European brewing market analysis

Résumé du document

To introduce an analysis of the brewery industry, one point must be underlined: the European brewery market is mature, which is essential to understand its trends and its forces. We are now going to use the Porter's model of the Five Forces Analysis to develop this analysis. First of all, consolidation is a key trend in the brewery industry. It has consequences reaching into economies of scale and into the access to supply or distribution channels. Actually, it is more difficult to enter into a market when there are significant leaders, which are able to develop a competitive productivity on the one hand and to pressure supply and distribution channel on the other hand. As the five largest global brewers accounted for 30% of production volume in 2002, we can suppose that there are entry barriers de facto. Even in the UK, the recent independency of the public house chains does not contradict this trend since it forces the brewing firms to be more competitive, which is easier for an existent firm than for a new one.

Extraits

[...] Furthermore, some beer drinkers really stick to their beer brand and the switching cost can be very high. It means that it is hard, or even impossible, to make a beer drinker change his favourite beer. We know that German beer drinkers prefer drinking German beers (and we understand that easily In this sense, buyers have a great power and resist to the global firm power in keeping their habits, and that is why a large number of local breweries satisfy the home market in Germany. [...]

[...] The threat of entry does not appear too much severe in the European brewery industry. Threat of substitutes The actors of the beer market have also to face to the threat of substitutes. First, it exists a wide panel of products, which can be substituted to beers. Indeed, all the refreshing drinks may replace lagers, in particular, of course, alcoholic fresh drinks like or “Smirnoff depending on the events. But we also should take into account what we call the soft drinks, non-alcoholic beverages, for instance Coca-cola®, fruit juices etc These competitors are all the more dangerous since health concerns and anti-alcohol campaigns become important. [...]

[...] Therefore, there have been a lot of acquisitions and alliances within the European brewing industry for the last ten years. Furthermore, the report suggests that the importance of the five largest global brewers 30 per cent of production volume- is going to increase in the same way as the cigarette industry where the five leading firms had 60 per cent in 2002. Suppliers are thus more and more concentrated, which increases their power. However, the supplier power is limited by the drop of sales, by the non differentiation of the product and by the fact that the supplier does not directly meet the buyer. [...]

[...] On the opposite side, one of its weaknesses is in the fact that its most important markets are declining or at less mature (home-market, UK, USA and Canada) whereas it should develop in Eastern Europe and Asia. Finally, Grolsch cannot be compared with the leader of the brewery industry since it is less than one-tenth the size of Heineken. Even worse it could disappear because of the new trend of mergers and acquisitions. Interbrew The company has operations in 21 countries and sells its products in 120 countries. It is present all over the world and describes itself as world's local brewer”. [...]

[...] The UK market is very different from the German one. The numerous regional brewers are decreasing and multinationals are expanding. The lager and premium lager are getting a wider size on the market. However, this situation is not as well as one could think for the suppliers. The supermarkets have indeed a high buyer power and can dictate terms for the supply of product. It obliges the companies to reach low profit margins and to contain costs in order to avoid bankruptcy. [...]