering more markets means an increase in revenue. Investors are willing to contribute monetarily or an organization if they know there is a possibility of that firm entering foreign marketplaces. Kirin Holdings Company investors probably were a factor when determining whether or not to enter the foreign market.
Pricing strategies
Customers are directly affected when it comes to pricing strategies. This is due to the fact the consumers are the ones who are spending their economic resources. Thus, pricing is a direct determinant when it comes to the consumer demand of a product. Companies need to keep this in mind when developing a pricing strategy (Sankrusme 65).
Employees are not as directly impacted when it comes to price as consumers are. However, they are still impacted. This is due to the fact their employment and salary is dependent on how much profit an organization receives. Thus, employees are more effected by the demand and less effected by the prices.
The local community is also effected by pricing strategies. For example, in lower income areas, cheaper beer is going to sell more. Thus, the area is a direct determinate when it comes to pricing. The government has influences when it comes to pricing strategies. Governments do have the ability to put regulations on how much a company can charge for their product or service. Thus, beer companies need analyze the community as well as government regulations before implementing successful price strategies.
Competitors are the ones that are most affected when it comes to pricing strategies. This is due to the fact that competitors must alter their pricing strategies every time a competitor changes theirs. Thus, pricing strategies become a game amongst competitors. Competitors also influences prices. How much a company’s competitor charges dictates how much they will charge for their product.
Pricing effects how willing investors are to contribute to the organization. Since pricing has a direct impact on the supply and demand of a product, pricing will effect an investor’s willingness when it comes to investing their time and money into an organization. If an organization’s product is priced too high, thus causing the demand to fall, an investor will be less likely to contribute financially to the organization.
Stakeholder Impact Analysis Table
Most significant stakeholder relationships
Economies of scale
There are two major stakeholders when it comes to economies of scale: the community and the employees. The community is a huge stakeholder for beer companies. The community must drink in order for the company to be profitable. Furthermore, the community drinking habits also influences a company’s decision when it comes to economies of scale. The more beer a community consumers, the more economical it is for the company to produce large quantities of beer. Another important stakeholder when it comes to economies of scale are the employees. Without the workers to produce the output, then the company would not be able to properly implement economies of scale. A company must have the work force in order to produce large quantities of beer.
Foreign market
When it comes to the foreign market, the employees and the investors are the main stakeholders. The company needs to have culturally friendly employees when entering a foreign market. If the consumers speak a foreign language, the employees must be able to speak that language. There must also be individuals throughout the organization who are bilingual in order for the organization to conduct daily business operations. Investors are also important when it comes to the foreign market. Businesses need investors in order to enter the foreign market. Furthermore, investors may be more willing to invest in a company that is in the foreign market. This is due to the fact that foreign markets increase a company’s revenue, thus, increasing an investor’s return on investment.
Pricing strategies
Customers and competitors are the most important stakeholders when it comes to pricing strategies. Pricing strategies must be based on the customers and their income. Furthermore, competitors are a direct influence when it comes to pricing strategies. Companies must alter their pricing in order to remain competitive in the market place. When a competitor alters their prices, a company must alter their pricing strategies based on the other company’s strategy. Thus, competitors have a direct impact when it comes to and organization’s pricing strategies.
Conclusion
Pricing strategy could have potential economic growth for any of the beer companies. Due to the sudden popularity of wine, decreasing beer prices may encourage consumers to elect beer over their wine substitute. The general strategy for these companies is to produce beer according to demand. Especially given the sudden decrease in the demand for beer, beer companies produce accordingly. Even though the cost of beer production is minimal compared to other industries, beer companies must have their supply meet their demand in order to remain profitable.
Works Cited
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Peles, Yoram. “Economies of Scale in Advertising Beer and Cigareets.” Journal of Business, 44, 1, 32-37. (1971).
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