Beer Wars

 
Free «Beer Wars» Essay Sample

Research and Analysis

Introduction

The USA beer industry has a long commercial history. Currently, it is the biggest segment of alcoholic beverages that yields millions of dollars of sales each year. Despite the periods of lower demand, the wealth and popularity of the industry has grown dramatically. The beer market addressed many challenges and adapted to constantly changing environment that transformed into many consolidations and diminished regional brewers. Today’s industry is heavily authorized by such main players as Miller Coors and Bev Anheuser-Busch (Stern, 2015). In the 19th century, the beer industry was created by the individuals or groups in their respective homes. The industrial revolution brought advancements and new technologies in business. Thus, automated brewers started entering the market and changed the way of beer producing, selling, and marketing. The large public brewers were Miller and Anheuser-Busch as mentioned above, as well as Pabst and Schlitz. The companies have played a significant role in shaping the beer market over time. Partially because of the large commercial companies, the United States beer industry is now considered one with the largest in the entire globe.

What Is Happening in Industry

The beer industry growth stimulates the beer production, local sales and export.  The beer industry, including brewers, retailers, distributors and importers, contributed $252.6 billion to the American economy (Brewers Association, 2017). The number is more than twice the influence of the wine market, and slightly higher than the entire economic impact of the American video game industry. The beer business grows in all regions; it originates in various retail settings and unique brewery business approaches. Moreover, the growth is observed in the segment of small independent brewers that create the additional market opportunities for the beer market players. At the same time the diversity stimulates competition and the necessity for brewers to diverge and improve the quality (Baron, 2009).

For small brewers it is tougher to enter the commercial market that gives additional power to the giant producers. Along with the regular beer, the craft beer is also produced in smaller volumes. While the overall beer market is estimated at $107.6 billion, the craft market comprises of $23.5 billion and shows the constant growth in production volumes (Brewers Association, 2017). The craft beer is most often produced in small local breweries (73%), brewpubs (5.5%), microbreweries (20.4%) and contract brewing companies (1.1%). The growth of the industry segment is 6% (Brewers Association, 2017).

The Key Players

The American beer market is controlled by four largest producers Heineken, Anheuser-Busch InBev, Carlsberg and SABMiller, which together produce approximately half of the world’s beer (Stern, 2015). In 2004, the market’s best 10 brewers controlled 51% of the industry volume, but by 2014, just 3 companies held 47% of the market (Business Insider, 2015). The large companies dominate the beer market, not allowing the small ones to enter. Involving the support of the governmental lobbyists, the huge commercial producers determined distributors for each area in the country and the small breweries should join one of the big ones. Currently, 14000 breweries take less than 5 % of all beer production (Baron, 2009). Thus, the tendency is that the small breweries and brewer-pubs cannot legally enter the commercial market. The three biggest commercial companies control 78% of the beer market in the USA (Stern, 2015). The USA beer market is highly competitive with the imported beer products accounting for 12.3%. The companies continue to innovate and develop new beer types. The advertising attracts more and more customers. However, the two giants Anheur-Busch and SABMiller are tough to concur due to their advanced advertisement and popular brand names.

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Anheur-Busch is the largest American and even global beer producing company, selling every second beer bottle in the USA nowadays. AB InBev produces international beer brands Beck’s, Leffe, Stella Artois, Corona and many others. The AB InBev company became successful due to its commercial investment in promoting their organization, regular releasing of new beer sorts and introducing new brands. Moreover, the taste of their beer is unforgettable and proved to be the best as suggested in the “Beer Wars” movie. The real prosperity and sales grow came when InBev bought Anheuser-Busch Cos. in 2008 for $52 billion. The companies merged to become the world’s biggest brewer that gives an opportunity to gain about half the US beer market and the second-biggest purchase of a consumer-goods company (Stern, 2015). The company’s success lies in their ability to suit every customer and satisfy each drinker’s tastes. Budweiser makes the original Bud, Bud Ice, Bud Light, Bud Ice Light and also wide range of flavors, size, tastes, prizes and calorie content. The diversity in product lines became their major component of success.

While AB InBev is the corporation leading the American beer production, Miller Coors is taking the second place, producing 25.1% of all American beer (AdBrands, 2017). MillerCoors is the second brewer in the US conceding Anheuser-Busch. The company was formed in 2008 from a reunion of the local operations Miller and Coors that were the second and third beer producers in the USA. Now it is wholly owned by Molson Coors (AdBrands, 2017). As well as AB InBev, MillerCoors sells the wide diversity of craft beers and imports to fit the taste, price and size, including Urquell, Peroni, Grolsch and Aguila. Coors Light is the second best-seller in America, while Miller Lite is fourth best seller (AdBrands, 2017).

Craft beer accounts for 12.3% share in the US beer industry with estimated revenue of $23.5 billion. The craft beer industry is constantly growing; in 2016 it increased by 10% (Brewers Association, 2017). Craft beer is majorly produced by the small breweries, with microbreweries and brewpubs accounting for 90% of the craft beer growth (Brewers Association, 2017). The craft beer segment is competitive, as more craft breweries enter the market. Moreover, the beer production corporations try to acquire the small craft beer breweries to develop the segment on the commercial level.

Type of Industry

The USA beer industry includes beer production on diverse levels as microbreweries, brewpubs, regional craft breweries, as well as contract brewing companies. A microbrewery can make less than 15,000 beer barrels per year and 75% of its beer is sold off-site (Brewers Association, 2017). Microbreweries distribute their products using the traditional three-tier system or the two-tier framework that allows the brewer to act as wholesaler and sell the product directly to the consumer. Also, the distribution includes direct sells to the customer with carry-outs system or on-site bar or restaurant sales. The brewpub sells 25% or more of the beer on site, where it is brewed and sells directly from the brewery’s storage reservoirs. Sometimes they distribute beer “to go” and to off-site accounts (Brewers Association, 2017). A contact brewery is a larger one that hires one more brewery to produce its beer or the separate one hired to produce additional beer. The contract brewing company controls the sales, marketing and distribution. The regional craft brewery produces 15,000-6,000,000 barrels, while the large breweries manufacture more than 6,000,000 barrels of beer yearly (Brewers Association, 2017).

The Power Diversity

The small breweries produce the beer to sell on-site or off-site in small amounts; they act as a distributor also. On the other hand, the large companies have to contact the mediator to distribute the beer. Thus, the US beer is majorly distributed by the 3-tiers system that consists of producer, distributor and retailer tiers. The producer, which is the supplier tier, produces, ferments and packages the beer. They can be the big companies as Anheuser-Busch/InBev or small breweries as Yuengling, which is the oldest family brewery (Baron, 2009). Quite often the producers are also recognized as importers. The distributor or wholesaler tier is a small operating warehouse or huge multi-state operations company with lots of trucks selling millions tones of cases per year (Sorini, 2017). The retailer tier comprises of a wide variety of businesses. First, “off premises” retailers sell the alcohol outside the retailer location, for example liquor stores, convenience stores, supermarkets. Second, “on premises” retailers sell the drink on the retailer premises as restaurants, bars, hotels, and the like.

The distributors or the medium tier of the three-tier system are the companies, which manufacturers contract to pick-up, store, dispose, and distribute their products. The distributors’ major responsibility is delivering the products to places of final retail. The system allows the country to monitor the displacement of all alcoholic beverages that assists in tax collection, as well as safety and quality control (Sorini, 2017). Moreover, the distribution tier matches consumer choice by providing equal access to goods at the marketplace. The corporations can act as a distributor also. For instance, Anheuser-Busch, Inc. distributes the products by its own. The smaller businesses have to hire the distributor companies such as Silver Eagle Distributors. The importing follows the same framework. The large brewing companies import their products without the middlemen with help of delivering or distributing companies on the international level.

Ethical Considerations

The ethical consideration in the beer industry play a significant role, as it is an alcoholic product that may affect people negatively. The companies strive for their sales growth and thus advertise their products, usually using the negative images, which can impose the idea of drinking alcohol. However, the United States uses a combination of statutory and self-regulation legislation to control the alcohol advertising.  Moreover, each state has various additional laws regarding the same. In accordance with the Georgetown University report by The Center of Alcohol Monitoring and Youth (2013), some states prohibit misleading or false alcohol advertising that targets or depicts minors. The statements, which associate alcohol with sport achievement, encourage or portray intoxication, are prohibited, as well as alcohol advertisements next to schools, playgrounds, churches, and others public places. Being producers of controlled substance, the brewer companies are responsible to society for limiting their product exposure to groups of minors, as well as individuals with psychological disorders of varied degrees. The companies have a critical role in encouraging consumers to enjoy the alcoholic products responsibly, as alcohol abuse comes with the significant business risks for corporations. The other ethical considerations include the prohibition to drink and drive, encouragement to recycle the containers, and remember about the alcohol-related danger.

External Analysis

The diverse external macro-environmental components contribute to a company’s performance in the beer industry. PEST analysis (political, economic, social, and technological forces) can assess the risks connected with growth and decline, as well as current and future position of the industry.

PEST

Politically, the beer industry relies on the regulations and decisions of the US government. Currently, the business is monitored by the political authorities. The USA government tries to establish the strict anti-trust rules against the industry monopolization. At the same time, the governmental lobbyists work to promote the commercial manufactures and impose market barriers for the small breweries. Moreover, the government works on the variation of off-premise vendors, which give permission to sell the alcohol in order to increase funds for fighting the alcohol addiction.

Currently, the United States economy is in a slow period. The USA constantly experiences the economic downturn, as well as lower discretionary spending that lead to lower demand on alcohol, beer included. From the social point of view, there are signs inside the industry, which suggest a growing demand for alcoholic drinks besides beer. Nevertheless, the light drinks are more popular among the consumers due to their lower calorie count and higher affordability.

The level of technology alteration in the industry is low because of technological progressions affecting operations. Many innovations target the manufacturing process. They also address quality improvement, decrease of health risks, and use of sustainable energy.

Porter’s 5 Forces

Threat of new entrants. There is a high barrier to entry the beer industry, as the capital demands are millions of dollars. The large brewer controls the distribution channels, and the various government laws and regulations assigned to the channels. Moreover, the existing companies are operating under the well-known names that minimize the chances of new brands entering the market.

Bargaining power of suppliers. Suppliers’ power in beer industry is great, as there are many brewers that require raw materials for beer production. However, the USA market experiences the lack of suppliers. The beer market is absolutely dependable on raw materials; thus, the suppliers can tell their conditions for cooperation.

Bargaining power of buyers. Super markets, wholesalers, liquor stores, bars and night clubs are the major buyers in the market. As the amount of entertainment places grows, the beer sales increase as well. Beer preferences are likely to grow, as buyers struggle with the altering environment. Thus, the final consumer attains more power in the diversified marketplace. However, the buyers depend on the brewers; and their power is rather low.

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Substitute products. The substitutes play a major role in identifying current position as well as future increase. The big companies should shift to niches that microbreweries have started making popular, while dealing with the continuous threat of import popularity in America. The great brewing companies operate to meet the demands of major segments, while smaller breweries search a niche market.

Intensity of rivalry. The US brewing industry is controlled by two key players, Anheuser-Busch and MillerCoors. Thus, concentration of different brands boosts rivalry. The competition does not determine prices as a chief factor. Instead, the massive marketing campaigns increase brand value. On the contrary, the craft-beer breweries offer variety and concentrate on beer recipe rather than its brand image. Moreover, the beer organizations introduce innovations into their beer making and thus the rivalry is high on the country level.

Conclusion

The USA beer industry is a huge market that accounts for $252.6 billion in the US economy. The industry includes both corporations and small companies that sell beer in the USA and abroad. The two major players of the market are Anheur-Busch and SABMiller, which produce almost half of the world’s beer. The companies utilize diverse methods to sell more and more beer each year. The aggressive advertising campaigns, lobbying the companies’ advancement in the government and export strategies stimulate the growth. Small breweries produce craft beer of unique tastes that are often sold “on-premises”. The American beer industry majorly involves the 3-tiers system to distribute the beer. It consists of producer, distributor and retailer tiers.

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External analysis showed that the political authorities have a great impact on the industry, as the corporations usually advance with the help of political lobbyists. At the same time, the economic and social influences suggest the downturn of beer sales due to the economic crisis and growing demand on the substitute soft drinks. Current technological alterations in the industry address the health risks, quality improvement, and the use of sustainable energy. The USA beer industry is competitive due to high barriers to entry, intense rivalry, and suppliers’ power.