Riana Rusdianto

2019956269

Case 2 - Lagunitas Brewing

How attractive is the US beer market? Use Porter’s five forces to assess the market

attractiveness. Does the craft beer segment vary in terms of the five forces' impact on industry

attractiveness?

Threat of New
Entrants

Bargaining Bargaining
Power of Intensity of Power of Buyers
Suppliers Rivalry

Threat of
Substitute
Product

Explanation:

When US beer market attractiveness assessed using Porter's five forces model, this model

comprises industry 5 level forces; rivalry, the threat of new entrants, the threat of substitute products,

bargaining power of suppliers, and bargaining power of buyers.

• Intensity of Rivalry

Rivalry in the US beer market is the moderate-high intensity of rivalry. This situation

incurred in the market because there are thousands of varieties of beer in the market such as non-craft

beer, wine, liquor, non-alcoholic beverages. This moderate-high intensity of rivalry also supported
by the fact that in the US beer market the products are very differentiated and there are numerous

competitors.

• The Threat of New Entrants

The threat of new entrants in the US beer market is high. In 2012, there are already 2,400

breweries and predicted to grow even more in the future. This kind of situation indicates that the

industry has no barrier to entering the microbrewing segment of the beer industry. It also shows that

new entrants can enter the market very easily. Small players only need low capital requirements and

can compete with low cost.

• The Threat of Substitute Product

The threat of substitutes in the beer market is moderate-high. It is because there are plenty

of substitute drinks of beer in the market, such as Liquor, wine, and non-alcoholic beverages which

they can choose what they want to drink and also the customers have a low-costs to switch the beer

brands and varieties of beer that they like. They may drink from other competitors and started to be

their loyal customer from now on. The other reason why the threat of substitutes in the beer market

is high because beer is pretty harmful to the human liver and other organs while red wine can be a

healthier drink for customers.

• Bargaining Power of Suppliers

In the US beer market, the bargaining power of suppliers is low. This is because the material

to make beer is easily available and some of the companies manufacture the beer by themselves.

Therefore, they don't really deal with outside suppliers.

• Bargaining Power of Buyers

US beer market is fragmented with the high bargaining power of buyers. This is supported by the

fact that US consumers have a variety of choices when it comes to beer. The differences only the

styles and brands among them. The buyers have a significant replication of styles which makes the

bargaining powers become higher. Nevertheless, beer brands who can have loyal customers are able

to put up a higher price (premium price) in the market.

 Based on the US beer market analysis using Porter's Five Forces above, the conclusion is that

the beer industry seems less attractive for new entrants because even though the key success to lead

in this industry is to have a loyal customer but there are still high chances to fail in the industry. On

the other hand, the craft-beer industry, where the opportunities for growth and easier entry become

higher, the competition in this industry is more localized than the overall beer industry.

What is your assessment of LBC’s performance relative to its peers? What does a strategic

group map of the brewing industry reveal? Has LBC been successful?

LBC's financial statements show that LBC has a positive growth in net profitability, which

happened since 2003. Besides, LBC succeeds to increase its revenue and production capacity over

the years which means that the company has done a great performance from the first time it was

founded to now when the company has already done some expansions. In the beginning, Magee as

the CEO of LBC succeed to survive his beer brand when other brands of beer collapsed. It is

indicating that LBC still performed well even during hard times and succeed to achieve its goal of

growth. Even volume sales of LBC in 2012 were in the top six US Craft-Brewing Companies, whereas

in the overall US brewers LBC is in the 13th place. This is such a big achievement for LBC because

there are more than 2,000 breweries and around 1,000 is still under construction. The fact that LBC

is doing well in the market supported by the ability of LBC while competing with other American

brewers and still pursuing its expansion. Although Magee considers its beer brand to be low ends

rather than high-end beers, LBC is one of the highest selling brands in the US Craft Brewing

Industry.

A strategy group map of the brewing industry reveals that LBC managed to sell 10,000 more

barrels than its competitors which taking the fifth position. This size and position of the circles reflect

the weight age given to sales and the national coverage of the selected five breweries. From this

national coverage of each brewery, suggesting that LBC is doing well and has a protruding position

in the top breweries. Nevertheless, if we just look from the top six breweries we can conclude that

LBC still has to achieve many things to become a national leader in this industry.