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The market of the beer business plan Report


Executive summary

The report seeks to explore the market analysis, country analysis, and the foreign entry modes that can be applied by a company while entering in an international market. A company based in the UK has been experiencing problems associated with market share as the market has been saturated with beer products.

The brands that it would like to introduce in the new market are the sales of ales, stouts and bitters, low/no alcohol beers, premium lager, specialty beers and standard larger. However, because of the feared competition in the target country market, the report addresses low/no alcohol beers, premium lager, and specialty beers. These would be marketable in France the target market for the preference by French population to consume foreign beers with specialty beer being the leading product.

The report uses PESTEL analysis to analyses the France macro-environment forces as it assesses the possibility of launching its beer products. The market of the beer products is analysed using the available marketing mix in France, as well as the segmentation of the market, positioning of the products and the targeted market.

The findings are that the market is segmented on basis of age, while targeting the youth. The report unveils different foreign entry modes which are commonly applied. The modes are the licensing, the foreign direct investment, exporting and joint venture. The suitability of the entry modes are well represented and discussed with their respective advantages and disadvantages.

For the UK based company, exporting entry mode has been recorded for its numerous advantages. Based on the findings, the company has a better chance of entering the France market and gain a market share in the beverage beer industry.

Introduction

UK has been leading in the production of beer in Europe with a huge consumption. However, the consumption of beer has been reducing over the years as the population has been concentrating on health living. This has left the consumption of beer low as they have turned to the consumption of wine and low/no alcohol beers.

The country has been filled with many beer key players making the market become saturated. This has forced companies to seek foreign markets that have low beer production with the aim of utilizing the available market share.

On the other hand, France has been known for its production of fine and competitive wine for the longest time possible. However, there are few beer brewers in the market with the major breweries holding 90% of the market share. This has been more of monopoly for the companies.

Over the pasts few years the population of France especially the young generation has changed it consumption habits. The population however, has preference to imported beer to the locally manufactured and available beer. The commonly preferred beer is the specialty beer for its uniqueness and the application of different preparation techniques and flavours.

For the UK based company to enter the French market beer industry and gain a market share, it has to consider the country analysis, market analysis and the various foreign entry modes and choose the most adaptable and preferable. Both UK and France are members of the European Union (EU), so it could be easy to trade as they share almost same trading regulations and laws.

It is advantageous to transact as not currency exchange rates would be required as they both use the same currency the Euros as a medium of exchange. Lastly, members’ states of EU have free transaction of goods and services making it possible for the companies to trade.

Product information/facts

The company available beer brands are low/no alcohol beers, premium lager, and specialty beers in UK after its market has been saturated. Low/no alcohol beers are a beer brand that have low alcohol content and are neither harmful to health nor have any health related complications.

In the UK the law recognizes no alcohol beers as the one which is below 0.5% alcohol by volume (ABV). On the other hand, low alcohol has no more than 1.2% alcohol by content while that of France is below 3%, meaning the UK beer meets the standards of France. These kinds of beers are common in UK and the larger population is changing its alcohol consumption trends to usage of low/no alcohol beers.

The premium larger beer is the largely produced and consumed beer in France. However, the beer has been doing badly in UK as the market has become saturated although the lager makes 68% of the UK beer sales. The specialty beers are flavored kind of beer which has become common in the France as the younger generation is preferring specialty beer to the locally manufactured malty beers.

Because of its demand its production has increased over the years as well as its distribution to various markets. The techniques and the fermentables used in the manufacture of specialty beer are unusual. The wide range of the beers includes the spiced, herbed, smoked, and fruit flavoured beers. Because of their different flavours, they have become very common in Europe especially in France.

Analysis

Country information/facts

The preferred country for exporting the beer products from the UK is France which is also found in Europe and a member of the European Union. Based on the current GDP of $2.580 trillion (Bureau of European and Eurasian Affairs 2011), France is ranked fifth in the world in terms of economic growth.

However, the real GDP fell in 2008, but the economic growth picked in the end of the year. Generally, the economy of France has been fairing on well for the last quarter despite the financial crisis that have hit the world. France has a growing population that is characterized by skilled workforce.

With unemployment rate of 9.5%, venturing in the market would create jobs for the unemployed and increase its GDP. The country is ranked the second in terms of trading in the Western Europe (Bureau of European and Eurasian Affairs 2011). The country is known for its agricultural activities and is ranked the first in the European Union and the second in the world. It largely produces wheat, corn and barley which are used in the production of beer.

France is categorized as one of the leading consumers of beer products in the world although it is not a major brewer of beer in Europe. This forms a good market for the beer product because of the people desire to take beer. However, the country is the leading producer of wine making the beer market more open and available to foreign companies that would export beer to the country.

The country’s beer consumption is approximately half of the consumption in the Western Europe. Nonetheless the consumption of beer in Europe has been low although it depends on the weather of the country. The common usage kind of beer is lager which forms two thirds of the total consumption.

The population has moves away from using the local beer and preferring the specialty beers. These are the imported beers from other countries in the European Union which have been increasing over the years. This would make a perfect market to export beer products from UK to Germany because if the increased preference of imported beer over locally manufactured ones.

With a population of almost 60 million, the population consumes an annual approximate of 20 million hectoliters. The country has an annual beer consumption of 38.6 liters per capita.

According to Cohen (2008) past statistics have revealed that the European population is taking more beer than wine. For instance, a previous study carried shows that 25% of the respondents in France who are over 50 year’s have starts taking beer one a day (Cohen 2008). Other results from the same study indicated that 43% of the participants aged 14 to 29 years have developed the habit of consuming at least five drinks of beer per day.

The correlation between UK and France beer consumption is that UK drinkers have resulted to the consumption of wine although it is a beer making country. This offers the best chance for the UK based company to enter the French markets that have a changed preference and an age group that prefers beer to wine.

Macro environment forces considered

Before the launch the beer products in France several macro environment factors have to be considered that would govern the operation and the percentage of market share. The elements are based on the PESTEL analysis which determines international operations. They are political factors, environmental, social, technological, environmental and legal factors. Other factors based on the international entry analysis include the competition position in the country and the financial requirements.

Legal matters

These are regulatory laws that protect the competition with the aim of protecting the consumer and the market (Pride, Hughes& Kapoor2012, p.346). For the company to enter the market it has to consider the legal requirements needed for the establishment of a market of beer products in UK.

UK and France belong to the European Union leaning that they operate under almost similar laws governing beer regulations. However, the company should be aware of the legal restriction on the usage of beer in France. For instance, the French tobacco and law legislation also referred to as the ‘Loi Evin’ prohibits the use of television to advertise alcoholic beverages either indirectly or directly.

The offense is punishable by the law which has a fine of an estimate of EUR 75 000 with either an addition of 50% amount used on the advert already banned. The legislation is aimed at checking the level of consuming alcohol in France. This may be a problem to the company as it has to devise optional methods of advertising its beer products. It will also be faced with a problem of reduced demand if the product does not catch the required market share in the short run period.

Social cultural factors

Social cultural factors are concerned with the beliefs, attitudes and the welfare of the people in the targeted market (Pride, Hughes& Kapoor2012, p.346). The demographic figures of the French population are changing with the number of the old people increasing more than the youths. However, this is not a hindrance in entering the international market as the youths of age groups 14 to 29 years are the ones who are taking beer compared to the population ages 50 and above.

The social cultural trend has the capacity of affecting the company in a positive way as the young preferences of beer to wine forms a basis of the market entry.

Also most of the French populations prefer taking alcohol at the comfort of their homes. This would encourage the company to come up with beer beverages that are portable and usable in the hone than in bars. The most negative social cultural aspect that can affect a company in France is the religious beliefs that French people as they are catholic and most are against consumption of beer.

Environmental factors

These are regulations that are concerned with the environmental conservation and management. Being in the 21st century it would be imperative to put into consideration the environmental factors so as to remain relevant in the market. For instance, France has environmental regulation that requires the usage of environmentally friendly methods of manufacturing the beer. Or it could have the packaging of the beer in environmentally friendly packaging to avoid bans or fines from the French government.

Technological

Both the UK and French have undergone technological revolution that has shaped their different markets. Based on this the company would be having a competitive edge as its manufacturing techniques are compliant to the targeted international market.

With the people well versed with technology and e-commerce it would be possible to sell the products under the sane platform thus making France the country of choice of the saturated beer brands. With an already existing market and technology it would be easy as the company would enjoy economies of scale. This would reduce the costs required in entering the French beer market.

Economic factors

These are factors that are determined by the economic forces in the market industry. They include inflation, economic growth rate, interest rates, inflation, taxation changes, and exchange rates. These economic factors may have impact on the decision to be taken by a company.

For example, if the interest rates are higher then investments may be low because of high costs of borrowing. If the growth rate is high then the demand of the products of the firm is raised too. A country with high inflations rates may force the firm to pay high wages to the employees increasing its production cost.

And lastly a strong currency hinders exports because of products high prices in the foreign market. However, since the countries uses euro as a medium of exchange, it would be advantageous to the company. However, it would under go taxation as the law requires imported alcohol products to be licensed even if the country is a EU member state.

Political factors

These are factors that are influenced by the government through the initiation of different policies. They may include incentives and subsidies that the government may be wiling to offer to the firms (Pride, Hughes& Kapoor2012, p.346). The priority in implementing these is crucial to firm.

They have impacts on areas of infrastructure, quality of the goods produced as well as the health of its people. They can also have impact on the education. Examples include the provision of a transport infrastructure to the firms or regulating the prices of some goods. For example, being under the EU and using the euro it would be advantageous for the company because there are exchange rate restriction and taxation policies because the markets have been opened.

This will also allow free movement of goods from UK to France without taxation which is an advantage to the company. The company will also enjoy tax exemptions because it is a qualified member of the European Union.

France beer Market information

The market is saturated with wine products as France is known for the production of fine wine brands. However, the country produces beer with premium lager having a market share of two thirds. Although the country is known for its alcohol consumptions, the population that is taking alcohol has been declining because of the changes in their life styles. Wine being integral part in the culture of French people, has brought a tremendous change as many people have shunned from alcohol to other beer products.

There has been a decline in the consumption of beer in France from 21.43% to 19.73%million hectoliters as reported in last year (Business Beer.2011). It is assumed that the market for beer has reached its plateau because of the changing beer consumption trends and lifestyles. However, beer turnover has been high because of the increased preference to specialty beers which are mainly imported.

The market share for specialty beer increased by 5.4% to amount to 33.3% in 2009 (Business Beer 2011) with speculations that the trends are bound to increase by 2011. In contrary, conventional beers have been reducing in terms of market shares as they lost 5.3& of the market share in 2009 although the consumer level has not reduced by much. Some reports show that there was a similar decline 30years ago when the consumption dropped to by more than 30%.

Marketing mix

The marketing mix consists of the 4ps used in the marketing which according to Kurtz, Mackenzie and Snow (2009, p.424) are price, promotion, place and product.

Product

The common beer products found in France are Kronenbourg, Grand Cru which has 6% ABV and Kronenbourg Blanc which is a spicy favoured beer (Beers.co.uk 2009). Desperados is another beer found in France which has a 5% above alcohol average, and the Kronenbourg 1664 which is the common and is preferred more than any other lager for its malty taste. Bieres du garde is another beer product has a bittersweet finish and ABV of 8.5% another beer product is the Ch’Ti beeers (Beers.co.uk 2009).

Price

The prices of the French beer products vary from one location to another. They are customer friendly and affordable which are some of the aspects considered in the pricing of a commodity. However, some of the beers are more expensive than the others because of the targeted customers’ base and the type of brands. Nonetheless, they have been able to capture their own market share in the market.

Promotion

Advertisement of beer in UK is prohibited meaning that it is punishable by the law. This means that beer products are advertised through other channels and mediums. As part of the European Union treaty, the advertisement of alcohol should not encourage its excessive drinking. The “Loi Evin” bans TV alcoholic beverages advertisements that are over 1.2% ABV (Institute of Alcohol Studies 2010, p.12). The law also prohibits the advertisement of alcoholic drinks in cinema. Involvement of companies in sponsoring cultural events and sports is prohibited. The same applies to radio advertisement where it is prohibited between 5pm and midnight (Institute of Alcohol Studies 2010, p.12). Alcohol advertisement towards minors is also prohibited, however, advertisement is only allowed when the characteristics of the products are being used.

Place/Distribution

Beer in farce is distributed through established channels that ensure that the products reach the targeted market in time. Most of popular place where beer is concentrated is the Nord-Pas de Calais which is close to Belgium (Beer co.uk 2009). The beers produced in France are similar to the ones found in Belgium hence its location.

The place is characterized by young stars who prefer beer to wine. Other than being concentrated in the small town, beer products are strategically in supermarkets. There are also numerous pubs, taverns, bars, and restaurants where beer products are sold to the targeted customers especially the youth.

Therefore, any company that tries to enter the French market need to comply the marketing mix of France as it gives the guidelines. Any company that does not comply with the governing marketing mix has the possibility of acquiring a low market share.

Segmentation

The beer products in France are classified as follows Kronenbourg, Grand Cru, Kronenbourg Blanc, Kronenbourg 1664, desperados, and the Bieres du garde. Market segmentation involves the process of clustering the people who share similar needs or characteristics (Botha, Strydom & Brink 2004, p.61).

The segments which are homogenous groups respond differently to advertisements, promotions, and communications among other variables of the marketing mix. The common and prevalent segmentation of beer is based on the age group. The young generation of between 19 and 29 prefer beer more to wine.

Targeting

Based on the available data of the French beer industry, the old are targeted through the use of low/no alcohol beer. The other targeted group is the youth below 29 years generation because of its preference to beer to wine. This has been necessitated by the changing lifestyles and ways of living among the youth.

Differentiation is used to target the different segmented groups in the France. This is supported by Havalder (2005, p.93) who note that differentiation is used to communicate the different segmented markets with the products in the market.

Positioning

Product positioning describes the way consumers perceive particular products in the market (Botha, Strydom & Brink 2010, 61). The beer products of France are well placed at par. This is because they are considered as better and the market is 90% controlled by the major breweries. The reason why the French beers are well placed in the whole Europe is because of their better quality than all other areas (Beers co.uk 2009).

Market entry modes

There are various foreign market entry modes that a company can successfully apply to entry in a new market and gain a market share. The common entry mode that can be applied when entering the French beer industry are, exporting, sole venture, joint venture and licensing. Before entering in a French market there is need to assess some of the factors that would limit the success of the product in the new market.

Exporting

This is one of the popular methods of entering a foreign market. It involves the transport of the fully or partially finished products to the targeted market. France has been an importer of beer products since most people prefer the specialty beers to locally manufactured beers. One of the reasons why export is used is on when trade barriers have been lifted or reduced (McDonald, Burton & Dowling 209). Through the diversification of markets, the mode can be applied to minimise risk.

A UK based company can export its beer products to France at less cost because of the reduced taxes as they both belong to the European Union. With differentiated goods which are patented, a company can easily use export entry as it has the likelihood of enhancing market share over the already existing products. A company can enter a foreign market either through the direct branch, direct agent, or indirect entry in the market (John & Gilles 1998, p.262).

The reason why export is a favourable entry mode is because it requires fewer investments as production is done in the home country. The only costs incurred are the marketing expenses. However, coordination between the government, exporter, transporter and importer is required for its success.

Licensing

This entry mode requires the use of license that permits another company that is located in the targeted country. For instance, the company can permit a France based company to sell beer products on its behalf. The difference between licensing and franchising is that the latter adopts the name of the company with the products. However, the licensed company uses the patented product without any modification whatsoever after paying an agreed fee.

This type of contractual entry mode is applicable to patented products. This type of market entry attracts large risks of investments. The drawback of using licensing as an entry mode in a foreign market is that the company loses direct control on industrial property, quality and manufacture (John & Gillies 1998, p. 265).

Joint Venture

The company comes into partnership with an already existing company in the target country market. For instance, the UK based company would partner with Fischer brewery which produces Desperados and form a partnership with same market share. This increase the chances of getting large market share as the company is perceived as an insider.

The objectives achieved through joint venture is to gain market entry, develop a product jointly, conform to any existing laws and regulations on foreign investors, share technology, and share rewards and risks involved in the venture. The benefits associated with joint venture are that a company can access the already existing distribution channels and be politically connected.

This mode of entry mode is favourable when combination of the market power, the size of partners and pooled resources are less in line with the targeted industry leaders. It is also important when learning is required or the companies share the same goals, ideas and skills.

However, this mode of market entry is riskier than all the others as ownership, pricing, technology applied, and control of the ownership is predetermined. It is advisable to put these aspects into consideration before entering into a joint venture.

Foreign Direct Investment

A foreign company places its company directly in the targeted country. For example, the company would establish a beer manufacturing company in France and operate from there. Resources both financial and human capitals are then transferred to the target market (Sharan 2003, p.45).

There are several ways that can be applied on FDI like acquiring an already existing entity or putting a new enterprise. In this mode, the foreign company in the target company has the highest capacity of controlling the operations and management of the company. The chances of knowing the competitive environment, key players, and existing consumers is very high. The drawbacks of using this form of foreign entry mode are that it requires a lot of commitment, resources and capital to venture into.

Comparison of the four modes of entry

Mode Conditions that may favor the mode Advantages Disadvantages
Exporting There political risk involved

The political risk is high

Requires no establishment of production facilities

There limited sales as the product need less time to adapt

Distribution channels are located to existing plants

It is easy to enter the market

Company can use the facilities in existence

There minimal risks involved in the investment

There are high transport costs

The company can be seen as a competitor to the local products

There limited access to locally available information

Trade barriers may exits which are additional costs.

Direct investment It has minimal political risk

The culture distance is reduced

Company can make high sales

There is no fair way of pricing the assets

It puts barriers on importation of same product (beer)

Company gets knowledge on the foreign market

There is minimal knowledge spillovers

The company is viewed as part of the economy(insider)

Can utilize the already existing skilled personnel

The mode is more risk compared to the other three

Its venture requires, high capital, commitment, and resources

The local resources may proof hard to manage because of high cost

Licensing There is legal protection on the targeted market

Cultural distance is large

Licensee has no ability of becoming a competitor

There exits investment and import barriers

Sales potential may be low in the targeted market

The licensee has no ability of becoming a competitor

There is risk of investment involved

Easy to enter

It can circumvent available trade barriers

There is minimal risks involved and investments

The company cannot control the assets

There is knowledge spillovers

The licensee may turn to be a competitor

The period of licensing is always limited

Joint ventures There exists import barriers

The cultural distance is very large

Political risks exists

The local company can assist in the provision of resources, skills, brand name, distribution channels among others

Sales potential is very high

Pricing of assets is not fair

If the country restricts foreign ownership of company

It is able to overcome cultural distances and any restrictions on ownership

The resources of two or more companies are pooled together

The set up requires less investment

The companies can learn and exchange ideas from one another

Company is seen as part of the economy

Its management may be difficult

Its more riskier than licensing and exporting

There is knowledge spillovers

The partner may turn to be the largest competitor

Issues may arise on how controls the company

Recommendation (market entry mode)

Based on the market analysis of France and the regulations of UK, the most recommended mode of entry to the France market would be through exports. The company would export the explained beer products to France because it is more cheap, less risk and convenient to export the products. Based on the advantages given and the suitability conditions of exporting then the company would adopt exports to the other entry modes.

The countries are both located in Europe and are members of the European Union/ community. When exporting commodities from UK to a country which is a member of the European Community, the exports can circulate freely without the payment of some taxes although they are subjected to VAT. The products being exported to UK have alcohol content which is below 30 percent meaning that they are exempted from duty stamp.

This implies that duty stamp would not be paid on the beer products exported to France. France has a well established market, according to john and Gillies (1998, P.66) exports can be applied where there is high break even, has likelihood of achieving economies of scale, greater resources are committed, and large volumes are to be sold then direct export can be applied.

This favours the company as the France market size is large and has the potential of growing further as people trends of beer consumption are changing. Also export is applied where the home market has become saturated with its products.

Conclusion

Market analysis and country analysis are important tasks that need to be carried before venturing a foreign market. The most suitable country and market that the UK based company can easily access and gain its market share is the France. This is because the population has changed their wine consumption trends to beer consumption with the youth being the largest consumer. The market is also centrally placed as it lies in Europe and is a member of the European Union.

This gives the company the opportunity of trading freely in the region with less reduced taxation and regulations. From the market analysis, it has been concluded that the French market has a ready target population, well segmented and positioned. In France, the TV cannot be used to advertise and promotions cannot be carried through sponsoring of games and other events.

There is a generation that is getting away from the usage of wine to the usage of beer. Specialty beer which is largely imported is the commonly preferred beer brand in France. This has been necessitated by the different flavours it has and its unique technique of fermenting.

The commonly used foreign entry modes are the exporting, joint venture, licensing, and foreign direct investment. Based on the report analysis the export entry mode is more preferred for the UK based company to adopt. This recommendation has been based on the market analysis and the UK market operations and regulations.

Reference List

Beers.co.uk. 2009, French Beers. Web.

Bureau of European and Eurasian Affairs. 2011, Background Note: France. Web.

Business Beer. 2011, . Web.

Bothat, J., Strydom, J. & Brink, A. 2004, Introduction to marketing, Juta, Cape Town.

Cohen, A. 2008, Europe’s Changing Drinking Habits: More Beer, Less Wine, Few Regrets. Web.

Havaldar, K. K. 2005, Industrial marketing: text and cases, Tata McGraw-Hill, New Delhi.

Institute of Alcohol Studies. 2010. Alcohol and advertising. Web.

John, R. & Gillie. A. M. 1998, Global business strategy, Thomson, London.

McDonald, F. & Burton, F. 2002, International business, Thomson Learning, London.

Pride, W. M., Hughes, R. J., & Kapoor, J. R. 2012, Business, South-Western/Cengage Learning, Mason, OH.

Sharan, V. 2003, international business: Concepts, environment and strategy, New Delhi, Pearson education India. Appendices

Appendix 1: Valuable websites

Appendix 2: Beer production in 2009

Beer production in 2009.

Appendix 3: Annual Global Beer Production Volume and Growth Rate

Annual Global Beer Production Volume and Growth Rate.
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