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Global Forces and the European Brewing Industry Report

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Updated: May 14th, 2020

Introduction

There are several restrictions and awareness campaign sponsored by most countries within Europe which has made brewing companies to seek for other means of growth. There is also concentration in innovation, branding image and also on cutting the costs on packaging which leads to reduction of the overall cost of production (Kotler, 1994).

PESTEL

Political factors

Most of the Governments within Europe organise public events that focuses on making the public aware about the results of alcohol consumption on the health. They are also imposing restrictions on consumption of beer and alcohol products and at the same time place heavy fines and penalty on crime done under the influence of alcohol. The campaigns mostly targeted drunken driving and the long-term health problems and diseases caused by high consumption of beer (Sadler, 2005).

Economic factors

Restrictions on alcoholic drinks in European countries have led to low sales of the commodity within the market. The Super markets on realising that most people purchase alcohol from them have decided to offer alcohol products at reduced prices.

The decline in beer consumption can be attributed to government campaigns which might have caused shift in beer sales from consumption in pubs to sales in supermarkets. Exchange rates within European market at times affect the success of the beer industry export activities. Fall in exchange rates makes it expensive to export beer products to other countries with strong currencies like the US (Barsby, 1999).

Social

Societal changes within Europe have greatly affected consumer responses. This has made the Brewing industries within Europe to make some changes concerning their operational decisions. Higher percentage of beer consumption is found in men as compared to women who form small percentage of consumption.

Due to the statistics, brewing industry have resorted to manufacturing new types of beverages such as lighter beers, and flavoured alcoholic beverages that can easily be consumed by women. Due to government campaigns, the trends towards healthy lifestyles have increased.

This has made consumers to demand lighter beer with low calorie content. This calls for research into new technologies that could lead to designing of more desirable consumer products. The increased migration of people from other countries to Europe presents the Brewing industry with large market to cover with their products. The customer base is also good in other countries such as United States (Sadler, 2005).

Technological

The change in technological set-up has enabled European brewing companies to develop efficient processes in brewing. These include efficient and trustworthy distribution channels. There is also facility up-grade that increases the rate of production to cater for the wide world market and also improves the consistency level at reduced costs.

The high technology in manufacturing facilities will need to be maintained in order for the European Industry to compete favourably with their competitors from other countries such as United States and China. New advertising media have risen due to the new technology; the innovations have made European brewing industries to remain competitive within the market. This has also been improved through streamlining the value chain (Reid, 1997).

Environmental

The European brewing industry’s reaction towards environment contributes much towards maintaining their brand image within the global market. Their approach towards social responsibility is what has contributed to the current level of beer consumption. Some sense of irresponsible actions might lead to low sales of beer.

European brewing industry has paid much attention to environmental effects of their manufacturing processes which made the industry to voluntarily give reports on their level of carbon emissions. This and several other initiatives with regard to environment have contributed to positive effects on the building of the company’s brand image (Osborne and Gaebler, 1993).

Legal

There is an increased media outlet available in European countries that require a lot of care to be taken by beer industry in order not to mess up with government instituted laws. There are European laws that control advertising content depending on the location where the products are marketed. These laws must be in agreement with the laws safeguarding beer drinking in other countries (Weinberg, 1999).

Porter’s Five Forces Analysis

Threat of Substitutes

The threat of substitutes is high within the beer industry; this is because consumers within the market have variety of choices of substitute beverages. There are several substitutes for beer within the European market some of which include liquor, non-alcoholic beer, and beverages in general.

Threat of New Entrants

The threat of new entrants within the European market appears to be low. However, there are hundreds of small microbreweries throughout Europe of which their level of competition is considered insignificant. It is not easy for the small scale breweries to offer competition to large beer companies due to low supply level. Large European beer companies have got the advantage of economies of scale.

This is further boosted by forward integration within the value chain which grants large companies cost advantages over smaller brewing companies. There is also requirement of heavy capital for initial start-up which makes the industry unattractive for the new entrants.

Bargaining Power of Buyers

The bargaining power of buyers within the consumer market does not present such a big threat to the European the beer industry. The brewing industries have greatly invested in the taste preferences of what consumers want, this has since contributed to moderate customer base.

The consumers are very sensitive to beer prices within the market; this has made brewing industries within Europe to be subjected to the demands of the market prices restricting them further to any charges they make towards their beer brands. There are low switching costs within the beer industry making it easy for buyers to migrate to other brands, this gives buyers power over brewing industry. This calls for European brewing companies to up-grade their products in order to satisfy their customer’s needs (Warner, 2006).

Bargaining Power of Suppliers

The powers of suppliers within the European brewing industry appear to be low. The beer industry is large in Europe and holds a considerable global market share.

Companies within the brewing industry uses commodity products that are easily replaceable which leaves suppliers with little power over manufacturers. These products include; barley, yeast amongst others. Most of the breweries within the European industry have complete vertical integration of their supply chain which makes them have control over their production inputs.

Industry Competition

Beer industry experiences intense competitive forces within the global market. High levels of competition from other countries like the US and China presents greatest threat for European brewing industries (Elzinga, 2005).

High differentiation has been experienced in the final products and advertising within the media and the competition exists between domestic and exotic products presenting many types of competitors. Great threat is also looming from the possibility of mergers and acquisitions within the world industry. This makes large companies dominant within the industry as a result of gaining cost benefits and brand image from the market share (Finnegan, 1997).

SWOT analysis on Heineken

Strength

The strength of Heineken lies in its very many brands that are spread in over ten markets within the world market. Their products are also much differentiated and at the same time the Company enjoys the fact that it is the sole global pioneer of international market strategies within the beer industry. Its brand is easily recognized through their unique bottle design which is green in colour and other different dispensing equipments (Heineken, 2010).

Weakness

The Company has a very conservative culture, which has made them not to pioneer so much into other lines of production. Also their beer is strictly consumed by old and mature other than young beer drinkers. The company’s prices are very unstable compared to other domestic beers.

Threats

There is rise in the legislation of driving laws which tends to decrease the number of consumers. Also the beer industry is experiencing rise in competition within the global market. The constant mergers and acquisitions of other breweries by other companies threaten to reduce Heineken’s market share due to other companies becoming larger (Osborne and Gaebler, 1993).

Opportunities

Heineken produces beer with low calorie content, hence attracting attention of most consumers who are concerned with their health. Greater market opportunities are further arising from Asia, which is currently experiencing dramatic population increase. Market is also ripe in the US industry amongst the Hispanic consumers.

Explain, how these trends will influence Heineken?

The general beer industry is very attractive for Heineken to compete in. This is because they face low pressure from suppliers, also low threat of new entrants and moderate pressure from buyers. The industry is highly competitive with many substitutes available, so it is essential that Heineken develops a strategy that will help them do well against pressures from the global forces and hence attract and retain consumers.

The five forces will have great influence on the decision-making and designing of strategies for Heineken. The level of competition will determine the development of products and services that would grant them competitive advantage. The high purchasing power of buyers determines the level of sales and ultimately the profits. It is essential that the company focuses on consumer tastes and demands.

References List

Barsby, S. L., 1999. Beer Wholesalers: Their Role and Economic Performance. National Beer Wholesalers Association : Alexandria, Virginia.

Elzinga, K., 2005. Beer: The Structure of American Industry. (Ed). Upper Saddle River, New Jersey: Pearson Hall.

Finnegan, T., 1997. Modern Brewery Age Blue Book. Modern Brewery Age Publishing: Stamford Connecticut.

Heineken, 2010. The Company History Products Brands. Web.

Kotler, P., 1994. Marketing Management: Analysis, Planning, Implementation and Control. Englewood Cliffs, NI: Prentice- Hall.

Osborne, D. & Gaebler, T., 1993. Reinventing Government: How the Entrepreneurial Spirit is transforming the Public Sector. Harmondsworth: Plume.

Reid, V.K., 1997. Year in Review: 1996. Modern Brewery Age, 48 (11), 20-44.

Sadler, J., 2005. Gender Marketing Strategies in Food and Drinks. Business Insights Ltd. Washington.

Warner, J., 2006. Gallup Organization, consumption Habits Poll, News release: Gallup Poll News Service. Web.

Weinberg, R., 1999. Watching the Market. Modern Brewery Age, 48 (11), pp 4-30.

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