Executive Summary
Over the recent past, the market for beer has been characterized by a very high level of competition among various breweries. In order to be successful in such a market, it is advisable for an organization to expand its market globally. This report gives an analysis of the Australian market as a domestic market and of UK beer market as the foreign one.
The beer market in Australia has been saturated over the recent past. It is therefore necessary to consider expansion of the market by venturing into the UK beer market. This discussion gives a clear analysis of both markets. This analysis provides a good base on which the entry decisions are built upon.
It is revealed that the amount of beer consumption in both markets has been declining over the time. However, the market share for the imported beer has been rising in the UK beer market over the past. Finally, several recommendations have been proposed based on the findings.
Country and Market Analysis
In the contemporary world, the market has become highly competitive. This has been triggered by the increased entry of new players in the market. This has led to saturation of the domestic market. As the market becomes saturated, the level of competition reaches its maximum. This has threatened the performance of many organizations as this tends to increase the total costs and reduce the total sales. This characterizes almost every product in the market.
In Australian market, the beer market has grown highly competitive from the saturation of the market over the recent past. This has been as a result of entry of many players in the industry as well as the rapid expansion of the already existing organizations. In the Australian market, beer market consists of sales of products like stouts, ales and bitters, low or no alcohol, standard lager, premium lager, and specialty beers (National Library of Australia 78). Currently, the market has been saturated with these products.
The Australian market for beer can be traced far back in nineteenth century. From then, the beer market has grown rapidly. A number of breweries registered their individual trade marks for their various packaged beer. During the time the markets was expanding at a very high rate and at same time the demand was increasing rapidly and the existing brands were not efficient. The per capita consumption was growing rapidly by then (Jones par 3).
According to Jones and Morgan, more than a dozen breweries in Australia were operating in unchallenged and secure regional markets (163). In fact, each of the state in Australia was having about one to three monopolies. During the period, there were very low chances for entry.
These restrictions were mostly emanating from the high fixed costs that were required in order for an organization to enjoy the economies of scale (Baker, Graham and Harker 64). Since it required a significantly large amount of capital, only a few organizations managed to venture into the industry. Because the demand was increasing by then, the level of competition remained very low. Each organization enjoyed its competition-free regional markets.
In the year 1967, a new brewery by the name Courage entered into the Australian market. Although most of the company’s shareholders were located at the United Kingdom, its entry had a significant impact in the Australian market. It triggered change in the brewing industry.
Before the company’s entry, most domestic companies were more concerned only about minimizing their operational costs and advancing their technological infrastructure. None of the companies was more concerned about building their brands since competition level was very low.
Soon after its entry to the Australian market, Courage introduced a range of beers in the make (Jones 162). This posed a danger to the domestic companies that have for long been enjoying non competitive market. In reaction to this, various companies in the country took various decisions.
For instance, CUB decided to take control over the distribution channels. It managed to take control of these channels by increasing the total number of managed and tied houses. Despite of such restrictions, the level of competition in the Australian market began to increase significantly.
In this period when the Australian organizations were more concerned about the total costs of production rather than the brands, the marketing expenditures in various organizations were very limited (Wenner 47). The mostly used means of advertisement during that period was through bill boards (IbisWorld par 36).
The press was rarely used in advertisement. This was because organizations aimed at retaining minimum level of expenditure on advertisement. “Advertisements for beers, wines and spirits in the Australian press took up a smaller percentage of advertising space than their share of advertising expenditure in the UK press at about the same date” (Jones and Morgan 164).
Later, many organizations in Australia recognized the need for advertising its product in order to maximize its sales. For instance, the newly elected leaders of the CUB’s beers recognized the need to have an effective marketing strategy in order to compete with Courage. In order to achieve this, CUB launched a marketing campaign with an aim of increasing its sales and building its brand loyalty for its draught beers (Euromonitor international Australia par 13).
During this period, the combination of the residents who were born in Australia and the increasingly rising number of the in-bound tourists as well as the free advertising services by the cult magazine in 1960’s gave Foster’s a niche market (Kingham par 6). This was characterized by a new and unexpected group of consumers.
Over the past, the Australian beer has been internationally exported to other countries. For instance, a significant amount of the Australian beer was marketed to the United Kingdom. However, the fraction increased with time. For example, the Australian beer exports increased from 165, 0000 litres in 1960 to 179, 000 after ten years (Jones 168).
Over the past, beer has recorded a 3% value increase. This increase can be attributed to the economic recovery that has been taking place in the country. For instance, the value reached A$ 14. In the Australian market, lager is the best performing among other types of beer.
It has remained dominant in the Australian market up to the present where it has recorded a fraction of 85% of the total volume of sales in the country in the year 2010. The main competitors in the market are Foster and Lioon Nathan. The two has strong brands that have been successfully built. In the year 2010, the two accounted for 91% of the total volume of beer in Australia (IbisWorld par 3).
Pattern of Beer Consumption in the Australian Market
There are several factors that have been influencing the consumer choice in the Australian market for beer. Some of these factors such as the lifestyle, international production, among other factors has been significantly influencing the Australian market. The recent statistics indicates that there has been stagnant or marginally less per capita in beer.
In the Australian market, beer consumption has been declining since 1970s. Before then, Australians were ranked among the top beer consumers. For instance, they were ranked as number three top beer consumers in the world during the time (Dealfish par 4). Currently, the Australians cannot even be ranked among the top ten because the level of consumption has significantly reduced.
According to the statistics released in the year 2010, the per capita beer consumption was 4.5 litres per year (The immigration Agency par 6). This was the lowest level of per capital consumption since 1950s. This is a significant drop bearing in mind the fact that it has been reaching up to 6.4 per capita.
Analysis of UK’S Market for Beer
Marketing plays a major role in determining the success of a certain brand in the UK beer market. The most successful brands are the ones with the most effective marketing process. It is necessary for an organization to make more people take its product in order to maximize the level of sales in such a competitive market.
Just like in the case with the Australian market, the beer consumption in UK’s market is decreasing; beer consumption in homes, pubs and bars is declining according to the recent statistics (Sibun par 6). It is also important to note that booze regulations are becoming tighter and therefore making it a bit difficult in marketing beer in the UK’s market. According to the report released in 2009, there is also an increase in the misuse of alcohol. This again poses another complication in the UK’s beer market.
It was projected that the level of sales in the market will decline over the time. For instance, projections have it that there will be a decline in sales by 2.5 percent in UK’s sales of cider, beer and flavoured alcoholic drinks between 2008 and 2013 (Business Wire par 5). Again this is the highest fall in the beer sales in the UK market over the past.
Beer consumption patterns are changing dramatically in the UK. For instance, most of the people prefer taking the beer in their homes. This led to a rise in the off sales by about 2.6 % between 2003 and 2008 (Stokes and Lomax 32). On the other hand, on trade sales fell by 2.7% within the same period.
The level of competition is also very high in the UK. Each of the company is taking all the possible measures to maximize its sales. For instance, Molson Coors intends to become one of the top four largest brewers in the world by the year 2012 (Mayer 35). Other companies have also set their goals all of which are determined by the level of sales. This will significantly increase the level of competition in the country as the brewers crumble for the diminishing level of consumers.
Beer is heavily taxed in the United Kingdom. It is also projected that there will be a drastic increase in the amount of excise in the near future. For instance, Molson Coors made a profit of $60m in 2009 while it paid a total of $600m as tax and excise to the government (Handley par 30). This clearly indicates that the government is taxing excessively on beer. This has led to shrinking of the profit margins.
Essential UK Beer Statistics
The recent statistics on UK beer market has revealed a unique pattern. It has revealed a changing consumption patterns among the people. Statistics has revealed a decline trend in Britain’s indigenous beer styles and relentless growth of lager (Sutton 12).
Majority of the people have shifted from ale to lager culture over the time. Since the year 1978 and 1998, there was a significant change in the proportions of the amount of ale and lager consumed during this period. That is, the proportion of lager to ale consumed during this period changed from 27:73 to 60:40 (British Beer and Pub Association par 12). This reveals how the consumption patterns have changed over the past. The fraction of Cast conditioned ale continued to fall to less than 10 % of the UK beer production.
Statistics on UK beer consumption has also revealed that there are some beer types whose consumption has been decreasing over time. For instance, the consumption for ale has significantly decreased. On the other hand, the consumption for lager has been increasing over time. Therefore, it is not advisable to introduce ales in the UK market where consumption levels have been falling with time. However, it will be easier to market lager because it has recorded a recommendable growth over time.
As already noted, beer consumption in the UK has been fluctuating over time. However, beer consumption reached its maximum in 1979 when a total of 69.5 litres were consumed in the UK (British Beer and Pub Association par 5). Unfortunately, the consumption has significantly decreased over the past. For instance, the current level of consumption is below 60 million hectolitres. This is one of the major threats to most of the brewers in the UK.
Recent statistics have also revealed that there is excess production capacity in the UK. Again, this has threatened the success of breweries since the consumption levels has been falling with time.
However, there has been an increase in the market share of the imported beer. It is therefore expected that there will be a rise in the amount of beer exported from the UK in the future in an effort to expand the global market share (Hornsey 54). Over the past, beer exports levels from UK have remained very low. However, this has been increasing over the recent past. Currently, more than 3 million hectolitres of beer are exported from the UK.
Over the last 40 years, the total number of pubs has significantly increased in UK. This is despite the fact that the level of consumption has been declining within the same period. Again, this reflects an increasing level of competition at the retail level in the market.
Analysis of Facts Gathered
The above discussion has revealed several facts about the UK beer market. This information is of great importance in making appropriate decisions on the best way to venture into the market.
From the above facts, there are a number of advantages in venturing into the UK’S beer market. To start with, an organization will be able to expand its market networks globally. Although the level of competition is also high, it is easier to build a brand loyalty and therefore increase the total level of sales (Dinkhoff 56). People here have varying tastes and therefore it will be very easy to build a brand name.
Despite these advantages of marketing beer in the UK, there are also a number of complications associated with the market. For instance, it has been revealed that the levels of beer consumption will decline with time. This indicates that the level of competition is likely to increase significantly.
This is more so bearing in mind the fact that more organizations are venturing into the market, now and then. Therefore, there is a likelihood of recording a declining level of sales with time in such a market. This threatens the performance of an organization in the global market.
It is also clear that there is need for intensive advertisement efforts in the UK’s market in order to market a certain brand. Advertisement is more critical in marketing beer in UK compared to the Australian market. This implies that an organization will be forced to incur extra advertisement costs in the UK market. This increases the operational costs hence reducing the profit margins. Again, this poses a great danger for a new entrant.
This analysis has also revealed that beer consumption patterns have also changed significantly in the UK. This has a significant implication in marketing strategies. For instance, off shop sales have been increasing over the past while the on sales have been decreasing (Vaughan 68). Therefore, it will be more effective to focus on the fast moving consumption goods in order to make their respective brands to look more attractive.
Majority of the pubs in the UK has applied a wide variety of measures in order to attract a significant number of customers. Many brewers are focusing on adding sense of occasion in the venues in order to attract more people (Anonymous par 9). In connection to this, more live music in the pubs has been one of the major strategies that have been applied in an effort to increase the level of sales.
Over the past, most brewers in the UK have been focusing on the young drinkers only. This is mostly the age between 18 And 34 years of age. Many brewers are now devoted to encourage drinking in the older people in order to increase the level of sales. A number of organizations have also been trying to come up with flavoured beer in order to attract female drinkers (Nwankwo and Gbadamosi 148).
This is aimed at increasing the level of sales. Many organizations have managed to achieve this through developing and building new brands hence maximizing the level of its sales. This has forced the brewers to redefine their market segments in order to cater for these groups.
In most cases, marketing of beer in the global markets becomes complicated because it is banned in some areas. For instance, advertising of alcohol in television and cinema is banned in France (Handley par 8). This is because of the increasing number of alcoholism among the teenagers. Therefore, brewers are forced to apply only a restricted marketing mix. This poses a major problem because advertising plays a pivotal role in educating, persuading, and entertaining people.
Another major problem with the UK market is the fact that there is a very high level of taxation. The excise is also highly exaggerated. This makes it expensive to operate in such an environment. For instance, the government takes more than six times the total profit enjoyed by the breweries.
Statistics indicates that the level of consumption in the Australian market has been decreasing since 1970s. On the other hand, many organizations have been struggling to increase the level of production and sales. Meanwhile, other companies from other countries have been introducing their brands in the already saturated market.
Therefore, for any organization to remain in the market there is need to come up with the necessary marketing decisions (Shaw and Mazur 125). As the Australian market is already saturated, the best option is to market the products in the international market. This will help an organization in expanding its level of sales by expanding its market networks in the international trade.
Analysis of the Findings
Assessment and Selection of Entry Strategies
Before venturing into the foreign market, it is important to analyze various methods of entry. This should be determined by the nature of the new market. It is important to choose the entry mode that is most feasible with the new market.
The success and the ability of an organization to adapt fast in the new environment will largely be determined by the feasibility of the entry mode. Each of the entry method is suitable in certain circumstances. There are several modes of entry through which an organization can venture into a new market.
Joint Venture
Joint Venture is a very common method that has been applied by a number of organizations in their effort to venture into an overseas market. In this form of entry, two businesses combine their resources to sell their goods and services in a foreign market (Tielmann 65). Joint ventures are very common in the countries where the economy is tightly controlled. In such economies, an organization may be forced to partner with the foreign companies in the target market in order to be able to sell its products to the residents.
The main advantage with this method lies on the fact that an organization is able to partner with a company that is experienced in the foreign market. This makes it easier and cheaper to market the product in the new market.
Joint ventures also suffer a number of limitations. To start with, these partnerships may be very difficult to manage. This is because they are mostly formed by two companies with varying cultural backgrounds whose management may differ significantly. Therefore, these differences may make it difficult to manage such partnerships. Another shortcoming of this method is that the partners are supposed to share the profits. This reduces the share received by every company. This leads to shrinking of the profit margins.
Joint ventures are most favourable to the markets where there are import barriers. By joining a foreign company in the target market, an organization is able to overcome the barriers posed on imports in the target markets. This method is also suitable in situations where there is large cultural distance. In such a case, joint venture becomes more suitable.
The local companies can also provide the necessary resources, distribution networks, and skills that are necessary in any market. An organization is also able to get a brand name whose loyalty has already been developed in the target market. This significantly increases the level of sales in the new market.
Licensing
Licensing is also another common method of foreign market that has been widely used. In this case, an organization signs contracts with the foreign businesses (Lymbersky 38). This allows the overseas companies to manufacture and also sell the company’s products in the target market.
Through licensing, a company is allowed to use the property of the licensor. However, most of the property is usually in intangible form. These include the property rights and patents, trademarks and certain technological production techniques (Ireland, Hitt and Hoskisson 175).
The main advantage associated with this method is that it has the potential of yielding very high levels of returns on investment. Therefore, this method has a promising good returns on the investments made. This method also opens the door for a low risk manufacturing environment in the foreign country.
Licensing as a method of entry into a new market is mostly situated in the target market where an organization does not have the ability of becoming a competitor. It is also suitable in circumstances where the level of sales is expected to be very low. It can also be helpful where there are significant cultural differences.
Exporting
Exporting is one of the oldest methods that have been applied while venturing into the foreign markets. In this case, exporting implies the process of marketing of the goods produced in one country into another.
This implies that the goods to be exported should be manufactured in the domestic country before they are marketed in the foreign country (Wolfe par 6). In this case, an organization is required to make a significant investment on marketing in order to sell its brands. There is therefore need to have a detailed marketing strategy.
There are several advantages associated with this method. To start with, the manufacturing process is home based; a thing that helps in minimizing the level of risks. This method also gives an organization a chance to learn more about the foreign market before making critical investment decisions. This method therefore is very useful in situations where an organization is not very sure about the nature of the foreign market.
In such circumstances, an organization can get a chance to survey and identify possible risks in a certain foreign market. This will play a pivotal role in making the final investment decisions. This method reduces the potential risks of operating overseas (FAO Corporate Document Repository par 8).
This method suffers from the disadvantage that one can be at the mercy of the foreign agents (Klug 34). Therefore, the exporter may lose all the control that makes them prone to exploitation. This method is most favourable in certain set of conditions. For instance, this method is very important in market environments where there are high political risks.
Through export, an organization is able to overcome the risks that are political based. This method is also suitable in situations where there is limited number of sales in the foreign country. In such circumstances, it is advisable to carry out the manufacturing processes within an organization and then sell the finished products in the foreign market (Decker and Zhao 190). This will help in saving on the unnecessary investments where there is no high demand for the service.
This method will also be favourable in situations where there are extremely high production costs in the target countries. For instance, labour in China is cheaper compared with countries like the United States. In such a case, it may be advisable for an organization to consider exporting in order to minimize operational costs.
Internet
In the contemporary business world, the use of the internet has intensified. An organization can use internet while venturing into a new market. Through the internet, an organization is able to access all different types of customers from all over the world. An organization can therefore easily target the foreign customers through the internet. In this case, an organization does all the production operations in their home countries.
These products are then transported to the foreign countries where they are sold to the customers. Clients order the products they want after which it is delivered. Since an organization contacts their customers directly online, there is no need for any contact with the local businesses (QuickMBA par 3).
The main advantage with this mode of entry is that it is usually inexpensive. The only major costs incurred in this case are the website and the marketing costs. This method is therefore cost effective as there are minimal expenses.
However, this method of entry suffers from the fact that an organization does not have physical presence in the foreign market. Physical presence of an organization in the foreign market is better than marketing and selling products online.
Purchasing Foreign Assets
This is the mode of entry where an organization invests in a foreign company. However, this may be more expensive since it requires huge amount of capital. The advantage of this method is that an organization can enjoy the profits of an overseas company, which has already developed with a strongly built brand.
Discussion and Recommendations
The above analysis has given the description of various methods that can be applicable in venturing into a new market. The discussions have clearly shown that each of the above methods has its own advantages and advantages. Some are more suitable in certain situations than others. It is therefore necessary to be careful when choosing the entry method. This discussion has provided vital information that is important in making various decisions in an organization.
To start with, it is necessary to consider venturing into the global market as a way of increasing the total sales. This is due to the fact that the domestic market has reached its saturation point. The only alternative is therefore to venture into the global market in order to expand the market. However, it is necessary to choose the entry method appropriately in order to achieve the best results.
From the above analysis, UK’s beer market is already highly competitive. The supply is high while the demand has been falling with time. Therefore, it may be risky to venture into such a market independently. Consequently, the most suitable method to venture into the market is through a joint venture.
In this case, the organization will be able to reap from an already established brand name. Moreover, an organization will be able to maximize the sales since it can enjoy the established market networks. It will be also easy to overcome the import barrier in the UK beer market.
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