The European Brewing Industry

Topics: Beer, Brewing, Alcoholic beverage Pages: 6 (1938 words) Published: March 7, 2011
The European Brewing Industry: Surviving a Downturn
Executive summary

Created by:
Daniel Bognár, Péter Szesztay, Tímea Nagy, Zoltán Szebényi

Cases on Business Economics
Teacher: Tamás Kopányi
Corvinus University of Budapest
According to analysis, the world’s major beer consumer region, Europe is turning off the brew. There is an ongoing rivalry between the leading companies of the industry; the suppliers are trying to reach even better bargaining positions. Within these circumstances, there are few prospects for the four market players in the focus of our essay (Heineken, Grolsch, InBev, Scottish and Newcastle); in the following summary we will show these possible strategies. Beforehand, we consider the thorough analysis of the macro environment and the industry necessary for drawing such conclusions.

PESTEL analysis
First of all, we need to evaluate the macro environment of the industry. The PESTEL analysis is the most suitable method for this. We will review all the letters of the abbreviation and highlight the important ones. The political and legal background of the brewing industry is characterised by more extensive regulations (in terms of regulations on underage drinking and binge drinking on the premises). From the economical point of view, one could say that the conditions are pretty favourable. Beer is not considered to be a luxury good. Even though the recession brought a bit of a decline in consumption (see figure 1 and, Beer statistics, 2010) - as an In-Bev spokesman pointed out -, ‘the overall beer industry has demonstrated resilience in tough economic times’ due to the fact that ‘income elasticity of beer is extremely low’. ( recession_isnt_causing_brewers_to_cry_in_their_beer/). The social opinion have changed in the past few years, there is a growing awareness on health issues. There are other aspects such as cultural differences (eg. beer-drinking Germany vs wine-favouring France) and the ethical acceptance of beer (or alcohol) itself. According to our findings ( one can argue that the technological aspect is also relevant. The cost of production is much higher in Europe due to the traditional methods of making beers (without adding artificial ingredients, they only use water, hops and barley-malt). The brewing industry is rather unrelated to environmental issues. To sum up, companies should seriously consider social, technological and legal aspects (when analysing the macro environment) for new investments or further expansions.

Porter’s Five Forces model
To further sophisticate our discourse, we need to review the brewing industry itself. The Porter’s Five Forces model serves as a perfect tool for this. We will systematically review the points of the model and draw the conclusions. The threat of entry in the brewing industry is low. Regarding ‘Scale & Experience’, one could say that high investments are needed, a huge quantity of produced brew is needed for reaching favourable economies of scale. The cost of exit is also high which makes the industry less attractive for new entrants. Know-how (experience) is not as important on the market as the brand itself. Suppliers are generally available on the market; there is not much loyalty between suppliers and buyers in neither case (supplier - brewery; brewery - distributor). However, expected retaliation against a newcomer is very probable (e.g. more frequent ads or stronger campaigns). Strict quality control regulations are typical, which makes the situation of new entrants more difficult. Exploited differentiation is present on the market (a vast amount of different beer types are available). The bargaining power of suppliers is moderate. On one hand, the packaging companies are concentrated, therefore they have high bargaining power. On the other hand, barley producers are...
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