1.

Why has the United States brewing industry become more concentrated over the last two

decades?

The United States Brewing Industry become more concentrated over the last two

decades because the industry has changed in a number of ways. First, consumption of beer

in the United States has been gradually declining. Second, advertising spending has steadily

increased, putting smaller brewers at a disadvantage. Third, due to a combination of

technological change in canning and distribution and increased advertising expenditures, the

size that a mass- market brewer has to attain to reap all economies of scale— called the

minimum efficient scale of production—has steadily increased. This resulted to a radical

decrease in the number of mass-market brewers in the United States.

Because of the high competition that revolves around aggressive pricing, brand

loyalty, distribution channels and national advertising spending only 24 mass-market

brewers were left in the United States, down from 82 in 1970. Among these, three

companies namely Anheuser-Busch, SAB-Miller, and Molson Coors dominate making the

brewing industry become more concentrated.

2. Analyze the competitive structure of the industry using Porter’s five forces model.

The companies depend a lot on the buyers for a large percentage of its total orders. This

is the power of buyers. Without the buyers, the companies would not be able to earn.

Suppliers can also affect the beer industry’s ability to earn profits since they are the

ones supplying the materials needed to make beer products. If they decided to sell their

materials directly to the consumers or to some other companies then, it can affect the

industry in terms of earning profits.

 Risk of potential competitors, as what is stated in the case, are the companies that

produces wines and spirits. They have been identified as risk because they have the

capability to dictate the profits earned by the beer companies. The established beer

companies are Anheuser Busch, SAB Miller, and Molson Coors.

The industry’s competition revolves around aggressive pricing, brand loyalty,

distribution channels and national advertising spending. With that, we can say that the rivalry

among established companies (Anheuser-Busch, SAB-Miller, Molson Coors) are intense

since in a consolidated industry any changes in each other’s prices or offers to customer

value in their product may increase the rivalry among the companies.

The existence of the close substitutes (wine and spirit) signifies a strong competitive

threat since it limits the price that companies can change. If the beer companies don’t put up

a strategy to compress these threats, they might lose their power/ control over the market and

the competitor might gain the power.

3. What are the implications of the evolving competitive structure in the brewing industry for

the profitability and strategy of a smaller mass market firm in the industry?

The booming industry of the substitutes – wine and spirits, is an alarming threat to the

three dominating big companies namely: Anheuser-Busch, SAB-Miller, and Molson Coors.

However, their effects are much greater to the small mass-market segment. When threats

emerge, small mass-market segment suffers most due to their low capital, small scale

economy, and other factors. For example, when a new big company enters the industry, the

share of market of small mass-market companies become small and this will result to

smaller profit. Now, the small mass-market strategy might not be anymore be needed.
 However, new strategies means new cost which may not be able to afford by the small mass

industries.

4. Are there different strategic groups in the industry? What are they? Do you think the nature

of competition varies between groups?

Yes, there are two different strategic groups that can be observed – the mass-market

segment and the premium beer segment. The mass-market segment revolves around

aggressive pricing, brand loyalty, distribution channels and national advertising spending

while premium beer segment focuses on discerning buyers and they build their brands

around taste and cover higher product costs by changing much higher prices. The nature of

the competition does not vary between the groups however, effects of these competition

may differ depending upon the kind. Say for example, the substitute, wine and spirit, the

closest competitive threat to beer industry. The sudden appearance of these substitutes

offering cheaper price forces the beer industry to limit their change or else the customers

will turn to substitutes.