Global Forces and the European Brewing Industry

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The drive against drunken driving and binge drinking has helped shift sales from the 'on-trade' (beer consumed on the premises, as in pubs or restaurants) to the off -trade (retail). Worldwide, the off-trade increased from 63 per cent of volume in 2000 to 66 per cent in 2005. The off-trade is increasingly dominated by large supermarket chains such as Tesco or Carrefour, which often use cut-price offers on beer in order to lure people into their shops. More than one-fifth of beer volume is now sold through supermarkets. German retailers such as Aldi and Lidl have had considerable success with their own 'private-label' (rather than brewery-branded) beers. However, although on-trade volumes are falling in Europe, the sales values are rising, as brewers introduce higher-priced premium products such as extra-cold lagers or fruit-flavoured beers. On the other hand, a good deal of this increasing demand for premium products is being satisfied by the import of apparently exotic beers from overseas (see Table 2). Brewers' main purchasing costs are packaging (accounting for around half of non-labour costs), raw material such as barley, and energy. The European packaging industry is highly concentrated, dominated by international companies such as Crown in cans and Owens-Illinois in glass bottles. During 2006, Dutch brewer Heineken complained of an 11 per cent rise in packaging costs. Global forces and the European brewing industry

Mike Blee and Richard Whittington
This case is centered on the European brewing industry and examines how the increasingly competitive pressure of operating within global markets is causing consolidation through acquisitions, alliances and closures within the industry. This has resulted in the growth of the brewers' reliance upon super brands. In the first decade of the twenty-first century, European brewers faced a surprising paradox. The traditional centre of the beer industry worldwide, and still the largest regional market, Europe, was turning off beer. Beer consumption was falling in the largest markets of Germany and the United Kingdom, while burgeoning in emerging markets around the world. China, with 7 per cent annual growth, had become the largest single market by volume, while Brazilian volumes had overtaken Germany in 2005 (Euromonitor, 2006). Table 1 details the overall decline of European beer consumption. Decline in traditional key markets is due to several factors. Governments are campaigning strongly against drunken driving, affecting the propensity to drink beer in restaurants, pubs and bars. There is increasing awareness of the effects of alcohol on health and fitness. Particularly In the United Kingdom, there is growing hostility towards so-called `binge drinking', excessive alcohol consumption in pubs and clubs. Wines have also become increasingly popular in Northern European markets. However, beer consumption per capita varies widely between countries, being four times higher in Germany than in Italy, for example. Some traditionally low-consumption European markets have been showing good growth.

Country| Imports 2002(% of consumption or production)| Imports 2004 (% of Consumption or production)| Austria| 5.1| 6.4|
Belgium| 4.74| 10.2|
Denmark| 2.6| N/A|
Finland| 2.3| 7.3|
France| 23| 31|
Germany| 3.1| 4|
Greece| 4.1| N/A|
Ireland| N/A| N/A|
Italy| 27.15| 37|
Luxembourg| N/A| 38.4|
Netherlands| 3.2| 14.4|
Norway| 5.4| N/A|
Portugal| 1.1| N/A|
Spain| 11.7| N/A|
Sweden| N/A| 18|
Switzerland| 15.4| 15.6|
UK| 10.9| 12.3|

Table 1 European beer consumption by country and year (000 hectolitres)

Country| 1980| 2000| 2001| 2002| 2003| 2004| 2005|
Austria| 7651| 8762| 8627| 8734| 8979| 8881| 8970|
Belgium| 12945| 10064| 9986| 9901| 9935...
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