European Beer Market. Strategic Management Report

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Introduction

The time when the beer due to the difficulty of transportation was sold only locally has passed. Today consumers are eager to buy global brands, which could have been imported thousands of miles away from the market where they are sold at. So the beer industry is a global business consisting of world well-known brands and tiny players. (Benson-Armer, Leibowitz, Ramachandran, 1999).

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Interbrew, with its brand Stella Artois, is one of the world’s leaders in the beer industry. (“The Daily Mail”, 2005) Three possible cases of Stella Artois development are researched in the paper, and three reports are written based on the cases.

The current position of Stella Artois brand

First of all, it is important to investigate the current position of Stella Artois brand in the world. Inbev has a safe position in the world’s beer market; however, the competition is growing very fast. (“The Evening Standard”, 2005) Inbev is expanding its markets and looking for new opportunities to increase its current number of consumers. (“Western Mail”, 2006) Inbev is a producer of not only beer but also of different soft drink brands. The number of people involved in this international company exceeds the number of 77,000 people around the world with the headquarters in Belgium.

To overview the history of Inbev, it was established in 1987, after the merger of Brasseries Artois and Brasseries Piedboeurf; and in 2004 there was a transaction between Belgian company Interbrew and Ambev, which is the Brazilian company. (“The Evening Standard”, 2005) After the transaction, Inbev received more than 81 % of the shares of Brazilian Ambev, and that’s where the history of the actual company Inbev starts. ( “The Birmingham Post”, 2005) Today Inbev has dominated the market of Belgium, many countries in Eastern Europe, and in Brazil, which together make up more than 14% share in the world’s market of beer. Only the fact, that its market capitalization is over 22,5 billion proves its leadership position in the world. (Pankey, 2005).

The first case anticipates that Stella Artois becomes beer brand number one in the world- becomes the number one player in the majority of countries of Western Europe, and becomes one of the three strongest players in Northern America, Eastern Europe, Africa, and the Middle East.

SWOT analysis

SWOT analysis is a key management tool, which will help to measure the real position of the company in the world and ascertain coming problems or threats. (Morrison, 2003).

Starting with the research of company’s strength, the main advantage of the company is its strong brands, which are based on the value creation, which is achieved through significant margin expansion, and one more strength of Stella Artois is its low costs and high quality due to the operational efficiency of the production process.

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However, there are some weaknesses, which become drawbacks on the way of successful development of the leader. The weakness lies in the complicated process of managing all the local markets, the number of employed staff in the local markets is now insufficient and needs to be doubled. Otherwise, the company will suffer from the loss of profit.

Though Stella Artois is the number one brand in the global market of beer, the opportunities of this brand are numerous and perspective. First of all, today a new market of China has emerged and Inbev’s competitors are trying to take advantage of the new market. So, the opportunity of the fast expansion to this beer market with millions of new consumers should be taken advantage of, before the competitors gain steady positions there. The opportunity of launching new brands is very perspective, for example, it would be a new stage of the development of Inbev if the partnership with Pepsi Cola was established with the long-term goal of producing a wide assortment of soft drinks.

The threats for the company exist as well. Its competitor Heineken is trying to gain a larger share of the market in Russia, so top Inbev’s management should focus on the elaborate plan of launching a new promotional program in Russia.

Conducting the company’s analysis, it can be said, that Inbev has a strong corporate culture, with innovative methods of production and low operational costs. Its activities are based on the philosophy of triple bottom line, which means that its success is building the principles of financial performance, social responsibility, and wise management of human resources. Human resources are one of the most important assets of the company. However, due to the ascertained weakness of not sufficient number of employees, it is important to recruit new highly-qualified personnel, which will positively contribute to the overall performance of Inbev and its brand of Stella Artois.

In terms of the impact of five Porter’s forces, the attractiveness of the market is rather high. The entry barriers are quite high due to the steady leaders in the global market of beer. The level of the growth of the market is high, new markets in Africa, China, and Southern America are emerging. The supplier power is not significant, although the buying power may be decreasing due to the high level of consumption of substitutes and soft drinks.

The effect of macro forces should not be a threat to the overall development, unless unpredictable global crises occur, which will decrease the level of life in the world. Experts forecast, the growth of the world’s population, which will provide Inbev with new consumers. The company is using new methods of production, innovations in logistics, and vast promotional and sponsorship programs, so it becomes the world’s innovator and leader in cost-saving technologies. The factor of nature forces should not have a significant impact on beer production as well.

The set of recommendations and the plan of future activities

Now it is important to work out the set of recommendations and the plan of future activities for Inbev and its brand Stell Artois. Inbev should focus on the further intensive investigation of the local markets, consumers’ needs, and future forecasts of demand. So, the importance of the marketing departments in the local markets should increase significantly. On the other hand, Inbev should establish a new department in the headquarters; its function should be the investigate the efficiency of each affiliate in different countries. When such a large international company is operating, many expenses can be overseen, so this new department will ensure the profitability of each affiliate. The action plan will be based on the principles of the previous strategy, with new elements of focus on the Chinese market of beer.

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The case, described above is very close to the actual situation in the beer market. Inbev is moving forward steadily, increasing its profits and improving its reputation, so according to the experts’ forecast, Inbev in the coming years will become the beer leader number one in the world. So, the case above is describing the future perspectives of the development of Inbev together with its current situation.

Moving on to the next section of the paper, a pessimistic scenario will be described. So now it is important to set certain limitations and pessimistic assumptions about the development of the position of Inbev and its brand, Stella Artois, in the beer market.

First of all, let us imagine that the global market of beer is decreasing due to the fast growth of substitutes in the market. Pepsi Cola has gained a large portion of customers’ income by filling the market with various kinds of soft drinks. Besides, after long researches by international scientific institutes and centers, it was discovered that the constant consumption of beer leads to the threat of cancer emergence. This research had a major impact on the habits of consumers around the world, especially in those countries where the traditions of beer consumptions are not very strong. To sum up, the time of crisis for the beer industry has come.

This case is a good example, how macro forces can significantly affect the performance of the established leader. The new report should be based on the analysis of Inbev’s strengths, weaknesses, opportunities, and threats. (Field, Holden, Lawlor, 2000).

The strength of Inbev and its brand Stella Artois is its reputation as the leader with high quality and relatively low price. The strength of the brand Stella Artois is its group of loyal customers, who will not change their habits.

On the other hand, the weakness of the company is its numerous departments, which are scattered around the world. After the decrease in the consumption of beer, many local markets lost their attractiveness for international companies.

The opportunity for Inbev and its brands is to move to the production of soft drinks and become a challenging competitor for Pepsi Cola. Inbev has all the necessary facilities for the production of soft drinks; however, the costs of this measure can be too high for Inbev to handle.

The threats in this situation are numerous and serious. There is a major threat of not surviving through a hard time, the threat, that its competitors will take advantage of the market of soft drinks before Inbev starts producing them. And Inbev may lose its share of the market to its competitors.

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Analyzing Porter’s five forces, it can be summarized, that the market of beer has lost its previous attractiveness, especially for such international company like Inbev. (Olmstead, 2002)The impact of other forces like supplier power, consumer power, entry barriers, the level of the growth of the market, is overweighed by the most significant factor in this situation- the substitutes. Inbev has the choice of either trying to maintain the profit by staying in the market of beer, for example in some of the most profitable local markets like Brazil, Western Europe, and some Asian countries, or it can move to the production of the soft drinks.

Analyzing the company and its development, it can be said that the importance of the production of beer has fallen, so has the role of the specialists of beer production. The structure of a company is too complicated and many affiliates should be “milked” to handle the company’s new director of the production of the soft drinks.

There is a certain level of pressure from the public, which demands to decrease the level of production of beer, appealing to the principles of social responsibility and the world’s future. The price of the shares of Inbev has fallen, and the stakeholders are expecting new reforms and radical improvements from the side of the founders of Inbev.

So, the new action plan should be based on the idea of moving to the alternative of producing soft drinks and becoming eventually the leader in this category. However, elaborate research should precede any further steps. New markets should be found; the strategy of the leader in soft drinks Pepsi Cola should be investigated and used as an example of the successful way of development. Then new equipment should be bought, and new promotional and sponsorship programs should be launched to inform consumers about new soft drinks consumer.

Both cases are good examples of how macro and micro forces can influent the performance of not only small companies but also such global leaders like Inbev. It is important to understand the importance of tools, which help the companies forecast the situation, the level of demand, and the impact of different forces.

As stated in the article “Oktoberfest still one great party: German politics, regional differences and the transition to the euro fail to dampen spirits at the famous festival celebrating culture, tradition and the world’s best beer”, beer has become part of the traditions in many countries (Hans S. Nichols, 2002). Furthermore, the article “Liter Beer Glass Rule Is Hard to Swallow” shows strong preferences of certain groups of customers for the specific sort of beer. (“The Journal”, 2006) And the example of China, where the demand for beer is steadily growing, is a new field and perspective market for the leaders in beer production. (“Business Asia”, 1999) On the other hand, the article “Looking Back – and Ahead; Wine Replaces Beer as Favorite U.S. Alcoholic Beverage” by Lukacs describes, the fact that Americans have a stronger preference for wine now, rather than beer. (2006).

Conclusion

Summing up all these statements, it can be highlighted that the global market of beer is dynamically moving forward, with its peculiarities in each location.

The pessimistic scenario, when the market of beer decreases, is very unlikely to happen because there is a steady demand, supported by the habits of millions of consumers to drink beer.

As stated in the book of Ronald D. Michman, the consumption of beer is connected with the lifestyle of the person, his or her personality. (1991) So, the history of beer production will continue to unfold and the tradition of drinking beer will not disappear.

This paper has researched the development of the international company Inbev, one of the world leaders in the market of beer. An analysis of the company’s performance was given, to conduct the research different tools and methods were used.

References

Benson-Armer, Richard, Joshua Leibowitz, and Deepak Ramachandran. 1999. Global Beer: What’s on Tap?. The McKinsey Quarterly.

China Beer Recovery Aids Barley Sales. 1999. Business Asia, 11.

Field, Kit, Phil Holden, and Hugh Lawlor. 2000. Effective Subject Leadership. London: Routledge.

Heineken in Tie-Up Talks with Colombian Brewer; in Brief. 2005. The Evening Standard (London, England), 38.

In Brief. 2005. The Evening Standard (London, England), 36.

International Brewing Giants Prepare to Swallow Foster’s. 2006. Western Mail (Cardiff, Wales), 9.

Litre Beer Glass Rule Is Hard to Swallow. 2006. The Journal (Newcastle, England), 4.

Looking Back – and Ahead; Wine Replaces Beer as Favorite U.S. Alcoholic Beverage. 2006. The Washington Times, E03.

Michman, Ronald D. 1991. Lifestyle Market Segmentation. New York: Praeger Publishers.

Morrison, Don. 2003. E-Learning Strategies: How to Get Implementation and Delivery Right First Time. New York: Wiley.

News in Brief. 2005. The Daily Mail (London, England), 89.

Nichols, Hans S. 2002. Oktoberfest Still One Great Party: German Politics, Regional Differences and the Transition to the Euro Fail to Dampen Spirits at the Famous Festival Celebrating Culture, Tradition and the World’s Best Beer. Insight on the News, 38.

Olmstead, Joseph A. 2002. Leading Groups in Stressful Times: Teams, Work Units, and Task Forces. Westport, CT: Quorum Books.

Pankey, Deborah. 2005. Tiny Belgium Produces Big, Bold Beers. Daily Herald (Arlington Heights, IL), 1.

Property Tycoon Shows the Right Spirit in Pubs Group Battle. 2005. The Birmingham Post (England), 24.

Shops Offering Residents Some New Tastes. 2006. Daily Herald (Arlington Heights, IL), 1.

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IvyPanda. 2021. "European Beer Market. Strategic Management." September 22, 2021. https://ivypanda.com/essays/european-beer-market-strategic-management/.

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