Case SM1 Updated v1

8/6/2019 Case SM1 Updated v1

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Approaches to Analysing the

External Environment

Strategic

position

Assess the nature of theAssess the nature of the

environmentenvironment

Audit environmentalAudit environmentalinfluencesinfluences

Identify keyIdentify key

competitive forcescompetitive forces

Identify keyIdentify key

opportunitiesopportunities

and threatsand threats

IdentifyIdentify

competitivecompetitive positionposition

StrategicStrategic

positionposition


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A PEST ANALYSIS OF THE EUROPEAN

BREWING INDUSTRY Harmonisation of duty rates across European Union member states

Competition legislation - e.g. 1989 Monopolies and Mergers Commissionreport in the UK

Local production laws - like Reinheitsgebot in Germany

Restrictions on containers - like the use of cans in Denmark

Harmonisation of duty rates across European Union member states

Competition legislation - e.g. 1989 Monopolies and Mergers Commissionreport in the UK

Local production laws - like Reinheitsgebot in Germany

Restrictions on containers - like the use of cans in Denmark

POLITICAL

ECONOMIC

Growing concerns about health issues and drink-driving

Increasing acceptance of low alcohol drinks

Importance of supermarkets in distribution and growth of own-label products

Increasing acceptance of pan European brands

Growing concerns about health issues and drink-driving

Increasing acceptance of low alcohol drinks

Importance of supermarkets in distribution and growth of own-label products

Increasing acceptance of pan European brandsSOCIAL

Economies of scale in brewing and distribution

Economies of scale in brewing and distributionTECHNOLOGICAL


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A FIVE FORCES ANALYSIS OF THE

EUROPEAN BREWING INDUSTRY

Competitors from Japan or the USA

Competitors from Japan or the USAPotential Entrants

Soft drinks e.g. Coca-Cola

Wine

Other leisure activities e.g. going to the cinema

Soft drinks e.g. Coca-Cola

Wine

Other leisure activities e.g. going to the cinema

Potential Substitutes

Suppliers (e.g. farmers and packaging companies) have little power

Suppliers (e.g. farmers and packaging companies) have little powerPower of Suppliers

Customer loyalty to local brews - e.g. Germany

Retailers - supermarkets have growing power as industry concentration increases

Tied Houses - until recently this was one way of reducing Customer Power in the

UK

Customer loyalty to local brews - e.g. Germany

Retailers - supermarkets have growing power as industry concentration increases

Tied Houses - until recently this was one way of reducing Customer Power in the

UK

Power of Customers

Barriers to entry within EU are reducing leading to cross-border mergers

Industry concentration across Europe is still relatively low

Demand for brewed products is static/declining in most countries

Barriers to entry within EU are reducing leading to cross-border mergers

Industry concentration across Europe is still relatively low

Demand for brewed products is static/declining in most countriesExisting Rivalry

Industry restructuring between existing competitors and the growing power of thesupermarkets are probably the main competitive forces in the industry at present.

Industry restructuring between existing competitors and the growing power of thesupermarkets are probably the main competitive forces in the industry at present.Summary


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Economic

Different patterns of industry concentration across countries

Growing trend towards cross-border mergers and acquisitions

Low growth in consumption of beers

* The government restrictions have lead toincrease in sales of

alcohol in supermarket.* Governmentcampaigning and restrictionon drinking resulted indecrease inthe sale ofalcohol productconsumptioninclubs andpubs.* Companies are trying to achieve economicofscale through cost

reduction.

* Brewing companies are engaged invarious marketing strategy togrow their marketthrough acquisition,mergers and introducingpremium products.* Super markets are offering cut price offers.* Heinekenis facing problemin packaging cost


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Are the factors the same across all

countries?

Whilst some pressures are best understood on a pan-European level,many ofthe structural conditions vary betweencountries

distribution structures

industry concentration being twomajor factors.

Soneed to apply the 5 Forces Framework both at a pan-Europeanlevel and atthe level ofindividual countries to gain a fullunderstanding.

This example ofdifferences betweenthe pan-European level andindividual countries highlights the necessity ofunderstanding howthe framework is to be used.


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STRATEGIC GROUPS AND MARKET

SEGMENTS IN THE EUROPEAN

BREWING INDUSTRY

Geographic coverage of the company - from local to pan European or global

companies;

Extent of brand family- from a single product to broad brand family.

Global, broad brand familycompanies e.g. Carlsberg;European, broad brand familycompanies e.g. Brasseries Kronenbourg, who are

attempting to become more international;

International, specialist or narrow brand family, e.g. Grolsch

National broad brand familycompanies e.g. Bass

Local specialists e.g. many German brewers or UK micro breweries

Two key parameters could be:

Strategic groups:


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Customer Segments

One of the quickest growing sectors in the UKbrewing industry, where brewers have traditional

links to public houses, is in themed family pubs,which provide play areas for children, whilst their

parents enjoy a drink.

The growth of low alcohol drinks, speciality beers

and own-label brands all appeal to different typesof customer.


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Heineken- SWOT

STRENGTHS

Brand Recognition strong

Strong International distribution

Family Controlled business stability andindependence

WEAKNESS

High Debt Level D/E Ratioof140% (AcquisitionofScottish & Newcastle)

Minimal Presence in China

OPPORTUNITIESMiddle East & Africa forecasted growth ofCAGR

7%

AcquisitionofFEMSA opportunities in NA & LA

THREATS

Russian Beer Tax

Global Downturn

SWOT


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What are the major trends withinthe

European brewing industry? Withinthe westerncountries the beer market has become more stagnated while inthe Eastthe beer marketis

growing rapidly with growing demand.

Europe has the largest demand for the beer market, and has the largest beer consumption per head.

The growth ofthe global beer market productionvolume is about 2.5 milliontons per year.While the beerindustry is growing popular sois the wine industry while the spirits industry is declining.

The beer marketis saturated by toomany players itis not a booming growing market and production growth isminimal.

As there are many players there is fierce competition.

There is rapid growth within leisure spending,this means attending bars, pubs and clubs which are all outsourcingbeer.

However the trend in drinking at home is also rising,itis cheaper and better value for money.

Until change in smoking laws in 2007 drinking at home may be popular but decrease whenthe banin putintoplace

sothey can enjoy drinking and socializing without having to ru the risk ofpassive smoking.


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European brewing industry? Consumers are growing more and more health conscious and fitness aware the affects ofalcohol are similar but

beer however has additional side affects such as bloating, weight gain and gas.

These could sway consumers to drink other alcoholic beverages.

From 1993 to 1999,the world beer productionvolume had grown by 12%.

In 2000,the total world beer output was 1.395 billion hectoliters, which was 368 million hectoliters by Asia, 300million hectoliters byWestEurope, 165 million hectoliters by eastEurope, 65 million hectoliters by Africa, 22million hectoliters from Australia and the restfrom America.

The firstthree countries ofhigh beer consumption per head inthe world are Czechoslovakia (163 liters), Ireland(150.5 liters), and Germany (127.5 liters).

The Netherlands is the biggest beer exportcountry, with sales ofmore than 1.22 milliontons tothe entire world.

InW

estEurope, about 1/3 ofthe beer productionvolume is productofGermany. Germany producesapproximately 1/3 ofWesternEurope's Beer production.

Germany has the biggestnumber ofbeer companies,there are 1207 beer producers, and Germany also has thebiggestnumber ofdifferent kinds ofbeer,there are 5000 varieties.


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European brewing industry? The beer marketinEastEurope is developing fast,i.e.the growth ofPoland beer market.

The beer consumption per head was 22 liters in Poland in 1993; itincreased to 58 liters in 1999; it was 63 liter in2000 and 75 liters in 2002.

There is a trend for product development such as flavored beers; these are favored by a younger generation whodrink flavored alcoholic soft drinks.

New trends for environmental issues include governmentinterventionfor bottled beer they dothis by chargingfor cans.

The governmentis alsotrying to reduce drinking withinthe nation and younger generations notonly underagedrinking buttrying to avoid 'yob culture',violence, and binge drinking.

There has been a large growth inown brand beers such as super market brands these are cheaper than premiumbrands.

Supermarkets also have buyer power because they buy in bulk meaning they buy for less socan undercutthesmaller sellers.

There has been a trend for mergers and alliances,ifbig players such as Heinkenin, Carlsberg, and Interbrew weretomerge they would become a monopoly and ownthe market.


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how these trends will impact differently onthese different

companies and how do you think the strategy ofeach

company should change

Interbrew

Interbrew could diversify their range and introduce product development, due toconsumers beingmore health conscious and risk aware they could introduce a low calorie beer or face not being abletocompete in a global marketfacing reductioninconsumption per capita.

The reliance on super brands for market growth. This has a positive affectfor Interbrew as theyown brands such as Becks, Stella andWhitbread,they continue to have loyal consumers and wellknown popular drinks.

By acquiring Bass has given Interbrew the higher Market share and now has the ability to sellCarling to America making international alliances.

Changing tastes withinconsumers for drinks such as flavored beer will have a negative impactforInterbrew as they have a tradition brand image and taste. Tocompete they could either merge

within an established younger brand or develop a new product line.

Supermarketbuyer power has a negative effecton Interbrew as they offer lower prices on a largescale meaning lower profits butmore drastically brand value destruction. Tocombatthis they couldraise their prices and become a premium beer to regain brand value and regain higher profitmargins.


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Heineken

Heinekencould diversify intoflavored beers, low calorie beers tocompete withother beer companies on a global scale.

This would attract a new younger generation who are now beer drinkers,mergingwith a manufacturer such as Coca Cola to produce flavored drinks would cutcostsand would offer a free promotional tool, gaining existing customers from bothcompanies.

Heineken should aimto be number one withinthe market by emphasizing thecharacteristics oftheir beer such as the quality ofthe beer,the ingredients andproductionmethods.Emphasize their core competencies and unique factors.

They could acquire or merge with a small unknowncompany unique company togive their company an edge this would be more cost effective than launching anew brand.

Heinekencould sponsor sporting events to gainnew consumers and gainmorepublicity.


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Grolsh

Grolsh could improve their technology andmanufacturing equipment. They should stopoutsourcing tocutcosts and improve ontransportationand distributionmethods; they should enforce theseimprovements intheir brand.

Grolsh need to exploitthere alliance with US companyMiller and merge with another US company to expandwithinthe US market as they are based within acountry where beer drinking is in a decline,the Beerindustry is a growing oneWithinthe US.


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Scottish and Newcastle

Scottish and Newcastle need tofocus onthe quality oftheir brand,the ingredientsand benefits oftheir brand.

Scottish and Newcastle could investin research and developmentfor technologyand distribution. They could alsomerge with a company with a similar strategy asthem as they wish to expand inthe beer market and merge with local breweriesthat hold strong market positions.

For us, Heinekenmaybe is a company, a group or a bottle nice beer; butforHeineken,this name represents the unstopped passionofquality. Nomatter howsalability Heinekenis,the passionofquality won't be changed.Our passionis yourperfect beer! This is Heineken.

In 1863, when Mr. Gerard Adraan Heineken was only 22, he bought a wine factoryin Amsterdam, Netherlands. The reason was so simple: he couldn'tfind a beer fitshis test. Butifnot because ofMr. Heineken's particular ofbeer test,the worldwon't enjoy such perfectquality beer like Heinekennow

Documents

Case SM1 Updated v1