FREE ESSAY ON ANALYSIS OF THE BEER INDUSTRY

ANALYSIS OF THE BEER INDUSTRY

Industry & Competitive Analysis
CHIEF ECONOMIC TRAITS OF THE BEER INDUSTRY
The market size of the beer industry is incredible. The wholesale volume in the beer
industry is approxiametly $13.7 billion. The industry employes almost 40,000 people. The
average worker is paid about $18.27 an hour. As you can see, this is a very large
industry which provides many jobs to the american workforce. 
The market consists of many competitors, some being very large and some operating on a
very small scale. The competitive rivalry is broken up into three segments, Natiional,
Regional , and Microbrewers. National competitors have a wide market coverage and
generally a large company. Regional competitors are smaller than National in the fact
that they only distribute in certain regions. Microbrewers are the smallest of the three
because their size and capacity limit them to only distribute to small geographic areas.

The market growth rate of the beer industry is perplexing. In domestic brands, from 1983
to 1984 there has been a decline in consumption of -1.2%. In the imported section there
has been an increase of 14.3%. The total industry as a whole declined .7% from 1983 to
1984. As a result of the decline in consumption of beer a similar result in production
occurred with a decline of 1.2% The estimated forecast for 1985 will continue along the
same trend as did 1984. The long term outlook for the industry is that sales will remain
flat for the next 10 to 20 years. 
There are many companies in the industry. Through the years the industry has slimmed down
quite a bit. The National market consists of ten major competitors. The Competitors in
this market are Anheuser-Busch, Miller, Stroh, G. Heileman, Adolphs Coors, Pabst,
Genesee, C. Schmidt, Falstaff, and Pittsburgh. The National companies have 51 plant
locations across the United States. Market share in the Domestic market ranges from a low
of .5% to a high of 34%. The Import market consists mainly of ten major brands also. They
are Heineken(Netherlands), Molson(Canada), Beck's(Germany), Moosehead(Canada),
Labatt(Canada), St. Pauli Girl(Germany), Dos Equis(Mexico), Foster's Lager(Australia),
Amstel Light(Netherlands), and Corona(Mexico). These ten brands hold about 87% of the
imported market share. The individual companies range in market share from 34% on down. A
few regional companies, and many small microbrewers make up the rest of the companies in
the industry. 
The customers for the beer industry are highly diverse. They range from being highly
educated to non-educated, and male to female. Income ranges for those who drink beer are
also very diverse. Single people drink more beer than Married according to 1983 U.S. beer
drinker demographics. College professors are known to be customers also. 
Due too lack of information in the case the degree of vertical integration among the
companies in the industry is not certain. I am certain that a few of the larger companies
have gone into producing their own packaging(Cans, Bottles, etc.). This would be a way to
cut out some of the power of suppliers if a company were to do this.
The ease of entry in the beer industry is segmented among the three market coverage
types. In the national market the ease of entry is low. There are many barriers to entry
in the national market. Beer is regulated in 50 different ways in the United States.
Large capital requirements and distribution networks make it hard to enter the national
market. The regional market is a little easier to get into because of fewer regulations
due to smaller market coverage. Capital requirements are not as big in the regional
market. Local or microbrewers have the fewest barriers to entry. Capital requirements are
small compared to that of a national or regional brewer. Microbrewers generally operate
in a small geographic area thus reducing many of the regulations faced by national and
regional brewers. 
Product characteristics vary among the markets. In the national market the beer is highly
standardized and heavily advertised. The beer is inexpensive. There is some product
differentiation in the market with the broad product offerings that the national brewers
can give. ex. Light beer, Amber beer, Low Alcohol, And Malt Liquor. Imports are perceived
to be better quality: when in fact, they are really not. Because of this perception,
Import beer costs more than domestic beer does. Imports are differentiated by taste and
packaging. Small brewers offer a superpremium product that is not very differentiated.
The main differences can be attributed to the brewing process, price, and packaging. 
Scale economies is high among national companies due to their large size. Their ability
to distribute fixed costs is easily done because of the large volume that is produced.
Their is also economies of scale in product extension and brand proliferation. Regional
companies have moderate economies of scale. Regionals do not produce as much as larger
natioanal companies but, they can still spread some of there costs over their moderate
volumes. Local brewers have low economies of scale. Production is so small that it is
very difficult to distribute costs. A local brewer cannot spread the cost of advertising
over their product without having to raise the price of their product considerably.
Capacity utilization in the U.S. Beer industry is between 75% and 85%. The beer industry
is suffering from overcapacity. Despite this, a few companies are still expanding while
others are closing down some operations. Because of flat sales, their is no need to
overproduce.
Industry Profitability is decreasing due to heavy taxation and a declining market. Beer
is one of the most heavily taxed consumer products. There largest cost in the price of
beer is the tax that is placed on it by local and state governments. The industries
profitability is also changing due to changing lifestyles, stricter laws, and a declining
18-34 age group.
COMPETITION AND COMPETITIVE FORCES
The rivalry among existing competitors is strong. Demand for the product is slowing. In
order for a company to increase market share, another company has to lose it. Switching
costs are low for consumers. Because switching costs are low, Competition is very intense
to gain new market share. The beer industry is a cut throat business with extreme
competition. Because they are in a declining market, it order to stay alive it must be
survival of the fittest. 
Potential of new entrants is moderate. Capital requirements can be a very inhibiting
factor as to whether a company can start up. New entrants must also establish a very
strong and sound distribution network that is all to often not that easily attainable.
Many laws and regulations may also inhibit a new entrant from coming into the market.
The threat of substitute products is moderate in the industry. Some people believe that
wine coolers will continue to steal market share form the beer industry, while others
believe that wine coolers are just a fad that will die down. Pre-mixed drinks can also be
considered a substitute. Bacardi breezers and Jack Daniel's country cocktails are a
example of this. In a bar, a person has a choice among many different drinks. Malt
beverages(ZIMA) can also be considered a threat.
The power of suppliers is moderate. Depending on which company is bigger will decide who
has the leverage between the two. The suppliers have power due to the demand for
agricultural products. Canneries have power in their ability to produce packaging for the
breweries. If the brewery is big enough, they have more leverage as to where they get
their supplies and as to how much they pay for them. 
The power of buyers is very strong. Switching costs are very low thus enabling a consumer
to buy whatever brand he wants. Beer drinkers are easily swayed by advertising and social
trends. Special promotions tend to sway brand loyalty.
DRIVING FORCES
Changing societal concerns, attitudes, and lifestyles are driving forces for the
industry. These factors play an important role as to where the industry is going. Other
causes include
1. The population is concerned about healthier lifestyles.
2. The Growth of the 18-34 age group is declining.
3. Drinking and driving laws are getting stricter with the push of support groups(MADD).
4. Legal drinking age being raised to the age of 21.
5. Banning of Happy Hours in some states.
6. New buyer preferences.
National brewers are in the strongest position because of broad product offering and
low-to-moderate costs. Imports are in a fairly decent position because of their decent
product offering and quality. Regional and local breweries are in the weakest position
because of higher costs and limited product offering.
MOVES RIVALS ARE LIKELY TO MAKE NEXT
The following is a prediction of what Golden Gate Brewery' s competition will do next.
Heineken- Continued push into the U.S. Market. Increase in advertising. est. 22 million.
Molsen- Maintain second place in import market. increase in advertising. est. 15 million
Beck's- will need to reestablish positioning as market share will be lost due to lack of
promotion.
Moosehead- will also lose market share to St. Pauli Girl. again due to lack of
advertising.
St. Pauli girl- increase market share in U.S. market due to significant increase in
advertising. 14
million
Anchor Brewing Company- (In San francisco) will maintain positioning of being a small
exclusive upscale beer. continued market growth on a small scale.
Sierra Nevada Brewing Company- Maintain positioning as a fairly low cost microbrew. $18
a
case. Will continue to add capacity to existing plant. Will also maintain brewing of
mainly draft
beer rather than bottled.
Mendocino Brewing Company- Premium Microbrewery. Will fine tune existing brew pub Will
continue to sell locally.
Boulder Brewing Company- Bottles only! Will not expand into draft. Increased capacity.
Mat
now go outside of existing Colorado market.
The Old New York Beer Company- National Microbrewery. 21 states and counting. Will
expand
into more states. Financially sound for a microbrewery. Will open new brewery/restaurant
in
Manhattan. Increase in capacity by 300% when new facility is open.
KEY SUCCESS FACTORS
1. Maintain Quality in existing plant
2. Must build a stronger network of distributors
3. Make attractive packaging
4. Quality control in new facility.
5. Improve access to financial capital for future endeavors.
6. Innovative low cost ideas to promote product( Beer sponsorship at local pub's, exploit

be rated best brew in America, etc.)
INDUSTRY ATTRACTIVENESS/ PROFITABILITY
Factors making the industry attractive- -Market Size $13.7 Billion
-Preference for better quality Brew over domestics.
-Microbrewer/brew pub trend increasing
Factors making the industry unattractive- -Decline in consumption of beer due to
healthier
lifestyles -Decreasing profitability due to heavy taxation
-Flat Sales
-Extensive competition(too many competitors)
Special industry issues/ problems- -Increasing consumption despite stricter laws and
healthier lifestyles. -Oversees expansion
Profit Outlook- -Not very good because of flat sales, increased taxation, and limited
success of previous microbreweries.
COMPANY SITUATION ANALYSIS
STRATEGIC PERFORMANCE INDICATORS
The company is actually doing pretty good. For the first five months of the new year he
will show a profit. Last years numbers are misleading as to the direction in which the
company is going. If it were not for the huge advertising expense, he would have shown a
profit last year. The company's competitive approach is as follows. Differentiation. GGB
brews a full-bodied lager instead of the mass marketed lighter, paler beers. They use the
best hops in the world($4.50/lb as opposed to $.55/lb). The beer is also brewed in the
old German Reinheitsgebot tradition. GGB has a market niche. They target the beer
aficionados, one who knows how to distinguish a well made beer from an average to below
average beer. Distribution. Because of GGB's size a door to door distribution campaign is
used. GGB solicits to restaurants, bar owners, and liquor stores. Their market coverage
consists of the San Francisco area and Munich, Germany. 
The following is a projected 5 year forcast. Assuming all things remain equal.
1985 1986 1987 1988 1989
(A) Sales @.20 inc. 408,000 489,600 587,520 705,024 846,028
(B) Cost of goods sold 273,000 321,300 385,560 462,672 555,206
Gross Margin 135,000 168,300 201,960 242,352 290,822
Less:
(C) Shipping 840 21,840 21,840 21,840 21,840
(D) Salaries 101,003 106,053 111,355 116,922 122,768
Rent 4,800 4,800 4,800 4,800 4,800
(E) Truck lease 20,800 24,960 29,952 35,492 43,130
(F) Marketing/Promotion 55,000 2,000 3,000 4,000 5,000
(G) Repairs 1,000 1,050 1,102 1,157 1,215
Depreciation 7,500 7,500 7,500 7,500 7,500
(H) Other 9,057 9,509 9,984 10,483 11,007
Net Income (65,000) (9,412) 12,427 39,708 73,562
(A) 20% 1 year increase
(B) $10.50 per case
(C) 1986, 70 cases x 24 bottles x 5 = 8400 bottles per week x 52 weeks
= 436,800 x .05 = 21840 *lower cost per bottle due to larger shipments.
(D) 5% year increase
(E) 20% 1 Year increase
(F) No Advertising
(G) 5% year increase
(H) 5% year increase
SWOT ANALYSIS
Strengths- low overhead, well thought of by buyers, expertise in brewing, fifth
generation brewer, Cook's education, Crowned best beer in America, Penetration into a
German market, access to financing looks favorable.
Weaknesses- After six months of operation, still in the red. High costs of truck leasing,
high initial cost of advertising, distribution extremely weak, costs more to brew than
imports, narrow product line.
Opportunities- Pending affiliations with large distribution network, continued expansion
in Europe, possible purchase of abandoned brewery in hopes to expand production
capabilities. 
Threats- GGB is locked out of 90% of market in Munich, GGB is in a risky business,
competition from national, regional, and imports. U.S. population concerned with
healthier lifestyles. Blue collar workforce declining. Stiffer laws, regulations, and
penalties.
Due to lack of financial information on GGB it was impossible to make accurate price/cost
comparisons. However, from a present-day experience, I would conclude that GGB's prices
are not competitive with the top national breweries, but are more in line competitively
with other regional, local brewers. According to the case, GGB costs 2-3 times what it
costs too brew imported beers. Due to this comparison, it is fair to state that GGB's
production costs are extremely high, thus cutting into their profit margin.
COMPETITIVE STRENGTH ASSESSMENT
Rating scale: 1 = very weak; 10 = very strong
Key success factor/ 
Strenght measure Weight GGB Import Anchor Sierra Mendo. Boulder NY Beer
Quality/product perf. .20 10/2 8/1.6 6/1.2 5/1 5/1 5/1 8/1.6
Reputation/Image .15 8/1.2 10/1.5 5/.75 6/.90 5/.75 5/.75 7/1.05 
Manufacturing capability .10 5/.5 9/.9 7/.7 4/.4 3/.3 6/.6 7/.7
Technological Skills .05 7/.35 7/.35 5/.25 5/.25 5/.25 5/.25 5/.25
Dealer Network/Distr. .15 3/.45 9/1.35 7/1.05 4/.6 3/.45 4/.6 7/1.05 
Marketing/advertising .10 3/.3 8/.8 3/.3 3/.3 3/.3 2/.2 5/.5
Financial Strength .10 4/.4 8/.8 5/.5 5/.5 5/.5 6/.6 7/.7
Relative Cost position .15 3/.45 6/.9 4/.6 5/.75 5/.75 5/.75 7/1.05
Overall Strength rating 1.00 5.65 8.20 5.35 4.70 4.30 4.75 6.90
CONCLUSIONS CONCERNING COMPETITIVE POSITION
The companies competitive position is improving due to the quality of the product,
reputation that is being gained, and technological skills by way of brewing process. The
advantages that GGB has is quality, reputation(Best Brew in America), sound management,
and recipe. The disadvantages facing GGB are costs, dealer network/distribution,
financial strength, and marketing/advertising. 
KEY ASSUMPTIONS
It is assumed that demand in the industry will remain flat. This will remain true for the
next 10 to 20 years. Because of flat sales in the industry, a few companies will be
forced to exit the industry. GGB will continue on its slow growth pace. 
STRATEGIC DIRECTION/TARGET OBJECTIVES
Golden Gate Brewing Company is a leading small scale brewer of America's Best Beer. It is
the companies mission to give American's an alternative to drinking foreign beer by
providing a beer that is superior in taste and quality.
GGB's OBJECTIVES
-Protect current position while concentrating on expanding into other markets. (5 years)
-Improve dealer/distribution network 
-Maintain present quality
-Improve access to financial capital for future endeavors
-Come up with some low cost ideas to promote product(Beer sponsorship at local pub's)
-Exploit being rated Best Brew in America
-Make attractive packaging
-Open additional plant in San Francisco Brewery
OVERALL BUSINESS STRATEGY
Golden Gate Brewing Company should take a fortify and defend strategy. With a moderate
growth strategy, GGB will be able to maintain it's current position and respond to
changing market conditions better. Because there is little room for growth in the
industry, GGB will need to carefully watch the moves of competitors. With a conservative
growth strategy, GGB will not step on any of the bigger companies toes thus enabling GGB
not to get squashed. The distribution network needs to be greatly improved. An improved
dealer network would lower costs, and free up some of Cook's time so that he can focus on
other issues within the company. GGB also needs to look into ways to exploit the rating
of America's Best Brew. Optimization of both the old and new San Francisco facilities is
essential.
APPROACHES/MOVE TO GAIN COMPETITIVE ADVANTAGE
GGB should slowly expand into new markets while at the same time strengthening it's
present position. GGB should continue with it's differentiation strategy. Because they
are an alternative to imported beer, they should proceed with the positioning of a high
quality, connoisseur's beer. The status of being the first U.S. brewed beer to be sold in
Germany could also be used to gain competitive advantage. GGB might consider having Best
Brew in America printed on the bottle. Posters for bars would be an inexpensive way to
promote the product. GGB could also sponsor special nights at bars/pubs where they could
offer discounts on the product or have contests.(Beer tasting contests) 
FUNCTIONAL SUPPORT STRATEGIES
Marketing/sales- The core competence for this company is quality and being rated the Best
Brew in America. It is marketing and sales job to stress this competence. There are low
cost ways to support these claims. Putting these features on the bottle's label will
entice those who see. Any one who is a beer drinker will want to try a beer that has been
rated the Best Brew in America. Quality should be exploited.
Finance- The company has three options for financing future projects. These options are
an IRB, UDAG, or Market rate financing. The most appealing type of financing for GGB is
the IRB or Market rate financing. The USAG is not very attractive because of the
restrictions on profits. The other two options are still questionable. What bank is
willing to lend that much money with the financial status of GGB. It will be tough for
GGB to get a loan for that large of an amount.
Distribution- This is a key area that GGB needs to improve and expand in order to grow.
If the company can find an attractive way to better distribute it's product, GGB will
have access to previously unattainable markets. A regional distibutor would be a good way
to start off the distribution network.
Prodution- The key to lowering costs will be having a very efficient production facility.
They can increase prodution which will lower the amount of fixed cost per product. They
should look into ways of cutting down on waste.
OTHER STRATEGIC ACTION RECOMMENDATIONS
GGB needs to look into ways to lower overall costs without reducing the quality. They
could shop around for a cheaper supplier of packaging. They should also look into the
options of buying some used trucks. This will lesson the high cost of leasing the trucks.
Once a good distributor is found, costs will get lower as a result of more production
thus enabling the costs to be spread out more evenly over the product.
Bibliography
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