Pricing & Competition in the Beer Industry:

Topics: Beer, Microbrewery, Brewery Pages: 18 (7143 words) Published: November 19, 2007
Abstract:The beer industry in the United States is continually changing and therefore companies in this industry must be versatile. Their versatility comes in a variety of forms, from changing their product offering, to changing their strategic goals, and finally, recognizing opportunities and threats. This paper explores many aspects of the industry though the use of Porter's five forces model. I will analyze the internal rivalry present in the industry, any buyer or supplier power that is present, entry barriers that exist, and any substitutes and threats that face the industry. Furthermore, I will closely analyze the effect that craft brewers and microbreweries have had on the industry. It is my contention that craft brewers have taken market share and sales away from the largest brewers in the industry. I will use two companies to perform this analysis, Boston Beer and Anheuser-Busch. Anheuser-Busch is the largest brewer in the world and Boston Beer is the largest craft brewer in the United States. I have run a regression using sales from both companies and several other factors to test my hypothesis.

Recent History and Terms
The brewing industry in the United States began in 1625 when the first brewery in America was founded. Lager beer as we know it today has changed a lot since then, and so has the industry. In the early nineteenth century the industry was highly fragmented, and competition among different breweries only existed in small geographic circles. It was not until the late nineteenth century that refrigeration and mechanical pasteurization revolutionized the industry. Companies could now transport beer across previous geographical limits. After prohibition was repealed in 1933, the industry as it is today began to take shape. There was a sharp decline in the number of brewing companies, almost 90% from 1947 to 1995 as illustrated in Table 1. This was mostly due to four major breweries growing rapidly and realizing economies of scale, while the majority of other brewers became bankrupt. By 1980 Anheuser-Busch, Miller Brewing, Pabst, and Stroh's were the four breweries that constituted nearly 80% of the market. By the mid-nineties three brewers constituted most of the market: Coors, Miller, and Anheuser-Busch. Although dominated by the three aforementioned brewers, the US industry consists of 1,800 brewers and beer importers, 2,200 beer wholesalers, and 560,000 retail establishments. The industry includes packaging manufacturers, shipping companies, agriculture, and other businesses whose livelihood depends on the brewing. The industry employs approximately 1.66 million Americans, paying them $47 billion in wages and benefits. The industry pays $27 billion in business, personal and consumption taxes, including $5.1 billion in excise taxes. This paper focuses on Anheuser-Busch, which currently holds 51% of the market share, as chart 1 shows. Anheuser-Busch provides a good benchmark on which to gauge price variances, competition, and demand. This paper also discusses various types of beer and tiers of beer producers. The different types of beer are: "super-premium", "premium", and "economy" beer. Each one describes a different price point for beer, super-premium is the most expensive and economy is the least expensive. There are generally three tiers of beer suppliers in the United States: domestic behemoths like A-B and Miller, importers, and craft brewers. This paper will focus on the 1st and 3rd tiers and all the different types of beers.

Founded in 1852, Anheuser-Busch has a deep tradition setting the pace in the beer market. From a modest brewery that produced 8,000 barrels a year, Anheuser-Busch has evolved into an enormous conglomerate whose breweries now produce over 100 million barrels a year. Currently the largest brewer in the world, it owns over 50% of the market in the United States. Anheuser-Busch also owns amusement parks around the...
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