To determine the attractiveness of the craft brewing industry, Porter’s Five Forces Model is used to analyze the market. The first segment analyzes the threat of substitute products. The craft brewing industry is entirely built on unique styles and flavors of beer. This creates a distinct sense of product differentiation. However, there are many different brands and styles of beer so the actual threat of substitutes is high.
The second force, in the threat of new entrants, is also high because Breckenridge Brewery has distributors and brewpubs located across the country. The industry has grown every year since Breckenridge Brewery broke into the craft brewing segment of the market. From 1992 to 1996, regional specialty breweries grew from 6 to 33 with the total number of craft brewing facilities growing from 295 to 1,086.
The intensity of competitive rivalry is also high as Breckenridge Brewery battles industry giants such as Coors, who was founded and operates primarily in the same state. In addition, the beer industry during the 1990’s was considered stagnant showing very little growth. This adds to the intensity of competition as the remaining competitors scuffle over the potential customers.
The bargaining power of the customers is very high. There are many different substitutes and options for customers to go with, which puts the pressure on companies to have high quality products and customer service to retain these customers. The buyer has very low switching costs where as the company does not have such a luxury. The microbrewery by definition is a smaller firm. Allowing customers to switch to another supplier can have disastrous effects and ultimately could put the company out of business.
The bargaining power of suppliers is high as well. With so much competition out there, the suppliers know they have options to supply other breweries. This allows them to charge higher prices if they choose. In addition, with the number of breweries growing...
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