BA 630

Industry Analysis
The Beer Industry

Spring 2010

Beer Industry The term beer means “…any beverage brewed r!m a star"h #!r arina"e!us$ grain% Be"ause the grain is made int! a malt& an!ther term !r beer is malt li'u!r(% #The Beer Industry$ A""!rding t! the )!rth Ameri"an Industry *lassi i"ati!n System& the beer industry is !und in se"ti!n 312+ Beverage and T!ba""! ,r!du"t -anu a"turing% )AI*S states that “Industries in the Beverage and T!ba""! ,r!du"t -anu a"turing subse"t!r manu a"ture beverages and t!ba""! pr!du"ts% The industry gr!up& Beverage -anu a"turing& in"ludes three types ! establishments+ #1$ th!se that manu a"ture n!nal"!h!li" beverages. #2$ th!se that manu a"ture al"!h!li" beverages thr!ugh the ermentati!n pr!"ess. and #3$ th!se that pr!du"e distilled al"!h!li" beverages…( Alth!ugh beer is within the same se"ti!n as wine and distilled spirits& they d! n!t "!nsider them the same% /ithin se"ti!n 312 they have ive separate se"ti!ns+ Beer "an be !und under se"ti!n 312120 Breweries% /ithin this se"ti!n the term Breweries is "!mprised ! “establishments primarily engaged in brewing beer& ale& malt li'u!rs& and n!n0al"!h!li" beers(% 1!wever& Standard 2 ,!!r3s w!uld say that distilled spirits& wine& beer and t!ba""! are all a part ! the same industry the “Al"!h!li" Beverage and T!ba""! Industry(% The 'uesti!n we must as4 is wh! is right5 1!w d! we determine i beer is an industry !n its !wn !r i it is the same as the beverage industry as a wh!le5 There are tw! 'uesti!ns we must as4 !urselves in !rder t! answer this 'uesti!n% 6ne& d!

27,age

age .!!r3s w!uld gr!up them t!gether and this may be true !n a "!nsumer p!int ! view% I y!u were g!ing t! a h!use warming party and were as4ed t! bring an al"!h!li" beverage y!u may !r may n!t have a t!ugh time ma4ing y!ur de"isi!n% S!me pe!ple are !nly wine drin4ers and w!uld n!t thin4 twi"e ab!ut swit"hing r!m wine t! beer !r spirits% 1!wever& s!me pe!ple may n!t "are% I they were standing in the st!re and saw that the pri"e ! a b!ttle ! wine had g!ne up signi i"antly& they w!uld "!nsider an alternative t! bring t! the party% They may de"ide t! l!!4 at the pri"e ! beer 37. /hether it is <ui"e& mil4& s!da& !r al"!h!l they are n!t the same% =a"h !ne has a separate purp!se% There !re& I w!uld say that "!nsumers d! n!t view the beverage industry the same% 1!wever& i we !nly l!!4 at the al"!h!l industry we may get an!ther answer% I we l!!4 at the middle diagram ab!ve y!u see three types ! beverages+ beer& wine& and spirits% /e already learned that Standard and .the "!nsumers view beer and !ther beverages the same5 Tw!& "an the pr!du"ers ! beverages easily swit"h r!m pr!du"ing !ne t! an!ther5 Al"! h!l /at er /in e Bee r -il 4 6th er B==8 68 68 S! da Spir its *! ee I will irst l!!4 at the "!nsumer p!int ! view% I thin4 that I "an easily argue that "!nsumers t! d! see beer the way they w!uld any !ther beverage% 9!r e:ample& I "ann!t imagine that a m!ther w!uld de"ide whether !r n!t t! give their "hild a glass ! mil4 !r a "!ld glass ! beer% They are n!t the same pr!du"t.

it is made r!m wheat& barley& and h!ps% They are "!mpletely di erent pr!du"ts% )!t !nly w!uld y!u have t! basi"ally build !r buy a new a"t!ry but y!u w!uld als! have t! swit"h suppliers& learn h!w t! pr!du"e a new pr!du"t% This "ann!t be d!ne easily% There !re& pr!du"ers w!uld n!t see these pr!du"ts as the same% )!w that we have answered !ur tw! 'uesti!ns I thin4 we "an agree that beer is n!t in the same industry as wine !r spirits !r the beverages in general% Beer is within its !wn industry based !n !ur indings ab!ve% I w!uld "!nsider beer as a separate pr!du"t% I w!uld say that the beer industry is "!mprised ! three segments+ .remium >!mesti"& -i"r!brew?*ra t& and Imp!rted Beer% I say that it is br!4en d!wn int! three segments be"ause beer is n!t <ust beer% There are di eren"es in the type ! beer we "!nsume% Alth!ugh I eel that there are really !nly three segments t! the beer mar4et& auth!r ! The Brewer3s 1andb!!4& Ted @!ldammer says there are 10 segments in the beer industry+ “imp!rts& d!mesti" spe"ialties& super premiums& premium regular& light& malt A7.age .instead% In my !pini!n& "!nsumers may !r may n!t see beer as an alternative t! wine !r spirits% I really thin4 it depends !n the "ust!mers% =very!ne has a di erent !pini!n espe"ially when it "!mes t! beverages% S! t! answer !ur 'uesti!n ab!ve& my answer is maybe% I we l!!4 at h!w pr!du"ers see the beverage industry we will ind that it w!uld be near imp!ssible t! <ust swit"h r!m ma4ing !ne type ! beverage t! an!ther% 9!r e:ample& a wine pr!du"er uses grapes and !ther ruits t! pr!du"e wine% I am sure that the stru"ture ! their a"t!ries is very spe"i i" t! the wine pr!du"ti!n that there w!uld be n! way t! <ust start ma4ing beer% Beer is n!t made r!m grapes !r !ther ruits.

alternatives& malt li'u!r& p!pular regular& and !thers( #The Brewer3s 1andb!!4$% @!ldammer says that the light beer segment is the m!st signi i"ant trend in t!day3s mar4et% In 200B there were tw! leading pr!du"ers that "!ntinue t! d!minate the beer industry in the CS% A""!rding t! the Beer -ar4eter3s Insights& “Anheuser0Bus"h *!mpanies In"% led the pa"4 with a AB%6D share ! v!lume in 200B #up 0%AD r!m 200E$ and -iller*!!rs "laimed 2F%AD #d!wn 0%1D$( #Standard and .!!r3s$% *ra t brewery is a small& independent& and traditi!nal mar4et% -!st "ra t brewers are small be"ause they pr!du"e less than 2 milli!n barrels ! beer per year% Beer pr!du"ti!n is attributed t! a brewer a""!rding t! the rules ! alternating pr!priet!rships% Alternating pr!priet!rships is an agreement between tw! pe!ple t! share the physi"al spa"e ! a brewery% A""!rding t! The Al"!h!l and T!ba""! Ta: and Trade Bureau& “…the pr!priet!r ! an e:isting brewery& the “h!st brewery&( agrees t! rent spa"e and e'uipment t! a new “tenant brewer%( Alternating brewery pr!priet!rships all!w e:isting breweries t! use e:"ess "apa"ity and give new entrants t! the beer business an !pp!rtunity t! begin !n a small s"ale& with!ut investing in premises and e'uipment%( They are independent be"ause less than 2GD ! the "ra t brewery is !wned !r "!ntr!lled by an al"!h!li" beverage "!mpany wh! d!es n!t brew "ra t beer already% /ithin this mar4et there are !ur segments+ -i"r!brewery& Brew .age .!!r3s$% T! determine the 9!ur 9irm *!n"entrati!n 8ati! we w!uld l!!4 at the t!p !ur irms in the beer industry% In 200B& the t!p !ur leading brewers held B3D ! the mar4et share% Anheuser0Bus"h is the leader with AB%6D& -iller*!!rs "ame se"!nd with 2F%AD& third pla"e g!es t! *r!wn Imp!rts with !nly G%3D& and the !urth leading pr!du"er is 1eine4en CSA with !nly A%0D whi"h is !nly a ra"ti!n ! what the irst tw! pr!du"ers !btained #Standard and .ubs& *!ntra"t Brewing *!mpanies& and 8egi!nal Breweries% G7.

r!du"ers may be able t! swit"h r!m pr!du"ing high0end d!mesti" beer t! a spe"ialiHed?"ra t beer with!ut having t! build new a"t!ries% @e!graphi"ally& this industry is !n a l!"al& nati!nal& and even gl!bal s"ale% The d!mesti" beer mar4et is mainly nati!nal& where the mi"r!brew?"ra t brews may be m!re l!"al% 6 "!urse& imp!rted beer ma4es the mar4et gl!bal% A""!rding t! Ted @!ldammer& the C%S% beer industry is the largest al"!h!l segment nati!nwide% It is stated that the beer industry a""!unts !r nearly BGD ! all al"!h!l v!lume s!ld in the Cnited States and that it generates m!re than IF1%6 67.age .r!du"ing beer in either segment uses mu"h ! the same te"hn!l!gy% .-i"r!breweries pr!du"e less than 1G&000 barrels ! beer per year% Appr!:imately EGD ! its sales are ! 0site% Brewpubs are m!stly l!"al restaurant breweries that sell m!re than 2GD ! its beer !n0site% The beer is brewed !r the restaurant?bar and "!mes dire"tly r!m the brewer3s st!rage tan4s% I all!wed by law& they may sell beer “t! g!( and?!r distribute ! 0site% *!ntra"t Brewing "!mpanies are mainly businesses that hire a brewery t! pr!du"e beer !r the business% It may als! be !ne brewery "!ntra"ting an!ther brewery t! pr!du"e additi!nal beer% 8egi!nal breweries have an annual beer pr!du"ti!n bel!w 2&000&000 barrels% #www%"ra tbeer%"!m$ Imp!rted beer is ! "!urse beer pr!du"ed !utside ! the Cnited States but distributed within the Cnited States% I w!uld say that "ust!mers treat all beers as "l!se substitutes% I the pri"e !r spe"ialty "ra t beers g! d!wn y!u may see a de"rease in the premium d!mesti" brews r!m the ma<!r pr!du"ers% 1!wever& i the pri"e ! the "ra t beer g!es up& y!u will li4ely see a swit"h ba"4 t! the premium d!mesti" brews% .

billi!n annually in retail mar4et sales% The m!st "!n"entrated ! the three beer se"t!rs is the d!mesti" brews with three ma<!r brewers+ Anheuser0Bus"h& S!uth A ri"an Breweries -iller #SAB -iller$& and -!ls!n *!!rs Brewing *!% The three ! them "!mbined a""!unt !r appr!:imately EFD ! all beer sales annually% #The Brewer3s 1andb!!4$ Five Forces that Shape Industry Competition Threat of Entry: Threat ! n!n0beer pr!du"ers that "an p!tentially enter the mar4et% Su"h as Suppliers: Buyers: 9armers BEER /h!lesalers 8estaurants Substitute Products: /ine Spirits Barriers to Entry E7.age .

The ease in whi"h !ne "an enter the beer industry is very imp!rtant t! l!!4 at !r ensuring "!mpetitive per !rman"e% It appears that the entry int! the beer industry is airly easy% The beer industry is heavily regulated by federal/state/local governments& but they d! n!t "ause ma<!r hindran"es t! enter% I w!uld say that the m!st signi i"ant barrier "aused by g!vernment regulati!n w!uld be the ta:es set up!n brewers% Economies of S"ale "an be a barrier t! entry% An e"!n!my ! s"ale is when y!u are able t! pr!du"e large 'uantities ! y!ur pr!du"t at a de"rease in "!sts% A""!rding t! the Beer Industry& e"!n!mies ! s"ale d! n!t ma4e it imp!ssible !r a new"!mer t! enter and be re'uired t! supply a large p!rti!n ! the industry !utput% “There are !nly m!dest "!sts e"!n!mies& i any& that "an be e:pl!ited in plants with "apa"ity ab!ve 10 t! 12 milli!n barrels& and pr!du"ti!n e"!n!mies may be ! set by the high shipping "!sts ne"essary t! m!ve s! mu"h beer t! mar4et( #The Beer Industry$% J!u sh!uld als! "!nsider the size of current competitors whi"h may have an impa"t ! entry% Ket3s l!!4 at the pa"4aging ! the plant3s !utput when l!!4ing at the e"!n!mies ! larger breweries% Anheuser0Bus"h3s 1!ust!n brewery !r e:ample "an pr!du"e appr!:imately 1&100 b!ttles per minute% 6ther m!dern "anning a"ilities are slightly aster with 2&000 "ans per minute% It w!uld ta4e a airly large brewery t! be able t! utiliHe large e'uipment in this "apa"ity% Being a large brewery will als! help y!u "ut d!wn !n lab!r be"ause y!u will be able t! use m!re aut!mated ma"hinery whi"h will als! "ut d!wn !n "apital "!sts% “*!nstru"ti!n "!st per barrel is "ut by ab!ut !ne third !r a A%G0milli!n0barrel0"apa"ity plant relative t! a 1%G0milli!n0barrel0"apa"ity plant( #The Beer Industry$% B7.age .

Customer switching costs "an be a a"t!r when de"iding t! enter a mar4et% An entrant is g!ing t! have a very di i"ult time gaining "ust!mers i the "!sts ! swit"hing are high% In the beer industry& "ust!mers are n!t a e"ted with high swit"hing "!sts% They have n!thing t! l!se i they swit"h t! pur"hasing beer% It w!uldn3t be li4e the airline industry where "ertain airlines give re'uent lyer miles t! their "ust!mers% The "!st here w!uld be great% I a "ust!mer lies with !ne airline a l!t and has built up a large number ! miles& they "ann!t ta4e the miles with them i they de"ide t! ly with an!ther airline% They w!uld basi"ally l!se th!se miles i they swit"h% Beer drin4ers d! n!t have a signi i"ant m!netary l!ss i they swit"h r!m drin4ing Bud Kight t! a l!"al "ra t brew% The number !ne a"t!r that "an prevent entran"e is the high capital requirements% “The pri"e ! "!nstru"ting a m!dern A0 t! G0 milli!n0barrel brewery is !ver I2G0 milli!n% -ar4eting the new brew als! is "!stly be"ause entrants must intr!du"e their pr!du"ts t! "!nsumers already smitten by the advertising ! in"umbent irms% Sin"e /!rld /ar II& n! new entrant has "ra"4ed the t!p three sellers ! beer in the C%S% beer mar4et( #The Beer Industry$% It is imp!rtant t! menti!n the imp!rted beer segment in this se"ti!n% Imp!rted beers in the C%S% "!me primarily r!m *anada& -e:i"!& @ermany and the )etherlands% The beer imp!rted r!m this segment have in"reased “…m!re than 320 !ld in the peri!d r!m 1FE0 thr!ugh 2006( #The Beer Industry$% In 1FFB the brand *!r!na =:tra r!m -e:i"! be"ame a t!p 10 beer brand in the C%S%& ma4ing this the irst imp!rted beer t! be"!me a t!p "!ntender in hist!ry% An!ther reas!n entering the beer industry "an be ris4y is the large am!unt ! sun4 "!sts inv!lved% 6n"e y!u build a a"t!ry t! pr!du"e beer that is all y!u "an d!% It w!uld be near imp!ssible t! swit"h r!m pr!du"ing beer t! a di erent pr!du"t li4e wine !r e:ample% F7.age .

The beer industry als! a"es pr!du"t di erentiati!n in a slightly di erent way that we w!uld thin4% /hen di erentiating beer& we d! s! by h!w “premium( it is% The phen!men!n ! premium beer irst began when a ew brewers began mar4eting their pr!du"t nati!nally and added a pri"e premium t! help ! set the shipping "!sts re'uired t! rea"h the nati!nal mar4et% “T! se"ure the higher pri"e& premium beer was pr!m!ted as superi!r in taste and 'uality& allegedly be"ause ! the brewing e:pertise !und at their pla"e ! pr!du"ti!n…(#The Beer Industry$% Alth!ugh the transp!rtati!n ! pr!du"ts was n! l!nger a large a"t!r !r m!st large breweries& the premium image remained even a ter pri"es de"reased m!stly be"ause ! heavy advertising% Access to distributors is a ma<!r a"t!r when l!!4ing at entering the industry% The distributi!n pr!"ess !r the beer industry !"used !n the three0tier system+ Brewer?Imp!rters t! /h!lesaler t! retailers t! "!nsumers% The brewers and imp!rters brew beer !r "!nsumpti!n in the C%S% and "an in"lude "!mpany0!wned pa"4aging and wh!lesaling !perati!ns% The wh!lesalers a"t as the middle tier !r y!ur distribut!rs% They pur"hase beer r!m the pr!du"ers and sell it t! retailers% 8etailers sell the beer dire"tly t! the "!nsumers3 !ne ! tw! ways+ !n0premise "!nsumpti!n and ! 0premise "!nsumpti!n% 6n0premise means the beer is "!nsumed at that l!"ati!n& i%e% bars& restaurants& h!tels& et"% 6 0premise "!nsumpti!n is where the "!nsumer buys the beer t! "!nsume at h!me !r elsewhere% They w!uld pur"hase r!m the gr!"ery st!re& "!nvenien"e st!res& li'u!r st!res& et"% “6n0premise sales are the leading retail "hannel !ll!wed by "!nvenien"e st!res and supermar4ets% Brewers generally ma4e higher margins with !n0premise sales( #The Beer Industry$% There is e:tremely little !rward integrati!n by breweries int! the mar4eting ! beer% “In the Cnited States& brewers generally 10 7 . a g e .

!!r3s sees the dismantling ! the three0tier system t! be p!sitive% 6ne advantage w!uld be t! the small breweries that w!uld be restri"ted t! sales within the state they are l!"ated% 9urtherm!re& due t! the small siHe and la"4 ! p!wer& the small "!mpanies are n!t as able t! “…neg!tiate "!mpetitive distributi!n "!ntra"ts with large0siHed wh!lesalers& and there !re missed !pp!rtunities t! get their pr!du"ts in r!nt ! a larger audien"e thr!ugh that r!ute( #Standard and .!!r3s$% Alth!ugh this was related t! wine& the 'uesti!n ! whether beer was any di erent "ame up% Standard and .!!r3s$% 11 7 . a g e .are pr!hibited by law r!m !wning retail !utlets& leaving wh!lesale as the !nly legitimate !rward verti"al integrati!n r!ute( #The Beer Industry$% The distributi!n system is sl!wly "hanging away r!m re'uiring breweries and retailers t! g! thr!ugh distribut!rs% “Karge retail "ust!mers& n!tably "hain st!res& pre er t! pur"hase beer dire"tly r!m the brewers& bypassing the wh!lesale distribut!r( #The Beer Industry$% In 200G& the Supreme *!urt !und that )ew J!r4 and -i"higan had vi!lated the C%S% *!nstituti!n3s >!rmant *!mmer"e *lause% “The "!urt ruled that& alth!ugh the states have br!ad p!wer t! regulate li'u!r L and have d!ne s! thr!ugh the use ! a three0tier system inv!lving li"ensed distribut!rs )ew J!r43s and -i"higan3s dis"riminat!ry bans !n interstate dire"t0t!0"!nsumer wine shipments were un"!nstituti!nal% The "!urt said that the distributi!n ! wine sh!uld be air a"r!ss the ield% I a state will all!w in0state dire"t shipping r!m the wineries t! the "!nsumer whi"h bypasses a distribut!r& then they must als! all!w this !r !ut0! 0state wineries% “The state may still pr!hibit dire"t shipping t! "!nsumers& but the same rules must apply t! b!th in0state and !ut0! 0state wineries( #Standard and .

!!r3s$% 1!wever& the la"4 ! distribut!rs may als! have its d!wnsides% Beer distribut!rs are able t! deliver the m!st variety ! manu a"turers small and large& d!mesti" and internati!nal t! the "!nsumers% A""!rding t! Standard and .!!r3s& the la"4 ! distribut!rs may ma4e it harder !r new breweries t! get their pr!du"t t! "!nsumers% The number ! distribut!rs has dr!pped signi i"antly !ver the years% “In 1FFG the number ! distribut!rs has dr!pped r!m G&G00 t! ab!ut 2&000 as smaller multi0brand wh!lesalers have been b!ught !ut( #The Brewer3s 1andb!!4$% Beer distribut!rs help the g!vernment "!ntr!l the sale and mar4eting ! al"!h!l& "!lle"t ta:es& and t! eliminate underage drin4ing% “Beer distribut!rs pr!vide a "lear "hain ! "ust!dy in the sale ! beer% They s!ur"e al"!h!l !nly r!m li"ensed brewers and imp!rters and sell !nly t! li"ensed retailers% This system helps t! ensure that retailers h!ld the appr!priate li"ense& d! n!t sell t! th!se under the legal drin4ing age& pay state and l!"al ta:es and generally "!mply with l!"al al"!h!l beverage laws( #Ameri"a3s Beer >istribut!rs$% I w!uld say at this p!int the bargaining p!wer ! buyers w!uld be high in regards t! distribut!rs% -any distribut!rs t!day are very large s"ale and d! n!t depend s!lely !n the beer industry as they may have "!ntra"ts with several !ther pr!du"ers su"h as n!n0al"!h!li" beverage "!mpanies& distilled spirits& et"% *!nsumers d! n!t really play a huge part in the bargaining p!wer as mu"h as distribut!rs?retailers w!uld% In !rder t! get the pr!du"t !ut there breweries are 12 7 . a g e . “by !pening up state lines& wh!lesalers "!uld p!ssibly s"ale their netw!r4s& wareh!uses& and relati!nships t! impr!ve e i"ien"ies and l!wer "!sts( #Standard and .1!wever& dire"t distributi!n "an be very "!stly !r a small "!mpany% By !pening state lines& distribut!rs n!w have greater a""ess t! !ther regi!ns in the mar4et and the p!tential !r m!re e i"ient !perati!ns.

a g e .g!ing t! have t! depend !n !utside res!ur"es unless they have their !wn distributi!n "!mpany% Expected Retaliation is als! a threat t! entry int! an industry% I s!me ! the "urrent players have been 4n!wn t! retaliate against p!ssible new"!mers& then the threat is very high and it will be very di i"ult !r !ne t! enter simply be"ause they are s"ared ! that they will be retaliated against% I did n!t ind any substantial eviden"e that retaliati!n is a huge threat when entering the beer industry% As we read earlier& entry int! the beer mar4et is airly easy% The threat d!es n!t "!me r!m the "urrent brewers within the industry& as mu"h as having the "apital t! begin pr!du"ti!n and gain l!yal "ust!mers% That is n!t saying that y!u sh!uldn3t be a raid ! the !ther brewers be"ause they will retaliate against ea"h !ther whi"h I will menti!n later% Power of suppliers /hen l!!4ing at the whether the suppliers ! the beer industry have m!re p!wer !ver the brewers we must l!!4 at several a"t!rs su"h as supplier "!n"entrati!n "!mpared t! the pr!du"ers& dependen"y ! !ne gr!up !n an!ther& parti"ipant swit"hing "!sts& di erentiated pr!du"ts& la"4 ! substitutes& and integrati!n% @enerally spea4ing a supplier will have m!re p!wer i they are m!re "!n"entrated than the pr!du"er% At this p!int& I "ann!t h!nestly say whether the suppliers !r the beer industry are m!re "!n"entrated% I w!uld have t! l!!4 at all ! the di erent suppliers within their !wn industry in !rder t! determine that% Brewers heavily depend !n all ! the ingredients needed t! brew beer% 1!wever& that d!es n!t mean that <ust be"ause the brewers depend !n the pr!du"ts the suppliers have m!re p!wer% I w!uld assume that it is di erent !r ea"h segment that supplies the 13 7 .

say they will n!t pr!du"e 1!ps anym!re and swit"h t! a di erent "r!p& but at what e:pense5 This may n!t even be a valid argument% It might n!t be as easy as it s!unds t! <ust swit"h t! a di erent "r!p& wh! 4n!ws5 The beer industry depends !n h!ps gr!wers <ust as mu"h as the h!ps gr!wer depends !n the beer industry% It w!uld n!t ma4e any sense !r them t! argue ba"4 and !rth !ver pri"e when it will lead n!where% I w!uld imagine that they <ust "!me up with an agreeable s!luti!n that 4eeps b!th in business% /ith!ut !ne& the !ther will ail in my !pini!n whi"h w!uld argue that there is n! substitute !r h!ps% /heat gr!wers th!ugh& they may have the upper0hand% /heat is used in s! many di erent areas that they are n!t dependent !n the beer industry the way 1!ps is% They "!uld easily say that they "an <ust ta4e their business elsewhere mu"h li4e the b!ttling?"anning "!mpanies "!uld% There are plenty ! !ther mar4ets !ut there that these "!mpanies "!uld ta4e their business i e"!n!mies0! s"ale all!wed% A""!rding t! Standard and .beer industry% I w!uld imagine that h!ps gr!wers w!uld n!t have as mu"h p!wer simply be"ause 1!ps are n!t used in anything !ther than beer t! my 4n!wledge% They "an h!wever. SAB-iller and -!ls!n *!!rs began using this m!del #be !re they merged t!gether in 200E$% 9!r the large ma<!r brewing "!mpanies& 1A 7 .!!r3s$ Anheuser0Bus"h !perates arming a"tivities !r grains& ri"e drying and milling% It als! manu a"tures beverage "ans !r its !wn use as well as !r !ther "!mpanies% They als! have several !ther wh!lly0!wned subsidiaries whi"h pr!du"e "art!ns& labels& and re"y"ling ! aluminum "ans and b!ttles% AB is n!t the !nly "!mpany t! use wh!lly0!wned subsidiaries t! per !rm n!n0brewing un"ti!ns. a g e .!!r3s& “the level ! verti"al integrati!n am!ng the largest CS brewers varies by "!mpany(% Anheuser0Bus"h is a "lassi" e:ample ! verti"al integrati!n% “Anheuser0Bus"h !btains its raw materials b!th internally and r!m independent s!ur"es%( #Standard and .

!!r3s& “the relatively saturated CS mar4et !r al"!h!li" beverage and t!ba""! pr!du"ts a"ts t! limit manu a"turers3 pri"ing le:ibility(% Instead& pr!du"ers rely !n brand l!yalty t! maintain pr! its% ="!n!mists see beer as an e:perien"e g!!d& meaning the "hara"teristi"s ! the beer "an !nly be measured a ter it has been "!nsumed #The Beer Industry$% The beer industry 4n!ws this& whi"h is why they advertise s! heavily% Their advertisements will tend t! sh!w what 4ind ! image !ne w!uld p!sses by drin4ing their brand% A""!rding t! The Beer Industry& “statisti"al estimati!ns indi"ate that the mar4et demand !r beer is inelasti"0 in the range ! 0%E t! 0%F% Brand l!yalty is n!t str!ng en!ugh t! ma4e the demand !r any parti"ular malt beverage inelasti"%( )!n0"!nsumer buyers d! n!t really have p!wer !ver brewers either% . a g e .e"!n!mies0! s"ale are n!t su"h an issue% They may have the bargaining p!wer !ver their suppliers be"ause they "!uld p!tentially say& it3s !4ay& I "an <ust "reate my !wn b!ttling business mu"h li4e Anheuser0Bus"h did% Small mi"r!brew?"ra t brewers may n!t be this lu"4y% They will n!t have the "apa"ity within their "urrent a"t!ry !r the inan"ial means t! begin this threat% Sadly& the suppliers have m!re bargaining p!wer than the pr!du"ers d! #n!t in"luding h!ps gr!wers$% Power of Buyers *!nsumers play an imp!rtant part in the pri"ing ! beer within the industry% A""!rding t! Standard and .a"4aging manu a"turers wh! rely !n the beer industry as well as !ther n!n0al"!h!li" beverage pr!du"ers "ann!t threaten the pr!du"ers by integrating ba"4wards and pr!du"ing the pr!du"ts themselves% Instead& it is the !ther way ar!und whi"h we saw earlier% The brewers w!uld be able t! begin pr!du"ing their !wn pa"4aging materials whi"h gives this gr!up very little p!wer% Threat of Substitutes 1G 7 .

either high0 premium !r l!w0premium% 1!wever& i they are able t! buy v!d4a& rum& !r any !ther distilled spirit at a "heaper rate& they will pur"hase that instead ! beer% A leading substitute !r beer ba"4 in the early 1FF03s was Mima% Mima was a "lear malt beverage and was very appealing t! w!men% Be"ause it was "lear many men didn3t eel it was a “man3s( drin4 s! they didn3t "!nsume it as mu"h% In an attempt t! sway the men& Mima "reated an Amber "!l!red Mima and advertised the pr!du"t heavily% They tried t! say that i y!u dran4 Mima y!u w!uld be "!!l and the party w!uld be r!"4in% That h!wever& did n!t "at"h !n and Mima inally went !ut ! business% /ine "!!lers used t! be very p!pular espe"ially am!ng w!men% It is a ruity wine spritHer with ab!ut the same al"!h!l "!ntent as beer% In my !pini!n many w!men pre er a ruity un drin4 rather than a bitter& harsh drin4 li4e beer% T! "!mpete with the wine "!!lers& a new line ! malt beverages be"ame very p!pular% -i4e3s 1ard Kem!nade was a per e"t alternative t! beer% It n!w "!mes in many lav!rs su"h as lime& strawberry& raspberry& et"% Smirn! these malt beverages and began pr!du"ing Smirn! It t!! "!mes in many lav!rs% 16 7 . a g e started t! see the trend ! I"e& a deli"i!us malt beverage% .!rter says that “a substitute per !rms the same !r similar un"ti!n as an industry3s pr!du"t by a di erent means(% /hy d! pe!ple drin4 beer5 The answer varies am!ng "!nsumers% In "!llege& m!st "!nsumers drin4 beer !r the al"!h!l and t! have a “g!!d( time% In m!st "ases& y!ur typi"al "!llege student ! drin4ing age is n!t l!!4ing at the 'uality ! beer they "an pur"hase they are l!!4ing at the 'uantity ! beer they "an pur"hase% -!st li4ely& they are g!ing t! pur"hase premium beer.The threat ! substitutes varies !r the beer industry% .

Rivalry amon e!istin competitors J!u tend t! see an in"rease in rivalry when y!u have a large number ! "!mpetit!rs% As ! t!day& there are m!re than 1&G00 breweries in the Cnited States% This in"ludes the number ! all breweries b!th premium d!mesti" and mi"r!brew?"ra t brewers% The beer industry saw a lu"tuati!n ! breweries r!m the 1F60 L 200G% A""!rding The Beer Industry& the number ! brewers was !nly 1EG in the year 1F60 and dr!pped d!wn t! !nly E1 in the year 1FBG% Sin"e 1FBG& the gr!wth ! the mar4et was sl!wly rising& ending with 1&36E in 200G% In the past G years we have seen a slight in"rease& but I e:pe"t this trend t! "!ntinue t! be lat% T! use the terms l!"al& regi!nal and nati!nal d!es n!t really mean a wh!le l!t in the beer industry the way it used t!% /hen we had a smaller number ! brewers& y!u truly had de ined them int! these mar4ets% Nery ew brewers we able t! bran"h !ut ! their l!"al !r regi!nal areas and even ewer were able t! !perate nati!nally% “The ge!graphi" territ!ry served by the ma<!r brewers r!m !ne plant has gr!wn due t! the e"!n!mies ! large0s"ale pr!du"ti!n and& t! s!me e:tent mar4eting( #The Beer Industry$% >uring the 1FG03s thr!ugh the B03s there were large number ! "!ns!lidati!ns am!ng the brewers% -any regi!nal brewers simply went !ut ! business mainly be"ause ! "!nsumer pre eren"e at the time% -any pe!ple in this peri!d were m!ving away r!m the dar4& str!ng lav!red beer and were m!ving m!re t!wards the lighter beers% An!ther reas!n !r the small in"rease in "!n"entrati!n was a ew mergers that t!!4 pla"e% In the 1FE03s -iller Brewing "!mpany was a"'uired by the t!ba""! "!mpany& .hilip -!rris% -iller and *!!rs 1E 7 . a g e .

were inv!lved in many di erent mergers thr!ugh!ut the E03s and int! the 20003s% The m!st n!table merger "ame in 200E when *!!rs and SAB -iller ann!un"ed their <!int !perati!ns in the C%S% Alth!ugh& *!!rs and SAB -iller held the se"!nd and third sp!t !n the t!p three lists ! brewers& their "!mbined e !rts did little t! a e"t Anheuser0Bus"h whi"h still had G0D ! the mar4et share al!ne% /ith the merger ! these tw! "!mpanies we saw a "hange in the *8A% In 200B& the t!p !ur brewing "!mpanies by t!tal beer sales in v!lume were Anheuser0Bush h!lding number !ne& -iller*!!rs in se"!nd& .abst Brewing *!% in third& and B!st!n Beer *!% ta4ing !urth% Alth!ugh we have A "!mpanies leading the pa"4 in terms ! t!tal v!lume sales& we have t! give it t! Anheuser0Bus"h !r really stealing the game% They have been !n t!p ! the beer industry sin"e 1FGE when they ! i"ially be"ame the largest beer pr!du"er in the Cnited States& a sp!t they have yet t! l!se% The t!p !ur brewers "laim m!re than B3D ! the mar4et share in the year 200B% This w!uld g! t! sh!w that the rivalry within this industry is g!ing t! be relatively l!w in regards t! pri"ing% S! rather than have pri"e "!mpetiti!n we will see m!re n!n0pri"e "!mpetiti!n within the beer industry% A ter .hillip -!rris a"'uired the -iller Brewing *!% in the 1FE03s the advertising game "hanged !rever when the p!pular T%N% advertisements !r Kite Beer were intr!du"ed eaturing p!pular )9K and -KB players% 6ne ! the m!st am!us sl!gans was the “Tastes great& less illing( whi"h was a pit"h t! sell their new line ! “lite( beer% 9r!m here& all ! the !ther ma<!r brewers 'ui"4ly began t! pr!du"e their !wn versi!n ! light beer and advertising heavily% In 200E& the beer industry spent r!ughly IFEG milli!n !n advertising "!sts a""!rding t! the Brewer3s 1andb!!4% The t!p three ! "!urse g! t! Anheuser0Bus"h wh! spent I3EB milli!n& SAB0-iller spent I1EG milli!n& and 1B 7 . a g e .

a g e .-!ls!n *!!rs spent I1G1 milli!n in 200E% -!st ! the advertising d!llars went t! pr!m!ting the high0premium and light beers% Bibli!graphy 1% Ameri"a3s Beer >istribut!rs% www%nbwa%!rg?ab!ut?what0is0a0beer0distribut!r 2% Beer Sales% www%brewersass!"iati!n%!rg?pages?business0t!!ls?"ra t0brewing0 statisti"s? a"ts 3% =lHinga& Oenneth @% “The Beer Industry( A% @!ldammer& Ted% “The Brewer3s 1andb!!4+ The *!mplete B!!4 t! Brewing Beer(% www%beer0brewing%"!m?beer0 brewing?CSPbeerPindustry?beerPsegments%htm 1F 7 .

!!r3s Industry Survey% Al"!h!li" Beverages 2 T!ba""!& )!vember 12& 200F% E% www%"ra tbeer%"!m B% The Al"!h!l and T!ba""! Ta: and Trade Bureau #TTB$ website+ http+??www%ttb%g!v?beer?alternatingPpr!p%shtml F% http+??www%beerhist!ry%"!m?library?h!ldings?beerP"!mmer"ials%shtml 20 7 . a g e .G% )!rth Ameri"an Industry *lassi i"ati!n System+ )AI*S 6% Standard and .

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