The Structure of the Brewing Industry Case Study

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The brewing industry is exceptionally attractive due to several factors, some of which are identified through an extensive analysis of Porter’s five forces. They include the intensity of rivalry, the substitute’s availability, the bargaining power of buyers and suppliers, as well as the threat of entry. In regards to the first force, it is crucial to determine the extent to which brewing companies compete with each other for customers’ attention. It is evident that if there is less concentration in the industry, manufacturers benefit from less rivalry. The case study notes that there is a decline in the number of macro brewer companies, which results in a substantial rise in industry concentration (Meier & Wang, 2018). Therefore, although the market is dominated by four primary breweries, the rivalry between businesses in the industry is relatively low and gradually declining.

As for the availability of substitutes, it is apparent that as the years past, people do not start drinking any less alcohol, which means that possible substitutes to beer may include liquor or wine. According to the case study, as of 2013, almost two-thirds of American adults consumed alcoholic beverages (Meier & Wang, 2018). Out of these individuals, 41% preferred beer to any other type of alcohol. However, despite being a favorite choice, beer continues to move further away from being the top one. Meier and Wang (2018) raise alarm as “United States’ beer per capita consumption declined from 25 gallons in 1981 to 20 gallons in 2012” (p. 5). Thus, the availability of substitutes is rather high in the brewing industry, which makes it a little less appealing to prospective manufacturers.

The next force is the bargaining power of suppliers, which is relatively low in the industry. The costs for starting a brewery are rather low as any company can buy used equipment or initiate a contract arrangement for renting another business’ excess capacity. In regards to raw materials needed to make beer, most of them are cheap, although the challenge is to find suppliers who can provide them in large quantities. As for supplier substitutes, it is crucial to note that the very ingredients that go into the manufacturing of beer cannot be replaced, which is why the brewing industry depends upon supplier output. All in all, the bargaining power of suppliers could be considered rather low.

As for the bargaining power of buyers, it is important to acknowledge that the primary customers are distributors, and not necessarily actual consumers. Bargaining power can increase if there is a limited number of distributors in the market or if they are growing faster than manufacturers (Goldman, 2017). Meier and Wang (2018) note that “where once there were 5,000 US beer distributors, in the 1970s, there were only 3,333 by 2013” (p. 7). In addition, due to the established state-approved relationship, distributors can essentially do whatever they want, which is why the markup on the wholesale price has increased over the years. Due to a trend in distributor consolidation, not only did the number of distributors decrease, but bigger distributors started to monopolize the market. They eliminate potential competitors and neglect smaller breweries in favor of those that generate immediate profits because of their brand recognition. Therefore, it is apparent that the bargaining power of distributors is very high in the brewing industry. They have all the connections with consumers and big retailers, which makes them capable of manipulating the prices easily.

Lastly, it is also important to discuss the threat of entry as the fifth force. On the one hand, it can bring innovation, new capacity, and resources. On the other hand, new entrants inevitably fight for the market share and influence pricing, which can harm other breweries’ profitability. The threat of entry is low primarily because of the barriers, which make it harder for new breweries to gain market shares. These barriers include brand loyalty, limited access to distributors, numerous complex legal regulations, economies of scale, as well as substantial capital requirements. Overall, it is evident that the threat of entry is low, which means that the brewing industry is a rather attractive business prospect, even though some challenges with distributors and consumers certainly exist.

Brooklyn Brewery’s strengths include its strong brand identity, customer loyalty, a developed global distribution network, investments in innovative research, and expert knowledge of the market. Brooklyn Brewery’s primary weaknesses are rather high prices and standardized and therefore inflexible business procedures. As for the opportunities, they include the development of green products, global expansion, and overall business diversification through developing its portfolio and eliminating its over-dependence on existing enterprises. South Asian and Asia-Pacific regions have exceptional potential as they house some of the most promising emerging markets ready to be explored and conquered. In addition, Brooklyn Brewery has the opportunity to make profits by acquiring medium-sized breweries and distributors in developing countries, while simultaneously minimizing potential competition. The company’s threats are increased competition with lower price points, independent local developments, as well as an increasing cost of research and development (R&D) initiatives. Thus, it is apparent that Brooklyn Brewery can indeed sustain a competitive advantage and position itself at the top of the market if it manages to overcome some of the challenges it faces.

The most crucial strategic issues facing Brooklyn Brewery include the company’s excessive reliance on its country of origin as the main market, a high risk of competitors imitating Brooklyn Brewery, as well as decades-old business operation procedures standardized to fit all the sectors. The case study also mentions that the company does not have a retail presence. Brooklyn Brewery also has no clear direction as to where it should expand.

If I were the CEO, I would utilize the analyses of the industry and the company presented earlier and develop strategies based on them. Firstly, the business would make it its long-term objective to expand in the Asia Pacific market by gradually moving operations overseas and stabilizing the markets it enters by opening stores and presenting customized products. The focus would be on such emerging markets as China, Brazil, and India, in particular. My approach to market penetration would consist of three main pillars, including geographical expansion, increases retail presence offline, and online retailing. Secondly, I would invest resources in improving the ambiance of the manufacturing process, focusing specifically on augmented aspects and adaptability to new markets. Thirdly, my strategy would include the decision to increase marketing costs to promote to new customers worldwide.

References

Goldman, J. (2017). How Brooklyn Brewery stands out from the pack. Inc. Web.

Meier, S., & Wang, D. (2018). Brooklyn Brewery: Setting the course for growth. Columbia Business School

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