Global forces and Western European brewing Industry Essay

PESTEL analysis of Western European Brewing Industry

Political factors

1. Unfavorable attitude of European governments toward beer and alcoholic beverages, in general. These products are regarded as demerit goods which means that their consumption has to be restricted. This results in numerous legal regulations on the advertisement, marketing, and production of such products¹.

Economic factors

1. The decrease in consumption of beer. In many European countries such as Belgium, Denmark, Norway, France, and the United Kingdom bear consumption level dropped significantly within the period between 2000 and 2007.
2. Merges in the industry due to global pressure of consolidation.
3. Economic recession in Europe and the United States².

Social factors

1. Growing concern about the dangers of alcohol consumption.
2. The changes in the buying behaviors of consumers, especially the growing popularity of wines³.
3. Increasing demand for alcohol-free beer.
4. Low birth rates in European countries⁴ and increase of population In Asian countries and India.

Technological factors

1. The development of new technologies which can facilitate the production and storage of beer. For instance, one can mention those technologies that improve beer recovery process or filtration⁵.

Environmental factors

1. The demands to make brewing process more eco-friendly, for example, we can speak about the necessity to reduce the discharge of chemicals⁶.
2. The necessity to develop an alternative to conventional bottles or aluminum. cans. The main purpose is to make beer containers more recyclable. At the given moment, the influence of these environmental factors is not very strong but this issue can become much more urgent within the next two decades.

Legal factors

1. Stronger enforcement of laws prohibiting underage consumption of alcohol. For instance, one can mention such plan “Think 21” which is aimed at reducing the availability of alcoholic beverages to adolescents⁷. Similar laws and restrictions are imposed throughout Europe and the United States.
2. Tight governmental control over the production of beer.

Porter’s Five Forces

The threat of new entrants

Currently entry barriers are very high because brewing industry becomes more consolidated, and the majority of the companies operating in this market are economies of scale.

According to the data, presented in the case study there are ten international brewing companies which control more than 30 percent of global market share⁸.

These corporations can pursue cost-leader policies, and new-comers will find it difficult to compete with them. Therefore, the threat of new entrants is not significant.

The threat of substitute products

Wine and some non-alcoholic beverages can be viewed as substitute products; however, drinking beer is rooted in the traditions of many countries and it is important from social point of view. This is why it is rather unlikely that this beverage will lose its popularity. Hence, the threat is more or less moderate.

The power of suppliers

The main suppliers of brewing companies are the packaging manufacturers and agricultural sector. Each of these industries is highly concentrated, for instance, there are only three can producers in the UK⁹, and breweries dictate their terms to them. The same thing can be said about the suppliers of barley or grains. Thus, the power of suppliers is relative strong.

The bargaining power of customers

The main buyers are supermarket chains such as Tesco or Carrefour. Brewing companies sell them approximately 67 percent of their products¹⁰. Thus, these customers are very important to breweries and they can make concessions to them, especially if we are speaking about the price. Thus, the power of customers is very strong and it can become even stronger.

The Intensity of competition

The industry is very concentrated and the competition between companies is very intense. In 2009, ten brewing companies produced more than 60 percent of global beer volume¹¹. Under such circumstanced competitive advantages can be gained by introducing new products such as fruit-flavored beer.

Discussion

PESTEL analysis and the study of Porter’s Five Forces indicate that brewing companies must be aware of the following challenges. Legal and social factors will produce the most adverse effects on this industry.

These companies should remember about changing lifestyles and increasing awareness about the dangers of alcohol consumption. The same thing can be said about legal restriction on the marketing of beer. This is why they need to emphasize the healthfulness of their products.

They must prove that beer should not be viewed by the governments as alcoholic beverage and a demerit good. In the future, they may have to increase the production of alcohol-free beer. Secondly, they should explore new markets for their products, especially in such countries as China or India.

The thing is that the consumption of beer in Europe can decline even more due to the decrease of population in this region. Finally, these companies should develop their own distribution networks in order to diminish their dependence on super or hypermarkets. At this point, they are the main customers of brewing companies.

The impacts of global forces on specific companies

Anheuser- Busch InBev

The products of Anheuser- Busch InBev are well-positioned in the markets of different counties. This company possesses such famous brands as Stella Artois, Beck’s or Budweiser. Its main strengths are well-developed supply chain and close cooperation between various divisions ¹².

This company ensures that the best practices are quickly shared across different breweries. However, it has some weaknesses as well. They have to manage more than 300 brands and this is quite a challenging task. Secondly, the legal status of this corporation is not secure since in many countries is viewed as monopoly.

Greene King

The main strength of Greene King is that it has its distribution network. This company runs more than 2000¹³ pubs across the UK. Hence, they are less dependent on hypermarkets. Moreover, many British customers feel strong affiliation to this brand. However, there are several significant weaknesses.

First, this company has not fully explored international markets and in the future they can suffer losses due to the decline of beer consumption in the UK. Additionally, in the recent year public image of this company suffered significantly, because it is accused of monopolizing the UK market and closing many local breweries.

Tsingtao

The key strength of this company is that it is very well-posited in China, one of the largest markets in the world. Furthermore, this company has successfully entered European and American markets.

The main weaknesses of this organization are more related to its external environment. Tsingtao operates in a very regulated market and it can be controlled by the Chinese government. Finally, some of its brands are not familiar to European customers.

Reference List

Blee M & R. Whittington. “Global forces and the Western European Brewing Industry”. In G. Johnson (ed.), Exploring Strategy, 9th edn, Pearson Education, New York, 2008, pp. 1-3.

Bereridge F & S. Velutti. Gender and the open method of coordination: perspectives on law, governance and equality in the EU, Ashgate Publishing, New York, 2008.

Moens, G. & J. Trone, Commercial law of the European Union, Springer, London, 2010.

Porter. M. On competition. Harvard Business Press, Cambridge, 2008.

Proctor A. Alternatives to Conventional Food Processing, Royal Society of Chemistry, London. 2011.

Lewis M. & Bamforth C. Essays in brewing science, Springer, London, 2006.

The Department of Health. Youth Alcohol Action Plan, Home Office, London, 2008.

Footnotes

¹ Moens, G. & J. Trone, Commercial law of the European Union, Springer, London, 2010, p. 62

² Blee M & R. Whittington. “Global forces and the Western European Brewing Industry”. In G. Johnson (ed.), Exploring Strategy, 9th edn, Pearson Education, New York, 2008, p 2.

³ Blee M & R. Whittington, p 1

⁴ Bereridge F & S. Velutti. Gender and the open method of coordination: perspectives on law, governance and equality in the EU, Ashgate Publishing, New York, 2008.

⁵ Proctor A. Alternatives to Conventional Food Processing, Royal Society of Chemistry, London. 2011, p 237

⁶ Lewis M. & Bamforth C. Essays in brewing science, Springer, London, 2006, p 170.

⁷ The Department of Health. Youth Alcohol Action Plan, Home Office, London, 2008, p. 16.

⁸ Blee M & R. Whittington, p 2

⁹ Blee M & R. Whittington, p 2

¹⁰ Ibid, p 2

¹¹ Blee M & R. Whittington, p 2

¹² Blee M & R. Whittington, p 3

¹³ Blee M & R. Whittington, p 3